Arahatara v Solomon Airlines Ltd [2008] SBHC 24; HCSI-CC 261 of 2003 (17 April 2008)

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Date of Hearing: 13th - 15th, 17th August 2007
Date of Judgement: 17th April 2008

The claim of the plaintiff is for damages for breach of contract to the sum of $101,528.38. He relies on the attachment to the letter to him by the General Manager, Gideon Zoleveke of Solomon Airlines Limited, dated 15th July 2002, which purportedly sets out the redundancy entitlements totaling $137,108.40. The plaintiff acknowledges receipt of the sum of $28,300.00 and claims for the remainder of $101,528.38.

The defendant denies that the letter of 15th July 2002 with the attachment amounted to an offer capable of acceptance, as the calculations made were contrary to the decision and instructions of the defendant’s Board in respect of the redundancy exercise. This was a compulsory redundancy and the plaintiff was offered little choice about it. Secondly, it could not amount to a binding agreement as there was no consideration for any payment beyond that approved by the defendant’s Board. He had already agreed[1] that the defendant could terminate his services without fault on his part and that the compensation for that loss would be the payment of two months salary.

Alternatively the defendant argues that if there is a binding agreement, it is subject to rescission or rectification for mistake and counter-claims for rectification and rescission.

Is there a binding agreement in respect of the letter of 15th July 2002? If so, was it made by mistake and can it be rectified or rescinded?

There is no dispute that a redundancy letter of 15th July 2002 was issued by the General Manager, which contained an annexure purportedly setting out the redundancy package for the plaintiff. At the bottom of the second page of that letter, a note was appended which informed the plaintiff to sign at the bottom right hand page if the offer was accepted. The plaintiff signed at the bottom of that page a week later.

It is not in dispute that the General Manager as the company secretary acts as agent for Solomon Airlines Limited in his dealings with the plaintiff. His ability to bind the company to a contract depends on his actual or apparent authority. His actual authority to act may arise by implication in situations in which he is customarily authorized to do. His apparent authority arises from the position he holds as the General Manager.

The status of a general manager or company secretary over the years has changed from one of no customary authority to bind a company to one where he can bind the company in contracts connected to the administrative side of the company. The present position was set out in Panorama Developments (Guilford) Ltd v. Fidelis Furnishing Fabrics Ltd [1971] 2 Q.B. 711, ("the Panorama case") by Lord Denning M.R. in which he said:

"A company secretary is a much more important person nowadays than he was in 1887. He is an officer of the company with extensive duties and responsibilities. This appears not only in the modern Companies Acts, but also by the role which he plays in the day-to-day business of companies. He is no longer a mere clerk. He regularly makes representations on behalf of the company and enters into contracts on its behalf which come within the day-to-day running of the company’s business. So much so that he may be regarded as held out as having authority to do such things on behalf of the company. He is certainly entitled to sign contracts connected with the administrative side of a company’s affairs, such as employing staff, and ordering cars, and so forth. All such matters now come within the ostensible authority of a company’s secretary."

In the Panorama case, the secretary without authority, hired cars from Panorama, which he stated were for the purpose of carrying his company’s customers. He used the cars however for his own purposes. When he failed to pay for the hire charges, Panorama sued the company arguing that he had apparent authority to enter into that contract. The court upheld the decision of the trial judge that as company secretary he had ostensible authority to enter into contracts for the hire of those cars and therefore the company was obliged to pay for them. While the company secretary was a fraud, it was the company which put him in the position where he was able to commit those frauds.

In this instance, the defendant argues that the calculations made by the General Manager, regarding the redundancy package were contrary to instructions. He was never authorized and had no ostensible authority to issue any contrary instruction and in the event he did so, it was not the act of the Board of Solomon Airlines Limited. The defendant relied on the case of Crabtree – Vickers Pty Ltd v. Australian Direct Mail Advertising and Addressing Co Pty Ltd (1975) 72 CLR 72, 80 ("the Crabtee case") in support of its submissions.

In that case, there were three directors, Bruce McWilliam junior, who was also the managing director, Peter McWilliam ("Peter") and Bruce McWilliam senior. Peter had been authorized to gather information concerning the buying of certain printing machines but with no authority to buy them. The ultimate decision to buy rested with the board of directors and that no one had power to make such a decision without the concurrence of the father. Peter had entered into a contract with Crabtree-Vickers Pty. Ltd. ("Crabtree") for the purchase of a printing machine and ancillary equipment totaling $211,320.00. Crabtree sued Australian Direct Mail Advertising and Addressing Co Pty Ltd ("Australian Mail") for damages for breach of contract out of the alleged sale.

The High Court of Australia found as a fact that the managing director, Bruce McWilliam junior had no authority to make any representation that Peter had authority to enter into such contract. The court found as a fact that Bruce McWilliam junior did not have power to manage the affairs of Australian Mail generally because of the limitation on his power in respect to the purchase of the machinery. That power rested with the Board. Only the Board had the actual authority to enter into such a contract and that it had not given any actual authority to Bruce McWilliam junior and therefore even if he did authorize Peter it would not have bound Australian Mail.

The analogy in this case is apposite. I accept submissions of Mr. Sullivan on the application of the Crabtree case. In this case, the actual authority for the redundancy exercise and package rested with the defendant’s Board. Zoleveke only had ostensible authority to facilitate the redundancy package authorized by the Board. He was never authorized to make any representation that any payment which he authorized other than the redundancy entitlements would be binding on the company. He was never authorized to pay out anything beyond what was approved by the Board. That is very clear from the correspondences, minutes of the Board and confirmed in evidence by a Board member, Tony Makabo. I accept the evidence adduced by the defendant; that Zoleveke had no ostensible authority to release the payment of funds which were over and above the redundancy package entitlements of the plaintiff. In so far that he did, it was done without authority and cannot bind the defendant. I accept the submission of the defendant that Zoleveke’s ostensible authority did not extend to payment of anything over and above that which had been expressly approved and authorized by the Board. That power was never delegated to him. His responsibility was to ensure that the Board’s decision regarding redundancy was correctly implemented.

Like the Crabtree case, in which the managing director, Bruce McWilliam junior, could only go so far in authorizing Peter, any representations which went beyond his ostensible authority even if issued were ineffective to bind their company. Any representations, instructions or directions purportedly made by Zoleveke, or any other manager to pay more than what was expressly approved and authorized by the defendant could not be binding on the company.

The Panorama case referred to earlier, can be distinguished on the basis that the company secretary had ostensible authority to hire cars for the use of the company. In this case, the actual authority to grant redundancy remained with the Board, it was never delegated and so there was a limitation to the power of Zoleveke to release anything other than redundancy payments. What he did authorize, which he had no ostensible authority to do, was to authorize compensation payments for early termination, which was never authorized by the Board nor delegated to him at any time.

According to the calculation of the defendant, the plaintiff’s redundancy package was limited to the following:

1. Redundancy – Employment Act s. 7 ($1,153.85 x 301 ÷ 26):	$13,358.03;
2. Salary in lieu of notice – Agreement clause 24 (2,307.69 x 4) ≈	$10,000.00;
3. Outstanding leave:	$5,769.25;
4. Gratuity: ($60,000.00 x 10%)	$6,000.00;
5. Less Tax: NPF:	$4,070.90 $1,756.36
Total amount due:	$29,300.00.

According to the plaintiff however, he avers that the letter of 15th July 2002 was an offer which had been accepted by him when he signed at the bottom right hand corner at the second page and therefore binding on the defendant.

I do not find that such a letter could amount to an offer capable of acceptance for there was no offer to be made in respect of the redundancy. It was an executive decision of the defendant’s Board in view of the financial difficulties the airline was experiencing at that time. The airlines Australian Air Operators Certificate (AOC) had been suspended on 19th October 2001 and then cancelled on 31st October 2001, followed by the retention of Qantas of its B737 aircraft. Its airline international operations were thus reduced to the minimum. With the deteriorating financial condition of the airline it became necessary as part of its cost cutting measures to carry out the redundancy exercise. The decision therefore was a unilateral decision; the plaintiff had no choice about it once the relevant positions to be made redundant were identified. What remained to be done was for the redundancy payments to be calculated, cross checked by the plaintiff before released for payment. If there was any agreement on his part to be obtained it was that he had cross-checked the calculations to ensure they were correct.

The calculations set out in the attachment to the letter of 15th July 2002 were clearly erroneous, if not devious. There was no salary package to be offered in the redundancy; only such payment to be released pursuant to the statutory formula prescribed in the Employment Act, section 7 and other outstanding entitlements. There was nothing to indicate that the Board agreed for all those who were being made redundant to be paid out for all their outstanding salary dues and entitlements for the rest of their contractual terms! But that was exactly what was done in this case and couched in a redundancy payment. There could not therefore have been consensus ad idem (meeting of the minds) in such a matter.

The whole marks of a binding contract are missing in that letter. There was no consideration for the payment of moneys beyond the plaintiff’s entitlements. He had already agreed that he could be terminated in lieu of notice with two months pay. There was therefore no benefit to the company and no detriment to him.

Further, the purported offer made to him completely contradicted the very purpose and reasons for the redundancy exercise in the first place. It would have been better for the company to employ him to the full term of his contract and receive the benefit of his services than pay him for the remainder of his term in the name of redundancy and receive no benefit from it. The whole exercise would have been a farce.

This claim has proceeded on the wrong footing. There was no offer to be accepted and therefore no binding contract. There has been no suggestion that the letter of 15th July 2002 constituted a variation of the original arrangement for redundancy or that it was a completely new and separate arrangement altogether. The evidence adduced simply does not support any such suggestion. There was only a compulsory redundancy package to be confirmed as accurate on his part regarding his rightful entitlements in law. He had been misled by the calculations which were attached to the letter of Zoleveke "offering" him his redundancy entitlements. He has never denied that he had been terminated otherwise than by redundancy. To that extent he (this includes his employer) was bound by the statutory requirements of the Employment Act. Section 7(2) of the Employment Act expressly limits the maximum amount of redundancy payment to the formula ‘BW x 65’ where ‘BW’ is the basic weekly wage at the date of dismissal to which the redundancy relates. In this instance, the maximum which could have been paid to the plaintiff, if he were entitled, would have been $75,000.25[2]. The amount offered ($101,538.40), in this instance, as "redundancy payment" exceeded the maximum. If it were a payment other than redundancy, the Board’s endorsement would have been required. No evidence whatsoever however, has been produced by the plaintiff. Zoleveke was not called to give evidence on this, neither Yalu Revo, to prove that the Board had made a decision to release payments other than by way of redundancy entitlements. The only credible evidence adduced before this court came from the director, Tony Makabo, who had been given responsibility for the redundancy exercise. He categorically denied any approvals of payments that would be contrary to the redundancy entitlements stipulated under the Employment Act. His evidence on this is very clear and I accept it as accurately reflecting the decision of the defendant’s Board.

I accept the defendant has paid the amount of $28,300.00. This leaves the sum of $1,000.00 outstanding. I give judgment for this sum.

^[1] Clause 24 of the Employment Agreement dated 1^st January 2001.
^[2] $1,153.85 x 65 = $75,000.25.

High Court of Solomon Islands

Arahatara v Solomon Airlines Ltd [2008] SBHC 24; HCSI-CC 261 of 2003 (17 April 2008)