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Supreme Court of Samoa |
IN THE SUPREME COURT OF SAMOA
HELD AT APIA
BETWEEN:
ALCC BROWN ENTERPRISES LIMITED
a duly registered company having its registered office at Vailima near Apia.
Plaintiff
AND:
IEROPOAMO SAVAIINAEA,
Pastor of Sapulu, Salelologa, Savaii,
SILI TIATA PULUFANA,
Secretary – Methodist Church, Sapulu, Savaii,
sued for and on behalf of the Sapulu Methodist Church.
Defendants
Counsel: T R S Toailoa for plaintiff
M V Peteru for defendants
Hearing: 18, 19 June 2008
Judgment: 30 January 2009
JUDGMENT BY SAPOLU CJ
Introduction
Evidence
4. For parliamentary election purposes, the village of Salelologa in which the sub-village of Sapulu is situated is within the territorial constituency of Faasaleleaga No.1.
5. A general election for Parliament was held in March 2001. Sili Albert Brown aka Sili Alapati who is the managing director of the plaintiff company and a matai of the sub-village of Sapulu was a candidate in the 2001 general election for the territorial constituency of Faasaleleaga No1. This fact was known to the defendant Sili Pulufana who is not only a member of the same family as Sili Alapati but was also a member of the campaign by Sili Alapati in his bid for election to Parliament. Sili Pulufana, as already mentioned, was also the secretary of the Church at that time and he still is.
6. As it also appears from the evidence of Reverend Mataita Leifi who was the Methodist pastor of Sapulu during the period 1997 to 2002, the fact of Sili Alapati’s candidacy for the 2001 general election was already known to members of the Church about November 2000 four months before the general election in March 2001.
8. Sili Pulufana in his evidence states that as a member of Sili Alapati’s election campaign for the 2001 general election he discussed with Sili Alapati the beneficial effect on his campaign if he were to build a new church for the Methodist parish at Sapulu. So in a meeting of the Church prior to the 2001 general election, Sili Alapati stated that members of the Church should try to raise $300,000 to build a new church but any cost over and above that amount would be covered by him as his service or "tautua" to the parish and the village. Sili Pulufana also states that Sili Alapati said at that meeting that his offer would remain whether or not he was successful in his election bid.
9. It is therefore quite clear from the evidence for the defendants that the oral arrangements made between the Church and Sili Alapati had a connection with Sili Alapati’s bid for election in the 2001 general election. Although none of this appears from the evidence for the plaintiff company or the written submissions of counsel for the plaintiff, I have decided to accept the evidence for the defendants on this part of the case.
10. During the trial, both counsel and the witnesses for both sides treated the said oral arrangements between Sili Alapati and the Church to be arrangements between the plaintiff company of which Sili Alapati is the managing director and the Church. The same arrangements were also regarded to be of a contractual nature constituting a contract between the plaintiff company and the Church.
11. After careful consideration of the evidence, I have decided that the said pre-general election arrangements constituted a building construction contract between the plaintiff company and the Church in respect of which the present defendants have been sued as its representatives.
12. In terms of the pre-election contract, the Church was to supply all the building materials whilst the plaintiff company was to supply the labour, tools, machinery and equipment. A plan of the new church to be constructed was completed in January 2001 and a down payment of $60,000 was given by the Church to the plaintiff company. By the time of the general election in March 2001, no actual construction work had been carried out. Sili Alapati’s candidacy was unsuccessful in the general election.
13. Then in April 2001, the old church of the Methodist parish at Sapulu was pulled down and construction began on the building of the new church.
14. The building materials supplied by the Church pursuant to the pre-election contract included all the required bricks, concrete and ifilele timber. The evidence given for the defendants also shows that the members of the Church also provided food and accommodation for the plaintiff’s workers.
15. However, according to the evidence of Sili Alapati and other witnesses, in April 2001 the Church ran out of funds and it could not obtain additional funding from the banks or the Methodist Church Central Office. As a consequence, the Church requested the plaintiff to supply the necessary remaining building materials in addition to the labour, machinery and equipment already supplied by the plaintiff.
16. As the construction work started in April 2001 and the Church ran out of funds in the same month, this must mean that the Church ran out of funds soon after construction work started and it then requested the plaintiff to also supply the remaining building materials required for the new church. This is a significant change from the pre-election contractual arrangements.
17. Following the request by the Church, the plaintiff company wanted to have a written agreement to govern its relationship with the Church and it submitted a blank agreement to the Church for perusal and execution. This must have taken place on 1 May 2001 as evidenced by the letter of that date from the plaintiff under the signature of Sili Alapati and addressed to Rev Mataita Leifi.
18. According to Sili Alapati in his affidavit evidence, the said agreement was duly executed by Rev Mataita Leifi and members of the Church. Construction of the Church then proceeded on the basis of this agreement that the plaintiff company will supply all materials and labour on the understanding that all costs will be paid for by the Church by way of progress payments and that the plaintiff’s final claim will be paid within 90 days from the date of completion of the project. Sili Alapati also attached to his affidavit evidence a copy of this agreement which is signed by Rev Mataita Leifi and other members of the Church.
19. It appears from the evidence of Rev Mataita Leifi that when he explained this new written agreement to members of the Church they were not happy about it for three reasons. The first reason was that under the pre-election agreement the plaintiff company was to supply the labour, machinery and equipment whilst the Church was to supply only the building materials. Under the new agreement, the Church will pay for everything – labour, machinery, equipment as well as the remaining building materials as the Church had already supplied some of the building materials. The second reason was that Sili Alapati had agreed under the pre-election agreement that any cost of the project in excess of $300,000 will be covered by himself as his service or "tautua" to the Church and the village. The third reason was that Sili Alapati being a matai of the sub-village of Sapulu, the Church expected that the construction of the new church building was to be the contribution by Sili Alapati to the Church and the village. What is meant by "contribution" here is "free contribution".
20. The oral testimony that was given by some of the witnesses shows that either Sili Alapati said to the Church that the new church building cannot be used if the new agreement was not signed or that construction work will not proceed further with his company supplying the remainder of the building materials unless the new agreement was signed.
21. It also appears from the evidence that the new agreement was signed sometime in May 2001 for construction of the new church continued uninterrupted. However, the exact date does not appear from the evidence. I would also infer from the fact that construction work continued that the new agreement must have been signed after 1 May 2001 probably in the first or second week of May 2001 after Rev Mataita Leifi had received the letter of 1 May 2001 from Sili Alapati and perused it and explained it to the members of the Church.
22. In effect then there were two agreements – the pre-election oral agreement which was entered into in November 2000 and the post-election written agreement which was entered into in May 2001. I have to say here that the post-election written agreement is so different in substance from the pre-election agreement that it must be termed a new agreement which rescinded and replaced the pre-election agreement.
23. Following the signing of the new agreement, the plaintiff company supplied quite a number of building materials in July and August 2001. These are set out in a list attached to a letter/progress statement dated 23 August 2001 from the plaintiff company’s accountant to Rev Mataita Leifi and is annexed to the affidavit of Sili Alapati. Rev Mataita Leifi confirmed in his evidence that this was the list of building materials supplied by the plaintiff company.
24. Attached to the said letter/progress statement of 23 August 2001 from the plaintiff company’s accountant is a statement of costs which shows a balance of $105,534.02 brought forward as at 25 June 2001 on the account of the Church. The costs of the building materials plus labour and transportation are then added on and the total outstanding balance owing by the Church as at 23 August 2001 was $226,678.45. So the costs of the building materials supplied by the plaintiff plus labour and transportation must have been $121,144.43. If the costs of labour and transportation are further deducted from that amount, the costs of the building materials supplied by the plaintiff would be about $50,962.33.
25. It is not clear from the evidence for the plaintiff company how the outstanding balance of $105,534.02 as at 25 June 2001 was arrived at as there is no breakdown of that amount as to how and when those costs were incurred.
26. It also appears from the said letter of 23 August 2001 that as of that date 99% of the new church had been completed. It further appears from the same letter that the plaintiff company had unilaterally resolved to charge interest at the rate of 2% per month on the outstanding balance of the Church’s account commencing from 23 August 2001.
27. Another letter/progress statement dated 4 October 2001 was sent by the plaintiff company’s accountant to the Church. This letter/progress statement shows in its first page a balance brought forward of $220,724.45 plus interest charged for the month of September 2001 at the rate of 2% or $4,414.48 making a total of $225,138.93.
28. There are two matters to be noted here. The first is that the outstanding balance of $226,678.45 as at 23 August 2001 appears to have gone down to $225,138.93 as at the end of September 2001. The second matter is that even through it appears in the first page of the said letter/progress statement of 4 October 2001 that the interest charged for the month of September 2001 was 2% or $4,414.48, in the attached statement of account the interest actually charged for September 2001 was 1.2% or $2,648.69. This means that the outstanding balance as at 30 September 2001 as reported in the progress statement dated 4 October 2001 should have been $223,373.14. This does not affect the total amount claimed by the plaintiff company as the actual interest charged for September 2001 was 1.2% as shown in the statement of account and not 2% as shown in the first page of the progress statement of 4 October 2001.
29. It also appears from the said statement of account that the interest rate of 1.2% was charged on the outstanding balance of the account from September 2001 to August 2002. That is also the rate of interest claimed by the plaintiff company in its statement of claim. It therefore appears that the rate of interest the plaintiff company resolved to charge and actually charged as from September 2001 was 1.2% per month on the outstanding balance of the account.
30. In December 2001 construction of the new church was completed. A dedication ceremony was held in which suas comprising of large fine mats, cases of tinned fish and other foodstuffs together with a sum of $100,000 were presented by the church to the plaintiff. The fine mats and cases of tinned fish were sold by the plaintiff from which it earned $20,000. According to the evidence for the plaintiff the $100,000 and $20,000 were then deducted from the account of the Church and the outstanding balance as at 23 December 2001 was $141,067.89. This must have included interest at 1.2% per month charged by the plaintiff as from September 2001.
31. There then followed a number of letters from the plaintiff company to the Church requesting payment of their account. There were nine such letters. The first letter was sent in February 2002 and the last letter was sent in June 2003. According to the evidence of Sili Alapati he also met with Rev Ieropoamo Savaiinaea, Sili Pulufana the Church secretary and Sili Peleti a Church committee member about the Church’s debt and Rev Ieropoamo Savaiinaea assured him that the Church congregation would work to find the money to pay off the doubt. This must have been after September 2002 for that was the time Rev Savaiinaea started as the new Methodist pastor for Sapulu.
32. However, there has been no payment made. It appears from the evidence given by Rev Ieropoamo that his congregation does not want to pay. Their reason for refusing to pay was that in terms of the agreement they made with Sili Alapati on behalf of the plaintiff company, the Church would contribute to the value of $300,000 for the construction of the new church. Any costs over and above that amount would be covered by Sili Alapati as his service or "tautua" to the Church and the village. As the Church had already paid $308,000, they had fulfilled their obligation under the agreement. The agreement referred to here must be the pre-general election oral agreement that was made in November 2000 between Sili Alapati on behalf of the plaintiff company and Rev Mataita and others on behalf of the Church. The said amount of $308,000 must also have included the down payment of $60,000 made by the Church to Sili Alapati in early 2001.
33. On 6 March 2003, an acknowledgement of debt for the sum of $133,537.34 was signed by Sili Pulufana and Sili Peleti on behalf of the Church and Sili Alapati on behalf of the plaintiff company. In the acknowledgment of debt Sili Pulufana and Sili Peleti agreed to pay the said debt of $133,537.34 within six months at the interest rate of 1.2% per month on the monthly balance which remained unpaid. One matter to be noted here is that according to the other documentary evidence produced by the plaintiff, the outstanding balance of the account by the Church as at 23 December 2001 was $141,067.89. However, in the acknowledgement of debt signed on 6 March 2003 the amount of the debt is shown as $133,537.34 which means the amount of the debt had gone down by 6 March 2003 but there is no evidence that any payment had been made by the Church or that interest had ceased to accrue.
34. Under cross-examination Sili Pulufana agreed that he signed the acknowledgment of debt in a clean and honest spirit as he is a good christian. He also agreed under cross-examination that in meetings with Sili Alapati and others after the dedication of the new church, he responded to Sili Alapati that the Church will try to pay its debt.
35. I have looked at the letters that were sent by the plaintiff to the Church requesting payment. The letter of 13 February 2002 shows an outstanding balance of $141,067.89; the letter of 18 March 2002 shows an outstanding balance of $145,476.24 inclusive of interest; the letter of 15 July 2002 which was addressed to the President of the Methodist Church shows an outstanding balance of $122,628.49; the letter of 16 August 2002 shows an outstanding balance of $128,843.30; the letter which seems to be dated 6 March 2003 shows an outstanding balance of $141,000; and in the letter of 5 June 2003 signed by Tuilimu Sesa and addressed to the President of the Methodist Church the outstanding balance is also shown as $141,000.
36. So on the documentary evidence produced by the plaintiff the outstanding balance of the debt as at 23 December 2001 was $141,067.89. In February 2002 the outstanding balance was still the same. In March 2002 the balance had increased to $145,476.24 because of interest. The outstanding balance then decreased in July 2002 to $122,628.49. The balance then started to climb up until March 2003 when it was $141,000. However, in the acknowledgment of debt dated 6 March 2003 the outstanding balance of the debt is shown as $133,537.54. In June 2003 the outstanding balance was $141,000 which is less than $141,067.89 which was the outstanding balance as at 23 December 2001. The plaintiff would need to explain this.
37. Perhaps the evidence of the witness Seumanu Faaofo Tala is correct when he said that at a later meeting between Sili Alapati and the Church, Sili Alapati told the Church that the outstanding balance was $141,000 but he had deducted $20,000 for the sua presentations so he was claiming $121,000. On that basis, the outstanding balance of $133,537.34 shown in the acknowledgement of debt dated 6 March 2003 and signed by Sili Alapati, Sili Pulufana and Sili Peleti as well as the outstanding balance of $141,000 shown in the letter dated 5 June 2003 signed by Tuilimu Sesa and addressed to the President of the Methodist Church would make some sense given that interest was charged and the Church had made no further payment after December 2001.
38. Both parties to these proceedings have also submitted valuation reports. It is not clear why this has been done. The valuation reports are not relevant to the assessment of damages in this case.
39. The purpose of the valuation report produced by the plaintiff is to assess the current market value of the church building at the date of valuation. The purpose of the valuation report produced by the defendants is to assess the replacement value of the church building at the date of valuation. Both measures of damages are not appropriate in this case. The correct measure of damages is what is due under the contract to the plaintiff for labour, transportation and the materials it supplied. In fact that is what the plaintiff is claiming in its statement of claim.
Applicable law
40 On the basis of the evidence that I have decided to accept, the following is the law which is applicable in this case.
(a) Illegal contract
41. As pointed out in Law of Contract in New Zealand (1987) by Burrows, Finn and Todd at p.400, contracts which improperly seek to influence voters in an election are illegal at common law on the ground of public policy as being injurious to good government and the democratic process. Such conduct may also be contrary to statute.
42. The authority cited in support of the proposition that contracts which improperly seek to influence voters in an election are illegal at common law is Allen v Hearn (1785) 1 Term Rep 56. That authority is not available in Samoa but I have no reason to doubt the correctness of the proposition stated by the learned authors of Law of Contract in New Zealand.
43. Such conduct may also arguably be contrary to the spirit of s.96 of the Electoral Act 1963.
(b) Economic duress
44. In Universe Tankships Inc. of Monrovia v International Transport Workers Federation [1983] 1 AC 1366, Lord Scarman explained the common law doctrine of economic duress at p.400 by saying:
"It is, I think, already established law that economic pressure can in law amount to duress; and that duress, if proved, not only renders voidable a transaction into which a person has entered under its compulsion but is actionable as a tort, if it causes damage or loss: Barton v Armstrong [1976] AC 104 and Pao On v Lau Yiu Long [1979] UKPC 2; [1980] AC 614. The authorities upon which these two cases were based reveal two elements in the wrong of duress: (1) pressure amounting to compulsion of the will of the victim; and (2) the illegitimacy of the pressure. There must be pressure the practical effect of which is compulsion or the absence of choice. Compulsion is variously described in the authorities as coercion or the vitiation of consent. The classic case of duress is, however, not the lack of will to submit but the victim’s international submission arising from the realisation that there is no other practical choice open to him. That is the thread of principle which links the early law of duress (threat to life or limb) with later developments when the law came also to recognise as duress first the threat to property and now the threat to a man’s business or trade."
45. Lord Scarman then went on at pp 400-401 to say:
" The real issue in the appeal is, therefore, as to the second element in the wrong duress: was the pressure applied by the ITF in the circumstances of this case one which the law recognises as legitimate: For, as Lord Wilberforce and Lord Simon of Glaisdale said in Barton v Armstrong [1976] AC 104, 121 D:
‘‘‘the pressure must be one of a kind which the law does not regard as legitimate’.
" As the two noble and learned Lords remarked at p.121 D, in life, including the life of commerce and finance, many acts are done ‘under pressure, sometimes overwhelming pressure’ but they are not necessarily done under duress.
"In determining what is legitimate two matters may have to be considered. The first is as to the nature of the pressure. In many cases this will be decisive, though not in every case. And so the second question may have to be considered, namely, the nature of the demand which the pressure is applied to support.
"The origin of the doctrine of duress in threats to life or limb, or to property, suggests strongly that the law regards the threat of unlawful action as illegitimate, whatever the demand. Duress can, of course, exist even if the threat is one of lawful action: whether it does so depend upon the nature of the demand. Blackmail is often a demand supported by a threat to do what is lawful, e.g. to report criminal conduct to the police. In may cases, therefore, ‘What [one] has to justify is not the threat, but the demand...’ see per Lord Atkin in Thorne v Motor Trade Association [1937] AC 797, 806".
46. As a contract entered into under illegitimate pressure amounting to economic duress is voidable and not void, it may be approbated or affirmed after the illegitimate pressure has ceased to operate. This is also clear from Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366 where Lord Diplock stated at p. 384:
"It is, however, in my view crucial to the decision of the instant appeal to identify the rationale of this development of the common law. It is not that the party seeking to avoid the contract which he has entered into with another party, or to recover money that he has paid to another party in response to a demand, did not know the nature or the precise terms of the contract at the time when he entered into it or did not understand the purpose for which the payment was demanded. The rationale is that his apparent consent was induced by pressure exercised upon him by that other party which the law does not regard as legitimate, with the consequence that the contract is treated in law as revocable unless approbated either expressly or by implication after the illegitimate pressure has ceased to operate on his mind. It is a rationale similar to that which underlies the avoidability of contracts entered into and the recovery of money exacted under colour of office, or under undue influence or in consequence of threat of physical duress".
47. The often cited case in Australia on the common law doctrine of economic duress is Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSW LR 40 where McHugh J A, as he then was, said at pp 45-46:
" The rationale of the doctrine of economic duress is that the law will not give effect to an apparent consent which was induced by pressure exercised upon one party by another party when the law regards that pressure as illegitimate: Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366 at 384 per Lord Diplock. As his Lordship pointed out, the consequence is that the consent is treated in law as revocable unless approbated either expressly or by implication after the illegitimate pressure has ceased to operate on his mind (at 384). In the same case Lord Scarman declared (at 400) that the authorities show that there are two elements in the realm of duress: (a) pressure amounting to compulsion of the will of the victim and (b) the illegitimacy of the pressure exerted. ‘There must be pressure’ said Lord Scarman ‘the practical effect of which is compulsion or absence of choice’
"The reference in Universe Tankships Inc of Monrovia v International Transport Workers Federation and other cases to compulsion ‘of the will’ of the victim is unfortunate. They appear to have overlooked that in Director of Public Prosecutions for Northern Ireland v Lynch [1975] UKHL 5; [1975] AC 653, a case concerned with duress as a defence to a criminal proceeding, the House of Lords were unanimous in coming to the conclusion, perhaps best expressed (at 695) in the speech of Lord Simon of Glaisdale ‘that duress is not inconsistent with act and will being deflected, not destroyed’. Indeed, if the true basis of duress is that the will is overborne, a contract entered into under duress should be void. Yet the accepted doctrine is that the contract is merely voidable.
In my opinion the overbearing of the will theory of duress should be rejected. A person who is the subject of duress usually knows only too well what he is doing. But he chooses to submit to the demand or pressure rather then take an alternative course of action. The proper approach in my opinion is to ask whether an applied pressure induced the victim to enter into the contract and then ask whether that pressure went beyond what the law is prepared to countenance as legitimate. Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct, But the categories are not closed. Even overwhelming pressure not amounting to unconscionable or unlawful conduct, however, will not necessarily constitute economic duress.
In their dissenting advice in Barton v Armstrong [1973] 2 NSWLR 598; [1976] AC 104, Lord Wilberforce and Lord Simon of Glaisdale pointed out (at 634; 121):
" ‘... in life, including the life of commerce and finance, many acts are done under pressure, sometimes overwhelming pressure, so that one can say that the actor had no choice but to act. Absence of choice in this sense does not negate consent in law: for this the pressure must be one of a kind which the law does not regard as illegitimate. Thus out of the various means by which consent may be obtained advice, persuasion, influence, inducement, representation, commercial pressure – the law has come to select some which it will not accept as a reason for voluntary action: fraud, abuse of relation of confidence, undue influence, duress or coercion’".
48. In Law of Contract in New Zealand (1997) by Burrows, Finn and Todd, the learned authors commented at p.344:
" It is apparent that a plea of economic duress will not succeed in cases where at the time the pressure is exerted there are no contractual relations between the parties and one does no more than strike a hard bargain, or where there is an existing contract and one induces a new agreement simply by threatening to enforce it. In neither case is there a threat to do something unlawful, nor can the pressure be seen as illegitimate. Economic duress usually will only be available in relation to a variation of an existing contract brought about by an unlawful threat not to enforce it".
49. I have only referred to those aspects of the common law doctrine of economic duress which are relevant to this case. So what has been said is not to be treated as an exhaustive coverage of that doctrine.
(c) Variation or discharge
50. In the case of Commissioner of Taxation v Sarah Lee Household and Body Care Australia Pty Ltd (2000) 201 CLR 320 the majority of the Court Gleeson CJ, Gaudron, McHugh and Hayne JJ stated at pp 533-534:
"When the parties to an existing contract enter into a further contract by which they vary the original contract, then, by hypothesis, they have made two contracts. For one reason or another, it may be material to determine whether the effect of the second contract is to bring to an end the first contract and replace it with the second, or whether the effect is to leave the first contract standing, subject to the alteration. For example, something may turn upon the place, or the time, or the form, of the contract, and it may therefore be necessary to decide whether the original contract subsists...
" In Tallerman & Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd [1957] HCA 10; (1957) 98 CLR 93 Taylor J said at 144:
"‘It is firmly established by a long line of cases... that the parties to an agreement may vary some of its terms by a subsequent agreement. They may, of course, rescind the earlier agreement altogether, and this may be done either expressly or by implication, but the determining factor must always be the intention of the parties as disclosed by the later agreement’ ".
51. In Cheshire and Fifoot’s Law of Contract (1992) 6th Australian ed by Starke, Seddon and Ellinghaus, the learned authors state at [2004] p. 726:
"Whether a new contract between the parties is one of variation or total discharge ‘appears to be a matter of degree’. If the new agreement is so far inconsistent with the original contract as to destroy its substance, it is inferred that the parties intended to abrogate it and to replace it with a new and self-contained agreement. It is not always easy, however, to reconcile the cases".
(d) Interest
52. The most recent decision of the House of Lords on the law regarding the award of interest is Sempra Metals Ltd v Commissioners of Inland Revenue [2007] UKHL 34. It shows an attempt by the House of Lords to rationalise the complexities in this area of English law. Lord Hope of Graighead states:
"4. The jurisdictional routes in English law to an award of interest are to be found in statute, equity and the common law. Simple interest is available under the statute on a sum for which judgment is given for the recovery of a debt or damages or where a sum of that kind is paid before judgment: see section 35A(1) of the Supreme Court Act 1981, inserted by the Administration of Justice Act 1982, section 15(1) and Schedule 1, Part 1. Interest is available in equity in cases that lie within equity’s exclusive jurisdiction, especially in cases of fraud or against a trustee or other person in a fiduciary position in respect of profits improperly made. It is also available in the exercise of equity’s jurisdiction in aid of rights that are enforceable at common law. In cases that lie within equity’s exclusive jurisdiction compound as well as simple interest is available. As Steven Elliott, ‘Rethinking Interest on Witheld and Misapplied Trust Money’ [2001] 65 Conv 313 puts it, when applying the inherent jurisdiction the Courts have been able to craft interest awards that meet the economic realities. But where equity is invoked in aid of the common law the reverse is true. In Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] UKHL 12; [1996] AC 669 the House held, by a majority, that it would be usurping the function of Parliament if it were in equity to award compound interest in aid of the bank’s common law claim for repayment of the principal sum, as the Court was not authorised to award compound interest in the exercise of its common law jurisdiction under the statute.
"5. The common law jurisdictional route is more complicated. The general rule of English common law is that the Court has no power, in the absence of any agreement, to award interest as compensation for the late payment of a debt or damages: London, Chatham and Dover Railway Co. v South Eastern Railway Co. [1893] UKLawRpAC 41; [1893] AC 429. The decision in that case does not fit happily with Lord Westbury’s statement in Carmichael v Guledonian Railway Co (1870) 8M (HL) 119, 131 which identified the principle that still applies in Scots law, that interest can be demanded only in virtue of a contract express or implied ‘or by virtue of the principal sum of money having been wrongfully withheld, and not paid on the day when it ought to have been paid’. But the House felt bound to apply the law of England that was laid down by Lord Tenterdon CJ in Page v Newman (1829) 9B & C 378, 381 and endorsed by Lord Tenterdon’s Civil Procedure Act 1833. In 1952, however, it was recognised that loss due to late payment might be recoverable if it constituted special damage within the second limb of Hadley v Baxendale (1859) 9 Ex 341: Trans Trusts SPRL v Danubian Trading Co Ltd [1952] 2 QB 297. This modification of the common law rule was approved in President of India v La Pintada Compania Navigacion SA [1985] AC 104.
"6. To allow a claimant to recover special, but not general, damages for loss of the use of money is widely seen as illogical. In Hungerfords v Walker [1989] HCA 8; (1989) 171 CLR 125, 142 Mason CJ said that it subverted the second limb in Hadley v Baxendale from its intended purpose, which was to allow loss arising from special circumstances of which the defendant had actual knowledge in cases where the loss did not fall within the first limb because it did not arise from the ordinary course of things. The decision in London, Chatham and Dover Railway Co v South Eastern Railway Co seemed to have been based on the view that interest by way of damages was too remote: see also Trans Trust SPRL v Danubian Trading Co Ltd [1952] 2 QB 297, 306 per Denning LJ. Why then, Mason CJ asked, is the claimant not entitled to recover damages for the loss of the use of money when the loss or damage was reasonably foreseeable as liable to result from the relevant breach or tort?"
53. In a passage which is directly relevant to the issue of interest in this case, Lord Hope of Craighead goes on to say:
"16. There is little that I would wish to add to what Lord Nicholls has had to say about the approach that should now be taken to claims at common law for damages for interest losses suffered as a result of the late payment of money... I agree with him that the House should hold that at common law, subject to the ordinary rules of remoteness which apply to all claims of damages, the loss suffered as a result of the late payment of money is recoverable. This is already the law where the claim is for a debt incurred by a building contractor to raise the necessary capital which has interest charges as on of its constituents: see FG Minter v Welsh Health Technical Services Organisation (1980) 13 Build LR1, CA, 23, per Ackner LJ; Rees and Kirby Ltd v Swansea City Council (1985) 30 Build LR1, CA; see also Margrie Holdings Ltd v City of Edinburgh District Council, 1994 SC1, 10-11".
54. In the course of tracing the history of modern English law regarding the award of interest and referring to the distinction between general and special damages drawn by Lord Brandon in President of India v La Pintada Compania Navigacion SA [1988] 1 AC 395, Lord Nicholls of Birkenhead states:
"93. In the Pintada case the House made clear that, contrary to the general understanding of the effect of the London, Chatham and Dover Railway case, claims for damages for interest losses suffered as a result of the late payment of money are not taboo. That is plainly right. Those who default on a contractual obligation to pay money are not possessed of some special immunity in respect of losses caused thereby. To be recoverable the losses suffered by a claimant must satisfy the usual remoteness tests. The losses must have been reasonably foreseeable at the time of the contract as liable to result from the breach. But, subject to satisfying the usual damages criteria, in principle these losses are recoverable as damages for breach of contract. This is so even if the losses consist of a liability to pay borrowing costs incurred as a result of the late payment, as happened in Wadsworth v Lydall [1981] 1 WRL 598. And this is so irrespective of whether the borrowing costs comprise simple interest or compound interest.
"94. To this end, if your Lordships agree, the House should now hold that, in principle, it is always open to a claimant to plead and prove his actual interest losses caused by late payment of a debt. These losses will be recoverable subject to the principles governing all claims for damages for breach of contract, such as remoteness, failure to mitigate and so forth.
"95. In the nature of things the proof required to establish a claimed interest loss will depend upon the nature of the loss and the circumstances of the case. The loss may be the cost of borrowing money. That cost may include an element of compound interest. Or the loss may be loss of an opportunity to invest the promised money. Here again, where the circumstances require, the investment loss may need to include a compound element if it is to be a fair measure of what the plaintiff lost by the late payment. On the loss flowing from the late payment may take some other form. Whatever form the loss takes the Court will, here as elsewhere, draw from the proved or admitted facts such inferences as are appropriate. That is a matter for the trial Judge. There are no special rules for the proof of facts in this area of the law.
"96. But an un-particularised and unproved claim simply for ‘damages’ will not suffice. General damages are not recoverable. The common law does not assume that delay in payment of a debt will of itself cause damage. Loss must be proved. To that extent the decision in the London, Chatham and Dover Railway case remains extant. The decision in that case survives but is confined narrowly to claims of a similar nature to the simple claim for interest advanced in that case. Thus, that decision is to be understood as applying only to claims at common law for un-particularised and unproven interest losses as damages for breach of a contract to pay a debt and, which today comes to the same, claims for payment of a debt with interest. In the absence of agreement the restrictive exception to the general common law rules prevails in those cases".
Discussion
(a) Pre-election contract
"[1133] A contract that is illegal in itself in the sense already discussed is void and unenforceable by neither party. It is contaminated by turpis causa, and the rule has long been established that exturpi causa oritor non actio. This maxim means that no person can claim any right or remedy whatsoever under an illegal transaction in which he has participated: Gordon v Metropolitan Police Commissioner [1910] UKLawRpKQB 138; [1910] 2 KB 1080 at 1098. In the words of Lord Lindley:
"No Court ought to enforce an illegal contract or allow itself to be made the instrument of enforcing obligations alleged to arise out of a contract or transaction which is illegal, if the illegality is duly brought to the notice of the Court, and if the person invoking the aid of the Court is himself implicated in the illegality: Scott v Brown, Doering, McNab & Co [1892] UKLawRpKQB 107; [1892] 2 QB 72 at 728."
62. As already mentioned, the representatives of the Church who approached Sili Alapati for his company to build a new church for them knew at the time that Sili Alapati was a candidate for their constituency in the forthcoming general election which was then imminent. They must also have known the meaning of what they were doing. In fact one of the representatives of that delegation from the Church was Sili Pulufana who discussed with Sili Alapati the beneficial effect on the latter’s campaign if he were to build the new church for the Sapulu parish. It also appears that the election was in the mind of Sili Alapati when he accepted the request from the representatives of the Church.
63. It follows that the Church cannot enforce the pre-election contract as it is illegal, void and unenforceable. They, too, are implicated in the illegality. For the Church then to keep referring back to the pre-election contract and what might have been said by the parties in connexion with that contract, is misplaced reliance on an illegal contract which is void and unenforceable.
64. The same applies to the plaintiff of which Sili Alapati is its managing director and on whose behalf Sili Alapati entered into the contract. It cannot enforce any claim which arose out of the illegal contract. This gives rise to one of my main difficulties with this case. This is in relation to the sum of $105,534.02 claimed by the plaintiff in its evidence as the outstanding balance on the account of the Church as at 25 June 2001. I will come back to this point later in this judgment.
(b) Post – election contract
65. As it appears from the evidence, the actual construction work on the new church did not start until April which was after the general election in March 2001. The old church was pulled down. That must have taken some days or a week before the construction of the new church on the same site began.
69. It follows that the effect of the post-election contract, when it was signed by the Church, was not to leave the pre-election contract standing, subject to the variations, but to rescind and replace the pre-election contract. It may be said that because the pre-election contract was illegal, void and unenforceable there was, in any event, nothing for the post-election contract to vary or rescind. Whether that was in fact so or not, I do not propose to further prolong this judgment by dwelling on that point. It is not, in any event, material to the outcome of this case.
71. According to the evidence called for the defendants, the members of the Church were not happy about signing the agreement. Primarily, that was because they were still trying to go by the pre-election contract. However, the members of the Church signed the new agreement. They claim that they did so because Sili Alapati told the Church that if the new agreement was not signed, the new church building cannot be used and the construction work will not proceed further with his company supplying the building materials required to complete the new church.
72. This raises the question of whether the Church was placed under economic pressure which amounted to duress so as to render the new agreement voidable. In my view, the Church was not.
73. What Sili Alapati might have said could have put pressure on the Church to sign the new agreement. But such pressure was not illegitimate so as to amount to economic duress. Certainly, what might have been said did not constitute an unlawful threat.
74. What had happened was that under the pre-election contract the Church was to supply all the building materials whilst the plaintiff was to supply the labour, machinery and equipment. The situation changed dramatically when the Church ran out of funds soon after construction started and they wanted the plaintiff to also supply the remaining building material. The plaintiff agreed to supply the remaining building materials but for the Church to agree to pay for the materials, labour, machinery, equipment, and transportation otherwise the plaintiff will not proceed further with the construction. From the documentary evidence produced by the plaintiff, the total value of the building materials supplied by the plaintiff would be about $50,962.33. This is not an insignificant amount.
75. For the plaintiff to agree to supply these building materials on the condition that the Church entered into the new agreement was not exerting illegitimate pressure. It might have been driving a hard bargain from the Church’s perspective, but it was not economic duress. As pointed out in Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 1366 and Crescendo Management Pty Ltd v Westpac Banking Corporation 91988) 19 NSWLR 40 acts done under pressure, even extreme pressure, may not necessarily be done under duress. I also refer to the passage already cited in para 48 from Law of Contract in New Zealand (1997) by Burrows, Finn and Todd at p. 344.
76. If, however, there was illegitimate pressure constituting economic duress so as to make the post-election contract or new agreement voidable, then the next step is to see whether the Church by their subsequent conduct approbated or affirmed the new agreement after the illegitimate pressure was spent. There is evidence including the discussions between Sili Alapati and the two defendants as well as the acknowledgement of debt on which to base an argument that the Church subsequently affirmed the new agreement after any pressure was spent. It is not necessary to further explore this point as in my view the plaintiff did not exert any illegitimate pressure upon the Church so as to render the new agreement voidable.
77. I, therefore, conclude that he post-election contract or new agreement was valid.
(c) Claim for $105,534.02
78. As part of the plaintiff’s claim is the sum of $105, 534.02 claimed to be the balance outstanding on the account of the Church as at 25 June 2001. So this amount of $105,534.02 must relate to costs incurred by the plaintiff on and prior to 25 June 2001. There is, however, no breakdown of that amount so that one does not know how and when the costs which make up that amount were incurred.
79. The pre-election contract which I have found to be illegal subsisted from November 2000 to sometime in May 2001 when the post-election contract or new agreement was signed. So as at 25 June 2001, the post-election contract had only come into being for about a month.
80. Any costs included in the claim for $105,534.02 which arose pursuant to the pre-election contract are not recoverable as that contract is illegal, void and unenforceable. The plaintiff is, therefore, required to provide a breakdown of the claim for $105,534.02 to show how and when the costs which make up that claim were incurred. The parties are also required to explain when the post-election contract was signed as that would be the date that contract came into being. This information could affect the total amount claimed in the statement of claim.
(d) Interest
81. The traditional common law position regarding the payment of interest is that the Court has no jurisdiction, in the absence of any agreement, to award interest as compensation for the late payment of a debt or damages: London, Chatham and Dover Railway Co v South Eastern Railway Co [1893] UKLawRpAC 41; [1893] AC 429. The defendants plead in their statement of defence that there is no provision in the post-election contract or new agreement for the payment of interest as claimed by the plaintiff. That is correct. But an agreement can be express or may arise by implication from the dealings between the parties.
82. The traditional common law position, however, was modified in President of India v La Pintada Compania Navigacion 5A [1985] 1 AC 104 where the House of Lords approved what was recognised by Denning LJ in Trans Trusts SPRL v Danubian Trading Co Ltd [1952] 2 QB 297 that loss due to late payment of money might be recoverable as special damage under the second limb of Hadley v Baxendale {1859) Ex 341. As Lord Nicholls also points out in a passage already cited in para 54 from Sempra Metals Ltd v Commissioners of Inland Revenue [2007] UKHL 34:
"93 In the Pintada case the House made clear that, contrary to the general understanding of the effect of the London, Chatham and Dover Railway case, claims for damages for interest losses suffered as a result of the late payment of money are not taboo. That is plainly right... To be recoverable the losses suffered by a claimant must satisfy the usual remoteness tests. The losses must have been reasonably foreseeable at the time of the contract as liable to result from the breach."
83. The modern common law position under English law regarding recovery of interest losses is then stated in the next paragraph by Lord Nicholls where it states:
"[It] is always open to a claimant to plead and prove his actual interest losses caused by late payment of a debt. These losses will be recoverable, subject to the principles governing all claims for damages for breach of contract such as remoteness, failure to mitigate and so forth."
84. Lord Hope in agreeing with Lord Nicholls states:
"94. There is little that I would wish to add to what Lord Nicholls has said about the approach that should now be taken to claims at common law for damages for interest losses suffered as a result of the late payment of money... But I agree with him that the House should take the opportunity of departing from Lord Brandon of Oakbrook’s analysis in President of India v La Pintada Compania Navigacion 5A [1985] 1 AC 104 and that it should hold that at common law, subject to the ordinary rules of remoteness which apply to all clams of damages, the loss suffered as a result of the late payment of money is recoverable. This is already the law where the claim is for a debt incurred by a building contractor to raise the necessary capital which has interest charges as one of its constituents..."
85. So in terms of the modern common law in relation to the recovery of interest losses for the late payment of money, it was open to the plaintiff to claim for interest even if there is no provision in the post-election contract for interest on the late payment of debt.
87. In the plaintiff ‘s progress statements dated 23 August 2001, 4 October 2001, 7 May 2002, 10 May 2002, 16 August 2002, 23 October 2002 which were sent to the Church, there is specific mention that interest was being charged per month on the outstanding balance of the account by the Church. The statements of account sent by the plaintiff to the Church also show that monthly interest at the rate of 1.2% per months was actually being charged on the outstanding monthly balances of the account. There is no evidence that the Church ever objected to the charging of interest.
88. In the acknowledgment of debt dated 6 March 2002 signed by Sili Pulufana and Sili Peleti on behalf of the Church and Sili Alapati on behalf of the plaintiff, it was agreed that the Church would pay the then outstanding debt within 6 months together with interest at the rate of 1.2% on the outstanding monthly balance of the account.
89. In the defendants statement of defence and counterclaim it is pleaded that the defendant Sili Pulufana acted at all times for and on behalf of the Church in his capacity as secretary of the Church.
90. There is also no express objection in the statement of defence and counterclaim to the payment of interest. The only relevant pleading is that there is no provision in the written agreement that was signed which provides for the payment of interest.
91. Even though there is no provision in the written agreement for the payment agreement, I am prepared to infer from the circumstances as set out above, that an agreement to pay interest at the rate of 1.2% per month did arise by implication from the dealings between the parties. That implied agreement started from September 2001 which appears from the evidence to be the first time interest was charged by the plaintiff after the Church was informed about it on 23 August 2001.
Conclusions
93. From the above, it is clear that the plaintiff is entitled to judgment. But I cannot fix the amount for the judgment at this stage because of the evidence.
94. The plaintiff would have to file within 7 days an affidavit setting out the costs included in the sum of $105,534.02 which it claims to have been the outstanding balance of the Church’s account as at 25 June 2001 and how and when those costs were incurred by the plaintiff. A copy of that affidavit is to be served on counsel for the defendants for a response within 7 days.
95. The plaintiff to also explain how the amount of $145,476.24 inclusive of interest is shown in the statement of claim as the outstanding balance of the account of the Church as at 18 February 2002 when lesser balances are shown for later periods in the plaintiff’s documentary evidence.
96. Both counsel to also inform the Court in writing within 7 days as to when the written agreement was actually signed by the Church.
97. I will then issue an addendum to this judgment setting out the judgment and the amount as well as any other relevant matter such as costs.
CHIEF JUSTICE
Solicitors
Toa Law for plaintiff
Maiava V R PeteruLaw Firm for defendants
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