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England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> PEC Ltd v Asia Golden Rice Company Ltd  EWHC 1583 (Comm) (20 May 2014)
Cite as:  EWHC 1583 (Comm)
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QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| PEC Limited
|- and -
|Asia Golden Rice Company Limited
(instructed by Zaiwalla & Co) for the Claimants
Michael Collett QC and Charlotte Tan
(instructed by Clyde & Co LLP) for the Defendants
Hearing dates: 6, 7, 8, and 12 May 2014
Crown Copyright ©
Mr Justice Andrew Smith:
i) Although Mr Jain did not have actual authority to make the Purchase Agreement for PEC, and
ii) Although AGR had not established their case that Mr Jain had apparent authority to make the Purchase Agreement for PEC because of what PEC told AGR at a meeting on 3 May 2005,
iii) Nevertheless they had established their alternative case that Mr Jain had apparent authority because of dealings before May 2008 between AGR and PEC.
• "To determine who shall be intitled to sign on the Company's behalf bills, notes, receipts, acceptances, endorsements, cheques, releases, contracts and documents".
• "To appoint attorneys from time to time to provide for the management of the affairs of the Company in such manner as they see fit, and in particular to appoint any person to be attorneys or agents of the Company with such powers (including power to sub-delegate) and upon such terms as may be thought fit".
• "To enter into all such negotiations and contracts and rescind and vary all such contract and execute and do all such acts, deeds and things in the name of the Company as they may consider expedient for or in relation to any of the matters aforesaid or otherwise for the purpose of the Company".
The Articles of Association also provided, subject to an irrelevant qualification, that a resolution in writing circulated to all Directors or the Members of a Committee of Directors for the time being in India and approved by a majority of them should be valid and effectual as if passed at a meeting: article 78.
• "Any development occurring during the course of execution which is likely to result in a loss should be put to the Board";
• The drafts of contracts were "to be vetted by Finance and Legal Divisions";
• Amendments to contracts could be made by the Authority "next higher" than that which had authority to make it; and
• When a contract was made, it might be signed by the Chief Marketing Manager ("CMM"). (It was not suggested that this records a delegated power to make contracts, and it was acknowledged by Mr Collett that this was only to do with execution of agreements after they had been concluded.)
• That business would be conducted on the basis that PJS would keep a margin of 20% of the FOB value of the goods with PEC.
• That "PEC's anticipated trade margin shall be approximately 1%".
• That the cargo would be sold to Peak Star.
• That "This is a trial transaction and on successful completion, repeat business on above lines can also be transacted with this or any other Associate/s and for other origins/destination".
I cannot infer from the COM's approval of the procedure that they thereby approved "repeat business": they simply recognised that this might follow if the "trial transaction" proved to be successful. If the note had contemplated only business with PJS and for arrangements with regard to Thai rice for export to Nigeria, this might have been a possible interpretation, but the repeat business under contemplation is much wider than that. Certainly I do not conclude that the note proposed or the COM approved business on terms other than those stated, such as business on the basis that the associate deposited only a 10% margin with PEC or in which PEC's "trade margin" was less than the anticipated 1%.
• On 4 May 2005 Mr Jain told Ms Patcharin of AGR that he would like to buy another 400 mt of rice and that this would be paid for by TT transfer. In the event no contract resulted, but apparently Ms Patcharin understood that Mr Jain was acting for PEC because she raised an invoice showing them as the buyers.
• PEC's option to buy a further 600 mt of rice under the contract of 4 May 2005 was exercised by Mr Jain, and PEC amended the letter of credit to reflect the increased quantity and paid for it.
i) Contract TMT-PE-290806 with Thai Maparn Trading Co Limited ("TMT") dated 29 August 2006, under which PEC bought 14,000 mt of rice for 248.104 per mt, a total of 3,473,456. The rice was for sale to Peak Star for 249.67 per mt, and so the profit was (ie PEC's service charges were) 1.566 per mt or 0.627%.
ii) Contract A2008-09 with Asia Paragon Co Limited ("APC") dated 9 May 2008, under which PEC bought 1,500 mt of rice for $970 per mt or $1,455,000. The rice was sold to SSA for $975 per mt, and the service charges were therefore 0.51%.
iii) Contract AGPE 210708 with Ameritech Group Co Limited ("AGC") dated 21 July 2008, under which PEC bought 5,000 mt of rice for $820 per mt, or a total of $4,100,000. The rice was sold to SSA for $825 per mt, and so the service charges were 0.60%.
It is clear that PEC entered into an associateship agreement with PJS in relation to the first and the third transactions. In the case of the second transaction, the evidence comprises only the purchase agreement with APC and the sale agreement with SSA, but I infer that PEC entered into an associateship agreement with PJS in respect of it.
i) That PEC had service charges of less than 1% in all the transactions other than the first contract with AGR made by Mr Amar in May 2005.
ii) That COM gave their approval for transactions relating to contract 001/2007 and contract 002/2007 retrospectively, when it was apparent to them that purchase contracts had already been made and after letters of credit had been issued.
iii) The increase in the price under contract 002/2007 was made under the authority of Mr Narang, and without the approval of Mr Mirchandani, the COM or the Board.
iv) The other contracts were not submitted to the Board or the COM for approval or approved by them.
i) The service charges can be calculated on the basis of documents disclosed by PEC that state the price for which they sold the rice. Although AGR do not accept that they are authentic, there is no reason that the documents should understate the price received by PEC and so the service charges, and in any case it is not open to PEC to challenge their own documents.
ii) In his witness statement Mr Mirchandani said that he "had strong reason to believe" that he had approved the transactions relating to contract 001/2007 and contract 002/2007 before the letters of credit were opened, but I conclude from his oral evidence that he did not do so. He accepted that, if the CGMF thought that transactions would be approved, he might have taken it upon himself to act on that basis, and open letters of credit. He also said that, if a transaction had been approved by the Board or the COM by circulating a resolution or decision, the members would annotate their approval on the note putting forward the proposal. On 21 December 2012 Cooke J ordered standard disclosure in these proceedings, but PEC have disclosed only unannotated copies of the notes for approval, although Mr J L Metha, who has been the CMM since December 2008, said that he had made careful searches to find documents that should be disclosed and although Mr Mirchandani said that PEC kept reports and notes to the Board and the COM safely.
iii) The documents show that, when the price under contract 002/2007 was increased, on 21 November 2007 Mr Narang gave approval for a corresponding increase in the letter of credit, and Mr Mirchandani accepted in cross-examination that Mr Narang had apparently done so without referring the matter to him, the Board or the COM.
iv) PEC disclosed no documents that indicate that other contracts between 2006 and 2008 were submitted to the Board, and in view of the evidence about how COM papers are kept and PEC's disclosure, I infer that, had these transactions been submitted to the Board or the COM, it would have been reflected in the disclosed documents.
"Q you say that: "Mr. Sarunyu told me the last price was USD1,060 per metric ton. Accordingly I negotiated and concluded the business of Contract 002/2008 with Mr. Pawan Jain on the same terms as previously". Do you mean by that that, in your discussions, you talked about price, quantity, shipment date, and you mutually agreed that the other many terms in the contract would be the same as you had before?
A For example, many terms?
Q I do not know, payment, arbitration, all those terms.
A Normally, when we discuss or negotiate a contract, basically it is the commodities which is the quality, the rice quality, the shipment period, the quantity, price and trade term. It would be in a vessel or container, and the packing and payment term.
Q On the 15th, the other terms were assumed, they were discussed, or what happened?
A The other term means what? Like force majeure, like taxation?
Q Arbitration, whatever, yes.
A As usual."
However, by May 2008 there was an established pattern of the parties agreeing to sell and buy rice on the basis that disputes would be referred to GAFTA arbitration, and I conclude that, given that (as Mr Brindle did not dispute) there was uncontroversial reference in the exchanges to terms being "as usual", that is sufficient to constitute an arbitration agreement.
"A owns a shop in Serampore, living himself in Calcutta, and visiting the shop occasionally. The shop is managed by B, and he is in the habit of ordering goods from C in the name of A for the purposes of the shop, and of paying for them out of A's funds with A's knowledge. B has an implied authority from A to order goods in the name of A for the purpose of the shop."
Section 188 prescribes that an agent having an authority to do an act has authority to do every lawful thing which is necessary to do such act. In the Supreme Court case of Harshad J Shah v Life Insurance Company of India (1997) 5 SCC 64, after explaining English law principles of agency Agrawal J said that "The position is not very different in India".
"It is plain that [the putative agent] had no express authority to enter into these two contracts on behalf of the company: nor had he any such authority implied from the nature of his office. He had been duly appointed Chairman of the company, but that office in itself did not carry with it authority to enter into these contracts without sanction of the board. But I think he had authority implied from the conduct of the parties and the circumstances of the case the judge finds that [the putative agent] acted as de facto managing director of [the defendant company]. The judge held that [the putative agent] had ostensible or apparent authority to make the contract, but I think his findings carry with it the necessary inference that he had also actual authority, such authority being implied from the circumstances that the board by their conduct over many months had acquiesced in his acting as their chief executive and committing [the company] to contracts without the necessity of sanction from the board...".
Mr Sorabjee and Mr Salve agreed, and I accept, that this is generally also Indian law.
" in the case of public agents, the Government or other public authority is not bound unless it manifestly appears that agent is acting within the scope of his authority or he is held out as having authority to do the act or is employed in his capacity as public agent to make the declaration or representation for the Government. Indeed this rule seems indispensible in order to guard the public against losses and injuries arising from the fraud or mistake or rashness and indiscretion of their agents. By the law of agency at the common law there is difference between individuals and the Government the former are liable to the extent of the power they have apparently given to their agents, while the Government is liable only to the extent of the power it has actually given to its officers. And there is no hardship in requiring from private persons dealing with public officers, the duty of inquiry as to their real or apparent power and authority to bind the Government "
And similar thinking is found in the judgment of the Supreme Court of India in UP Rajkiya Nirman Nigam v Indure Pvt Ltd, (1996) 2 SCC 667, in which a government undertaking was held not to be bound by a contract unless it was executed in accordance with its articles of association, notwithstanding the doctrine of "indoor management" (the doctrine that persons dealing with a company are entitled to presume that internal requirements prescribed in the memorandum and articles have been properly observed). It was said (at para 18) that,
" The doctrine of indoor management" cannot be extended to formation of the contract or essential terms of the contract, unless the contract with other parties is to be approved and signed on behalf of a public undertaking or the Government with its seal by an authorised or competent officer. Otherwise it would be hazardous for public undertakings or Government or its instrumentalities to deal on contractual relations with third parties".
"Employees of the Crown are all servants of the Crown and do not employ each other. And apparent authority may be extremely difficult to prove in a Crown or other public agent, for in Att-Gen. for Ceylon v. Silva [ AC 461, 479] it was said that:
"no public officer, unless he possesses some special power, can hold out on behalf of the Crown that he or some other public officer has the right to enter into a contract in respect of the property of the Crown when in fact no such right exists."
However, this was a clear case, inasmuch as the agent's powers were limited by delegated legislation, and to hold otherwise would have been to give a Crown official a dispensing power to validate ultra vires acts. Another clear case occurs where to bind the Crown would be to permit an officer of the Crown to fetter the Crown's freedom of action to do its public duty. Subject to these important reservations, however, it may be possible to establish apparent authority in the normal way; though where it is argued that one officer held out another as having authority, it will be necessary to establish the actual (or sometimes apparent) authority, of that officer to do so. It may also be difficult to distinguish this form of estoppel from other estoppels, e.g. as to whether the relevant authority has taken a decision or an immunity has been waived. Further, if the supposed doctrine of usual authority is accepted as a separate notion from that of apparent authority (which it has been suggested is not so), the Crown could perhaps be held liable under it, since no specific holding out is required unless it be suggested that policy reasons still make the doctrine inapplicable to the Crown. The interaction of public and private law principles makes the area a difficult one. Apparent authority in a crown agent, even a Minister of Finance, cannot be established in the face of a constitutional restriction on powers."
"Where A[gent] lacks actual authority from P[rincipal], it seems right, in principle, that the law applicable to the contract which A has concluded (or purported to conclude) with T should determine whether P is bound (or entitled). In effect in this situation, one is asking whether A had apparent or ostensible authority to bind P. Hence, if P in one country appoints A to act for him as regards certain matters, e.g. the sale and purchase of goods, in a specified or unspecified number of countries. A must be taken to have the authority to do any of the acts which an agent of his class may do under the law of the country with reference to the laws of which he contracts. This responds to the requirements of commercial intercourse."
However, I am not persuaded that in this case fairness or any other reason demands that I depart from the general principle. Before May 2008 the parties had impliedly chosen that their dealings be governed by English law through agreeing to English arbitration. This is the very reason that, if Mr Jain had made the Purchase Agreement on 15 May 2008, it would have been governed by English law. It is entirely fair to decide whether Mr Jain had apparent authority to make the Purchase Agreement by reference to English law.