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Moapa Enterprises Trading as JM Store v Island Beverage Ltd [2009] TOLawRp 29; [2009] Tonga LR 265 (26 June 2009)

IN THE SUPREME COURT OF TONGA
Supreme Court, Nuku'alofa

CV 976/2007

Moapa Enterprises Trading as JM Store

v

Island Beverage Ltd

Ford CJ
11, 12 May 2009; 26 June 2009

Agency – question of authority and whether principal – defendant failed to establish liability

Both the plaintiff and the defendant were retailers trading in the buying and selling of a variety of food products, beverages and other grocery products. In about 2004 an informal trading arrangement was entered into between the two companies under which each would buy produce from the other for onward sale to the public. That arrangement was entered into between the owner of the plaintiff, Mr Rudra Prasad, and the owner of the defendant, Mr Tanusia Paea. The goods were supplied on credit so that no cash would exchange hands but every so often there would be a reconciliation. The evidence was that goods purchased from the defendant by the plaintiff were ordered by its manager, Mr Rohit Raj, and goods purchased by the defendant from the plaintiff were ordered by the defendant's Managing Director, Mr Paea. That arrangement carried on until early 2007 when Mr Raj left the plaintiff and returned to Fiji. The plaintiff issued proceedings against the defendant in October 2007 claiming the sum of $46,280.25 "in respect of goods supplied" to the defendant plus costs. The case was referred to mediation in May 2008 with the outcome being that the defendant accepted liability for the debt in the sum of $30,201.25 but liability in respect of the balance of $16,079 was left unresolved and referred back to the court for determination. The dispute was over two particular orders Mr Raj placed around the time that he left the company which amounted to a total of $16,079. The defendant claimed that that sum should be deducted from the money it owed the plaintiff because it was made up of the cost of goods it had sold to the plaintiff. The plaintiff, on the other hand, disputed this contention and claimed that the goods sold under the two orders in question were not consumer goods of the type covered by the trading agreement referred to above but items of furniture and accessories which Mr Raj had purchased on his own account to take back with him to Fiji.

Held:

1. The defendant accepted that the onus of proof lay with the defendant to prove that Mr Raj had actual or ostensible authority from the plaintiff to enter into the contract for the purchase of the items listed and that it was a matter of fact as to whether ostensible authority existed in respect of the particular act for which it was sought to make the principal libel.

2. The mere assertion by Mr. Raj to Mr. Paea that he (Mr. Raj) had the authority to purchase the furniture and other items in the invoices in question was insufficient in itself to create a contract of agency binding upon the plaintiff. The Court was satisfied that Mr. Paea was fully aware of the limitations on Mr. Raj's authority as agent to purchase goods on behalf of the plaintiff. That authority was restricted to food products, beverages and other grocery items. It did not extend to furniture or the other items detailed in the invoices in question. There was no evidence that the plaintiff by its conduct had ever represented that Mr. Raj's authority to act as agent had been extended to cover the purchase from the defendant of household furniture and there was no evidence of any subsequent ratification of the purchases.

3. The defendant failed to establish that the plaintiff was liable for meeting the costs of the purchases. The plaintiff succeeded in its claim and judgment was entered accordingly in the amount of $16,079.

Case considered:

A-G for Ceylon v Silva [1953] AC 461

Counsel for the plaintiff : Mr Tupou
Counsel for the defendant : Mr Corbett

Judgment

Background

[1] The plaintiff issued proceedings against the defendant in October 2007 claiming the sum of $46,280.25 "in respect of goods supplied" to the defendant plus costs. The case was referred to mediation in May 2008. The outcome of the mediation was that the defendant accepted liability for the debt in the sum of $30,201.25 but liability in respect of the balance of $16,079.00 was left unresolved and referred back to the court for determination. The case went to trial on that part of the claim only.

[2] It was common ground that both the plaintiff and the defendant are retailers trading in the buying and selling of a variety of food products, beverages and other grocery products. In or about 2004 an informal trading arrangement was entered into between the two companies under which each would buy produce from the other for onward sale to the public. That arrangement was entered into between the owner of the plaintiff, Mr. Rudra Prasad, and the owner of the defendant, Mr. Tanusia Paea. The agreement was that each company would buy produce off the other as and when required. The goods were supplied on credit in the sense that no cash would exchange hands but every so often there would be a reconciliation.

[3] The evidence was that goods purchased from the defendant by the plaintiff were ordered by its manager, Mr. Rohit Raj, and goods purchased by the defendant from the plaintiff were ordered by the defendant's Managing Director, Mr. Paea. That arrangement carried on until early 2007 when Mr. Raj left the plaintiff and returned to Fiji.

[4] The dispute is over two particular orders Mr. Raj placed around the time that he left the company. Those orders amounted to a total of $16,079.00 and that sum represents the amount in dispute. At the mediation hearing, as at the trial, the defendant claimed that that sum should be deducted from the money it owed the plaintiff because it was made up of the cost of goods it had sold to the plaintiff. The plaintiff, on the other hand, disputed this contention and claimed that the goods sold under the two orders in question were not consumer goods of the type covered by the trading agreement referred to above but items of furniture and accessories which Mr. Raj had purchased on his own account to take back with him to Fiji.

The evidence

[5] The court did not hear from Mr. Raj. The parties apparently do not know where he now resides. The plaintiffs present manager told the court that he started working for the company on 1 February 2007 and Mr. Raj had left the company shortly before that date. He said that Mr. Raj actually left Tonga for Fiji on 3 February 2007.

[6] The two orders in question were invoice No. 10506 dated 29/12/06 in the amount of $15,600.00 and invoice No.10525 dated 3/2/07 in the sum of $479.00. The goods sold under each are described in the invoices in the Tongan language but the translation reads:

Invoice 10506

(a) 1 set bed, mirror, draw, chair

(b) 1 set chairs and table.

Invoice 10525

(c) Bed cover

(d) Long Pillow

(e) Single pillow

(f) Safe

[7] In his closing, counsel for the plaintiff made certain submissions on the evidence relating to these invoices which did not appear to be disputed and, in any event, I accept them as proven. First, he stressed that the two invoices in question had the name "Rohit" (Mr Raj's first name) as the customer and on invoice No.10506 were written the words "deliver to his home". Secondly, all other invoices from the defendant produced in evidence have the "Customer" described as "JM Store". Thirdly, the goods listed in all the other invoices issued by the defendant to the plaintiff are recorded as food products, beverages and normal grocery products and, putting to one side the two invoices in question, there was no evidence that any other type of goods were ever sold by the defendant to the plaintiff.

[8] The point just made is illustrated in the defendant's reply to a request by the plaintiff for further and better particulars of the statement of defence. In response to a request to provide particulars of the goods supplied by the defendant to the plaintiff along with particulars of their value and the date of supply, the defendant stated in particulars filed on 28 February 2008:

"FURTHER PARTICULARS

All invoices of the defendant company for the plaintiff company which includes two invoices of Mr Rohid (sic) acting for an on behalf of the plaintiff company are attached here and a summary of the details are as follows:

[9] Another observation made by counsel for the plaintiff in relation to the transaction covered by invoice 10525 dated 29/2/2006 was that, on that occasion, Mr. Raj had paid a cash deposit of $150 towards the payment of the goods. That was admitted by the defendant. Counsel asked rhetorically why would the cash deposit have been paid? He went on to submit that, "it was because these goods were bought personally by (Mr. Raj) and that Tanusia Paea knew, or ought to have known, that these goods were not for the account of JM Store."

[10] During his time in Tonga Mr. Raj lived in a rented house at Longolongo. Evidence was given for the plaintiff by a Mr. Reddy and a Mr.Kumar. Both these men worked for the plaintiff and they were friends of Mr. Raj. Mr. Reddy was Mr. Raj's next-door neighbour at Longolongo. He saw the new bed, chairs and table "and stuff like that" at Mr. Raj's home and at the latter's request he assisted in loading the furniture into Mr. Raj's container to go to Fiji. He told the court that Mr. Raj mentioned to him at loading time that he had purchased the items from the defendant. He also mentioned that it was his personal furniture. Mr. Reddy's evidence was that the items in the two invoices in question had not been delivered to the plaintiffs store but directly to Mr. Raj's home.

[11] Mr. Tanusia Paea told the court that he was the managing director of the defendant and a 95% shareholder. He said that he authorised the sales recorded in the two invoices in question and he "okayed the release of the goods" to Mr. Raj because he was the manager of JM Store. He said that he recalled Mr. Raj coming into his office on 29 December 2006 and he asked if he could be given a discount on the goods listed in invoice 10506. The witness continued in evidence:

"He told me it was for the residence -- that the furniture is for his residence that he resides in. I asked him if JM Store paid for his furniture and he said, "yes, under my contract." He said he would guarantee it if JM Store did not pay me -- that JM Store would supply me with even goods in value to the value of the goods I am giving him."

[12] In cross examination Mr. Paea elaborated on this part of his evidence. He said, "I did it on trust. He resided in Tonga and was the boss of JM Store. That is the only reason I authorised this huge amount."

[13] Before Mr. Paea gave his evidence, 21-year-old Heilala Tukia gave evidence for the defendant. She had worked in the office of the defendant company and had written out the two invoices in question. Although she came across as a very pleasant young woman, I had reservations about the credibility of some parts of her evidence. Some of these matters were explored by Mr. Tupou in cross examination and the witness had to be reminded that she was giving evidence on oath. Although she no longer works for the defendant Ms. Tukia seemed overly conscious of the presence in court of her former boss, Mr. Paea. Ms. Tukia told the court that she had accompanied the driver when the goods listed in each invoice were delivered and she said that they were delivered to JM Store and not to Mr. Raj's home at Longolongo. I do not accept that part of her evidence. The delivery driver denied that she had accompanied him.

[14] The delivery driver could not recall anything about the delivery of the goods in invoice 10525 but he told the court that the furniture itemised in invoice 10506 was delivered to JM Store. He said that Mr. Raj was there at the time and he simply unloaded the furniture and returned. In relation to this aspect of the evidence, I prefer the evidence of the plaintiffs witness, Mr. Reddy. He told the court that the furniture was taken directly to Mr. Raj's home at Longolongo and the invoice itself had contained the instruction, "deliver to his home". On balance, I am satisfied that the goods in invoice 10506 were delivered directly to Mr. Raj's home and, again on balance, I find that the goods in invoice 10525, which were not bulky items, were, as Mr Tupou submitted, likely to have been taken directly by Mr. Raj in his vehicle. After all, they were purchased on 3 February 2007 which was the very day that Mr. Raj departed Tonga for Fiji. Given his travel arrangements that day, Mr. Raj is unlikely to have placed his faith in a timely delivery of the goods by the carrier.

Discussion

[15] The thrust of Mr Corbett's submissions for the defendant is summed up in the following paragraphs:

"31. Rohit was Manager as agent of the plaintiff. It is through this representation that the defendant was induced into a contract with the Rohit (sic).

32. Mr. Paea for the defendant believed that Rohit had apparent and ostensible (authority) to obtain furniture as he was the Manager of the plaintiff. As per the terms of trade the goods would be paid for by offsetting the amount owed by mutual exchange of goods.

33. The plaintiff have (sic) breached the terms of trade by not offsetting the furniture obtained by Rohit against there (sic) company account and instead have argued that this purchase of the goods was of a personal nature. This leaves the defendant in a precarious position of recovering nothing of the goods sold as Rohit has left the country and no one knows where he is or seen him in over two years.

34. The plaintiff should bear the responsibility for paying for the goods to the defendant as Rohit was an employee and agent of the plaintiff and at no time did the plaintiff reject the terms of trade with the defendant over the two-year period, 2004 to 2007."

[16] For the plaintiff, Mr. Tupou submitted that the purchases recorded in invoices 10506 and 10525 were made by Mr. Raj, "in his personal capacity and for his personal use. They were not bought for or on behalf of the plaintiff. He had no authority to make this purchase nor did he have any apparent or ostensible authority to do so." Counsel went on to submit:

"29 h. Mr. Paea also said that Rohit told him that the purchase was in accordance with his contract of employment with the plaintiff which authorised the purchase of furniture for his home. With such a large valued purchase, $15,600, and a purchase that was out of the ordinary, I submit that Mr. Paea was put on notice and required proof of the authority of the contract of employment to make sure that what Rohit told him was correct. However, there is no evidence that Mr. Paea saw the contract or asked to see the contract . . .

i. Mr. Paea also said that he relied on Rohit saying that he guaranteed the payment for the goods supplied with the supply of goods of equal value from the plaintiff to the defendant. This guarantee was accepted on face value by Mr. Paea without taking full consideration of the very unusual nature of this purchase from all those that existed during the trading relationship between the parties over the past two years."

The law

[17] Mr. Corbett correctly accepted that the onus of proof lies with the defendant to prove that Mr. Raj had actual or ostensible authority from the plaintiff to enter into the contract for the purchase of the items listed in invoices 10506 and 10525 and that it is a matter of fact as to whether ostensible authority existed in respect of the particular act for which it is sought to make the principal libel. Mr. Corbett relied for this statement of principle on a passage in Halsbury 4th ed Vol 1(2) para 29. In the same passage, however, there is another statement which is of particular relevance to the present case. It reads:

"The principal cannot set up a private limitation upon the agent's actual authority so as to reduce the ostensible authority, for, so far only as third persons are concerned, the ostensible authority is the sole test of his liability. If, however, the agent is held out as having only a limited authority to do, on behalf of his principal, acts of a particular class, the principal is not bound by an act outside that authority even though it be an act of that particular class" (emphasis added). The same point was expressed succinctly in the judgment of the Privy Council in A-G for Ceylon v Silva [1953] AC 461, 479:

"All "ostensible" authority involves a representation by the principal as to the extent of the agent's authority. No representation by the agent as to the extent of his authority can amount to a "holding out" by the principal."

[18] Whether in any case there has been a representation by a principal, express or implied, that an agent had authority to enter into the particular transaction in question or whether the principal by his conduct subsequently ratified the acts done by the agent are all questions of fact to be determined objectively. The matter is judged from the viewpoint of a reasonable person dealing with the alleged agent.

[19] An agent has no authority to act other than for the principal's benefit. Bowstead & Reynolds on Agency (18th Ed) states (3-009):

"It has never been doubted that an agent who is not acting for his principal but for his own benefit is acting beyond the scope of his authority."

The text then goes on to refer to cases that have held,

"that there is no apparent authority where the third party ought to have realised that the agent was acting for his own benefit: the inference is that he could not have had actual authority."

Conclusions

[20] Applying the foregoing principles to the present case, it is apparent that the mere assertion by Mr. Raj to Mr. Paea that he (Mr. Raj) had the authority to purchase the furniture and other items in the invoices in question is insufficient in itself to create a contract of agency binding upon the plaintiff. I am satisfied that Mr. Paea was fully aware of the limitations on Mr. Raj's authority as agent to purchase goods on behalf of the plaintiff. That authority was restricted to food products, beverages and other grocery items. It did not extend to furniture or the other items detailed in the invoices in question. There is no evidence that the plaintiff by its conduct had ever represented that Mr. Raj's authority to act as agent had been extended to cover the purchase from the defendant of household furniture and there is no evidence of any subsequent ratification of the purchases.

[21] It is clear from Mr. Paea's evidence that he was aware of the significant difference between the goods normally purchased by Mr. Raj for the plaintiff and the items purchased on 29 December 2006 and 3 February 2007. As Mr. Tupou submitted, Mr. Paea was on notice. As a prudent businessman, particularly having regard to the large amounts of money involved in the first invoice, he should have made further inquiries, for example, by contacting Mr. Prasad who he knew was the principal of the plaintiff company to obtain confirmation that the purchases could be charged against the company's account. Mr. Tupou also correctly submitted:

"It was easy for Tanusia Paea to make a phone call to Rudra Prasad to confirm that the purchases made by Rohit were in order. At the hearing, Tanusia gave evidence of his telephone conversations with Rudra and even made a call to him during the trial."

[22] For whatever reason, Mr. Paea did not take such precautions. Instead he took a commercial risk and trusted in Mr. Raj. Unfortunately, as it turned out, his trust was misplaced. The defendant has failed to establish that the plaintiff is liable for meeting the costs of the purchases in question.

[23] The plaintiff succeeds in its claim and judgment is entered accordingly in the amount of $16,079.00. The plaintiff is also entitled to costs to be agreed or taxed and the award of costs is to include the sum of $242.00 which was an expense reasonably incurred in connection with the case by the plaintiff through its former lawyer.