Festival Seafoods Ltd v Sri Capital (PNG) Ltd [2000] PGDC 10; DC75 (31 May 2000)

Unreported District Court Decisions

[2000] PNGDC 9 - FESTIVAL SEAFOODS LTD V SRI CAPITAL (PNG) LTD

[2000] PNGDC 9

PAPUA NEW GUINEA

[DISTRICT COURT OF JUSTICE]

CASE NO. DCC 3024/99

BETWEEN

FESTIVAL SEAFOODS LIMITED

COMPLAINANT

AND

SRI CAPITAL (PNG) LIMITED

FORMERLY TRADING AS PORT VIEW RESTAURANT

FIRST DEFENDANT

AND

NEW PORT VIEW RESTAURANT LIMITED

TRADING AS PORT VIEW RESTAURANT

SECOND DEFENDANT

AND

HENRY NGIAN

(ALSO KNOWN AS NGIAN TEK LEONG  & TECK LEONG GIAN)

THIRD DEFENDANT

Port Moresby

Geita SM

25 April 2000

31 May 2000

SALE OF GOODS - Seller’s rights – Oral contract – Action by seller for damages of non-payment - Buyers defense on liability and legal  obligation - Seller entitled to recover damages

SALE OF GOODS - Buyers remedies – Oral contract – Action by seller for non-payment – Seller entitled to recover damages.

COMPANIES - Directors – Liability of – Corporate form used to evade contract or legal obligation – Lifting of corporate veil.

Cases Cited

A.G.K. Pacific (NG)  Vs. E.T. Taylor N871

C.B.S. & Ors  Vs. Ranu Investments Pty Ltd (1978) PNGLR 66

British Crane Hire Corp Ltd  Vs. Ipswich Plant Hire Ltd (1974) 2WCR 856

Salomon  Vs.  Salomon & Co.  Vs.  (1897) A.C. 22

Gilford Motor Co., Ltd  Vs. Horne (1933) Ch.933

REASONS FOR DECISION

31 May 2000

GEITA SM:  This is a claim by the complainant against the defendants concerning a civil debt totalling K918.00 for seafoods requested for and delivered to the defendant’s Port View Restaurant.

The brief facts are these. On or around 2nd July 1999, a Ms Leah Rosantina, an employee of Port View Restaurant placed a telephone order for prawns for the restaurant. Ms Rosantina told the complainant that Mr Richard Ngian had passed away and they were in desperate need for prawns.  When asked if they would be paid Ms Rosantina replied that the 3rd defendant Mr Henry Ngian, the brother of the late Richard Ngian had now taken over the restaurant and that they would be paid a week after delivery.

Based on that understanding the complainant delivered 36 kilograms of headless banana prawns valued at K918.00 on Invoice Number 9565 to the restaurant on 2nd July 1999.

In his affidavit sworn on the 9th December 1999 the Managing Director of Festival Seafoods Limited, Mr Warren Woo deposed that Ms Leah Rosantina was known to her as an employee of the first defendant and had placed orders with the complainant on many previous occasions.  Hence Ms Rosantina was therefore presumed to have authority to place orders on behalf of the First, Second and Third Defendants.  There is evidence that Ms Rosantina gave assurance that the complainant would be paid soon.  The debt still remains unpaid hence this complainant.

On 29th November 1999 the complainant successfully made amendments to his original complaint and joined SRI Capital (PRC) Limited as 1st Defendant.  New Port View Restaurant Limited as 2nd Defendant and Henry Ngian as 3rd Defendant.

At the appointed date and time of trial (16.02.2000) the complainant successfully obtained judgement in default when the defendant and his lawyer failed to appear.

The defendant immediately filed a motion, to set aside the order obtained ex-parte which was subsequently granted on 30th March 2000 with costs to the complainant and additional surety for costs.  Those amounts have all been paid.

The defendant in his affidavit sworn on 7th February 2000 deposed that his late brother Richard Ngian was the sole proprietor and legal owner of the old Port View Restaurant, the entity that the complainant sold the goods too.  His brother died on 5th July 199 in Brisbane.  He says that he was never a shareholder or a beneficiary of that business at all times.  He said neither the new Port View Coffee House Restaurant nor himself have assumed any liabilities of the old business.

He further states that SRI Capital (PN) Ltd and New Port View are completely separate legal entities as from the date as of their incorporation.  He says that his late brother’s estates were being administered by the Public Curator’s Office and says that the two defendants including himself have been wrongly named for a deal they were never a part off.

In another affidavit sworn on 25th April 2000 the defendant deposed that:

Siri Capital closed operations in 1997/98 and was solely owned by his late brother Richard Ngian.  The present restaurant at 2 Mile is owned by Deep River No.8 Limited.  Any reference to Deep River No.8 Limited have been noted but given little weight as this piece of evidence was filed after close of pleadings.

The defendant denies that neither him nor the New Port View Restaurant took over his brother'’ assets or finances.  He says that his late brother' Accounts with PNGBC have since been frozen and are now under the administration of the Public Curator.

The defendant further denies that the Order obtained was for the old or previous company and he should not be held liable for it.  In short the defendant denies any personal liability.

The issue hence is does a contract exist?  I say here that one exists between the complainant and the defendants.  An oral contract exists and this court is to determine the contents or terms of the contract as well as to ascertain the meaning and effect of and the significance to be placed upon those terms.

In AGK Pacific (NG) Vs  E. T Taylor Constructions No.871 (1990), Doherty J, as she was then remarked; “there is ample evidence, and it is disputed that there was offer and acceptance between the parties and it was intended that the parties be contractually and legally bound”.  Since this contract was made orally, its terms will be ascertained by reference to oral evidence.  In the absence of express terms agreed upon by the parties other terms may be read or implied in this agreement.

Those terms may be implied on the basis of past dealings between the parties or by reference to a custom or trade usage or in order to give business efficiency to a contract.

In this case the complainant has deposed that Ms Leah Rosantina an employee of the first defendant was known to him and she had placed orders with the complainant on many previous occasions.  The complainant says that Ms Rosantina was therefore presumed to have authority to place orders on behalf of the First, Second and Third Defendants.  There is evidence of custom and past dealings and terms can be easily implied from those dealings.

In the absence of any evidence to rebut this evidence of which there is none this court is more inclined to rely on it to ascertain the previous conduct of the parties.

The law is that where the parties have contracted against the background of a particular trade, the customs or usages of that trade may be implied into the contract.

In the case of Hillas Vs. Arcos [1932] UKHL 2; (1932) 147 LT 503 and Hollier Vs. Rambler Motors (AMC) [1971] EWCA Civ 12; (1972) 1 All ER 399 it was held that in attempting to ascertain the intentions of parties, the court may find it helpful to consider their past dealings if these help to explain more fully their present contract.

In this case a contract was made on the phone whereby the complainant delivered 36 kilograms of headless banana prawns valued at K918.00 to the defendant’s restaurant.  Enquires were made as to whether they would be paid and assurances given by Ms Rosantina to that effect.  Based on that assurance and under takings the goods were invoiced.

In the case of British Crane Hire Corp Ltd vs. Ipswich Plant Hire Ltd (1974) 2 WLR 856, the court applying the customs or usage of the trade held that the defendant was liable for the cost of recovering the crane.  I hold the principles of this case to be akin to the one now before me and apply it here.  Therefore applying the custom or usages of the trade I find that the defendant must be held liable for the cost of the goods sold on credit.

A contract of sale of goods is defined by the Goods Act, Chapter No.25, S.3 as “a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price.”  It is first and foremost a contract and is the most common of all commercial transactions.

In this case the defendant requested for the goods and they were delivered to him.  This transaction being a credit sale, the delivery of the goods and payment of the price are concurrent conditions.  The seller must be willing to give possession of the goods to the buyer in exchange for the price.  The buyer must be ready to pay the price in exchange for possession of the goods.  (See S.28 Sale of Goods Act).

Unfortunately a dispute has arisen as the defendant is refusing to pay the price claiming that he should not be held liable for the debt incurred by the restaurant.  The defendant is claiming that because the restaurant and its former owner, are no longer in existence they cannot be held liable for their past debts.

However true that may be the crux of the matter is that the restaurant did receive the goods and must be prepared to pay for them. But who is going to pay for them?

We have here a situation where the defendants, only three days after the death of Mr Richard Ngian who until his death was proprietor and owner of Port View Restaurant, successfully incorporating Mr Richard Ngian’s restaurant on 8th November 1999, thereby denying all personal liability as well as that of the New Port View Restaurant.

The complainant now claims that the Defendant in his attempts to evade all contacted liabilities has swiftly incorporated his late brother’s assets in the restaurant.  The defendant has flatly denied this allegation.

Immediately we have a situation here where the complainant is deprived of his rights to recover the price of his goods sold to the Port View Restaurant.  This is by virtue of the decided case authority that a company ... when duly incorporated is in the eyes of the law a legal person or a legal entity distinct from its members and officers.

The general concept of the separate personality of a company and its entity, as distinct from its shareholders was established by he House of Lords in Salomon v Salomon and Co. [1897] A. C. 22.

The question, which arises in this action, is whether the defendant should be held liable for debts incurred by the previous company.

In attempting to answer this question I have relied heavily on the judgement of Pritchard J in the case of CBS and  Ors Vs. Ranu Investments Pty Ltd P.66 at 68:

“It is a fact that individual persons have caused companies to be incorporated which have become insolvent only to incorporate another and continue trading, leaving creditors of their previous company (or companies) lamenting. (emphasis mine) There has been considerable reverence paid by the Courts of many countries to the concept of a company being a legal person in its own right.  In this regard I am somewhat of a heretic and in a newly developing country such as ours when under the Constitution the Judges of this Court must develop the rules of the underlying law of this nation in accordance with the principles of natural justice and ensure that such law develops as a coherent system in a manner that is appropriate to the circumstances of the country from time to time.  I believe that Judges will be more inclined to go behind corporate structures than judges in other countries have been prepared to.”

In Gore-Browne on Companies (42nd ed. 1972 at p.6) the author says “Notwithstanding the principle of Salomons case there are certain situations where the Courts have shown themselves willing to lift the veil of incorporation, that is to ignore or set aside the separate legal personality of the company.  It is not possible to formulate any single principle as the basis for these decisions, nor are all the decisions, as to when the separate real entity of the company must be respected or when it may be disregarded entirely consistent with one another.  It is well established that the courts will not allow the corporate form to be used for the purpose of fraud, or as a device to evade a contractual or other legal obligation”.  (emphasis mine)

In the case of Gilford Motor Co; Ltd v Horne [1933] Ch.935 Romer L.J said “this defendant company was formed and was carrying on business merely as a clock or sham for the purpose of enabling the defendant Horne to breach of covenant that he entered into deliberately with the plaintiffs.”

There is some evidence before me indicating that the 1st and 2nd Defendant Companies are used as a clock or sham, protecting the 3rd Defendant in his activities.  The defendants quite clearly deny this suggesting.

Pritchard J at p.70 said, (Ranu Investments case) “A company is not unlike a puppet which appears on stage for the public to see.  However in every case behind the scene there is a person manipulating the strings who is in fact exercising control”.

The complainant here claims that the 3rd Defendant is such a person who has control and the persons or entities benefiting from the operations of the Port View Restaurant.

I quote parts of the complainant’s affidavit sworn on 20th March 2000:

“As expected in family business, following the late Richard Ngian’s death, his brother, the Third Defendant, Henry Ngian would have simply taken over, assumed control, , the running of the affairs of the restaurant business and assumed the role of  beneficiary irrespective of legal ownership.”

The Complainant in final submissions has asked the court to disregard all references to Deep River No.8as this evidence was not pleaded in defence.

In any event the defendant has not produced documents to verify the existence of that Company.

Searches conducted by the Complainant reveal that the Third Defendant was a Director and a Shareholder of the Second Defendant, holding 670% of the shares in the Company.

The Complainant has referred me to Sections 112 & 116 of the Companies Act 1997.  Those Sections makes Company Directors personally liable for the Company’s actions.

I have also been referred to two PNG cases.  C.B.S Inc and C.B.S. Records Australia Limited and Bali Merchants Pty Ltd v Ranu Investments Pty Limited (1978) PNGLR 66.  And AGC (Pacific) Limited v Woo International Pty Limited (1992) PNGLR 100.  The former case has been extensively relied upon in my decision.  The later case talks about ostensible authority and is not quite appropriate in this situation.

Likewise Sections under the Companies Act which have been referred to me are noted but are not relevant in this factual situation.

No references have been made to the Defendant’s submissions simply because none was filed into Court.

For all the above reasons I am satisfied that the Third Defendant is a person who could legally be responsible along with the defendant company and that it is proper in the legal sense that he be held liable for the debts of the previous Company.

In the absence of any evidences to the contrary I am satisfied that the Third Defendant caused the old Port View Restaurant to become insolvent only to incorporate the new Port View Restaurant within three (3) days of his late brother’s death thereby leaving the creditors in this case the complainant lamenting.

The three (3) defendants have used the corporate form for the purpose of fraud or as a devise to evade a contractual obligation or other legal obligation.

As such this Court has satisfied itself that this case is an appropriate one for the court to go behind the corporate structure.

I accordingly order that the Third Defendant pay the sum of K918.00 together with costs and interest to the complainant forthwith.

Costs to be taxed if not agreed upon by both parties.

Orders accordingly.