Edenhope Ltd v Santoka Ltd [2011] VUCA 5; Civil Appeal 03 of 2011 (8 April 2011)

IN THE COURT OF APPEAL OF THE REPUBLIC OF VANUATU
(Civil Appellate Jurisdiction)

CIVIL APPEAL NO. 03 OF 2011

BETWEEN:

EDENHOPE LIMITED
Appellant

AND:

SANTOKA LIMITED (struck off)
First Respondent

AND:

VENEER LOGGING LIMITED
Second Respondent

Coram: Hon. Chief Justice Vincent Lunabek
Hon. Justice John Mansfield
Hon. Justice Daniel Fatiaki
Hon. Justice Raynor Asher
Hon. Justice Robert Spear

Counsel: Mr N Morrison for the Appellant
Mr D Thornburgh for the Second Respondent

Hearing: 28 March 2011
Decision: 8 April 2011

REASONS FOR JUDGMENT

The issues

1. The appellant Edenhope Limited (Edenhope) planned to get 15 prefabricated bungalows for a housing development. It needed the wood to do so, and a company to use the wood to make up the prefabricated bungalow kits (the prefabricated kits). Its plan has been frustrated because:-
   

(1) It ordered from Santako Limited (Santako) and paid for 170 cubic metres of hardwood timber, for which it paid VT 17,033,700, but it only received 91 cubic metres of the timber, and

(2) the prefabricated kits were not made up and handed over to it by the company that agreed to provide them, even though Edenhope had made net advance payments of VT10,906,295 for that work.

2. Edenhope brought claims on both of those matters in the Supreme Court, together with a third claim for its timber held by the respondent Veneer Logging Limited (Veneer) which, it said, could no longer be accounted for, to the value of VT576,300.
   
3. Santako has now been struck off the Register of Companies pursuant to s 335 of the Companies Act [Cap 191]. Santako was the company which agreed to get the timber for Edenhope, but (as noted) it eventually delivered only 91 cubic metres. The shortfall of 79 cubic metres was valued at VT 7,910,300. Judgment was entered against Santako for that amount. That judgment is not in issue on this appeal, but as Santako has been struck off there does not appear to be any prospect of enforcing that judgment.
   
4. This appeal concerns the second and third claims. Edenhope sought repayment of the VT 10,906,295 from both Santako and Veneer, and VT 576,300 from Veneer.
   
5. Veneer denied its liability to repay the sum of VT 10,906,295 paid for the prefabricated kits because (it said) the contract for the preparation of the prefabricated kits was made between Edenhope and Santako, and alternatively if Veneer played a role it was as agent for Santako as its disclosed principal. There was, it argued, no other basis on which it could be liable to Edenhope to repay that sum. That position was also taken on this appeal.
   
6. Veneer's position on that issue is not an immediately attractive one. It admitted having received the VT 10,906,295 paid to it by Edenhope. It accepted, as the trial judge found, that Edenhope had received no prefabricated kits for its payments. It did not plead that the VT 10,906,295 was received by it on behalf of Santako. It did not pay that sum into Court, and interplead that it claimed no right to that sum so that the Court should determine as between Edenhope and Santako who was entitled to it. No other persuasive justification was offered for Veneer being entitled to retain that sum. Yet its position on the appeal was that it should not be ordered to repay it, so that it would retain that sum.
   
7. As to the third claim, both at trial and on this appeal, Veneer admitted not accounting to Edenhope for 5.63 cubic metres of timber, and there was no dispute that that timber was worth VT 576,300, but it claimed that it should not be liable for that sum because Edenhope had not paid storage fees and the fees for the security services provided by Veneer to look after that timber.
   

The decision of the trial judge

8. The trial judge concluded that Edenhope should recover the sum of VT 10,906,095, but he apportioned its recoverability as to 60% to Santoka and as to 40% to Veneer, so that Veneer had to repay VT 4,362,518 and Santako VT6,543,777. That conclusion was based on findings that there was a contract between Edenhope and Veneer; that Veneer was the disclosed agent of Santoka in entering into that contract; and further that there was an agency agreement between Santako and Veneer "on the basis of sharing 60/40", so that the Court should give effect to that agreement. The Court inferred that it meant that 60% of all payments made by Edenhope for the prefabricated kits would be paid as to 60% to Santako and as to 40% to Veneer, so Edenhope's recovery of that sum should be on the same basis. The detail of the agreement between Santako and Veneer was not explained to the Court.
   
9. The trial judge said that Veneer admitted its liability for the third claim by VT 576,300 and so gave judgment against Veneer for that sum also.
   
10. There are two further passages in the reasons of the trial judge which it is necessary to note. His Lordship said at [20] and [21]:
    

"20. The Second Defendant admits he is currently holding the Claimants timber in the quantity of 85 cubic metres, 15 toilet blocks and 85 doors. The Court will make no orders in relation to these as the Claimant has not sought specific performance in his amended claims. The Claimant is entitled to have further discussions with the Second Defendant about these matters.

21. The Court rejects the relief for damages against the Defendants. From the evidence it is apparent these unfortunate circumstances arose as a result of lack of proper communication between all parties, the Claimant included. It is therefore not appropriate to award any damages."

11. Costs were awarded in favour of Edenhope on the basis that Santako pay 60% of those costs and Veneer 40% of them.

12. To understand the context of those paragraphs, it is necessary to refer to the amended statement of claim. The primary claim against Santako was for failing to supply 79 cubic metres of timber, despite having been paid for that timber. That claim may be put aside, simply because it was resolved in favour of Edenhope.

13. In its amended statement of claim, the damages claim was based upon the allegation that the prefabricated kits were for community housing Edenhope had contracted to supply, and that both Veneer and Santoka were aware of that commitment, so that by reason of their collective failures Edenhope had incurred losses and costs in providing alternative accommodation. That loss was not particularized. It was not proved in evidence. On that basis, the trial judge refused to award damages for breach of the contract to supply the prefabricated kits, other than repayment of the monies already paid by Edenhope. That was clearly correct. There is no appeal from that part of the decision.

14. The other issue discussed in contentions on the appeal is what Edenhope is entitled to do in relation to the 91 cubic metres of timber still held by Veneer. As is apparent from the amended statement of claim, Edenhope did not formally raise that matter. The trial judge in his reasons at [21], understandably, referred to the matter only in general terms. That is an issue which will have to be resolved either by agreement or by separate proceedings. During the hearing of this appeal, counsel for Veneer acknowledged that that timber was owned by Edenhope, and said the timber could be collected by Edenhope provided it paid accrued storage costs; apparently since the contract to make the prefabricated kits was brought to an end in August 2009. Whether by agreement or by litigation, Edenhope and Veneer will therefore have to address whether, in the circumstances, Veneer is entitled to charge storage for that timber and, if so, over what period those storage charges may be recovered and what is the proper amount for those storage charges.

Consideration
15. The first and main issue on this appeal is whether the contract to provide the prefabricated kits was made between Edenhope and Veneer.

16. In its amended statement of claim Edenhope alleged that between 14 November 2008 and early 2009 Veneer quoted for the supply of the prefabricated kits, that its quotations were accepted by Edenhope, and that it paid in advance of the delivery of those kits the net sum of VT 10,906,095 (The payment was a little higher, but certain products costing VT 301,800 were in fact supplied, so it was common ground that the sum claimed was paid but no prefabricated kits were provided). It claimed therefore that the contract for the supply of the prefabricated kits was with Veneer, and that there had been a total failure of consideration.

17. In our judgment, the trial judge correctly found that it was.

18. Veneer, on its letterhead on 16 September 2008 quoted to perform certain work for Edenhope, including moving up a prefabricated kit; for a fixed and specified price "as per design given to you". Veneer required a deposit of 30% on acceptance, and "the final payment is to be paid before collection of timbers". A time estimate of one month for the work was given. The quotation was signed by John Schild, a director of Veneer. Edenhope accepted the quote, by an endorsement on the letter, addressed to "John". The deposit was paid. An invoice for the overall price, as adjusted, was submitted by Veneer to Edenhope on 16 October 2008. That was paid by Edenhope to Veneer. There was a further similar quotation on 14 November 2008. Veneer's ledger records record the five invoices it sent to Edenhope, totaling the claim for re-imbursement (subject to the minor adjustment referred to). None of those documents indicate that Veneer was tendering to carry out that work as the agent of Santako. There was some evidence that a director of Santako, Lucien Dinh, introduced to Veneer the opportunity to tender to carry out that work, but in our view the evidence does not go beyond that.

19. The existence and terms of a contract is to be judged objectively, a principle settled at least since Smith v. Hughes (1971) LR 6 QB 597 at 607; and see for example National Housing Corporation v. Blandiniere Estate (Urban) Ltd [2006] VUCA 3, Civil Appeal Case 31 of 2005 at pp 7-8. The material as to the formation of the contract clearly indicates that Veneer contracted with Santako to prepare and provide the prefabricated kits. As the Court has noted, the conduct of both Veneer and Edenhope after that time also indicates that that was their common understanding. In particular, Veneer invoiced Edenhope during the progress of the work it was doing, and accepted and retained the payments made by Edenhope on those invoices.

20. It is not in dispute that there has been a total failure of consideration. In July and August 2009 Edenhope kept pressing Veneer to make available the prefabricated kits that Edenhope had paid for. It did not get any of them. Eventually, on August 2009 Edenhope called the contract to an end. Subject to the submission of Veneer that it was not entitled to do so because Edenhope had irrevocably affirmed the contract (a submission which is rejected for the reasons set out below), Edenhope was then entitled to recover from Veneer the money it had paid to Veneer. There had been a total failure of consideration.

21. The trial judge also found that Veneer and Santako entered into an agency agreement "on the basis of sharing 60/40". His Lordship observed that there was no explanation of what that arrangement meant. He presumed it meant that 60% of all payments made by Edenhope would go to Santako and 40% to Veneer. It is not necessary to consider the nature of any such arrangement. It was not one which involved Edenhope. As far as Edenhope was concerned, its contract for the supply of the prefabricated kits was with Veneer. Accordingly, whist we accept the contention of counsel for Veneer that, under the law of contract, liability in circumstances such as the present should lie with the principal and not the agent if the principal is disclosed (see for example Railway Commissioners (NSW) v. Orton [1922] HCA 16; (1922) 30 CLR 422), that circumstance does not arise. Edenhope's contract for the making up of the prefabricated kits was with Veneer.

22. The evidence about the "agency" agreement between Santako and Veneer to which the Court was referred by counsel for Veneer does not displace that conclusion. Our conclusion does not mean that there was no side agreement between Santako and Veneer. There clearly was. Mr Schick says it was an oral agreement that Santako would use Veneer's premises, labour and tools and they would share the profits 60/40. Any such arrangement, assuming it was enforceable despite its vagueness (an academic matter as Santako has been struck off), was not one to which Edenhope was a party or of which Edenhope is shown to have been aware. It may be that that arrangement lapsed, as Veneer came to quote directly to Edenhope and deal directly with it. Whatever the case, in our view, the evidence does not establish that Veneer contracted with Edenhope for the making up and supply of the prefabricated kits only as agent for Santako.

23. The remaining matter argued by Veneer is that Edenhope irrevocably elected to affirm its contract with Veneer in July and August 2009, including as late as its initial statement of claim of 7 August 2009 by seeking specific performance of the contract to make up and supply the prefabricated kits.

24. Again, that is an unattractive proposition on the part of Veneer, when it has not itself unequivocally indicated its preparedness to complete its part of the bargain. In fact it did not perform its contract. It has not suggested that it has performed its contract in particular by completing and having available for Edenhope the prefabricated kits for which Edenhope had paid.

25. We reject that proposition. There are clearly circumstances where the election of one party about the remedy to be pursued for breach of contract is final. Those circumstances require the election between concurrently existing but inconsistent remedial rights. The election of one remedial right operates to quash the other remedial right because neither one may be taken up without the loss of the other. An illustration of that principle is provided by Sargent v. ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634. For example, a lessor who complains of breach of a lease for non payment of rent cannot both terminate the lease, and then later accept rental payments under the lease in respect of a period after the lease has been brought to an end.

26. That is not this case.

27. Edenhope in July and August 2009 kept pressing Veneer to perform its contract. It wanted the supply of the prefabricated kits. It was entitled to do so. Its pressing of Veneer to perform did not amount to an election that, if Veneer continued to breach its contract, it would not be able later to terminate the contract and claim back the money it had paid. Eventually, due to Veneer's ongoing failure to perform its contract, that is the step Edenhope took. Veneer was not misled by Edenhope's claims first to specific performance, but when that was not met, to terminate the contract. Veneer does not say that it undertook work based upon any purported election by Edenhope to ask it to perform, or that it would be unfair to Veneer to have to repay the monies it had received. In the sense explained in the case of Sargent v. ASL Developments (above), Edenhope did not have to elect between inconsistent remedies because of the ongoing nature of Veneer's breach of contract and, until the amended statement of claim, it had not done so. It is simply a case of urging a defaulting party to perform a contract, but eventually exercising the right to call the contract to an end because of the ongoing default.

28. For those reasons, the following orders are made:
    
    1. The appeal is allowed to the extent that it made orders against the second respondent for the payment of monies and for costs.
       
    2. There be substituted for those orders, orders that
       
       1. there be judgment in favour of the appellant against the second respondent for the sum of VT 11,482,395; and interest at 4% per annum from 1 February 2009 to the date of these orders; and
          
       2. the second respondent pay to the appellant its costs of the proceedings at first instance.
          
    3. The second respondent pay to the appellant its costs of the appeal.
       

29. The judgment sum includes the sum of VT 576,300 referred to at [7] above, also allowed by the trial judge. If Veneer is entitled to storage costs for timber held by it for Edenhope, those costs can be brought to account when the issues referred to, to [14] above are addressed. In our view, the costs orders do no more than follow the outcome of the proceedings. Had Veneer been found liable at the trial for the repayment of the full amount paid by Edenhope for the prefabricated kits, the appropriate order for costs would have been that both Santako and Veneer be jointly liable for the costs of that proceeding. There is no point in changing that order for costs as it affects Santako.

Dated at Port Vila, this 8th April, 2011

BY THE COURT

Hon. Chief Justice V. LUNABEK

Hon Justice J. MANSFIELD

Hon. Justice D. FATIAKI

Hon. Justice R. ASHER

Hon. Justice R. SPEAR