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Teta Tours Ltd v Ramanlal & Sons Ltd [1999] TongaLawRp 32; [1999] Tonga LR 170 (23 July 1999)

IN THE COURT OF APPEAL OF TONGA
Court of Appeal, Nuku’alofa

CA 12/99

Teta Tours Ltd

v

Ramanlal & Sons Ltd

Burchett, Tompkins, Beaumont JJ
20 July 1999; 23 July 1999

Agency — whether acting as principal or agent — held that liability as principal was not negatived
Contract law — interpretation — whether direct relationship or agency relationship

Ramanlal was the owner of the Pacific Royale Hotel. Teta was the owner of Tour and Travel Agencies. Teta was the agent for, or representative of, Hawaiian Airlines (“HAL”) in Tonga. Teta was selling air tickets for HAL and was providing tour and transport facilities for passengers and tourists. In 1989, Ramanlal agreed to provide accommodation for passengers represented by Teta, on account of and for payment by Teta. At the same time, Teta would provide tours and transport for guests of Ramanlal and air tickets for Ramanlal’s employees on account. Instead of settling these accounts by monthly payments, they balanced the respective debts and allowed each other equal credit to cancel whichever debt was the less, and the party still owing paid the balance to the other. The primary judge found that the arrangement had ended in 1992, and that since then the parties had attempted a “final accounting”, which was largely a question of fact [not itself complex] although there was room for the application of the law of principal and agent. His Honour noted that the accountants had “found” that only $16,969.06 was owed to Ramanlal, and that they had “assessed” Teta’s part of that debt as being only $469.53, with $16,499.53 “payable” by HAL. Ramanlal’s position was that the dealings of the parties throughout were direct dealings, creating contractual relations between them — hence its claim was only for the balance due “in an equalizing process”; whereas Teta’s position, on the other hand, was that, when requesting accommodation, it was only the agent and thus not liable; whilst in the supply of airline tickets, Teta was contracting direct with Ramanlal, which was liable to Teta in that respect. The judge found that Teta was acting as principal not as agent and so did not negative liability. The Judge accepted the quantum of the debt owed by each party as ascertained by the expert accounting evidence, and applied an offset of the smaller debt owed to Ramanlal to the larger debt owed to Teta, and ordered Ramanlal to pay Teta the difference, $9,252.19. Costs were declined. Teta appealed the decision and contended that his Honour erred in legal principle in holding that Teta had not negatived its personal liability for the cost of this accommodation. Ramanlal sought leave to cross-appeal the aspect of costs.

Held:

1. When regard was had to the considerations of background, context, the facts and the evidence, in particular to the previous settled course of conduct of the parties over a long period, the inference was open to the primary Judge that Teta had not, by its conduct, viewed objectively, evinced an intention to disclaim its own liability for the debts incurred.

2. The appeal was dismissed with costs.

3. There was no basis for interfering with the discretionary judgment not to award costs. Leave to cross-appeal refused.

Cases considered:

Benton v Campbell Parker & Co Ltd [1925] 2 KB 410; [1925] All ER Rep 187

Hichens Harrison Woolston and Company v Jackson and Sons [1943] AC 266; [1943] 1 All ER 128

HO Brandt & Co v HN Morris & Co Ltd [1917] 2 KB 784 (CA)

McCutcheon v David MacBrayne Ltd [1964] 1 All ER 430; [1964] 1 WLR 125

N and F Vlassopulos v Ney Shipping Ltd (the “Santa Carina”) [1977] 1 Lloyd’s Rep 478

Universal Steam Navigation Co Ltd v James McKelvie & Co [1923] AC 492

Yeung Kai Yung v Hong Kong and Shanghai Banking Corporation [1981] AC 787; [1980] 2 All ER 599 (PC)

Counsel for appellant: Mr Lemoto
Counsel for respondent: Mr Niu

The Supreme Court decision appears at page 34.

Judgment

Introduction

The respondent to this appeal, Ramanlal & Sons Ltd (“Ramanlal”), sued the appellant, Teta Tours Ltd (“Teta”), in the Supreme Court in 1993 for debt, claiming the sum of $9,150.35. By its statement of claim Ramanlal alleged the following:

• Ramanlal was the owner of the Pacific Royale Hotel.

• Teta was the owner of Tour and Travel Agencies. Teta was the agent for, or representative of, Hawaiian Airlines (“HAL”) in Tonga. Teta was selling air tickets for HAL and was providing tour and transport facilities for passengers and tourists.

• In 1989, Ramanlal agreed to provide accommodation for passengers represented by Teta, on account of and for payment by Teta. At the same time, Teta would provide tours and transport for guests of Ramanlal and air tickets for Ramanlal’s employees on account, the difference to be paid by the party indebted in cash.

• Ramanlal extended the said credit to Teta upon the trust of Ramanlal in the financial capability of Teta, and for 3 years there was no major difficulty between them. But in about September 1992, Ramanlal found that Teta was indebted to HAL for a substantial sum, and that HAL was removing its agency from Teta.

• Ramanlal accordingly terminated the credit arrangement with Teta. At this time, the account payable by Ramanlal to Teta was $20,495.73, and the account payable by Teta to Ramanlal was $29,655.08. The difference, $9,159.35, was payable by Teta to Ramanlal.

By its statement of defence, Teta said, inter alia, that “(Teta) and the Principal (i.e. HAL) had separate accounts with Ramanlal and (they were) always kept separate.” Teta admitted that Ramanlal owed Teta $20,495.73, but Teta denied owing Ramanlal $29,655.08. Otherwise, Teta denied the substantive allegations in the statement of claim.

By its counterclaim, Teta sued Ramanlal for $20,775.48 for debt, alleging the following:

• Ramanlal had, since 1989, an account with Teta and Ramanlal used Teta’s fleet for tours and airport transfers on account; further, Ramanlal ordered air tickets from Teta.

• Teta had its own separate account with Ramanlal “and its Principal namely HAL had its own account with Ramanlal which was paid by cheques endorsed to Ramanlal and not Teta.”

• Teta used Ramanlal’s hotel to accommodate its tourists and this was deducted from the services on the tours and airport transfers conducted by Teta.

• By December 1992, Ramanlal owed Teta a total of $20,775.48.

By its reply to Teta’s counterclaim, Ramanlal repeated its claim that it owed Teta $20,495.73 (i.e. not $20,775.48), but that Teta owed it $29,644.08, i.e. a difference of $9,159.35. Ramanlal also said that it had terminated the credit agreement with Teta when Ramanlal discovered that Teta was indebted to HAL; and Teta subsequently ceased orders and all credit arrangements as Teta knew that Ramanlal terminated the credit arrangement and demanded that the outstanding debts be paid.

By its amended statement of defence, filed in 1998, Teta repeated, in essence, its earlier defence. Teta also then filed an amended counterclaim, claiming judgment against Ramanlal for $26,221.25 for debt, and alleging the following:

• Ramanlal since 1989 had an account with Teta. Ramanlal used Teta’s fleet for tours and airport transfer on account. Further Ramanalal ordered airline tickets from Teta.

• Teta had a separate account with Ramanlal under its own name. Teta’s principal, HAL had its own separate account with Ramanlal and HAL would pay this account with HAL cheques made payable to Ramanlal.

• Teta used Ramanlal’s hotel to accommodate tourists. HAL’s delayed flight passengers used Ramanlal’s hotel for accommodation and they used HAL coupons as payment of their accommodation.

• In December 1992 Ramanlal owed Teta $20,775.48 which was still outstanding.

• In December 1992 Teta stopped all orders from Ramanlal because of the unpaid debt of $20,775.48.

• In January 1996 Howard Alexander, Ramanlal’s accountant, and Sione Mapa, Teta’s accountant, “agreed to certain figures and prepared a Summary of accounts” as follows:

a) Total amount owing by Ramanlal to Teta was $26,221.25

b) Amount owing by Teta to Ramanlal was $469.53

c) Amount owing by HAL to Ramanlal was $16,499.53

• Teta had not received payment of the sum of T$26,221.25 from Ramanlal despite numerous requests.

• Teta stated that it was not liable for the debt of it’s Principal HAL, owed to Ramanlal.

The Orders Made at First Instance

The learned primary Judge held that Teta was liable to Ramanlal in the sum of $16,969.06 for the costs of Ramanlal’s services in supplying accommodation for HAL passengers; and that Ramanlal was liable to Teta in the sum of $26,221.25 for the costs of Teta’s services in supplying transport and airline tickets; so that Ramanlal was ordered to pay Teta the difference, viz. $9,252.19.

His Honour declined to make any order for costs.

The Findings and Reasons of the Primary Judge

His Honour said that for more than 10 years, the parties had used each other’s services, each rendering the other monthly accounts. Instead of settling these accounts by monthly payments, “they balanced the respective debts and allowed each other equal credit to cancel whichever debt was the less, and the party still owing paid the balance to the other.”

The judge found that the arrangement had ended in 1992, and that since then the parties had attempted a “final accounting”, which is largely a question of fact [not itself complex] although there is room for the application of the law of principal and agent.

Having noted that there were deficiencies in the documentary evidence, his Honour referred to calculations, made by a committee of two accountants appointed, one by each party, that the total amount owing by Ramanlal to Teta was $26,221.25. The Judge said:

“In his closing submissions, Mr Niu on behalf of (Ramanlal) continued (Ramanlal’s) admission of only $20,495.73, identifying that sum as the amount due for HAL tickets bought by (Ramanlal). There were however other services purchased by (Ramanlal) i.e. tours and airport transfers for its customers and staff, and the quantum of (Ramanlal’s) debt was fixed at $26,221.25 in a detailed process by the accountants appointed by the parties. The parties had terminated part-heard a previous hearing of these claims in order to have the accountants assess as accurately as possible what each owed the other, with a view to settling the claims out of court. The assessment that they did was not just a balancing-out. It was a calculation of the parties’ indebtedness from an independent assessment of all the invoices that the parties were able to make available to the accountants. I heard evidence from one of the accountants in an earlier hearing, in October 1998, and I have assessed their conclusions for myself. I cannot find any basis at all in the evidence for rejecting or amending their findings. Theirs was the first and best assessment that was carried out.”

His Honour went on to note that the accountants had “found” that only $16,969.06 was owed to Ramanlal, and that they had “assessed” Teta’s part of that debt as being only $469.53, with $16,499.53 “payable” by HAL.

His Honour remarked that HAL had become “defunct” and insolvent.

The Judge proceeded upon the footing that the onus was upon Ramanlal to show some error in the expert assessment.

His Honour noted that Ramanlal’s position was that the dealings of the parties throughout were direct dealings, creating contractual relations between them - hence its claim was only for the balance due “in an equalizing process”; whereas Teta’s position, on the other hand, was that, when requesting accommodation, it was only the agent and thus not liable; whilst in the supply of airline tickets, Teta was contracting direct with Ramanlal, which was liable to Teta in that respect.

Turning to the first issue, Ramanlal’s claim against Teta for debt, his Honour referred to the observations of Lord Scarman in Yeung Kai Yung v Hong Kong and Shanghai Banking Corporation [1981] AC 787 at 795; [1980] 2 All ER 599 (PC) at 604 that –

“... a person is liable for his engagements ... even though he is acting for another, unless he can show that by the law of agency he is to be held to have expressly or impliedly negatived his personal liability.”

The Judge said:

“In my opinion, far from negativing its personal liability in making the arrangement which it did, (Teta) assumed liability. The contract which it made, and for many years carried out, was that it would provide commercial services for (Ramanlal) (transport and airline tickets), and would accept in payment a credit against what it owed (Ramanlal) for services (accommodation when it required it for its airline agency customers). It seems to me that (Ramanlal) was entitled to sue on that contract had (Teta) not honoured it, and, had (Teta) wished, it could have joined the airline as a third party or claimed in turn under its own contract with the airline.

In my assessment therefore, in making their contra arrangement, the parties made a contract between themselves, upon which one could sue the other and establish liability. They did business under this contract for more than 10 years. The claims now raised by (Teta) for protection under the law of agency are ill-founded.”

Next, addressing the second issue, Teta’s claim against Ramanlal for debt, his Honour held that in respect of both the provision of airline tickets and transport services, there was, between Ramanlal and Teta, “a direct party and party contract relationship”; so that, “if ever unpaid by Ramanlal on their agreed credit terms, Teta was always entitled to sue for payment on this contract, just as Ramanlal is doing now.”

In giving his decision on Ramanlal’s claim and Teta’s counterclaim, the Judge accepted the quantum of the debt owed by each party as ascertained by the expert accounting evidence, and applied an offset of the smaller debt owed to Ramanlal to the larger debt owed to Teta, thus ordering, as has been noted, Ramanlal to pay Teta the difference, viz. $9,252. 19.

Finally, on the question of costs, his Honour said:

“Costs

(Ramanlal) has been successful in its claim and (Teta) successful in its counterclaim, but (Ramanlal) is liable to (Teta). I have considered the merits of the actions of both parties in conducting this litigation. In all of the circumstances, I decline an order for costs.”

Teta’s Appeal

Teta now appeals from the part of the judgment below which held it liable to Ramanlal for the costs of Ramanlal’s services in supplying accommodation for HAL passengers. In essence, the ground of the appeal is that his Honour erred in legal principle in holding that Teta had not negatived its personal liability for the cost of this accommodation.

Conclusions on Teta’s Appeal

We are not persuaded that his Honour fell into any error of principle, or otherwise, in finding that Teta was indebted to Ramanlal on account of the accommodation charges for HAL’s passengers.

On the question of the application of the principles of the law of agency, we would agree that those principles were, with respect, correctly stated by Lord Scarman in Yeung.

On behalf of Teta, much reliance is sought to be placed upon the decision of the English Court of Appeal in N and F Vlassopulos v Ney Shipping Ltd (the “Santa Carina”) [1977] 1 Lloyd’s Rep 478. In an action to recover the cost of the supply of oil bunkers, the defendants succeeded on appeal in denying liability on the ground that their request for supply had been made on behalf of their principals, the time charterers of the vessel; and that, although the plaintiffs did not know who the principals were, they did know that the defendants acted as agents.

Lord Denning, M.R., in allowing the appeal from Mocatta J., said [at 481]:

“The Judge held that the brokers who ordered the fuel were personally liable. He was much influenced by the cases where a person gives a written order for goods or signs a written contract when he is known to be acting as an agent. Nevertheless, although he is known to be acting as an agent, he will be liable on that order or liable on that contract if he signs in his own personal name without qualification. That is settled by cases both in this Court and in the House of Lords: see HO Brandt & Co v HN Morris & Co Ltd [1917] 2 KB 784 (CA) at p 796 per Lord Justice Scrutton, and Hichens Harrison Woolston and Company v Jackson and Sons [1943] AC 266 at p 273; [1943] 1 All ER 128 per Lord Atkin. In order to exclude his liability he has to append to his signature some such words as ‘as agent only’ or ‘for and on behalf of’ or such exclusion must be apparent elsewhere in the document. That is clear from Universal Steam Navigation Co Ltd v James McKelvie & Co [1923] AC 492 at pp 505-6.

The Judge thought that those cases on written orders and written contracts should be applied to the present case of an oral contract.”

But Lord Denning went on to distinguish the case of the oral contract. He said [at 481]:

“Those cases still apply today to written orders and written contracts. But they do not apply to oral orders or oral contracts. At any rate not so rigidly. In many cases if a man, who is an agent for another, orders goods or makes a contract by word of mouth, but does not disclose the name or standing of his principal (so that his credit is unknown to the other contracting party) the agent himself is liable to pay for the goods or to fulfil the contract. It may be that the other contracting party knows that the man is only an agent, but, as he does not know who the principal is, it is to be inferred that he does not rely on the credit of the principal but looks to the agent. That, I think, is the thought underlying the dictum of Mr Justice Salter in Benton v Campbell Parker & Co Ltd [1925] 2 KB 410 at p 414; [1925] All ER Rep 187, and the American Restatement on Agency in the comment to par 321. But in other cases that may not be the proper inference. There are cases where, although the man who supplied the goods knows that the other is an agent and does not know his principal, nevertheless he is content to look to the credit of that principal whoever he may be.”

Lord Denning noted [at 482] that the accounts for the fuel had always been paid by the principals, either directly or through the brokers. He concluded [at 482]: “It cannot be supposed that the brokers were ever intended to be personally liable.” He added [at 482]:

“It is just the same, it seems to me, as if the brokers had given a written order for the bunkers and added to their signatures ‘as agents only’. In that case they would not have been personally liable. Nor should they be liable in this case when it was done by word of mouth and when the inference from the conduct and the whole of the circumstances was that they were ordering the fuel as agents only.”

Roskill LJ was of the same opinion, referrring [at 483] to the “allimportant” background that the parties to the litigation were two Baltic brokers, each contracting as agents for principals. Lord Roskill said [at 583]:

“If (the defendants) had signed an order for bunkers without qualification of any kind, and the plaintiffs (assuming them to be entitled to sue at all) had sued upon a written contract so signed without qualification, I do not doubt that on the authorities the plaintiffs would have been entitled to recover; but that is not the position here. Like ... Lord [Denning], I see no reason why one should assimilate the case of a contract in writing, where the intricacies of the parol evidence rule apply, to a simple everyday oral contract made between two brokers on the telephone.

One has to look at the background against which this contract was made, and I approach the matter in the same way as [in] ... Lord Reid’s speech in McCutcheon v David MacBrayne Ltd [1964] 1 All ER 430; [1964] 1 WLR 125 where Lord Reid quoted from the Scottish textbook, Gloag on Contract:

‘... The judicial task is not to discover the actual intentions of each party; it is to decide what each was reasonably entitled to conclude from the attitude of the other’.”

Lawton LJ agreed, adding [at 484-5] that the case was to be decided “on the evidence” rather than the case law.

We doubt whether it is possible to extract any universal or even general principle from The Santa Carina, except perhaps that oral transactions should, in this area, be treated differently from written ones. But this distinction is not pertinent here. In any event, we take the law to be as subsequently explained by Lord Scarman.

What does emerge clearly from The Santa Carina is the importance of the background or context, and, of course, the facts and the evidence. When regard is had to these considerations in the present case, in particular to the previous settled course of conduct of the parties over a long period, the inference was open to the primary Judge that Teta had not, by its conduct, viewed objectively, evinced an intention to disclaim its own liability for the debts incurred. The procedure adopted of offsetting their respective debts is consistent with this.

In short, it was open to his Honour to find that, by its conduct, Teta had not disclaimed liability for the debts incurred in its dealings with Ramanlal. No warrant for our interference with that conclusion has been demonstrated. It was clearly open as a matter of legal principle. No other basis for upsetting his Honour’s judgment, has been made out. As has been seen, his reasoning was essentially based upon the proper inferences to be drawn from the parties’ conduct. The inferences drawn were, we think, appropriate in the circumstances. Moreover, his Honour was entitled to have regard to, yet not be bound by, the expert evidence on the questions of accounting that arose.

The appeal must be dismissed, with costs.

Ramanlal’s Cross-Appeal on Costs

As has been seen, his Honour, for the reasons he gave, declined to award costs.

Ramanlal has sought leave to cross-appeal on this aspect.

In our view, there is no basis for interfering with this discretionary judgment. It was plainly open.

Leave to cross-appeal is refused. We make no order for the costs of the cross-appeal.

Orders on Teta’s Appeal and Ramanlal’s Cross-Appeal

We make these orders:

1. Appeal dismissed, with costs.

2. Leave to cross-appeal refused.