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Moala v Lita Trading Enterprises Ltd [2004] TongaLawRp 23; [2004] Tonga LR 151 (21 July 2004)

IN THE SUPREME COURT OF TONGA

Moala

v

Lita Trading Enterprises Limited

Supreme Court, Nuku'alofa
Ford J
CV 27/01

30, 31 March and 31 May 2004; 21 July 2004

Contract law – undisclosed principal - breach in that supplied goods were unsuitable for resale

The plaintiff, Mele Moala, lived in Sydney, Australia. In the year 2000 she operated an importing and retail business from her home. In September of that year a consignment of kava powder she had purchased through her brother, 'Amanaki, from the defendant company, Lita Trading Enterprises Ltd, in Tonga was confiscated and destroyed by quarantine officials at Sydney airport because it contained E. coli bacteria cells in unacceptable levels. The plaintiff alleged breach of contract and, in the alternative negligence, and claimed from the defendant damages of A$7,500 or its equivalent in Tongan pa'anga. The defendant company denied liability.

Held:

1. It was long established that an undisclosed principal may sue on a contract made by his or her agent even though the other party to the contract was unaware of the principal or even of his or her existence.

2. The Court was satisfied that the defendant was aware that the kava supplies purchased by 'Amanaki were intended to be exported to Australia for resale. Whenever he made a purchase, he would specifically point out to the person he dealt with on behalf of the defendant that the product was being sent to Australia and, accordingly, he wanted to be sure that the kava was properly clean.

3. In respect of damages, the Court determined the plaintiff's economic loss by the fact that she had received about A$2000 for the 25 kg she had sold. On that the Court calculated the plaintiff's loss from the seized 75 kg of produce as A$6,000.

4. The Court found insufficient evidence to establish negligence. There was no basis for concluding that the defendant's duties were wider in tort than in contract.

5. The plaintiff succeeded in her breach of contract action and was awarded damages of A$6,000 or the equivalent in Tonga pa'anga together with interest, as claimed, at 10% per annum from 10 January 2001 until the date of payment.

Case considered:

Frost & Sutcliffe v Tuiara [2004] 1 NZLR 782

Counsel for plaintiff: Mr Niu
Counsel for defendant: Mr Tu'utafaiva

Judgment

The plaintiff, Mele Moala, lives in Sydney, Australia. In the year 2000 she was carrying on an importing and retail business. In September of that year a consignment of kava powder she had purchased through her brother from the defendant company in Tonga was confiscated and destroyed by quarantine officials at Sydney airport because it contained E. coli bacteria cells in unacceptable levels. In this proceeding, which is based on breach of contract and, in the alternative negligence, the plaintiff claims from the defendant damages in the sum of A.$7,500 or its equivalent in Tongan pa'anga. The defendant company denies liability.

The 53-year-old plaintiff, who for convenience I will mostly refer to in this judgment simply as "Mele", told the court that she moved to Australia from Tonga in 1985. Her husband works for a computer company. They have three children.

Between 1996 and 2000 Mele operated an importing business from her home under the trade name "Mele Moala Importers & Retailers". Up until August/September 1997, she imported cosmetic products from the USA and sold them to the public. She told the court that she then looked at importing Tongan kava; on 28 November 1997 she obtained her first licence from the Australian authorities, which allowed her to import kava powder. Mele said that initially she purchased all her supplies from the defendant, Lita Trading Enterprises Ltd. She would order the kava simply by making a telephone call to Lita Trading in Tonga and then she would arrange payment. That was the system used for the first four or five consignments.

Mele explained in her evidence how, after a period of time, she began to realise that it would be both easier and cheaper for her if she was to place her orders through her brother, 'Amanaki Tupou, who lived in Tonga. She worked out that he could purchase the product for her, pack it and airfreight it to Sydney. She spoke to her brother who was agreeable. The arrangement they made was that Mele would place the order through 'Amanaki over the telephone and then transfer the money for payment of the product into his bank account with the Bank of Tonga in Nuku'alofa.

For his part, 'Amanaki would purchase the bulk order in transparent plastic 5 kg bags. Each bag was sealed. He would then replace the Lita Trading stick-on label with the plaintiff's labels, put the 5 kg bags into a large sack -- normally four or five to a sack and then dispatch them by airfreight to Mele in Sydney.

The labels were supplied to 'Amanaki by Mele. She explained that they were computer-generated small tear-off labels. Each was headed:

""TONGAN KAVA POWDER" Exported by: 'Amanaki Tupou, Lakepa, Hihifo, TONGA. . ."

There then followed other details which, Mele said, met the Australian regulatory requirements.

Mele explained to the Court that she needed to apply for a special permit in respect of each consignment. The issuing authority in each case was the Treaties and Monitoring section of the Australian Department of Health and Family Services. The permits were required because kava is categorised in Australia as an import - controlled substance.

Mele said that when the shipment arrived at Sydney airport, the procedure followed was that the consignment would enter a Bonding House. Mele would be notified and she would go along to the Customs office and complete the required Customs forms. After the paperwork had been cleared, she would then attend the office again and collect the customs documents and go to the Quarantine office where she was required to complete further documentation.

Continuing in her evidence, Mele explained that at that point she would be 90 given a quarantine number and she would take that, together with the Customs documents to the Bonding House where she would collect the kava and take it back to the Quarantine office for inspection. Copies of all the official forms referred to were, helpfully, produced by the plaintiff as exhibits in the case.

The consignment in question consisted of 100 kg of kava powder which was air-freighted by 'Amanaki to Australia on 7 September 2000. It was made up of four 25 kg bags each containing five 5 kg packets. Mele told the court that upon arrival of the consignment she proceeded to go through the usual steps outlined above and when she took the kava along to the Quarantine Officer for inspection, the officer asked her to take out some of the 5 kg bags at random. He then cut into each of those bags and took out five samples for testing. The officer labelled each sample and then sealed up the bags. Mele was permitted to take all the kava home with her. The documentation shows that the consignment was released to her 14 September 2000.

At her home, Mele began to pack the kava powder into smaller plastic bags varying in size from 1 kg, 200g and 150g. She explained that the kava sold better in the smaller quantities and the smaller sales were more profitable for her business. The prices she charged depended upon the size of the bags but generally she aimed to recover $100 per kilogram against her purchase price from Lita Trading of $25 per kilogram.

Mele said that a few days after she arrived home with the kava, she received a telephone call from a Quarantine Officer. In answer to the officer's questions, she told him that at that stage she had sold 25 kg of the powder she had taken home. The officer then explained to her that the samples taken and tested by Quarantine had failed the E. coli test and she was required to return the remaining 75 kg of the powder to Quarantine as quickly as possible. She did so the following day.

Before returning the kava to Quarantine, Mele telephoned To'imoana Takataka, who described himself in evidence as the owner of the defendant company, and told him what had happened. She said that he told her that he would look into it and telephone her back but he never did.

Mele was given a choice by the Quarantine officials of either re-exporting the 75 kg of rejected kava powder to Tonga or allowing Quarantine to destroy the product. The catch with the re-exported option was that, before the kava could be returned, Mele would need to supply the Quarantine officials with the letter from Tongan Government Authorities approving the re-export and acknowledging that the Department was aware of the E. coli failure.

Mele had an exchange of facsimiles with To'imoana Takataka. He confirmed in a fax dated 25 September 2000 that Lita Trading would replace the rejected 75 kg of kava but only in Tonga and Mele would need to meet all the costs of the returned shipment. He also required receipts and the packaging to be intact with the defendant's labels still attached. To'imoana concluded his facsimile with the following paragraph:

"For your information, the original 75 kg of kava was sold locally and was not intended for export especially for the Australian markets. The quarantine people advised there is no document required for the return of the rejected product so you can return the kava to the shipper anytime you wish."

Mele replied by facsimile on the same date asking To'imoana to reconsider some of his demands and pointing out to him that the letter required from the Tongan Government Authorities meant the Tongan Government Health Department. Mele told the court that she never received a response to that facsimile and she was unsuccessful in trying to contact To'imoana by telephone. In the end, she informed the quarantine people that she had no option but to authorise them to destroy the kava.

According to an "imported Food Inspection Report" produced as an exhibit, the kava powder was destroyed on 3 October 2000 as being, "unfit for human consumption within Australia or its Territories".

None of these factual matters seemed to be seriously challenged by the defendant but, in any event, I accept them as being proven.

In her statement of claim, the plaintiff pleaded that her brother, 'Amanaki Tupou, had purchased the consignment of kava in question from the defendant on her behalf. She also claimed that the defendant was aware that the kava was being purchased for export to Australia and resale to consumers and that Australia had certain minimum hygiene standards for the importation of food products such as kava.

The plaintiff contended that, in breach of the contract of sale, the defendant supplied kava that failed to comply with the Australian hygiene requirements in that it contained excessive E. coli bacteria.

A letter from an Australian official commenting upon the analysis of the kava product in question, was produced through the plaintiff by consent. By way of background, the official explained the nature of the E. coli bacteria in these terms:

"Coliforms occur widely in plant material, soil and faecal material, and are used in the food and water industries as indicator bacteria. Their presence may indicate process failure or post processing re-contamination. Most species of coliforms are non-hazardous to humans but their presence may be used to imply the possible presence of hazardous contamination.

The coliform group contains the E. coli subgroup. E. coli is a faecal organism and its presence indicates faecal contamination of the tested material. This is considered serious as several human diseases may be transmitted by such contamination of food and water."

At a late stage of the hearing, the plaintiff obtained leave by consent to plead an alternative cause of action in negligence alleging that the defendant ought to have known that the plaintiff imported the kava for retail purposes and it was negligent in failing to ensure that the product supplied complied with the Australian quarantine requirements.

The amount claimed of A.$7,500 is the loss based on the plaintiff's estimated return of $100 per kilogram for the 75 kg of kava powder destroyed by the Quarantine officials.

In its statement of defence, Lita Trading admitted being aware that for several years the plaintiff had been buying kava from the defendant for export to Australia and resale to consumers in Australia but it denied being aware that the plaintiff's brother 'Amanaki Tupou had purchased any kava for or on behalf of the plaintiff.

In his written submissions, Mr Niu accepted that the defendant was unaware that 'Amanaki Tupou was buying the kava on behalf of his sister, the plaintiff. He contended, however, that the contract was one of agency and that 'Amanaki had made the purchase as agent for the plaintiff who remained an undisclosed principal.

I am satisfied that the evidence supports such a conclusion. There was a genuine agency arrangement between Mele and her brother 'Amanaki which was described in detail in evidence. 'Amanaki made the purchase of the kava powder in question, as he had made a number of other such purchases in the past, as agent for the plaintiff who, from the defendant's perspective, remained an undisclosed principal.

Although the basis for the common-law doctrine of undisclosed principal remains far from clear, it has long been established that an undisclosed principal may sue on a contract made by his or her agent even though the other party to the contract remains unaware of the principal or even of his existence. There are, as Mr Niu acknowledged, some limitations on the application of the doctrine but I am satisfied that they have no relevance to the present case.

Mr Tu'utafaiva submitted that the agency relationship was not properly pleaded by the plaintiff but I am satisfied that it was adequately pleaded and, also, that the defendant was fully aware that it was very much an issue before the court.

I am also satisfied that the defendant was aware that the kava supplies purchased by 'Amanaki were intended to be exported to Australia for resale. 'Amanaki's evidence, which I accept, was that whenever he made a purchase, he would specifically point out to the person he dealt with on behalf of the defendant that the product was being sent to Australia and, accordingly, he wanted to be sure that the kava was properly clean. That evidence was unchallenged.

I find that, for its part, the defendant was aware of the stringent hygiene requirements imposed by the Australian authorities on the importation of produce such as kava powder. For one thing, that would appear to be the clear implication in the defendant's facsimile of 25 September 2000, referred to earlier, where he made the comment, "especially for the Australian markets." The defendant was and still is an exporter of kava powder in its own right. Mr Takataka told the court that his company exports some 10,000 kg of kava to Australia annually.

I accept that it was a term of the contract of purchase that the kava had to comply with the minimum hygiene standards imposed by the Australian authorities for the import of kava powder into Australia and that the consignment in question failed to comply with that condition. The plaintiff, therefore, succeeds in her claim based on breach of contract.

Turning to the question of damages, the plaintiff's claim for economic loss is based on the fact that the defendant was aware or ought reasonably to have been aware that the kava was being purchased for resale to consumers in Australia. This allegation is based on the large quantities of kava purchased by 'Amanaki and the relative frequency of his purchases coupled with his specific admonition on each occasion that the order was being sent to Australia.

On the evidence, I find that these allegations have been established.

I am less convinced about the plaintiff's assertion that she would have achieved A.$7,500 from the 75 kg seized by Quarantine. Although that may have been her expectation, the plaintiff told the court that she had received only "roughly A.$2000" for the 25 kg she had sold before learning of the contamination. I find that evidence more persuasive in determining the plaintiff's economic loss than the evidence she gave about her expectations had it not been for the seizure. On the basis, therefore, of her actual sales figures, the plaintiff's loss from the seized 75 kg of produce can be calculated at A.$6,000. That is the amount I, accordingly, award.

I should add that counsel for the defendant submitted that the plaintiff did not do enough to mitigate her loss. I have considered his submissions on this point but I do not accept them.

As noted earlier, the plaintiff sought leave at a very late stage in the proceedings; after the plaintiff's evidence had concluded in fact, to plead an additional cause of action in negligence. The application was consented to.

The pleading did not specify any particular act of negligence on the defendant's part. The extent of the pleading was that the defendant had breached its duty of care "by supplying to 'Amanaki Tupou on 6/9/2000 kava which did not comply with the Australian quarantine requirements."

The evidence of Mr Takataka was that the defendant had never had any product rejected by the Australian authorities before. The witness explained the lengths that his company went to at all times to maintain proper hygiene standards and he told the court that those same standards of hygiene applied whether the product was being sold for export or on the local market.

As is noted in Charlesworth & Percy on Negligence, 8 ed. p.14.70:

"Negligence on the part of the producer must be proved, before liability can be established, and the method of proof is the same as in any other case of negligence."

The evidence before me was insufficient to establish negligence per se and I did not hear argument on whether there was room to infer negligence through the doctrine of res ipsa loquitur. In any event, res ipsa loquitur was not pleaded.

Finally, on this issue, I note and respectfully agree with the observations made by the New Zealand Court of Appeal in the recent case of Frost & Sutcliffe v Tuiara [2004] 1 NZLR 782, 789:

"The view which now prevails is that in conventional circumstances the two causes of action (contract and negligence) will usually be concurrent and coextensive. That will be so unless the relevant factual context involves matters which are not relevant to the contract cause of action but do have relevance to the relationship of the parties in tort. If the relevant facts are not coextensive, there may be a wider duty in tort because of the greater width of the circumstances relevant to that cause of action. But if the relevant facts are the same for the purposes of both contract and tort, the situation would have to be most unusual before it would be appropriate to hold that greater duties were owed in tort than in contract . . ."

My finding is that there is no basis in the present case for concluding that the defendant's duties were wider in tort than in contract.

The plaintiff, nevertheless, succeeds in her breach of contract action and is awarded damages in the sum of A.$6,000 or the equivalent in Tonga pa'anga together with interest, as claimed, at 10% per annum from 10 January 2001 until the date of payment.

The plaintiff is also entitled to costs to be agreed or taxed.