Samoa Breweries Ltd v Osa [2018] WSSC 36 (13 March 2018)

SUPREME COURT OF SAMOA
Samoa Breweries Ltd vs Osa [2018] WSSC 36

<
/td>

Case name:	Samoa Breweries Ltd vs Osa
Citation:	[2018] WSSC 36
Decision date:	13 March 2018
Parties:	SAMOA BREWEREIS LTD (Plaintiff) v LOLI OSA and LUISA AH KUOI both of Salelavalu Savaii, and MAGELE FITI son of the First Defendants Defendants
Hearing date(s):	23-16 May 2017, 29 August 2017
File number(s):
Jurisdiction:	Civil
Place of delivery:	The Supreme Court of Samoa, Mulinuu
Judge(s):	Justice Tafaoimalo Leilani Tuala-Warren
On appeal from: Order:	- Both the second defendant Magele Fiti and the first defendants trading as Queen Maggie are liable to pay $778,009.00 in damages to SBL. - Counsel for the Plaintiff is invited to file and serve a memorandum as to costs within 21 days of the release of this decision. Counsel for the First and Second Defendants may respond to that memorandum within a further 14 days
Representation:	C Vaai for Plaintiff A Su’a for First Defendants D Roma for Second Defendant
Catchwords:
Words and phrases:
Legislation cited:
Cases cited:	Obrien v Chief Constable of the South Wales Police [2003] EWCA civ 1085) Amaltal Corporation Ltd v Maruha Corporation [2006] NZCA 112; [2007] 1 NZLR 608 Society of Lloyd’s v Jaffray [2002] EWCA Civ 879; [2002] All ER (D) 39 Strnckland Brotherothers v Attorney General[2014] WSSC 15 (29 April 2014)
Summary of decision:

IN THE SUPREME COURT OF SAMOA
HELD AT MULINUU

BETWEEN

SAMOA BREWERIES LTD
Plaintiff

A N D

LOLI OSA and LUISA AH KUOI both of Salelavalu Savaii, trading as Queen Maggie and MAGELE FITI son of the First Defendants and employee of Queen Maggie, Tafaigata Prison
Defendants

Counsel:
C Vaai for Plaintiff
A Su’a for Firs Defendants
D Roma for Second Defendant

Reserved Decision: 19 March 2018

RESERVED DECISION

Brief factual background

1. Samoa Breweries Limited (“SBL”) manufactures and distributes beer, soft drinks, ice and other products. SBL and Queen Maggie Transport Limited (“QM”) entered into a Product Distribution Agreement (“the Agreement”) on 7 May 2009. QM would be an authorised Distributor of SBL products in Savaii. This means exclusively selling and marketing all SBL products. QM started operations as Distributor in Salelavalu on 9 May 2009 and relocated to Salelologa in mid 2010 (“the Distributor”).
2. Loli Osa and Luisa Ah Kuoi are the owners of QM and Magele Fiti (“MF”) is their son.
   
3. As part of the Agreement, the Distributor collects and returns to SBL empty bottles, containers or crates used to sell and deliver SBL products. The process is that trucks from the Distributor would bring empties with a signed Distributor’s invoice which shows the total number of crates and empties brought in by the Distributor. SBL employees will then count and prepare a Returned Empties Note Form stating the type and number of bottles returned. The form is then given to the Finance section of SBL and this section credits the Distributor’s account with the monetary value of the returns. The Distributor’s account is a credit account with SBL for the purchase of products by a Distributor, which is lessened each time by the monetary value of returns.
4. Sometime in early 2012, SBL noticed an anomaly in the empty bottle return numbers from the Distributor. This started an investigation by SBL which led to the Police laying criminal charges against MF. MF pleaded guilty and was convicted in 2014 of 5 counts of conspiracy to defraud in the District Court.
5. The Plaintiff brings civil proceedings to recover its loss against Loli Osa and Luisa Ah Kuoi as First Defendants and their son MF as Second Defendant.

The Legal Proceedings

6. On 25 February 2015, the Plaintiff filed a Fourth Amended Statement of Claim (“SOC 4”). Prior to this, three SOCs were filed which I need not go into.
7. On 26 March 2015, the First Defendants filed a Statement of Defence (“SOD1”) to the SOC 4.
8. On 7 December 2015, the Second Defendant filed a Statement of Defence(“SOD2”)
9. Mediation was attempted but was unsuccessful.
10. On 23 May 2017 the matter proceeded to hearing before me.
11. Closing submissions were heard on 29 August 2017.
12. The Court requested the plaintiff to remove from their claimed amount, all invoices during the period of the claim, not signed by MF, missing or missing signatures on photocopies of invoices. This information was provided by the Plaintiff by way of Further Requisition from the Court dated 18 October 2017. It has been duly served on Counsel for the First Defendants and Counsel for the Second Defendant.

Statement of Claim

13. The Plaintiffs plead that the deceit by the second defendant upon which the Plaintiff acted and relied upon, caused the Plaintiff a loss of income of approximately $1, 460, 000.00.
    
14. It is further pleaded that at all relevant times the second defendant was acting in the course of his employment with the first defendants, and therefore the first defendants are vicariously liable for the deceit of the second defendant which led directly to the Plaintiff’s loss.
15. The Plaintiff pleads that the second defendant managed the operations of the first defendant’s business in distributing Vailima products in Savaii.
16. The plaintiff prays for;

(a)An order to pay post reconciliation damages for the loss of income in the sum of $1,460,000.00;

(b)General damages of $200,000.00;

(c)Costs;

(d)Any other relief as the Court deems just.

First Defendant’s response

17. The First Defendants say that the second defendant was an employee of their bus service, not managing the distribution of Vailima products in Savaii.
18. The second defendant pleaded guilty to five counts of conspiracy to defraud in the amount of $26,097.89. However he was not authorized in assist in the conspiracy to defraud, nor did the first defendants have any knowledge of the conspiracy to defraud.
19. Accordingly the First defendants seek dismissal of the SOC and costs.

Second Defendant’s response.

20. The second defendant admits that he pleaded guilty to 5 charges of conspiracy to defraud in the District Court in the amount of $26,097.89. He denies all other allegations in the SOC.
21. He says he was an employee of the first defendant’s bus business, being the manager and mechanic for the bus business. He says he was never authorised by the First Defendant to assist in the conspiracy to defraud the Plaintiff, and that the first defendants did not assist in, or have any knowledge of the conspiracy to defraud. He says the first named defendant and his daughters would be responsible for preparing all empties returned to the plaintiff.
22. Accordingly the Second defendant seeks dismissal of the SOC and costs.
    

The Evidence for the Plaintiff

23. The Plaintiff called 4 witnesses.

Corporal Paul Tauaa

24. The first witness was Corporal Paul Tauaa. He executed the search warrant on QM during the criminal investigation. He was told by MF that he was the owner of QM.

Trevor Nainoca

25. The second witness was Trevor Nainoca, the Financial Controller for SBL since September 2011. His evidence is that from 2009 to 2013, QM was the sole Distributor of SBL products in Savaii. In relation to QM, he says he dealt with MF who signed orders to SBL for drinks, he had many meetings with MF and MF prepared invoices for empties returned to SBL.
26. In January 2012, he says SBL noticed an anomaly. He was alerted by a return of 43,000 crates in January 2012 compared to QM uplift of 11,000 cases. This is a large return given that SBL’s biggest Distributor returns 8000 crates. He says that in the 6 months from June 2010 to December 2010, QM took 70,000 crates and submitted invoices which stated they returned 113,000 crates, which means they returned every single full crate plus an additional 43,000 crates (para 23 affidavit of Trevor Nainoca dated 30 November 2016). SBL was also experiencing a shortage of empties in the factory which did not make sense as QM was returning high numbers of empties (para 13 affidavit of Trevor Nainoca dated 30 November 2016).
27. SBL then instigated an investigation into bottle returns. As a result, SBL discovered excessive returns by QM compared to QM uplifts, whereas usually the returns should be less than the uplifts. It was discovered that 2-3 invoices were brought in by one truck on one day. Each truckload brings an invoice and one truck brought in 3 loads which is impossible because the truck is from Savaii. As a result of their investigation, it was discovered that MF was working with and paying some SBL employees to manipulate invoices. As a result of SBL investigations, the matter was referred to Police and MF was charged and convicted of 5 charges of conspiracy to defraud. The charges only concerned the months of January and February 2012 because the CCTV was not working during other months.
28. Mr Nainoca’s evidence is that an invoice is prepared by the Distributor. A returned empties note is then prepared by SBL and the amount is credited into the Distributor’s credit account. From June 2010 to April 2012, SBL calculated all the bottles uplifted by QM and deducted those from invoices submitted by QM. The amount of $1,460,000 SAT claimed is the variance after deducting all the bottles uplifted. SBL has given QM the benefit that all bottles uplifted have been returned and the variance is anything over and above that. However the standard industry return rate is 40% ( ie. 40% of the uplifted bottles are returned).
29. In terms of the financial loss to SBL, Mr Nainoca has calculated that QM misrepresented its empty bottles returns by approximately $1,460,000 SAT (para 24 affidavit of Trevor Nainoca dated 30 November 2016).

Titimaea Tafua

30. The third witness was Titimaea Tafua who is an accountant working for Lesa and Penn. He has been an accountant for 5 years. He conducted a forensic audit of QM bottle returns in comparison to bottles uplifted for a period of 21 months. He created a chart of bottle returns compared to sales from June 2010 to April 2012 (Annexure ‘A’ affidavit of Titimaea Richard Tafua dated 19 December 2016). Mr Tafua confirms that during the period of the claim, their review verified all delivery invoice numbers lodged by QM against SBL returned empties note numbers used by SBL, verifying payment to the QM account. He found that out of 751 invoices, 34 were missing. So he checked the payment ledger and confirmed that these 34 missing invoices were also paid by SBL into QM account.

Kilisitino Kasiano

31. The next witness for the Plaintiff was Kilisitina Kasiano who worked for SBL for 12 years from 1999 to 2013. She worked in the finance section. She received money four (4) times from SBL security officers who were involved in the scam to keep her quiet. She was aware of the scam between MF and employees of SBL in the years 2010 and 2011. On one occasion she reported seeing an empty QM truck come into SBL but saw 3 invoices for the truck claiming 3 full loads to be paid to QM.

The evidence for the First Defendants

32. Three witnesses gave evidence for the First Defendants. They were Luisa Ah Kuoi, Rachael Fiti and Maggie Ah Kuoi.

Luisa Ah Kuoi

33. Luisa Ah Kuoi is the mother of MF and says her husband is the registered owner of the sole trading business known as QM. She and her husband signed the Agreement and started as Distributor in May 2009. She operates her own small retail shop at Salelavalu Savaii. It was at Salelavalu that QM started operations until it relocated to Salelologa in mid 2010.Her evidence is that when QM first became a Distributor, there was another Distributor known as Pulufana. Pulufana slowly ceased operations for reasons unknown to her and QM continued as sole Distributor in early 2010. She says that the Distributor was mainly handled by her husband with the assistance of Maggie who is their daughter and Rachael who is their daughter-in-law. Sometime in or around 2010, she left to reside in New Zealand for 9 months for medical reasons. She returned in June 2011 but then had to leave quite quickly again for New Zealand due to her husband developing some heart problems. She herself then developed further health problems and needed an operation in February 2012. Around that time, she and her husband delegated authority to their children to run their businesses. MF was to manage and operate the bus business and mechanic workshop at Salelavalu, and Maggie and Rachael were to manage the retail shop at Salelavalu and the Distributor in Salelologa. She understood that MF and his wife had been helping out with the Distributor after hours. She says MF signed invoices to help Rachael and Maggie. She was not aware of MF’s involvement in any conspiracy to defraud the Plaintiff. MF was convicted and sentenced on the criminal charges while she and her husband were in New Zealand.

Rachael Fiti

34. Rachael Fiti is the wife of MF. Around June 2011 she says she resigned from her job at Westpac Bank when asked by MF’s parents to help her husband and sister in law manage their businesses as they were leaving for New Zealand. MF was to manage and operate the bus business and mechanic workshop at Salelavalu and she and Maggie were to manage and operate the retail shop at Salelavalu and the Distributor at Salelologa. As the Distributor was busy, and she was helping Maggie with the financial accounts reconciliation of the Distributor, she and Maggie would ask MF to help out with the loading of empties onto trucks for delivery to Vaitele, after he closes his workshop. Her evidence is that at most times MF would sign the invoices verifying the loads when she and Maggie were unable to attend to this task. She did not know of the MF’s conspiracy to defraud the Plaintiff and she was extremely frustrated and upset. Specifically she says she balanced deliveries and did the banking. She would check the stock from Apia and check bottles against the stock to be returned to Apia. When bottles are returned, the money from SBL is put into QM account to reduce the amount of credit.
35. She says that empty bottles are collected by two trucks, about three times a week from shops around Savaii and a day is set aside to collect from families. Six hundred (600) crates can fit into a truck. She confirms that all shops in Savaii buy from the Distributor unless they do not have a beer licence. She also says it was possible that they collected more empty bottles than the bottles they have taken from Apia.

Maggie Ah Kuoi

36. Maggie Ah Kuoi is the daughter of the First Defendants and the sister of MF. Her evidence is that when her parents left for New Zealand in June 2011, she and Rachael were assigned the management of the retail shop and the Distributor while MF was given the management of the bus business and the mechanic workshop. She confirms that MF after working hours would help out at the Distributor by loading empties on to delivery trucks for SBL and dropping off employees after these tasks. She gave evidence about the scope of the Distributor. They had three trucks that would collect empties and uplift stock from SBL. These trucks would make 3 to 4 trips a week to collect bottles from around Savaii. She says the trucks were never able to collect all the empties from around Savaii. They were collecting from motels, shops, bars, restaurants and individual families. Families would put empties into baskets or boxes for collection. The collected empties were then brought to the Distributor where the sorting process was done. The sorting included cleaning the bottles, removing the broken bottles, separating the soft drink bottles from the beer bottles and loading the delivery trucks to go to SBL. She says the loading of delivery trucks required attention and careful counting and tallying. The counted number is entered onto the invoice and either she or Rachael and at times MF would sign the invoices. The invoice is then given to the truck driver who would take the delivery to Apia the next day. The invoice is presented to SBL employees for final counting and then the money for the empties is credited to QM credit account with SBL which allows them to purchase from SBL. She says that the Distributor compound at Salelologa was always full of stacked empty bottles and crates that have yet to be sorted. She says she never knew of MF’s actions which led to the criminal charges. She says that there are at least 3 shops in Savaii that do not buy Vailima products from them, and at least one shop buys their beer from Apia.

MF

37. MF gave evidence that his parents are the first defendants. He says his responsibility in the business of Queen Maggie was to look after the public transport business and the mechanic workshop, not the Distributor. He was not paid for looking after the mechanic shop. He only helped out after hours at the Distributor loading empties that will be delivered to SBL the next day. His wife and his sister looked after the retail shop and the Distributor. He admits to the 5 charges for which he was convicted which occurred in 2012 but denies any other wrongdoing in 2010 and 2011. He says that towards the end of 2011, he was asked by SBL employees to borrow money to pay balances of their National Provident Fund so that they could be entitled to loan. He gave them the money and these were not small sums of money. When his parents came back in December 2011 from New Zealand, he asked the employees to repay their loans. They could not repay but asked that he sign a clean return empties note so that they could complete it with a full supply of empties and credit it to QM account as a repayment. He admits that they were conspiring to defraud SBL which resulted in his being charged in 2012. He pleaded guilty to 5 charges the particulars of which are;

(a)On 14 January 2012 he submitted a tax invoice statement number 217555 stating 582 returned empty bottles of which SBL issues a returned empties note#261673 noting its monetary value at $4,909.17;

(b)On 14 January 2012 he submitted a tax invoice statement number 217553 stating 628 returned empty bottles of which SBL issued a returned empties note #261674 noting its monetary value at $5297.18;

(c)On 11 February 2012 he submitted a tax invoice statement #571824 stating 628 returned empty bottles of which SBL issued a returned empties note # 261885 noting its monetary value at $5297.18;

(d)On 14 February 2012 he submitted a tax invoice statement#571823 stating 628 returned empty bottles of which SBL issued a returned empties note #261886 noting its monetary value at $5,297.18;

(e)On 25 February 2012 he submitted a tax invoice statement# 571845 stating 582 returned empty bottles of which SBL issued a returned empties note #261959 noting its monetary value at $5297.18.

38. He was sentenced to 3 years imprisonment and paroled after 2 years. He denies that he defrauded SBL outside of these 5 occasions.

The Issues

39. There are three overriding issues which need to be determined;

(a)The first is whether MF committed the tort of deceit.

(b) If that is answered in the positive, the issue is whether the deceit caused loss to the Plaintiff, and if so, how much was the loss.

(c)The third is whether MF committed the deceit in the course of his employment with or authority from the First Defendants, making the First Defendants vicariously liable for the loss.

Submissions of the Plaintiff

40. These are the Plaintiff’s submissions which address the issues I have identified.

Deceit

41. It is submitted that the tort of deceit contains the following ingredients;

(a)Defendant makes a false representation to the Plaintiff;

(b)Defendant knows the representation is false;

(c)Defendant intends that the Plaintiff should act in reliance on it; and

(d)Plaintiff does act in reliance on the representation; and

(e)In consequence, suffers loss.

42. It is submitted that defendant’s representation of fact was by way of QM delivery invoices submitted to the plaintiff by the defendants. The QM invoices are documented tax invoices prepared by the defendants that record the total amount of empty bottles in crates and the calculated dollar value of the crates. By the presentation of these invoices to SBL the defendants are saying that they are returning a specific number of empty bottles per crate and SBL will pay or credit to QM account the monetary value of the said returns. It is submitted that the function of this document was not denied by the defendants.
43. It is submitted that the false invoices were wilfully and fraudulently prepared by MF and submitted to SBL in the absence of any genuine belief by MF as to their authenticity. Mr Nainoca’s evidence was that in all dealings with QM, MF was the main person of contact. In the Court’s decision Police v Fiapapalagi Ah Kuoi (per Vaai J, 15 November 2013), it was accepted that for the island of Savaii, SBL at the time relevant to the charges, sold its products on a wholesale basis to a Distributor known as QM a business apparently owned and operated by MF. Mr Nainoca reviewed every invoice and identified the signature of MF , an example is invoice 300015. MF confirmed that the signature was his during his evidence.
44. Quantifying the value of the invoices submitted to be false included comparing the invoices submitted by QM for empty bottle returns to purchase orders or sales uplifted by QM and taken to Savaii. For the benefit of the defendants, the total bottles uplifted were deducted against the total bottles returned by QM. They submit as an example the period between June and December 2010 whereby QM took 70,000 crates to Savaii and submitted invoices stating that they returned 113,000 crates, an excess of 43, 000 crates. SBL gave QM the benefit of a 100% return rate even though the standard industry return rate is 40%. Therefore for the example given, SBL is only claiming 43 000 crates variance for the June to December 2010 period.
45. It is submitted that MF knew he was submitting false invoices and induced and bribed key personnel of SBL not to report the scam. Mr Nainoca confirmed a returned empties note prepared by SBL was done for every case of an invoice submitted by QM as a voucher of approval and paid into QM credit account each time.
46. The extent of the loss in the summary prepared by Mr Nainoca is $1,463,720. During the hearing missing invoices amounted to $127,697.92 and according deducted from the amount of the loss. The total amount claimed became $1,336,022.00.

Vicarious Liability

47. Mr Nainoca said that MF was the person who ran the Distributor in Savaii and was SBL’s main contact for any matters pertaining to their business arrangement. Nearly all of the invoices for the period claimed lodged by QM were lodged and signed by MF. MF’s actions and the proceeds of the deceit were directly debited in the account of QM. Maggie and Rachael Ah Kuoi being in charge of the Distributor according to their evidence, should have known of the significant amounts being credited to QM account.
48. QM benefitted from the fraud.

Propensity Evidence

49. It is submitted that MF pleaded guilty to 5 charges of conspiracy to defraud SBL during a two month period. However his deceit was in full effect well before the 2 months relevant to the criminal charges.

Submissions of the First Defendant

50. The First defendants identify the issues as follows;

(a)Whether the second defendant made a false representation of any invoice to the plaintiff?;

(b)Whether that false representation of an invoice totals the sum of $1.4 million, a loss to the plaintiff?;

(c)What is the relationship of the defendants?; and

(d)How is the relationship of the plaintiffs affecting the claim of the plaintiff?.

51. The first defendants address these issues as follows;

(a)The second defendant made a false representation only for a few invoices in the months of January and February 2012;

(b)The loss of the plaintiffs is $26,097.89;

(c)The defendants are family. The first defendants are the parents of the second defendant and they assigned the bus business and the mechanic workshop to the second defendant when they travelled to New Zealand;

(d)The second defendant is only an employee and agent of the first defendants specifically and exclusively for the second defendant to care take the bus business and mechanic workshop as the course of his employment or line of authority.

Propensity evidence

52. The first defendants submit that plaintiff failed to call witnesses to give evidence of the second defendants behaviour similar to as that of the criminal charges he pleaded guilty to and of which he was convicted. Therefore the probative value of such evidence will be outweighed by its prejudicial effect and will be too dangerous for the Court to admit.(see Obrien v Chief Constable of the South Wales Police [2003] EWCA civ 1085).
53. The propensity evidence rule in section 30 of the Evidence Act 2015 applies on a striking similarities of pattern of prior acts or conviction. The conviction of the second defendant refers to incidences in January and February 2012 and therefore the rule should apply from then rather than before. The plaintiff failed to provide any other evidence of striking similar prior bad acts or prior convictions at least before June 2010 to prove that any other invoices afterwards signed by the second defendant were fraudulently done.

Deceit

54. Whilst there is no dispute that all invoices submitted were signed by Rachael, Maggie and MF for the first defendants trading as QM, the First defendants strongly deny any falsity in the invoices submitted to the plaintiff and say that there was no evidence that any of the witnesses for the first defendants had such knowledge that the invoices submitted were false. The second defendant conceded to the false knowledge in January and February 2012.

Vicarious Liability

55. The second defendant is an employee and agent of the first defendants specifically and exclusively for the bus business and the mechanic workshop. Furthermore apart from the invoices he pleaded guilty to, it is submitted that the plaintiff failed to elicit evidence to prove that all the invoices signed by the second defendant were done fraudulently or falsely represented to the plaintiff.

Conclusion

56. The cause of action of deceit by the second plaintiff is not proven on the balance of probabilities.
57. The plaintiff should only be awarded judgment in the sum of $26,096.89.

Submissions by the Second Defendant

Deceit

58. The second defendant admits to the tax invoice statements he submitted to the plaintiff company on 5 separate occasions. He denies the rest. As a result the plaintiff company suffered a loss of $26,097.89. He denies any fraudulent actions before 2012.
59. It is submitted that Mr Nainoca could not identify which tax invoice statement was fraudulent. There were also no originals to confirm who had prepared those invoices.
60. It is submitted that there is no evidence of the loss except a comparison of bottles bought and returned. The second defendant may have signed most of the tax invoices but many others were signed by Maggie and Rachael.
61. The plaintiff has failed to prove that the second defendant acted in a deceitful manner by presenting to the plaintiff company fraudulent tax invoice statement which the plaintiff company acted upon and caused it to lose income on all other occasions.

Conclusion

62. The second defendant concedes to an award of $26, 096.89 being the amount the second defendant pleaded guilty to.

Law

Tort of Deceit

63. In Amaltal Corporation Ltd v Maruha Corporation [2006] NZCA 112; [2007] 1 NZLR 608, the New Zealand Court of Appeal canvassed the tort of deceit. It stated;

The tort of deceit is summarised in Clerk & Lindsell on Torts (18th ed, 2000), para&#15-01] in thes these terms:

“The tort involves a false representation made by the defendant, who knows it to be untrue, or who has no belief in its truth, or who is reckless as totruththe defendant intt intendedended that the claimant should act in reliance on such a representation and the claimant in fact does so, the defendant will be liable in deceit for the damage caused.”

[47] The misrepresentation which is relied on to found an action of deceit must be a representation as to a past or existing fact. It may be either expressmpliem conduct. In most instances, non-disclosure of the truth does not ground the tore tort; &#t; “mere silence, however morally wrong, will not support an action for deceit” (Bradford Third Equitable Benefit Society v Borders [1941] 2 All ER 205 a11 per Viscountcount Maugham). Exceptions to this most often arise where the failure to speak may distort the truth of previous ments (see generally, Todd (ed),Law ofaw of Torts in New Zealand (4th ed, 2005), p 630p 630), or where there is active concealment (Schneider v Heath [1813] EngR 714; (1813) 170 ER 1462), or where a true representation is rendered false by a subsequent and known change of circumstances (Brownlie v Campbell (1880) 5 App Cas 925 at p 950Lord Blackblackburn).

[48] As to the of tfe defendantndant’s mind, the leading authority is still Derry v Peek (1889) 14 App Cas 33p 374 per Lorschep>

[49]&#160 It ws thstatementement hoy hoy believed to be true – even if implausible – i11; is not capable of amounting to fraud. But if the defendant knows the sent tuntrue that defendant will be responsible, irresprrespectivective of his or her motives. “If fraud be established it is immaterial that there was no intention to cheat or injure the person to whom the false statement was made” (Bradford v Borders at p 211 per Viscount Maugham; and see generally Carty, An Analysis of the Economic Torts (2000), ch 6).

[50] The critical features of tre tort are therefore that the representor must have lacked an honest belief in the truth o statement; “carelessness” is not to be equated with “dishonesty”; 21;; and even recklessness in the sense of gross negligence will not suffice, unless there is a conscious indifference to the truth.

[51] Each turnsts owns own factsfacts. Two illustrations of the application of these principles are instructive.

[52];&#16Derry v Peek itself, the directors of a tramway company had issued a prospectus ctus claimilaiming that they were empowered by statute to use steam-powered cars. The authorisation was actually conditional on governmental consent which the directors honestly believed would be given as a matter of course. It was, however, withheld. In consequence, the company went into liquidation. The plaintiff had become a shareholder on the faith of the prospectus and instituted an action against the directors for deceit. He succeeded in persuading the Court of Appeal that negligence was sufficient to support liability. That decision was reversed by the House of Lords since fraud in the sense set out at para [48] above had not been established.

[53] &#1more modern instance is e is Society of Lloyd’s v Jaffray [2002] EWCA Civ 1101; [2002] All ER (D) 399. case was at the hearthearthe “Names” litigation in the United Kingdom. It was held that there was a reprerepresentation in a 1981 brochure producedloyd&;s thrigorous system of auditing existed thad that invt involvedolved the making of a reasonable estimate of outstanding liabilities, including unknown and unnoted losses. Subsequent brochures contained essentially the same representation, although the word “rigorous” no longer appeared. The 1981 brochure also contained a representation that Lloyd’s believed that such a system was in place, as did subsequent brochures. There are features of this litigation which have some similarities to the instant case not just because the action was cast in deceit; but because there were also allegations of implied terms.

[54] The Court oeal held that that the representations, during the relevant period, were untrue. The Court said that, “In each case it is necessary to ask the question . . . what would the reasonable person in the position of the representee understand by the words used in the document . . . [T]hat meaning might either be explicit in the words used or implicit (and in that sense implied) from the words used” (at para [59]). The Names had, however, failed to prove that the relevant individuals at Lloyd’s did not believe the representations to be true or that they either knew that they were or became untrue or were reckless as to whether they were true or untrue. Lloyd’s was accordingly not liable to the Names under the tort of deceit. Permission to appeal under the (now) English appellate procedure was declined.

[55] Since t is nded nded from trom the old form of an action on the case, damage is a fundamental requirement. Accordingly the usual distin betthe measure of damages based on tort principles, and the measure of damages basedbased on c on contract principles, must be applied.

[56] &The correct measure of damf damages in tort is an award which serves to put the claimant in the position he or she would have been in if the representation had not been made. That is subject to the usual rules of remoteness, mitigation and the like.

[57] The pon as magesmages was ewas explained by Lord Collins MR in McConnel v W [1902] UKLawRpCh 178; [1903] 1 Ch 1 Ch 546 (CA) at pp– 555:<555:

“It is not an action for breach of contract, and, fore,amagerespectspect of p of prospective gains which the person contracting was entitled by his cons contract to expect to come in, but it is an action in tort – it is an action for a wrong done whereby the plaintiff was tricked out of certain money in his pocket; and therefore, prima facie, the highest limit of his damages is the whole extent of his loss, and that loss is measured by the money which was in his pocket and is now in the pocket of the company. That is the ultimate, final, highest standard of his loss.”

[58] In New Zealand, there is authority for the proposition that contributory negligence may apply in deceit (Dairy Containers Ltd v NZI Bank Ltd [1995] 2 NZLR 30, a decision of Thomas J). In n Holdings Ltd v o Lv o Ltd2007] 1 NZLR 608 608 at 62at 620 (1997) 6 NZBLC 102,272, Hammond J took a contrary view. The House of Lords in Standard Chad Bank v Pakistan National Shipping Corporation [2002] UKHL 5; [2003] 1 AC 1 AC 959 has since held that contributory negligence does not apply to thrt, for the same sort of reasons as were given by Hammond&#ond J

Vicariocarious Liability

64. In Credit Lyonnais Bederland (Now Generale Bank Bank Nederland NV) v Export Credits Guarantee Department [1999] UKHL 9; [2000] 1 AC 486; [1999] 2 WLR 540; [1999] 1 All ER 929; [1999] 1 Lloyd's Rep 563; 02-19-1999 Times 477608; [1999] EWCA Civ 1948; (1999) 143 SJLB 89; (1999) 96(10) LSG 30; 02-23-1999 Independent 477608; [1999] CLC (UK) 823 (HL) Lord Woolf MR, delivering a judgment in which the other Law Lords concurred, stated the principle on which vicarious liability for the wrong of a servant or agent depends:

“It is that the wrong of theant or agent for which the master or principal is liable is one committed in the case of a of a servant in the course of his employment, and in the case of an agent in the course of his authority. It is fundamental to the whole approach to vicarious liability that an employer or principal should not be liable for acts of the servant or agent which are not performed within this limitation. In many cases particularly cases of fraud, the question arises as to whether the particular conduct complained of is an unauthorised mode of performing what the servant or agent is engaged to do.”

65. In Strickland Brothers v Attorney General[2014] WSSC 15 (29 April 2014), Sapolu CJ referred to the leading New Zealand authority of Nathan v Dollars & Sense Ltd [2008] NZSC 20; [2008] 2 NZLR 557 on vicarious liability of a principal for the acts of an agent. Blanchard J in delivering the judgment of the New Zealand Supreme Court said;

Two propositions must be borne in mind. The first is that an act can have the necessary “close connection”[30] even though it is of a criminal character and indeed is done with fraudulent intent by the agent. The second is that a fraudulent act impacting on a third party may vis-à-vis the third party be seen as done within the scope of an agency even if done exclusively for the benefit of the agent, and a fortiori may be seen as an act within the agency if it is done for the benefit of the principal as well as for the benefit of the agent. As between principal and agent of course the principal will be entitled to impeach the agent’s conduct and say that what the agent did was unauthorised, but that does not affect the principal’s liability to the third party for the agent’s acts.

It is worth remarking, also, that although the question of whether the principal was liable for an agent’s conduct is often addressed by asking whether that conduct fell within the scope or course of the agent’s authority, this methodology has the capacity to suggest that the conduct of the agent for which a third party seeks to make the principal liable must have been authorised in some way by the principal. That, as we have seen, is not the case, but the concept of authority can unconsciously influence the inquiry in an unhelpful way. The more precise formulation is whether the conduct of the agent fell within the scope of the task which the agent was engaged toperform.

[40] In order to determine that question, the Court must concentrate on the nature of the tasks to be performed on behalf of the principal and on how the use of the agent for that purpose has created risk for the third party. Without a sufficiently close connection between the task for which an agent was engaged and the unlawful action of that agent, so that the wrong can be seen as a materialisation of the risk inherent in the task, it will be neither fair nor proper to impose vicarious (strict) liability on a principal who has not necessarily been guilty of any personal negligence and so would not be directly liable to the claimant. Strict liability of this kind is exceptional and is not to be imposed unless fully justified by these considerations. Certainly, just the opportunity to commit the wrongful act or the existence of some merely incidental connection will not suffice.

[41] We come now to our second proposition, that a fraudulent act may be done within the scope of an agency, even if done exclusively for the benefit of the agent (and even more so when it is done for the benefit of the principal as well as for the benefit of the agent). The leading authority is Lloyd v Grace, Smith & Co[38] in which a firm of solicitors was held liable for frauds covertly committed against a client by their managing clerk for his own benefit entirely. The firm had gained nothing from the frauds. The House of Lords rejected the argument that a principal was not liable for the fraud of his agent unless committed for the benefit of the principal. The case has often been understood to be an authority on apparent or ostensible agency, as Mr Templeton submitted it should be regarded, and indeed there are passages in the speeches which might support that view. But the better view, we think, is that their Lordships were in this respect not drawing any distinction between actual and apparent authority. The managing clerk plainly had actual authority to conduct business of the kind he conducted for the plaintiff and in the course of which he defrauded her. Lord Macnaghten proceeded on the basis of what he described as a clear finding of the trial Judge that the fraud “was committed in the course of Sandles’ employment and not beyond the scope of his agency”.[39] In the course of his reasons he endorsed the remark of Wilde B in Udell v Atherton[40] that “unless the fraud itself falls within the actual or implied authority of the agent, it is not necessarily the fraud of the principal”. And Lord Shaw of Dunfermline concluded his reasons by referring to the finding “that the fraud was committed in the course of, and within the scope of, the duties with which the defendants had entrusted Sandles as their managing clerk”. In those circumstances, he said, they stood answerable in law for their agent’s misconduct.[41]

And so we would respectfully agree with Professor Watts. Liability for a fraud committed in the course of an agency does not depend upon the attribution of legal fault or moral blame to the principal. A legitimate advantage of using an agent may be that the principal does not need to inform itself about what is done on its behalf, but that ignorance should not be able to be used as a shield against liability to a third party.

Since the essence of agency law is the representation of the principal by the agent, it seems that vicarious liability is one mechanism that functions as a loss allocation rule within agency law in particular and tort law in general. Vicarious liability works upstream in an attempt to find the prime cause for why an agent acted for another person. So long as the agent acted within his or her actual or apparent authority, then, all other things being equal, the principal has an imposed liability that is justified by the very act of placing the agent in a position where the agent could represent the principal. The control device used by the courts in this sphere centres upon the actual or apparent authority of the agent. [Emphasis in original]

We would qualify this passage by saying that what must be shown is a close connection with what was authorised. That is what allows the agent’s act to be treated as being within the scope of the agency.

Discussion

66. The discussion will focus on the three overriding issues which I have identified in this case.
67. However at the outset, there are a few preliminary matters to address. There is no question that there were criminal charges to which MF pleaded guilty. Those criminal charges were conspiracy to defraud. MF has conceded that he is liable for the loss which arose out of those 5 charges which is $26,096.89. There is no need for a lengthy analysis given this concession. He is therefore liable to the plaintiff in the amount of $26, 096.89.
    
68. The issue of the invoice originals is not to impact on the plaintiff’s claim. Those were misplaced by the Court having been submitted by the plaintiff. It is not fair or just for the plaintiff to be penalised for the Court misplacing the originals of the invoices. I proceed on the basis that the originals are known to be existence but the production of those originals, is for practical purposes impossible as they cannot be found after due search in the Court. I am satisfied to proceed on the photocopies of the invoices being the best evidence available to the Court.
69. The plaintiff has rightly adjusted its claim based on invoices which have no signatures (on photocopied version), missing invoices and the invoices which are not signed by MF. These invoices cannot be part of this claim. The actual invoices signed by MF comes to a total monetary sum of $2, 245,917. The plaintiff has given to QM the benefit of a 100% return rate, i.e. every bottle they uplifted to take to Savaii was returned. The value of this return is $1,467,908 which deducted from the actual invoices brings the total amount claimed by the plaintiff to $778,009. I proceed on this claimed amount of $778,009. (Counsel for the Plaintiff confirmed in Chambers on 20 February 2018)

Issue 1:Whether MF committed the tort of deceit:

70. In assessing whether MF has committed the tort of deceit, I must be satisfied on the balance of probabilities that;
    1. MF made a false representation to SBL;
    2. MF knew the representation was false;
    100. MF intended that SBL should act in reliance on it; and
    4. SBL did act in reliance on the representation; and
       5. In consequence, suffered loss.

a. Whether MF made a false representation to SBL;

71. The evidence from the plaintiff is that MF committed the tort of deceit over a period of 21 months, from June 2010 to April 2012. This is inclusive of January and February 2012, the months during which the incidents occurred to which MF pleaded guilty. Mr Nainoca was a credible witness and gave plausible evidence about the rate of return of empties compared to the bottles uplifted by QM. The returns are extraordinarily more than the uplifted bottles. Given the generous concession by SBL to grant to QM a 100% return rate, the amount over and above that is still significantly high. QM was the exclusive Distributor of SBL products in Savaii during the period of the claim. Pulefana which was mentioned stopped distribution in 2009, before the period of the claim. Therefore it is not likely that bottles from Pulufana were part of the returns by QM.
    
72. The defendants have suggested that the excess is from product which Savaii consumers and retail outlets take to Savaii themselves. This is hard to accept given the convenience of having the Distributor in Salelologa Savaii, saving time and expense for Savaii consumers, and in particular given the quantity of the excess. Rachael confirmed that all shops in Savaii buy from QM Distributor unless they do not have a beer license. The evidence reveals an excess of 43,000 crates for the 6 months from June 2010 to December 2010, an excess of 120,000 crates from January 2011 to December 2011, and an excess of 52,000 crates from January 2012 to April 2012. This is over and above all the bottles uplifted by QM being accounted for. These numbers are staggering and cannot in any conceivable way be explained away to the satisfaction of the Court. Maggie says that there are at least 3 shops in Savaii that do not buy Vailima products from them, and at least one shop comes to Apia to buy their beer. However I do not find that this explains the substantial excess. Futhermore, Mr Nainoca says that at the relevant time, SBL was experiencing a shortage of empties which did not make sense given QM’s high returns.
73. The evidence of MF is that the 5 occasions for which he was charged, were the only occasions in which he falsified the invoices because of requests from employees of SBL. I find his evidence extremely implausible, unbelievable and evasive. His blanket denial of wrongdoing outside of his criminal offending did little for his credibility.
74. I am satisfied that the false representations made by MF to SBL took the exact same form as the incidents in 2012 to which MF pleaded guilty. He signed off on invoices which contained false representations of returned empties knowing full well that the actual returns in their trucks did not correspond with the invoices. MF was fully engaged in this false representation to SBL well before he was charged with the 5 occasions to which he pleaded guilty. Kilisitino Kasiano says that she was aware of the scam between MF and employees of SBL in the years 2010 and 2011. On one occasion she reported seeing an empty QM truck come into SBL but saw 3 invoices for the truck claiming 3 full loads to be paid to QM. This is a classic case of getting caught, but not before first having benefitted from the proceeds of his false representations.
75. I am satisfied that MF made false representations to SBL from June 2010 to April 2012.

Whether MF knew the representation was false and intended that SBL should act in reliance on it;

76. MF says that towards the end of 2011, he was asked by SBL employees to borrow money to pay balances of the NPF so that they could be entitled to loan. He gave them the money and these were not small sums of money. When his parents came back in December 2011 from New Zealand, he asked the employees to repay their loans. They could not repay but asked that he sign a clean return empties note so that they could complete it with a full supply of empties and credit it to QM account as repayment.
    
77. I am satisfied that MF knew the representations on the invoices he tendered to SBL were false. He was involved in loading the trucks at the Distributor for the returns back to SBL. He signed the invoices with the false representations. He confirmed his signature. I am unable to accept his explanation that he knew nothing about the false representations on the invoices he signed. He is a business person involved in looking after a mechanic shop and transport business. He is asking the Court to accept that while he admits to the 5 charges for which he was convicted which occurred in 2012, he denies any other wrongdoing in 2010 and 2011.
78. I am unable to accept MF’s explanation that he was not involved in any other wrongdoing apart from the 5 incidents for which he was charged. His modus operandi or distinct pattern or method of operation is evident in the evidence of the plaintiff, that showed the higher rate of returns than of uplifts and even with the concession of all uplifts being accounted for, the returns still exceed, by a significant amount, that concession.
79. I have no reason to doubt the standard industry return rate of 40% as explained by Mr Nainoca. Industry standards are based on years of being in the industry and seeing a pattern that can then be applied across the board. Not only did QM returns far exceed the standard industry return rate, they exceeded the concession given by SBL.
80. I am satisfied that MF knew the representations on the invoices he signed and submitted were false, and that he intended that SBL act in reliance on the invoices. By submitting the invoices, he intended that SBL act by depositing the monetary value of returns into QM account.
81. I am satisfied that SBL did act in reliance on the representations on the invoices by paying the monetary value of the returns into QM account. Mr Tafua confirms that during the period of the claim, their review verified that all delivery invoice numbers lodged by QM against SBL returned empties note numbers used by SBL were paid into the QM account.

Issue 2: Whether the deceit caused loss SBL, and if so, how much was the loss:

82. There was evidence of Maggie and Rachael signing invoices during the period of the claim. They are not defendants to this claim and therefore any invoices signed by them cannot form part of the claim against MF. There were missing invoices and invoices whereby the signatures were missing from the photocopies. These also cannot form part of the claim. It is only the actual invoices signed by MF which can be claimed against him.
    
83. There is no doubt that the deceit by MF caused loss to the Plaintiff. I deal with the latest amendment to the amount of the claim, which is $778,009.00. The reason for the amount is that the actual invoices signed by MF came to a sum of $2,245,917.00. The return rate credit given by SBL which is crediting every bottle uplifted is $1,467,908.00. The difference comes to $778,009.00. This is an extremely generous concession.
84. I am satisfied that the loss to SBL caused by MF’s deceit is $778,009.00.
85. This amount includes the amount of $26, 096.89 in which MF has conceded liability.
86. The correct measure of damages in tort is an award which serves to put SBL in the position it would have been in if the representation had not been made. This equates with the loss in this case for which MF is liable for the award of damages in favour of SBL of $778,009.00.

Issue 3: Whether MF committed the deceit in the course of his employment or agency with the First Defendants, making the First Defendants vicariously liable for the loss:

87. The plaintiffs through Mr Nainoca gave evidence that he dealt with MF when it came to QM business. He said MF was the person who ran the Distributor in Savaii and was SBL’s main contact for any matters pertaining to their business arrangement. Nearly all of the invoices for the period claimed lodged by QM were lodged and signed by MF.
88. The evidence from Luisa Ah Kuoi is that sometime in or around 2010, she left to reside in New Zealand for 9 months for medical reasons. She returned in June 2011 but then had to leave quite quickly again for New Zealand due to her husband developing some heart problems. She then developed further health problems and needed an operation in February 2012. Around that time, she and her husband delegated authority to their children to run their businesses. MF was to manage and operate the bus business and mechanic workshop at Salelavalu, and Maggie and Rachael were to manage the retail shop at Salelavalu and the Distributor in Salelologa. She understood that MF and his wife had been helping out with the Distributor after hours. She says MF signed invoices as a help to Rachael and Maggie. She says she was not aware of MF’s involvement in any conspiracy to defraud the Plaintiff. MF was convicted and sentenced on the criminal charges while she and her husband were in New Zealand.
89. Maggie gave evidence that she and Rachael were assigned the management of the retail shop and the Distributor while MF was given the management of the bus business and the mechanic workshop. She confirms that MF after working hours would help out at the Distributor by loading empties on to delivery trucks for SBL and dropping off employees after these tasks. She says the loading of delivery trucks required attention and careful counting and tallying. The counted number is entered onto the invoice and either she or Rachael and at times MF would sign the invoices. The invoice is then given to the truck driver who will take the delivery to Apia the next day. The invoice is presented to SBL employees for final counting and then the money for the empties is credited to QM credit account with SBL which allows QM to purchase from SBL.
90. Rachael gave evidence that MF’s parents asked her to help her husband and sister in law manage their business as they were leaving for New Zealand. MF was to manage and operate the bus business and mechanic workshop at Salelavalu and she and Maggie were to manage and operate the retail shop at Salelavalu and the Distributor at Salelologa. As the Distributor was busy, and she was helping Maggie with the financial accounts reconciliation of the Distributor, she and Maggie would ask MF to help out with the loading of empties onto trucks for delivery to Vaitele, after he closes his workshop. Her evidence is that at most times MF would sign the invoices verifying the loads when she and Maggie were unable to attend to this task. She did not know of the MF’s conspiracy to defraud the Plaintiff and she was extremely frustrated and upset. Specifically she says she balanced deliveries and did the banking. She would check the stock from Apia and check bottles against the stock to be returned to Apia. When bottles are returned, the money from SBL is put into QM account to reduce the amount of credit.
91. MF gave the same evidence. He says his responsibility in the business of Queen Maggie was to look after the public transport business and the mechanic workshop, and not the Distributor. He was not paid for looking after the mechanic shop. He only helped out after hours at the Distributor loading empties that will be delivered to SBL the next day. His wife and his sister looked after the retail shop and Distributor.
92. Irrespective of the lack of knowledge on the part of the first defendants of MF’s deceit, this is not a shield against liability to SBL and I am satisfied that the first defendants are vicarious liable for the following reasons. The period of the claim is 21 months during which time MF signed nearly all of the invoices submitted to SBL. This is a lengthy amount of time. He may not have been a paid employee of the Distributor but he represented the Distributor to SBL and signed most of the invoices during this length of time. Luisa, Maggie and Rachael were aware that he signed invoices.
93. It was understanding of Mr Nainoca, the Financial Controller for SBL, that MF represented QM, he met with MF for Distributor matters and he knew MF signed invoices and placed orders. He had authority to make decisions which impacted directly on the Distributor, such as ordering of products from SBL and returning empties for monetary value.
94. There is no dispute that the monetary value of the returned empties was paid by SBL into QM account. The credit was substantial during the period of the claim. There is no doubt that Rachael would have noticed the substantial increase in the credit to QM because according to her own evidence, “she was helping Maggie with the financial accounts reconciliation of the Distributor. She would check the stock from Apia and check bottles against the stock to be returned to Apia. When bottles are returned, the money from SBL is put into QM account to reduce the amount of credit”. Whilst I accept that Luisa, Maggie and Rachael were unaware of MF’s deceit, the undisputed evidence points to the deceit being for the benefit of the first defendants trading as QM, as the proceeds of MF’s deceit were being credited into the QM credit account.
95. Despite the division of responsibilities, Luisa says she understood MF and his wife had been helping out with the Distributor after hours and that MF signed invoices to help Rachael and Maggie. Rachael, the person in charge of the accounts for the Distributor knew MF’s involvement because she says most times MF would sign the invoices verifying the loads when she and Maggie were unable to attend to this task. Maggie knew MF’s involvement at the Distributor. Maggie was given responsibility for the Distributor. She confirms that MF after working hours would help out at the Distributor by loading empties on to delivery trucks for SBL and dropping off employees after these tasks. She says the loading of delivery trucks required attention and careful counting and tallying. The counted number is then entered onto the invoice and either she or Rachael and at times MF would sign the invoices.
96. Therefore all the key people in the QM Distributor were well aware of the extent of MF’s involvement in the Distributor. Perhaps MF was not a paid employee of the Distributor or of QM as he claims, but there is no doubt that he represented QM when it came to dealing with SBL and he had authority to do so from the first defendants and those delegated to manage the Distributor, namely Maggie and Rachael. There is no doubt he was involved in the very “careful counting and tallying” of the loading of the delivery trucks, and signing the invoices. He was authorised by Maggie and Rachael to help with the loading of empties on to trucks for delivery to Vaitele. Maggie and Rachael say they were responsible for the Distributor and according to their evidence they would ask MF to help out with the loading of empties on to trucks for delivery to Vaitele, after he closes his workshop. The first defendant Luisa Ah Kuoi knew of MF’s role in the Distributor. She knew that he signed invoices.
97. MF committed deceit in the course of his authority to load the empties for return to SBL and sign the invoices. His conduct of making false representations to SBL fell within the scope of the task which he performed for the Distributor. This was a family business with family members running the business. Luisa, Maggie and Rachael knew of MF’s role in the Distributor and were content to let him handle the return of empties to SBL. The fact that he may not have been officially on the QM payroll does not affect the authority which he was given and which he had to handle the business of the Distributor.
    
98. Accordingly in this case, MF’s liability has resulted in the first defendants being vicariously liable for the loss to SBL.

Result

99. Both the second defendant MF and the first defendants trading as QM are liable to pay $778,009.00 in damages to SBL.
100. Counsel for the Plaintiff is invited to file and serve a memorandum as to costs within 21 days of the release of this decision. Counsel for the First and Second Defendants may respond to that memorandum within a further 14 days.
     

JUSTICE TAFAOIMALO LEILANI TUALA-WARREN