Newman v Gaupe [2024] PGSC 51; SC2584 (31 May 2024)

SC2584

PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]

SCA NO 202 OF 2018

TITUS NEWMAN
Appellant

V

WILLIAM GAUPE, PRINCIPAL NEGOTIATOR & CONSULTANT, PORGERA LANDOWNERS ASSOCIATION INC
First Respondent

PORGERA LANDOWNERS ASSOCIATION INC
Second Respondent

Waigani: Cannings J, Polume-Kiele J, Narokobi J
2024: 30^th & 31^st May

CONTRACTS – principal and agent – authority of agent – execution of contract by party purporting to act on behalf of another party – whether party who executed contract had actual authority to execute contract on behalf of another party – whether ostensible authority to enter into contract on behalf of another party.

The appellant executed a loan agreement with the first respondent by which the appellant lent him K220,000.00 for the purpose of conducting negotiations with a provincial government to increase the second respondent’s share of royalties from a mining project. The first respondent purported to execute the contract on behalf of the second respondent. When the loan was not repaid on time, the appellant sued both respondents in the National Court. It was held that the contract could only be enforced against the first respondent, not against the second respondent, as the first respondent had neither actual nor ostensible authority to enter the contract on behalf of the second respondent. Therefore, the second respondent was not liable to the appellant. On appeal to the Supreme Court against the finding that the second respondent had no liability, it was argued that the primary judge erred in law in finding that the first respondent had no ostensible authority to enter into the loan agreement on behalf of the second respondent.

Held:

(1) Evidence before the National Court showed that the second respondent had engaged the first respondent as a consultant to negotiate an agreement with the provincial government to increase the second respondent’s members’ shareholding in a mining project. Further evidence established that the terms of the first respondent’s engagement were that he would undertake the work at his own expense and that no finance or cash advance would be provided to him.

(2) Entry into a loan service agreement was beyond the actual and implied scope of the terms of the first respondent’s engagement.

(3) The National Court’s finding that the first respondent lacked actual and ostensible authority to bind the second respondent to the loan service agreement was correctly made.

(4) The appeal was dismissed, with costs.

Cases Cited

Newman v Gaupe & Porgera Landowners Association Inc, WS 367 of 2014, Hartshorn J, 22/11/18, Unreported
Rainbow Holdings Pty Ltd v Central Province Forest Industries [1983] PNGLR 34

Counsel

B Tomake, for the Appellant
M Joseph, for the Second Respondent

31^st May 2024

1. BY THE COURT: This is an appeal against the decision of the National Court to refuse a claim by the appellant, Titus Newman, for enforcement of a contract, a loan agreement, against the second respondent, the Porgera Landowners Association Inc.

2. On 11 October 1994 Mr Newman executed the loan agreement with the first respondent, William Gaupe, who was described as “Principal Consultant/Negotiator of Porgera Landowners Association Inc acting for and on behalf of Porgera Landowners Association Inc (Borrower)”. Mr Newman lent Mr Gaupe K220,000.00

3. When the loan was not repaid on time, Mr Newman sued both Mr Gaupe and the Association in the National Court in proceedings described as WS 367 of 2014, seeking damages in excess of K15 million.

4. After a trial at Waigani, the trial judge held that the contract could only be enforced against Mr Gaupe, not against the Association. His Honour held that Mr Gaupe had neither actual nor ostensible authority to enter the contract on behalf of the Association. Therefore the Association was not liable to Mr Newman (Newman v Gaupe & Porgera Landowners Association Inc, WS 367 of 2014, Hartshorn J, 22/11/18, Unreported)

APPEAL

5. Mr Newman appeals to the Supreme Court against the decision of the National Court to find that the Association was not liable for breach of contract on five grounds, which can essentially be reduced to one major argument: that the trial judge erred in finding that Mr Gaupe lacked ostensible authority to enter the contract on behalf of the Association.

6. Mr Newman argues that the trial judge erred in law by misinterpreting the minutes of a meeting of the Association in 1994, at which it was resolved to appoint Mr Gaupe and the CEO of the Association, Arnold Kulina, as consultants to negotiate with Enga Provincial Government regarding an increase in the Association’s share of royalties from the Porgera Gold project.

7. His Honour addressed the question of the meaning and effect of resolutions of the Association at its meeting 1 of 1994 after noting that Mr Gaupe had represented to Mr Newman when he signed the loan agreement that he was entering into the agreement on behalf of the Association. His Honour stated:

As to whether the PLA made such a representation, from a perusal of the minutes of the meeting 1/94 and the resolutions made, there is no reference to Mr Gaupe being given authority to borrow on behalf of PLA or enter into a loan agreement on behalf of PLA. Mr Gaupe was given authority only to negotiate with the Enga Provincial Government.

8. His Honour also addressed the question of whether the impression could be gained from a letter to Mr Gaupe from Mr Kulina dated 1 October 1994 that the Association had authorised Mr Gaupe to enter into the loan agreement with Mr Newman. His Honour noted that the letter stated that “we are to undertake at our own expense the task of establishing dialogue”. Then the letter continues “PLOA at this stage will not entertain any request for finance or cash advance on issues and actions”.

9. His Honour stated:

To my mind this indicates that the understanding of the Chief Executive Officer was that he and Mr Gaupe were to conduct the negotiations at their own expense and that the PLA would not entertain a request for finance or cash advances. Given this context, it cannot be assumed that the PLA wished to borrow funds for the negotiations or that Mr Gaupe had been given authority to act on behalf of the PLA to source and arrange funding for the purpose of the PLA.

I am satisfied, given the content of the letter dated 1 October 1994, that the Chief Executive Officer did not make any representation in that letter that Mr Gaupe had the authority to bind PLA in the [loan] agreement or to borrow on behalf of the PLA.

10. We have examined the minutes of the Association’s meeting 1 of 1994. We agree with the trial judge there is no reference to Mr Gaupe being given authority to borrow on behalf of the Association or enter into a loan agreement on behalf of the Association. Mr Gaupe was given authority only to negotiate with the Enga Provincial Government.

11. We have also examined the letter from the Association’s CEO to Mr Gaupe of 1 October 1994. We again agree with the trial judge that no inference can be drawn from the letter that Mr Gaupe was given authority to source funding for the purpose of conducting negotiations with the Enga Provincial Government or that he was authorised to obtain a loan on behalf of the Association. Indeed this would have conflicted with the terms of the engagement of Mr Gaupe, highlighted in Mr Kulina’s letter of 1 October 1994, that he would conduct negotiations at his own expense.

12. Counsel for Mr Newman, Mr Tomake, argued that his Honour overlooked the significance of one of the resolutions at meeting No 1 of 1994 which addressed the question of reimbursement of expenses. He points out that resolution 4.7 stated:

The members agreed that the costs and personal expenses incurred by the consultant negotiators while in the course of negotiating the additional twenty percent (20%) royalty with the EPG will be reimbursed and paid with normal commercial interest per month by Porgera Landowners Association (PLOA).

13. We reject the argument that such an undertaking incorporates an authority for Mr Gaupe to enter into a loan agreement on behalf of the Association. All the resolution does is indicate that Mr Gaupe’s costs and expenses incurred in the negotiations with the provincial government would be reimbursed to him by the Association. The resolution cannot reasonably be regarded as conferring any authority on Mr Gaupe to enter into a loan agreement to secure funding for the negotiations on behalf of the Association.

14. We endorse the trial judge’s finding that Mr Gaupe lacked actual authority to enter on behalf of the Association into the loan agreement with Mr Newman. Clearly, there was no such actual authority.

15. As to whether Mr Gaupe had ostensible authority, the trial judge applied the four pre-conditions to establishing a case of ostensible authority under the principles of agent and principal arising from the leading PNG case Rainbow Holdings Pty Ltd v Central Province Forest Industries [1983] PNGLR 34:

16. It must be shown:

(1) that a representation that the agent [in the present case, Mr Gaupe] had authority to enter on behalf of the company [in this case, the Association] into a contract of the kind sought to be enforced was made to the contractor [in this case, Mr Newman];

(2) that such representation was made by a person who had actual authority to manage the business of the company [here, the Association] either generally or in respect of those matters to which the contract [here, the loan agreement] relates;

(3) that the contractor [here, Mr Newman] was induced by such representation to enter into the contract, that is, that he in fact relied on it;

(4) that under its memorandum or articles of association the company [here, the Association] was not deprived of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent [here, Mr Gaupe].

17. His Honour found that the first precondition was satisfied in that Mr Gaupe had represented, when he signed the loan agreement purporting to act for and on behalf of the Association, that he had authority to enter into contracts of the type that Mr Newman was seeking to enforce against the Association.

18. However, his Honour found that the second precondition was not satisfied. His Honour stated at paragraphs 18 to 20 of the judgment:

From a perusal of the minutes of the meeting 1/94 and the letter of 1 October 1994, there is nothing to suggest that Mr Gaupe was given any authority to borrow on behalf of the PLA or to enter into any loan agreement on behalf of the PLA. Mr Gaupe was only given authority to negotiate with the Enga Provincial Government.

Consequently I am satisfied that the representation by Mr Gaupe to Mr Newman was not made by a person who had actual authority to manage the business of the PLA generally or in respect of borrowing on behalf of the PLA or in respect of entering into a loan agreement on behalf of the PLA.

As one of the four preconditions or requirements set out in Rainbow Holdings has not been met I am satisfied that Mr Gaupe did not have ostensible authority to bind the PLA to the [loan] agreement.

19. We endorse the reasoning of the learned trial judge that the second of the four preconditions to establishing a case of ostensible authority on the part of Mr Gaupe was not satisfied. It was unnecessary for his Honour to consider the third and fourth preconditions. It was necessary for Mr Newman to show that all four were satisfied.

20. His Honour correctly concluded in our view that Mr Gaupe lacked both actual and ostensible authority to enter into the loan agreement with Mr Newman on behalf of the Association. His Honour was correct also in holding that the proper position at law was that Mr Gaupe entered the loan agreement with Mr Newman on his own behalf.

21. We are not persuaded by any of the submissions made on behalf of the appellant that there was any error of law made in the trial judge’s finding that the Association was not liable in any way for any breach of the contract, which was a contract between Mr Newman and Mr Gaupe acting on his own behalf.

CONCLUSION

22. No grounds of appeal have been upheld. The appeal will be dismissed. Costs will follow the event.

ORDER

(1) The appeal is dismissed.

(2) The order of the National Court of 22 November 2018 in WS 367 of 2014 is affirmed.

(3) The appellant shall pay the second respondent’s costs of the appeal on a party-party basis, which shall, if not agreed, be taxed.

__________________________________________________________________
Jaku Lawyers: Lawyers for the Appellant
Mawa Lawyers: Lawyers for the Second Respondent