N10836

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS 367 OF 2014

BETWEEN:
TITUS NEWMAN
Plaintiff

AND:
WILLIAM GAUPE
as the Principal Negotiator & Chief Consultant Negotiator
of PORGERA LANDOWNERS ASSOCIATION
First Defendant

AND:
PORGERA LANDOWNERS ASSOCIATION INC.
Second Defendant

AND:
MINERAL RESOURCES ENGA LTD
Third Defendant

Waigani: Hartshorn J.,
2018: 22nd November

CONTRACTS –trial - principal and agent – authority of agent – execution of contract by party purporting to act on behalf of another party – whether party who executed contract had actual authority to execute contract on behalf of another party – whether ostensible authority to enter into contract on behalf of another party.

Facts

The plaintiff executed a loan service agreement with the first defendant by which the plaintiff lent him K220,000.00 for the purpose of conducting negotiations with a provincial government to increase the second defendent’s share of royalties from a mining project. The first defendant purported to execute the contract on behalf of the second defendant. When the loan was not repaid on time, the plaintiff sued both defendants. 

Held

1.	The contract can only be enforced against the first defendant and not against the second defendant.

2.	The first defendant had neither actual nor ostensible authority to enter the contract on behalf of the second defendant. 

3.	The second defendant is not liable to the plaintiff.  

4.	The first defendant shall pay the plaintiff’s costs of and incidental to the plaintiff’s claim against the first defendant.
    
Cases Cited:
Papua New Guinean Cases

Rainbow Holdings Pty Ltd v. Central Province Forest Industries Pty Ltd [1983] PNGLR 34

Overseas Cases

Freeman and Lockyer v. Buckhurst Park Properties (Mangal) Ltd [1964] 2 Q.B. 480
Hely-Hutchinson v. Brayhead Ltd [1968] 1 Q.B. 549 

Counsel:

Mr. W. Yep and Mr. M. Adadikan, for the Plaintiff

22nd November 2018

1. HARTSHORN J: The plaintiff, Mr. Titus Newman, entered into a Loan Service Agreement with the defendant, Mr. William Gaupe on 11th October 1994 (LS Agreement). Mr. Newman claims that Mr. Gaupe and the second defendant, the Porgera Landowners Association Inc. (PLA) breached the LS Agreement. Mr. Newman commenced this proceeding seeking amongst others, special damages in the sum of K15,265,567.00 against Mr. Gaupe, the PLA and a third defendant, Mineral Resources Enga Ltd. The third defendant was removed as a party to this proceeding on 6th July 2016.

2. Mr. Gaupe does not deny the claims of Mr. Newman but says that the PLA is liable under the LS Agreement and not him. The PLA denies liability and says that the LS Agreement was only between Messrs Newman and Gaupe.

3. When the trial of the matter came before this court for hearing, there was no representation of behalf of Mr. Gaupe and the PLA. I permitted the trial to proceed as I was satisfied that the lawyers for Mr. Gaupe and the PLA were aware of the hearing date and time of the trial as there were appearances on behalf of both defendants when the trial was adjourned for hearing.

Background

4. Mr. Newman advanced K220,000.00 to Mr. Gaupe pursuant to the LS Agreement. The purpose of the advance was to fund or facilitate negotiations between the PLA and the Enga Provincial Government to increase the shareholding of the Porgera Special Mining Lease Landowners in the Porgera Joint Venture.

5. Mr. Gaupe is described as, and purportedly is a party to the LS Agreement as:

“The Principal Consultant/Negotiator of Porgera Landowners Association Inc. Acting for & on behalf of Porgera Landowners Association Inc. (Borrower)”

6. The loan and interest purportedly became repayable. The LS Agreement expired on 11th October 2013. Mr. Newman made demands of Mr. Gaupe and the PLA for payment of the sum of K15,265,567.00, being the amount advanced and interest, but payment of the amount owing or any amount has not been made.

Plaintiff’s submissions

7. Mr. Newman claims that in addition to Mr. Gaupe, the PLA is liable under the LS Agreement as Mr. Gaupe had ostensible authority to enter into the LS Agreement on behalf of the PLA and there has been a breach of the LS Agreement by both defendants. I consider whether Mr. Gaupe had ostensible authority to bind PLA to the LS Agreement first.

Ostensible authority

8. Mr. Newman claims that Mr. Gaupe had ostensible authority to enter into the LS Agreement on behalf of the PLA and to bind the PLA to the terms of the LS Agreement. This is because actual and implied authority had been given to Mr. Gaupe by the PLA to act on behalf of the PLA, in its meeting no. 1/94 held on 24th September 1994, by virtue of various resolutions made at that meeting.

Law

9. In regard to ostensible authority, Mr. Newman relies upon amongst others, the Supreme Court decision in Rainbow Holdings Pty Ltd v. Central Province Forest Industries Pty Ltd [1983] PNGLR 34.

10. In Rainbow Holdings (supra), McDermott J reproduced the following statement of Lord Diplock in Freeman and Lockyer v. Buckhurst Park Properties (Mangal) Ltd [1964] 2 Q.B. 480 at 503, concerning apparent or ostensible authority:

"... a legal relationship [exists] between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the 'apparent' authority as so as to render the principal liable to perform any obligations imposed upon him by such contract. To the relationship so created the agent is a stranger. He need not be (although he generally is) aware of the existence of the representation but he must not purport to make the agreement as principal himself. The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract. It is irrelevant whether the agent had actual authority to enter into the contract."

11. McDermott J went on to reproduce the following passage:

“His Lordship then stated four pre-conditions before such a contract between contractor and company can be enforced (at 505):

"It must be shown:
 (1) 	that a representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced made to the contractor;
 (2) 	that such representation was made by a person or persons who had 'actual' authority to manage the business of the company either generally or in respect of those matters to which the contract relates;
 (3) 	that he (the contractor) was induced by such representation to enter into the contract, that is, that he in fact relied upon it; and
 (4) 	that under its memorandum or articles of association the company, was not deprived of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent."

In this case, the last matter was never raised at the trial and is an irrelevant consideration.”

12. I also make reference to the following passage of Lord Denning MR in the English and Wales Court of Appeal decision of Hely-Hutchinson v. Brayhead Ltd [1968] 1 Q.B. 549 in which ostensible authority is considered:

“Ostensible or apparent authority is the authority of an agent as it appears to others. It often coincides with actual authority. Thus, when the board appoint one of their number to be managing director, they invest him not only with implied authority, but also with ostensible authority to do all such things as fall within the usual scope of that office. Other people who see him acting as managing director are entitled to assume that he has the usual authority of a managing director. But sometimes ostensible authority exceeds actual authority. For instance, when the board appoint the managing director, they may expressly limit his authority by saying he is not to order goods worth more than £500 without the sanction of the board. In that case his actual authority is subject to the £500 limitation, but his ostensible authority includes all the usual authority of a managing director. The company is bound by his ostensible authority in his dealings with those who do not know the limitation.”

Consideration

13. Mr. Newman claims that Mr. Gaupe had ostensible authority to bind the PLA to the LS Agreement. This was because the PLA had appointed Mr. Gaupe to act on its behalf in negotiations with the Enga Provincial Government, by virtue of resolutions made at a meeting of the PLA, and by a letter of offer of contract from the Chief Executive Officer of the PLA dated 1st October 1994. Further, submits Mr. Newman, representations were made by the PLA and the said Chief Executive Officer in his letter, that Mr. Gaupe had authority to enter into the LS Agreement on behalf of the PLA. Mr. Newman acted upon those representations and was induced to enter into the LS Agreement.

14. The first pre-condition or requirement in determining whether Mr. Gaupe had ostensible authority is whether there was a representation by or on behalf of PLA that Mr. Gaupe had authority to enter on behalf of the PLA, a contract such as the LS Agreement. In this instance, there was such a representation. That representation was made by Mr. Gaupe himself, amongst others, in the LS Agreement. As to whether the PLA made such a representation, from a perusal of the minutes of the meeting 1/94 and the resolutions made, there is no reference to Mr. Gaupe being given authority to borrow on behalf of PLA or enter into a loan agreement on behalf of PLA. Mr. Gaupe was given authority only to negotiate with the Enga Provincial Government.

15. As to whether the Chief Executive Officer, Mr. Kulina, made such a representation, a perusal of his letter dated 1st October 1994 does not disclose that he did. Indeed, paragraph ‘A’ of the letter states that, “The consultants, (we) are to undertake at our own expenses the task of establishing dialogue …..”. Then paragraph ‘B’ of the letter states, “PLOA at this stage will not entertain any request for finance or cash advance on issues and actions …..”. To my mind this indicates that the understanding of the Chief Executive Officer was that he and Mr. Gaupe were to conduct the negotiations at their own expense and that the PLA would not entertain a request for finance or cash advances. Given this context, it cannot be assumed that the PLA wished to borrow funds for the negotiations or that Mr. Gaupe had been given authority to act on behalf of the PLA to source and arrange funding for that purpose for the PLA.

16. I am satisfied, given the content of the letter dated 1st October 1994, that the Chief Executive Officer did not make any representation in that letter that Mr. Gaupe had the authority to bind PLA in the LS Agreement or to borrow on behalf of the PLA.

17. The second pre-condition or requirement is whether the representation by Mr. Gaupe in the LS Agreement referred to above, was made by a person or persons who had ‘actual’ authority to manage the business of the PLA either generally or in respect of those matters to which the LS Agreement related.

18. From a perusal of the minutes of the meeting 1/94 and the letter of 1st October 1994, there is nothing to suggest that Mr. Gaupe was given any authority to borrow on behalf of the PLA or to enter into any loan agreement on behalf of the PLA. Mr. Gaupe was only given authority to negotiate with the Enga Provincial Government.

19. Consequently, I am satisfied that the representation by Mr. Gaupe to Mr. Newman was not made by a person who had ‘actual’ authority to manage the business of the PLA generally or in respect of borrowing on behalf of the PLA or in respect of entering into a loan agreement on behalf of the PLA.

20. As one of the four pre-conditions or requirements set out in Rainbow Holdings (supra) has not been met, I am satisfied that Mr. Gaupe did not have ostensible authority to bind the PLA to the LS Agreement. I further mention that from the evidence, it is apparent that Mr. Newman had cited the relevant minutes, resolutions and the letter of 1st October 1994 before he entered into the LS Agreement and was aware of the breadth and limits of the authority given to Mr. Gaupe by the PLA.

21. As to the liability of Mr. Gaupe under the LS Agreement, Mr. Gaupe does not deny the allegations of Mr. Newman. Further, as I have found that Mr. Gaupe did not have the ostensible authority to bind the PLA, a fortiori, he entered into the LS Agreement on his own behalf.

22. I am satisfied from the evidence and pleadings that Mr. Newman has proved his claim against Mr. Gaupe on the balance of probabilities but has failed to so prove his claim against the PLA. Given the above it is not necessary to consider the other submissions of counsel.

Orders

23.   The Court orders that:

a)	Judgment is entered:

i)	for the plaintiff against the first defendant with damages to be 	assessed;

ii)	for the second defendant against the plaintiff;

b)	The first defendant shall pay the plaintiff’s costs of and incidental to 	the plaintiff’s claim against the first defendant;

c)	No other costs order is made;

d)	Time is abridged.	
_____________________________________________________________
Leahy Lewin Lowing Sullivan:   Lawyers for the Plaintiff                                                                   
Jerry Kama Lawyers: Lawyers for the First Defendant                        
Mawa Lawyers: Lawyers for the Second Defendant