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Continental Trading Ltd v Patsy [2004] PGNC 258; N2503 (18 February 2004)

N2503

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]

APPEAL CIA 393 OF 2000

BETWEEN:

CONTINENTAL TRADING LIMITED
Appellant

AND:

DEWE PATSY trading as P.S.B. TRADE STORE
Respondent

Lae: Manuhu, AJ
2003: September 25 &
2004: February 18

DECISION

APPEAL – Appeal from District Court - Contract of sale –Sale of generator - Terms of contract – Implied terms –Passing of title – Breach of contract – Liability of agent – ‘Liquidator’ – Auction sale of generator - Common law duty of care.

Cases cited:
ANZ Banking Group (PNG) Ltd v Kila Wari (Salika AJ, 16 February 1990, N801, unreported).
Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] EWCA Civ 9; [1971] 2 All ER 633.
Railway Commissioners (New South Wales) v. Orton [1922] HCA 16; (1922) 30 CLR 422.
Thomson v. Davenport [1829] EngR 344; (1829) 9 B. & C. 78; 109 E.R. 30.
Toplis & Harding Pty Ltd v. Dadi Toka and Grandsen [1982] PNGLR 321.

Counsel:
Mr. P. Ousi, for the appellant.
Ms. S. Maliaki, for the respondent.

18 February 2004.

MANUHU, AJ: This is an appeal against a decision of the Lae District Court which awarded K600.00 plus interests and costs in favour of the respondent who had sued the appellant for K3,172.40 as refund of the purchase price of a new generator. The grounds of appeal are:

"1. The decision as to liability and quantum are against the weight of the evidence.

2. That on the reasoning of the Magistrate’s liability and amount awarded cannot be sustained.
   
3. The Magistrate failed to consider the overwhelming evidence of the Appellant that the sale of the generator was authorized by the Respondent.
   
4. The Decision as to liability and the awarding of the K600.00 resulted in a substantial miscarriage of Justice to the Appellant."
   

BACKGROUND

The respondent bought a new generator from a Pacific Merchants Limited (PML) for K3,172.40 on 18th November 1994. After only four days, the generator developed certain mechanical problems that affected its performance. The respondent returned the generator to PML for repairs and or reimbursement of the purchase price. That however did not eventuate.

While that dispute remained unresolved, PML went into ‘liquidation’ in or around 24th July 1995. All of PML’s remaining stocks, which included electrical goods, were seized by the appellant as instructed by PML’s supplier, Docke & Co. (Docke) in Germany. The appellant was further instructed to sell the goods on behalf of Docke.

The subject generator was one of the goods seized by the appellant. The appellant says that the generator was removed for safekeeping but it is unclear if the appellant then knew that the generator belonged to the respondent. If the appellant knew that the generator belonged to one of PML’s customers, it could not have removed it to its premises. The appellant did not only remove it but also had it repaired. Again, if the appellant knew that the generator belonged to one of PML’s customers, it could not have repaired it "free of charge". In the circumstances, it is reasonable to infer that the appellant seized the generator on the basis that it was one of the goods it had been authorized to seize.

Fortunately, the respondent presented herself at the appellant’s premises and pursued her claim for reimbursement of the purchase price. The respondent did this on a number of occasions. The appellant refused to reimburse her on the basis that the generator was not bought from them. Eventually, the generator was sold by the appellant by auction for K214.00. The appellant says it was authorized by the respondent to sell it. The respondent refused to accept K214.00 from the appellant and maintains that the appellant was not authorized to sell the generator. Hence, the claim in the District Court, against which, the appellant counter-claimed for costs of transportation of generator from Taraka to Lae, costs of repair, and, storage at K100.00 per week for 2 years.

ISSUES

The claim and counter-claim may be resolved by ascertaining the nature of any relationship, and the consequential legal obligations, between the parties. In particular, it has to be determined whether the appellant was legally required to refund the purchase price of the generator to the respondent. However, it is first necessary to determine the terms and obligations arising out of the original transaction between the respondent and PML. Secondly, on the basis that PML was only selling goods on behalf of Docke in Germany, it has to be determined whether that relationship affects PML’s obligations, if any, to the respondent under the contract of sale.

PURCHASE OF GENERATOR

The contract

The initial transaction was between the respondent and PML. The generator was bought on 18th November 1994. The description of the generator and the purchase price do not give rise to any issue. The respondent gave K3,172.40 to PML and the respondent took delivery of a brand new generator. The generator was new and was expected to be in a satisfactory working condition. However, the generator developed problems in just four days. The respondent then returned the generator to PML which accepted the return of the same. By such conduct, I am of the view that PML had acknowledged its failure to meet its contractual obligation, which was to supply a brand new generator (without any defect).

Implied terms of contract

However, not all breaches result in automatic repudiation of contract. Relevantly, there may be other terms that deal with certain disagreements and disputes between the parties.

In this case, in accepting the return of the generator, it must have been an implied term of the contract that the respondent was given a certain reasonable period to trial the generator. Where the generator was found to be defective during the trial period the respondent was entitled to return it to PML. The return of the generator was not without further obligations on the part of PML. Primarily, PML’s implied obligation was to ensure that the respondent’s expenditure of K3,172.40 was not in vain. And there were several ways of satisfying this implied obligation. First, PML was obliged to reimburse the respondent. Secondly, the generator should have been replaced with a better one. Thirdly, appropriate repair work at PML’s expense should have been done on the generator and the same returned to the respondent. Whatever option it should have taken, PML was further impliedly obliged to respond to the respondent’s demise within a reasonable period.

Effectively, it was a further term of the contract that title in the generator passes only provisionally at the time of delivery. This is evident from the appellant’s conduct in accepting the return of the generator. Such inference may not be possible if the appellant had refused to accept the return of the generator and or had referred the respondent to a repair shop. It should be noted that the appellant was not operating a repair shop. Thus, title in the property was did not pass onto the respondent at the time of delivery; and when PML accepted the return of the generator, no title had passed onto the appellant.

Breach of contract

However, after the return of the generator, PML completely failed to keep its side of the bargain. It did not take appropriate action about the respondent’s predicament. At least by 24th July 1995, more than ten months later, when Docke wrote to PML about the ‘liquidation’ process, PML had not done anything about the subject generator. In these circumstances, the respondent was entitled to sue PML for breach of contract and should recover the purchase price of the generator in full. In other words, the appellant owes the respondent the sum of K3,172.40.

AGENCY

The problem with suing PML, however, is that PML was merely an agent of Docke in Germany, and may not be liable. According to the appellant, the goods were not the property of PML as PML had not paid for them. They were still the property of Docke when the appellant was engaged to sell them. It is therefore necessary to consider whether PML, as an agent, could avoid prosecution for breach of contract.

In general, an agent cannot be made liable on an obligation incurred by or cast upon the principal in his own name and not in the name of the agent: Railway Commissioners (New South Wales) v. Orton.[1] However, where an agent contracts without disclosing the agency, he, together with the principal, may be sued. The relevant principles were discussed in a real estate case of Toplis & Harding Pty Ltd v. Dadi Toka and Grandsen,[2] where it was stated:

"How far an agent can commit his principal forms the essential core of the whole law of agency in contract. Most of the law centres around whether the principal has actually been committed by the agent. In the case of Pole v. Leask (1863) 33 L.J. Ch. 155, the House of Lords unanimously laid down that if a person deals with another as agent and seeks to charge a third person as principal, the onus is on him to show that the agency exists, that the agent has the authority he assumes to exercise, or that the principal is estopped from disputing it.

"It is then a fundamental concept of the law of contractual agency that once an agent brings his principal into contact with the third party, he himself normally drops out and retains neither the right to sue nor the liability to be sued. The converse of that would be that where he does not bring forward his principal or conceals his existence, he must therefore be liable. (my emphasis)

Furthermore, in situations where at first only the agent is known, and then the principal is revealed, the principal may later be sued. In Thomson v. Davenport,[3] Lord Tenterden C.J. stated:

"I take it to be a general rule, that if a person sells goods (supposing at the time of the contract he is dealing with a principal), but afterwards discovers that the person with whom he has been dealing is not the principal in the transaction, but agent for a third person, though he may in the mean time have debited the agent with it, he may afterwards recover the amount from the real principal; ..."

In this case, there is no evidence that the agency between Docke and PML was disclosed to the respondent at the time the generator was sold. The respondent no doubt has now become aware of the agency between PML and Docke. It is however practically difficult for the respondent to recover from Docke which is based in Germany. Be that as it may, of immediate relevance is that, as the authorities demonstrate, PML’s liability under the contract of sale is not diminished by the agency.

LIABILITY

However, Cocke and PML are not parties to the case. In their stead, the appellant has been sued. The appellant did not sell the generator to the respondent and, as such, does not owe the respondent any contractual obligations. Pertinently, therefore, on what legal basis could the respondent’s claim be sustained against the appellant?

I am of the view that the law is not blind, and the courts are empowered to take all reasonable steps, including the power to make laws, to ensure that justice prevails. In that connection, I am of the view that, in the absence of contract between the parties, the appellant’s liability may be determined by ascertaining whether the appellant owed the respondent any duty of care as a ‘liquidator.’

Firstly, there is evidence that the appellant was appointed as ‘liquidator’ on behalf of Docke in Germany. There is further evidence that PML knew of this arrangement and cooperated in the removal of goods from its premises to the appellant’s premises. It is not clear if the appointment of the appointment of the appellant as liquidator conformed with the requirement of the Companies Act. Under the Companies Act, the principal duty of a liquidator of a company is to take possession of, protect, realise, and distribute the assets, or the proceeds of the realisation of the assets, of the company to its creditors.[4] The Act then sets out the necessary procedures to ensure that this principal duty is adhered to. One of those procedures is to organize a meeting for the creditors[5] so that a creditor is given the opportunity to lodge claims against the company in liquidation. There is no evidence that these steps were taken by the appellant either as a liquidator or receiver.

In any event, when the appellant seized the generator and other goods, PML was not able to fulfil its contractual obligations to the respondent. On the other hand, the appellant was in a position to realize proceeds from sales as instructed by Docke and settle what was owing to any PML’s customer in similar position as the respondent. What is owed to the respondent could likewise be settled by the appellant. Unfortunately, the appellant did not see things this way.

Secondly, it is disputed whether the respondent authorized the appellant to sell the generator. From the transcript of evidence given before the District Court, I am inclined to accept the appellant’s contention that it was authorized to sell the generator. Whatever the case, the appellant did sell the generator and, when it did, certain legal obligations run parallel with such power to sell. Relevantly, as a ‘liquidator’, the appellant owes a duty of care towards the respondent to ensure that the generator was sold at a reasonable price; and to ensure that what is owed to by PML to the respondent is settled.

In Cuckmere Brick Co Ltd v Mutual Finance Ltd[6] ("Cuckmere"), it was held that a mortgagee has a duty of care in exercising its power of sale to obtain a fair price for the property. In ANZ Banking Group (PNG) Ltd v Kila Wari,[7] the plaintiff bank sued the defendant for the repayment of a loan advance after it had exercised its power of sale. The proceeds of the sale were not sufficient to offset the loan. The defendant cross-claimed on the basis that the bank was negligent in selling the property at an under-value. Applying the principle in Cuckmere, the bank was found to be negligent in failing to exercise reasonable care to obtain a fair market price for the property.

The cases referred to are mortgagor-mortgagee situations. However, the relevant similarity with the present case is the nature of duty upon the person exercising the authority or power to sell property on behalf of others. In both situations, there was a duty of care to ensure that a fair price for a property is obtained.

In this case, the appellant was legally obliged to sell the generator at a fair price. The appellant must have known from numerous representations by the respondent that the generator was bought for K3,172.40, which is a lot of money. The generator was used for only four days. It should have been as good as new. It was, however, sold for a mere K214.00. To a reasonable man, the resale price is grossly unreasonable. When the appropriate offer was made, a reasonable man selling the generator would not have permitted the finalization of the auction sale without prior consultation with the respondent. A phone call to the respondent would have been sufficient for this purpose so that the appellant may be discharged from accusations of failing to exercise reasonable care. In not consulting the respondent, the appellant acted contrary to ‘customer-friendly’ values, has demonstrated an uncaring attitude - an attitude that ignores the apparent financial harm that was about to be done to the respondent.

In all the circumstances, I am satisfied that the appellant failed to discharge his common law duty of care and was responsible for the financial loss suffered by the respondent.

COUNTER-CLAIMS

The appellant counter-claimed for costs of transportation of generator from Taraka to Lae at K50.00, costs of repair of the generator at K200.00, and, storage at K100.00 per week for 2 years, at K520.00. The appellant took possession of the generator at more than ten months since it was returned by the respondent. It has been determined that property in the generator did not pass onto the respondent. PML may have thought otherwise. The appellant may have thought otherwise. However, as property in the property did not pass onto the respondent, the respondent cannot be held liable for transportation, repair costs and storage. The appellant was able to and should have settled all those claims with PML and or Docke. Accordingly, I find no basis for the counter-claims against the respondent.

ASSESSMENT

What is due to the respondent is already apparent from the discussion. It has been determined that title in the generator did not pass onto the respondent and the respondent’s expenditure of K3,172.40 must not result in nothing. It has been determined that the respondent was entitled to full reimbursement. Replacing or repairing the generator were practical options in 1994 and 1995 but are now not feasible. It has been about ten years since the subject generator was purchased from PML. In all the circumstances, I am of the view that the quantum of appellant’s liability is equivalent to the purchase price of the generator, which is K3,172.40.

By virtue of my powers under Section 230 of the District Courts Act I quash the order of the Lae District Court and substitute it with an order that the appellant pay K3,172.40 together with interests and costs to the respondent.

Orders accordingly.

_______________________________________________________________________

LAWYER FOR THE APPELLANT : WARNER SHAND

LAWYER FOR THE RESPONDENT : PUBLIC SOLICITOR

^[1] [1922] HCA 16; (1922) 30 CLR 422 at p. 426.
^[2] [1982] PNGLR 321.
^[3] [1829] EngR 344; (1829) 9 B. & C. 78; 109 E.R. 30 at p. 33.
^[4] Section 303.
^[5] Section 293.
^[6] [1971] 2 All ER 633.
^[7] (Salika AJ, 16 February 1990, N 801, unreported).