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Lita Trading Enterprises Ltd v Moala [2005] TongaLawRp 23; [2005] Tonga LR 324 (21 July 2005)

IN THE COURT OF APPEAL OF TONGA

Lita Trading Enterprises Ltd

v

Moala

Court of Appeal, Nuku'alofa
Burchett, Tompkins, and Salmon JJ
App 13/04

13 July 2005; 21 July 2005

Contract law – undisclosed principal doctrine – no relevance

Contract law – duty to mitigate dames – no breach of duty proved

For the full facts and the Supreme Court decision, see Moala v Lita Trading Enterprises Ltd [2004] Tonga LR 151.

The respondent, the plaintiff in the Supreme Court, imported into Australia in September 2000 100 kg of kava that were supplied by the appellant, the defendant in the Supreme Court, who at that time was a supplier of kava in Tonga. The respondent was resident in Australia. Her brother, 'Amanaki Tupou, made the purchase of the kava from the appellant on her behalf. On arrival in Australia, the appellant sold 25 kg of the consignment, but the balance of 75 kg was confiscated by quarantine officials in Sydney because it contained E. coli bacteria to a degree that rendered it unfit for human consumption. The respondent claimed from the appellant A$7,500 damages for breach of contract and negligence. The Supreme Court found in favour of the respondent and assessed the damages suffered by the respondent at A$6,000 or
20 its equivalent in Tonga Pa'anga. It also awarded interest at 10% pa and costs to be agreed or taxed. Judgment was entered accordingly. From that judgment the appellant appealed, challenging the findings on liability and damages.

Held:

1. The respondent's amended statement of claim made it perfectly plain that the respondent was alleging that her brother 'Amanaki Tupou was buying the kava on her behalf, and that could only mean as her agent. So the appellant was aware that it was alleged that 'Amanaki Tupou was buying the kava as agent for the respondent. As the appellant did not deal directly with the respondent, the appellant must have known that it was claimed in the pleading that 'Amanaki Tupou was buying the kava for a principal who was not disclosed at the time of purchase. Even if this were not so, there was nothing to show that the appellant was prejudiced by the lack of express pleading. The pleading ground for challenging the Judge's finding on liability did not succeed.

2. There was no evidence to suggest that the contract was, expressly or impliedly, confined in its operation to 'Amanaki Tupou and the appellant. There was no doubt that, at the time the contracts for the purchase of the kava were completed, 'Amanaki Tupou had authority to act on behalf of the respondent. Finally, there was no suggestion that the contract, expressly or impliedly, was intended to be confined to 'Amanaki Tupou and the appellant. The doctrine of undisclosed principal ground for challenging the Judge's finding on liability did not succeed.

3. The onus of proving that the respondent had failed to mitigate her loss rested on the appellant. The Court was left in no doubt that the appellant failed to discharge the onus resting on it to prove that the respondent had not mitigated her loss by sending the condemned kava back to Tonga. The challenge to the damages assessment did not succeed.

4. The appeal was dismissed.

Cases considered:

Humble v Hunter (1848) 12 QB 310

Murphy v Rae [1967] NZLR 103

Counsel for appellant: Mr Tu'utafaiva
Counsel for respondent: Mr Niu

Judgment

[1] The respondent, the plaintiff in the Supreme Court, imported into Australia in September 2000 100 kg of kava that were supplied by the appellant, the defendant in the Supreme Court, who at that time was a supplier of kava in Tonga. The respondent was resident in Australia. Her brother, 'Amanaki Tupou, made the purchase of the kava from the appellant on her behalf. On arrival in Australia, the appellant sold 25 kg of the consignment, but the balance of 75 kg was confiscated by quarantine officials in Sydney because it contained E. coli bacteria to a degree that rendered it unfit for human consumption.

[2] The respondent claimed from the appellant A$7,500 damages for breach of contract and negligence. Ford J found in favour of the respondent. He assessed the damages suffered by the respondent at A$6,000 or its equivalent in Tonga Pa'anga. He also awarded interest at 10% pa and costs to be agreed or taxed. Judgment was entered accordingly. From that judgment the appellant has appealed, challenging the findings on liability and damages.

The judgment in the High Court

[3] The events leading up to the purchase of the kava, its importation into Australia and its confiscation are set out in detail in the judgment in the High Court. In most, but not all, respects the events are unchallenged. The following is a summary of Ford J's findings:

• 'Amanaki Tupou made the purchase of the kava as agent for the respondent who remained an undisclosed principal.

• The limitations on when an undisclosed principal may sue on a contract made by his or her agent do not apply.

• The agency relationship was adequately pleaded and the appellant was aware that it was an issue before the Court.

• The appellant was aware that kava purchased by 'Amanaki Tupou was intended to be exported to Australia for resale.

• The appellant was aware of the stringent hygiene requirements imposed by the Australian authorities on the importation of kava.

• 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 importation of kava powder into Australia.

• The consignment failed to comply with that condition, with the result that the respondent succeeded in her claim for breach of contract.

• On the negligence claim, there was no basis for concluding that the appellant's duties were wider in tort than in contract. The negligence cause of action did not succeed.

• On the basis of the respondent's sales figures, he assessed the loss from the seized 75 kg of kava at $6000.

• He did not accept the submission made on behalf of the appellant that the respondent did not do enough to mitigate her loss.

Liability

[4] Counsel for the appellant challenged the Judge's finding on liability on two grounds.

Pleading

[5] He submitted that the Judge erred in finding that the agency relationship, and in particular that the respondent was an undisclosed principal, was adequately pleaded.

[6] It is correct, as counsel for the appellant submitted, that the amended statement of claim did not expressly plead that 'Amanaki Tupou was acting for an undisclosed principal. The relevant paragraphs of the amended statement claim are:

"4. In almost all occasions, the purchases of the plaintiff from the defendant were done by her brother, 'Amanaki Tupou of Lakepa who attended and ordered the kava, paid for it and collected it for shipment to the plaintiff in Australia.

5. The defendant was aware that Australia had minimum standards for cleanliness of produce, including kava, which were imported into Australia, and was accordingly particular about preparing the kava ordered by the plaintiff through her brother in order to comply with those standards for importation of kava into Australia.

6. On 31/8/00, 'Amanaki Tupou for and on behalf of the plaintiff attended at the office of the defendant, as he had done on several occasions previously, and ordered 100 kg of kava ..." (Emphasis added)

[7] On this issue the Judge was satisfied that the agency relationship was adequately pleaded and also that the defendant was fully aware that it was very much an issue before the Court.

[8] We agree with that conclusion. The passages we have emphasised from the amended statement of claim set out in [6] made it perfectly plain that what the respondent was alleging was that her brother 'Amanaki Tupou was buying the kava on her behalf, and that could only mean as her agent. So the appellant was aware that it was alleged that 'Amanaki Tupou was buying the kava as agent for the respondent. As the appellant did not deal directly with the respondent, the appellant must have known that it was claimed in the pleading that 'Amanaki Tupou was buying the kava for a principal who was not disclosed at the time of purchase.

[9] Even if this were not so, there is nothing to show that the appellant has been prejudiced by the lack of express pleading. Closing submissions were in writing. Counsel for the respondent expressly dealt with the law relating to undisclosed principal in his submissions in reply. Counsel for the appellant had the opportunity to file further submissions in response, but elected not to do so. Nor did he ask for leave to call further evidence on this issue.

[10] This ground for challenging the Judge's finding on liability cannot succeed.

The doctrine of undisclosed principal

[11] Counsel for the appellant submitted that the Judge erred in holding that the limitations on the application of the doctrine of undisclosed principal have no relevance in the present case. The relevant passage in his Honour's judgment is:

"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."

[12] Cheshire & Fifoot's Law of Contract 6th Australian edition (1992) describes the doctrine at [1657]:

"Where an agent, having authority to contract on behalf of another, makes the contract in his own name, concealing the fact that he is a mere representative, the doctrine of the undisclosed principal comes into play. By this doctrine either the agent, or the principal when discovered, may be sued and either the agent or the principal may sue the other party to the contract, save where the contract is expressly or impliedly, confined in its operation to the parties to it."

[13] At [1661] the authors state that the right of action possessed by the undisclosed principal is subject to two limitations:

"First, the authority of the agent to act for the principal must have existed at the time of the contract, for, were the rule otherwise, any person would be free to intervene in the contract of another.

Secondly, if the contract, expressly or by implication, shows that it is to be confined in its operation to the parties themselves, or the agent has contracted in such manner as to convey that he alone is the principal, the possibility of agency is negatived and no one else can intervene as principal."

[14] None of these considerations has any application in the present case. There is no evidence to suggest that the contract was, expressly or impliedly, confined in its operation to 'Amanaki Tupou and the appellant. There can be no doubt that, at the time the contracts for the purchase of the kava were completed, 'Amanaki Tupou had authority to act on behalf of the respondent. Finally, there is no suggestion that the contract, expressly or impliedly, was intended to be confined to 'Amanaki Tupou and the appellant.

[15] Counsel for the appellant relied on the decision in Humble v Hunter (1848) 12 QB 310 as authority for the proposition that for an agent to describe himself as "owner" or as "proprietor" precludes the undisclosed principal from suing. In Murphy v Rae [1967] NZLR 103, Moller J considered what he described as the line of cases starting with Humble, which, he said, has been the subject of judicial criticism. After considering several authorities in the United Kingdom and New Zealand, he concluded at 109 that Humble is still good law, but the principle derived from it is applicable only to cases where a person is described in a written contract as the "owner' or "proprietor" and where it is a term of the contract that he should contract as "owner" or "proprietor" of that property. However, this principle does not aid the appellant. There is no suggestion in this case that 'Amanaki Tupou told the appellant that he was purchasing the kava as owner, nor was he so described in the receipts that evidenced the sale.

[16] This ground for challenging the Judge's finding on liability cannot succeed.

Conclusion on liability

[17] Neither ground for challenging the Judge's finding on liability can succeed. The appeal against that finding fails.

Damages

[18] The only ground for challenging the damages award is that the Judge was wrong in not finding that the respondent had failed to mitigate her loss. It was submitted on behalf of the appellant that the respondent should have returned the kava to Tonga where she could have recovered all or a substantial part of the cost.

[19] The judgment records the following events:

"Mele [the appellant] had an exchange of facsimiles with To'imoana Takataka [on behalf of the respondent]. 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....

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."

[20] The onus of proving that the respondent had failed to mitigate her loss rested on the appellant. So in the context of the present case, it was for the appellant to establish that the kava that had been condemned by the Australian authorities as unfit for human consumption could have been sent back to Tonga. The Australian authorities made it clear that this could only happen if there were express approval from the Tongan Health Department. It was no doubt for this reason that the appellant, in her fax of 25 September 2000, pointed out to the respondent that the letter approving the importation of the kava had to come from the Tongan Health Department.

[21] But the respondent did nothing. There is no evidence to show that it ever approached the Department. Nor did the respondent call evidence to establish that, if the Health Department had been approached, it would have consented to the importation of the condemned kava. On the contrary, the strong likelihood is that the Department would not have approved the importation of kava that had been condemned in Australia as unfit for human consumption.

[22] In these circumstances we are left in no doubt that the appellant failed to discharge the onus resting on it to prove that the respondent had not mitigated her loss by sending the condemned kava back to Tonga. The challenge to the damages assessment cannot succeed.

Result

[23] The appeal against the findings on liability and damages fails. The appeal is dismissed. The respondent is entitled to costs on the appeal to be agreed or taxed.