Smith and Another v Peter & Diana Hubbard Pty Ltd and Others [2006] NSWCA 109 (9 May 2006)

Last Updated: 11 May 2006

NEW SOUTH WALES COURT OF APPEAL

CITATION: Smith and Another v Peter & Diana Hubbard Pty Ltd and Others [2006] NSWCA 109



FILE NUMBER(S):
40870/04

HEARING DATE(S): 15 March 2006

DECISION DATE: 09/05/2006

PARTIES:
Brian SMITH (First Appellant)
BRIAN SMITH TIMBER TRANSPORT PTY LTD ACN 003 789 606 (Second Appellant)
PETER & DIANA HUBBARD PTY LTD ACN 085 735 771 (First Respondent)
Peter Yule HUBBARD (Second Respondent)
Diana Maree HUBBARD (Third Respondent)

JUDGMENT OF: Giles JA Santow JA McColl JA

LOWER COURT JURISDICTION: District Court

LOWER COURT FILE NUMBER(S): DC 1023/03

LOWER COURT JUDICIAL OFFICER: Quirk DCJ

COUNSEL:
N A COTMAN, SC/ C D WOOD (Appellants)
K P SMARK (Respondents)

SOLICITORS:
Stephen O’Reilly, Bridge St Lawyers (Appellants)
Lorraine Boyce Solicitors (Respondents)

CATCHWORDS:
AGENCY – scope of agent’s authority – whether agency extended to receiving or directing payment of purchase money – whether purchasers on constructive notice of agent’s lack of authority.

LEGISLATION CITED:
Sale of Goods Act 1923 s22, S23

DECISION:
Appeal allowed. Orders at [13].


JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40870/04

DC 1023/03

GILES JA

SANTOW JA

McCOLL JA

9 MAY 2006

Brian SMITH and Another v PETER & DIANA HUBBARD PTY LTD and Others

Judgment

1 GILES JA: The facts are set out in the reasons of Santow JA, which I have had the advantage of reading in draft.

2 In their cross-claim the Hubbard interests pleaded against the Smith interests a case of damages for repudiation of a contract to sell the prime mover. Mr and Mrs Hubbard could not have obtained damages from the Smith interests, because the cross-claim alleged a contract made by Mr Hubbard “on behalf of the first cross-claimant”, that is, Peter & Diana Hubbard Pty Ltd. It was not alleged that property in the prime mover had passed to Peter & Diana Hubbard Pty Ltd pursuant to an intention found in accordance with ss 22 and 23 of the Sale of Goods Act 1923, presumably because it was necessary that work be done on it before delivery (removal of hydraulics – although not in Santow JA’s facts, this was found as part of the contract), see Rule 2 in s 23.

3 In order to obtain damages for repudiation of the contract, it was not necessary in law that the purchase price had been paid to the Smith interests. The cross-claim specifically alleged that it had been paid to them by reason of Mr Wear’s actual or apparent authority of the Smith interests to direct payment to Benjosh, and that after accepting the repudiation Peter & Diana Hubbard Pty Ltd sought return of the purchase price from the Smith interest without success. The part to be played by this is not clear. Payment to the Smith interests could have founded a claim to have the money returned on failure of consideration, but that was not the pleading and would not have given indemnity for the liability to AGC. Damages for repudiation of the contract would ordinarily be the difference between the price payable for the prime mover and its true value. It may have been intended to support loss because the purchase money was obtained from AGC by Peter & Diana Hubbard Pty Ltd and paid away, and was not recovered, leaving the liability to AGC, although that does not seem to have been the way loss was put forward at the trial. If that had been intended, a nice question could have arisen as to whether the payment away had to be an authorised payment to the Smith interests.

4 Whatever the explanation, as the case was fought at the trial and on appeal authorised payment was regarded as necessary and it was accepted that actual or apparent authority to direct payment to Benjosh had to be found.

5 In my opinion the judge was incorrect in finding that Mr Wear, as distinct from Hamelex White, was the agent of the Smith interests. Everything pointed to Mr Smith’s dealings with Mr Wear being in Mr Wear’s capacity as an employee of Hamelex White at its Coffs Harbour branch. Mr Smith was aware of Hamelex White and that it acted as agent for sale of second hand trucks. He knew that Mr Wear worked at the Hamelex White Coffs Harbour branch. While the evidence did not say that he telephoned Mr Wear as the branch, this awareness and knowledge was clearly the occasion for the telephone call from which the agency arose. The prime mover was advertised in a Hamelex White advertisement, giving the name of Mr Wear as the contact. There was really nothing to make Mr Wear anything other than the representative of Hamelex White in the transaction.

6 That is far from determinative in the appeal, although it should be stated before considering the agent’s actual or ostensible authority. The agent being Hamelex White, its authority was exercised through Mr Wear and is to be assessed having in mind the dealings with its representative Mr Wear.

7 The engagement of Hamelex White to find a purchaser for the prime mover did not give it general authority to do on behalf of the Smith interests “anything which may be incidental to the effecting of a sale”, and in particular did not give it authority to receive the purchase money as a receipt by the Smith interests: Petersen v Moloney [1951] HCA 51; (1951) 84 CLR 91 at 95 per Dixon, Fullagar and Kitto JJ. Still less, then, did the agent have authority to direct payment of the purchase money to a third party.

8 The judge appears to have thought that the actual authority in the present case was enlarged by evidence which she described as evidence of Mr Smith -

“ ... that in his transactions in the past with dealers selling vehicles and plant for him that the practice was for the dealer to have received the money for the vehicle or plant from the purchasers and that, after ‘taking a cut’ or making appropriate deductions, the money would then be paid to him or his company.”

9 Even if this established a practice in the sale of equipment such as the prime mover, at best it could have founded a finding that Hamelex White had authority to receive the purchase price of the prime mover and that Mr Wear as its representative could direct that the purchase money be paid to Hamelex White. It is quite a different thing to say that Mr Wear had authority to direct payment to a third party, an entity other than Hamelex White and an entity which was not the agent of the Smith interests and of which Mr Smith had no knowledge. A principal may be content to have the agent it has chosen receive the principal’s money, satisfied in choosing the agent that it is a suitable destination. The third party is an unknown quantity, and the principal cannot be taken to entrust to the agent the further choice of a suitable destination.

10 Turning to whether Hamelex White, represented by Mr Wear, had ostensible authority to direct payment to a third party, Mr Smith did nothing to hold out that Hamelex White was more than agent to find a purchaser for the prime mover, or that Mr Wear was more than its representative for that purpose. In Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 208 ALR 213 it was said at [36], speaking of a company holding an officer out as having authority, that it is not enough that the representation as to authority comes from the officer alone and that, although the conduct of the officer is not irrelevant to the representation, “the company’s conduct must be the source of the representation”. In that case the representational conduct was found in the company setting up an organisational structure presenting an appearance of authority to outsiders. Mr Smith did nothing of that kind to put Mr Wear in a position in which he could purport to direct the payment of the purchase price. He simply engaged Hamelex White, and by his conduct represented no more than that Hamelex White and Mr Wear as its representative were the agent for sale of the prime mover; that did not add a greater ostensible authority to the actual authority of the agent.

11 On the basis on which the case was fought, for these reasons Peter & Diana Hubbard Pty Ltd did not establish an entitlement to damages in some way measured by their liability to AGC. It is not necessary to consider whether the Hubbard interests were put on notice of excess of authority, the quantification of damages or Mr Smith’s personal liability.

12 It was accepted by the Smith interests that, if they succeeded in the appeal, the judgment they obtained on a cross-claim over against Mr Wear and Benjosh should be set aside.

13 I propose the orders -

1. Appeal allowed.

2. Set aside the judgment for the cross-claimants on the first cross-claim in the sum of $275,704.79 and the order that the cross-defendants pay the cross-claimant’s costs, and in lieu thereof order that the first cross-claim be dismissed and that the cross-claimant pay the cross-defendants’ costs.

3. Set aside the judgment for the cross-claimant on the second cross-claim in the sum of $275,704.79 and the orders that the cross-defendants pay the cross-claimants’ costs and the costs of the cross-claimants on the first cross-claim, and in lieu thereof order that the second cross-claim be dismissed.

4. Direct the appellants to inform the cross-defendants to the second cross-claim by letter sent to their last known address of the order in 3.

5. Respondents to have a certificate under the Suitors Fund Act if otherwise qualified.

14 SANTOW JA:

INTRODUCTION
This is an unfortunate dispute arising out of cross-claims between two parties each of whom was innocent of the fraud which led to the loss. Nonetheless the law recognises degrees of culpability or responsibility for that loss as between two innocent parties and decides where that loss must fall. Party A may, unwittingly but imprudently, arm a go-between with the means to perpetrate a fraud. It will frequently, as here, be a matter of dispute whether the go-between was A’s agent and, if so, the scope of his actual or apparent authority. Party B may be deceived, yet should have had his suspicions aroused in the circumstances so putting him on constructive notice of a lack of authority. That epitomises the competing contentions in this appeal. Depending on the answers to those questions, the extent of any recoverable damage needs consideration for it too is disputed.

15 At trial Quirk DCJ determined that the appellants, as intending vendors of a semi-trailer, bore the loss. They had armed a go-between, held to be the appellants’ agent or sub-agent, with the means to perpetrate a fraud on the respondents as the intending purchasers. This was in giving actual or ostensible authority to that dishonest go-between to direct payment of the purchase money to an entity he nominated, being, unbeknown to the respondents, his own family company. It was held in favour of the respondents, as intending purchasers, that they were not on constructive notice of any limitation on the go-between’s authority to direct payment in this way, notwithstanding that the payee had a name unrelated both to the vendor and the go-between’s employer. That the latter was the principal agent to sell the semi-trailer was not disputed.

16 This appeal challenges both the finding of agency on the part of the go-between, and that his actual or ostensible authority extended to nominating the entity to whom the purchase money was to be paid. The appellants contend that even if those issues were decided against them, the respondents were on constructive notice that the entity concerned was not the proper entity to whom the purchase money should be paid, given the lack of identity or association of the payee’s name with that of either the vendor or the go-between’s employer.

17 The appellants and cross-defendants comprise “the Smith interests” being Brian Smith (the first appellant) and his company Brian Smith Timber Transport Pty Ltd (“Smith Company”, the second appellant). The respondents comprise “the Hubbard interests” being Peter & Diana Hubbard Pty Ltd (the first respondent), Peter Yule Hubbard (the second respondent) and Diana Maree Hubbard (the third respondent). They are the cross-claimants.

18 The parties were duped by a dishonest employee (“Mr Wear”) of a truck dealer Hamelex White Pty Limited (“Hamelex White”) when Mr Wear’s company, Benjosh Pty Limited (“Benjosh”), misappropriated the funds intended by the Hubbard interests to be applied to purchase Smith Company’s semi-trailer. Hamelex White were acting as agents for the Smith interests in the sale of the semi-trailer. At issue is whether Mr Wear was a sub-agent or merely the employee of Hamelex White and whether indeed that mattered. The funds were borrowed by the Hubbards from a financier (“AGC”) to fund the Hubbard interests’ intended purchase of the semi-trailer via their company Peter & Diana Hubbard Pty Ltd. Mr Wear directed that the purchase money be paid to Benjosh. None of Mr Wear, Hamelex White or AGC is party to the appeal. AGC was the plaintiff in the court below in the sum of $199,309.35 plus interest. AGC’s action was settled by consent orders whereby the Hubbard interests paid $275,704.79 to AGC. It is that sum which the Hubbard interests claim crystallised their loss.

19 The question of who bears the loss turns in part on the status and authority of Mr Wear and in particular upon the following:

(1) Was Mr Wear the agent (or sub-agent) of the Smith interests or simply an employee of Hamelex White, and with what consequence?
(2) Did Mr Wear in either capacity have authority, actual or ostensible, to bind the Smith interests or either of them:

(a) to a contractual commitment to sell the semi-trailer owned by Smith Company to Peter & Diana Hubbard Pty Ltd; and
(b) to direct payment of the monies required for purchase of the semi-trailer to be paid by the financier AGC to Benjosh Pty Limited?

It is important to recognise that (a) and (b) are distinct questions, (b) going to the extent of authority.

(3) If Mr Wear’s authority either as agent in his own right or as employee of Hamelex White was ostensible only, were the Hubbard interests on notice or inquiry as to any lack of authority on Mr Wear’s part so to direct payment?
(4) If the Smith interests were ultimately held to be liable, is Mr Smith personally liable to the respondents on the basis that he should be taken to be an undisclosed agent of Smith Company?
(5) Depending on answers to the earlier questions, were any damages payable by the Smith interests nominal only, by reason of failure on the part of the Hubbard interests to perform the contract by failing to make the money available to the Smith interests, having wrongly caused the money to be paid to Benjosh?
(6) Were any damages precluded from recovery

(a) because the causal effect of any breach by the Smith interests was interrupted by the supervention of Mr Wear’s and Benjosh’s misappropriation of these monies, or
(b) because too remote?

(7) Depending on the answers to the previous questions, if damages were payable, should they be limited to the purchase money of the semi-trailer and exclude any interest thereon by reference to AGC’s commercial rates, or be limited to interest at the Supreme Court rates?

SALIENT FACTS

20 Most of the material facts are not, or are no longer, in dispute.

21 The first appellant, Brian Smith, is a director of the second appellant, Smith Company, over which he exercises effective control.

22 In about March 1999, Smith Company purchased a Western Star prime mover.

23 In early 2001, Mr Smith decided to sell the prime mover.

24 For many years he had “been aware” of Hamelex White, a company which sold new and second-hand trucks and who acted as agent for sellers of such vehicles.

25 Mr Smith knew only one person working at the Hamelex White Coffs Harbour branch, Mr Robert Wear, whom he had met in 2000. He trusted Mr Wear and had no reason to distrust him.

26 In February 2001, Mr Smith spoke to Mr Wear by telephone about selling the prime mover and two trailers. He told Mr Wear that he wanted $170,000 for the prime mover (and as much as he could get for the two trailers but would if necessary sell the former separately).

27 In his affidavit sworn 17 October 2003, Mr Smith deposed that he said in this conversation, “I may have a truck for sale. Is there any market for it? I want about $170,000 for it if I could get it.” He said that Mr Wear replied “Leave it (with) me, I will see what I can do.”

28 The prime mover was advertised for sale in “The Land” newspaper in April 2001. The advertisement was under the name Hamelex White (giving a Penrith address) and carried the name of Mr Wear and his local telephone numbers (which inferentially were not Sydney but country numbers).

29 In late April 2001, Mr Smith spoke to Mr Wear by telephone and Mr Wear indicated that a person was interested in buying the prime mover.

30 Mr Smith arranged for one of his drivers to drive the prime mover to Mr Hubbard’s property at Curlewis (some 4-5 hours from Coffs Harbour) where Mr Hubbard and two of his mechanics inspected it. Mr Wear also attended.

31 At the Curlewis property, Mr Wear rang Mr Smith on his mobile phone and introduced Mr Hubbard to Mr Smith over the phone.

32 Mr Smith and Mr Hubbard then had a conversation by phone. The trial judge accepted Mr Hubbard’s version that in the course of this conversation a price of $180,000 was agreed. (This is no longer at issue on appeal.)

33 Mr Smith conceded that he did not tell Mr Hubbard that there was any limitation on the authority of Mr Wear or Hamelex White, or that there was any restriction on the payment of monies to Mr Wear or Hamelex White.

34 After the conversation, Mr Hubbard spoke to his broker Mr Bruce Smith and asked him to arrange finance. The broker then arranged finance with AGC.

35 Mr Brian Smith (the putative vendor) gave evidence that a week or two after the conversation with Mr Hubbard, he changed his mind and decided not to sell the prime mover.

36 He said he spoke to Mr Wear and told him of his decision, but conceded that he did not tell Mr Hubbard at that time.

37 On 7 May 2001, Mr Wear faxed a tax invoice to Mr Hubbard’s broker. It was drawn as an invoice from Benjosh, headed “Benjosh Pty Limited trading as Coffs Truck & Trailer Sales”. (There is no suggestion the Hubbard interests did a search of Benjosh, which would have revealed that it was owned and controlled by Mr Wear and his associates.) The invoice provided a detailed description of the prime mover, an ABN and ACN, the price, banking details and the same telephone numbers for Mr Wear as had appeared in the Hamelex White advertisement. However, there was no mention by name of Hamelex White.

38 Mr Bruce Smith (the broker) in his affidavit of 16 September 2003 (Blue, 1/49) said that:

“4. I contacted Robert Wear and requested particulars of where payment was to be made for the purchase of the truck. Annexed hereto and marked “A” is a copy of a fax received by my office on 7 May 2003.”

39 On 14 May 2001, the Hubbards executed documents to obtain the loan from AGC to buy the prime mover. The second and third respondents, Peter and Diana Hubbard, guaranteed the loan.

40 On 15 May 2001, Mr Hubbard’s broker took the documents to AGC. AGC paid $180,000 into the account of Benjosh.

41 The trial judge accepted Mr Hubbard’s evidence that on 15 May 2001 he rang Mr Smith to make arrangements to pick up the prime mover. The trial judge also appeared to accept that Mr Hubbard told Mr Smith at this time that he had already paid the money for the prime mover to Mr Wear (Red, 25C-I). (This is not in dispute on appeal.)

42 Mr Hubbard’s broker and AGC took steps to recover the monies paid to Benjosh. These monies were not recovered from Benjosh or Mr Wear though apparently there was some very limited recovery.

43 In November 2002, Mr Smith sold the prime mover to a third party.

44 AGC as plaintiff sued to recover the loan and interest from the Hubbard interests. They in turn filed a cross-claim against the appellants for damages for breach of contract. Smith Company filed a cross-claim against Mr Wear and Benjosh. Mr Wear and Benjosh did not file defences or appear in the trial proceedings. Nor did they take any part in this appeal.

45 On the first day of the hearing, AGC settled its claim against the respondents and the cross-claim between the respondents and Mr Smith and Smith Company proceeded.

The First Instance Judgment
Findings of credibility

46 Wherever Mr Hubbard’s evidence differed from that of Mr Smith, the trial judge preferred the evidence of Mr Hubbard (Red, 25J-K). Those findings of credit are not at issue on appeal.

Findings of Fact

47 The trial judge found that a contract for the sale of the prime mover was concluded in late April 2001 between Mr Hubbard and Mr Smith (Red, 25L). There is no appeal from the finding that a contract for sale was created by the first telephone conversation from the Curlewis property. The appeal is as to Mr Smith’s liability on it.

Limitation on Authority of Mr Wear

48 The trial judge appeared not to accept the submission that Mr Smith expressly limited Mr Wear’s authority when he said to Mr Wear “I may have a truck for sale.” The trial judge made these findings:

(1) It was clear that Mr Smith gave Mr Wear much more information and had further discussions about the prime mover than he originally deposed to in his affidavit.
(2) He either instructed or authorised Mr Wear to accompany his driver to the Hubbards’ property.
(3) Mr Hubbard did not concede that Mr Wear did not have authority to agree on a price.
(4) Although Mr Smith denied having seen “The Land” advertisement prior to the conversation with Mr Hubbard, he must have known that Mr Wear was going to advertise the prime mover in some fashion (Red, 26P-27F).

Authority to receive payment

49 The trial judge accepted the respondents’ submission that common sense, commercial practice and the evidence of Mr Smith pointed to Hamelex White and/or Mr Wear having authority to receive payment for the prime mover as part of “usual” authority (Red, 28V-29B).

Agency

50 Mr Smith led Mr Hubbard to believe that Mr Wear had actual authority and armed him with tools to engender that belief by:

(a) having Mr Wear attend the property with the truck and facilitate the conversation in late April, and
(b) arming him with information so that the advertisement could be placed in “The Land”, and
(c) not advising the Hubbards of any limitation on Mr Wear’s authority (Red, 29F-M).

51 The evidence pointed to Mr Wear being appointed the agent of Mr Smith (rather than Hamelex White):

(a) There was no evidence that Mr Smith ever attended the Coffs Harbour office of Hamelex White or dealt with anyone other than Mr Wear.
(b) There is no document recording or limiting the retainer of Mr Wear or Hamelex White, and
(c) All the conversations about the sale of the truck were with Mr Wear, whom Mr Smith had met at a function and not at the premises of Hamelex White (Red, 29T-30I).

Whether respondents had notice that Mr Wear exceeded his authority

52 There was no suggestion that the respondents were aware that Benjosh was a company controlled by Mr Wear (Red, 32X).

53 The trial judge found that the circumstances of the direction to pay Benjosh, although unknown to the respondents in the circumstances, was not sufficient to place the respondents on notice that something abnormal or suspicious was occurring. The judge appears to have accepted the respondents’ submissions that:

(a) The invoice was typed and in regular form. It contained the details of the prime mover, the price and the parties. It was sent by fax from Mr Wear, who was the appellants’ agent. The same telephone numbers appeared as in “The Land” advertisement (Red, 32F-O).
(b) The respondents had no reason to suppose or need to inquire that Benjosh was not a company associated with Mr Smith or a creditor of Mr Smith (Red, 33C-F).
(c) Commercial practice, common sense and the evidence of Mr Smith as to the way in which used car and truck dealers operate would make it nonsensical for any direction to pay any person other than Mr Smith or Smith Company to be sufficient to put a purchaser on notice (Red, 33G-L), and
(d) The respondents knew that Mr Wear was Mr Smith’s agent and they were therefore entitled to act in accordance with Mr Wear’s advice as to how the sale should be concluded (Red, 33L-O).

Mr Smith as agent for undisclosed principal

54 Although it was not in dispute that Mr Smith traded through his company during this period, the evidence of Mr Smith was that the existence of his company was not disclosed to Mr Hubbard.

55 The trial judge accepted the respondents’ submissions that in the absence of disclosing the existence of his company, Mr Smith was acting as agent for an undisclosed principal, with the result that both he and his company are liable on the contract (Red, 34B-J).

Damages

56 The trial judge did not think there was evidence on which she could find that Mr Hubbard failed to mitigate his loss or that AGC were not entitled to recover the whole amount that the respondents agreed to pay (Red, 34T-35G). I observe that there was however no discussion otherwise of causality (novus actus interveniens) or remoteness, both of which were argued on appeal in relation to recovery of damage under contract.

Verdict

57 The trial judge entered a judgment for the respondents against the appellants in the sum of $275,704.79 (Red, 35G-J).

58 The trial judge entered judgment for the appellants against Mr Wear and Benjosh on the second cross-claim in the same amount (Red, 35J-N).

DISPOSITION
Agency to Sell?

59 For reasons essentially those of the trial judge, I consider that Mr Wear did have actual authority to sell the semi-trailer on behalf of the Smith interests. That included authority to agree on a price within the parameters set by Mr Smith. He was provided by the vendor with the means of bringing about the sale, having been told the VIN number and other details about the semi-trailer. Whether he was told directly by Mr Smith or by his employer Hamelex White does not matter. That he had that authority is in no way incompatible with his being employed by Hamelex White and Hamelex White being appointed as the agent for sale. It was not disputed that Mr Wear was “the face” of his employer Hamelex White in Coffs Harbour.

60 The evidence relied on by the trial judge was as follows. Mr Smith had bought and sold numerous items of machinery, trucks, prime-movers and trailers since the mid-1980’s, including through dealers (Red, 18H-K; Black, 44R-47X). Hence there was nothing untoward in his doing so in this instance.

61 Mr Smith conceded in cross-examination that when he had sold motor vehicles, including trucks through dealers, the practice was for the dealers to receive the purchase money and then for the money to be passed on to Mr Smith or his company (Red, 27T-X; Black, 45H-47I).

62 For many years Mr Smith had been aware of Hamelex White, a firm which sold new and second-hand trucks and acted as agents for sellers of such vehicles (Red, 18L-R).

63 Mr Smith knew Mr Wear, had met him personally in the year 2000 and knew he worked with Hamelex White. Mr Smith trusted Mr Wear and had no reason to distrust him (Red, 18R-S).

64 Moreover, Mr Wear was the only person Mr Smith knew working at the Coffs Harbour branch of Hamelex White. Mr Wear was the face of Hamelex White in that area.

65 In February 2001, Mr Smith spoke to Mr Wear by telephone about selling the semi-trailer, with two trailers. Importantly, when the semi-trailer was later advertised for sale in “The Land” newspaper in April 2001, whilst the advertisement was under the name of Hamelex White, giving a Penrith address, it carried the name of Mr Wear and his local telephone numbers.

66 Further contact ensued in April 2001 following which Mr Smith arranged for one of his drivers to drive the semi-trailer to Mr Hubbard’s property at Curlewis (some four to five hours from Coffs Harbour) where Mr Hubbard and two of his mechanics inspected it; relevantly, Mr Wear also attended. Moreover, it was Mr Wear who rang Mr Smith on his mobile phone and introduced Mr Hubbard to Mr Smith over the phone when they had the conversation, which the trial judge accepted, settled on a price of $180,000. At no point did Mr Smith tell Mr Hubbard of any limitation on the authority of Mr Wear or Hamelex White.

67 In those circumstances, the evidence leaves it abundantly clear that Mr Wear had actual authority to sell the semi-trailer on behalf of the Smith interests. Whether this authority derived from his employment with Hamelex White or as a sub-agent does not matter in this context. Insofar as Mr Wear was acting on behalf of Hamelex White, he had the ostensible authority of Hamelex White to perform Hamelex White’s agency role.

Extent of Agency to Sell – Did it extend to directing how the purchase money was to be paid?

68 It is true that Mr Smith did not tell Mr Hubbard at any time of any limitation on Mr Wear’s authority, including as to directing where payment was to be made and how (Red, 21Y-22D; Black 58Q-59D). That however does not foreclose the question of whether the agency of Mr Wear extended to giving such a direction.

69 In this context, I do consider that the sub-agency/ agency distinction has a potential bearing. Mr Smith conceded that he had sold motor vehicles including trucks through dealers and that his practice was for the dealer to receive the purchase money and then for the money to be passed on to Mr Smith or his company. However, that concession does not imply that his past practice was to have payment effected by a direction to transmit the purchase money to an entity of a different name from that of the agent or himself. Mr Smith’s concession never went so far. I agree with the appellants’ submissions quoted below which accord with what is said by G E Dal Pont’s Law of Agency (Butterworths, 2001) at para 8.6:

“While it has been suggested that a mercantile agent can receive funds where they have sold goods in their own name (Drinkwater v Goodwin [1775] EngR 35; (1775) 1 Cowp 251 at 255[1775] EngR 35; ; 98 ER 1070), such principle could have no application to the present case. The position, as stated by Cleland J in Clements v Hoppo [1973] SASR 231, at 235, was that an agent having authority to sell goods does not necessarily have authority to receive the purchase money, but that authority may exist under the special circumstances of a particular case. In that case, the agent was held to have authority to receive the money because he had been given an express mandate to sell the goods for at least £70, given the goods to deliver, and therefore had the authority to complete the sale and perform any of the formalities required by s4(1) of the Sale of Goods Act 1895 (which included taking part payment).

Generally, agents have no such authority: Howell v Owen (1882) 16 SALR 140 at 147 per Way CJ; Henning v Ramsay [1964] NSWR 1165; (1963) 81 WN(NSW) (Pt 1) 71 at 74 per Walsh J, citing Egan v Ross (1929) 29 SR(NSW) 382. That position has recently been restated in the context of a real estate agent: Gheko Developments Pty Ltd v Azzopardi [2005] QCA 283 at [13]. Thus, a deposit paid to such an agent, absent express authority, is paid to him or her as stakeholder: Fischer v Parry [1963] VR 97, Henning v Ramsay [1964] NSWR 1165; (1963) 81 WN (Pt 1) (NSW) 71, Whinfield v Lovell [1926] VLR 185; Wells v Birtchnell (1893) 19 VLR 473.

This line of authority has culminated in the observation by the High Court that an agent employed to find a purchaser has no implied authority to receive the purchase money in the sense that a receipt by him is a receipt by his principal and will therefore discharge the purchaser: Petersen v Maloney [1951] HCA 51; (1951) 84 CLR 91, at 95.”

70 I would add that any authority Hamelex White might impliedly have to receive the purchase money in its own name could not extend to its employee Mr Wear receiving the money either on his own account or in the name of his own company. His employment relationship with the principal agent Hamelex White here is relevant in taking this outside any actual or ostensible authority on the part of Mr Wear even if he is also an agent or sub-agent. Certainly, any actual or ostensible authority, if it went further, could not extend to directing payment to an entity whose name, Benjosh, bore no relationship to the name of either Hamelex White or the vendor and who in actuality had no such relationship.

71 Another way of putting that proposition is to say that an authority which is implied from an actual authority to sell must not be inconsistent with the substantial character of the agency, that is to say, inconsistent with the substance of the transaction that the person concerned has been engaged to facilitate, negotiate or effect. Here, the substantial character of the agency, namely to transact the sale through Hamelex White, was at variance with a direction to make a payment to an entity whose name bore no relationship to that of the vendor or Hamelex White and who in actuality had no such relationship.

72 Marriott v General Electric Co Ltd [1935] HCA 32; (1935) 53 CLR 409 illustrates that principle. There the appellant agreed to sell 51 per cent of the issued share capital in a company to the respondent, subject to the execution of a more formal contract to be based on the terms of the original agreement. That contract, when drawn up, added provisions for equal representation of the appellant and respondent on the directorate, so depriving the respondent of the advantage of acquiring 51 per cent of the issued share capital. The respondent authorised its agent to “sign and complete” on its behalf “such documents as may be necessary to complete” the agreement with the appellant. Purporting to act pursuant to this authority, the agent signed this contract. Upon discovering this difference, the respondent repudiated the contract and sought relief from its terms.

73 The High Court granted this relief on the ground that an agent is not authorised to sign a contract at variance with the substantial character of the agency. This was explained by Rich, Dixon, Evatt and McTiernan JJ at 418:

“[T]he agency was special and not general. To bind the respondent company the transaction must fall within the ambit of the authority even though that ambit is ascertained by reference to the construction placed upon the authority by the appellant. The authority thus construed might enable the inclusion in the document of additional terms which extended or amplified the operation of the agreement they were intended to effectuate; but it could not allow the introduction of provisions at variance with the substantial character of that agreement.”

Constructive knowledge on the respondents’ part?

74 But even were Mr Wear to have actual or ostensible authority to direct payment of the purchase money to an entity apparently associated with neither the vendor nor the agent, I consider that the respondents must be taken to have constructive knowledge of Mr Wear’s lack of authority, so denying their capacity to rely upon his direction. Jacobs v Morris (1902) 1 Ch 816 illustrates the point. There an agent appointed under a Power of Attorney which authorised him to purchase on behalf of the principal, obtained a loan from the defendants, representing that he was authorised to borrow money on behalf of the principal. The agent produced the power of attorney itself, but the defendants were content to rely on the agent’s assurance as to his authority and so did not read it. The agent applied the funds borrowed to his own use, and the issue was whether the principal should be liable to the defendants for the agent’s default. The English Court of Appeal held that the agent had acted beyond both his actual and ostensible authority in borrowing the money such that the principal was not liable.

75 On the ostensible authority point, their Lordships remarked that the defendants “must be taken to have had full notice of the terms of the power of attorney” (at 834 per Cozens-Hardy LJ). As such the agent had no authority to borrow on behalf of the principal (at 830 per Vaughan-Williams LJ). For this reason, it was not just to hold the principal liable for the agent’s excess of authority. In the words of Stirling LJ: “The primary cause of that loss is not anything done or omitted to be done by the [principal], but the neglect of ordinary business precautions by the defendants.” (at 833).

76 Here though, the facts are somewhat different. Ordinary business precautions should have indicated to the Hubbards that they should check whether a company bearing no ex facie relationship to either the vendor or the principal agent should be the repository of the money they were to pay for the semi-trailer. That enquiry could have been made directly of Mr Smith or by way of search of the company concerned. The search would have revealed that the company concerned, Benjosh, was in fact owned by Mr Wear. That fact would have immediately put them on notice that Benjosh had no authority to receive that money.

Conclusion

77 In those circumstances I consider that the question of agency must be resolved in favour of the appellants. The Hubbards were put on enquiry as to the direction to pay Benjosh. They must be taken to be on constructive notice of Mr Wear’s lack of authority, actual or ostensible, to direct payment to Benjosh or of Benjosh’s lack of authority to receive payment.

Mr Smith’s personal liability

78 There is no doubt that Mr Smith was the undisclosed agent of Smith Company so as to be personally liable were Smith Company liable. However, the question is moot as no liability falls upon Mr Smith.

DAMAGES

79 It is not necessary to answer the question of what damage should follow, as, given the conclusions on agency, the appellants could not be liable for any damage in the circumstances.

OVERALL CONCLUSION AND ORDERS

80 I consider that this appeal should succeed and I adopt the orders proposed by Giles JA.

81 McCOLL JA: I have had the advantage of reading, in draft, the reasons of Giles JA and Santow JA. I agree with Giles JA, that Hamelex White was the agent of the Smith interests and with his Honour’s conclusion as to the ambit of Hamelex White’s authority. I also agree with his Honour that having regard to these conclusions it is not necessary to consider whether the Hubbard interests were put on notice of excess authority, the quantification of damages or Mr Smith’s personal liability.

82 I agree with the orders proposed by Giles JA.

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LAST UPDATED: 10/05/2006