IN THE COURT OF APPEAL OF TONGA

South Pacific Produce Ltd

v

Procorp Company Ltd

Court of Appeal, Nuku'alofa
Webster, Burchett, and Salmon JJ
App 12/2004

12 July 2005; 21 July 2005 

Contract law – special terms claimed – counterclaim – appeal allowed to set aside orders below 

For the full facts and the Supreme Court decision, see South Pacific Produce Ltd v Procorp Company Ltd anor [2004] Tonga LR 88. 

In the squash season of 2000, the Appellants grew and harvested 261 tonnes of squash for export to Japan. It was common ground at the hearing in the Supreme Court that the export was arranged under some agreement with the First Respondent of which the Second Respondent was the managing director. But the Appellants claimed, and the Respondents denied, that this agreement was of a special nature, giving the Appellants a higher share of the profits to be derived from the export than was usual with such contracts. On this issue, the Appellants failed at the hearing, the judge found the special agreement had not been established. The Supreme Court also found that the Respondents succeeded in their counterclaim but only to a limited extent. 

Held: 

1. There was no basis on which the Respondents could properly be said to have succeeded upon their counterclaim. The lower Court must have overlooked the fact that the items in the Counterclaim were not freestanding claims but contra-items standing against an admitted liability of $104,400 which, had they been allowed in full, would have exceeded that liability by only $9,550. As soon as they fell below that figure, the Counterclaim failed, and as they fell far below it, the Counterclaim failed by a wide margin. Looking simply at the pleadings, the Appellants were entitled to have the Counterclaim dismissed, and to have an order made in their action, under their prayer for "any other order or relief as may be just", for the payment of the balance found due to them plus interest. An order in respect of the balance found due was appropriate instead of a direction for the taking of accounts because the scope of the issues actually raised in the Counterclaim had produced the result that the Court had effectively taken an account. 

2. The appeal was allowed; the orders made below were set aside; there was judgment for the Appellants on their claim against the First Respondent for T$53,907.98 plus interest at 10% per annum from 1 January 2001; the Counterclaim was dismissed; and because the Appellants failed in their claim for a special agreement, there was no order as to the costs of the hearing at first instance except that earlier interlocutory orders for costs of adjournments were not disturbed. The Respondents must also repay to the Appellants the amount of $7,500 security for costs together with the sum of $561.13 interest thereon paid out to their solicitor, and the Respondents must pay the Appellants' costs of the appeal, to be agreed or taxed. 

Counsel for appellants: Mr Niu 
Counsel for respondents: Mr Kaufusi 

Judgment

[1.] In the squash season of the year 2000, the Appellants grew and harvested 261 tonnes approximately of squash for export to Japan. It was common ground at the hearing in the Supreme Court that the export was arranged under some agreement with the First Respondent of which the Second Respondent was the managing director. But the Appellants claimed, and the Respondents denied, that this agreement was of a special nature, giving the Appellants a higher share of the profits to be derived from the export than was usual with such contracts. On this issue, the Appellants failed at the hearing, the judge finding the special agreement had not been established. 

[2.] In the normal course, one would have expected such a finding to have led to a conclusion about the nature and consequences of the arrangements actually entered into shorn of the effects of the special terms that had not been accepted by the Court. There was much that was not in dispute concerning the production, delivery to the Respondents and export of the crop, and the parts actually played by the parties respectively as grower and exporter. In their Statement of Defence, the Respondents had pleaded "that the second plaintiff (appellant) agreed to grow squash as an ordinary grower of the first defendant" (respondent) and that "the cost of production inputs and expenses were provided by the first defendant on credit to be deducted from the growers proceed [sic] derived from export". The final version of the Appellants' Amended Statement of Claim had alleged, in addition to the special terms, the usual obligation of the Respondents to ship and market in Japan and to "provide a full and proper accounting of all proceeds received and deductions made together with the payment to be made to each party". It was pleaded the Respondents had failed to provide such an accounting and had paid only $25,000 to the Appellants for 261.5 tonnes of squash. It was pleaded the Appellants had repeatedly requested payment and an accounting but the Respondents had failed to comply, and that the Appellants had lost the use of the money withheld. Damages, interest and "other order or relief as may be just" were sought accordingly. 

[3.] Unfortunately, the way the case was presented on each side below was calculated to distract the Court's attention from the quite straightforward nature of the dispute. Having rejected the special agreement alleged, the judge turned to consider a Counterclaim filed by the Respondents. That was natural; the Counterclaim had been prominent at the hearing, and the allegations made in it had actually been the ground of the withholding of a large part of the payment otherwise due to the Appellants. They included "the cost of production inputs and expenses" referred to in the Statement of Defence. 

[4.] In the Counterclaim, the Respondents repeated the admissions and denials in their defence and claimed the following: 

(a) cost of a diesel engine $4,000 

(b) cost of ploughing 2,520 

(c) cost of seeds 15,060

(d) cost of fertilizer 24,876

(e) cost of chemicals 3,040 

(f) forklift hire and miscellaneous expenses 36,412 

(g) cartage of bins 5,327 

Total = $91,235

The pleading proceeded to acknowledge that the Second Appellant had contributed $9,500 towards various of these items and to allege that the Respondents had made payments to the Appellants in a total sum of $32,215. An important paragraph of the Counterclaim pleaded: 

"The second plaintiff exported 261 ton [sic] of squash to Japan. The payment to the growers was 40 cent [sic] per kilo. Therefore it is equivalent to T$104,400.00." 

The pleading concluded with a prayer for judgment in the sum of T$9,550 plus costs.

[5.] The figures set out in the Counterclaim are illuminating. If one subtracts from $91,235, being the total of the items claimed against the Appellants, the amount of $9,500 contributed by them towards some of those items, the resulting figure is $81,735. If that figure be then deducted from the sum of $104,400 alleged to be the amount of the "payment to the growers" for 261 tonnes of squash exported to Japan, the resulting figure is $22,665, being so much of the payment due as is revealed by the pleading to be outstanding, not being balanced by any obligation owed by the Appellants. But the Respondents had already paid, not merely the $25,000 acknowledged by the Appellants, but an amount of $32,215, which exceeded the sum of $22,665 by $9,550. That was the exact figure claimed in the Counterclaim. It follows from these calculations, as well as from the language of the Counterclaim, that when that pleading was filed it was made clear the Respondents were acknowledging a liability to pay $104,400, subject only to the extent that contra-items existed. 

[6.] At the hearing, two things happened to change the calculations on which the Counterclaim was based. In the first place, the Respondents failed to prove the full amount claimed in respect of any but one of the items alleged by them, the scale of their failure being such that the sum of $81,735 referred to earlier was reduced to $31,300, or by substantially more than half. In the second place, the Second Respondent, who as has been said was the managing director of the First Respondent, conceded in the course of his evidence that it had been agreed certain cash advances made by the Appellants would be added to the sum payable by the Respondents. Those advances, all evidenced by receipts, totalled $13,022.98. The ultimate result was to convert the balance of $9,550 against the Appellants, which was claimed in the Counterclaim, into a balance of $53,907.98 in their favour. On the evidence, that balance was payable to them by the end of the year 2000. 

[7.] It was in this situation that the judgment under appeal concluded, with regard to the Appellants' claim, that there was no such special agreement as was alleged, but the Second Appellant, as a registered grower, "would simply receive the same payout for his squash as any other registered grower"; and, with regard to the Counterclaim, that two of the items in it were not proved, one was admitted, and the others were proved only in part. Without calculating the effect of these findings, his Honour then wrote: 

"In summary, therefore, the plaintiffs fail in their claim and the defendants succeed in their counterclaim but only to the limited extent that I have detailed. 

In addition, the defendants are entitled to costs to be agreed or taxed." 

[8.] With respect, there is no basis on which the Respondents could properly be said to have succeeded upon their counterclaim. Obviously, his Honour must have overlooked the fact that the items in the Counterclaim were not freestanding claims but contra-items standing against an admitted liability of $104,400 which, had they been allowed in full, would have exceeded that liability by only $9,550. As soon as they fell below that figure, the Counterclaim failed, and as they fell far below it, the Counterclaim failed by a wide margin. Looking simply at the pleadings, the Appellants were entitled to have the Counterclaim dismissed, and to have an order made in their action, under their prayer for "any other order or relief as may be just", for the payment of the balance found due to them plus interest. An order in respect of the balance found due was appropriate instead of a direction for the taking of accounts because the scope of the issues actually raised in the Counterclaim had produced the result that the Court had effectively taken an account. The Respondents' written submission had included the following: 

"The defendants worked out the proceeds from the sale of the plaintiffs' squash and also deducted the goods that were ordered and other expenses and the plaintiffs were overpaid in the amount of T$4,797" (this, of course, was a concession reducing the pleaded claim of T$9,550). 

So the conduct of the case confirmed the approach which should have been taken to the findings.

[9.] Unfortunately, when counsel for the Appellants drew attention to the position, although he did so within less than one week of the delivery of judgment, the view was taken that it was too late to correct the orders of the Court except by consent, which was not forthcoming. This view was wrong, for a Court can correct its errors until a matter is concluded by the formal taking out of an order. But, an appeal having been brought, this Court has power to remedy the situation. The appeal should be allowed; the orders made below should be set aside; there should be judgment for the Appellants on their claim against the First Respondent for T$53,907.98 plus interest at 10% per annum from 1 January 2001; the Counterclaim should be dismissed; and because the Appellants failed in their claim for a special agreement, there should be no order as to the costs of the hearing at first instance except that earlier interlocutory orders for costs of adjournments should not be disturbed. The Respondents must also repay to the Appellants the amount of $7,500 security for costs together with the sum of $561.13 interest thereon paid out to their solicitor, and the Respondents must pay the Appellants' costs of the appeal, to be agreed or taxed.