Procorp Ltd v Nuku [2001] TOSC 50; C 0109 1999 (3 December 2001)

IN THE SUPREME COURT OF TONGA
CIVIL JURISDICTION
NUKU’ALOFA REGISTRY

NO.C.109/1999

BETWEEN:

PROCORP LTD.
Plaintiff

AND:

HON NUKU
Defendant

BEFORE THE HON MR JUSTICE FORD

Counsel: Mr Kaufusi for the plaintiff and Mrs Tupou for the defendant.

Dates of hearing: 21, 22, 23 and 26 November 2001.
Dates of submissions: 26 and 28 November 2001.
Date of judgment: 3 December 2001.

JUDGMENT

The contract which the plaintiff claims gave rise to the present litigation was an oral contract. There was very little in their evidence which the parties were able to agree upon. The defendant, for his part, denied the existence of any contractual arrangement with the plaintiff company.

In its statement of claim, the plaintiff alleges that the defendant was one of its registered squash growers in the 1998 season and that he ordered the plaintiff to plough his land and supply seeds, fertilisers and chemicals on credit to be repaid from the proceeds of sale of the squash. The statement of claim then goes on to allege that the defendant sold his squash to another export company leaving his debts with the plaintiff company, totalling $21,760, unpaid.

The defendant filed an initial statement of defence simply denying the plaintiff's allegations. Later he obtained leave to file an amended defence in which he said that in 1998 he grew squash with other people, namely Fred Sevele and Stephen Edwards, but not with the plaintiff company. The defendant alleged that he was not a registered grower with the plaintiff in 1998 and at no time did he make any arrangement with the plaintiff company for the growing of squash. The defendant also raised some alternative defences but they were withdrawn at the commencement of the hearing.

In evidence, Mr Stephen Edwards, managing director of Procorp, the plaintiff company, said that in 1997 Hon Nuku came to his office requesting approval to grow squash with his company. Hon Nuku's name was duly entered on what was described as the company's Master List of registered grower's for the 1997 season. The list contained the names of some 140 growers. It recorded that Hon Nuku had 42 acres registered with the plaintiff company in 1997.

Mr Edwards explained to the court the background to the Master List. He said that historically many growers borrowed money from the Tongan Development Bank at the start of each squash season to cover the costs of ploughing, seeds, fertilisers, chemicals and labour with the intention that the loan monies would be repaid at the end of the season from the proceeds of sale of the squash. A number of growers, however, defaulted in repaying the Bank loans and Mr Edwards said that to overcome this problem, the Bank set up a system requiring squash companies to sign a Memorandum of Understanding whereby, in return for the Bank making loan monies available to the companies' growers, the companies agreed to deduct and pay the growers debt to the Bank from the proceeds of sale of squash before the net returns were paid out to the grower. A copy of each companies' Master List would be provided to the Bank each season and the court was told that the Bank would make loans available only to those growers who were registered with an export company.

Mr Edwards went on to tell the court that to his knowledge when squash exporting was in its infancy in the Kingdom back in the early 1990s, virtually all of the growers were financed by the Tonga Development Bank whereas, for one reason or another, that process has now changed and growers are looking more and more at the exporting companies to provide the required finance. The witness said that during the season just passed, for example, none of the plaintiff's growers were financed by the Bank.

Mr Edwards said that his company charged the growers a registration fee which was deducted from the sale proceeds at the end of the season but no details were provided of the fee charged.

Although the plaintiff's Master Lists for both the 1997 and 1998 season were produced and referred to often in the course of the evidence, it appears that they were very much an internal document only. As well as providing information for the Bank, the Master List recorded the names of each grower, the grower's village, the acres registered, the likely amount of fertiliser required and, in the case of the 1998 list, the amount of seeds required. The lists were never shown to the growers so the court would require more than simply evidence of a grower's name on a Master List before it would be prepared to hold that there was a contractual relationship between a grower and a squash exporting company.

Mr Edwards told the court that at the end of the 1997 squash season, the defendant's accounts, along with the accounts of other growers, were reconciled. He said that his accountant would sit down with each grower and show him the various computerised invoices which the company had printed off and held on file during the season for goods and services supplied and the grower would then receive his cheque for the net proceeds.

The records produced showed that squash sales from the defendant's 42 acres for the 1997 season totalled $66,375 and from this amount was deducted the costs of production including ploughing, seeds and fertilisers which totalled $20,032, making a net return of $46,343. The cheque requisition form that was produced in evidence showed a further deduction of $16,000 in favour of the Tonga Development Bank and Hon Nuku then signed the requisition form for receipt of a cheque in the sum of $30,343. In his evidence, however, Hon Nuku said that the $16,000 payment to the Bank was made in error and refunded to him. He said that his net return for the season from the 42 acres had been the figure of $46,343.

Some aspects of the evidence of both parties as to what then happened leading up to the commencement of the 1998 squash season were in many respects unclear. I accept, however, that Stephen Edwards was anticipating that the defendant would again proceed under a similar arrangement to that which the parties had operated under during the 1997 season. Mr Edwards said that at the start of each year most growers came to his office to work out arrangements for the season but in the case of the large-scale growers, his practice was to visit them personally. The defendant fell into this latter category and in February 1998 Mr Edwards visited him. In the course of that meeting the defendant told Mr Edwards that another company, Squash Exporters Limited, was interested in growing squash upon his property but Mr Edwards said that the defendant mentioned that he had other land available and he would look at how much acreage he could provide and let Mr Edwards have the details later on.

Mr Edwards told the court that subsequently the defendant registered with his company, Procorp, for 70 acres. He said that the acreage figure was given to him by the defendant but the figure of 70 acres was consistent with the time taken to plough the land and with the quantity of seeds later provided. Mr Edwards said that the average figures sourced from the Ministry of Agriculture showed that, depending upon the terrain and the conditions, it would generally take about one hour to plough one acre and to properly prepare the ground would require three ploughings with an appropriate break between each ploughing. Other witnesses gave evidence about the need for "ripping" and "discing".

In relation to seeds, Mr Edwards said that there were different styles of planting -- some growers liked to space their plants 8 ft apart and others 5 ft apart but, in general, one kilo of seeds would cover 2 acres.

The documentation produced by the plaintiff showed invoices for three ploughings with a gap of one month between the first and second ploughing and a two-week break between the second and third. The initial ploughing appears to have taken a total of 96 hours, the second 70 hours and the third 43 hours. The invoice for the seeds showed that some 33 kilos were supplied to the defendant by the plaintiff company.

There was no real dispute between the parties that the particular area of the defendant's land that was ploughed and sewed with the seeds in question was in 2 blocks - one block was referred to in evidence as the "cow-paddock" and the other block in the Haveluliku district was simply referred to in evidence as the "Liku block".

When it came to what happened during the harvesting of the squash at the end of the 1998 season, the plaintiff's evidence came mainly came from Mr Steve Edwards and from a Mr Siua Tai, who is now manager for the Pepsi Cola distributor in Tonga but back in 1998 he was field manager for the plaintiff company. Mr Tai told the court that at harvesting time he went to talk to the defendant at his residence but his wife explained that he was overseas and she told him to speak to the "guys at Kolonga". He then went to talk to the "guys at Kalonga" and he spoke to a person identified only as "Popi" who told him to go to the two blocks which he (Mr Tai) said had been "identified as Procorp plots" but when the workers went with the empty bins to the cow-paddock area they found that it had already been harvested. Mr Tai said that when they then went to the Liku block they found that the most productive part of that land had also been harvested and some workers were still on part of the block carrying out harvesting work. Mr Tai said that his men were only able to harvest 4 or 5 bins of squash from the less productive seaside part of the block.

Mr Tai and Mr Edwards later confronted Popi about the problem. They asked him about the full bins of squash which they had seen stacked up on the two blocks. Popi told them that he had only done what he had been instructed to do by Hon Nuku. Mr Edwards recalled Popi saying that he had been instructed to take the squash from the two blocks to Squash Exporters Limited. Popi was not called as a witness by either party.

Mr Edwards told the court that he returned to his office and wrote to the defendant on behalf of Procorp in a letter dated 29 Oct 1998 pointing out that if he could be given the squash already harvested from the two blocks then that would more than satisfy the debt but he went on to enclose an account for goods and services provided during the season totalling $26,760 less a discount of $5000 leaving a total of $21,760. A solicitor's letter was also sent to the defendant about the same time. Mr Edwards said that the company received no response to either letter. Court proceedings were issued on 29 January 1999.

The defendant's response to the plaintiff's case was succinctly summarised by counsel, Mrs Tupou, in the following two submissions:

"1. That the allegations made by the plaintiff are false and therefore there was no contract between the defendant and the plaintiff and that there are no grounds for the plaintiff's claim.

2. Alternatively, if the court should find that there was a contract between the plaintiff and the defendant, it was a contract with the terms were so vague that it is unenforceable."

In relation to the first submission, the defendant told the court that before he had the visit from Mr Edwards in February 1998 he had a visit from a Mr 'Aisake Tu'iono and 'Aisake later visited him again with Mr Edwards and the defendant thought that he was dealing with them and not with Mr Edward's company. The defendant's counsel was critical that the plaintiff had not called 'Aisake as a witness but it was always open to the defendant to call him if he was important to his case. The defendant's main point, however, was that at all material times during the 1998 season he thought that he was dealing with Mr Stephen Edwards in his personal capacity and not as managing director of Procorp.

The court had earlier been told that Procorp Limited was a squash exporting company which traded as IPC, the initials for Island Produce Corporation. The company has been in existence for some 10 years. An inspector with the Ministry of Labour, Commerce and Industries gave evidence and produced the export licences held by the company. The inspector said that Stephen Edwards had never held a squash export licence in his own name.

On the evidence, I am unable to accept the defendant's first submission that he thought his arrangement was with Mr Edwards personally and not with Procorp. It simply defies belief. Mr Edwards frankly admitted that he did not discuss the name of his company with the defendant but he said, in evidence which I accept, that it did not have to be discussed because it was the defendant who had approached him in 1997 about growing squash and that approach was in his capacity as manager of a squash exporting company. Mr Edwards said that it was common knowledge in the squash industry that he ran Procorp (IPC) and he told the court that at no time had he ever traded personally as a squash exporter.

In addition, the invoices which the defendant had received at the end of the 1997 season and the cheque requisition form which he had actually signed when he received his payout from the company were all headed up in the name "Procorp Limited". The used cheque book produced in evidence showed that the cheque was drawn on the "Procorp Limited No 2 account". For the defendant to claim, as he did, that in 1998 he thought that he was dealing with Stephen Edwards personally and that he had never heard of Procorp is, on the evidence, simply not a credible proposition.

I do not accept that at the start of the 1998 season, Mr Edwards was looking for any arrangement with the defendant other than a continuation of the arrangement that had been in place during the 1997 season. I am satisfied on the evidence that in all his dealings with Mr Edwards in 1998, the defendant, for his part, dealt with and intended to deal with Stephen Edwards as the authorised representative of the plaintiff company.

Still under this first submission, counsel for the defendant then submitted that the defendant never ordered the ploughing to be carried out. That proposition, namely that he had carried out the ploughing without any prior consultation with the defendant as owner, had been put to Mr Edwards in cross-examination and his response was, "we could not possibly go and plough land without the consent of the owner". I find that answer compelling and the fact that the defendant had given instructions as to the land to be ploughed is entirely consistent with the evidence that subsequently the defendant received the squash seeds and personally collected bags of fertiliser for the ploughed land from the plaintiff's premises. In other words, my finding is that the defendant authorised the ploughing and was completely aware of what was going on in that regard.

I found the plaintiff's witnesses entirely credible on this aspect of the case and I accept that both the cow-paddock and the bulk of the Liku block had been harvested before Mr Tai and his workers arrived on the scene with their empty bins ready to do the harvesting. I also accept what the mysterious figure "Popi" (who was not called as a witness by the defendant) was alleged to have said to Mr Edwards about the squash that had been harvested from the two areas, namely, that he had been instructed by Hon Nuku to take the squash to Squash Exporters.

The defendant's second principle submission was that the agreement was too vague to be enforceable. Under this head it was submitted first of all that the defendant did not know that he was making an agreement with Procorp. I have already rejected that proposition. Counsel then pointed to other alleged elements of uncertainty. She said that there was no agreement on the acreage to be ploughed and there was no clear evidence on quantity and price in respect of the seeds and fertiliser or as to how much each party should spend. "More importantly", she submitted, "there was no clear evidence as to how the proceeds would be divided".

If there had been no prior dealings between the parties then conceivably there might be some substance to the defendant's submissions but my finding on the evidence is that what the parties had agreed to for the 1998 season was simply a continuation of the arrangement that had been in place for the 1997 season, albeit the acreage involved in 1998 was considerably larger, and so to that extent the parties knew exactly how the contract was going to operate. Procorp would be carrying out the ploughing work and providing the seeds, fertilizers, chemicals and any necessary labour on credit and in return, at the end of the season, the company would export the squash and deduct all the expenditure it had incurred from the proceeds of the sale of the squash before paying out the net amount to Hon Nuku.

The defendant appears to have accepted that this was the position when he stated in an affidavit sworn on 8 June 1999 in connection with an interlocutory matter that:

"9. Although there was no detailed agreement I assumed that we were to operate as we had the previous year when I did grow squash with Mr Edwards under IPC."

"IPC", of course, was the trading name for the plaintiff. In that same affidavit, the defendant went on to say in relation to the 1998 season:

"13. I admit that I accepted seeds and fertiliser from Mr Edwards on credit and that he prepared the land for planting but I dispute the amount he is charging because he promised to "beat" the other company's price."

There is no indication in those paragraphs that the defendant was viewing the contract as being so vague as to be unenforceable. For the reasons I have mentioned, therefore, I reject the defendant's submissions of uncertainty.

There were other allegations made in the same affidavit about how the defendant was being charged at inflated prices and those allegations were repeated in the alternative defences that were withdrawn when this hearing began. The allegations are, therefore, no longer in issue.

After considering all of the evidence and the helpful submissions presented by counsel, I am persuaded to the required standard of proof in civil proceedings, that the plaintiff has established its claim and is entitled, subject to what I am about to say, to the relief sought.

Mr Edwards was challenged in cross-examination about one particular invoice relating to what is described in the invoice as a cash advance for hoeing. The invoice is dated 27/10/98 which is sometime after the crop had been harvested. Mr Edwards said that he would have documentation back in his office confirming who authorised this work and exactly when it was carried out. He did not, however, make any attempt to obtain this supporting evidence and, given the defendant's challenge, I am not prepared to allow that particular invoice. In his closing submissions, Mr Kaufusi, in reference to this invoice, submitted that if Hon Nuku had a query about it then he should have taken it up with Mr Edwards back at the time he received the invoice. That may be a reasonable observation to make but it does not lessen the obligation a plaintiff has to prove the various elements of his case on the balance of probabilities when the matter proceeds to a court hearing.

The second concern I have relates to one aspect of the evidence given by the plaintiffs field manager, Mr Siua Tai. He told the court that when he and his men went to harvest the cow-paddock they found that all the exportable squash had been harvested. He then said that when they went to the Liku block they found that the bulk of that area had also been harvested and workers were, in fact, still harvesting part of the block when he arrived on the scene. Mr Tai told the court, however, that he and his men were nevertheless still able to harvest 4 or 5 bins of squash from what he called the seaside part of the Liku block.

The plaintiff has not, in the various invoices before the court, given the defendant credit for those bins of squash. It could be argued that the amount in question would be more than covered by the discount of $5000 which Mr Edwards said that he had allowed in the plaintiff's claim but the discount was never couched in those terms. In his letter of 29 October 1998 Mr Edwards had said that $5000 was deducted because "I have promised that I will help you with cheap fertiliser and seeds."

I propose, therefore, to reduce the plaintiffs claim by a further amount in recognition of the credit which should have been allowed in the accounts for the 4 or 5 bins of exportable squash collected from the seaside area of the Liku block. There is a difficulty in that there is no evidence before the court of the average sale price of a bin of squash in the 1998 season but one of the witnesses, Peniola Liu, who is a tractor driver for the plaintiff and a substantial grower of squash in his own right, told the court that for the current season he had received approximately $630 per bin.

The plaintiff had an obligation to account to the defendant for the exportable product taken from the Liku block and it failed to do so for some unexplained reason. I do not believe that the oversight was deliberate but no effort was made to seek leave to make an appropriate adjustment to the plaintiff's claim after evidence about the "seaside bins" had emerged from one of the plaintiff's own witnesses and so, when it comes to the figures, I am prepared to give the defendant the benefit of a doubt. In all the circumstances, I believe that the justice of the case can best be met in this regard if I allow the defendant credit for 5 bins of squash at $630 per bin.

The plaintiff is, therefore, entitled to recover the amount claimed of $21,760 less the cash advance claimed for the hoeing of $180 and less the credit of $3150 which I have allowed for the "seaside bins" of squash taken from the Liku block leaving a net figure of $18,430. The plaintiff claims interest at 10% from 1 December 1998 until the date of payment. I allow the interest claim on the reduced figure of $18,430. The plaintiff is also entitled to costs to be agreed or taxed.

NUKU'ALOFA: 3 DECEMBER 2001

JUDGE