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Johns v Thomason [1976] PNGLR 15 (29 October 1975)

Papua New Guinea Law Reports - 1976

[1976] PNGLR 15 - Johns v Thomason 

[1976] PNGLR 15

N11

PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

JOHNS

V

THOMASON

Waigani

Frost CJ

22 October 1975

29 October 1975

PRINCIPAL AND AGENT - Ratification - Acts done without authority - Acquiescence with full knowledge of facts - Acquiescence by silence and inaction - Common law principles on ratification to apply in Papua New Guinea - Constitution, Sch. 2.2 (1).

On an appeal pursuant to s. 279 of the Companies Act 1963, against rejection of a proof of debt dated 21st August, 1971, made by the liquidator of a company Alwin Finance Pty. Ltd., and claiming $2,000 plus interest being the amount of a short-call loan made to the company on 17th July, 1961, it appeared that at the time of the loan both the appellant and her then husband, Johns, were shareholders and directors of the company; and that the loan was one on call at 5% repayable on 24 hours’ notice. Sometime in 1962, and on returning from a trip to Australia, the appellant was informed by Johns that he had sold a car belonging to her and taken her short-call money out of the finance company and put it all as a deposit upon a truck for another business in which they were involved: the books of the company showed the loan as being discharged on 30th January, 1962; the appellant alleged that the repayment was made without her authority, and Johns alleged that it was made with the appellant’s authority. Subsequently the appellant was present at the Annual General Meeting of the company on 28th July, 1962, being the first meeting of the company after the money had been paid out, at which the balance sheet and supporting accounts of the company were presented and she was aware that the books showed her short term loan as having been repaid. These accounts were adopted without any objection. by the appellant and the matter was never raised by her at any of the shareholders’ meetings which she continued to attend until 1965, when she went to Australia to live. The company went into liquidation in June, 1971

Held

(1)      The common law doctrine of ratification, whereby, under certain conditions, an act which, at the time it was entered into or done by an agent, lacked the authority, express or implied, of a principal, may by the subsequent conduct of the principal become ratified (either by clear adoptive acts or by acquiescence equivalent thereto accompanied by full knowledge of all the essential facts) by the principal and made as effectively his own as if he had previously authorized it, is applicable and appropriate to the circumstances of Papua New Guinea.

The Constitution of the Independent State of Papua New Guinea Sch. 2.2 (1), Halsbury’s Laws of England 4th ed. Vol. 1. s.756-s.765, s. 769 and Bank Melli Iran v. Barclays Bank (Dominion, Colonial and Overseas), [1951] 2 T.L.R. 1057 at p. 1063 referred to.

(2)      In the circumstances Johns did not have actual or ostensible authority to accept repayment of the loan made by the appellant in her private capacity.

(3)      By the nature of the transaction, in obtaining payment of the money, Johns was purporting to act on behalf of the appellant who, as an experienced business woman, had full knowledge of the essential facts, and as a director of the company with a fiduciary duty towards it was under a duty to speak up if she disputed the repayment, the only inference to be drawn from her silence and inaction was that, knowing that the company regarded her as having accepted the payment as made with her authority she did decide to acquiesce in it.

(4)      By her acquiescence the company’s repayment of her loan was ratified.

(5)      The rejection of the proof of debt should be upheld.

Appeal

This was an appeal under s. 279 of the Companies Act 1963, against a decision on 21st August, 1974, by the liquidator of a company Alwin Finance Pty. Ltd. whereby he rejected the appellant’s proof of debt dated 21st August, 1971, claiming an amount of $2,000 plus interest being the amount of a short-call loan made to the company on 17th July, 1961.

Counsel

AC Williams and J McMaster for the appellant

JA Griffin for the respondent (liquidator)

Cur. adv. vult.

29 October 1975

FROST CJ:  This is an appeal under s. 279 of the Companies Act 1963 against the decision on 21st August, 1974 of Mr. K. G. Thomason, the liquidator of Alwin Finance Pty. Ltd., whereby he rejected the appellant’s proof of debt dated 21st August, 1971 claiming an amount of $2,000 plus interest being the amount of a short-call loan made to the company on 17th July, 1961.

The company was at the relevant time, and until it went into liquidation on 30th June, 1971, carrying on business as a finance company in Port Moresby. The appellant and her then husband, Mr. W. N. Johns, were at the time both shareholders and directors of the company. Indeed for some years after 1962 the appellant was the managing director. But their main interest was an engineering company called W. N. Johns (N.G.) Ltd. of which they were both also directors and shareholders and in which both were actively engaged, the appellant doing all the bookkeeping, office and administrative work and Mr. Johns, who is an engineer, all the outside and technical work. They had other business interests including Ready Mixed Concrete (Industries) Ltd.

At the time in question the marriage was a tolerably happy one; the business relationship, according to Mr. Johns, “could not have been better”. But in 1965 the parties separated and the appellant returned to Australia. Eventually there was a divorce.

It is undisputed that on 17th July, 1961, the appellant lent the company £1,000 on call at 5% interest. On 12th December, 1961, £22.17.6 interest was paid for the period ending 31st December, 1961. On the appellant’s evidence it was also a term that the loan should be repaid on 24 hours’ notice. This is a crucial matter because upon the existence of such a term it depends whether the claim is statute barred. Such a term was disputed by the respondent on the grounds that there is no documentary support for it in the books of the company, and that according to Mr. Johns there was generally no such term applicable in short-term deposits. It was also said to be inconsistent with the term “on call”. However, none of these considerations is conclusive, and they are insufficient to lead me to reject the appellant’s evidence that 24 hours’ notice was agreed. As no demand whatever was made until the proof of debt, and the cause of action thus did not accrue until then, the claim, both as to principal and interest, is not statute barred.

The main ground of the liquidator’s rejection of the proof of debt was that the loan had been repaid. The circumstances, according to the appellant’s evidence, were that in January 1962 the appellant had travelled to Sydney to place her daughter in school. She and her husband maintained an apartment in Sydney, and when necessary whilst she was away communicated upon business matters by telephone. The appellant did not return until March 1962. When she returned to Port Moresby, she noticed that a car which she had for her own use was missing. She asked her husband where it had gone. He said that he had sold it and taken her short-call money out of the finance company and put it all as a deposit upon a truck for Ready Mixed Concrete. She then said to him, “You had no right to do that, that is stealing, I am going to ask the company for it and make a fuss and get it back”. According to her, he said, “Don’t make a fuss, you will get us all into serious trouble, I will pay you back”. She also said that if he did not pay it back she would go and see Svenson, the Cbairman, and ask him how he came to give her husband the money. But she never did. This explanation concerning the payment is supported by the books of the company which show the loan was discharged on January 30th, 1962, by payments of £993 and £7, and also by a copy letter found in the company’s records as follows:

“31st January, 1962

W. N. Johns, Esq.,

Post Office Box 329

Port Moresby.

Dear Sir,

Further to your instructions of even date we have withdrawn the “On Call” Loan of £1,000/-/-, Account J. M. Johns and disposed of the moneys as follows:

Your acknowledgement in due course would be appreciated.

Yours faithfully,

(Secretary)”

Mr. Johns, who was called by the liquidator, said that he had no recollection of the conversation deposed to by the appellant. But he denied that the appellant had accused him of stealing her money, or that he had promised to pay it back. He was confident that he would not have disposed of her money without her authority. His recollection was aided by a note written by him at the time on the back of the pay-in slip under which the cheque for £7 was paid into his private account. The note is as follows:

“Short call £1000 balance of money against £993 paid to Delta for Toyota Stout utility—advance by JMJ to be repaid by WNJ (NG) Ltd.”

Mr Johns is now able to recall that a truck owned by W. N. Johns (N.G.) Ltd. had been damaged beyond repair in a collision at Popondetta and that a new Toyota Stout vehicle had been purchased from Delta Constructions. To enable the purchase to be made he had arranged for repayment of the short-term call money, he was confident with the approval of the appellant, and has thus obtained the cheque for £993 payable to Delta Constructions, the cheque for the balance of £7 being paid into his bank account. The cheque for £993 would not have been sufficient to pay for the truck, even with the proceeds of the appellant’s car which because of its condition would not have realized any significant sum. He did recall some argument with the appellant about the car.

As the respondent has the onus on this matter, in view of Mr. Johns’ honest admission that he had no real recollection of any such conversation, understandably because it was 14 years earlier, I am not satisfied that he had the appellant’s authority to accept repayment of her loan. Further, even taking into account the close business relationship between the parties in their management of the family companies and the regular drawing of cheques by the appellant on her husband’s private account, I am also not satisfied that he had ostensible authority to accept repayment of the quite substantial loan made by her in her private capacity.

The main ground upon which the respondent relied depends on the events following the payment by the company of the cheques made payable at Mr. Johns’ direction to Delta Constructions and himself. The appellant admits that until it went into liquidation she did not dispute the repayment by the company of the loan and did not make any claim. She indeed raised the matter in 1967 — five years after the alleged repayment — with a Mr. J. Douglas the then Manager of the company, but made no “official” claim, to use her words, merely seeking his advice. Mr. Douglas apparently did not admit any liability on the part of the company. It is clear also that in March 1962 she had full knowledge that the money had been paid out at Mr. Johns’ direction and used for the purchase of a truck. She was present at the Annual General Meeting of Alwin held on 28th July, 1962, the first meeting after the money had been paid out, at which the balance sheet and supporting accounts of the company were presented. She was aware that the books of the company showed her short-term deposit to have been repaid. Upon motion these accounts were adopted and no objection was made by her. Thereafter until she left for Australia she attended Alwin’s directors’ and shareholders’ meetings when the annual accounts and half-yearly accounts were presented and passed, and at no time did she raise any objection.

In these circumstances the respondent relies upon the doctrine of ratification. It was not suggested, nor is such a suggestion tenable, that this common law principle is inapplicable or inappropriate to the circumstances of Papua New Guinea. (Constitution, Sch. 2.2 (1). The doctrine is sufficiently stated in Halsbury’s Laws of England, 4th ed., Vol 1:

“756.   General principle. Under certain conditions an act which, at the time it was entered into or done by an agent, lacked the authority, express or implied, of a principal, may by the subsequent conduct of the principal become ratified by him and made as effectively his own as if he had previously authorised it.

Where the act has been done by a person not assuming to act on his own behalf, but for another, though without his precedent authority or knowledge, and is subsequently ratified by that other person, the relation of principal and agent is constituted retrospectively, and the principal is bound by the act whether it is to his advantage or detriment, ...

765.    Essentials of ratification. Ratification must be evidenced either by clear adoptive acts, or by acquiescence equivalent thereto. The act or acts of adoption or acquiescence must be accompanied by full knowledge of all the essential facts, ...

767.    Ratification by acquiescence. Although a ratification must be clear and must bear distinct reference to the facts of the particular case, it need not necessarily be proved by positive acts of adoption. In certain cases it is sufficient evidence of ratification that the intended principal, having all material facts brought to his knowledge and knowing that he is being regarded as having accepted the position of principal, takes no steps to disown that character within reasonable time, or adopts no means of asserting his rights at the earliest period possible.”

Thus “mere inaction or silence may be evidence from which an intention to ratify” may be inferred. Bank Melli Iran v. Barclays Bank (Dominion, Colonial and Overseas)[xi]¹.

Now by the very nature of the transaction it is plain that in obtaining payment of the cheques Mr. W. N. Johns was purporting to act on behalf of the appellant. It is also plain that the appellant, an experienced businesswoman, had full knowledge of the essential facts. The only outstanding condition so far as ratification is concerned is whether the appellant clearly adopted her then husband’s action in the directions he gave for the repayment of the loan. It is irrelevant that the appellant may have had private reservations as to the conduct of her then husband, as are the motives for her conduct. The only possible inference, in my opinion, to be drawn from her silence and inaction is that, knowing that the company regarded her as having accepted the payment as made with her authority, she did decide to acquiesce in it. Much longer than a reasonable time was allowed to elapse before she took steps to disown that authority and before she took action to assert any rights she might have had. As a director of the company she was also in a fiduciary position towards the company — Companies Act 1964, s. 124; Ford, Company Law, p. 310 et seq. She was thus under a duty to speak up if she disputed the repayment, particularly as the liabilities of the company were thereby affected, and therefore its financial position so far as both the company and persons trading with it were concerned. By her silence the company was put in a position of disadvantage because of the real risks that its officers, as necessary witnesses, might become unavailable or the events fade from their memory, and also of a change in the financial circumstances of Mr. Johns, placing in jeopardy the possibility of reimbursement by him. The City Bank of Sydney v. McLaughlin [xii]².

All the essential facts regarding the repayment were present to her mind when she attended the company meeting on 28th July, 1962, when on the facts, in my opinion, she decided to adopt her husband’s directions for repayment. She continued on this course year by year when she attended meetings until she left Papua New Guinea. Indeed she allowed more than nine years to elapse before any claim was made on the company. In my judgment by her acquiescence she ratified the company’s repayment of her loan, and the claim thus fails.

Mr. Griffin made some interesting submissions based upon estoppel, but in view of the conclusion I have reached it is unnecessary for me to consider them.

Accordingly the appeal will be dismissed and the rejection of the appellant’s proof of debt by the liquidator upheld.

Appeal dismissed, appellant to pay respondent’s taxed costs.

Solicitors for the appellant: Williams & Williams.

Solicitors for the respondent: Craig Kirke & Wright.

[xi] [1951] 2 T.L.R. 1057, at p. 1063, per McNair J.

[xii][1909] HCA 78; (1909) 9 C.L.R. 615.