IN THE SUPREME COURT OF TONGA
CIVIL JURISDICTION
NUKU'ALOFA REGISTRY

NO.C.30/00

BETWEEN:

SUNDARJEE BROTHERS
Plaintiff;

AND:

TONGA CO-OPERATIVE FEDERATION
Defendant.

BEFORE THE HON. CHIEF JUSTICE WARD

Counsel: Mr Garrett for the Plaintiff
Mr Niu for the Defendant

Date of Hearing: 7 - 10 August 2000
Date of Judgment: 21 August 2000

JUDGMENT

The plaintiffs are general merchants with offices in Sydney, Australia, and the defendant is a Tongan company selling both wholesale and retail goods. Since 1977 the defendants have been trading with the plaintiff and have apparently always honoured their bills albeit sometimes later than the date fixed by the agreed terms of trade. However, a dispute has arisen over two matters and this case is brought by the plaintiff to resolve those two issues and to seek an order for payment of the outstanding sums involved.

The first relates to two full container loads of bakers flour valued at AUD$22.660.00 and shipped from New Zealand by the millers in November 1995 on the order of the plaintiff.

The plaintiff's case is that they were ordered by the purchasing officer of the defendant, Mr 'Emosi Mataitonga, over the telephone in October 1995 and the order was immediately placed by the plaintiff with a mill in New Zealand. The containers were shipped to Nuku'alofa, arriving in November, but were not collected from the docks by the defendant until mid January 1996. During that time, both containers had been standing on the wharf and, when they were opened, the flour was found to be infested with beetles and was hard and unusable. It was all destroyed.

The second limb of the claim is simply for payment of two other invoices but the defence requires consideration of another matter. This concerns a consignment of snack foods that were supplied by the plaintiffs to the defendant and sold under the name of Broncos. A passing off action was brought against the defendant by Nestle who already marketed a similar item called Bongos. Nestle succeeded on appeal and the defendant was ordered to pay $15,028.50 costs. The defendant also lost a further $23,911.47 in unsold and unsaleable stocks of Broncos and sought payment from the plaintiff.

In November 1999, one of the directors of the plaintiff came to Nuku'alofa to try and resolve some unpaid bills. The defendant claims that, at that meeting, an agreement was reached whereby various debts claimed to be owed by the plaintiff to the defendant, including the total of $38,939.97 from the Broncos case, were set off against sums owed by the defendant. Those sums included money due on three invoices, two of which are claimed in this action. That agreement made no mention of the debt for the flour. The plaintiff denies any agreement was reached and sent a solicitor's letter about a month later demanding payment on the two invoices together with the sum owing for the flour.

I deal first with the flour consignment.

The plaintiff's case is that on 5 October 1995, Mr Murjee Sundarjee had a telephone conversation with 'Emosi. In that conversation, 'Emosi sought to order three items; lamb flaps, fish and flour. Murjee took the order and produced a note scribbled by him at the time on the back of a fax cover sheet received from another customer the previous day. The lamb flaps and the flour were for delivery in November and the fish in December. The latter could not be filled and the lamb flaps were not ordered at that time because of difficulty in locating available supplies. However, the flour was ordered and the telephone note was passed to a Mr Puran Sundarjee who, at that time, was responsible for processing orders. He wrote out an order number 843 the same day to River Mill Bakeries in New Zealand for direct shipment to Nukualofa in November.

Murjee's handwritten note, headed "TCF" simply records:

"3 Flour 2 FCL 50 kg
A$420 November."

Alongside that is written in another hand, probably Puran's: 0/843.

The defendant's procedure was that no goods should be shipped until there has been an official order. The General Manager of the defendant, 'Amanaki Paea, explained that in cases of urgency, the order could be made over the telephone and confirmed by telephone but the supplier would be advised at the time of the confirmation that an official order would be sent.

It is clear on the evidence that this had been the procedure since some time before the events we are dealing with in this case. However, it is equally clear that procedure has not been followed in all cases. The General Manager himself, for example, referred to the order for lamb flaps that was originally placed on the same day in October 1995. Once the supply situation had been clarified, 'Emosi sent a fax which 'Amanaki described as a confirmation of the order and which they treated as an official order.

In this case, it is not disputed that the flour was shipped without such an order. It is not clear exactly when it arrived in Nuku'alofa and no evidence has been called to clarify this but it would appear to have been either on the 11th or the 18th November 1995. The first communication to the defendants by the plaintiffs was a shipment advice in the form of a letter posted on 30 November 1995 and accompanied by an invoice. That letter refers to the goods having been due to arrive on 18th. It was explained in evidence that the normal procedure would be for the shipping agents here to advise the consignee of the arrival of goods and it was said by 'Emosi that the first notification to the defendant of the arrival of the flour was from the shippers and was somewhat earlier that the shipping advice from the plaintiff.

The plaintiff claims that the order was confirmed on the telephone and that this was often done depending on the urgency of the order. It is not disputed that 'Emosi was in Sydney from 2nd to 8th of December and it would seem likely, as the plaintiff claims, the order must have been discussed then. The defendant's case is that the telephone conversation was an inquiry only and the first knowledge they had that it had been treated as an order was the shipment advice of 30 November. 'Amanaki told the court that, at that time, he advised 'Emosi to advise the plaintiff that the defendant would not take the flour because they already had sufficient in stock and the consignment would result in them being overstocked. After the consignment had arrived he spoke to Mr Hasmukh Sundarjee on the telephone and said that, to help the plaintiff out, he would try and sell the flour he had and then, if so, he would take the consignment.

'Emosi said that he first knew of the flour when he was notified by the shipping agent that there was flour for them on the wharf. He then spoke to either Murjee or Hasmukh on the telephone and refused to accept the consignment because the defendant was already overstocked with flour. After that, he said he sent a fax to them. It would be reasonable to expect some form of written confirmation of such a serious step as the refusal to accept a consignment that had, rightly or wrongly, already been shipped to Tonga. No such fax has been produced. The only fax that refers to this topic is one to Murjee/Hasmukh dated 28 December.

It appears that, at about the same time, a container of margarine was also shipped to the defendant by mistake and without an official order. 'Emosi sent the fax of 28 December 1995 in which, as I have said, he also mentioned the flour shipment. I set it out in full:

"Re: 1 FCL Margarine – Cont/ No
Shipped on Fuakavenga V 201 ( ETA 26/12/95)

As you agree on my recent visit, you must not ship any goods to TCF before you receive official orders from us. However you have ship the above container without any order. As I told you before it must have to process through our computer system before we good receive them into our inventory system.

This is the second time you have done this to TCF as detail:

1. You shipped 2 FCL flour on Southern Cross Voy 209 – No official order
2. You again shipped 1FCL margarine on Fuakavenga Voy 207 – No official order.

This is a very bad business relationship. As you know Loisi was suspended from work because of over stock problems. Now you have did this again to me.

Now we are overstock with flour because you ship those 2 containers without our official order, again we will be overstock with margarine because of the same problems.

As we have discussed we cannot take a full container of margarine because it will be too much for us, but you still take no action at all. I have being questioned by 'Amanaki for this and I don't want to lose my job. Why you did this?"

The result of this note was that the defendant took only some of the margarine and the plaintiff shipped the remainder to Fiji at its expense. Whilst there is a reference to the flour and a complaint about the lack of an official order, there is clearly no mention of the dispute about taking the flour or the offer, referred to by the defence witnesses, that TCF would take it if it could sell off its present stock in order to help the plaintiff out.

When the defendant had sold the flour in stock, it paid the customs duty and had the containers released on 9 January 1996. As has been stated, when it was opened it was unfit for consumption and was eventually destroyed.

The shipment had been insured under the defendant's marine open policy. Following the discovery of the infestation of the contents, the defendant claimed under that insurance having apparently first suggested that the flour had not been of a proper standard when shipped; a claim refuted by the millers. The insurance claim was refused on the basis that the damage occurred during the delay in clearance of the containers from the wharf. 'Amanaki told the court that they claimed under their insurance at the request of the plaintiff and not because they had taken the flour. Such a claim would have been fraudulent and I do not accept the plaintiff would have made such a request of the defendant.

The defence is contained in the statement of defence;

"The plaintiff accepted the loss and demanded no payment whosoever from the defendant."

The plaintiff's case is that this was an order by the defendant that they fulfilled. The spoiling of the goods was the result of the defendant's default. They say they never acknowledged anything to the contrary and sought payment in the usual way.

The trial was hindered by the fact that neither side had prepared its case in sufficient time for the trial and so both sides were seeking to produce documents during the hearing itself. Even during their evidence, two defence witnesses based answers on documents that had not been produced but which were, they said, available. I note that none of those documents were, in fact, forthcoming. However, some of the documents produced by the defence during the trial show that the suggestion that the plaintiff demanded no payment is not sustainable.

A few days after the fax from 'Emosi on 28 December 1995, the plaintiff wrote:

"I refer to our discussion per telephone this morning, regarding the outstanding bills. Just to clarify, we note the various bills below:"

Included in those bills is the shipment of flour.

Following this there was some correspondence over the insurance claim but nothing to suggest the plaintiff at any time accepted any liability. On 14 August 1996, the General Manager of the defendant wrote a memorandum to the plaintiff referring to the invoice for the flour. He states:

"Please note that this shipment is still a problem and there has yet to be resolve and we need to come to some conclusion as it is a lost…My insurance is very reluctant to get this claim entertained therefore we all need to work on this shipment for our long term business relationship. Please give me your position as we need to resolve the problem."

The following day Murjee replied setting out his position:

"We have on many occasions advised you that the bill has to be cleared."

He went on to point out that he and the millers considered the loss to be the responsibility of the defendant and asked for settlement by telegraphic transfer.

On 23 December 1996, the plaintiff sent a fax attaching a list of outstanding accounts and asking that they be settled before the end of the year. Included is the bill for the flour.

I do not go through all the correspondence that was exhibited. It is not a complete record. However, there is a letter from the insurance company dated 7 February 1997 to the defendant which includes the passage:

"Firstly I would like to confirm the following from our meeting with 'Emosi in our office:-

a. T.C.F. did not order the flour containers.

b. Only advised by the supplier when consignments have already been at the wharf.

c. Due to its unexpected arrival when you still have excess flour on stock and therefore could not meet the extra costs of clearing them immediately from the wharf."

I accept that shows the defendant was certainly at that time suggesting this was not ordered although the rest of the suggestions if they are correctly reported, do not tie in with the defendant's present position.

That letter was sent to the plaintiffs by the internal auditor of the defendant on 12 February 1997 and in his covering letter he asked them to take the three points in the insurance letter into account. It continues;

"Further to the above is the invoice date 30/11/95. How you expected us to cleared the consignment earlier without invoice? Apart from it are the time of informing us for the consignment and the time receiving the invoice after 30/11/95….?? Were they met with our cash flow position on that time…?? very unexpected consignment.

All the above are reflecting your part, which was not professional; how and why can we absorb the risk ? as I understand, that the risk should be taken against you.

This claim is almost Year and a half now, and I hope that you'll finalized from your end."

It must be noted that that letter is the closest the defendants have been able to demonstrate any suggestion that the plaintiffs might be liable and it certainly does not support the defence that the plaintiff accepted the loss. It provoked a reply from Hasmukh:

"Yes, we supplied the above without a official order from Tonga Coop. There was some misunderstanding from our side. We had spoken to Emosi who had said yes and we arranged the shipment, what we did not know was that we had to wait for your official order.

When the consignment was in Nuku'alofa, Emosi was with us in Sydney. We had advised him then re the above shipment. He said he will arrange to clear the goods when he gets there.

We were never advised by yourselves that you are overstock and will not clear or accept the goods.

If we were notified of the above then we would have made some other arrangements."

He then goes on, once again, to seek settlement.

There was further correspondence and the defendant puts some weight on the fact that, in January, March and August 1999, the plaintiff sent statements of outstanding invoices and the flour bill is not mentioned. They were all US dollar accounts and the plaintiff's accountant explained that the plaintiff kept separate ledgers for US dollar and Australian dollar accounts. He also added that, the longer debts remained outstanding, the harder they became to collect and, to some extent they would be hived off by which he meant, if I followed his explanation correctly, they would not be pursued in the same manner as more recent debts. He stated that the flour invoice was the only one on the Australian dollar ledger.

I do not need to set out the evidence any further. From the evidence as a whole I am satisfied on a balance of probabilities that, during the telephone conversation on the 5 October 1995, 'Emosi did intend to place and did place an order for flour and the reference to November was the requested delivery date. At the time it arrived five or six weeks later, the defendant was overstocked and couldn't take it. However, a buyer of 'Emosi's experience would have known that flour is an extremely perishable item. Had it been sent without having been ordered, I would expect any reasonable dealer to have complained immediately and asked the consignor to remove it. He did that in the case of the margarine and it was removed at the plaintiff's expense. There is no such request in relation to the flour and, although the fax of 28 December refers to the lack of an official order, it does not mention that the goods had not been ordered. I do not accept the defence evidence that such a complaint was telephoned through as soon as the defendant had been notified of the arrival of the flour or that it was agreed to be left on the wharf to await an uncertain date in the future when the defendant might have been able to take it. Such an arrangement over such a perishable item defies business sense.

The correspondence before the court also shows that the plaintiff never accepted the loss and certainly sought payment of the money due in the same way as any other debt.

I am satisfied that the defendant is liable for A$22,660.00 in payment for the flour on invoice 95520.

I pass now to the second part of the claim, namely, the payment for invoices 991586 and 981512. The sum claimed was a total of US$41,560.13 but was reduced, by amendment at the outset of the trial as the result of a payment, to US$28,544.04.

The claim is simply that this amount is due and owing. It is clear on the evidence that the two consignments were supplied to the defendant and have not been paid for.

However, the defence is that they were set off against other debts owed by the plaintiff as the result of an agreement reached at a meeting between Hasmukh and officers of the defendant. That there was such a meeting is not disputed but the fact of any agreement is not accepted by the plaintiff.

It is also agreed that an action was brought successfully against the defendant by Nestle for passing off and that, as a result, the defendant suffered a loss of $23,911.47 in unsold products and a further $15,028.50 in legal costs awarded against it as the losing party making a total of $38,939.97. The loss of $23,911.47 was known in late 1998 and resulted in correspondence between the parties. The defendant was seeking reimbursement of that sum from the plaintiff. The correspondence refers to the sum as "legal costs" but it is apparent that means the sum of $23,911.47 because it was only in August 1999 that the bill of costs was taxed by the court.

The correspondence shows that, in September 1998, 'Amanaki had suggested to Hasmukh that the sum might be covered by a rebate on future orders of goods bought from the plaintiff and, towards the end of October 1998, agreement had been reached whereby the plaintiff would reimburse the sum by a rebate of A$500.00 on every container. It is equally clear that the defendant had assumed that would apply also to orders on sugar, of which there were many but which were in fact supplied by a separate company, Sundarjee Brothers Trading Ltd in Fiji. By November 1999 the defendant had received the benefit of the rebate on one container only.

The defendant's accountant wrote to Hasmukh on 12 August 1999 to tell him about the extra order of $15,028.50 costs. He pointed out that they hoped to pay those costs off by the middle of October and continued:

"As such, I herewith requested your kind consideration and due assistance to bear this legal cost as desperately needed from our end. Given your approval of this request then, I humbly suggested to offsetting it from the Company Debtor's account with us in due course.

Please be apologised for any inconvenience caused in this spectrum. However, the office of TCF in the Kingdom of Tonga avails itself of this opportunity to renew to the management of Sundarjee Bros the assurance of its highest consideration"

Hasmukh decided that he would need to come to Tonga to meet with the defendant's officers. He asked TCF for a meeting before he left Australia and told them it was because of very long outstanding accounts. That was the meeting of 18 November 1999. Hasmukh told the court that the agenda was simply the outstanding debts, some of which had been outstanding for 3 years. The arrangement for that meeting must have followed the letter of 12 August.

In preparation for the meeting, the accountant for the defendant prepared a schedule of debts owed by the plaintiff and those by the defendant and a proposed scheme whereby they would be set off against each other. Included in the debts owed by the plaintiff were a number of small sums arising out of sugar orders with the Fiji company and both the losses and the costs arising out of the Broncos case. Hasmukh agreed a copy of that document was given to him at the meeting.

It appears no minute was kept of the meeting but the following day (or, possibly, later the same day) the defendant's accountant wrote to Hasmukh setting out the defendants account of the meeting:

"Reference our meeting yesterday with 'Amanaki at the TCF old Board Room which approved the following matters:

Mutually agreed for both parties to verify and endeavour to settle its transaction through means of contra procedure such that TCF would offset Sundarjee Bro's debtors account to its Creditors Accounts in our records. Please refer the enclosed schedule of Debtors and Creditors and the Contra procedure for perusal and references.

Obviously TCF still owed the amount of US$37,413 .34 to Sundarjee Bro's of which US$10,000.00 is payable today 18th November 1999 and US$13,000.00 will be paid by Tuesday 23rd of November whereas the residual amount US$14,413.34 will be fully paid by Tuesday 30th of November 1999 respectively.

We further agreed to resume the above matter properly by early December 1999 given the completion of this financial obligation by TCF.

We are looking forward to receive your assistance and due honouring of this arrangement through resuming our Trading Partnership and fostering of good relation by 1st of December 1999 onwards."

Enclosed with the letter was the schedule prepared before the meeting.

I pause to refer back to the matter of the flour shipment. Hasmukh's evidence was that it was raised by him at the meeting whilst the defence witnesses who were at the meeting denied there was any mention of it. I do not accept Hasmukh's account of that. He had called the meeting to try and settle accounts that had been outstanding for as long as three years. The flour debt had, by that time been outstanding longer and had effectively been left to one side and had, for a long time, been, according to the plaintiff's accountant, the only item on the Australian dollar account. The accounts being discussed at the meeting were all cited either in pa'anga or US dollars and the flour debt would not have necessarily come into his preparation for the meeting. I am satisfied that he went with the intention at that time of chasing the dollar and pa'anga accounts only.

The defendant's case is that the letter of 18 November was an honest attempt to set out the terms of an agreement reached at that meeting. The first payment was made in the amended sum of $11,397.25 on the same day and accepted by the defendant. A copy of the letter with amended figures was faxed back to the defendant by a member of the plaintiff's staff in Sydney on 23 November with a handwritten note:

"Attn: Saulala

We refer to the payment of US 13,000-00 to be settled today. Please fax us payment detail imdly.

Regards 'Elenoa 23/11"

The second sum was paid, late in terms of the agreement, on 25 November and the last on 25 January 2000. By that time the plaintiff had caused a solicitor's letter to be sent demanding payment of the outstanding sums. The first such letter was dated 15 December1999 and was sent again with a correction of the figures two days later.

That letter points out the two outstanding sums of US$41,560.13 for these orders and AUD$22,660.00 for the flour. It continues:

"We have a copy of your letter dated 18th November addressed to Mr Hasmukh Sundarjee. Our client does not accept that that letter sets out the position between the parties. Any payments accepted by our client were on account only, and there was never any agreement to forgive any part of the debt."

The plaintiff's case is as stated there. Hasmukh told the court there was never any agreement reached at the meeting and he went straight to his lawyer here in Nuku'alofa and was advised to accept any payments forthcoming. By the time the first solicitor's letter was sent the third sum was unpaid and overdue in terms of the suggested agreement. It was only paid after the plaintiff had served the writ in this action and was the cause of the amendment at the beginning of the trial. The amended sum paid on the date of the letter was the actual sum owing on one of the outstanding invoices, 981507, and it is suggested that it was tendered and received on that basis. I do not accept that. The next sum is clearly related to the agreement as is the note by 'Elenoa.

Hasmukh pointed out that the first sums on the schedule relate to sugar and were not bills due to the defendant but to the Fiji company and he would never have agreed to include them in the discussion. It is clear they do so refer but I note the documents before the court show some mixing of the two companies in the minds of the defence witnesses arising, in part probably, from Hasmukh's use of the letterhead of the Fiji company for correspondence of either company. I do not accept that would necessarily have stopped Hasmukh from allowing those figures to be used if necessary to reach an agreement on the bills he had travelled to Tonga to resolve.

The burden of proving the agreement and the set off lies on the defendant. On the evidence as a whole I am satisfied on a balance of probabilities that there was such an agreement made. The letter of 18 November would have been a bold step to try and misrepresent the situation by the defendant if the plaintiff's claim is correct. It was actually handed to Hasmukh and the first payment made immediately.

It was unfortunate that he did not state then or very soon afterwards that it was not true. He was, of course, in the absence of accord as is his claimed position, entitled still to pursue the sums but his failure to protest in the circumstances gives support to the defendant's claim of agreement having been reached.

I am satisfied to the required standard in such a claim that it was agreed to set off the sums as set out in the schedule and the claim for the remaining sum of US$28,544.04 fails.

Interest is claimed on the judgment sum from the date of judgment until payment and I so order.

Both parties have succeeded on a substantial part of the claim and so the appropriate order is that each should bear its own costs and I make no order for costs.

NUKU'ALOFA: 21 August 2000.

CHIEF JUSTICE