Cummins Engine Company Ltd v Ott Transport Ltd [2006] WSSC 21 (27 April 2006)

IN THE SUPREME COURT OF SAMOA
HELD AT APIA

BETWEEN

CUMMINS ENGINE COMPANY LIMITED
Plaintiff

AND

OTT TRANSPORT LIMITED,
Defendant

Counsel: T W Stevenson and G Stowers for the plaintiff
G Latu for the defendant

Hearing: 24 March 2006
Submissions: 30 March 2006 and 5 April 2006
Judgment: 27 April 2006

JUDGMENT OF SAPOLU CJ

Factual background

The plaintiff is a company based in Auckland, New Zealand, and is a subsidiary of Cummins Incorporated, USA, whose head office is in Columbus, Indiana, USA. The plaintiff acts as the distributor for Cummins engines and associated products, which include power generation equipment, for New Zealand and the South Pacific Islands. In 2002 the plaintiff had a number of customers in Samoa to whom it had sold power generation equipment. To provide repair and maintenance services for those power generation equipment, the plaintiff decided to find a local person who could carry out such services. It found one David Lockington (DL), a national of Fiji, who was operating a company of his own in Apia called Pacific Diesel Ltd. The plaintiff then appointed DL in 2002 as its parts and maintenance agent for its power generation equipment in Samoa. A badge with the name of Cummins on it was given by the plaintiff the DL which he wore on his uniform. DL also drove around in a vehicle with the name of Cummins on the outside but it is not clear when he started to do so. There is also no evidence that the said vehicle belonged to the plaintiff or was supplied by the plaintiff to DL. The evidential silence on this point suggests that the vehicle did not belong to the plaintiff or was supplied by the plaintiff to DL.

In early 2003 the Ministry of Health hired DL to repair its damaged generator at the National Hospital at Moto’otua and to provide a stand-by generator on a temporary basis. The purpose of the generator was to provide the power for the National Hospital’s electricity. As DL did not have a generator of his own, he contacted the plaintiff in Auckland in February 2003 requesting the hire of a stand-by generator to him on a lease basis. The plaintiff shipped over a generator described as 1.461 DFED to DL in the middle of 2003. Pursuant to the terms of the lease arrangement, DL was to pay a monthly rent to the plaintiff. When the generator arrived in Samoa, DL was not able to start it up due to some technical problems. DL also did not pay any rent for the generator to the plaintiff. Then in August 2004, the Auckland manager of the plaintiff visited Samoa with a team of technicians to investigate the status of the generator. The technicians got the generator started up. The Auckland manager of the plaintiff also entered into negotiations with a senior official of the Ministry of Health for the stand-by generator to be hired by the Ministry directly from the plaintiff and the monthly rent to be paid by the Ministry directly to the plaintiff in Auckland. DL was left out. The Auckland manager of the plaintiff also terminated DL’s services as the plaintiff’s parts and maintenance agent in Samoa during the same visit to Samoa on the grounds of unsatisfactory performance and non-payment of rent for the hire of the stand-by generator.

The new lease arrangement entered into between the Ministry of Health and the plaintiff in August 2004 continued until the end of July 2005 when the Ministry was no longer in need of the generator. The generator was kept in a 20ft container near the high dependency unit of the National Hospital. According to the evidence for the plaintiff, the Ministry of Health was supposed to return the generator to the plaintiff at the end of the hire. However, in August 2005 DL removed the generator from the National Hospital without the knowledge and authority of the plaintiff or the senior officials of the Ministry and took it to the yard of his company Pacific Diesel Ltd at Saleufi.

Sometime in August 2005, DL called the owner of the defendant company if he wanted to buy a generator for $65,000. The defendant’s owner replied that he did not need a generator. However, DL insisted that it would be good to have a stand-by generator. Apparently, the defendant’s owner knew DL as a mechanic as DL regularly used the defendant’s hydraulics repair system to do repair work for his own clients. The defendant’s owner then decided to go to DL’s yard to have a look at the generator. DL, according to the evidence of the defendant’s owner, told the defendant’s owner that there were other people interested and had made enquiries about buying the generator. The defendant’s owner replied that he would need to arrange for his mechanic to inspect the generator before he would buy it. Two days later, the defendant’s owner met with DL again and discussed the sale of the generator. At that meeting, according to the evidence of the defendant’s owner, DL told the defendant’s owner that the plaintiff had sold the generator to him because the lease of the generator with the Ministry of Health had terminated and the plaintiff wanted to get rid of the generator quickly as it had no further need for it. DL is also said to have told the defendant’s owner that he had bought the generator at a cheap price because the plaintiff owed him some money and that he was the agent for the plaintiff’s generators in Samoa. All of this was false as DL did not buy the generator from the plaintiff but had unlawfully removed the generator from the National Hospital without the knowledge and authority of the plaintiff or the Ministry of Health. DL was also no longer an agent for the plaintiff as his services as parts and maintenance agent for the plaintiff’s customers in Samoa had been terminated by the plaintiff in August 2004. When DL made these false representations to the defendant’s owner, he was wearing on his uniform the Cummins badge the plaintiff had supplied to him in 2002 when he was first appointed as the parts and maintenance agent for the plaintiff in Samoa. He was at the same time wearing the badge of his own company Pacific Diesel Ltd on the other side of his uniform. Apparently in 2004 and early 2005 when DL was using the defendant’s hydraulic repair system to do repair work for his own clients, he would be wearing the Cummins badge on his uniform.

After the false representations from DL, the defendant’s owner asked DL about how much he had bought the generator for from the plaintiff. DL replied that it was not fair to ask him that question. Eventually, it was agreed that DL would sell the generator to the defendant for $60,000 provided that the defendant which operates heavy machinery and equipment would refer some of its work to DL. The following day the defendant paid over the price of the generator by cheque to DL. Delivery of the generator did not take place until two weeks later. Soon afterwards, DL returned to his home country of Fiji.

I am in no doubt that the defendant’s owner acted in good faith throughout the transaction with DL. He honestly believed that DL had authority to sell the generator as his own. He was not aware that what DL said that he had bought the generator from the plaintiff was false. As it is often the case with fraudulent transactions like this one, the owner of a chattel is defrauded of his chattel by a third party who then fraudulently poses himself as the owner thereof and deceives an innocent party into buying the chattel. The fraudster then disappears with the buyer’s money leaving behind two innocent parties, the owner and the buyer, to argue between themselves as to who has the legal title to the chattel. It is then for the Court to determine which of the two has the legal title. One of them will necessarily have to suffer loss. The remedy for the party without legal title would be to find the fraudster and sue him. The difficulty is that it may not be possible to find the fraudster. But even if the fraudster is found, he may not have the means to pay the innocent party who has suffered loss because of his fraud.

The relevant law

Section 22(1) of the Sale of Goods Act 1975, which is the relevant provision, provides:

'Subject to the provisions of this Act, where goods are sold 'by a person who is not the owner thereof, and who does 'not sell them under the authority or with the consent of the 'owner, the buyer acquires no better title to the goods than 'the seller had, unless the owner of the goods is by his 'conduct precluded from denying the seller’s authority to 'sell.'

The first part of s.22(1) codifies the common law principle expressed in the Latin maxim nemo dat quod non habet commonly known as the nemo dat rule which means that no person can give what he does not have. In a sale of goods transaction, that means a seller cannot give a better title than he possesses in the goods to a buyer: George Westbrook v Fata Esera [2002] WSSC 4 (Supreme Court judgment delivered on 4 March 2002); Bob Paupau Elisaia v Vaepule Ropati [2006] WSSC 14 (Supreme Court judgement delivered on 12 April 2006). The second part of s.22(1) which provides 'unless the owner of the goods is by his conduct precluded from denying the seller’s authority to sell' preserves the application of the common law principles of estoppel to a sale of goods transaction and in so doing creates an exception which may preclude the owner of goods from invoking the nemo dat rule.

In his submissions, counsel for the defendant contends that the plaintiff is precluded in terms of s.22(1) from denying DL’s authority to sell the generator to the defendant on two bases - the first is estoppel and the second is apparent authority. The exact inter-relationship between the doctrine of estoppel and the doctrine of apparent authority is still being worked out by the Courts and likewise the various categorisations of the estoppel in this area: see Sales and Consumer Law in Australia and New Zealand (1995) 4th ed by KTC Sutton at pp 448-461; Law of Personal Property in New Zealand (1998) 6th ed by Garrow and Fenton at para. 2.012. In support of his contention based on estoppel, counsel for the defendant relied on Central Newbury Car Auctions Ltd v Unity Finance Ltd [1956] 3 All ER 905. In that case a rogue obtained by deception from the plaintiff, a firm of car dealers, a car and its registration book without paying for it. The rogue then sold the car to a third party who bought it in good faith without any suspicion that the seller was a rogue. The third party then sold the car to the first defendant who also bought it in good faith. The first defendant then let the car on hire-purchase to the second defendant. When the plaintiffs found out about the car, they claimed that it should be returned to them as they were the true owners. The crux of the judgments of the majority of Hodson and Morris L JJ are best summed up in the headnote where it is stated:

'By delivering the car registration book, as well as the car 'itself, to [the rogue] the plaintiffs had not given him the 'means of appearing to be the owner or of having 'apparent authority to sell the car, since the registration 'book was not a document of title to the car, and since 'delivery of the car without more would not have 'amounted to giving [the rogue] apparent authority to sell 'it; and therefore the plaintiffs, who were the true owners 'of the car, were not estopped from denying the title of 'the third party to sell the car to the first defendant.'

Counsel for the defendant, however, relied on passages from the dissenting judgment of Denning LJ (as the then was) where His Lordship said at p.909:

'This case raises the ever-recurring question: Which of 'the two innocent persons is to suffer by the fraud of a 'third? It is the familiar contest between the original owner 'who had been deceived into parting with his property, and 'the innocent purchaser who has been deceived into 'buying it. The original owner relies on the general 'principle that no man can acquire a title to a chattel from 'anyone who has himself no title to it: whereas the 'innocent purchaser says that the original owner is 'estopped from asserting that principle against him. The 'innocent purchaser says that the original owner has taken 'so large a part in enabling the rogue to dispose of the 'property that he should not be heard to deny the 'purchaser’s title to it. In other words, the owner is 'precluded by his conduct from denying the rogue’s 'authority to sell within the meaning of s.21 of the Sale of 'Goods Act, 1893'

Further on at p.909, Denning LJ went on to say:

'Seeing that we are here considering the doctrine of ‘estoppel by conduct, I would like to state the basis of it. It 'is this: starting with an innocent person who has been led ‘to believe in a state of affairs which he takes to be correct '(in this case the third party has been led to believe that the 'rogue was the owner of the car) and has acted on it, the 'first question is how has this innocent person been led into 'this belief? If it has been brought about by the conduct of 'another (in this case by the conduct of the original owner) 'who, though not solely responsible, nevertheless has 'contributed so large a part to it that it would be unfair or 'unjust to allow him to depart from it, then he is not 'allowed to go back on it so as to prejudice the innocent 'person who has acted on it. In so stating the basis of 'estoppel by conduct, I am relying on the well-considered 'analysis by Dixon J, in Thompson v Palmer (1933) 49 CLR 547, and Grundt v Great Boulders (1937) 59 CLR 675. His formulation of the principle is the best that I 'know. As he points out, the basis of estoppel is that it 'would be unfair or unjust to allow a party to depart from a 'particular state of affairs which another has taken to be 'correct; but the law does not leave the question of fairness 'or justice at large. It has defined with more or less 'completeness the kinds of participation by a party which 'will suffice to work an estoppel against him. They are to 'be found in the decided cases. We are here concerned 'with the conduct of a true owner in letting a chattel out of 'his possession. The question is what conduct on his part is 'regarded by the law as so serious that it would be unfair or 'unjust to allow him afterwards to claim it from an 'innocent purchaser?'

At p. 910 Denning LJ went on to say:

'To the question thus posed, I answer that on the 'authorities the mere fact that the true owner is careless in 'the custody of his goods or in the indicia of title to his 'goods is not sufficient to prevent his afterwards asserting 'his title to them. If he leaves his house wide open so that 'thieves enter and steal his goods, he can recover them 'from any person to whose hands they come, unless they 'have been sold meanwhile in market overt. If he entrusts 'his servant with the custody of goods, and the servant 'turns dishonest and sells them to outsiders, the true owner 'can recover them, no matter that he was careless in 'trusting the servant so far. The cases of Farquharson Brothers and Co v King and Co [1902] UKLawRpAC 26; [1902] AC 325 and Mercantile Bank of India Ltd v Central Bank of India Ltd [1938] 1 All ER 52 fall into that category'

What is said in Central Newbury about carelessness on the part of the owner of goods would have to be read in conjunction with the authorities cited in Bob Paupau Elisaia v Vaepule Ropati [2006] WSSC 14 where I dealt with estoppel by negligence. It should also be mentioned that in Moorgate Mercantile Co Ltd v Twitchings [1977] AC 890 Lord Wilberforce said at p.902:

'To constitute an estoppel a representation must be clear 'and must unequivocally state the fact which, ultimately, 'the maker is to be prevented from denying.'

In Benjamin Sale of Goods (1981) 2nd ed by A G Guest et al (eds) para 466, it is there stated:

'The true owner will not be estopped by a representation of ownership made by the seller himself, unless he authorised the representation or consented to its being made.'

The second basis on which counsel for the defendant contended that the plaintiff is precluded from denying DL’s authority to sell the generator to the defendant is the doctrine of apparent authority. In support of that contention counsel relied on the case of Eastern Distributors Ltd v Goldring [1957] 2 All ER 525 where Devlin J (as he then was)said at p. 531:

'The apparent ownership or authority has generally taken 'the form of the agent with some indicia which made it 'appear that he was either the owner or had the right to sell. 'In our judgment the principle applies to any form of 'representation or holding out of apparent ownership or the 'right to sell. It is embodied in s.21(1) of the Sale of
'Goods Act 1893.'

Devlin J then cited s.21(1) of the Sale Goods Act 1893 (UK) which is the counterpart of s.22(1) of the Samoan Sale of Goods Act 1975 and continued at p.532:

'The section expresses the old principle that apparent 'authority to sell is an exception to the maxim nemo dat 'quod non habet; and it is plain from the wording that if the 'owner of the goods is precluded from denying authority, 'the buyer will in fact acquire a better title than the seller. 'We doubt whether this principle, which is sometimes 'referred to – eg, by Wright J, in Lowther v Harris [1927] 1 KB 393 – as common law estoppel, might really to be 'regarded as part of the law of estoppel. At any rate it 'differs from what is sometimes called ‘equitable estoppel’ 'in this vital respect, that the effect of its application is to transfer a real title and not merely a metaphorical title by estoppel.'

In Law of Personal Property in New Zealand (1998) 6th ed by Garrow and Fenton, the learned authors state in para. 2.012 at p.56:

'The authorities (despite some dissent: Central Newbury Car Auctions Ltd v Unity Finance Ltd [1956] 3 All ER 905 at 907-913 (CA) per Denning LJ) have otherwise 'consistently maintained that the mere handing over of 'goods, or indicia of title (such as railway receipts giving 'the right to obtain delivering of certain goods sent by 'railway), does not amount to conduct sufficient to raise an 'estoppel. Something more is required to establish the 'holding out of an ostersible authority.'

Relevant facts

Essentially, the relevant facts may be briefly restated as follows.. In 2002, the plaintiff appointed DL as its parts and maintenance agent for the power generation equipment it had been selling to its customers in Samoa. The plaintiff also gave DL a badge with the name of Cummins on it. DL who had a company of his on in Samoa wore that badge on his uniform. DL drove around in a vehicle with the name of Cummins on it but there is no evidence that the vehicle belonged to the plaintiff or was supplied by the plaintiff to DL. There is also no evidence that the plaintiff was aware that DL was driving around in such a vehicle.

In August 2004 the Auckland manager of the plaintiff visited Samoa because of problems the plaintiff was having with a stand-by generator it had supplied to DL on hire for use at the National Hospital by the Ministry of Health. During that visit by its Auckland manager to Samoa, the plaintiff terminated the services of DL as its parts and maintenance agent in Samoa due to unsatisfactory performance and non-payment of rent for the hire of the plaintiff’s stand-by generator. Apparently, the plaintiff did not give public notice of its termination of DL’s services as its parts and maintenance agent or asked for the return of the Cummins badge from DL.

The plaintiff, in August 2004, then entered into a lease arrangement with the Ministry of Health for the use of the stand-by generator at the National Hospital. It appears that a term of the lease arrangement was that the Ministry of Health was to return the generator to the plaintiff in Auckland at the end of the lease. The evidence is somewhat unclear whether DL continued to be involved with the generator when it was being leased directly by the plaintiff, itself, to the Ministry of Health. It is also not clear whether if DL had any further involvement with the generator such involvement was with the knowledge or consent of the plaintiff.

At the end of July 2005, the Ministry of Health was no longer in need of the generator. It did not immediately return the generator, which was placed in a container, to the plaintiff. DL then removed the generator from the National Hospital in August 2005 without the knowledge or authority of the senior officers of the Ministry of Health or the plaintiff. In consequence, counsel for the plaintiff submitted that DL effectively stole the generator from the National Hospital. DL then offered the generator for sale to the owner of the defendant company who knew of DL as a motor mechanic. At first, the owner of the defendant did not want to buy the generator but DL insisted that it would be good to have a stand-by generator. When the defendant’s owner visited DL’s yard two days later and discussed with DL the sale of the generator, he was told by DL that the plaintiff had sold the generator to him because the lease with the Ministry of Health had terminated and the plaintiff wanted to get rid of the generator quickly as it had no further need for it. DL also told the defendant’s owner that he had bought the generator at a cheap price as the plaintiff owed him some money and that he was the agent for the plaintiff’s generators in Samoa. All these representations by DL were, of course, false. At the time he made them, he was wearing the Cummins badge on one side of his uniform and the badge of his own company, Pacific Diesel Ltd, on the other side. When the defendant’s owner asked DL as to how much he had paid for the generator, DL replied that it was not fair to ask him that question. In the end the generator was sold to the defendant for $60,000 with the understanding that the defendant company will give some of its work to DL.

It should also be pointed out that there is no evidence that DL ever sold any generator for the plaintiff. The evidence is that the plaintiff supplied generators to its customers in Samoa direct and not through DL who was only appointed by the plaintiff as its parts and maintenance agent for its customers in Samoa. The only generator which appears to have been supplied by the plaintiff directly to DL was the stand-by generator it hired to DL for use at the National Hospital and which DL subsequently removed from the National Hospital without the knowledge or authority of the plaintiff. So there is no evidence that DL was in the practice of selling or distributing the plaintiff’s generators in Samoa. The only generator of the plaintiff which DL sold was the one DL unlawfully sold to the defendant.

Law applied to the facts

As DL had no title in the plaintiff’s generator which he sold to the defendant without the consent or authority of the plaintiff as owner, the defendant, in terms of the nemo dat rule, acquired no title in the generator unless the plaintiff by his conduct is precluded from denying DL’s authority to sell the generator to the defendant.

The real issue then, as counsel for the defendant clearly recognised in his submissions, is whether the plaintiff is precluded by his conduct from denying DL’s authority to sell the generator to the defendant. In the first place, the plaintiff did not give possession of the generator to DL. It was DL who unlawfully removed the generator from where it was kept at the National Hospital without the knowledge, consent, or authority of the plaintiff. DL had been the parts and maintenance for the plaintiff in Samoa but that agency was terminated by the plaintiff in August 2004, one year before the sale of the generator by DL to the defendant. It is true that the plaintiff did not give public notice of such termination. But there is no evidence, that as parts and maintenance agent for the plaintiff, DL was in the practice of selling generators for the plaintiff. It appears that he never did so. The plaintiff supplied generators directly to its own customers in Samoa.

It was also raised for the defendant that before the sale of the generator to the defendant, DL was driving a vehicle with the name of Cummins on it. However, there is no evidence that that vehicle belonged to the plaintiff or was given by the plaintiff to DL. There is also no evidence that the plaintiff in Auckland was aware that DL was driving around in Apia in a vehicle with the name of Cummins on it but did nothing to stop it after it had terminated DL’s services as its parts and maintenance agent.

Counsel for the defendant also referred to the Cummins badge which DL wore on his uniform and which the plaintiff did not retrieve after terminating DL’s services as its parts and maintenance agent. With respect, I am of the view that the wearing of the Cummins badge on DL’s uniform did not have the effect of giving DL apparent authority to sell the generator. Certainly there was nothing on the badge which expressly or impliedly conveyed such an impression. The badge had only the name Cummins on it and nothing more. As pointed out in Moorgate Mercantile Co Ltd v Twitchings [1977] AC 890 by Lord Wilberforce at p. 992, for a representation to give rise to an estoppel it must be clear and must unequivocally state the fact which the maker is to be precluded from denying. As it is also pointed out in Law of Personal Property in New Zealand (1998) 6th ed by Garrow and Fenton in para 2.0212 at p.56, the authorities have consistently maintained that the mere handing over of goods or indicia of title without more does not amount to conduct sufficient to raise an estoppel. Such a case was Central Newsbury Car Auctions Ltd v Unity Finance Ltd [1956] 3 A11 ER 905 where the owner of a car allowed a rogue who deceived him to take away the car and its registration book. Hodson and Morris LJJ held that that did not amount to the owner giving the rogue apparent authority to sell the car especially as the registration book was not a document of title. By analogy, it may be said that the Cummins badge worn by DL was not a sufficient indicator of title in the generator by DL.

It is also clear from the evidence that what really induced the defendant to buy the generator from DL were the false representations made by DL that he had bought the generator from the plaintiff thus implying that he was the owner. It was not, in my respectful view, because of the Cummins badge DL was wearing, or the vehicle with Cummins name on it that DL was driving around, or that DL appeared to be still the parts and maintenance agent for the plaintiff as DL told the defendant’s owner.

In conclusion, I am of the view that DL by unlawfully taking the generator and by driving around in a vehicle with Cummins name on it was not being clothed or armed by the plaintiff with any authority to sell. The plaintiff was not responsible for such conduct by DL. The Cummins badge also did not provide clear and unequivocal evidence of any authority by DL to sell the generator as his own. What happened was that DL did not pose himself as Cummins or having authority from Cummins to sell the generator. What DL did was to represent himself as the owner of the generator having bought it from Cummins.

In the preliminary hearings of this matter, counsel for the defendant had raised the 'mercantile agent' exception to the nemo dat rule. However, in his final submissions at the substantive hearing, he no longer relied on that exception.

All in all then, the plaintiff still retains title to the generator. The generator must therefore be returned to the plaintiff.

Accordingly judgment is given for the plaintiff.

Counsel to file memoranda as to costs in 7 days.

Finally, I wish to thank all counsel involved in this case for their well prepared and well researched submissions which I have found helpful.

CHIEF JUSTICE

Solicitors
Stevenson’s Lawyers for the plaintiff
Latu Ey Lawyers for the defendant