IN THE SUPREME COURT OF TONGA
CIVIL JURISDICTION
NUKU'ALOFA REGISTRY
CV 22 of 2013

BETWEEN:

'OFA FIFITA
Plaintiff

AND:

1. NEIL JENKIN
2. SALOTE JENKIN
3. K.W. LIMITED
Defendants

T. Fakahua for the Plaintiff
Mrs D. Stephenson for the First and Second Defendants 
No appearance by the Third Defendant

JUDGMENT

[1] The Third Defendant was formed in 1982. It was re-incorporated in October 2010 after it was bought by the First Defendant in 2008. The directors and sole shareholders are the First and Second Defendants. According to the First Defendant he manages the business of the company which is the manufacture of fiberglass tanks, boats, furniture, signs and so on. The Second Defendant is the company secretary. 

[2] The Plaintiff is the owner of the Talahiva Restaurant. She decided, towards the end of 2012, that she wished to acquire a fiberglass half cabin boat for the use of her business. She approached the First Defendant and on 29 December 2012 it was verbally agreed between the Plaintiff and the First Defendant that a 28 foot boat would be manufactured and supplied to her, together with a trailer and an outboard motor. 

[3] Although there are some minor inconsistencies in the evidence, it is not disputed that the Plaintiff paid $20,469.00 on 29 December 2012, that she received a quotation for the supply of the boat on 3 January 2013 which she signed and that this payment was followed by ten further receipted payments amounting in all to $21,000.00. 

[4] The Plaintiff has never received the boat, the outboard motor or the trailer. 

[5] On 10 April 2013, the Plaintiff commenced proceedings seeking general and special damages, interest and costs against each of the three defendants. On 14 May 2013 judgment was entered against the defendants in default of defence, with damages to be assessed. On 11 July 2013 the judgment against the First and Second Defendants was set aside and they were given leave to defend. No application to set aside was made by the Third Defendant which has at no stage appeared. 

[6] The defence of the First and Second Defendants was filed on 15 July 2013. Unfortunately, the defence is somewhat sparse but it is plain enough that it is argued that at all times the First and Second Defendants were the agents of the Third Defendant and that no agreement was entered into personally between the First and Second Defendants and the Plaintiff. 

[7] Although, as already pointed out, the Third Defendant did not appear, the First Defendant, in his capacity as managing director of the Third Defendant, conceded that the Third Defendant had received the total sum claimed and that it was liable to refund that sum to the Plaintiff. 

[8] As the Plaintiff explained in her evidence, at all times she dealt with the First or Second Defendants. She stated, correctly, that they owned the Third Defendant. It was the First and Second Defendants with whom she had agreed what type of boat was to be made, at what price and at what further cost a trailer and outboard motor were to be supplied. According to the Plaintiff, she needed the boat urgently and the First Defendant undertook to supply it by the end January 2013. When he failed to do so, she began to be unhappy about the Defendants' performance. Although she continued paying installments on the trailer and engine until 28 March 2013, by then she had lost patience. 

[9] The First Defendant denied agreeing to complete delivery by the end of January 2013 but accepted that by the time the boat and the other equipment were ready for delivery in March 2013 the Plaintiff no longer wanted the boat, just her money back. 

[10] Wherever the truth may lie, the only question now before the Court is whether the First and Second Defendants are liable for breach of contract, not what caused the breach to occur. 

[11] When asked by Mr Fakahua why she wished to continue her action against the First and Second Defendants, rather than merely enforced the judgment obtained against the Third Defendant, the Plaintiff emphasized that she had throughout dealt with the First and Second Defendants. So far as she was concerned it was they who were primarily responsible for the failure to deliver the boat on time. 

[12] In my opinion, the Plaintiff misunderstands the position in law and I will attempt briefly to explain why. 

[13] Ever since Salamon v Salamon [1897] AC 22 it has been settled law that a properly incorporated company, such as the Third Defendant, is a different legal personality altogether from its members. As a general rule, it is only where the incorporation of the company is a mere sham that the veil of incorporation will be lifted (see e.g. Gilford Motor Co. Ltd v Horne [1933] Ch 935). No evidence at all was led to suggest that the Third Defendant was formed or used for any illegitimate purpose. 

[14] The Plaintiff's evidence was that she dealt with the First and Second Defendants and I accept that this was indeed the case. To draw, however, the conclusion from such dealings that the contract was between the Plaintiff and the First and Second Defendants is, in my opinion, to ignore not only the circumstances in which the dealings took place but also the obvious fact that a company cannot act except through human agents. 

[15] In the present case, the Plaintiff accepted that the initial conversations and the broad agreement reached all took place at the offices of the Third Defendant, a substantial road-side property at By-Pass Road, outside of which on the undisputed evidence of the First Defendant there are two signs prominently displaying the words "KW Ltd Manufacturers of Fiberglass …". Not only the quotation received on 3 January 2013 (Exhibit 12) but also 10 out of the 11 receipts issued to the Plaintiff all bore the words "received with thanks …. KW Limited, By-Pass Road Ma'ufanga". 

[16] Mr Fakahua suggested that the First and Second Defendants should have explained to the Plaintiff that they were not dealing with her personally but merely as agents for the Third Defendant. In my opinion, that suggestion is contrary to accepted normal business practice. If, for example, I go to purchase a sofa from a retailer, I do not expect the sales assistant to have to explain his legal relationship with the owner of the store before I decide whether or not to complete the purchase; I assume that he is the store owner's agent. Furthermore, the suggestion seems directly to contradict paragraphs 2, 4 and 5 of the Statement of Claim each of which state that the First and Second Defendants were employees of the Third Defendant. 

[17] Where an employee acting within the general scope of his employment enters into a contract on behalf of his employer, the general rule is that the contract is the contract of the employer, as principal, and not that of the employee as agent. Prima facie, at common law, the only person who may sue is the employer, as principal and the only person who can be sued is the principal (see Montgomerie v UK Mutual S.S. Assn Ltd [1891] 1 QB 370,371). 

[18] By way of final submission, Mr Fakahua suggested that the Third Defendant was "vicariously liable" for the actions of the First and Second Defendants. In my view this suggestion cannot assist the Plaintiff to obtain further judgment. The liability of the Third Defendant has already been established; what is in issue now is the liability of the First and Second Defendants. I would also add that the concept of vicarious liability is essentially confined to liability in tort (see Photo Productions Ltd v Securicor Transport Ltd [1980] 1 All ER 556) of which there is no evidence in this case. 

Result:

a. The Plaintiff is awarded $41,464.00 general damages against the Third Defendant. This sum will bear interest at the rate of 10% from 10 April 2013 until payment. No evidence of special damages was led and therefore no award is made. Plaintiff's costs to be taxed if not agreed. 

b. Plaintiff's claims against the First and Second Defendants are dismissed with costs to be taxed if not agreed. 

M.D. Scott 

DATED: 15 November 2013.
CHIEF JUSTICE

N. Tu'uholoaki 
15/11/2013.