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High Court of Solomon Islands |
HIGH COURT OF SOLOMON ISLANDS
CIVIL CASE NO: 106 OF 1993
ALLIANCE TRADING ASSOCIATION
SOLOMON ISLANDSlass="MsoNormal" aal" align="center" style="text-align:center;tab-stops:right 426.9pt; margin-top:1; margin-bottom:1">v
SANAU
class="MsoNormal"> HEARING: 8TH DECEMBER 1998
JUDGMENT: 23RD MARCH 1999G. SURI FOR THE PLAINTIFF
NO APPEARANCE BY THE DEFENDANTPALMER J.: The Plaintiff commenced this action by Writ of Summons specially endorsed filed on 22nd April 1993. The claim was inter alia, for damages arising from fraud and fraudulent misrepresentation.
From the beginning it was obvious the Defendant had acted in fraudulent manner towards the Plaintiff (see affidavit of Jehiel Kwaimani filed 22nd April 1993, affidavit of Darryl Bowmand filed 17th May 1993 and affidavit of Martin N. Hou filed 6th October 1993). These all speak for themselves as to the admissions made by the Defendant and his conduct in dealings with the Plaintiff. No affidavit in reply had been filed by the Defendant to the matters deposed to in those affidavits. It should be pointed out that the matters raised therein are very serious.
On 22nd April 1993 interim orders were issued against the Defendant inter alia restraining him from negotiating any letter of credit through the ANZ Banking Group Limited or the Westpac Bank by the use of Bills of Lading issued by the Plaintiff's shipping agency.
On 7th June 1993, a consent order was made which included a requirement that the Defendant pay to Kaiko Bussan Co. Ltd a sum of USD 32,628.05 to enable the said Company release the Plaintiff or their agent all bills of lading and shipping documents affecting two shipments of 22 bags of dried shark fins. In the affidavit of Martin N. Hou filed 6 October 1993, he deposed no payments were made by the Defendant. This resulted in the Plaintiff having to pay Kaiko Bussan Co. Ltd the sum of SBD95,577.00.
On 22nd December 1993, Default Judgment was issued against the Defendant. Since that time till now, no steps had been taken whatsoever by the Defendant to have the Default Judgment set aside. The Plaintiff now come to Court for damages in the sum of SBD95,577.00 to be paid plus interest and exemplary damages in the sum of $25,517.75.
The measure of damages for fraud was discussed in the case of Doyle v. Olby (Ironmongers) Ltd [1969] EWCA Civ 2; [1969] 2 Q.B. 158. It was held in that case that damages for fraud were not the same as damages for breach of contract, but were designed to put the innocent party in the position he would have been in if the representation had not been made.
In Doyle's Case (Ibid), Lord Denning considered the comments of Lord Collins M.R. in McConnel v. Wright [1903] UKLawRpCh 11; [1903] 1 Ch. 546, 554, and Lord Atkin in Clerk v. Urquhart [1930] A.C. 28, 67-68, regarding the difference between damages for breach of contract and fraud and agreed with Lord Atkin that the formula in McConnel v. Wright had been expressed in too rigid terms. The learned Law Lord then went on in his classic style to put in very simple terms what the difference was. I quote:
"On principle the distinction seems to be this: in contract, the defendant has made a promise and broken it. The object of damages is to put the plaintiff in as good a position, as far as money can do it, as if the promise had been performed. In fraud the defendant has been -guilty of a deliberate wrong by inducing the plaintiff to act to his detriment. The object of damages is to compensate the plaintiff for all the loss he has suffered, so far, again, as money can do it. In contract, the damages are limited to what may reasonably be supposed to have been in the contemplation of the parties. In fraud, they are not so limited. The defendant is bound to make reparation -for all the actual damages directly flowing from the fraudulent inducement. The person who has been defrauded is entitled to say:
"I would not have entered into this bargain at all but for your representation. Owing to your fraud, I have not only lost all the money I paid you, but what is more, I have been put to a large amount of extra expense as well and suffered this or that extra damages."
All such damages can be recovered: and it does not lie in the mouth of the fraudulent person to say that they could not reasonably have been foreseen."
[Emphasis added]
The amount of loss suffered directly arising from the fraudulent behaviour of the Defendant had been calculated at SBD$95,577.00. I am satisfied this amount should be granted in favour of the Plaintiff as damages for fraud and fraudulent misrepresentation of the Defendant.
The second order sought in the summons for exemplary damages is more troublesome. In his submissions to this Court, Mr Suri relies on the case of Rookes v. Barnard [1964] UKHL 1; (1964) A.C. 1129 as authorising the award of exemplary damages in this instance. That case involved an action by the Appellant against three Respondents claiming damages for using unlawful means to induce B.O.A.C (his employer) to terminate his contract of service and for conspiracy to do so. The Appellant had been employed as a skilled draughtsman by BOAC. He was a member of the Association of Engineering and Shipbuilding Draughtsmen (A.E.S.D); a union which had one hundred percent membership. Following a disagreement with the Union, the Appellant resigned. The Respondents then issued a threat to the employer that if the Appellant was not terminated by a certain date, the members of the Union would be advised to withdraw their labour. The jury found (a) that there was a conspiracy to threaten strike action by members of A.E.S.D to secure the appellant's withdrawal from the design office, (b) that all three respondents were parties to it, (c) that all three respondents made such a threat and (d) that such threats caused the suspension and the dismissal of the appellant. In his summing-up the trial judge made the following direction to the Jury on damages as follows- "You have to consider, in relation to exemplary damages, whether this was a deliberately engineered unofficial 'wild cat' strike, forced by these three to use, at all costs, an illegal pressure, and whether on the other hand there was provocation, which could reasonably be regarded as provocation for that line of conduct". The jury awarded the plaintiff �7,500 damages. On appeal the decision of Sachs J. sitting with a jury was reversed. On appeal to the House of Lords it was contended regarding the issue of damages that the learned judge misdirected the jury.
Lord Devlin delivering the judgment of the House Lords on the issue of exemplary damages made some pertinent comments. At page 324 his Lordship distinguished damages in the usual sense:
"Exemplary damages are essentially different from ordinary damages. The object of damages in the usual sense of the term is to compensate. The object of exemplary damages is to punish and deter.
..... It must be remembered that in many cases of tort damages are at large, that is to say, the award is not limited to the pecuniary loss that can be specifically proved. In the present case, for example, and leaving aside any question of exemplary or aggravated damages, the appellant's damages would not necessarily be confined to those which he would obtain in an action for wrongful dismissal. He can invite the jury to look at all the circumstances, the inconveniences caused to him by the change of job a and the unhappiness maybe by a change of livelihood. In such a case as this, it is quite proper without any departure from the compensatory principle to award a round sum based on the pecuniary loss proved."
His Lordship then went on to clarify what can be taken into account:
"Moreover, it is very well established that in cases where the damages are at large the jury (or the judge if the award is left to him) can take into account the motives and the conduct of the defendant where they aggravate the injury done to the plaintiff. There may be malevolence or spite or the manner of committing the wrong may be such as to injure the plaintiffs proper feelings of dignity and pride. These are matters which the jury can take into account in assessing the appropriate compensation."
His Lordship then embarked on a detailed analysis of cases in which the principle of exemplary damages had been recognised and came up with three categories for which Rookes v. Barnard is now famous, as the recognised categories established by case authorities under which exemplary damages may be awarded. Of relevance to this case is the second category.
"Cases in the second category are those in which the defendant's conduct has been calculated by him to make a profit for himself which may well exceed the compensation payable to the plaintiff...
It is a factor also that is taken into account in damages for libel; one man should not be allowed to sell another man's reputation for profit. Where a defendant with a cynical disregard for a plaintiffs rights has calculated that the money to be made out of his wrongful doing will probably exceed the damages at risk, it is necessary for the law to show that it cannot be broken with impunity. This category is not confined to moneymaking in the strict sense, it extends to cases in which the defendant is seeking to gain at the expense of the plaintiff some object - perhaps some property which he covets - which either he could not obtain at all or not obtain except at a price greater than he wants to put down. Exemplary damages can properly be awarded whenever it is necessary to teach a wrongdoer that tort does not pay."
It is this second category that the Plaintiff relies on for its claim for exemplary damages against the Defendant.
Grounds relied on can be summed up as follows (see written submissions of the Plaintiff). (1) Fraudulent acts and conspiracy committed by the Defendant (not challenged). (2) Plaintiffs loss of international business dignity caused by the Defendant. (3) Defendants defiance of court order showing no remorse for wrongs committed by him. (4) Defendant gains through fraudulent schemes calculated deliberately by Defendant to exceed the Plaintiffs loss. (5) Plaintiffs financial loss. The matters raised have not been challenged in any way and for purposes of this application they are accepted as facts established on the balance of probabilities.
THE ISSUE:
The issue before this Court is whether exemplary damages can be awarded in cases of deceit, that is fraud.
THE LAW:
In Mafo v. Adams [1970] 2 W.L.R. 73, this question was directly addressed by Sachs L.J. That case involved a plaintiff tenant who was tricked out of the occupancy of the flat he was living in by a blatant fraud perpetrated by the defendant landlord. He sued for damages for fraud. The learned Judge applied the principles enunciated in Doyle v. Olby (Ironmongers) Ltd [1962] 2 QB. 158, and held that the loss flowing from the fraud which can be taken into account included the loss of the protected tenancy under the Rent Acts. He also found in the favour of the Plaintiff that he was entitled to compensation for the physical inconvenience suffered. When he came to the question of exemplary damages, he conceded this was a more difficult question. I quote:
"Next one comes to a considerably more difficult question: whether this is a case in which exemplary damages are recoverable, and whether, if so, the sum of �100 was a correct assessment.
......The first issue which sprang to mind when this appeal was opened was whether in actions for deceit exemplary damages could ever be awarded. There is in the books no case of exemplary damages ever having been awarded for this cause of action, and but for Rookes v. Barnard [1964] UKHL 1; [1964] A.C. 1129, I doubt if it would have been argued that they could be recovered today. Moreover when the case of Doyle v. Olby (Ironmongers) Ltd. [1969] EWCA Civ 2; [1969] 2 QB. 158 came to be decided recently, it may be assumed from the fact that no member of the court mentioned this aspect of the measure of damages, that it did not ever, then come to mine, despite the cynical nature of the conduct of the defendants in that case, that exemplary damages could be awarded for this cause of action. When, however, Mr. Grant opened the present case he was minded to concede that in actions for deceit such damages could now be awarded, and, after considering the matter carefully, he in fact did make this concession. He did so, basing himself on that sentence in Lord Devlin's speech in Rookes v. Barnard [1964] UKHL 1; [1964] A.C. 1129, 1227, which states: "Exemplary damages can properly be awarded whenever it is necessary to teach a wrongdoer that tort does not pay." That passage he interpreted as applying to all actions for tort. So far as this case is concerned, there is thus inter partes agreement on that matter. In the upshot, however, it has in any event become unnecessary to decide the point, having regard to the view held by my brethren and myself, that upon the findings of the judge such a claim cannot be supported on the particular facts of the case."
(Page 77)
Sachs L.J however was very cautious about the application of exemplary damages to inter alia, cases of deceit. This was evident in his comments:
"I state the position carefully in this way, because had that concession not been made, it would have been necessary to have considerably further argument on the point and to consider that argument with care. I would, indeed, need to be persuaded, despite the generality of the phrase already quoted, that this speech which sought so drastically to limit the circumstances in which exemplary damages can be awarded, was by reason of that phrase or otherwise either intended to, or on its proper construction did, enlarge considerably the number of causes of action in which claims to such damages can be maintained. In this behalf I have in mind actions for trover and detinue as well as deceit as instances in which such awards have not previously been made: in particular as regards actions for deceit it would open the door to a flood of claims under that novel head, and that, moreover, despite the fact that in most cases that Theft Act, 1968, provides for the punishment of those who obtain property by fraud."
He nevertheless went ahead to consider the application of the second category in this case based on the concession of the parties that it applied.
In contrast, Widgery L.J. was more forthright in his views that the comments of Lord Devlin in Rookes v. Barnard on exemplary damages was to be interpreted as applying to the tort of deceit:
"The position with regard to exemplary damages is perhaps a little more difficult. I think Mr. Grant was entirely right in accepting that Lord Devlin's dicta as to exemplary damages apply to the tort of deceit. As I understand Lord Devlin's speech, the circumstances in which exemplary damages may be obtained have been drastically reduced, but the range of offences in respect of which they may be granted has been increased, and I see no reason since Rookes v. Barnard [1962] A. C. 1129 why, when considering a claim for exemplary damages, one should regard the nature of the tort as excluding the claim. If the circumstances are those prescribed by Lord Devlin, it seems to me that the fact that the tort was one which did not formerly attract exemplary damages is a matter of no consequence. On the other hand, I am firmly of opinion that, since it is now clear that exemplary damages are punitive only and all cases of aggravation which result in additional injury to the plaintiff are to be dealt with by aggravated damages, then it follows that the circumstances in which exemplary damages are awarded should be exceptional indeed. It is not the function of civil courts to punish. In the past, in my judgment, much confusion has been caused because judges awarding compensation to plaintiffs for ruffled feelings have sometimes said they were awarding exemplary damages. It is clear now that that kind of case does not come under the exemplary heading at all, and in my judgement the number of cases hereafter where exemplary damages are properly to be awarded will in fact be very few. First of all it must be shown that the case comes within the categories prescribed by Lord Devlin and secondly it must be shown that it is one of those special cases in which the punishment of the offender is justified; and it is, I think, implicit in what Lord Devlin says [1964] UKHL 1; [1964] A.C. 1129, 1227 that exemplary damages are in the main awarded in cases where the defendant realises that he is breaking the law, realises that damages may be awarded against him, but nevertheless makes what has been described as a cynical calculation of profit and loss, and says he will flout the powers of the court because on a purely cash basis he can show profit. In my judgment that is the type of man who is referred to by Lord Devlin as being one against whom an award of exemplary damages is proper to be made."
Next we come to a very important decision of the House of Lords, the case of Brooms v. Cassell and Co. 2 W.L.R. 645 in which Rookes v. Barnard was extensively discussed, following comments made in the Court of Appeal about the application of the dicta of Lord Devlin.
The first Law Lord, Lord Hailsham of St. Marylebone LC. did not think the dicta of Lord Devlin was meant to extend to fresh torts as thought by Widgery L.J in Mafo v. Adams [1970] 1 Q.B. 548, 558:
"I do not think that he was under the impression either that he had completely rationalised the law of exemplary damages, nor by listing the "categories" was he intending, I would think, to add to the number of torts for which exemplary damages can be awarded. Thus I disagree with the dictum of Widgery L.J. in Mafo v. Adams ...
This would be a perfectly logical inference if Lord Devlin imagined that he was substituting a completely rational code by enumerating the categories and stating the considerations. It is true, of course, that actions for deceit could come within the purview of the second category. But I can see no reason for thinking that Lord Devlin intended to extend the category to deceit, and counsel on both sides before us were constrained to say that, though it may be paradoxical, they were unable to find a single case where either exemplary or aggravated damages had been awarded for deceit, despite the fact that contumelious, outrageous, oppressive, or dishonest conduct on the part of the defendant is almost inherently associated with it."
It is pertinent to note however that although he did not think Lord Devlin intended to extend the category of exemplary damages to deceit, he nevertheless thought it could come under the purview of the second category. Unfortunately he did not go on to specify or indicate what actions of deceit could come within the purview of the second category. If the learned Law Lord was presented with the facts of this case, would he have considered it coming within the purview of the second category? I would have thought so.
Lord Reid however was more specific in his comments, but also did not rule out completely and expressly the application of the second category to appropriate cases. He was one of the Law Lords who sat in Rookes v. Barnard and concurred in the decision of Lord Devlin. I quote:
"We are particularly concerned in the present case with the second category. With the benefit of hindsight I think I can say without disrespect to Lord Devlin that it is not happily phrased. But I think the meaning is clear enough. An ill disposed person could not infrequently deliberately commit a tort in contumelious disregard of another's rights in order to obtain an advantage which would outweigh any compensatory damages likely to be obtained by his victim. Such a case is within this category. But then it is said, suppose he commits the tort not for gain but simply out of malice, why should he not also be punished? Again I freely admit there is no logical reason."
[Emphasis added - see page 685]
I ask then if it is established that the defendant in this case had deliberately committed a tort in contumelious disregard of the plaintiffs rights in order to obtain an advantage which would outweigh any compensatory damages likely to be obtained by the plaintiff, shouldn't the potential liability to pay exemplary damages be considered, never mind the fact it pertains to fraud?
The third Law Lord, Lord Morris of Borth-y-Gest accepted the application of the second category and indirectly recognised that exemplary damages may be awarded even in cases of fraud provided it came within that category.
The same can be said of Viscount Dilhorne. He took the view that the function of the House of the Lords when sitting judicially was to state what the law was and apply it and not to abolish or restrict it. He disagreed with Lord Devlin's dicta where it seemed to him that it had the effect of restricting the power to award damages in particular in cases prior to Rookes v. Barnard where they might have been given.
"As I understand the judicial functions of this House, although they involve applying well established principles to new situations, they do not involve adjusting the common law to what are thought to be social norms of the time. They do not include bowing to the wind of change. We have to declare what the law is, not what we think it should be. If it is clearly established that in certain circumstances there is a right to exemplary damages, this House should not, when sitting judicially, and indeed, was recognised by Lord Devlin when he said, at p. 1226, that it was not open to this House to "arrive at a determination that refused altogether to recognise the exemplary principle." If the power to award such damages is to be abolished or restricted, that is the task of the legislature.
One criticism that can be made of Lord Devlin's speech is that while recognising that a refusal altogether to recognise the exemplary principle was not possible, he nevertheless restricted the power to award such damages so that they ceased to be obtainable in cases where prior to Rookes v. Barnard they might have been given.
I agree with Lord Denning M.R. that the pre-Rookes v. Barnard law was well stated in Mayne and McGregor on Damages, 12 ed. (1961), p. 196, para. 207 where it is said that such damages can only be given-
'where the conduct of the defendant merits punishment, which is only considered to be so where his conduct is wanton, as where it discloses fraud, malice, violence, cruelty, insolence or the like, or, as it is sometimes put, where he acts in contumelious disregard of the plaintiffs rights.'"
In other words it would seem to me that Viscount Dilhorne was more of the liberal view that exemplary damages could be awarded in cases of fraud.
Lord Diplock however was clearly of the view that Rookes v. Barnard was not intended to extend the power to award exemplary or aggravated damages to particular torts for which they had not previously been awarded; such as negligence and deceit.
THE POSITION IN SOLOMON ISLANDS.
In Goh v. Yam, Civil Case No. 154 of 1989, judgment delivered on 8th February 1993, a defamation case, his Lordship Muria ACJ (as he then was) pointed out that when assessing an award for damages in defamation, the underlying principle of compensatory damages remained an important factor to consider. However, he went on to recognise that punitive or exemplary damages may be awarded in a case where the defendant profited from his wrongdoing by publishing the defamation. I agree.
On the issue before me however whether exemplary damages would apply, it appears this issue had not yet been canvassed. It is also somewhat unfortunate that before me I also have only the written submissions of the Plaintiff. The Defendant did not appear and was not represented.
Bearing in mind the divergent views of their Lordships in Brooms v. Casell & Co., what should be the approach taken by this Court. On one hand, it is not in issue that the correct measure of damages for fraud is that as set out by Lord Denning in Doyle v. Olby (Ironmongers) Ltd. [1969] 2 W.L.R at page 680, paragraph F:
"In fraud, the defendant has been guilty of a deliberate wrong by inducing the plaintiff to act to his detriment. The object of damages is to compensate the plaintiff for all the loss he has suffered, so far, again, as money can do it. In contract, the damages are limited to what may reasonably be supposed to have been in the contemplation of the parties. In fraud, they are not so limited. The defendant is bound to make reparation for all the actual damages directly flowing from the fraudulent inducement. The person who has been defrauded is entitled to say:
'I would not have entered into this bargain at all but for your representation. Owing to your fraud, I have not only lost all the money I paid you, but, what is more, I have been put to a large amount of extra expense as well and suffered this or that extra damages.'
All such damages can be recovered: and it does not lie in the mouth of the fraudulent person to say that they could not reasonably have been foreseen."
In the facts of this case the straight figure of $95,577.00 was the bare minimum that the Plaintiff had suffered as a direct consequence of the fraudulent action of the Defendant and clearly he was entitled to this. This however did not include the losses flowing from such action in terms of the harm and damage caused to the international dignity and reputation of the company in dealing with its clients or prospective clients overseas. This obviously cannot be accurately calculated in monetary terms. There are also related costs entailed in the investigation of the matter and the time and money involved. In fact there is evidence which showed that the Company had to engage someone overseas to carry out an investigation into the matter (see affidavit of Darryl Bowmand Shelley filed 17th May 1993). This naturally must entail further costs. In my respectful view, a round figure of $5,000.00 over and above this amount would be a fair and reasonable assessment of the losses flowing from the fraudulent action of the Defendant.
This then brings me to the important question, whether in the circumstances of this case bearing in mind the law enunciated by the English Courts, exemplary damages should be applied to the tort of deceit. Respectfully, the approach I prefer is that described by Lord Widgery in Mafo v. Adams [1970] 2 W.L.R 73:
"First of all it must be shown that the case comes within the categories prescribed by Lord Devlin and secondly it must be shown that it is one of those special cases in which the punishment of the offender is justified, . . . that exemplary damages are in the main awarded in cases where the defendant realises that he is breaking the law, realises that damages may be awarded against him, but nevertheless makes what has been described as a cynical calculation of profit and loss, and says he will flout the powers of the court because on a purely cash basis he can show profit."
In taking that approach, I ask whether the circumstances of this case come within the second category. In my respectful view, the answer must be yes. I find on the facts that the actions of the Defendant can only be described as a clear flouting of the laws done deliberately and with the view to profiting from his wrong-doing. The defendant had set himself up deliberately as a businessman with credentials and entered the commercial arena, to deal with his counter-parts on equal terms. No businessman in his right mind would enter into any business deals unless he had something to show for what he was offering to sell or to buy; that is, he either had money to buy with or something to sell. In this case, the Defendant had set himself up in business as an exporter of marine products. He had a sophisticated sounding business name "Solproducts Export Development Company Limited" to impress it seems any prospective buyer. Unfortunately not only had he been not as good as his word was, but he had turned aside to fraudulent schemes to further his business dealings. These had involved substantial sums of money and repeated and blatant actions of fraud involving some sophistication which enabled him to get away with it, but not for long. If this did not come within the second category I don't know what should.
Having so made that finding, the next question that must be addressed is whether an additional penalty should be imposed bearing in mind the amount of compensation already determined. Learned Counsel Mr Suri submits a figure in the region of $12,000.00 exemplary damages should be imposed to let the Defendant know that tort does not pay. In my respectful view, the appropriate question to ask is whether the amount awarded is adequate or not, taking everything into account; including the loss flowing from the fraud, and the actions of the Defendant in contumelious disregard of the rights of the Plaintiff. In my respectful view, the amount of $100,577.00 is more than sufficient to compensate the Plaintiff for the loss suffered as a result of the fraud and to let the Defendant know that tort does not pay.
ORDERS OF THE COURT:
1. THE PLAINTIFF IS ENTITLED TO RECOVER AGAINST THE DEFENDANT DAMAGES FOR FRAUD IN THE SUM OF SI$100, 577.00 WITH INTEREST THEREON AT THE RATE OF 5% FROM 6TH AUGUST 1993 UNTIL FULL PAYMENT.
2. THAT THE MONIES RESTRAINED BY ORDER OF THIS COURT DATED 22ND APRIL 1993 INCLUDING ITS INTEREST BE RELEASED AS PAYMENT TOWARDS THE AMOUNT OF DAMAGES AWARDED IN FAVOUR OF THE PLAINTIFF.
3. THE COST OF AND INCIDENTAL TO THIS ACTION BE PAID BY THE DEFENDANT.
THE COURT
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