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Ulrich Aluminium Company Ltd v Alcc Brown Enterprises Company Ltd [2002] WSSC 38 (8 April 2002)

IN THE SUPREME COURT OF SAMOA
HELD AT APIA

IN THE MATTER:

ULRICH ALUMINIUM COMPANY LIMITED
a duly incorporated company having its head office at Auckland New Zealand, exporter
PLAINTIFF

AND:

Alcc BROWN ENTERPRISES COMPANY LIMITED
a duly incorporated company having its head office at Apia, builder

AND

ALBERT BROWN, trading as Cc: Aluminium
DEFENDANTS

Counsel: Mr T.K. Enari for Plaintiff
Mr T.R.S. Toailoa for Defendants

Date of Hearing: 30 November 2001
Date Submissions Filed: Plaintiff - 17/11/2000

Defendant - 05/10/2001
Date of Decision: 08 April 2002

DECISION OF JUSTICE VAAI

The plaintiff a New Zealand based Company having its head office at Auckland New Zealand claims from the two defendants sums of monies for the balance of the price of aluminium products sold and supplied to the two defendants. Defendant Albert Brown an engineer by profession is the managing director of the defendant Alcc Brown Enterprises Company Limited.

Both claims were heard together since the evidence led by the plaintiff in support of its claims is the same against each defendant and secondly the defences raised by both defendants are also similar. For convenience the defendant Albert Brown will be referred to as Mr Brown and Alcc Brown enterprises Co. Ltd. will be referred to as the defendant company. Against the defendant Mr Brown, the plaintiff claims NZ$12,842.91 being the value of goods supplied between February and April 1998 and in respect of the defendant company the plaintiff seeks to recover NZ$142,487.14 for goods supplied between February 1997 and March 1998.

Orders for the supply of aluminium and aluminium products were sent to the plaintiff by fax by Mr Brown. The plaintiff acknowledges the placed order and faxes a pro forma invoice to Mr Brown. After confirmation by Mr Brown in response to the faxed pro forma invoice the goods are then packed into cartons and delivered to Lima Exports (as agents for the Defendant Company) at Auckland accompanied by a carter’s note which Lima Exports sign upon receipt of the cartons. Lima Exports is a company owned by Mr Brown’s brother in law Lawrence Arthur Millbank. After delivery of the goods to Lima Exports the plaintiff faxes the invoice to the Defendant Company and the original is sent by mail. Lima Exports arranges for the shipment of the goods to the defendants.

Claim against the Defendant Company

The plaintiff claims that in response to the orders placed and confirmed by the defendant company it delivered the goods to Lima Exports who signed the Carters note acknowledging receipt of the cartons containing the goods. It also sent to the defendant the invoice for each order after delivery to Lima Exports. Payment by the defendant company of the goods supplied were by instalment and interest of 15% was to accrue on the outstanding amount after 2 months of supply. As of March 1998 the plaintiff had supplied to the defendant company goods to the value of $449,762.64. No further supplies were made after March 1998. At that time according to the statement of claim the defendant company had made payments totalling NZ$169,929.85 and it continued to make instalment payments to October 1998 so that total payments amounts to NZ$307,275.50. Instalment payments by the defendant Company went towards the payment of the oldest unpaid invoice and as at October 1998 the outstanding balance owing by the defendant and which the plaintiff now claims is NZ$142,487.14 plus accruing interest.

First Defence by Defendant

The defendant company admits being supplied by the plaintiff with goods but denies the total value of the goods on the grounds, firstly, that it has been invoiced for some of the goods, which were not supplied. In respect of invoice 2572 dated 18th November 1997 and invoice 2771 dated 31st January 1998, the defendants claim they were not supplied with the goods as set out in exhibit “D 18” with total value of NZ$26,767.35; and in respect of invoice 2713 dated 22nd December 1997 it denies receiving any of the goods listed therein valued at $5,341.95.

In determining this first issue it is accepted and conceded by both the plaintiff and the defendant company that after March 1998 no further deliveries of goods were made by the plaintiff to the defendant company although the defendant company continued to forward payments to the plaintiff for the outstanding accounts. It is also accepted that by the end of March 1998 the plaintiff had not received any notification from either the defendant company or its agent Lima Export of any shortfall of goods invoiced in invoices 2572, 2771 and 2713 bearing in mind that these invoices were made out and sent in November and December 1997 and January 1998. In fact it was not until November 1998 that the defendant company initiated inquiries concerning receipt by it or its agent Lima Exports of delivery dockets, invoices and the goods. By letter dated 4th November 1998 to the plaintiff the defendant company requested copies of invoices and delivery dockets. Part of that letter is reproduced here:

“Re ALcc Accounts NZ$142,487.14 and CC Account $12,842.91 = $155,330.05.

Thank you for your letter of the 9/10/98 regarding our overdue accounts with you.

............

Secondly, we don’t seem to be receiving delivery dockets or copies of all your invoices for our sighting or an approval of goods being received by Lima Exports, or even us here in Samoa. ------------ . So could you be able to supply these invoice copies, delivery dockets and other vital informations so we can reconcile our accounts and be assure were paying and what our agent have received so far.

...................

Sonny Foe
Accountant”

Understandably the plaintiff was irritated by the request and rightly so responded in the manner it did by reminding the defendants that the matter of delivery dockets should be taken up with the defendant’s agent (Lima Exports) who did receive the goods. Plaintiff did agree to submit copies of its invoices and by further faxed letter of the 11th December 1998 the plaintiff requested the defendant company to identify the accounts they are questioning and which the defendant claim to have not received the goods. By faxed letter of the 12th December 1998 the defendant requested copies of 19 invoices including the 3 invoices they are now challenging. In the meantime the defendant has since ceased making further payments despite its assurance in its letter of the 26th November 1998 (defendant’s exhibit “D 10”) that it will settle the account, not in full settlement but by instalment.

In explaining how the missing goods were identified Mr Brown in evidence says that it was after Mr Comber’s departure on his second visit to Samoa it was discovered that some components were missing from the factory and the defendant could not complete constructing sliding doors and other objects and as a result Mr Brown ordered his accountant and another employee to count the stock. From that count the missing goods were discovered and when the plaintiff refused Mr Brown’s request to supply the missing goods Mr Brown ordered payments to the plaintiff to cease.

Mr Comber’s evidence will be touched upon later on another issue but for the issue now under consideration it is suffice to say that Mr Combers second trip to Samoa was around late February or early March 1998 and he stayed for 2 to 3 weeks according to Mr Brown’s evidence, so that Mr Comber would have departed in late March 1998.

The defendant ceased payments in October 1998 and if Mr Brown’s evidence is correct that he ordered payments to cease when the plaintiff refused to supply the missing goods then the counting of the stock must have taken place before October 1998 when the last payment was made. But the evidence adduced by the defendant itself contradicts what Mr Brown has told the court. It was not until the 12th December 1998 that the defendant’s Accountant requested copies of invoices (including those under dispute). Secondly the defendant’s accountant who counted the stock under instructions from Mr Brown did the counting in November 1999; some 12 months after payments to the plaintiff has ceased and some 19 months after Mr Comber left. The inventory of that stock take is produced by the defendant as exhibit “D 15” and as a result of that count the defendant by comparing the count with copies of invoices supplied by the plaintiff (and by some methodology not fully comprehended by the court) determined the goods which were not received (as listed in defendants exhibit “D 18”). As a result the evidence of Mr Brown lacks substance and should be and is regarded as unreliable.

It is therefore accepted that the counting of the stock by the defendant was not done soon after Mr Comber left in March 1998 but in December 1999 and in the circumstances the court is justified in taking the view that counting was done after the plaintiff has threatened and filed these proceedings and that the inventory of the stocktaking and the list of goods not supplied (produced by the defendant as exhibits D 15 and D 18) are not genuine. This view is enforced by the fact that the plaintiff in an attempt to mitigate its losses when payments by the defendant ceased wrote to the defendant in December 1998 proposing to take back goods from the defendant provided an independent arbitrator like Coopers & Lybrand was put in place (see defendant’s exhibit “D 12”). But no response was forthcoming from the defendant. And furthermore the court accepts the evidence of Mr Cullen, accountant for the plaintiff, that the quantity of some of the goods on hand listed in the inventory exceeds the number that was actually supplied by the plaintiff. As a consequence of the findings of facts which the court has made, it is inevitable therefore that the testimonies of both Mr Brown and his accountant Mr Foe are to be treated as being less than frank. In fact the court takes the view that allegations by the defendants and testimonies by Mr Brown and his accountant relating to stock on hand and the goods not supplied are viewed as evidence of recent inventions in an attempt by the defendants to avoid payment of what is rightfully owing to the plaintiff.

In any event the plaintiff as seller of the goods had specific instructions from the defendant to deliver the goods to its agent Lima Exports who then arranged for shipping to the defendant. The defendant is deemed to have accepted the goods given the fact that the goods were delivered in December 1997 and January 1998 and it was only in December 1999 that the defendant purported to reject them. Pursuant to section 35 Sale of Goods Act 1975 the buyer is deemed to have accepted the goods when after the lapse of a reasonable time he retains the goods without intimating to the seller that he has rejected them.

Second Defence

In respect of invoice 2842 dated 28th February 1998 which relate to LT7 Roofing and amounting to NZ$2,645.75 the defendant company admits receiving the goods but denies placing an order for such goods thus contradicting the evidence of Mr Ullrich for the plaintiff that the LT7 Roofing was supplied upon receipt of order from the defendant. According to Mr Brown the LT7 Roofing was sent by the plaintiff to try on the Samoan Market and if not saleable the plaintiff would take them back at the plaintiff’s costs. Again in considering this issue the court has to resort to the documentary evidence and the conflicting testimonies of Mr Brown for the defendants and Mr Ullrich for the plaintiff. Weighing heavily against the defendant again is the documentary evidence. Invoice 2842 was forwarded to the defendant company when the LT7 Roofing was supplied and delivered to the defendant company and when the plaintiff pressed the defendant company for payment there was no protest (written or oral) by the defendant that the goods were given to it by the plaintiff on a trial basis to test the Samoan market and would be returned to the plaintiff if not saleable. In fact it was not until December 1998 by faxed letter dated the 11th December 1998 that the plaintiff offered to the defendant to deduct the cost of the LT7 Roofing from the outstanding amount owing by the defendant if the defendant pays in full the balance owing. That letter is set out here in full:

“To: ALCC BROWN

Attention: Sonny Foe

We wish to acknowledge that you are not avoiding payment of our account, and you will let us know the accounts with which you have a problem with, or you have made claim have not received, so we can take this matter up with Lima Exports, your agents in NZ who acted on your behalf.

It is obvious that if you can send the information back to us today, we have more chance of establishing the position and deferred payment of our company’s account through the reconciliation.

Indeed we make an offer to you, rather than ‘picking & choosing’ what goods you think might or might not want – e.g. aluminium LT7 roofing. If you pay our account in full this week you can deduct the amount for the aluminium roofing from our account, this is conditional on your account being settled forthwith immediately (my emphasis).

We don’t wish to prolong this matter, and in fact it would be preferable to have settled by 31 December 1998, for both parties.

If there is a need to take product from you we will propose an independent arbitrator be put in between the parties, and would nominate Coopers & Lybrand, recognized public Accountants for this purpose, if the matter is not settled forthwith.

Regards

Gilbert Ullrich”

Third Defence – Truelite Franchise

Both defendants contend that there was a franchise agreement called Truelite existing between the plaintiff and the defendants so that when the goods were supplied it was done pursuant to that franchise agreement, so that, the defendant says that in compliance with the franchise agreement the plaintiff was obliged to take back all the unused stock from the defendant if the venture does not work. In support of its contention that there was a franchise agreement the defendant refers to a letter of 9th September from Mr Ullrich to Mr Brown which is set out in full:

“9 September 1977

Mr Albert Brown

ALCC Brown Enterprise

P.O. Box 4362

Apia

SAMOA

Albert,

“Greetings from New Zealand”

I have had a number of people lately giving me feed back on the aluminium industry in Samoa, and the undoubted potential that exists there, and we believe this is worthy of greater consideration, hence my reason for writing to you.

We are pleased that you have established yourself in relation to the ‘Alia’ boat production, and have extended your aluminium activities there.

We note now with the sun louvres for the LDS Churches that you are supplying, that there is a possibility for aluminium windows, doors & louvre frames to be fitted into appropriate framing, also on their schools & chapels.

As you & I are aware there are 2 other aluminium fabricators in Samoa, neither of who has achieved a very good reputation.

We believe you could fill the gab that exists with our company’s Trulite joinery products, with a franchise backing from our company, and we are asking our Mohammed Taki to visit you next week and discuss this matter further. We would be able to provide you with various signage and advertising to commence, if you are interested in this project.

Please give this your consideration, even if it is on small scale I believe it would be well worthwhile for you, and as we have another party interested we would prefer to work in co-operation with you.

Taki will look forward to meeting with you during the coming week, possibly after work might be a good time in case you are too busy during the day, at his hotel (Aggie Greys), or maybe you can bring Lucsia along also and have dinner together.

Kind regards

Yours sincerely,

ULLRICH ALUMINIUM CO. LTD

GILBERT W. ULLRICH”

The above letter of offer the defendants say was followed by a Mr Taki of the plaintiff travelling to Samoa to pursue negotiations with Mr Brown and the visit was followed by other letters dated 1/10/97 and 17/10/97 from Ullrich to Brown. Those 2 letters are reproduced in full:

“To: Company ALCC BROWN ENTERPRISE

Date: 1/10/97

Address: APIA SAMOA

Fax No. 0501685

No. of pages 1

ATTENTION: ALBERT BROWN

(please advise as soon as possible if all pages are not received)

Albert,

Greetings from Otahuhu. It was a pleasure for Taki to meet with you and Lucsia during his stay, and I was pleased to learn on Taki’s return, that you are interested in taking up the Trulite franchise for Samoa, and we can direct our business to you for windows, doors, security screens, sun louvres, blustering etc, now and for the future.

We will have quite a number of contracts coming up that we can work through you on, and we will be pleased to assist you in setting up your workshop, training your staff (this maybe done on NZ Foreign Aid Training Grant) if you wish to send someone down. I don’t know how this works, but I’m sure you could find out through the NZ High Commission in Apia, and we look forward to supporting you in the best way possible in any application.

We believe the calibre of the other people in the local aluminium business in Samoa leave a lot to be desired, and that you will have good success with this new venture – the aluminium age will come to Samoa for sure.

Taki is doing some quotations for you and these will follow shortly. Please let me know what further assistance you required. I am endeavouring to locate the major sign my company has in Samoa with Trulite products on, and have it delivered to you and you can change the name to yours.

Kind regards

GILBERT W. ULLRICH"

“To: Company ALCC BROWN ENTERPRISE Date 17/10/97

Address APIA Fax No. 0501685

SAMOA No. of pages 1

ATTENTION: ALBERT BROWN

Albert,

Greetings from a pleasant Friday afternoon in Auckland.

Thanks for your assistance yesterday during our telephone conversation. We are proceeding with your valued Order No.42 on the sizes & dimensions as requested with delivery to Lima Exports early next week (we hope).

Re: Stock Sections for aluminium factory – we are proceeding with the proposal we made to you on 13 October, totalling NZ$39,843.05, which we believe will cover your initial requirements with payment spread over a 3 month period.

Re: Machinery – thanks for your advice that you don’t need any additional machinery, other than what you have already available in Samoa. If this position should change kindly let us know and we would be happy to include what you needed in with your next order.

Re: Person to set up Factory from NZ – we are still contemplating before deciding who would be the best for this project, and will revert to you with names, dates etc once we have ascertained the material to commence your business in Apia, and delivered to the factory.

Re: Payments advice – thanks for your advice that you are sending down some a payment for the 90 day portion of your account, and this is greatly appreciated, as we need some of this currently.

Assuring you of our best co-operation at all times.

Kind regards

GILBERT ULLRICH˝

Other than the correspondences between the parties there was no formal franchise agreement. But the defendant says that the correspondences and the verbal undertakings by Mr Ullrich for the plaintiff to buy back all the stock if the Truelite venture fails constitutes a franchise agreement between the parties. The submission by the defendant cannot be sustained for several reasons. In the first place the goods supplied by the plaintiff to defendant were not only for the Truelite products but also for Aluminium boat production in which the defendant was already engaged in before the Truelite franchise was proposed to the defendant. Secondly the proposed franchise agreement proceeded no further than an expression of interests, proposals and negotiations and as a result lack the ingredients of a binding agreement so that the respective rights and obligations of the parties are not defined. Thirdly although the plaintiff was instrumental in finding Mr Comber Mr Comber’s expenses and salary were in fact paid by the defendant company and Mr Comber during his 5 to 6 weeks visit spent only about 3 days setting up the factory and the rest of his time working for the defendant company manufacturing materials to fulfil its orders. Fourthly the defendant did not totally rely on the expertise of the plaintiff or of Mr Comber. In a bid to get financial assistance for its project the defendant filed an application for financial support through a scheme financed by the government of New Zealand and known as PIDS and the supporting information describes Mr Brown as having 10 years New Zealand trained Aluminium worker who can assist with promoting and can also help with training requirements. Fifthly the proceeding now contested between the parties did not come about because the Truelite Venture has collapsed but because since March 1998 the payments by the defendants for the products supplied became seriously in arrears until October 1998 when payments ceased altogether. And furthermore according to the evidence of the accountant for the defendant company most of the outstanding payments are not for Truelite joinery goods but for boat building materials.

In fact the bulk of the unsold stock in the premises of the defendant according to the stocktaking done by the defendants in November 1999 (Exhibit “D 15” for defendant) is for boat build materials totalling $57,995.73 and stock for Truelite joinery amounts to $23,034.15.

For the reasons given the court is of the view that there was not in existence any franchise agreement and the defence accordingly fails.

Unsold Stock

The defendants contend that the unsold stock remain the property of the plaintiff so that since the plaintiff had undertaken to buy back all the unsold stock if the venture does not work, the plaintiff was obliged to repatriate the goods at its own costs. In support of this contention the defendant relies on representations by Mr Ulrich of the plaintiff to Mr Brown that the plaintiff will buy back all unsold stocks if the venture does not work. Mr Ulrich denies making such representations. The court has already determined that there was no franchise venture in existence. The defendants also rely on the wording of a clause in the plaintiff’s pro forma invoices. That clause states:

“This sale is made on the Company's Standard Terms of Sale in which the goods are to remain the property of the Company until paid for in full. Goods and plants also subject to Lease and Charges of Hire Purchase as applied in New Zealand on overdue accounts interest will be charged at 15% P.A.”

And the defendant argues that pursuant to the above clause the plaintiff is obliged to take back all the unsold stock with the defendants. A letter from the plaintiff’s solicitor to the defendant’s dated 11th March 1999 supports this view the defendants say and it reads:

“11 March 1999

Mr Sonny Foe

Financial Controller

ALcc Brown Construction Co.

Vailima

Dear Sir

We refer to the account headed ALCC Brown.

Our clients say that they are willing to take back any unsold inventory relating to this account. We need from you a list of this material and a time when a representative can inspect and verity the goods. Provided that the goods are found to be “in pristine condition” our clients are willing to take these back (at your cost). Please advise.

With regard to your invoice 3708 of 31.12.98 our clients wish to see verification of the duty and tax levy and payment.

On the question of the joint venture our clients are not aware that anything further was required on them with regard to the grant application. Our clients would like further explanation of this charge. What advice did your clients have of your visit to New Zealand etc.?

Having supplied you with invoices on the first claim for NZ$142,487.74 do you now feel able to come up with payment?

We look forward to your comments.

Yours faithfully

KRUSE ENARI & BARLOW

(Karanita L. Enari)”

It will be seen from the contents of the letter however that the plaintiffs were expressing their willingness to take back unsold stock at the defendant’s premises provided they are in pristine condition. And from reading the first line and the second to last line of the letter the offer by the plaintiff to take back the stock relates only to the stock supplied to the defendant Brown and not to the defendant company; so that the offer is in respect of the claim of NZ$12,842.91 only.

In respect of the clause in the pro forma invoices it does not impose upon the plaintiff as the unpaid seller of the goods an obligation to take back the goods. The plaintiff as the unpaid seller is pursing his remedy to sue for the price of the goods pursuant to Section 48 Sale of Goods Act 1975. In addition to the remedies the plaintiff has other rights imposed on it by section 39 Sale of Goods Act 1975.

Claim against the Defendant Brown

The plaintiff claims NZ$12,842.91 for aluminium and aluminium products sold to the defendant in February to April 1998. Although the defendant in his statement of defence denies receiving the goods, Mr Brown in his evidence does not deny receipt of the goods; in fact, he says that the defendant was the vehicle for the proposed Truelite franchise. The court therefore accepts that goods to the value of NZ$12,842.91 were supplied by the plaintiff. But the defendants seeks to set off from the plaintiffs claim certain invoices for services rendered by the defendant amounting to NZ$9,876.76. Invoice 101 amounting to NZ$5,000 relates to the costs of a feasibility study undertaken by the Accountant for the defendant to obtain financial assistance for the proposed joint venture by the plaintiff and the defendant. The other invoices making up the balance of the counterclaim and set off relates to storage and transport costs for unsold and faulty goods.

Invoice 101 (NZ$5,000.00)

The invoice is dated 31st December 1978 and is for half of the cost of a feasibility study undertaken by the accountant for the defendant in a bid to obtain financial assistance from a scheme called Pacific Island Investment and Development Scheme (PIDS) for the proposed joint venture in Samoa of the plaintiff and the defendant in a truelite franchise. Mr Brown said he discussed the PIDS application several times with Mr Ulrich and as a consequence he (Mr Brown) instructed his accountant Mr Foe to do a feasibility study. Mr Foe has produced as exhibit D16 for the defendant a Feasibility Study Grant Application Questionnaire that he sent to the NZ High Commission Office at Apia with an accompanying letter dated the 14th August 1998. It will be remembered that the plaintiff had stopped supplying the defendants with aluminium products in March 1998 (some five months before the defendant submitted the Application Questionnaire) and the relationship between the parties has begun to turn sour with the plaintiff chasing payments for the unpaid stocks. Question 1 of the questionnaire states:

“What is your business idea?”

And part of the lengthy Response is:

“Board of Directors – Mr Albert Brown)

Mr Gilbert Ulrich

Require Equity - Approx. WT$700,000

Equity Paid WT$460,000 NZ 50% Samoa %

Stocks (Materials) Require Approx. WT$300,000

Stocks paid for WT$200,000 NZ 50%, Samoa 50%

Mr Ullrich’s name has been used without his knowledge and the information given is outrageously misleading.

The so-called feasibility study for which the defendant is asking the court to be compensated for is nothing more than cheap orchestrated lies designed by the defendant without the knowledge of the plaintiff in an attempt to obtain financial assistance. The counterclaim for NZ$5,000 is denied.

Finally the remaining invoices relate to the LT roofing, which has already been dealt with in the claim against the defendant company, and for reasons given there the remaining part of the counterclaim is also dismissed.

In conclusion the court gives judgment for the plaintiff against the two defendants as follows:-

(i) Defendant Company NZ$142,487.14

Interest at 15% from 1/4/98 85,960.73 to 8/4/2002.

Costs and disbursements to be fixed by the Registrar.

(ii) Defendant Brown NZ$12,842.91

Interest @ 15% from 1/6/98 7,478.81

Costs and disbursements to be fixed by the Registrar.

JUSTICE VAAI