Kui Valley Business Group Inc v Wamugl [2009] PGNC 62; N3667 (6 March 2009)

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CONTRACT LAW - Breach of contract - Oral contract - Supply of goods on credit basis - Unpaid costs of supply of goods - Parties to contract

LAW OF AGENCY - Liability of principal and agent - Whether agent entering into contract has ostensible authority

EVIDENCE - Proof of debt - Onus on party claiming damages - Based on the balance of probabilities - Defendant denies existence of debt - Whether there is evidence establishing debt - Reason for failure to produce invoices and outstanding account unsatisfactory - Debt not proven - Entire action dismissed.

Toplis & Harding Pty Ltd -v- Dadi Toka & Grandsen (Third Party) [1982] PNGLR 321
Sangara (Holdings) Limited -v- Hamac Holdings Limited (In Liquidation) [1973] PNGLR 504
AGC (Pacific) Limited -v- Woo Textile International Pty Limited [1992] PNGLR 100
Yange Lagan -v- The State (1995) N1369
Jonathan Mangope Paraia -v- The State (1995) N1343

1. MAKAIL J: This case is about unpaid supply of goods (building materials) by the Plaintiff to the Defendant dating back to 30th January 1997. The Plaintiff is a business group and carried on business as a supplier of building materials through its wholesaling and retailing stores in the town of Kundiawa in the Chimbu Province of Papua New Guinea. The Defendant is a company and inter alia carried on business in the building and construction industry and also based in Kundiawa.

2. The Plaintiff alleged on or around 1996, the Defendant entered into an oral credit facility contract with the Plaintiff where it obtained building materials from the Plaintiff on credit and paid the Plaintiff whenever money became available. The Defendant used the building materials to build and construct buildings and also to maintain and repair buildings for its customers. The contract ran for a period of time until the Plaintiff claimed that the Defendant failed to pay a sum of K11,611.57 on 30th January 1997 after it collected building materials consisting of timbers, cement and roofing irons etc.. to build a house for a customer. As a result, the Plaintiff terminated the credit facility contract with the Defendant and demanded the Defendant to pay up. Despite numerous requests, the Defendant failed to pay up, hence it issued this proceeding.

3. Sometimes after it issued this proceeding, it went into liquidation and a liquidator was appointed by the Court to run its affairs until the liquidation was terminated by the Court on 14th March 2008.

4. Trial was conducted on both the question of liability and quantum. A Mr. Kuri Arimba gave brief oral evidence on behalf of the Plaintiff and his Affidavit sworn on 11th November 2005 and filed on 14th November 2005 was also admitted into evidence and marked as Exhibit "P1". Mr. Arimba is the Managing Director of the Plaintiff. Briefly, he said that Messrs Kerry Wamugl and Wala Gama used to come to his office to get building materials on credit. The Plaintiff would supply the building materials to Messrs Wamugl and Gama and after completion of a contract for building and construction or maintenance and repair of buildings, they would pay the Plaintiff. In this case, he said after completion of a building and construction contract, they had not returned to pay for the building materials supplied to them on credit. This is the debt of K11,611.57. He also attached a letter written by Mr. Wamugl under the letter head of Kaiange Builders & Contractors dated 27th March 2000 to the Plaintiff where Mr. Wamugl said that the debt incurred by the Defendant would be paid.

5. A witness by the name of James Wai also gave brief oral evidence for the Plaintiff and his Affidavit sworn on 11th November 2005 and filed on 15th November 2005 was also admitted into evidence and marked as Exhibit "P4". This witness is the Manager of the Plaintiff. He said that he is aware that building materials were supplied to the Defendant upon request and Mr. Gama used to come and collect them. The building materials were obtained on credit basis and the amount owing would be paid upon completion of a building and construction or maintenance and repairs contract. He said that Messrs Wamugl and Gama were partners who split up sometimes later and left a debt of K11,611.57.

6. Although objections were raised by counsel for the Defendant as to the tendering of a letter from the Internal Revenue Commission to the Liquidator dated 15th June 2007 and another letter from the Plaintiff to Kopunye Lawyers dated 19th December 2000, the objections were overruled and these two documents were admitted into evidence and marked as Exhibits "P2" and "P3" respectively.

7. For the Defendant, a Mr. Kerry Wamugl gave brief oral evidence and his Affidavit sworn on 01st May 2006 and filed on 04th May 2006 was admitted into evidence and marked as Exhibit "D1". He is the Managing Director of the Defendant. He is also a shareholder of the Defendant and the other shareholder is his wife, Mrs. Monica Wamugl. He said that the Defendant is not liable for the debt because first, the building materials allegedly supplied by the Plaintiff were not received by the Defendant. Secondly, the Defendant was awarded a contract to construct a building and it engaged Wala Gama to assist in the construction of a building, but Mr. Gama had no authority to enter into the credit facility contract.

8. Thirdly, he also said that the Defendant had not entered into any credit facility contract with the Plaintiff. This is because the Defendant had sufficient funds to pay for the building materials from the Plaintiff and it paid for all of them either in cash or by cheque. He attached copies of cheque butts and a Bank Statement to verify payments it made to the Plaintiff. Fourthly, he said that if there was a credit facility contract with the Plaintiff, it was Mr. Gama who had entered into it but it was not authorized by the Defendant. If Mr. Gama obtained building materials on credit, he had not used them for the benefit of the Defendant but for his personal benefit by building himself a house in Mt Hagen. Further, he said that the Defendant had paid K36,000.00 to Mr. Gama on 29th November 1997 and he believed Mr. Gama may have used the money to buy the building materials.

9. Finally, he said in no uncertain terms that the letter of 27th March 2000 which he wrote to the Plaintiff was written on condition that if the Plaintiff entered into a credit facility contract with his new company called Kaiange Builders & Contractors, he would settled the debt incurred by Mr. Gama. This he said was to renew relationship with the Plaintiff that had eroded away when Mr. Gama had failed to pay the debt to the Plaintiff.

10. The second witness for the Defendant was Mrs. Monica Wamugl who also gave brief oral evidence and her Affidavit sworn on 01st May 2006 and filed on 04th May 2006 was also admitted into evidence and marked as Exhibit "D2". She is also a shareholder of the Defendant and wife of Mr. Kerry Wamugl. Under the banner of the Defendant, she said she and her husband had operated a kai bar and a second hand clothing shop in Kundiawa. She said that Mr. Gama had approached her and her husband and asked them to go into building and construction business which they agreed. She said that Mr. Gama used the name of the Defendant to bid for contracts in the Chimbu Province and where the Defendant was awarded contract to build or carry out maintenance and repair of buildings and got paid, the proceeds were shared between the Defendant and Mr. Gama.

11. Like her husband, she also said that the Defendant had not entered into a credit facility contract with the Plaintiff. This is because the Defendant had sufficient funds to pay for the building materials obtained from the Plaintiff and it had paid for all its buildings materials either in cash or by cheque. She attached a copy of the Bank Statement to verify payments it made. Next she said that if there was a credit facility contract with the Plaintiff, it was Mr. Gama who had entered into it but it was not authorized by the Defendant. If Mr. Gama obtained building materials on credit, he had not used them for the benefit of the Defendant but for his own personal benefit because he had used them to build a house in Mt Hagen. Further, she said that the Defendant had paid K36,000.00 to Mr. Gama on 29th November 1997 and she believed that Mr. Gama may have used the money to buy the building materials.

12. Jonathan Gariame was the final witness for the Defendant. He also gave brief oral evidence and had his Affidavit sworn on 01st May 2006 and filed on 04th May 2006 admitted into evidence and marked as Exhibit "D3". He was employed as a supervising carpenter by the Defendant. He does not recall collecting building materials on credit from the Plaintiff. On the other hand, he said that the Defendant had always paid for them. He said that he went to Mt Hagen and helped to build a house for Mr. Gama but was not paid for the work.

14. Counsel for the Plaintiff submitted that there is sufficient evidence to establish that the Defendant is liable for the debt. First, he submitted that the Defendant does not deny the existence of the debt. This is because Mr. Wamugl had admitted in a letter dated 27th March 2000 that the Defendant is willing to settle the debt. Secondly, Mr. Gama is either an employee of the Defendant or a partner in the Defendant, and as such had authority to incur the debt on behalf of the Defendant. It was Mr. Gama who entered into the contract and as an employee or partner of the Defendant, he had bound the Defendant to the contract, hence the Defendant is liable for the debt. It is not the responsibility of the Plaintiff to conduct an inquiry into the affairs of the Defendant to find out whether Mr. Gama had the authority of the Defendant to enter into the contract. For to do so would be placing a burden on the Plaintiff to carry on its business with the Defendant. Finally, the Plaintiff had supplied the building materials to the Defendant over a period of time and had accumulated the debt.

15. For these reasons counsel submitted that the Court should find the Defendant liable for the debt. But I note from the written submission, counsel has not made submissions on the issue of whether or not Mr. Gama had ostensible authority to enter into the contract and incur the debt on behalf of the Defendant, in particular the circumstances that may give rise to establishing Mr. Gama’s ostensible authority.

16. Counsel for the Defendant submitted that the Defendant is not liable for the debt because it did not authorize Mr. Gama to incur the debt nor was it aware that Mr. Gama had incurred the debt until the Plaintiff brought it to its attention after Mr. Gama had left the Defendant’s employment. He submitted that the Defendant had sufficient funds in its’ operations where it used to purchase building materials from the Plaintiff, thus there was no reason for it to obtain building materials on credit basis.

17. Counsel referred to the evidence of Bank Statements and cheque butts of the Defendant to support his contention that the Defendant had sufficient funds to carry on business including purchasing of building materials from the Plaintiff. If Mr. Gama had obtained building materials from the Plaintiff, then it was a private arrangement between him and the Plaintiff or it was not authorized by the Defendant.

18. Further, in relation to quantum, he submitted that the Plaintiff has not proven the debt because first, there are no invoices produced to show that the Defendant incurred the debt and secondly, the kind of building materials supplied by the Plaintiff to the Defendant, the quantity supplied and of course the date or dates of supply. Thirdly, there is no evidence of the details of payments received like receipts and amount outstanding being produced and finally, there is no evidence of a letter from the Plaintiff to the Defendant showing the alleged debt or a contract of the credit facility been produced. For these reasons, counsel submitted that the Defendant should not be held liable for the debt. But again, in his written submissions I note this counsel has not made submissions on the issue of whether or not Mr. Gama had ostensible authority to enter into the contract and incur the debt on behalf of the Defendant. More so, there are no submissions showing the circumstances giving rise to Mr. Gama’s ostensible authority.

19. From the evidence and submissions of both parties, I consider that before I can find the Defendant liable for the debt, I must decide the following issues first:

1. whether or not Mr. Gama had ostensible authority to enter into a credit facility contract on behalf of the Defendant; and

20. This is a case of breach of contract where the Plaintiff alleged that it entered into an oral credit facility contract with the Defendant to supply building materials to the Defendant. From the brief oral evidence and also the Affidavits of the witnesses of both parties, the following facts are not in dispute; the Plaintiff is a business group and carried on business as a supplier of building materials through its wholesaling and retailing stores in the town of Kundiawa whilst the Defendant is a company and inter alia carried on business in the building and construction industry and also based in Kundiawa. The Plaintiff supplied building materials to the Defendant on numerous occasions and the Defendant used the building materials to build and construct or carry out maintenance and repair work on buildings for its (Defendant’s) customers.

21. At some stage, the Defendant engaged the services of Mr. Gama to do some work for it because Mr. Gama had valuable experience in the building and construction field. Prior to also moving into the building and construction business, the Defendant operated a kai bar and second hand clothing shop in Kundiawa. What is also not in dispute is that, Mr. Gama entered into an oral credit facility contract on behalf of Defendant with the Plaintiff for the supply of building materials by the Plaintiff to the Defendant. Sometimes after it issued this proceeding, it went into liquidation and a liquidator was appointed by the Court to run its affairs until the liquidation was terminated by the Court on 14th March 2008.

22. What is in dispute is first, whether Mr. Gama had ostensible authority to enter into a credit facility contract on behalf of the Defendant. The Defendant denied incurring the debt and if Mr. Gama had incurred the debt, it denied that Mr. Gama had the authority to incur the debt on behalf of the Defendant. Secondly, the Defendant claimed that it had sufficient funds to conduct its business activities, hence there was no reason for it to enter into a credit facility contract with the Plaintiff to obtain the building materials for its work. Finally, even if the Court found that Mr. Gama was authorized to enter into the credit facility contract on behalf of the Defendant, the Defendant claimed that the Plaintiff has not proven its debt.

23. I proceed on the premise that the Defendant engaged the services of Mr. Gama and there was a credit facility contract between the Plaintiff and the Defendant. Hence, the first issue I have to determine is whether or not Mr. Gama was authorized by the Defendant to enter into the credit facility contract with the Plaintiff. This is where the law of agency is of relevance. 24. In Toplis & Harding Pty Ltd -v- Dadi Toka & Grandsen (Third Party) [1982] PNGLR 321, His Honour Woods AJ, (as he then was) dealt with a case where the Defendant, a real estate agent obtained deposit money for a property from the Plaintiff but failed to deliver up the property to the Plaintiff to lease. The property was sold to a third party and the Plaintiff requested for the return of the deposit money from the Defendant. The Defendant failed to return it, claming that the money was given to the principal. The Plaintiff sued the Defendant for the return of the money and the Defendant sought to join the principal, one Grandsen as a third party saying that he had accounted to her for the money. Since the Plaintiff had all along been negotiating the lease of the property with the Defendant, hence the principal had not been disclosed to the Plaintiff, the issue at trial was whether the principal of the Defendant should be held liable for the return of the money. His Honour said this:

"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.

Cases do cover where at first only the agent is known, and then the principal is revealed. In Thomson v. Davenport [1829] EngR 344; (1829) 9 B. & C. 78; 109 E.R. 30 at p. 33, Lord Tenterden C.J. states:

"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; ..."

(Lord Tenterden then goes on to cover the case when knowing the agency and knowing the principal, the party elects to choose the agent as his debtor, then having made the election and losing against the agent, he cannot then proceed against the principal.)

"The general principle is, that the seller shall have his remedy against the principal, although he may by electing to take the agent as his debtor, abandon his right against the principal."

25. In the case before me we have an oral contract between the agent of the Defendant and the manager of Plaintiff, where Mr. Gama as an agent of the Defendant has deliberately not brought his principal into contact with the Plaintiff. Must he therefore still assume liability? In this respect, I note the Plaintiff’s counsel’s submission that the Plaintiff has elected to sue the Defendant rather than the agent, Mr. Gama because Mr. Gama was merely an agent of the Defendant and the Defendant should be responsible for Mr. Gama’s actions. That being the Plaintiff’s position, I will proceed on the basis that the Plaintiff is suing only the Defendant and any decision I make will only bind the Defendant.

26. In the case of Sangara (Holdings) Limited -v- Hamac Holdings Limited (In Liquidation) [1973] PNGLR 504, the Supreme Court (per Frost & Prentice JJ), held that a party relying upon the rule in Royal British Bank -v- Turquand (1856), 2 El. & Bl.; 119 E.R. 866 bears the onus of establishing itself within the principles of the case. In oral contracts, the question of the existence or non-existence of the agent’s liability is a question of fact. See Lakeman -v- Mountstephen [1874] UKLawRpHL 4; (1874) L.R. 7 H.L. 17. In this case, I can see from the submissions of counsel for the Plaintiff that he relied on the rule in Turquand’s case (supra) although he does not expressly state so. So, what is the rule in Turquand’s case (supra)?

27. A useful exposition of this rule was given by His Honour Sakora AJ, (as he then was), in the case of AGC (Pacific) Ltd -v- Woo International Pty Ltd [1992] PNGLR 100 where His Honour said:

"It has been accepted in this jurisdiction that, where a person dealing with a company acts in good faith and with no notice of reasonable grounds for suspicion of irregularity or impropriety, he is not affected by any actual irregularity or impropriety in a matter of internal regulation: Sangara (Holdings) Ltd -v- Hamac Holdings Ltd (In Liquidation) [1973] PNGLR 504. This proposition is sometimes referred to as the rule in Turquand's case: Royal British Bank -v- Turquand (1856) 6E and B 327; [1856] EngR 470; (1856) 119 ER 886. The substance of this rule is that a third-party dealing with the company is not bound to ensure that the internal regulations (derived from, inter alia, the articles of association) have in fact been complied with as regards the exercise and delegation of authority in the company". (Underlining is mine).

28. His Honour went on to discuss the principles of ostensible authority of an agent in this way:

"And in relation to contractual obligations arising out of the acts or actions of the employees or officers of the company, the liability arises out of the operation of the doctrine of ostensible (or apparent) authority. The learned editors of the CCH Reporter have stated (2, 220) that:

"The authority of a person to bind his company depends on what would usually be done by a person in his position. Thus, any person having dealings with an officer or other servant of the company should be confident that the type of transaction is one which would normally fall within the ordinary scope of the authority of such officer."

Directors and other officers have obviously a greater ostensible authority than the more humble lowly employees. Ostensible authority is important in most matters involving third parties because the rule in Turquand's case relieves outsiders from inquiring into the internal management of a company. H A J Ford, in his Principles of Company Law, 3rd ed (1981) says (p 518) that a company will be bound by the act of a person to whom it has given apparent or ostensible authority even though that person may not have actual authority to bind the company. Thus "responsible" officers of the company have the apparent authority to bind the company by contract. Actual authority is a matter between an officer and his company. His ostensible authority is of more significance to an outsider, a third party".

29. G H L Fridman in his text book, The Law of Agency, Butterworths (3rd ed 1971) at p 272 wrote:

"Where the outsider is trying to make the company liable on a contract made by the agent not within the scope of an authority which such agent would usually have, the position would seem to be different. For here everything depends upon the operation of the doctrine of estoppel. The outsider is not trying to set up any implied authority of the agent in question; he is trying to show that the person with whom he dealt with had apparent authority to act as he did. These means that there is some representation either in public documents of the company, or as a result of some conduct by the company, including, possibly, the director himself with whom the outsider relied when he contracted, believing that the agent was acting within the scope of his actual authority when all the time it only "appeared" as if the agent had such actual authority". (Underlining is mine).

"Since the operation of the doctrine of agency by estoppel depends upon the outsider’s belief in the agent’s authority, it follows that, if the outsider has actual knowledge of the contents of the documents, and these documents make it appear that the agent had the authority in question, apparent authority on the agent’s part can be alleged by the outsider so as to bind the company by what the agent did. The same result would follow if the outsider obtained the impression from other affairs (not the public documents) that the agent had authority".

31. In Turquand's case (supra), the company's articles empowered the directors to borrow such sums as were authorised by an ordinary resolution of a general meeting. The directors issued a bond to Turquand, from whom they borrowed money. The bond was under the company's seal, but no resolution was passed by the company authorising it. The company was held bound by the act of the directors.

32. It should be remembered that a third party has no means of knowing whether an ordinary resolution has been passed by the company. He can he read the memoranda and study the vires, and inspect the register of charges, or discover whether a special or extraordinary resolution has been passed. He can read the articles of association and obtain particulars of the directors. But he cannot know, unless he has been told, whether an ordinary resolution such as was required in the Turquand’s case (supra) has been passed by a general meeting. The loan therefore was clearly within the powers of the company. The company therefore, had the necessary capacity. And it was also clear that the directors had the necessary authority. A third-party need go no further: he need not make sure that the rules of internal management - sometimes referred to as the rules of "indoor management" - have been observed.

33. If the principal places secret restrictions on the apparent authority of his agent, they do not affect the third-party: the third-party need not take steps to ensure that there are no such restrictions, for this would make the carrying on of business a practical impossibility. It is the directors and managers who represent the mind and will of the company and control what they do. The state of mind of these managers is the state of mind of the company and is treated by law as such: See HL Bolton (Engineering) Co Ltd. -v- T. J. Graham and Sons Limited [1956] 3 All ER 624.

34. The constitution of a company determines the authority which can be conferred on an officer or agent, the "indoor management" rule can operate only within the limits prescribed by the company's constitution. In Mahony -v- East Holyford Mining Co [1875] UKLawRpHL 22; (1875) LR 7 H.L. 869, at 893-894, Lord Hatherley held it to be settled. In this case, a copy of the Memorandum of Association of the Defendant has been put before the Court and I have read it. It is marked Annexure "A" to the Affidavit of Kerry Wamugl (Exhibit "D1"). One of the objects of the Defendant is "To buy, sell, assemble and deal in and with goods, wares and merchandise of every kind and description and to enter into contracts, agreements of any kinds with any person, corporation, partnership, firm or association". Thus, in my view, the Memorandum of Association is wide enough to cover operations of the Defendant in the building and construction business where it may buy and deal with building materials including entering into contracts. It follows, by its very own Memorandum of Association, the Defendant is mandated or authorized to buy and deal with building materials including entering into the credit facility contract.

35. I consider that it is not relevant whether the Board of Directors, be it Mr. and Mrs. Wamugl or some other directors had passed a resolution for the Defendant to enter into the credit facility contract, hence the obtaining of building materials on credit basis. It is also not relevant whether the Board of Directors had approved Mr. Gama as the person to enter into the credit facility contract. These factual matters do not determine whether or not Mr. Gama had ostensible authority to enter into the credit facility contract with the Plaintiff. What is relevant however and has made me conclude that Mr. Gama had ostensible authority to enter into such a contract is that, first, the building materials were obtained from the Plaintiff. Mr. Gama acted in the usual way the Defendant would have acted and that is, to obtain building materials from the Plaintiff to carry out its work as a building and construction business group. In other words, Mr. Gama had represented to the Plaintiff in the way he had acted by requesting the Plaintiff to obtain building materials on credit basis that he had the authority of the Defendant to do so.

36. Therefore, I conclude that what Mr. Gama had done was in line or consistent with the Memorandum of Association of the Defendant and I am satisfied on the balance of probabilities that he had ostensible authority on behalf of the Defendant to enter into such a contract. This also leads me to the second reason to conclude that Mr. Gama had ostensible authority to bind the Defendant when he entered into the contract and that is, it is clear from the evidence of first, Mr. Wamugl in paragraphs 5, 6 and 7 of his Affidavit (Exhibit "D1") that the Defendant engaged the services of Mr. Gama to carry out building and maintenance work for a number of contracts Mr. Gama had applied for under the name of the Defendant.

37. In my view, it is not relevant for me to decide what position Mr. Gama held in the Defendant like if he was a partner or a consultant or simply an employed carpenter but what is relevant and is not disputed by both parties here is that, Mr. Gama was engaged and worked for the Defendant. As I said above, according to Mr. Wamugl’s evidence in paragraphs 5, 6 and 7 of his Affidavit (Exhibit "D1"), he said that on or around March 1996, a carpenter, building constructor by the name of Mr. Gama from Central Province approached him and requested him to assist him with purchasing of building materials to carry out maintenance work for a number of contracts he had applied for by using the name of the Defendant and any payments for the work will be made to the account of the Defendant. Mr. Wamugl agreed to the arrangement and funds of the Defendant were used to purchase the building materials to enable Mr. Wala to carry out the work.

38. In cross examination by counsel for the Plaintiff in relation to Mr. Gama’s engagement by the Defendant, Mr. Wamugl gave the following answers which confirmed Mr. Gama’s engagement as follows:

Ans: He is a builder, being in Kundiawa for sometimes, got aquatinted with him through our family.

39. Secondly, according to Mrs. Wamugl’s evidence in paragraph 4 of her Affidavit, the Defendant paid Mr. Gama commission for every awarded contract to the Defendant. I perceive his background in the building and construction field may have been the determining factor to engage him in that capacity and this would have been the case because as Mrs. Wamugl deposed in paragraphs 2, 3, 4 and 5 her Affidavit (Exhibit "D2") that on or around March 1997, they were approached by Mr. Gama to enter into a construction company and they did so as at that time, they were only operating a Kar Bar and Second Hand Clothing Shop within the township of Kundiawa. The relevant parts of the Affidavit from paragraphs 2, 3, 4 and 5 read as follows:

"2. On or around March 1997, my husband and myself was (sic) approached by Mr Wala Gama from Central to enter into a construction company.

3. My husband and I were operating a Kar Bar and Second Hand Clothing Shop within the township of Kundiawa.

4. My husband and myself are the only two (2) Directors to the said company and had approved to provide funds in the event that all proceedings were to be paid into Simjay Ltd and that he was to be paid by the company and that for every contract awarded, he was to be paid in commission basis.

40. This position is also apparent from the answers given by Mrs. Wamugl where she was asked the following questions by counsel for the Plaintiff during cross examination about the engagement of Mr. Gama:

Ans: Wala was a carpenter and we did not know carpentry work. He had no money; he came in and we assisted him with finance. We do business in kai bar and second hand.

Ans: Wala is married to a lady from Hagen. I am from Hagen. Wala had no job so out of pity, we helped him out".

41. Thus, it is clear from Mr. and Mrs. Wamugl’s evidence that the Defendant’s only form of business operations were in the kai bar and second hand clothing prior to meeting Mr. Gama. It was only after Mr. and Mrs. Wamugl met and engaged Mr. Gama that they under the name of the Defendant ventured into the building and construction business. It is also clear to me that the terms of the engagement of Mr. Gama are that first for him to use the name of the Defendant to solicit clients, secondly, for the Defendant to assist in the purchasing of the building materials, thirdly, for Mr. Gama to work as a carpenter for the Defendant and finally, any proceeds from the work would be paid to the account of the Defendant where an amount as commission would be paid to Mr. Gama whilst the rest is retained by the Defendant.

42. Apart from Mrs. Wamugl’s answers, witness Jonathan Gariame also shared the same views of Mr. Gama’s relationship with the Defendant in the following way when asked by counsel for the Plaintiff the following questions:

43. The answers of Mr. Arimba during cross examination by counsel for the Defendant into the employment relationship between the Defendant and Mr. Gama also seem to confirm this position which I set out below:

44. Weighting the evidence for and against the proposition that Mr. Gama had ostensible authority to enter into the credit facility contract on behalf of the Defendant with the Plaintiff, I am led to conclude that he had one. I make this finding despite the evidence presented by the Defendant through Mr. and Mrs. Wamugl showing that the Defendant was not in "red" so to speak at the relevant time the alleged contract was entered into between the parties. For example, there is evidence of a bank statement showing that there was sufficient funds from as early as 01st April 1996 of K4, 141.94 to 24th December 1997 of K13, 763.00. There is evidence of cheque butts, Exhibits "B1", "B2" "B3", "B4"and "B5" which also showed cheques drawn to the Plaintiff for purchase of building materials.

45. My close perusal of these cheque butts showed that payments were made to the Plaintiff between 30th January 1996 and 04th December 1997. I set out the details below to emphasis the point that the Defendant paid for the building materials from the Plaintiff:

Chq No.	Date.	Payee	Amount.
002199	30th Jan 1996	Kundiawa A Spor Kui Valley	K79.50
002175	12th Mar 1996	Padlock Kui Valley Agri Store	K167.70
055332	16th Jan 1997	Kui Valley - Paint	K403.10
035650	11th Mar 1996	Wala - B/Material	K300.00
002172	15th Mar 1996	Wala Building materials	K700.00
002163	03rd Apr 1996	Kui Valley Secretary’s Office Maintenance	K402.00
002152	26th Apr 1996	Cash Materials for Maintenance Building	K4,000.00
035703	08th May 1996	Cash Timber SKA	K60.00
002143	27th May 1996	B/Material - Contract work	K700.00
035724	11th Jun 1996	Materials	K700.00
035787	29th Nov 1996	Cash - Doors	K2,000.00
035799	17th Dec 1996	Kui Valley Purchase of B/Materials	K10,000.00
055354	02nd Feb 1997	Cash Plumbing Materials	K5,000.00
055359	18th Feb 1997	Cash - Materials	K2,000.00
055380	22nd April 1997	Cash - Materials	K200.00
0553880	22nd Apr 1997	Materials	K200.00
061112	16th Oct 1997	Materials/Wages	K4,000.00
061135	28th Nov 1997	K Valley Materials	K1,500.00
061137	04th Dec 1997	Paint - Joe’s house	K108.59

46. Excluding the cash payments, there had been 17 purchases of building materials from the Plaintiff by cheques between 30th January 1996 and 04th December 1997. Adding them all up, the total sum is K32, 520.89. Thus, it seems to me that the Defendant was financially sound in its operations and I have no reason to doubt that it had to resort to a credit facility contract with the Plaintiff to obtain building materials to carry out its work.

47. But to my mind, these are matters of indoor management which the rule in Turquand’s case (supra) speaks of. In other words, it is not necessary or relevant for the Plaintiff to conduct an inquiry into the management of the Defendant to ascertain whether or not Mr. Gama had ostensible authority to enter into the contract nor is it a defence for the Defendant that it had sufficient funds to operate, hence there was no reason for it to enter into a credit facility contract and obtain building materials on credit from the Plaintiff.

48. In this respect, it is important to take note of the answers of Mr. Arimba during cross examination by counsel for the Defendant in relation to the credit facility which I set out below:

Ans: These invoices were misplaced when liquidator came in. I only have a letter here.

Q: You commenced Court case in 1997, why didn’t you give those invoices to your lawyer in 1997?

Q: Would it be correct to say what you are claiming for are things you do not know?

Q: Is it correct to say that you do not know the dates when the items were taken?

Ans: They used to pay cash only and then got credit and that is why I am in Court ".

49. These answers clearly show that whatever indoor management arrangement the Defendant, in particular Mr. and Mrs. Wamugl and Mr. Gama had are of no relevance. But what is of relevance here is that the Plaintiff through Mr. Arimba had been dealing with either Mr. Wamugl or Mr. Gama by supplying building materials to either of them whenever they came and asked for building supplies. Even if Mr. Wamugl had not attended and asked for building materials to be supplied on credit basis, and it was Mr. Gama he had done so, it is not relevant because Mr. Gama had held himself out as a person with ostensible authority to enter into such a contract. And so under the principle of ostensible authority, there is no obligation on the Defendant as an outsider to go behind the exercise of Mr. Gama’s authority to find out whether proper formalities had been observed by Mr. Gama to procure the building materials on credit basis. In other words, the Defendant is estopped under the principle of estoppel from denying that Mr. Gama had no authority to enter into such a contract.

50. In the end, I am satisfied that Mr. Gama had ostensible authority to enter into the contract. Therefore, the contract is binding and enforceable against the Defendant. I enter judgment on liability against the Defendant.

51. Having found that the Defendant is liable for the actions of Mr. Gama, does that mean that the Plaintiff is automatically entitled to the debt of K11,611.15. It is settled law in this jurisdiction that the onus is on the Plaintiff to prove its damages and in this case, the Plaintiff must prove the debt by appropriate and admissible evidence. See the cases of Yange Lagan -v- The State (1995) N1369 and Jonathan Mangope Paraia -v- The State (1995) N1343. As Lord Goddard CJ, said in Bonham Carter -v- Hyden Park Hotel Ltd [1948] 64 TLR 177 at 178:

"Plaintiffs must understand that, if they bring actions for damages, it is for them to prove their damage; it is not enough to write down particulars and, so to speak, throw them at the head of the Court, saying: ‘This is what I have lost, I ask you to give me these damages.’ They have to prove it."

52. For a more recent example where the above principles were applied, see Ashcroft -v- Curtin [1971] 1 WLR 1731; [1971] 3 AKER 1208. In McGregor on Damages, (Sweet & Maxwell, 13th Edn, 1972, London), the learned author puts the same principles in another way:

"The plaintiff has the burden of proving both the fact and the amount of damages before he can recover substantial damages. This follows from the general rule that the burden of proving a fact is upon him who alleges it and not upon him who denies it, so that where a given allegation forms an essential part of a person’s case, the proof of such allegation falls on him. Even if the defendant fails to deny the allegations of damage or suffers default, the plaintiff must still prove his loss". (p. 935).

53. Thus, the final issue is, has the Plaintiff proven the debt of the Defendant? Except for Messrs Arimba and Wai’s evidence that the Defendant incurred a debt of K11,611.57, there is no independent evidence from the Plaintiff to corroborate Messrs Arimba and Wais’ assertions. I consider that evidence of invoices must be produced to show that the Defendant incurred the debt and secondly, the kind of building materials supplied by the Plaintiff to the Defendant, the quantity supplied and of course the date or dates of supply. Thirdly, there is no evidence of the details of payments received like receipts and amount outstanding being produced and finally, there is no evidence of a letter from the Plaintiff to the Defendant been produced to show the alleged debt. All I have as I said above is the sworn evidence of Messrs Arimba and Wai that the Defendant owned the Plaintiff K11,611.57.

54. On the other hand, there is also sworn evidence from the witnesses of the Defendant like Mr. and Mrs. Wamugl denying the debt. And I accept Mr. Wamugl’s explanation for writing the letter of 27th March 2000 to the Plaintiff and that is he was willing to settle the debt if the Plaintiff had accepted his proposal to enter into a credit facility contract with Kaiange Builders & Contractors. It was not an admission of the debt by either Mr. Wamugl or the Defendant. As all these witnesses have given sworn evidence, I must decide whose evidence I must accept. This makes it crucial and necessary for the Plaintiff to produce evidence of invoices and written documents like ledge book and letters to rebut the Defendants denial that it had not incurred such a debt. Hence, I am of the view that invoices, ledger book and letters are relevant to establishing the debt and the Court is entitled to have them to determine that issue.

55. This is where I reject the evidence of Messrs Arimba and Wai and of course the Plaintiff’s counsel’s submission that the invoices and ledger book have been misplaced or lost when the liquidator took over the affairs of the Plaintiff. I am not satisfied that the explanation given by Mr. Wai when asked during cross examination by counsel for the Defendant the following questions:

Ans: The amount built up over sometimes, - amount for hardware materials. Not a one of purchase.

Ans: Those were for building materials, different types, eg, wires, timbers and clement.

Q: Will you agree that when you broke down the sum of K11,611.57, was for what things?

Ans: That time in 2003, Kui Valley went into liquidation so I had left then in 1997 so I would not be clear with what happened

Q: Did you provide copies of invoices and ledger book with entry in it to lawyer?

56. Mr. Arimba had given the same kind of answers as Mr. Wai during cross examination by counsel for the Defendant as follows:

Ans: Timber, cement, plywood, roofing iron, and all materials used for building.

Ans: These invoices were misplaced when liquidator came in. I only have a letter here.

Q: You commenced Court case in 1997, why didn’t you give those invoices to your lawyer in 1997?

Q: Is it correct to say that you do not know the dates when the items were taken?

Ans: As I said earlier, when the liquidator came in, everything were misplaced".

57. To my mind, these are not only unsatisfactory explanation for the lack of production of these documentary evidences but also an attempt by the Plaintiff to avoid the onus of proof bestowed upon it to prove its claim against the Defendant. Surely, one of the first thing a liquidator would do when appointed to run the affairs of a company or a business entity like in this case, the Plaintiff, is to get hold of all the documents relating to the financial transactions of the company or business entity. Such documents would include bank statements, invoices, receipts of payments, cheque books, records of any debts etc.

58. These documents are important to the liquidator because they will assist him to determine the financial situation of the company or business entity and how best the liquidator could resolve the financial crisis of the company or business entity. I am also pretty sure that the liquidator after seizing these documents would place them in safe custody until the liquidation comes to an end. Then, they would be returned to the company or the business entity. Thus, for these reasons, I am not at all satisfied with the explanation given by the witnesses of the Plaintiff as to the omission of these important documents in this action.

59. In the absence of these evidences to refute the Defendant’s denial of such debt, I am inclined to accept the evidence of the Defendant that there is no such debt. There is another reason for me to find that the Plaintiff has failed to prove the debt and that is in a company operation such as this, the Court would expect and is entitled to expect to have such company records to verify its debt. In my view, it is not sufficient to assert and expect the Court to rely on these assertions as evidence of the debt of the Defendant. In any case, I do not accept these assertions because they are inadequate and not refuted. I find what the Plaintiff is asking me to do if I may respectfully borrow from the words of Lord Goddard CJ, in Bonham Carter’s case (supra) at 178: "This is what I have lost, I ask you to give me these damages".

60. For these reasons, although I have found the Defendant liable for the credit facility contract entered into by Mr. Gama, I am not satisfied that the Plaintiff has proven the debt on the balance of probabilities, therefore the claim must fail.

2. The Plaintiff shall pay the Defendant’s costs of the proceeding to be taxed of not agreed.

3. Time for entry of these orders be abridged to the date of settlement by the Registrar which shall take place forthwith.

__________________________________________
Kopunye Lawyers: Lawyers for the Plaintiff
Sino & Co Lawyers: Lawyers for the Defendant

National Court of Papua New Guinea

Kui Valley Business Group Inc v Wamugl [2009] PGNC 62; N3667 (6 March 2009)