C-Corp Ltd v Tekulu [2011] SBHC 45; HC-SI CC 180 of 2010 (6 July 2011)

IN THE HIGH COURT OF SOLOMON ISLANDS
(Faukona, J)

Civil Case No: 180 of 2010.

BETWEEN:

C - CORP LIMITED
Claimant

AND:

BELANI TEKULU
Trading as PURPLE INVESTMENT
Defendant

Date of Hearing: 3rd June, 2011 and 29 June, 2011

Date of Judgment: 6th July, 2011.

A. Radcliffe for the Clamant
A. Nori for the Defendant

JUDGMENT

Faukona J: The Claimant Company and the Defendant, who trades under Purple Investment Limited, are two entrepreneurs principally have one common interest in cocoa trading and export. At the time of the initial negotiations and arrangement the Defendant had a cocoa export license and had been purchasing and exporting cocoa to overseas buyers, something the claimant lacks.

2. The evidence by the parties as to what materialised in the negotiation and arrangement stage has varied in context and degree. One notable reason for such an inadvertent approach can be assimilated from a failure to have in place and written contract. In the absence of such, this Court is not being assisted to ascertain what constituted the term of trade between the parties, their intentions, their conduct and their legal obligations. However, despite no written contract section 33 (с) of the Companies Act states that a contract made by parol would be by law be valid though not reduce in writing.

3. Amidst uncertainty and perhaps ambiguity, a verbal agreement was concluded that the claimant, will advanced funds to the Defendant to purchase dried coca beans from farmers in Malaita and Guadalcanal for export to Europe. In addition the Defendant to meet all costs relating to labour, local transport, grading, and storage and export preparations. All the payments for the cocoa were to be remitted direct to the account of the Claimant by the overseas buyer.

4. According to the evidence of Clive Corroll the Defendant should benefit out of the FOB agreement, and that should reimburse all expenditure incurred on the ground including costs of clearance and deliverance of the goods to the overseas buyer.

5. At the start things progressed well. The first three advances were made to Purple Investment Limited on 8 August 2007, 10 August 2007 and 21 August 2007, a total of $540,000.00. And the first shipment of 30 tons was shipped on 24 August 2007. The total valued of the cocoa exported was $360,000.00 and was paid into Claimants account.

6. From the accounts and general ledger it appears that the Defendant began to fall behind in utilising the money advanced for the purpose intended to be. Eventually things began to go wrong and the Defendant began to incur debt which amounted to $2,040,440.00.

7. Realising that something drastic must be done to recover the amount; certain arrangements between the parties were proposed. One such was to convert the debts into shares in the Defendant's Company. All such proposals made no progress and failed. In the end an arrangement to repay the debts which now converted into a loan was made by a letter signed by both parties on 1st May, 2008. In that letter, it appears that the Defendant had agreed with the outstanding loan. By its conduct through correspondences and proposals made by it, to recover the loan, and by signing the letter, indicated he agreed with the amount of $2,040,400.00 loan at that time which must be recovered. In Court Mr Tekulu denied signing the letter out of his free will but was forced to do so. In such circumstance he would have pleaded duress in the pleading stage. We have by passed that stage; he cannot rely on duress now. There are other proposals covered by the letter which may not be of any significant now.

8. From evidence it is crystalline clear that the Defendant Company still owed the Claimant the sum of $2,401,900.00. And it would appear there is no dispute as to that. However the Defendant claims he is entitled to be remunerated for the work done as agent. Therefore delivered and counter claim to that effect.

Counter Claim of $1,642,400.00.

9. The Defendant filed and delivered a counter claim of $1,642,400.00 for reasonable commission as an agent based on local and overseas FOB prices including internal transport, packaging, storage and export costs. The Claimant denies any evidence of any agreement to pay commission and denies being responsible for those costs. Mr Clive Carrol states in evidence that by oral agreement the Defendant should benefit out of the FOB contract. The question ought to be asked is, who are the parties to the FOB contract of carriage in this case? And if the Defendant should be a party to that FOB agreement, how much benefit had he acquired from such arrangement and by how much specifically in monetary term from the first shipment on 24th August 2007? There seemed to be no evidence to show the least and the term of such FOB carriage is not clear.

FOB Contract

10. FOB contract is define by Nori in his submission on page 2 paragraph (3) of his submissions. Similarly it can also mean a mercantile contract term allocating the rights and duties of the buyer and the seller of goods with respect to delivery, payment, and risk of loss, whereby the seller must clear the goods for export and deliver them to the buyer's chosen carrier at a named place. Once that has been done, the seller's delivery is completed and the risk of loss passes to the buyer. The buyer is responsible for all costs of Carriage([1])

11. The original arrangement that all cocoa export be delivered to the Claimant in Australia did not progress as expected. The fact was that being engaged in cocoa export for some time, made it possible and convenient for the Defendant to maintain its relationship with its usual buyers in Germany. Not only that but the Defendant was shipping cargo on boats of his choice, thus clearly isolated the Claimant from being a party to any FOB contract and was totally out of the picture. To protest now won't help and of no essence. The export documents supplied by the Defendant showed export was shipped to Hamburg in Europe, not Australia nor to the Claimant. What the Claimant received was net from the products after freight and insurance had been deducted by the buyer in Germany. In the end the Defendant did not financially benefit from the FOB at all.

12. Mr Carrol attempt to verify that the Defendant can adjust the prices so that he could benefit financially. Prices of commodities such as cocoa are controlled by world market. As such it affects the local price. It has to be noted that the defendant is not the only local buyer and exporter of dried cocoa beans. There are other local buyers as well and prices have to be competitive in order to stay on trade.

13. To agree to serve someone by assisting subsidising what ought to have been done by the other, was an unfair term and fail to express the concurrent intentions. The possible solutions, in my view, are three options. One the Defendant needs to be reimbursed; or alternatively, the Defendant be allowed to have a share in all the financial benefits enjoyed by the Claimant out of all the cocoa tonnage in which the Claimant had received payments for; or by compliance to the term that the Defendant must be recognised as an agent acting and serving the Claimant for its own benefit. In this case the Defendant opted to be recognized as an agent and be paid a Commission for service he had done, and be reimbursed for the local costs he incurred in performing the contract which did not benefit him at all.

14. In absence of the clear terms or where the terms are vague and ambiguous the Court is free, or has the power to imply terms into the business relationship between the parties. Mr Nori has referred to the case of Ronia V NPF([2]) where His Lordship Sir Palmer CJ states;

"They may be implied by law (that is legislation) so that even if the parties seek to contract out of the requirements of the law it cannot be done because the law will still imply such a requirement in the agreement. The second way is that they may be implied in fact. It is the latter that is of concern to us. The Courts, through the years have drawn up a test which they have applied consistently in deciding when a term maybe implied in fact or not. This is known as the "business efficacy", test, or the officious bystander type of case".

15. The test has been succinctly stated in the case of Shirlaw v Southern Foundaries([3]) per Mac Kinnon CJ as

"The prima facie that which in any contract is left to be implied and need not expressed is something so obvious that it goes without saying; so that if, while the parties were making their bargain, an officious bystander were suggest some express provision for it in their agreement, they would testily suppress him with a common "Oh, of course"

16. However, line must be drawn as to the terms to be implied; only those which are necessary to give efficacy to the contract. In the case of Hart V Jacobs([4]) Smithers J made the following comments;

"The only terms to be implied are those which it is necessary to imply to give efficacy to the contract and to make it a workable agreement in such manner as the parties would clearly have done if they had applied their minds to the contingency which has risen. The important word are "necessary," "to give efficacy," "workable," and "clearly."

17. The strict nature of the test is stated in line with what was said in the case of Heimann V Commonwealth([5]) by Jordan CJ;

"In Order to justify the important into a contract of an implied term which is not to be found in the express language of the contract when properly construed and is not annexed by some recognized usage, or by statute or otherwise it is essential that the express terms of contract should be such that it is clearly necessary to imply the term in order to make the contract operative according to the intention for the parties as indicated by the express terms"

18. I have stated earlier the assumption that the Defendant will benefit out from FOB contract is indeed a total myth. From documents the shipments may have carriages done under FOB, but Claimant was not part of that carriage agreement. By performing its obligations the Defendant had expended his own money for the benefit of the Claimant. On the overall it boils down to that the fact agreement was not justifiable and ought to be rectified. In doing so I have accepted to imply three terms into the oral agreement based on the conduct and performance by the parties.

1. The parties were not trading on FOB terms. The Claimant was never been a party to any FOB arrangement. The Defendant was doing export in ships that he himself chose and directly to Germany. Those who directly benefit from FOB terms were the shipowners or ship charterers.

2. By complying with the obligatory term, the Defendant in my view was acting as an agent for the Claimant and not as principle with principle, and therefore entitled to a reasonable commission.

3. Drawn from the second term the Defendant is therefore entitled to be reimbursed for his local expenses.

19. I refused to imply into the contract term 5 as submitted by Nori because the Defendant has a choice as to who to serve. If he had received money from both the Claimant and the third party he chose who he will serve. Also I cannot include a term to convert the Defendants debts as shares by the Claimant in the Defendant's Company. That implies his commitment to his debts and affirms he is liable. That proposal had not been agreed upon.

20. On passing it is advisable to remind the parties that should they wish to engage in commercial negotiations which will later materialise in a binding contract, do so by utilise Section 33 of the Companies Act, by making a written contract to avoid the hassle in interpreting the terms of the contract. Secondly you have all the lawyers at your disposal based in Honiara. Seek their advice and assistance before commencing business negotiations or contract with others.

21. In this case I have awarded $2,401,900.00 to the Claimant as it claims. I have also awarded the counter claim in two categories. One, commission for the Defendant for the work done, and reimbursement of all the ground costs. I noted there supposed to be one commission and not two. The total counterclaim awarded to the Defendant is $812,290.00 + $470,110.00 = $1,282,400.00. There is no dispute as to the figures, hence, they must stand.

Orders

1. Judgment for the Claimant in the sum of $2,401,900.00, less $1,282,400.00 counter claim.

2. The balance of $1,119,500.00 be paid to the Claimant with the interest of 12% per annum from 13th May, 2010.

3. Both parties have partial success in this case therefore no order as to costs.

The Court.

---

^[1] Black Law Dictionary,
^[2] HC-CC 53 of 1996
^[3] [1939] 2 KB.2006
^[4] [1981] 39 ALR 209 at 213
^[5] [1938] 38 SR [NSW} 691