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Rainbow Trading Co Ltd v Lin Maolin [2007] TOCA 3; AC 05-2006 (20 July 2007)

IN THE COURT OF APPEAL OF TONGA
CIVIL JURISDICTION
NUKU’ALOFA REGISTRY

AC 05/2006

BETWEEN:

RAINBOW TRADING CO LTD
Appellant

AND:

LIN MAOLIN
First Respondent

WANG QIANG A.K.A. CHRIS WANG
Second Respondent

Coram: Burchett J
Salmon J
Moore J

Counsel:
Mr Niu for the Appellant
Mr Corbett for the First Respondent

Date of hearing: 17 July 2007.
Date of judgment: 20 July 2007

JUDGMENT OF THE COURT

[1] On 1 September 2006, Chief Justice Webster ordered Rainbow Trading Co Ltd, the appellant in this matter, to pay Lin Maolin $96,502.50. His Honour found that Rainbow Trading had breached a contract with Lin Maolin to provide him with goods. Rainbow Trading appeals on eight grounds.

Background Facts

[2] The following facts do not appear to be in issue. Rainbow Trading was a company which supplied cigarettes and other goods to shops. The first respondent, Lin Maolin, owned and operated a shop in Nuku'alofa. The second respondent, Wang Qiang (aka Chris Wang), was, at the relevant time, a shareholder, director, secretary and employee of Rainbow Trading. He delivered the goods of Rainbow Trading by van to Lin Maolin and other Chinese shop owners. Though he is a named respondent to this appeal, he did not file a defence and did not enter an appearance. Wang Lan (aka Lily) was the managing director of Rainbow Trading and was, until 2 June 2002, a shareholder and director of the company. She was the only witness for Rainbow Trading at the trial and is the aunt of Wang Qiang.

Statement of claim

[3] The following is alleged in the statement of claim (a little later in these reasons, we discuss particular aspects of these pleadings). During 2002 and 2003 Wang Qiang collected $56,893 from Lin Maolin as advance payments for goods which were never provided. During the course of dealing between the parties, Wang Qiang and Rainbow Trading paid Lin Maolin $47,000 which they "later borrowed to buy Winfield [sic]". On Friday 2 May 2003 Wang Qiang asked Lin Maolin to cash a cheque dated 3 May 2003 for $36,000 for him because the bank was not open. On 3 May 2003 the bank was closed and Lin Maolin contacted Chris Wang who came with a cheque post dated 8 May 2003 from Mei Fa Guo. The cheque dated 8 May 2003 was not honoured at which point Lin Maolin rang Wang Lan who sent Wang Qiang to see him. Wang Qiang came, promised to pay on the following day and took the cheque which Lin Maolin claims was later given to the cigarette importer TCF International. Subsequently Wang Qiang gave Lin Maolin goods valued at $1,366.50 and requested further goods valued at $4976 whilst assuring Lin Maolin of the further delivery of goods and repayment of $36,000.

The conduct of the trial and the reasons for judgment of the Trial Judge

[4] The Chief Justice treated the central issue as being whether it appeared to Lin Maolin that Wang Qiang had ostensible authority to take advance payments for goods, including amounts over $500, with the result that Rainbow Trading was bound by the actions of Wang Qiang as its agent and was therefore in breach of its contract. In his reasons the Chief Justice set out the law on agency and discussed some of the authorities before turning to consider how those principles might be applied to the facts. It is unnecessary to detail either his Honour's analysis of the legal principles or their application to the facts. What is important is the course the proceedings took.

[5] The amended statement of claim pleaded who the plaintiff was, and what the relationship was between the second defendant (Rainbow Trading) and the first defendant (Wang Qiang). In paragraph 9 of the statement of claim there was an allegation that the plaintiff (Lin Maolin) paid to the first defendant (Wang Qiang) $56,893 as the employee and agent of the second defendant (Rainbow Trading). In paragraph 17 there was a general allegation that "the obtaining of" the sum of $56,893 and the sum of $36,000 were each prearranged with the full knowledge, concurrence, participation, and involvement of the second defendant (Rainbow Trading). A particular of paragraph 17, 17 (d), alleged that the first defendant (Wang Qiang) had ostensible and apparent authority as an officer of the second defendant (Rainbow Trading) namely the director and shareholder of the second defendant. It can be seen that these aspects of the statement of claim point to the possibility that the plaintiff's cause of action was based in contract and alleged that Wang Qiang was Rainbow Trading’s agent and that Rainbow Trading was contractually bound by agreements he entered. However this was far from clear from the pleadings.

[6] When opening Lin Maolin’s case at the trial conducted in November 2004, counsel concluded by saying that the second defendant (Rainbow Trading) was vicariously liable for the payment of $96,502. He also said that "it is claimed that the second defendant is vicariously liable for the actions of its employees". The expression "vicarious liability" is an expression used in the context of tort law and not contract law. While counsel for Lin Maolin may not have appreciated this distinction, it fairly clearly appears to have led to a misunderstanding on the part of counsel for Rainbow Trading.

[7] In opening the case of Rainbow Trading at the trial, its counsel said: In respect of any grounds of claim, my understanding of the pleadings by the plaintiff is that it did not allege any breach of contract and perhaps that is clarified by my learned friend in his opening remarks that the plaintiff made a demand on the second defendant. The second defendant is vicariously liable for the action of the first defendant.

Counsel for Rainbow Trading then referred to the legal principles concerning vicarious liability. This misunderstanding was not corrected by counsel for Lin Maolin. Of significance, is that the evidentiary case of Rainbow Trading was presented by counsel who understood that the plaintiff's case was not based on agency and contract.

[8] The significance of this misunderstanding appears to have became apparent to the Chief Justice by at least April 2005. The Chief Justice wrote to the parties on 5 April 2005 inviting submissions on whether he should give consideration to the contractual questions. In his reasons for judgment ultimately delivered on 1 September 2006, his Honour noted that in the final submissions of counsel for Lin Maolin, the case appeared to be based on vicarious liability under tort and his Honour also noted that this submission had been met by a submission by counsel for Rainbow Trading that the case had not been pleaded this way.

[9] In his written response to the Chief Justice's invitation of 5 April 2005, counsel for Lin Maolin argued that his Honour could give consideration to the contractual question. However counsel for Rainbow Trading argued that his Honour could not consider the contractual question, submitting that he had ran the defence for Rainbow Trading during the trial only on vicarious liability because that was the issue identified by counsel for Lin Maolin in the opening address. Counsel for Rainbow Trading further argued that it would be an injustice if the Chief Justice considered contractual issues.

[10] In his reasons, the Chief Justice appears to have rejected this submission of counsel for Rainbow Trading noting the decision in Prasad v Morris Hedstrom (Tonga) Ltd (No 2) [1993] Tonga LR 68 at 73 (CA) and observing that "it can only be fair if the Court reaches its decision in terms of contract, especially after counsel have been given the opportunity to make submissions on the basis of a claim on contract". What, with respect, the Chief Justice may have overlooked is that the opportunity to make submissions is only part of the trial. Equally if not more important is the selection and presentation of evidence.

Grounds of Appeal

[11] Rainbow Trading has appealed on a number of grounds. Broadly, these fall into three categories. The first, second and eighth grounds of appeal are based on the introduction of new or fresh evidence. The fourth, fifth, sixth and seventh grounds of appeal list errors on the part of the judge in accepting or rejecting particular evidence. The third ground of appeal is that the trial judge erred in concluding that the appellant had represented, by its conduct, that Wang Qiang had authority to act on behalf of the appellant.

[12] It is only necessary to refer to those grounds which are based on the introduction of fresh evidence. While a formal application was made to this Court to introduce fresh evidence only immediately before the hearing of the appeal, the application was foreshadowed in the notice of appeal. The first and second grounds in the notice of appeal related to two categories of fresh evidence, cheques and cheque butts (the latter found in Wang Qiang's van) and Rainbow Trading records. The eighth ground also involved fresh evidence which would explain, it was contended, why Wang Lan had been unable to explain the timing and circumstances surrounding the removal of Wang Qiang as director, shareholder and secretary and therefore remove the basis on which the trial judge doubted the remainder of Wang Lan's evidence.

[13] The cheque butts had been in the possession of counsel for Rainbow Trading at the time of the trial though the other documents had not been. The notice of appeal contended that in the interests of justice, the documents should be admitted into evidence in the appeal. Though the documents were available at the time of the trial, Rainbow Trading contended in the notice of appeal that through no fault of its own but due to error of judgment or negligence of its former counsel, the documents were not produced or tendered at that time. During the hearing of the appeal, counsel for Rainbow Trading moved away from the suggestion that counsel had been negligent and sought to explain counsel's conduct by reference to the uncertainty about the cause of action being pursued by Lin Maolin at the trial.

Consideration