Lang & Co v R [1932] WSLawRp 3; [1930-1949] WSLR 52 (29 September 1932)

[1930-1949] WSLR 52

RICHARD LANG & CO.

-v-

HIS MAJESTY THE KING

High Court, Apia
15, 29 September 1932
Luxford CJ

COURTS (Jurisdiction) - Jurisdiction of High Court of Western Samoa to adjudicate claims against His Majesty the King in respect of the Government of New Zealand - High Court constituted an inferior Court of the Supreme Court of New Zealand for purposes of the Crown Suits Act, 1908 (NZ): vide s 264. (2.) the Samoa Act, 1921 - Claims in respect to the New Zealand Reparation Estates in Samoa settled before repeal of the Samoa Constitution Order, 1920 pursuant to s 254 of that Order thereafter to be settled pursuant to identically worded s 264 of the Samoa Act, 1921.

CONTRACTS (Construction) - Ambiguity (Extrinsic evidence) - Contract in respect of use of land and sale of goods - No Statute of Frauds or Sale of Goods Act in effect in Territory - Both oral and documentary evidence admissible.

TERMINATION - Right to determine agreement reserved to land owner's agent "if in his opinion” agreement not being carried out in accordance with its terms - Right confined strictly to terms of agreement and termination for any reason other than a failure in performance is wrongful.

By Agreement in writing between the suppliants and the New Zealand Government in respect to its Reparation Estates in Samoa suppliants were to fell and mill the rubber trees (which had proved uneconomical) on two of the Estates' plantations and to cut them into shooks of certain specified measurements for banana cases. The Agreement provided for the purchase of banana case shooks from the suppliants "as required by" the Estates General Manager, at whose option the Agreement was to be terminated without notice or compensation "if in his opinion" it was not being carried out in accordance with its terms. Suppliants installed plant and equipment at considerable expense and in spite of difficulties in the early stages involving some failures in performance, which were not treated as grounds for termination, they continued to carry out the terms of the Agreement for over a year when the Estates General Manager terminated the Agreement for the reason that the rubber wood shooks could no longer be used for banana cases because they were subject to mould and boring beetles.

HELD: After determining that the Court had jurisdiction to adjudicate the claim as an inferior Court of the Supreme Court of New Zealand; that the termination was wrongful since the right to terminate was to be strictly confined to a failure to perform the terms of the Agreement by the suppliants; that the Agreement was ambiguous as to the number of shooks to be purchased by the Government, but on the basis of admissible extrinsic evidence, both oral and documentary, it was construed as a maximum of 70,000 per annum while the rubber trees on the two plantations were available. Suppliants having asked for only three months' profits after termination, which were fixed at £375, were entitled to be awarded at least that amount. Judgment accordingly, and leave reserved to suppliants to apply for costs.

PETITION claiming damages against His Majesty the King in respect of the Government of New Zealand.

Klinkmueller for petitioners.
Andrews for Crown.

LUXFORD C.J.: This petition is founded on the alleged wrongful termination of an Agreement whereunder the suppliants were granted a concession to fell and mill rubber trees on the Falelauniu and Tuana'imato plantations. The suppliants allege that they have suffered damage thereby to the extent of £750 and they pray that right be done in the premises.

A preliminary objection has been raised on behalf of the Crown: Mr. Andrews submitted that as the claim (if any) is against His Majesty in respect of the Government of New Zealand and not of the Government of Samoa, it is outside the jurisdiction conferred on this Court by section 264 of the Samoa Act, 1921. That section is in the following words:-

(1) All claims and demands against His Majesty in respect of the Government of Samoa which might be the subject of a petition of right at common law may be prosecuted by way of petition under the Crown Suits Act, 1908 in the Supreme Court of New Zealand (or in conformity with section 36 of the Crown Suits Act, 1908 in an inferior Court) and all the provisions of that Act with respect to such a petition shall apply accordingly.

(2) The High Court of Western Samoa shall be deemed to be an inferior Court within the meaning of section 36 of the Crown Suits Act, 1908.

(3) The Attorney-General may at any time before or after the filing of any such petition but before pleading thereto require the petition to be filed in the High Court instead of in the Supreme Court and the petition shall be so filed accordingly.

The suppliants on the 21st day of July, 1932 duly gave notice of the claim to the Law Officer and of the relief sought therein. They made application in the same document that the claim be heard and determined by this Court.

The Solicitor-General, exercising the powers of the Attorney-General, and in pursuance of the provisions of section 36 of the Crown Suits Act, 1908 and Part VIII of the Samoa Act, 1921 did on the 12th August, 1932 consent to the suppliants' application and accordingly required the petition to be filed in this Court instead of the Supreme Court of New Zealand.

The suppliants' answer to the Crown's objection may be summarised thus:-

(a) This Court is an inferior Court within the meaning of the Crown Suits Act, 1908.

(b) A law officer having consented, this Court, by virtue of section 36 of the Crown Suits Act, 1908 may hear and determine any claim within its jurisdiction.

(c) The jurisdiction of this Court is not limited to amount and accordingly the objection must be overruled.

The suppliants' contention does not properly answer the objection. The second subsection of section 264 of the Samoa Act, which constitutes this Court an inferior Court within the meaning of the Crown Suits Act, 1908 must be read in conjunction with the first subsection. That means it has the powers of an inferior Court to hear and determine claims and demands against His Majesty in respect of the Government of Samoa. The fiat of the Attorney-General under the third subsection or his consent under section 36 of the Crown Suits Act, 1908 would not give this Court jurisdiction to hear and determine claims against His Majesty in respect of the Government of New Zealand.

The Falelauniu and Tuana'imato plantations form part of the property in Samoa which previously to the Treaty of Peace with Germany belonged to various German nationals and companies and which by virtue of Articles 121 and 297 of the Treaty were taken over by the Principal Allied and Associated Powers in part satisfaction of the reparation moneys payable by the Government of Germany.

The Principal Allied and Associated Powers agreed that Samoa should be administered by His Majesty in his Government of his Dominion of New Zealand. Accordingly, on 11th March, 1920 His Majesty by Order in Council made under the Foreign Jurisdiction Act, 1890 and intituled the Western Samoa Order in Council, 1920 granted to the Parliament of New Zealand full power to make laws for the peace, order, and good government of Samoa, but pending Parliament otherwise providing reposed that power in the Executive Government of New Zealand.

The Governor-General in Council under the powers conferred upon him by the Western Samoa Order in Council, 1920 and by the Treaties of Peace Act, 1919 made the Samoan Crown Estates Order, 1920, subsequently called the New Zealand Reparation Estates Order, 1920, which came into force on the 1st day of May, 1920.

The New Zealand Reparation Estates Order, 1920 vests absolutely in His Majesty in right of the Government of New Zealand all land and property in Samoa which previously had belonged to German nationals and companies. Also, it makes full provision for the control and management of the land and property and in respect of profits and losses arising therefrom. This Order became subject to the provisions of section 2 of the Treaties of Peace Extension Act, 1921, which enacted that no Order in Council made under the Treaties of Peace Act, 1919 should remain in force after the first day of April, 1922 "save pursuant to the provisions of any Act that may hereafter be passed relative to the Government of Samoa."

The Parliament of New Zealand on the 7th December, 1921 passed the Samoa Act, 1921 as an organic Act to regulate the Government of Samoa in accordance with the Mandate conferred by the League of Nations upon His Majesty to be exercised on his behalf by the Government of the Dominion. Section 373.(1.) of that Act provides:-

All Orders in Council in force at the commencement of this Act and made under the authority of the Treaties of Peace Act, 1919, with respect to the peace, order, and good government of Western Samoa, or under the authority of the Western Samoa Order in Council, 1920 . . . . save the Samoa Constitution Order and its amendments, shall continue in force as if they had been made by the Governor-General in Council under the authority of this Act; ....

The New Zealand Reparation Estates Order, 1920 therefore, was kept in force, but only as an Order notionally made by the Governor-General in Council under section 45 of the Samoa Act, 1921. That section empowers the Governor-General in Council to make all such regulations as he thinks necessary for the peace, order, and good government of Samoa. The power of the Governor-General however is restricted by subsection (2) of section 45, which provides:-

No regulation made by the Governor-General in Council under this Act shall be of any force or effect so far as it is repugnant to this or any other Act of the Parliament of New Zealand in force in Samoa . . . . and every such regulation shall take effect according to its tenor, save so far as inconsistent with any such Act.

In my opinion, the New Zealand Reparation Estates Order, 1920 is subject to the restrictions imposed by this subsection and would be invalid so far as any of its provisions are inconsistent with the Samoa Act, 1921. This question, however, does not arise. The New Zealand Reparation Estates Order, 1920 came into operation contemporaneously with the Samoa Constitution Order, 1920. By clause 25 of the New Zealand Reparation Estates Order, 1920 it is provided:-

Subject to the provisions of this Order, all the provisions of the Samoa Constitution Order, 1920, and of any other Order in Council in force in Samoa with respect to Crown land or to the property rights and obligations of the Crown, shall apply to the New Zealand Reparation Estates and to all other property, rights, and obligations which are subject to this Order, in the same manner as if such estates, property, rights, and obligations were those of the Crown in right of the Government of Samoa.

The preliminary objection raised by the Crown could have no substance if the Samoa Constitution order, 1920 had not been repealed because all claims and demands against His Majesty in respect of Reparation Estates lands would by virtue of clause 25, supra, have been heard and determined in accordance with the provisions of clause 254 of the Samoa Constitution Order, 1920. It can have no substance even though that Order has been repealed because every reference in the New Zealand Reparation Estates Order, 1920 to such Order is to be construed as a reference to the Samoa Act, 1921: see section 373(1) Samoa Act, 1921, and section 264 of the Act is identical with clause 254 of the Samoa Constitution Order, 1920.

I therefore disallow the objection and proceed to determine the petition on the merits of the case.

For several years this country has been developing the banana industry for the purpose of exporting the fruit to New Zealand. The bananas are cut from the stem of the bunch, and packed into cases of a standard size. I gathered from the evidence that the General Manager of the New Zealand Reparation Estates controls all shipments made under Government arrangements, and supplies the necessary cases to the planters. Previous to the Agreement, the subject-matter of this petition, being entered into, the case shooks were imported from overseas. On or about the 7th November, 1931 one Le Bas of Fiji on behalf of the suppliants wrote to the General Manager to ascertain if there was sufficient timber available in Samoa to justify the erection of a factory for the manufacture of banana cases. The General Manager replied on the 14th November, 1931 stating:-

Although there is timber in Samoa suitable for your purposes it is not available in sufficiently large quantities. There would be no difficulty whatever in your finding a good market here for locally made cases providing the cases and price were right. I do not know whether you have ever tried timber from rubber trees for this purpose, but if this were suitable we could offer you quite a considerable area of rubber, which we are cutting out, for the purpose of manufacture into banana cases. Our requirements of banana cases in this country are between 70 to 100,000 per annum.

A letter in reply was sent to the General Manager stating that banana cases from rubber wood had been made in Fiji and found satisfactory. Following on this letter, Le Bas came to Samoa to interview the General Manager. After ascertaining the quantity of timber available for milling purposes, Le Bas returned to Fiji, and later sent a radiogram to the General manager asking him if he would pay 1/6 per case. The General Manager replied on 7th March, 1931, "Subject to cases being satisfactory will accept cases up to our requirements at 1/6."

Lang then came to Samoa to interview the General Manager, who after some discussion drafted an Agreement, which he said he was prepared to enter into with the suppliants. Lang took this draft back to Fiji, and after considering it, engrossed it, had it executed by his partner and himself, and forwarded it to the General Manager. The document subsequently was signed by the General Manager. It bears date the 14th day of May, 1931 and is the subject-matter of this petition.

The suppliants thereupon set to work to procure the machinery and plant necessary for the milling of the rubber trees. Some difficulty was experienced in procuring the machinery and plant. Eventually it was procured, shipped to Samoa, and installed on a site selected by the General Manager on the Tuana'imato plantation. The cost of procuring, transporting, and installing the plant was approximately £1,100.

Milling operations commenced in July, 1931 and continued down to 30th June, 1932 when in consequence of a letter written by the General Manager the suppliants suspended operations. On the 8th July, 1932 the General Manager terminated the contract.

The Agreement of 14th May, 1931 is described therein as an agreement relating to the manufacture of banana cases from rubber trees. Its material parts are:-

Clause 1. It is hereby agreed that the owner will permit the concessionary to fall rubber trees on such areas of Tuana'imato and Falelauniu plantations as the owner may select.

Clause 7. The owner agrees to purchase from the concessionary banana cases as required by him at a price of 1/6 per case delivered in Apia: such cases to be cut to specifications identical with those required by the Department of External Affairs for the supply of banana cases in New Zealand. These to be delivered in bundles as per the above specification to such depot as the owner may require in Apia, or from the site of the mill, at the owner's option.

Clause 10. The owner reserves the right to determine this agreement without notice and without compensation if in his opinion the agreement is not being carried out in accordance with these terms.

The respondent's case, apart from the quantum of damages, is that the suppliants failed to cut the banana cases to specifications identical with those required by the Department of External Affairs for the supply of banana cases in New Zealand, and in consequence thereof the General Manager terminated the Agreement under the power conferred upon him by Clause 10.

It is common ground that the suppliants experienced difficulty before their mill was in proper working order. The climatic conditions were against them, and there had been errors in the installation of the machinery. However, these difficulties were overcome, and from April of this year the mill was in proper working order.

The evidence satisfied me that previous to the month of May, 1932 there had been default by the suppliants in the carrying out of the Agreement, particularly in respect of the lengths of battens. The General Manager, however, was very anxious that the suppliants should make a success of the venture, and as he said in evidence, "We gave Lang & Co. a great deal of latitude because of the difficulties they were experiencing." In effect, he waived his right to terminate the Agreement for the breaches thereof made previous to the month of May.

The General Manager's real cause of complaint after that time arose solely from the inherent defects of Samoa grown rubber wood: its susceptibility to mould and to borer. He stated in evidence that he expected and was entitled to be supplied with cases of a standard equal to New Zealand made cases. He had no complaint with the cutting during may or June, but with the quality of the wood. He does not blame the suppliants for that. Indeed, he applauds them for the steps they took to season the timber and generally to comply with his requirements, but that rubber wood proved a failure for the manufacture of banana cases. The law of Samoa prohibits the export of bananas packed in a receptacle other than a case as defined in section 2 of The Fruit Export Ordinance, 1931: see section 11(2)(d). A case means “a case constructed of material approved by the Inspecting Officer" having certain specified measurements. The Inspecting Officer did not approve the use of rubber wood in the first instance, but later removed his objection on the representation of the General Manager. The Inspecting Officer now finds that rubber wood is not satisfactory, and no doubt would have prohibited its further use had not the General Manager terminated the Agreement with the suppliants. However, the wood was "material approved by the Inspecting officer" at all material times.

The letter which terminated the Agreement is dated the 8th July, 1932 and reads:-

Further to previous instructions I now have to advise that it will be necessary for you to cease cutting any more rubber cases. I regret very much that it has been necessary to issue this instruction but the reasons for same are beyond our control.

The General Manager was asked in cross-examination:

What are the reasons beyond your control which caused you to rescind the Agreement as stated in your letter of 8th July, 1932?

To which he answered:-

Lang could not stop the fungus, nor could I. stop the borer, nor could I.

In answer to a question by the Court he said:-

The natural defects of rubber wood under the climatic conditions of Samoa and its liability to attack by borer have rendered it unsuitable for banana cases. Under no circumstances could I use rubber wood for banana cases. I had to fight the authorities in Samoa and in New Zealand to keep Lang & Co. going so long as I did.

It is clear from the evidence that the condition of rubber wood banana cases on their arrival in New Zealand caused much concern and adversely affected the market value of the fruit. A test was made of the wood by the Department of Forestry in New Zealand, which revealed the presence of three dangerous types of wood boring beetles. So seriously was this regarded by the Department of Forestry that it contemplated issuing regulations to prohibit the importation of rubber wood from Samoa. The Minister of External Affairs, however, in order to comply with the wishes of the Department of Forestry decided to instruct the General Manager to discontinue the use of rubber cases in the future. An instruction was given by radiogram accordingly, and in consequence thereof the General Manager wrote the letter of 8th July, 1932. This letter of termination or cancellation was written solely on account of the Minister's instructions. I infer that from the General Manager's evidence in which he says:-

If possible, I would have continued on with the Agreement even though the cases did not come up to New Zealand standard - for a certain time anyway. Lang & Co. had an awful amount of bad luck, and had wasted a lot of money. Although wanting to help Lang & Co., I received a communication which forced me to take steps to cancel the Agreement.

Whatever be the ostensible or declared reason for the cancellation, it is still open to the respondent to prove that the right of termination had arisen under the provisions of Clause 10, and Mr. Andrews accordingly submitted that the General Manager at all times required that the cases be of a standard equal to New Zealand cases. That, he said, was the meaning of Clause 7, and because the cases were not of that standard owing to the natural defects of rubber wood the General Manager was entitled to cancel.

It is important to notice that the requirement of Clause 7 is to cut the cases to specifications identical with those required by the Department of External Affairs for the supply of banana cases in New Zealand. The respondent does not suggest that the suppliants had to do more by way of actual work than the cutting of the pieces of timber necessary to make banana cases of a specified size, that is, the suppliants were required to cut case shooks. The established practice is to nail the shooks together at the filling depot in order to facilitate transportation. The respondent does suggest however, indeed seriously contends that the quality of the wood must be identical with the quality prescribed by the specifications issued by the Department of External Affairs. When the Agreement of 14th May, 1931 was entered into the specifications issued by that Department had reference only to measurements. Concerning specifications the General Manager said:-

I discussed the specifications with Le Bas and Lang. What they fully understood was the definite measurement of the cases and that the standard was to be up to the New Zealand cases. A new set of specifications was to be drafted by the Forestry Department at that time. The only specification in existence at that time referred to measurements only. Lang and Le Bas understood that the cases had to come up to New Zealand standard and comply with the new specifications.

The Department of Forestry in New Zealand made a series of recommendations concerning the manufacture of banana case shooks and according to the General Manager a copy of those recommendations was sent to the suppliants in November, 1931.

There is no evidence that the recommendations were adopted by the Department of External Affairs as a specification within the meaning of Clause 7 of the Agreement, nor that rubber wood was approved for the making of banana case shooks.

The General Manager stressed in his evidence that the shooks turned out by the suppliants were not made from properly seasoned timber. By this he meant that mould stains appeared. He admitted that the suppliants did all that was possible to season the timber, but that owing to climatic conditions it was impossible to prevent the wood from being affected by mould subsequent to the cutting.

The specifications recommended by the Department of Forestry provide that "All timber shall be thoroughly seasoned as defined in the National Grading Rules for New Zealand timber before manufacture into shooks."

No evidence was adduced to prove what are the National Grading Rules for New Zealand timber, or what they contain. It is apparent however that the suggested specification requires the seasoning of timber to be effected before it is cut into shooks. The evidence of the General Manager does not prove that the timber was not seasoned before it was cut into shooks. He makes that assumption because mould subsequently affected the shooks, but he has already said that mould cannot be prevented. The evidence for the respondent proves that the banana case shooks made by the suppliants were inferior to the New Zealand made shooks only in the quality of the timber.

In my opinion, the Agreement of the 14th May, 1931 is not an agreement for the sale and purchase of banana cases or case shooks. It was an agreement whereunder the suppliants were to manufacture the shooks from the timber in the rubber trees in such areas of Tuana'imato and Falelauniu plantations as the General Manager should select. That means that the suppliants standard of manufacture could be the only matter of complaint, and that the suitability of Samoa rubber wood for the purpose was no concern of theirs.

The right of cancellation, however, arises if in the opinion of the General Manager the Agreement is not being carried out in accordance with its terms. Mr. Andrews submitted that the opinion of the General Manager bona fide come to is not subject to review by this Court.

There is no suggestion nor have I the slightest thought that the General manager did not honestly believe that he was entitled to terminate the Agreement, but Clause 10 is not tantamount to a power in the General Manager to terminate the Agreement for any cause whatever. His powers under the Agreement are very similar in legal effect to the powers given to directors to refuse the registration of a transfer of shares to a person of whom they disapprove. These powers must be exercised strictly in accordance with the authority by which they are conferred, so if directors refuse registration except on grounds personal to the proposed transferee, the Court will intervene.

In the present case the General Manager did not terminate the Agreement because the suppliants were not carrying out the Agreement in accordance with its terms, but because rubber wood for the manufacture of banana case shooks had been condemned. He had no power under Clause 10 to terminate the Agreement in such a case, and as there is no evidence that at the time of cancellation the suppliants were not carrying out the Agreement in accordance with its terms, I uphold their allegation that the Agreement was wrongfully terminated.

Mr. Andrews submitted on behalf of the Respondent that if there was a wrongful termination of the Agreement the suppliants have not suffered any damage. He founds his submission on Clause 7 of the Agreement, which he says does not place an obligation on the General Manager to order or accept any cases.

In construing the Agreement it is important to note that the General Manager was desirous of two things:-

Firstly: the cutting out from the two plantations, free of cost, of the rubber trees, which owing to economic and other conditions have no commercial value in Samoa.

Secondly: procuring banana case shooks as cheaply as possible.

The suppliants did not come to Samoa to cut banana case shooks for the general market. By Clause 8 of the Agreement they were not permitted to sell shooks to anyone but the General Manager unless he consented otherwise. Their right to erect the mill on Crown land and to use Crown property was for the purpose only of cutting banana case shooks from rubber trees growing on the two Crown plantations. The Agreement does not specify when the felling of trees and the manufacture of shooks is to commence, nor the number of cases to be cut in any stated period, nor, indeed, the number of cases to be taken by the Respondent. The only indication of numbers is given in Clause 7, which provides that the General Manager "agrees to purchase from the suppliants banana cases as required by him." The expression "as required by him" is ambiguous. It is capable of meaning ex facie all banana cases required by him in connection with the export of bananas, or "so many as he may require to make up any shortages in his stocks of shooks made overseas", or "so many as he may decide to order but without any obligation to order any at all." In view of this ambiguity I am entitled to receive extrinsic evidence for the purpose of explaining it, and as the requirements as to writing under the Statute of Frauds or the Sale of Goods Act do not apply in Samoa, such extrinsic evidence may be either documentary or oral.

For this purpose, I take the following into consideration:-

Firstly: the letter written by the General Manager on 14th November, 1930 in which he states, "Our requirements of banana cases in this country are between 70 to 100,000 per annum."

Secondly: the radiogram sent by the General Manager on 7th March, 1931 reading, "Subject to cases being satisfactory will accept cases up to our requirements at 1/6."

Thirdly: the General Manager's statement that, "I never thought that Lang & Co. would be able to supply the whole of my requirements."

Fourthly: the purchase and installation by Lang & Co. of a plant and machinery at a cost of approximately £1,100 (with a removal value of £300) capable of cutting 70,000 cases per annum.

These matters remove any ambiguity and lead me to construe the expression to mean that the General Manager will accept for so long as rubber trees on Falelauniu and Tuana'imato plantations are available for the purpose, as many banana cases as the suppliants can produce, but not exceeding 70,000 in any one year.

It may have been difficult to have construed the suppliants' obligations under the contract had the occasion arisen, but no construction could have placed on them more severe obligations than they have placed upon themselves. They installed machinery and plant capable of turning out 70,000 cases a year. They made every possible endeavour to rectify any complaint. They burnt and replaced free of cost every batten which the General Manager condemned. They installed apparatus to eradicate mould. Their Agreement was wrongfully terminated after they had surmounted their difficulties and at a time when they were in a position to reap the results of their previous labour. They pray that they be awarded as damages such sum as will equal the profits they would have made during the period of three months immediately following the wrongful termination of the contract. They are at least entitled to that. After making all necessary deductions and allowances, I fix that profit at £375 and accordingly award that sum by way of damages. I reserve leave to the suppliants to apply for costs.

HIGH COURT.