Unreported National Court Decisions
N176
PAPUA NEW GUINEA
[NATIONAL COURT OF JUSTICE]
APPEAL NO. 72 OF 1977
LAE CORDIAL FACTORY PTY LTD
APPELLANT
DANG BROS PTY LTD
RESPONDENT
Lae & Waigani
Pritchard J
13 March 1978
29 December 1978
COMPANIES - holding out of authority - ostensible authority - estoppel Rule in Turquand’s case.
PRITCHARD J:  This is an appeal from a decision of the Senior District Court Magistrate at Lae who in that Court in November, 1976 gave judgment in favour of the respondent company against the appellant company for K1,460 and K15 for costs in an action by the respondent against the appellant for goods sold and delivered.
The action was based on an alleged agreement for the respondent to sell the appellant 200 30 Kg. bags of sugar. The sugar was supplied in four separate parcels of 50 bags on 9th September, 16th September, 30th September and 7th October, 1975. The respondent was paid K730 for the first delivery, a cheque for K200 which was dishonoured and never paid on account of the second delivery, also valued at K730 and not at all for the third and fourth deliveries, namely two amounts of K730 totalling K1,460 the amount sued for. The respondent, for reasons which are by no means clear to me did not abandon such of the amount due on the second delivery as would bring its claim within the K2000 jurisdiction of the Senior District Court Magistrate but abandoned completely its claim relating to that delivery and sued only for the deliveries made on 30th September and 7th October.
At the hearing before the Magistrate the respondent was represented by counsel and the appellant by its Managing Director, Mr Joseph Davis. Mr Gabriel Dang, the Manager (and presumably Managing Director) of the respondent company was the only witness called by it and Mr Davis the only witness for the defence. The defences, noted by the Magistrate at the trial were firstly, a denial that the appellant company received the goods, secondly a denial that it ever ordered the goods and thirdly that no demand had ever been made for payment prior to action being brought. This last defence is not a defence at all but does, I suppose, go to the weight of evidence as to whether the appellant company was the purchaser or not.
Rather than go through the detail of the evidence from the beginning it is perhaps easier to summarise the proceedings before the Magistrate before turning to the grounds of appeal and examining the evidence and findings of the Magistrate in relation to these grounds.
Mr Dang gave evidence that on behalf of his company he had been buying soft drink from the appellant company for some years. He would ring up for them and they would be delivered. He bought wholesale and sold retail. He had never sold any goods to the appellant. At the time of the transaction the subject of this action, Mr Dang was overstocked with sugar he had bought elsewhere, and rang up the appellant company with a view to selling it. He was introduced on the telephone to a Mr John Blackwell who said he was the manager. Verbal agreement was reached for the sale of the sugar in four lots of 50 bags weekly to be paid for by cash.
Mr Dang said that the sugar was picked up by a truck he recognised as one which had previously delivered cordial to him from the appellant company. The cheque for the first delivery was brought by the driver of the truck. The cheque was one signed by Mr Blackwell but the name of the appellant company did not appear on it. Subsequent deliveries were made by the same truck and driver. Mr Dang made out invoices for each delivery in the name of Lae Cordial Factory.
At the time of the second delivery no cheque accompanied the driver. Mr Dang had a conversation with Mr Blackwell and obtained a cheque for K200 on account but this cheque was dishonoured. Mr Dang went to the Lae Cordial Factory premises but was directed from there to the premises of Morobe Engineering where it appears Mr Blackwell had his office. All subsequent visits made by Mr Dang in an attempt to obtain payment were made to Mr Blackwell’s office at that firm. Upon certain promises by Blackwell to pay for the amount outstanding and the rest of the sugar, the final deliveries were made.
Mr Dang attempted to obtain payment from Blackwell but later learnt he had left Papua New Guinea. He then commenced the subject court proceedings.
Mr Davis’ evidence was most unsatisfactory and it would appear that as he was unrepresented the Magistrate permitted normally inadmissable evidence in. Davis said that he was Managing Director of the appellant company and that its registered office is at Lot 7 Section 9 Lae, at the corner of Mangola and Malaita Streets, the site of the Cordial Factory. He says that the company was “registered” in 1973 and that he and his brother bought out all the shares soon after that. On 17th August 1975 he claimed that the company entered into an agreement with Blackwell pursuant to which Blackwell was to rent the premises and equipment and pay K2,400 per month. Mr Davis says that from that date any dealing Blackwell had with anyone else was on his own account. This he said was the situation with Mr Blackwell’s dealing with Mr Dang. He goes on to say that in February 1976 as Blackwell had not paid the rental “Lae Cordial has taken its premises and equipment back from Mr Blackwell”. He said that since then he or the company secretary has always been on the premises. No claim of any type was made on the company until this action commenced in September of that year.
The document evidencing the nature of the transaction between the appellant company and Blackwell was not produced. The dangers of admitting such secondary evidence become evident when one looks at some of Mr Davis’ evidence under cross-examination. In answer to the question: “Was it agreed that Mr Blackwell should not trade under the name of Lae Cordial Factory?” he said “It was agreed that he should not put the company into debt”. He claimed he was in Port Moresby so did not know if Blackwell continued to produce the same product as he and his brother had been, and added that Blackwell had many ventures. When asked if he was aware that Blackwell used “your labels and your bottles” he said “we couldn’t give him advice as to what he should do”. He admitted Blackwell had purchased some of the company’s bottles. He claimed that Blackwell could have used the name “Lae Cordial” by getting it registered in his name. When asked “Did you feel that there was some danger in the risk that Mr Blackwell might use the Lae Cordial Pty. Ltd. name” he said “No, he couldn’t obtain any money unless he produced (a) balance sheet”. When asked if he was aware that “if you have a company named Lae Cordial Factory Pty. Ltd. no one can register any name like that?” he said “I am aware that a man can operate under such a name unregistered”. There were many unsatisfactory answers such as this and finally Davis said that he had visited some stores and told them “that the company was ceasing to operate and Mr Blackwell would take over and the company did not have any further obligation.” He did not allege Dang Bros. Pty. Ltd. was one of such stores.
That these answers demonstrate a frightening ignorance on Mr Davis’ part of the nature of the legal consequences of the existence of a limited company is clear. It led to some confusion in the Magistrate’s findings. Perhaps the less said about them in general the better.
I turn to the grounds of appeal. Grounds 1 and 2 claim the magistrate was wrong in law in holding firstly that the appellant company held out Mr Blackwell to be its agent and secondly that in the transaction sued upon Blackwell was acting within the scope of his ostensible authority as agent for the appellant. Both these grounds relate to the Magistrate’s finding that the appellant company was liable in this action by virtue of the rule in Turquand’s case[cxl]1. This is the crux of this appeal and I will return to it later.
Ground 3 is that the magistrate wrongly admitted Mr Dang’s evidence as to the contents of the cheque from Mr Blackwell to the complainant. This ground has no merit firstly because some of this evidence was adduced by Mr Davis himself in cross-examination of Mr Dang and secondly because the appellant itself relies on the contents of the cheque (cheques in fact) to allege that the respondent company was thus put on notice that it was not in fact dealing with the appellant company at all.
Ground 4 claims that evidence of Mr Dang as to the contents of his company’s ledgers was wrongly admitted. This ground has no merit for two reasons, firstly, the evidence was admitted without objection (as may be well understood when Mr Davis was appearing in person), but secondly because it is totally irrelevant, in that it does not go to prove that because the subject sales of sugar were debited in the ledgers to Lae Cordial Factory, the appellant company was thus liable. If it were to have any relevance, it would be to demonstrate that the respondent believed it was contracting with Mr Blackwell if the ledgers so indicated, but the fact that they do not so indicate does not go to proof of the reverse proposition.
Ground 5 claims that the magistrate’s finding that there had been a course of dealings between the appellant and respondent companies prior to the lease to Mr Blackwell is against the weight of evidence. The magistrate clearly accepted Mr Dang’s evidence that there had been such prior dealings and although Mr Davis disputed when these were, his own evidence was that the appellant company had not supplied Dang Bros. “since 1973”. The finding of the magistrate cannot thus be challenged.
Ground 6 claims the magistrate was wrong in law in holding that the respondent company (or Mr Dang) did not know that Blackwell was not the authorised agent of the appellant. This is not a matter of law (except in that it relates to Grounds 1 and 2 above), but is a finding of fact quite open to the magistrate on the evidence.
Ground 7 is that the verdict was against the weight of evidence. This general ground really goes to the rulings of law the magistrate made on the facts as he found them and again relates back to grounds 1 and 2 above. It is on these grounds that this appeal turns, and in fact to which counsels’ argument was addressed.
The argument was that the magistrate was wrong in law in finding that the appellant held Blackwell out to be its agent and that even if it were estopped from denying this the respondent was put on notice by Blackwell’s actions that something was amiss and did nothing about it.
In discussing the rule in Turquand’s case Gore-Browne on Companies (42 Ed.) at p. 66 says “on the estoppel doctrine of ‘holding out’, the company may have held out the agent as having authority to act in a particular transaction. If this representation by words or conduct is relied on by the outsider, who acts to his detriment in entering into the contract, the company will be bound.”
In discussing Rule 3 of Turquand’s case Gower (Modern Company Law - 3rd Edition) puts it this way:
“Hence an outsider dealing with a company through an officer who is or is held out by the company as a particular type of officer ... and who purports to exercise a power which that sort of officer would usually have, is entitled to hold the company liable for the officer’s acts, even though the officer has not been so appointed or is in fact exceeding his actual authority. But this is not so if the officer is in fact exceeding his actual authority and:
(a)      the outsider knows that the officer has not been so appointed or has no actual authority;
(b)      the circumstances are such as to put him on inquiry; or
(c)      the public documents make it clear that the officer has no actual authority, or could not have authority unless a resolution had been passed which requires filing as a public document and no such document has been filed.
If this rule applies it matters not whether the outsider has actually inspected the public documents or not.”
To clear the air, firstly there is no suggestion that there existed anywhere any public document which Mr Dang could have inspected to find out whether Blackwell had any authority or not.
Secondly, the appellant being a legal person in its own right continued to have its legal existence at the factory premises right throughout the period over which these events took place.
Thirdly, Mr Davis went off to Port Moresby. He says his brother’s health was poor. Whichever way one looks at it he left this company in existence, at the place where it had always been and in the possession and under the de facto control in its day to day operation of Blackwell. Whatever Mr Davis may have intended the legal consequences of his action to have been, and whatever else was contained in the mysterious agreement which was never produced, except for the customers Davis did tell that Blackwell had taken over (assuming he did), to the world at large the company continued to exist and carry on business at the place it always had, and in fact it was under the control of Blackwell, who Mr Davis himself had let into possession knowing full well he was going to continue on in precisely the same business the company had always been engaged in. I can imagine no clearer case of holding out by Davis that Blackwell had the control of the company, despite his subsequent protestations that this was not so. His answers in this regard are highly questionable indeed.
Counsel for the appellant relies on the fact that the Magistrate specifically found that Blackwell was not a member of the company and had no authority to bind it.
Why the magistrate bothered to make such findings I do not know, because they are irrelevant. He is clearly relying on the evidence of Davis here but the rest of his judgment indicates that in fact actual authority was to be implied from the conduct of Davis in letting Blackwell take possession of the company premises and equipment in the way he did.
Counsel relies on the decision of Hely-Hutchinson v. Brayhead Ltd[cxli]2 but I fail to see where that case assists him. In fact Lord Denning MR at p. 583 says “Ostensible or apparent authority is the authority of an agent as it appears to others. It often coincides with actual authority. Thus, when the board appoint one of their number to be managing director, they invest him not only with implied authority, but also with ostensible authority to do all such things as fall within the usual scope of that office. Other people who see him acting as managing director are entitled to assume that he has the usual authority of a managing director. But sometimes ostensible authority exceeds actual authority. For instance, when the board appoint the managing director, they may expressly limit his authority by saying he is not to order goods worth more than £500 without the sanction of the board. In that case his actual authority is subject to the £500 limitation, but his ostensible authority includes all the usual authority of a managing director. The company is bound by his ostensible authority in his dealings with those who do not know of the limitation.”
Counsel also referred to the decision of Crabtree-Vickers Pty. Ltd. v. Australian Direct Mail Advertising and Addressing Co. Pty. Ltd[cxlii]3 but that case must be distinguished from the factual situation here. In this case the managing director Davis walked away from his company completely.
On the question of Mr Dang having been put on notice or inquiry by Blackwell’s conduct counsel relies firstly on Jacobs v. Morris[cxliii]4. In that case the agent who was asserting he had a power to borrow money, produced the power of attorney to the merchants with whom he was dealing. The deed gave him no such power at all and the Court of Appeal somewhat understandably said the merchants must accept the consequences of their own neglect. The circumstances here are quite different.
I was also referred to Houghton and Company v. Nothard, Lowe and Wills, Limited[cxliv]5. I will not go into the detail of that case except to say that it was distinguished in Freeman & Lockyer (a Firm) v. Buckhurst Park Properties (Mangal) Ltd. & Anor.[cxlv]6 where at p.494 Houghton’s case (and others) were discussed in the following terms by Wilmer L.J.: “Thus in none of these cases were the plaintiffs in a position to allege that the person with whom they contracted was acting within the scope of such authority as one in his position would be expected to possess. There was accordingly no ground for saying that the officer in question was in fact being held out by the company as having authority to perform the act relied on. The plaintiffs, indeed, had nothing to go on beyond the fact that in each case power to do the acts relied on might, under the articles of association, have been delegated to the person with whom they contracted. But in none of the cases did the plaintiffs have any knowledge of the articles of association.
In the circumstances the three decisions relied on by the defendants are to my mind no more than illustrations of the well-established principle that a party who seeks to set up an estoppel must show that he in fact relied on the representation that he alleges, be it a representation in words or a representation by conduct.” These comments are apposite to this appeal.
It is suggested here that when Blackwell paid by his own cheque Mr Dang was put on notice that something was wrong. Also that is suggested when the second cheque was dishonoured. There could be all sorts of reasons why these events took place. Banks are quite rightly reluctant to discuss their clients’ affairs. I suppose Mr Dang could have gone to the registered office of the appellant company to make enquiries. But the fact is that he did go there only to be directed to Blackwell!
By utter neglect of his responsibilities as Managing Director of the appellant company Mr Davis was the author of its misfortune. He had those responsibilities and responsibilities on behalf of the company to the public who dealt with it. The public is entitled to be protected against people who meddle with corporations in this fashion.
The appeal is therefore dismissed with costs and the judgment and orders of the magistrate are confirmed.
Solicitor for the Appellant: Craig Kirke & Wright
Counsel: I.R. Molloy
Solicitor and Counsel for the Respondent: W.J. McKeague

[cxl]Royal British Bank v. Turquand (1856), 6 E & B 327 (Exch. Ch.)
[cxli](1968) 1 Q.B. 549
[cxlii](1976) 50 A.L.J. 203
[cxliii](1902) 1 Ch. 816
[cxliv](1927) 1 K.B. 246
[cxlv](1964) 2 Q.B. 480