Primary Produce Export Ltd v 'Ahio [1999] TOCA 10; CA 11 1999 (23 July 1999)

IN THE COURT OF APPEAL OF TONGA
ON APPEAL FROM THE
SUPREME COURT OF TONGA

APPEAL NO. 11/99
BETWEEN

PRIMARY PRODUCE EXPORT LTD

Appellant
AND

TITALI 'AHIO

Respondent

Coram:
Ward CJ, Burchett J, Beaumont J

Counsel:
Mr. Appleby for the Appellant
Mr. Tu’utafaiva for the Respondent

Date of hearing: 16 July 1999
Date of judgment: 23 July 1999

JUDGMENT OF THE COURT

INTRODUCTION

Primary Produce Export Limited ("the Company") sued Titali 'Ahio ("the Grower") in the Supreme Court for debt for goods sold and services rendered, claiming judgment in the sum of $5,807.05. By his statement of defence, the Grower pleaded, inter alia, a set-off in the sum of $2,831. After a trial of the action, a Judge of the Court upheld the Company's claim, but also upheld, in part, the Grower's claim to a set-off. His Honour ordered that judgment be entered for the Company in the sum of $4,800.50, being the amount claimed ($5,807.05) reduced by the amount to be set-off [$1,006.55]. The Company now appeals from that part of the judgment which allowed this set-off. His Honour made no orders for costs, leaving each party to meet its or his own costs. The Company also appeals from this part of the judgment.

In order to understand the issues in the appeal, reference should first be made to the written agreement ("the Agreement") entered into by the parties.

THE CONTRACT

The relevant provisions of the Agreement follow.

The Agreement contained the following, among other, recitals:

"A. This contract is between the Company and the Grower, in regards to the planting and exporting of the Grower's pumpkin.

E. It is the responsibility of the Company to establish a market in which the produce can be sold and exported, following the harvest of the pumpkin by the Grower in the months of OCTOBER and NOVEMBER 1996.

F. The company provides financial aid, and loans, needed by the Grower for purchasing seeds and chemical fertilizer detailed below. ..."

Clause 4 relevantly provided:

"4. The company must make arrangements, deliver and pay to the grower the following items:

a) pumpkin seeds weighing 8.5 kgs $260.00 per kilogram...."

Clauses 10, 11, 12 and 13 are presently material. They provided:

"10. The Grower and the Company agree in this contract that the Grower will supply the Company with 8/1kg *[*8 crates of pumpkins per 1 kg of seedlings] that have passed the quality assessment conducted by the Tongan Government Quarantine Department. Therefore the crates of pumpkin will not be permitted to weigh less than 535 kilograms excluding the weight of the empty boxes.

11. It is agreed by the Company to reimburse $250.00 per every squash box to the Grower in accordance to section 10 above, depending on the fluctuating exchange rate of the Yen 79.07 for T$1.00. Therefore the paid value rely on the changes in the value of the Yen. [Emphasis added]

12. When the crates of squash are not completely full when packed by the grower, the un-filled crates will still be weighed, taking from it the empty weight of the box. Furthermore, reduction of 7% on the remaining weight of the pumpkin (due to shrink) cause from water vapour sipping out into the atmosphere, whereby reducing the weight of the pumpkin on arrival to foreign market. The Company then pays to the Grower $0.50 per kilogram of the left over weight. Monies paid to the Grower changes in relation to the fluctuation of exchange rates.

[Emphasis added]

13. Payment referred to in section 10, 11, and 12 are conducted in the following manner.

a) The Company must pay to the Grower or representative 50% once approved, in accordance to the requirements stated in section 11 and 12.

b) The Company must pay the grower or representative 50% within 10 days after the departure of the boat carrying the shipment. And deduct all accounts owed by the Grower to the Company."[Emphasis added]

THE SET-OFF CLAIMED BY THE GROWER

By his statement of defence, the Grower claimed (inter alia) a set-off as follows:

"8. Further terms of the said agreement were that the (Company) market the squash to Japan and then pay the (Grower) $250.00 per bin of squash ; one bin weighing 500 kilograms and therefore the (Company) had to pay the (Grower) 50 cents per kilogram of squash. However, the (Company) paid the (Grower) only 40 cents per kilogram of squash."

11. The (Grower) delivered 12 bins, weighing 500 kilogram each, of squash to the (Company) who paid for them at only 40 cents per kilogram instead of the 50 cents agreed upon, and the (Grower) is entitled to $600.00 more from those bins."

THE REASONING OF THE PRIMARY JUDGE ON THE SET-OFF CLAIM

His Honour upheld the set-off. He said:

"The next head is the calculation of the pay out price for the squash which the (Grower) sold to the (Company). I am bound to say that the provisions in the written agreement and the evidence of the (Company's) witness did not enable me to find any clear pay-out principle, other than the fluctuating value of the yen. From the evidence of the (Company's) witnesses, it seems that the (Company) did not abide strictly by the term in the agreement in any event, rather paying out what it calculated it could afford, and making adjustments later. At first it paid to all its growers 40 seniti per kilogram, and both the company secretary and the manager agreed that had the exchange rate been correctly applied, that pay,-out would have been at 42 or 43 seniti. The company secretary said that when the 40 seniti pay-out had been decided, the company management had not looked closely at the contract and did not realise that the provisions for payment were in the document.

This was a reprehensible approach to the document which the (Company) itself had generated. It reinforces the view that the (Company's) objective in producing the document was to protect its own interests only and not those of the grower party. No evidence was given about the actual exchange rate or whether it was used by the (Company) in calculating any of its payouts to the (Grower). The company secretary said that he was paid at 45 seniti. That is denied by the (Grower) and the manager said that the first 2 pay-outs were at 40 seniti, and the 3rd added 3 seniti for all those who had received 40, thereafter the payout was 45, and the defendant had not been receiving the lower rate, meaning presumably 40 seniti. The (Company) claims that because of the absence of evidence about the exchange rate the court should assume that the pay-out would have been 50 seniti, which is an amount that the (Grower) heard from other growers. [Emphasis added].

I find this aspect of the case unsatisfactory in that the (Company), when the (Grower) was selling his squash to it, apparently never employed the contractual principle of calculating the payout by reference to the exchange rate, and was thus apparently in breach of the contract as the (Grower) claims. On the other hand, the (Grower) did not bring evidence of what the exchange rate at the time in question actually was, thus enabling the Court to direct the parties to apply the contract. The equity of the matter however favours the (Grower) and it seems this is an occasion for the Court to invoke its jurisdiction to make an equitable assessment as best it can of what amount should be allowed to the (Grower)under this head. In submissions, Mr Tu'utafaiva (for the Grower) has suggested $774.95, this being an allowance of an extra .5 seniti per kilogram for the squash which the (Grower) sold to the (Company). If the calculation is accepted, it would raise the $2,220.05 which was actually paid to $3,000. After considering this submission, I accept it as offering a just and reasonable assessment of the set-off under this head that is due to the (Grower)."

(His Honour also allowed a separate claim by the Grower to set-off an amount of $231.60 on another account. The Company is no longer pursuing this part of its appeal).

THE GROUNDS OF THE COMPANY'S APPEAL

In essence, the grounds of the Company's appeal are first, that the learned Primary Judge did not correctly construe the Agreement ; and secondly, that his Honour failed to apply the Company's uncontested evidence of the facts to the terms of the Agreement, properly construed.

CONCLUSIONS ON THE APPEAL ON THE SET-OFF ISSUE

In our view, there is considerable force in the Company's appeal.

The starting point for our consideration is the interpretation of the relevant provisions of the Agreement. In our opinion, they should be construed as follows:

• A crate or box of the Grower's pumpkins must weigh at least 535 kgs, excluding the weight of the empty box [cl.10]. Allowance is made for 7% shrinkage in transit to a foreign market (i.e. 500 kgs plus 35 kgs. = 535 kgs. net after 7% shrinkage approximately 500 kgs.) [c1.12].

• Subject to any fluctuation in the Yen from an exchange rate of Yen 79.07 for T$1.00, the Grower is entitled to be paid $0.50 per kg of "left over" weight [cl.12], i.e. $250.00 per box (for 500 kgs "net") [cl.1l].

• The Company is to pay 50% of the price upon approved quality assessment, and the remaining 50% within 10 days of the departure of the ship [c1.13].

It will be seen then that the possibility of a fluctuation in the value of Yen exchange rate could be a significant factor in ascertaining the amount due to the Grower.

The Company's evidence as to the circumstances of the transactions in question was partly oral and partly documentary. Importantly, and contrary to his Honour's impression, the Company did give evidence as to the material fluctuations in the exchange rate ; and it appears that, so far as it went, this evidence was not challenged at the trial.

The Company called Mr Greg Kay, the company secretary, to give evidence.

In his evidence in chief, he gave the following evidence with respect to the exchange rate of the Yen in the period of the subject transactions (October/ November 1996):

"Now, because of the impossibility of arranging fixed prices either with grower or with Japanese importers, by putting a price in the contract, we were exposing ourselves to great risk during the squash season.

We decided that one of the risks we should not bear in putting in a minimum price was the risk of the fluctuation of the exchange rate of the Yen against the Pa'anga. So, we put in a seniti rate of the payment of a kilo of squash at a predetermined Japanese yen exchange rate, as the minimum price. Now, during October - November 1996 the Yen fluctuated mainly at 92.5 and 93 Yen to $1 (one pa'anga). On conversion, applying the formula in the contract, that worked out to approx. 43 seniti per kilo of squash.

(Q.) You pay Mr 'Ahio 45 seniti.

(A.) Yes, we did.

(Q.) Earlier payout to Mr 'Ahio were 40 seniti?

(A.) The first pay out we did was at 40 cents as being the most we and other exporters could afford. We realised very shortly after we pay that out, that we were in fact, in breach of the contracts, so we back pay that first pay out up to 43 cents and make the rest of our payouts at 45 cents, for the rest of the season."

This evidence was given without objection. It was not contradicted. It was consistent with the business records in evidence, at the relevant time, i.e. the date of loading of the ship carrying the shipment. For instance, the Company wrote to the Grower by letter dated 29 November 1996, enclosing its current "Debtor's statement" for the Grower. The statement showed that the Company had purported to credit the Grower with a rate of $0.45 per kg.

Given the interpretation we would attribute to the Agreement, and accepting, as we should, Mr Kay's evidence on the exchange rate, it must follow, subject to the qualification mentioned by Mr Kay, that the Grower's credit entitlement was at the rate of 43 seniti per kg, and not 50 seniti, as claimed by the Grower in his set-off claim in his statement of defence. It will be recalled that the qualification to this, expressed by Mr Kay, was that, previously, the Grower had been credited at the rate of 40 seniti only ; so that the rate of 43 seniti had been increased, pro tem., to 45 seniti, so as to reimburse the Grower for the earlier temporary deficiency. No challenge is now made to this "by and large" method of compensating the Grower for that particular short fall. But, looking at the set-off claim overall, it follows from the application of terms of the agreement to the fluctuating exchange rate, that the Grower's attempt to increase the rate from 45 seniti to 50 seniti must fail.

To this extent, that is, by disallowing the amount of $774.95 mentioned by his Honour, the appeal will be allowed.

THE APPEAL AGAINST THE COSTS ORDER

As has been noted, his Honour declined to make any order for costs.

In his reasons for judgment, the learned primary Judge rejected a defence of illegality raised by the Grower, which his Honour described as the Grower's "main defence". But, as we have seen, his Honour did uphold the Grower's claim to several set-offs, including one for an amount of $231.60, in respect of which an appeal is no longer maintained. The Judge said:

"Since each party has succeeded to a degree, I ... make no orders (for costs)."

The Company now appeals from this order also.

In our view, given the outcome of the appeal, the Company should have one-half of its costs, both at trial and on the appeal. We think this is a fair indication of the measure of success ultimately enjoyed by the parties respectively. On the question of the costs of the appeal, we have also taken into account, in the Grower's favour, the circumstance that the Company had a more general interest than the Grower, in pursuing an appeal over a commercially small amount.

ORDERS ON THE APPEAL

Our orders are as follows

1. Appeal allowed in part, with one-half of the Company's costs of the appeal to be paid by the Grower.

2. Vary the amount of the judgment for the plaintiff (Company) ordered at first instance by increasing its amount from $4,800.50 to $5,575.45, with interest at 10% to run from the date of judgment, 4 March 1999.

3. Set aside the order made at first instance in respect of costs. In lieu thereof, order that the defendant (Grower) pay one-half of the plaintiffs (Company's) costs of the action.

NUKUA’LOFA: 23 JULY 1999

Ward CJ, Burchett J, Tompkins J.