[1990] Tonga LR 174

SUPREME COURT OF TONGA

STORAGE & EXPORT TRADING CO. LTD

v.

TU'IPULOTU

Civil Case No. 60/1989
Before: Webster J., Nuku'alofa
24 April, 19, 20 July, 5 October 1990

Counsel for the plaintiff: Mr P.D. Macdonald
Counsel for the defendant: Mr L. Veikoso

Contracts - existence of contract
Contracts - enforceability - Contract Act (Cap 26)
Quantum Meruit - not applicable if contrary to policy of Contract Act

The plaintiff, a company in Auckland, New Zealand, sued for the payment of three sums claimed to be owing for goods delivered to the defendant. The defendant at the trial admitted liability for two of the amounts claimed, but disputed the third on the ground that he had not agreed to purchase the goods which had been sent by the plaintiff.

HELD

Dismissing the claim:

1). Although the defendant had made enquiries of the plaintiff, the evidence did not establish on a balance of probabilities that the defendant had agreed to purchase the goods that were sent to him by the plaintiff;

2). Even if a contract to pay for the goods had been proved it would have been unenforceable by virtue of section 3(2) of the Contract Act (Cap. 26) since there was no stamped and registered agreement;

3). The Plaintiff could not claim on the basis of a quantum meruit because that principle could not be used to defeat the policy of the Contract Act with regard to be supplied, as in this case, although it may be in respect of services already supplied since these are not by the Act.

Statutes considered:

Contract Act (Cap. 26)

Cases considered:

Cable & Wireless v. Mataele Civil Cave No. 134/1988
Intracor Trading Co. Ltd. v. Finau Civil Case No. 84/89
Lolohea v. Collett P.C. Appeal No. 6/1988

N.B. The Contract Act has been repealed with effect from 15th February 1991, but continues to apply to any contract made before that date.

The judge reviewed the evidence and continued:

In light of all this evidence I cannot find it established on the balance probabilities that the Plaintiff offered the Defendant a credit of 60% for return of the goods and I find, again on the balance of probabilities, that the Plaintiff refused to accept back these goods.

Submissions:

Counsel for the Defendant, Mr Veikoso, accepted the Defendant's liability the first two debts, but denied the third debt. He submitted that no contract existed between the parties for the gearbox and the differential heads because Defendant had not ordered them. Even if a contract had been made, the Plaintiff had not proved this because no evidence had been heard from Mr Walters with whom the Defendant spoke on the telephone. And if a contract had been made section 3(2) of the Contract Act applied as the Defendant was a Tongan and no registered written agreement had been produced to the Court (or even signed in): so the Plaintiff could not obtain judgment for the third debt. The Contract Act was passed to protect Tongans from foreign companies. The Defendant was still prepared to return these goods to the Plaintiff.

In response about the third order, Counsel to the Plaintiff, Mr Macdonald, submitted that a contract was created by the Defendant's acceptance of goods. The defendant's behaviour after that in making himself unavailable to the Bank and the Plaintiff gave credibility to this version. Simple return of the goods would not be adequate compensation for the Plaintiff and in addition he should be given 40% of their value. Even if the Contract Act applied, under the principles of restitution and unjust enrichment the Plaintiff had remedy, as decided by the Court in Cable and Wireless v. Mataele Case No. 134/88 and Clausen v Fusimalohi (Case No. 63/89). The Privy Council case of Lolohea v. Collett (Privy Council Case No. 6/1988) did not concern the application of such principles. And if the Defendant's version of events was correct there was no contract and the Contract Act could not apply, but various equitable principles did apply.

Applying the law to the facts

Para 8 of the Statement of Defence in relation to the third debt states that the Defendant-

"Admits making enquiries about cost of goods. Did not order them but Plaintiff still sent them. He contacted the Plaintiff about returning the goods he sent because it was of no use to the Defendant. The Plaintiff instead sent a bill for the costs, of the goods. The goods are still kept by the Defendant."

Given this, the Plaintiff's case was woefully lacking in sound, firsthand, direct evidence about the ordering of these goods. Mr Klee could only produce his firm's documents which showed that the Defendant had made enquiries and that the goods had been dispatched. The vital witness to any order made by telephone, Mr Walters, was not brought to Tonga to give evidence, even although there were 3 months between the first and second days of the Plaintiffs evidence. Nor were the Plaintiff's supporting witnesses any more satisfactory: neither Mr Murrary from the Bank of Tonga nor Mr Ilias from Warner Pacific had any personal knowledge of the matter, only Mr Koaneti from Customs had been personally involved.

In these circumstances the Court cannot find that there was any contract between the parties for die supply of the gearbox and differential heads. Even if I am wrong m preferring the evidence of the Defendant, on the balance of probabilities it has not been established in evidence that there was such a contract. All the court can find is that the goods were shipped to Tonga by the Plaintiff and received here by the Defendant. By clearing the goods the Defendant accepted them and completed a contract with the Plaintiff, but it was conditional on the goods being what he required, which would not be discovered from a mere sight of them on the wharf. The Defendant had no intention of accepting the goods if they were not what he needed (see Chitty on Contracts (26th Ed) para 55). So when the Defendant found the goods to be unsuitable for his purposes, advised the Plaintiff of this, and offered to return them and then kept them up to the present in safe custody. His acceptance fell and there was no longer any contract between the parties. Even if the Plaintiff had offered to accept back the goods, but it only 60% of their costs in the circumstances this would have amounted to a refusal to accept return of the goods.

Furthermore I believe that due to the terms of the Contract Act that is the end of the matter. Section 3(2) provides-

"(2) Whenever as the result of one or more transactions the total indebtedness of a Tongan to another person for goods supplied exceeds $500, no action to recover the price of such goods shall be maintainable for an amount exceeding $500 unless there is produced to the court at the hearing a written agreement in respect of each transaction by which the Defendant's indebtedness to the Plaintiff was increased beyond the amount of $500. Such agreement shall be executed in duplicate at the time of each such transaction and shall contain a list of the various articles supplied and the price charged for each and shall be stamped and registered as hereinafter required.

Nothing in this section shall be construed to preclude the Plaintiff in any action mentioned in this subsection from obtaining judgment therein for an amount not exceeding $500 provided that an invoice or statement as required by subsection (1) has been produced to the court."

It is important to read and apply the words of the Act. What these say is that whenever a Tongan owes another person more than $500 for goods supplied, no action to recover the price is maintainable without a registered agreement. It is a procedural requirement which cannot be circumvented: See e.g. Lolohea v. Collett on the very similarly worded section 4(2). Judgment can be obtained for a sum not exceeding $500 - but again provided a written statement or invoice signed by or for the defendant is produced, which was not done in this case.

It is particularly important in relation to this case that section 3(2) is expressed in general terms, referring to (a) "Indebtedness ... for goods supplied," and (b) "no action to recover the price of such goods." These words are not restricted to contracts and are wide enough to exclude the remedies of restitution and unjust enrichment requested by Mr Macdonald. It would be nullifying the effect of the Act if it were applied so as to stop recovery in an action under contract but so as to allow in the same case under the law of restitution.

The fact that the Act has the short title, The Contract Act, does not restrict its terms, as that is only a practical label with no legal significance for the interpretation of the Act. However the Court can look at the long title, which makes no mention of contract simply stating "An act to regulate dealings upon credit with Tongan subjects." i.e. to restrain the indiscriminate giving of credit to Tongans which they then cannot repay, as is set out in relation to the forerunner Ordinance No. 10 of 1910 (Bennett v. Maeakafa T.L.R. 22 at 24). There is no application section, but section 2 refers to contracts by Tongans, but does not take matters further as it provided that such contracts are to be enforceable by action - but subject to the provisions of the Act

So while it is clear that the Act principally deals with the procedure for …………. of contracts as a means of regulating dealings on credit, it would be wrong of the Court in the case of the express words of the Act to confine its application only to the enforcement of contracts. There was no indication in Lolohea v. Collett that the Act should be so confined, and there the Privy Council noted that Mrs. Collett may still have a remedy in another jurisdiction.

On this point I have considered the decision in Cable & Wireless v Mataele (Case No. 134/88) where at p. 3 Martin CJ found that regardless of the strictly contractual ………….. the Plaintiff Cable & Wireless was entitled to recover on a quantum meruit. Martin CJ referred to Craven Ellis v Cannons Ltd [1936] 2 All E.R. 1066 and Societe Franco Tunisienne d'Armement v Sidermar [1960] 2 All E.R. 529 (QBD) 548 and found that the principle stated in these cases (the obligation to pay reasonable remuneration for work done when there is no binding contract is an obligation imposed by rule of law) also applied where there is a binding contract that could not be enforced for some purely procedural reason. Other cases supporting this view are Scarisbrick v. Parkinson [1861-73] All E.R. Rep 258 (CE) where a contract was unenforceable under the Statute of Frauds, 1677 and Scott v. Pattison [1923] 2 K.B. 723. Reference to this approach is also made in Chitty on Contracts (26th Ed) para 2143 (work done under a contract which is void) and Halsbury's Laws (4th Ed.) Vol. 9 para. 695.

However in recent years courts have been taking a different view which is summarised in Chitty para. 2144:

"A person who renders services under a contract that is unenforceable, for instance, for lack of writing will be entitled to a quantum meruit if the other party failed to carry out his parts provided the restitutionary claim does not undermine the ………. of the policy of the Statute or common law rule rendering the contract unenforceable."

That paragraph refers to the Australian case of Pavey & Matthews Pty Ltd. v. Paul (1987) 162 CLR 221 (HCA) where the underlying law was considered at great length, especially in the dissenting judgment of Brennan J. That court decided that on its terms section 45 of the Builders Licensing Act 1971 (NSW) did not prevent an action on a quantum meruit, but it is clear that the decision was based on the particular terms of the section and that it may have been different if the section had been worded differently (see Deane J at p. 262). The House of Lords took a similar approach in Orakpo v Manson Investments [1977] 3 All ER 1 (HL) when considering the Moneylenders Act 1927 including the very similarly worded section 13(1) which provides "No proceedings shall lie for the recovery by a moneylender of any money unless", making it clear that the language used by the legislature in implementing its policy must be considered (p.15h) and holding that these words were very wide (p.13e) and covered all proceedings by which, either directly or indirectly, the recovery or any money lent was sought. Even though the House of Lords was reluctant to make its finding in the particular circumstances, it felt compelled to do so as to do otherwise "would be to enable the court to express a policy of its own ... which would be in direct conflict with the policy of the Act itself" (p.16e), continuing with a quotation from Mr Megarry (as he then was):

". . . . illegal transactions have long been subject to a general qualification in favour of persons for whose protection the illegality has been imposed, whereas no such general qualification has been established in cases of unenforceability: and if Parliament has declared a certain type of transaction to be unenforceable, it is a strong thing for the courts indirectly to enforce it in part…" (1956) 72 LQR 480 (p.16f).

The House of Lords also cited Lord Radcliffe in Kasumu v Raba-Eel., [1956] 3 All E.R. 266, 271 (PC) - "When the governing statute enacts that no loan which fails to satisfy any of [its] requirements is to be enforceable it must be taken to mean what it says, that no court of law is to recognise the lender as having a right to get his …. back."

I see no reason why this court should not apply these principles in the interpretation and application of the Contract Act.

There was no indication in Cable & Wireless v. Mataele that Martin CJ had been referred to this other line of cases but that in any event the Contract Act was not applicable in that case, which dealt with services already rendered, because (a) it was not proved that Mataele was a Tongan; (b) section 5 of the Act only applies to "goods to be supplied, money to be lent, or services to be rendered, in the future" (my emphasis), as was made clear by the Privy Council in Lolohea v Collett (p.3); and (c) services already rendered are not covered by sections 2, 3 or 4 of the Act. I believe it is therefore possible to recover for services already rendered on a quantum meruit as indicated in the cases and references given earlier, which cannot undermine the policy of the Act as it does not refer to services already rendered. There is therefore no reason why I should not apply section 3(2) of the Contract Act in this case: to do so does not conflict with the decision in Mataele.

No written decision was produced to the Court or indeed is available Clausen v Fusimalohi.

In Intracor Trading Co. Ltd v Finau (Case 84/89) Martin CJ described the Contract Act as "introduced to protect Tongans from being cheated by foreigners and is now used as a matter of routine by Tongans to cheat or attempt to cheat foreigners" but went on to enforce the Act. Few would disagree with the reason stated by Martin CJ for the introduction of the Contract Act, but in light of the evidence before this Court (and the evidence not produced to the Court) it would be wrong to make any finding or inference that the Defendant was attempting to cheat the Plaintiff. There was no sound evidence that the defendant had ordered the goods in 1987 and the telex from Warner Pacific indicates that the Bank may have allowed him to take delivery of the goods. Nor did the Defendant maintain the application of the Contract Act in relation to the first two debts.

The result is therefore that section 3(2) of the Contract Act does not apply in this to stop this action being maintainable for the price of the 1987 goods. Indeed this case is a modern example of the circumstances for which the Contract Act was passed - a Tongan dealing on credit with an overseas trader.

It is therefore not necessary to consider further the submissions of Defendant's counsel on restitution, unjust enrichment or waiver of tort (which in any event may not apply see Chitty para. 2072) and in the Plaintiff being given 40% of the value of the goods.

However as the Defendant has offered to return the goods to the Plaintiff at the Defendant's expense I shall also order payment by the Defendant of NZ$4494.31 (if the 2 orders in 1984, with interest at 10% from the date of judgment until paid. However judgment cannot be issued until a certificate of the relevant T$ equivalent is produced.