As the facts were not in dispute, the following overview is taken from the judgment below and is supplemented, where necessary, by direct reference to the evidence.
The appellant has purchased goods, namely, mobile phones and associated products and services, from the respondent for some years. From 2012, Mr Gavin Lo was employed by the respondent as Sales Manager. His clients were mainly existing customers, including the appellant. He gave evidence that he was aware from his dealings with the appellant that in its business operations, it acquired other businesses to add to the Wilh. Wilhelmsen Group from time to time.
Mr Lo also stated that orders for the respondent's products were placed with its accounts team support staff, who processed the orders and invoiced the client.
From March 2012 until October 2012, Mr Robert Scifleet was the appellant's "IT Administrator". During this period, he placed orders on behalf of the appellant with the respondent for phones and services. Mr Lo said that Mr Scifleet often placed orders by email. These were not accompanied by purchase orders. The orders would then be filled and invoices were issued by email. The invoices particularised the devices supplied and any amounts outstanding, even if the device was subsidised by Telstra.
In October 2012, Mr Scifleet was replaced by Mr Andrew Longhurst, whose title was "Group IT Manager". Mr Lo understood the role of "Group IT Manager" to mean the IT manager for the various entities that made up the Wilh. Wilhelmsen Group. Mr Lo and Mr Longhurst had a meeting in October 2012, at which they discussed the appellant's mobile fleet and how the respondent might be able to optimise and identify any cost savings. At that time, the appellant's mobile fleet consisted of over 100 phones. Mr Lo said that during the meeting, other Wilh. Wilhelmsen Group businesses were discussed.
In May 2014, Mr Graham Lott was introduced to the respondent as the appellant's new Group IT Manager. In that capacity, Mr Lott regularly placed orders with the respondent to purchase mobile phones. Mr Lo said the orders were often placed by email.
Mr Lo gave evidence that in the period that the appellant had been placing orders with the respondent, it was not uncommon for an email to be sent without a purchase order.
On 24 November 2014, Mr Lott sent Mr Lo the following email, bearing the subject line "New IT Staff at WWI":
"Hi Gavin,
I'd like to introduce my new colleague, Tony Toomalatai, who joined me at WWI a little over two weeks ago.
Please accept all orders and service requests from Tony as you would from me."
The email bore Mr Lott's electronic signature, which stated his position as "Group IT Manager", the name, address and telephone number of the appellant, and the appellant's business logo, as follows:
"GRAHAM LOTT
Group IT Manager
Wilh. Wilhelmsen Investments Pty Ltd 102 Dunning Avenue Rosebery NSW 2018
T +61 2 8338 5226 F +61 2 9693 1553 M +61 407 923 596 E glott@wilh.com.au
Wilh.Wilhelmsen Investments"
Mr Toomalatai and Ms Sheng Fan were copied into the email. Mr Toomalatai commenced employment with the appellant on 6 November 2014, as the Information Technology Systems Administrator. Ms Fan was employed by the respondent, it would seem, in the Corporate Account Support section.
Mr Lo gave the following affidavit evidence in respect of this email:
"14. Within this email Mr Lott made it clear that any orders placed by Tony Toomalatai were to be fulfilled as if they had been placed by Graham.
15. My continued dealings with Graham Lott and his predecessors on behalf of Wilh. Wilhelmsen and this email led me to believe that Tony Toomalatai also had authority to place orders on behalf of Wilh. Wilhelmsen.
16. At no time have I been advised by Wilh. Wilhelmsen or any employee of Wilh. Wilhelmsen that authorised employees have limits on the monetary amount of orders that can be placed, nor have I been shown any internal policies to that effect."
In respect of the orders the subject of the unpaid judgment sum, Mr Lo stated in the same affidavit that:
"59. Based on the previous representations of Graham Lott and our dealings with Tony Toomalatai during 2015 I believed that Tony Toomalatai had authority to place such orders, and so the orders were fulfilled."
One of the people employed by the respondent to accept and fill orders placed by customers, including the appellant, was Ms Kim Pattrick, an account support manager who was part of the accounts team support staff. Ms Pattrick never saw the email of 24 November 2014. According to the email evidence, the first email communication from the appellant to Ms Pattrick was in August 2015. There was no evidence to indicate whether she had had any prior dealings with the appellant.
In 2015, Mr Lott placed three orders with the respondent and, on each occasion, nominated Mr Toomalatai as the contact person. There was no suggestion that these orders, which were within the limit of Mr Lott's authority, were not legitimate orders placed on behalf of the appellant.
In March 2016, Mr Lo was advised by Mr Toomalatai that Mr Lott had ceased employment with the appellant. Mr Toomalatai was appointed Group Technology Officer at that time. Although Mr Toomalatai undertook some of the duties that had been performed by Mr Lott, he did not succeed to his role as such.
The fraudulent orders the subject of the unpaid judgment sum were placed by Mr Toomalatai between 29 August 2016 and 23 September 2016, and comprised the purchase of 197 mobile phones on 14 separate occasions for a total amount of $189,103.
According to Mr Lo's evidence, all the orders were placed by email, although there were no emails in evidence in respect of the purchases made on 31 August, 8 and 9 September 2016. Nothing of forensic importance appeared to flow from this. On all but two occasions for which there was email evidence, the orders were placed by Mr Toomalatai by email addressed to Ms Pattrick. Mr Lo was copied into the email placing the first order, as well as emails on 16, 19, 20 and 23 September 2016, to which reference is made below. On two occasions, the initial email communication was with Mr Lo, to which reference is also made below.
The fraudulent orders placed by Mr Toomalatai were processed by Ms Pattrick. Until 7 September 2016, some of the emails were accompanied by a purchase order for the goods. On several occasions, Mr Toomalatai collected the orders from the respondent's business premises, which were close to those of the appellant.
Mr Lo said that even where a customer requested shipping, he would often personally deliver the order with the intention of strengthening customer relations. He said that he had done that with orders placed by the appellant. Mr Lo said that, accordingly, it did not seem unusual or inappropriate for Mr Toomalatai to have offered to pick up the orders from the respondent's office personally, given the proximity of the two businesses. Mr Lo said that when Mr Toomalatai picked up the orders, he would "have a chat with him in the hopes of strengthening the business relationship". Mr Lo was not cross-examined on any of this evidence.
On 13 and 15 September 2016, Mr Toomalatai placed orders by email addressed to Mr Lo. When Mr Lo did not respond, Mr Toomalatai emailed Ms Pattrick, who processed the order. Mr Lo explained that his lack of response was due to his being out of the office at the time. In her email in response to Mr Toomalatai's email of 13 September 2016, Ms Pattrick stated that she needed purchase orders "for the last orders to add to the invoices" and asked Mr Toomalatai to send them to her. Mr Toomalatai responded by email, stating that he would "send [the purchase orders] over shortly". No purchase orders were subsequently sent by Mr Toomalatai.
These two emails sent by Mr Toomalatai directly to Mr Lo are particularly relevant to the question of the reasonableness of the respondent's reliance on the representation of Mr Toomalatai's authority, as on each occasion, a reason was provided for why the goods were needed.
The email of 13 September 2016 stated:
"Hi Gav,
Can you let me know if you have any phones in stock, all good if you don't. Will have to go to JB HI-FI as the guys down stairs need them today.
They have a 50 techs arriving today and unfortunately cannot wait the 2 days."
The email of 15 September 2016 stated:
"Hi Gav,
Unfortunately Matt isn't back till next week so cannot get him to do any internal paperwork, have purchased a few handsets at various stores yesterday for time being.
Would you have any available handsets in stock today?"
The emails into which Mr Lo was copied were dated 16, 19, 20 and 23 September 2016. In the email of 16 September 2016, addressed to Ms Pattrick, Mr Toomalatai asked what stock was available and said "could I please order 20 Samsung s7's the same model we previously acquired". Ms Pattrick responded, advising that the respondent had some phones and requesting that, for the order of the 20 Samsung s7s, Mr Toomalatai provide a purchase order before placing the order, as that was required "before ordering the stock as we don't usually stock that many at one time".
By return email, Mr Toomalatai said he would take the phones they had and would provide a purchase order when he returned to the office. However, no purchase order was provided. On the same morning, Ms Pattrick requested Ms Patricia De Gois, another employee of the respondent, to provide a statement for all outstanding payments for Mr Toomalatai. At that time, the total amount outstanding was in excess of $132,000.
On 19 September 2016, Mr Toomalatai again emailed Ms Pattrick, asking if there were any phones in stock and stating "[w]e will be making payments on Thursday [22 September] for remaining phones for [the appellant]". Ms Pattrick replied with a list of available stock. Mr Toomalatai placed an order by return email and the appellant was invoiced in the sum of $15,355.
On 20 September 2016, Mr Toomalatai, when placing an order, again said that payment arrangements were being made for 22 September. However, he did not refer to any payment arrangements in his email of 23 September 2016, in which he enquired as to any available stock.
In October 2016, when the respondent sought payment for the 14 orders placed by Mr Toomalatai, Mr Toomalatai fraudulently prepared a remittance advice and sent an email to Ms De Gois, dated 7 October 2016, purporting to be from "Maureene" in the appellant's accounts department and stating "please find our remittance advice for payment made today". Earlier that day, Mr Toomalatai had sent Ms De Gois an email, again purporting to be from "Maureene" in the appellant's accounts department, stating that payment had been made the previous night "from my end and the remittance made available when released from our approvers". The email continued, "[i]t is a automated process and if remittance not presented last night be available this morning".
On 20 October 2016, Mr Toomalatai sent Ms De Gois an email confirming payment, attached to which was a document purporting to be a transactional history created by the Commonwealth Bank for the payment of $189,103 to the respondent. It was not in dispute that this document was a forgery.
Mr Lo gave evidence that as the respondent was a relatively small business, it did not have a credit application process. He said that in the four years prior to Mr Toomalatai placing orders, no concerns had been raised as to whether or not the appellant had an account with the respondent. He said that there was a mutual understanding that orders could be placed by email, filled and subsequently paid within the standard trading terms.
Although the appellant had placed orders with the respondent for mobile phones for a period of over five years prior to 29 August 2016 when Mr Toomalatai placed his first order, it had only ordered a total of 29 handsets, on 20 separate occasions, for a total amount of $18,591. The most expensive orders over this period had been $2,487 on two occasions in August 2015.
Apart from the orders placed by Mr Lott in 2015, two for iPhones and one for iPad cases, in respect of which Mr Toomalatai was nominated as the contact person, Mr Toomalatai had not placed any orders for mobile phones prior to placing the fraudulent orders. On 23 August 2016, he had placed an order for the supply and installation of "12 core single mode fibre into existing conduit" for a purchase price of $8,250. Mr Lo gave evidence that the appellant both paid the invoice and confirmed the purchase as a genuine order.
Mr Lo was cross-examined in respect of the orders placed by Mr Toomalatai as follows:
"Q. … in the case of each of these orders between 29 August 2016 and 23 September 2016, [Ms Pattrick] was the person with whom Mr Toomalatai was dealing?
A. That's correct, as well as myself.
Q. And [Ms Pattrick] was the person with whom the orders were placed?
A. She would - she would receive the orders from Tony Toomalatai.
Q. Yes. And in every case it was [Ms Pattrick] who prepared the invoices, to the best of your knowledge?
A. To the best of my knowledge, yes.
Q. And again this knowledge is based upon, isn't it, your review of some documents that were given to you by your employer for the purposes of these proceedings?
A. Yes, but also it's standard practice within the business.
…
Q. If I could just ask you to look once again at paragraph 32 … in your affidavit.
A. Yes.
Q. Where you say, 'A number of the orders were accepted by [Ms Pattrick],' the reality is all of the orders were accepted by [Ms Pattrick], weren't they, [Mr Lo]?
A. They were processed by [Ms Pattrick].
…
Q. … I think you agreed with me a short while ago that where you say in paragraph 32 that [Ms Pattrick] accepted some of the orders, in fact she accepted all of the orders?
A. Yes, I would agree."
Mr Lo was cross-examined on para (59) of his affidavit, set out above at [14], as follows:
"Q. When you speak [in para (59)] of a previous representation or representations by Mr Lott, you mean a specific email don't you?
A. That's correct.
…
Q. When you say representations, you mean that single email?
A. Amongst other conversations as well.
Q. Those conversations are not detailed in your affidavit are they, [Mr Lo]?
A. Only - I haven't listed them, purely because they may be viewed as speculation.
Q. I see.
A. Or not - or not documented.
Q. And that's because you didn't rely on those conversations; you relied on the email, according to your email?
A. I've relied on the email because I have that in writing.
…
Q. … you go on to say, 'I believe that Tony Toomalatai had authority to place such orders and so the orders were fulfilled'. When you say 'the orders' you're, once again, so we're all clear, talking about the orders that you say took place in August and September 2016?
A. Yes.
…
Q. When you say, 'And so the orders were fulfilled,' what do you mean there? 'So the orders were fulfilled by [Ms Pattrick]?'
A. Yes."
In re-examination, Mr Lo gave the following evidence:
"Q. [Mr Lo], you recall my friend asking you some questions about whether you relied on the email introducing Mr Toomalatai. Do you remember those questions?
A. Yes.
Q. And you were about to tell us that your reliance wasn't solely based on that email?
A. Yes.
Q. What were you going to tell us?
A. I was going to share that I had meeting both with Graham Lott and Tony Toomalatai, discussing some Telstra billing concerns. Those are the other interactions that I've had with Tony Toomalatai and Graham Lott."
Mr Lo also relied on the emails of 13 and 15 September 2016 from Mr Toomalatai, which he said gave him the impression that the appellant's business was expanding and therefore required additional mobile phones. This evidence was not the subject of cross-examination.
Mr Lo agreed in cross-examination that his evidence, including his statement at para (59) of his affidavit, that he believed that Mr Toomalatai had authority to place the orders was based on emails his employer had given him to look at for the purposes of preparing his affidavit.
This cross-examination has to be looked at with some care. The question asked did not replicate what Mr Lo said in para (59) of his affidavit. In that paragraph, he stated that:
"Based on the previous representations … and … dealings … I believed that Tony Toomalatai had authority to place such orders, and so the orders were fulfilled."
As it appears in the transcript of the cross-examination, para (59) was stated to read:
"I believe that Tony Toomalatai had authority to place such orders and so the orders were fulfilled." (emphasis added)
Mr Lo was not cross-examined as to what he meant by "[s]o the orders were fulfilled", although he acknowledged that he meant "so the orders were fulfilled by Kim [Pattrick]". The relevance of this is discussed below.
The appellant's Chief Executive Officer, Mr Robert Stratford, denied that there was any "mutual understanding that orders could be placed by email". He said that, in the period from January 2013 to August 2016, apart from two tax invoices which included orders made by email, all orders were referable to the appellant's "Purchase to Pay Control Process", which was introduced as part of its "Greentree Accounting System", which required the provision of purchase orders.
Mr Stratford said that Mr Lott's authority to purchase goods and services was determined by the appellant's "Purchasing Authorisation Matrix" and was, as at October 2014, limited to $10,000 or less. This matrix did not change between October 2014 and March 2016, when Mr Lott left the appellant's employment. The respondent did not know of the limit on Mr Lott's authority.
Mr Stratford also stated that Mr Lott did not have the power to confer authority on Mr Toomalatai, or any other employee, to purchase goods or services on behalf of the appellant or any of its related businesses. Employees were only authorised to make purchases if they were included in the Purchasing Authorisation Matrices. Mr Toomalatai was not so included. Mr Stratford said that for that reason, Mr Toomalatai did not have authority to purchase goods or services on behalf of the appellant, "despite whatever Mr Lott may have intended to convey" in his email of 24 November 2014.
Mr Stratford also gave evidence that Mr Toomalatai did not fill Mr Lott's role when Mr Lott left his employment with the appellant. He stated that Mr Lott was in a senior managerial role, whereas Mr Toomalatai was not. Mr Stratford agreed, however, in cross-examination, that in his new role, Mr Toomalatai had picked up some of Mr Lott's tasks.
Mr Lott was not called by either party to give evidence. Nor, obviously, did Mr Toomalatai give evidence.
[2]
Primary judge's reasons
The primary judge found, at [12], that it was not in dispute that Mr Toomalatai's conduct was fraudulent and resulted in the delivery of the goods for which payment was never received.
The primary judge also found, at [51], that it was clear that Mr Toomalatai had no actual authority to act as he did. The question in issue, therefore, was whether he had ostensible authority such that the appellant was liable to pay for the goods that Mr Toomalatai had ordered. His Honour observed that the legal principles referable to ostensible authority were not in issue between the parties.
The primary judge held, at [59], that Mr Toomalatai had ostensible authority to act on behalf of the appellant. His Honour rejected the appellant's argument that the respondent had not proved actual reliance on a relevant representation of authority. His Honour set out the bases for his finding at [60]-[67].
His Honour referred, at [60], to the email dated 24 November 2014 from Mr Lott to Mr Lo introducing Mr Toomalatai and advising Mr Lo to accept all orders placed by Mr Toomalatai. His Honour observed that the appellant never advised the respondent of its policy contained in the Purchase to Pay Control Process, or of the purchasing limits of its various employees. Further, his Honour found that the dealings between the appellant and the respondent during 2015 clearly nominated Mr Toomalatai as the relevant contact in respect of the orders.
His Honour stated, at [63], that Mr Lo must have known that Mr Lott had ceased employment with the appellant. His Honour considered that Mr Lo had had an ongoing relationship with Mr Toomalatai, evidenced by text messages exchanged between them on 29 August 2016. In addition, Mr Toomalatai had placed a genuine order with the respondent, albeit for a different product, on 23 August 2016, days before the first fraudulent order.
His Honour found, at [64], that Mr Lott had "actual authority and was able to represent authority to Mr Toomalatai in the way in which he did".
His Honour observed, at [65], that there was nothing to arouse suspicion in the respondent's employees about any of the orders that had been placed. Previous orders had been placed in the same manner as those placed by Mr Toomalatai, namely, by email. His Honour stated that, when asked, Mr Toomalatai provided purchase order numbers, although he did so fraudulently. His Honour observed, at [66], that likewise, when the respondent's financial manager sought payment for the goods, Mr Toomalatai responded by email, again fraudulently, in the names of the persons within the appellant responsible for making payment, stating that payment had been or was being made.
His Honour considered, at [67], that the fraud was "not an unsophisticated one". His Honour referred to Mr Toomalatai's conduct mentioned above, as well as to the fact that Mr Toomalatai had manipulated the appellant's internal email system to perpetrate the fraud and conceal it from both the appellant and the respondent. Mr Toomalatai had manipulated the appellant's email system so that any invoices issued by the respondent and emailed to the appellant were redirected to an address that could only be accessed by him. He also manipulated the system to ensure that emails generated from other employees of the appellant were redirected to him. His Honour considered that it was the appellant's own "corporate governance" or "lack of it" that had allowed the fraud to be perpetrated, not any failure on the part of the respondent.
His Honour held that the appellant, as Mr Toomalatai's employer, was vicariously liable for his conduct: see Ffrench v Sestili (2007) 98 SASR 28; [2007] SASC 241 at [29]-[37]. His Honour did not elaborate on these reasons. This finding is the subject of appeal ground 2.
His Honour concluded, at [68], that the respondent had established that Mr Toomalatai had ostensible authority to place the orders and that the appellant was, accordingly, liable for the cost of the goods. His Honour found that Mr Lott made a "relevant 'representation of authority'" to the respondent in circumstances where Mr Lott had actual authority to purchase on behalf of the appellant. This finding is the subject of appeal ground 1.
Further, his Honour found that the respondent had relied upon the representation in fulfilling each of the fraudulent orders and that it was reasonable for it to have done so in the circumstances. His Honour considered that it was only with the benefit of hindsight that the transactions could be regarded otherwise. His Honour, at [69], considered that "[i]n no way" did the circumstances warrant the making of any enquiries by the respondent of the appellant or its senior employees as to the validity of the orders that Mr Toomalatai had placed. The finding as to reasonableness is the subject of appeal ground 3.
His Honour found, at [70], that although Ms Pattrick did not give evidence and there was no explanation for her absence other than that she had left the respondent's employment, the principle in Jones v Dunkel did not assist the appellant. His Honour considered that as Ms Pattrick had on each occasion processed the orders that had been placed by Mr Toomalatai, that was evidence enough that her suspicions were not aroused: see Manly Council v Byrne [2004] NSWCA 123 at [54]-[55].
His Honour added, at [71], that, in any event, even on the application of the principle in Jones v Dunkel, the most that could be said in respect of Ms Pattrick's absence as a witness was that her evidence would not have assisted the respondent's case: see Kuhl v Zürich Financial Services (2011) 243 CLR 361; [2011] HCA 11 at [64]. His Honour further stated that, in any event, there was ample evidence to establish the respondent's case.
His Honour accepted, at [74], when considering the application of the Corporations Act 2001 (Cth), ss 128 and 129, regarding the making of assumptions in relation to dealings with a company, that Mr Toomalatai was not an officer of the appellant. His Honour also observed that there was no evidence of the powers and duties "customarily exercised or performed by that kind of officer or agent in a similar company". Accordingly, his Honour found that ss 128 and 129 had no application.
His Honour, at [75], rejected the appellant's submission that the respondent had a duty to mitigate its losses. In his Honour's view, it was difficult to see what reasonable steps the respondent could have taken once Mr Toomalatai's fraud was discovered, as his employment was terminated and both his whereabouts and the whereabouts of the goods were unknown. His Honour noted that the appellant did not adduce any evidence of Mr Toomalatai's whereabouts or evidence that the goods could have been recovered.
[3]
Appeal ground 1: did Mr Toomalatai have ostensible authority to place the orders on behalf of the appellant?
[4]
Parties' submissions
The appellant submitted that Mr Lott did not have authority to send the email of 24 November 2014. It also submitted that there was no evidence to support the primary judge's finding, at [68], that the respondent had relied upon the representation made by Mr Lott that Mr Toomalatai had authority to place the orders.
The appellant submitted that as Ms Pattrick never saw the email of 24 November 2014, no representation had been made to her as to Mr Toomalatai's authority. It followed, therefore, that the respondent could not rely upon the representation made in the email as to Mr Toomalatai's authority. The nub of this submission was that, as a corporation can only act through its directors, officers and employees, the relevant state of mind in this case was that of Ms Pattrick, as she was the employee who processed the fraudulent orders placed by Mr Toomalatai.
The appellant submitted that although Mr Toomalatai had placed an order with the company on 23 August 2016, that was not relevant to the question of reliance, because the order was not confirmed as genuine by the appellant until December 2016, when it paid the invoice for the goods, after the events the subject of the dispute had taken place. It followed, on this submission, that it was not itself a representation by the appellant of Mr Toomalatai's authority to place orders on its behalf.
The appellant submitted that the reason that there had been no cross-examination of Mr Lo on his affidavit evidence set out at [21] above, regarding the collection of orders and, in particular, his evidence that it did not seem "unusual or inappropriate" to him for Mr Toomalatai to have offered to collect the goods, was that Mr Lo's state of mind was not relevant for the purposes of determining reliance. The relevant person was Ms Pattrick.
The appellant also submitted that although Mr Lo was copied into the first email and a number of later emails by which Mr Toomalatai placed the orders, he was not involved in making the decision to fill or process the orders. The appellant's point was that although Mr Lo was copied into these emails, this was not relevant to reliance, as he did not fill the orders.
The respondent submitted that it had no knowledge that Mr Lott only had authority to place orders up to the value of $10,000. It submitted that its understanding of Mr Lott's authority and, therefore, whether he had authority to send the email of 24 November 2014, had to be viewed in the context of the relationship between the appellant and the respondent, which commenced in 2011, when the appellant first commenced purchasing goods from the respondent. In particular, the respondent relied upon the fact that Mr Lott had succeeded Mr Scifleet and Mr Longhurst, who had held the positions of IT Administrator and Group IT Manager respectively, and the fact that Mr Lott himself had the title of Group IT Manager.
The respondent pointed out that not only was the email of 24 November 2014 under the hand of Mr Lott, it was an email initiated by the appellant, in that it was not a response to any request from or inquiry by the respondent. It further submitted that whilst the value of the orders placed by Mr Toomalatai increased, this had to be viewed in the context of Mr Lo's understanding of the appellant's intended business growth.
The respondent submitted that as Mr Lo had been copied into many of the email orders, it followed that he was aware over the whole of the relevant period that they were being placed by Mr Toomalatai. Accordingly, contrary to the appellant's submissions, the respondent submitted that Mr Lo's understanding and belief as to Mr Toomalatai's authority was relevant to the question of the respondent's reliance on the email of 24 November 2014.
The respondent submitted that as the appellant was an existing customer, any order received in the name of the appellant was taken to be given with authority. The respondent submitted that the appellant seemed to accept that Mr Lo believed that Mr Toomalatai had authority to place the orders and contended that it should be inferred that there was a sufficient causal connection between his state of mind and the filling of the orders by Ms Pattrick.
[5]
Consideration
It was not in dispute on the appeal that Mr Toomalatai did not have actual authority to place the orders. The issue was whether he had ostensible authority to do so. Although the appellant challenged the primary judge's finding of ostensible authority in its notice of appeal, its principal challenge was to his Honour's finding on the question of reliance. It contended that the respondent failed to prove that the person who processed the orders, namely, Ms Pattrick, had relied upon a representation of authority.
As the key challenge was in respect of his Honour's finding of reliance, it is appropriate to deal with that separately. However, as the manner in which the parties conducted their business relationship is relevant both to his Honour's finding of ostensible authority and reliance, it is convenient to begin with a consideration of the principles governing ostensible authority and assess whether the appellant has established error in respect of the finding of ostensible authority. As I explain below, I consider that the appellant's challenge to this finding was within limited parameters.
[6]
Relevant legal principles
In Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, Diplock LJ, at 503, described ostensible authority in the following terms:
"An 'apparent' or 'ostensible' authority … is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the 'apparent' authority, so as to render the principal liable to perform any obligations imposed upon him by such contract. To the relationship so created the agent is a stranger. He need not be (although he generally is) aware of the existence of the representation but he must not purport to make the agreement as principal himself. The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract. It is irrelevant whether the agent had actual authority to enter into the contract."
This passage was endorsed by the High Court in Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72; [1975] HCA 49 at 78 as compendiously stating the principles governing ostensible authority.
As Diplock LJ explained in Freeman & Lockyer, ostensible authority operates as an estoppel, preventing a principal from denying an agent's authority: see generally K R Handley, Estoppel by Conduct and Election (Sweet & Maxwell, 2nd ed, 2016) at 149 and the cases cited therein.
In SEB Trygg Liv Holding AB v Manches [2006] 1 WLR 2276, Buxton LJ referred, at 2291, to two types of situations where ostensible authority would arise:
"… ostensible authority covers two types of case: where the agent has been permitted to assume a particular position that carries a usual authority; and where a specific representation is made as to the agent's authority. If either type of conduct on the part of the principal gives rise to an estoppel, that is because of the understanding that it creates in the mind of the … representee. An alteration on the principal's part of the relationship between himself and the agent cannot, once the estoppel has been created, alter or withdraw the representation if the alteration … is not communicated to the representee."
However, ostensible authority is not confined to those two types of cases. A course of conduct or dealing may constitute a relevant representation. Diplock LJ said as much in Freeman & Lockyer, at 503-504:
"The representation which creates 'apparent' authority may take a variety of forms of which the commonest is representation by conduct, that is, by permitting the agent to act in some way in the conduct of the principal's business with other persons. By so doing the principal represents to anyone who becomes aware that the agent is so acting that the agent has authority to enter on behalf of the principal into contracts with other persons of the kind which an agent so acting in the conduct of his principal's business has usually 'actual' authority to enter into."
In terms of estoppel, ostensible authority arising out of a course of dealing is a form of conventional estoppel. This form of estoppel was described in Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226; [1986] HCA 14 at 244 as:
"… a form of estoppel founded not on a representation of fact made by a representor and acted on by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying … [T]here is no estoppel unless it can be shown that the alleged assumption has in fact been adopted by the parties as the conventional basis of their relationship." (citations omitted)
Diplock LJ further observed in Freeman & Lockyer, at 505, that when dealing with a corporation, a person:
"… can rely only upon a representation by a person or persons who have actual authority to manage or conduct that part of the business of the corporation to which the contract relates."
Of particular relevance to the present case is the decision of Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35, in which the principal had conferred a title or status on its agent and had provided her with the means to communicate as if on behalf of the principal. In that context, the High Court observed:
"[40] … Commercial documents, such as the letters of indemnity in the present case, are commonly relied upon, and intended to be relied upon, by third parties who act upon an assumption of authenticity created or reinforced by their mode of execution, and by the fact and circumstances of their delivery. Within a commercial enterprise, such as a bank, there will normally be internal lines of authority, and procedures, designed to ensure that, when documents issue to third parties, appearances are reliable. Such an enterprise might induce or assist an assumption, not only by the representation conveyed by its organisational structure, and lines of communication with third parties, but also by a failure to establish appropriate internal procedures designed to protect itself, and people who deal with it in good faith, from unauthorised conduct.
…
[42] Pacific's reliance upon the letters of indemnity was based upon their form and contents, the signature of a person who appeared to be (and was) an officer of the bank, the stamp or 'chop', and the fact that Pacific was sent copies of the documents, directly or indirectly, by BNP. The stamp was probably more significant to Pacific than the signature, which was indecipherable. It was designed for use on letters of credit, and it allowed the person who was authorised to use it to give an appearance of authenticity to documents to which it was applied. The organisational structure of BNP in Sydney at the time was such that Ms Dhiri was the bank officer to whom Pacific's request, would be, and was, communicated by NEAT. She was the person who dealt with the request, and who communicated BNP's response to Pacific. That response, involving her signature of the letters of indemnity and fixing the bank's stamp to them, would signify to a reasonable third party, and signified to Pacific, agreement to what was requested. The stamp was not BNP's common seal, but placing it on a commercial document which named the bank as a party strongly enhanced the appearance that the document was signed on behalf of BNP. Ms Dhiri was given the stamp without any instructions as to how she should use it."
Similar observations were made by the Court in Clarey v Permanent Trustee Co Ltd [2005] VSCA 128, where the question was whether a conveyancer had ostensible authority to receive, on behalf of a vendor, monies paid at the settlement of a real property transaction. The Court accepted, at [107], that a representation of authority could be implied from a number of circumstances, including equipping an agent with a particular title, status or position.
However, the Court did not consider that the facts of the case attracted the operation of that principle. It pointed out that Pacific Carriers v BNP Paribas was different in that, there, a relatively senior bank officer who had express authority to sign documents in one capacity was found to have ostensible authority to sign documents in a different capacity. The Court also noted that in Crabtree-Vickers, it was found that a managing director with unlimited actual authority had ostensible authority to delegate powers to others. The Court concluded in respect of the case before it that:
"It is, however, quite another thing to conclude that the appointment of someone as a 'conveyancer' and instructing him to arrange for the preparation of conveyancing documents and settlement, implies that he has authority to receive the purchase price in the form of a cheque drawn payable to himself. That was not so at common law in the case of solicitors, and in the absence of compelling evidence that it is so in the case of 'conveyancers', we are unable to see why it should be so."
The authorities make clear that the representation of authority must come from the principal. It follows that a representation of authority made by an agent is an insufficient basis upon which to found ostensible authority. In Armagas Ltd v Mundogas SA [1986] AC 717, Lord Keith stated, at 777, that:
"Ostensible authority comes about where the principal, by words or conduct, has represented that the agent has the requisite actual authority, and the party dealing with the agent has entered into a contract with him in reliance on that representation. The principal in these circumstances is estopped from denying that actual authority existed. In the commonly encountered case, the ostensible authority is general in character, arising when the principal has placed the agent in a position which in the outside world is generally regarded as carrying authority to enter into transactions of the kind in question. Ostensible general authority may also arise where the agent has had a course of dealing with a particular contractor and the principal has acquiesced in this course of dealing and honoured transactions arising out of it."
However, this principle is not unqualified. This was explained by Lord Sumption in Kelly v Fraser [2013] 1 AC 450 at 459-460, where his Lordship said:
"An agent cannot be said to have authority solely on the basis that he has held himself out as having it. It is, however, perfectly possible for the proper authorities of a company (or, for that matter, any other principal) to organise its affairs in such a way that subordinates who would not have authority to approve a transaction are nevertheless held out by those authorities as the persons who are to communicate to outsiders the fact that it has been approved by those who are authorised to approve it or that some particular agent has been duly authorised to approve it. These are representations which, if made by some one held out by the company to make representations of that kind, may give rise to an estoppel." (emphasis in original)
The same point was made in Crabtree-Vickers at 78:
"There are circumstances where the actual representation of authority may be made by the agent but in such cases it will be found that the relevant representation is made by the principal (or by the person to whom the principal has given actual authority) either by a previous course of dealing or by putting the agent in a position or by allowing him to act in a position from which it can be inferred that his actual representation of authority in himself is in fact correct. It is therefore always necessary to look at the conduct of the principal (or the person to whom he has actually delegated authority)."
In Overbrooke Estates Ltd v Glencombe Properties Ltd [1974] 1 WLR 1335, Brightman J stated, at 1341, that the ostensible authority of an agent will be diminished to the extent there have been communicated limits placed upon it. The same point was made by Scarman LJ in Crabb v Arun District Council [1976] Ch 179 at 193.
[7]
Did Mr Toomalatai have ostensible authority to purchase the goods?
The focus of the appellant's case on the appeal was that the relevant representation of authority was made in the email of 24 November 2014 and that the question in issue was whether the respondent had established reliance on that email. This focus is to be found in various places, which I identify below. However, as I explain, the case was not so limited by the respondent either at trial or on the appeal.
The respondent's pleaded case was that the appellant had ordered phones for which it had failed to pay. The appellant in its defence denied having ordered the goods or having received them and pleaded that the orders had been placed by Mr Toomalatai who did not have authority to do so. The respondent in its reply pleaded that Mr Toomalatai had actual or ostensible authority to order the goods. There was no particularisation of that plea in the reply document.
At trial, the respondent confined its case, relevantly, to one based on ostensible authority. In doing so, in the course of reading Mr Lo's affidavit, the respondent's legal representative stated that the email of 24 November 2014 was "one of the most important emails in this matter". However, he did not confine the case to one based solely on that email.
In its written closing submissions at trial, the appellant focussed on the email of 24 November 2014 as being the relevant representation of authority. The appellant also dealt with para (59) of Mr Lo's affidavit, which referred to "dealings with Tony Toomalatai during 2015", but contended that those dealings were irrelevant as they were orders placed by Mr Lott. Mr Toomalatai was only listed as the contact person.
It is apparent from the primary judge's reasons that he did not understand the respondent's case to be confined to the email of 24 November 2014. The relevant passages of his Honour's judgment are set out above at [51]-[54]. It should be noted that his Honour, at [63], in stating that Mr Lo must have known that Mr Lott had ceased employment with the appellant, overlooked Mr Lo's evidence that, in or around March 2016, Mr Toomalatai had told him that Mr Lott had left. However, the effect of the finding is the same: Mr Lo knew that Mr Lott was no longer with the appellant.
Nor was the primary judge's conclusion, at [68], which the appellant in its argument sought to confine to a finding in respect of the email of 24 November 2014, limited in that way. Rather, his Honour held that Mr Toomalatai had ostensible authority on the following bases: the representation made in the email of 24 November 2014: at [60]; the dealings between the appellant and the respondent in 2015 in which Mr Toomalatai was nominated as the contact person: at [62]; Mr Lo's knowledge that Mr Lott had left the appellant: at [63]; that Mr Lott had actual authority to represent authority to Mr Toomalatai: at [64]; and the fact that orders had previously been placed in a similar manner: at [65].
Appeal ground 1 of the appellant's notice of appeal challenged the primary judge's finding as to ostensible authority. Insofar as there was a direct challenge to this finding, it appeared to be confined to his Honour's finding at [62]. Appeal ground 1 was pleaded in the following terms in the appellant's notice of appeal:
"1 The Primary Judge erred in finding that Tony Toomalatai had the ostensible authority of the Appellant to place any of the orders for mobile telephones from the Respondent between 29 August 2016 and 23 September 2016 (Orders), in that:
(a) the Primary Judge held (or appeared to hold) that, by an email from Graham Lott to Gavin Lo sent on 24 May 2014 (Email), the Appellant represented to the Respondent that Mr Toomalatai was authorised by the Appellant to order mobile telephones on its behalf from the Respondent (Representation of authority) [J68 and J60];
(b) the Primary Judge ought to have held that the 'dealings between the defendant and the plaintiff during 2015, as evidence in annexure F, G and H to the affidavit of Mr Lo' (J62] did not amount to a Representation of Authority;
(c) the Primary Judge held that [Ms Pattrick] was the employee of the Respondent who processed all of the Orders [J70];
(d) the Primary Judge ought to have held that [Ms Pattrick] was the employee of the Respondent who accepted and fulfilled all of the Orders;
(e) the Primary Judge held (or, alternatively, ought to have held) that there was no evidence [Ms Pattrick] saw the Email [J55], and ought to have held there was no evidence [Ms Pattrick] was aware of it;
(f) in these premises, the Primary Judge erred in finding there was 'a relevant representation of authority' and that the Respondent 'in fact relied on it in fulfilling' each of the Orders [J68]; and
(g) the Primary Judge ought to have held there was no evidence the Respondent relied on the Email, or any Representation of Authority, in accepting and fulfilling the Orders."
As I understand appeal ground 1(a), it is a narrative statement and does not challenge the finding set out therein. The challenge is to his Honour's acceptance of the dealings between the parties in 2015 as a basis upon which to find ostensible authority. Having regard to the appellant's submissions on the appeal, its challenge to the email of 24 November 2014 is that the respondent had not proved any relevant reliance on it, which is the subject of the balance of appeal ground 1.
In its written submissions on the appeal, the appellant identified the issue raised by appeal ground 1 in the following terms: "No reliance on representation of authority". It contended that the "Primary Judge appeared to hold at [J68] that a Representation of Authority was made by [the] email [of 24 November 2014] from Graham Lott … to Gavin Lo".
In its written and oral submissions on the appeal, the appellant did not challenge that Mr Lott had authority to place orders up to $10,000. The appellant acknowledged that that limitation was never conveyed to the respondent.
Should I be wrong in understanding that the appellant's direct challenge to the finding of ostensible authority is confined to appeal ground 1(b), I will deal with both Mr Lott's authority to make the representation in the email of 24 November 2014 and the course of dealing between the parties.
[8]
Representation in the email of 24 November 2014
The representation in the email of 24 November 2014 was made under the hand of Mr Lott. It was written in his capacity as Group IT Manager, using the appellant's official business electronic signature. Mr Lott's position as Group IT Manager was, as Mr Stratford said, a senior managerial role. Mr Stratford denied, however, that Mr Lott had authority to authorise Mr Toomalatai to place orders on the appellant's behalf. Mr Stratford stated that the only way Mr Toomalatai could have been given authority to purchase goods was if he was included in the appellant's Purchasing Authorisation Matrices. Mr Stratford's evidence was a denial that Mr Lott had actual authority to confer authority upon others to purchase goods. The question is, therefore, the status of Mr Lott's representation that "all orders and service requests" placed by Mr Toomalatai be "accept[ed] … as you would from me". In other words, the question was whether Mr Lott had authority to hold out Mr Toomalatai as having authority, in light of Mr Stratford's evidence that the representation was, at best, made in the exercise of Mr Lott's ostensible authority.
The High Court addressed this question in Crabtree-Vickers at 80:
"… if the managing director had had actual authority to make the contract then in that position he had authority to hold out Peter McWilliam as having authority to make the contract. He would have had actual authority to manage the business of the company in the relevant respect and actual authority in such a position as managing director to represent that another officer of the company had authority to make the contract. The position of a managing director is not one where persons dealing with the company would regard his power to delegate as limited in respect of a contract to purchase machinery. But the finding of fact is that this particular managing director did not have power to manage the affairs of the respondent generally (because of the limitation on his power) or in respect of the purchase of this machinery. He therefore had no authority to make the representation which would give Peter McWilliam ostensible authority. In other words, a person with no actual, but only ostensible, authority to do an act or to make a representation cannot make a representation which may be relied on as giving a further agent an ostensible authority. Hence the stress by Diplock L.J. on the need that the person or persons making the representation must have actual authority to make the representation." (emphasis added)
When those principles are applied to the present case, the position was as follows. Mr Lott had actual authority to make purchases up to the sum of $10,000. In my opinion, Mr Lott also had ostensible authority to purchase goods in amounts greater than $10,000, having regard to his position as Group IT Manager, that being a senior managerial position, and the fact that the respondent was not advised of the limitation on his authority to purchase goods.
In the normal course, it would be expected that a person, such as Mr Lott, in a senior managerial position could authorise its suppliers to deal with a named employee or person within the same section or department of its business. Whether Mr Lott had authority to hold Mr Toomalatai out as having authority to purchase goods, in the face of Mr Stratford's evidence that Mr Lott did not have authority to do so, is not straightforward. The effect of Mr Stratford's evidence was twofold: first, Mr Toomalatai did not have actual authority to purchase goods; and secondly, he could not be held out by Mr Lott as having authority.
Were it not for Mr Stratford's evidence, I would have concluded that Mr Lott could, within the limit of his actual authority, confer ostensible authority on Mr Toomalatai to purchase goods up to $10,000 and so bind the appellant. Whilst I have misgivings that an uncommunicated restriction on Mr Lott's authority as a senior manager to represent that Mr Toomalatai had authority to purchase goods meant that the representation he made in the email of 24 November 2014 was not binding on the appellant, I consider I am bound by the statement in Crabtree-Vickers quoted above to find to the contrary. However, for the reasons I give below, that conclusion is not determinative of the appeal.
As I have explained, the respondent's case was not based solely on the email of 24 November 2014. Rather, as the respondent submitted, the appellant was an existing customer, so that any order received in the name of the appellant was taken to have been placed in the ordinary course of business dealings between the parties such as to amount to a representation of authority by the appellant in respect of the goods ordered. As the authorities set out above indicate, it is accepted that ostensible authority is founded in estoppel which, in a given case, may be in the form of conventional estoppel.
In the passage from Crabtree-Vickers set out above at [86], and the passages from Pacific Carriers v BNP Paribas set out at [81], the point is made that the principal may so arm an employee with a status or title or documents that give an appearance of authenticity so as to constitute a representation by the principal of the authority of the individual concerned to enter into the transaction.
The appellant sought to diminish the relevance of the dealings between the parties in 2015 where Mr Toomalatai was nominated as the contact person for the purposes of orders legitimately placed by Mr Lott. However, G E Dal Pont proffered the view that it is appropriate to have regard to the reasonable expectations of the party relying on the estoppel arising from the circumstances: see G E Dal Pont, Law of Agency (LexisNexis, 3rd ed, 2014) at [20.24]. Although the learned author made that comment in the context of analysing the relevance of the state of mind and knowledge of the principal, it is nonetheless a pertinent comment in the context of considering a course of dealing in a modern business sense and, in particular, in a small to medium business context.
Modern day business communications, including those for the purchase of goods, are often less formal and unaccompanied by seals and other formalities, as compared to the position in Crabtree-Vickers and Pacific Carriers v BNP Paribas. They are often made via the medium of email, with electronic signatures and scanned documents attached. They emanate from specific and identifiable email addresses. The language used is often informal and familiar, having regard to previous communications between the individuals sending and receiving them.
The business communications between the appellant and the respondent were redolent of this style of communication, as can be seen from the following communications between the parties since the commencement of their business relationship in 2011. Whilst the appellant relied upon these communications to demonstrate that the orders placed by Mr Toomalatai were different in value and volume from the historical purchases made by the appellant, they also demonstrate a course of dealing between the parties. In particular, they demonstrate that, since 2011, variable practices for the placement of orders were observed.
Prior to around mid-2013, before the introduction of the appellant's Greentree Accounting System, orders were placed on behalf of the appellant by email, without purchase orders and by persons other than Mr Scifleet and Mr Longhurst. The language used in the emails was informal and indicated a degree of familiarity with the person to whom the email was directed. Initially, the emails did not bear the appellant's business logo, although they did contain the appellant's business details.
On 16 June 2011, for example, Mr Hans-Kaare Andersen, who was a "Business Analyst", placed the following order on behalf of the appellant by an email to Ms Fan:
"Can you please order a replacement SIM and modem for the number below.
That's the cost for a new unit and SIM?
Thank you!
Kind regards
Hans-Kaare Andersen Business Analyst"
The respondent filled this order. The evidence does not disclose the identity of Mr Andersen in any further detail, save for the fact that invoices issued by the respondent were addressed to him until around mid-2015.
Orders by email were also placed by Mr Jorden Groenendijk, who appears to have been employed by a related entity of the appellant and whose title was that of "Management/Operations Accountant". On 8 February 2012, for example, Mr Groenendijk sent Ms Fan the following email:
"Could you please send me via express post a mini sim for an iPhone 4?
…
Also, could you please send me a usb modem stick?"
On 14 February 2013, Mr Joseff Khan of the appellant sent Ms Fan the following email, into which Mr Longhurst was copied:
"As per our conversation, please arrange a Telstra Wireless Card … Can this be activated and sent with the IPhone 5 you are sending to me tomorrow …
Thanks and Regards
Joseff Khan"
Mr Khan's email did not include an electronic signature identifying his role within the appellant. Ms Fan responded to Mr Khan's email with a number of options, to which Mr Khan replied, again copying in Mr Longhurst, as follows:
"Andrew/Geoff
Please advise which is appropriate …"
Mr Longhurst replied asking Mr Khan to make further enquiries, in response to which Ms Fan provided further information. The next email in the chain was as follows:
"Hi Andrew/Geoff
Anna is awaiting a confirmation as to what option is preferred.
Options are in her email sent yesterday.
Please advise
Joseff"
Approximately half an hour later, Mr Khan emailed Ms Fan with the final order, which Ms Fan then filled. Although Mr Longhurst was copied into these emails, I see no difference in substance in that practice to that adopted by Mr Lott, first, in nominating Mr Toomalatai as the contact person and, secondly, in advising the respondent that it could deal with Mr Toomalatai in respect of the placement of orders.
Mr Scifleet's emails to the respondent were similarly informal. For example, on 21 June 2012, Mr Scifleet sent the following email to Ms Fan, who subsequently filled the order:
"Please purchase a phone outright IPhone 4 (16GB) $800, please include a Blank Telstra sim for the IPhone.
…
Best Regards
Robert Scifleet IT administrator"
On 11 July 2012, Mr Scifleet sent a follow up email to Ms Fan as follows:
"We are after another one of these, do they come Locked to Telstra? Can we use Telstra via another company?"
Ms Fan again filled the order.
From around mid-2013 onwards, following the introduction of the appellant's Greentree Accounting System, orders were placed by email, in large part, accompanied by purchase orders. However, this was not always the case. On 17 February 2014, for example, Mr Scifleet placed an order by email to Ms Fan, which she subsequently filled, without a purchase order.
Indeed, on 9 September 2014, Mr Peter Crepaz, who was part of the Corporate Account Support section of the respondent, sent Mr Lott an email in which he stated "[y]ou can place orders with just an email request and it will be processed".
The appellant appears to have commenced using a logo in its electronic signatures in April 2012. All but three of the orders placed by Mr Toomalatai included an electronic signature with the appellant's logo and business details, and all were sent from an official email address. It was not suggested that Mr Toomalatai was not entitled to use the appellant's electronic signature or official email for communications with other businesses. Some orders were accompanied by a purchase order as had become the practice, albeit not the invariable practice, from mid-2013. The form of purchase order used was the usual form of purchase order which had been used by the appellant to place orders in the past.
The appellant gave Mr Toomalatai the title of Group Technology Officer. Previously, the respondent had had dealings with the appellant's "IT Administrator" and two "Group IT Manager[s]". Mr Toomalatai's title conveyed, at the least, that Mr Toomalatai was within the appellant's IT section, which had historically placed orders with the respondent. To be added to this is Mr Lo's knowledge that Mr Toomalatai had been the contact person in relation to orders placed by Mr Lott. It was not suggested that Mr Lott did not have authority to make that representation to the respondent. Mr Lo was also advised that Mr Lott had left the appellant's employment, at which point, as Mr Stratford acknowledged, Mr Toomalatai in fact assumed some of Mr Lott's duties. There was no evidence that the appellant informed the respondent that there were restrictions on dealing with Mr Toomalatai. In my opinion, the only inference that can be drawn is that the appellant did not, otherwise Mr Stratford would have been astute enough to say so in his evidence.
When these circumstances are considered in their totality, I am of the opinion that the course of business dealings between the appellant and the respondent was such that the appellant clothed Mr Toomalatai with ostensible authority.
[9]
Reliance
As ostensible authority is founded in estoppel, it is necessary for the party who seeks to rely upon it to establish both reliance upon the representation of authority and detriment. The appellant did not contend that the respondent had not suffered detriment in circumstances where the respondent supplied mobile phones in fulfilment of orders placed by Mr Toomalatai for which it has not been paid. The real issue, assuming that the appellant is bound by its course of dealing with the respondent, is whether there was any relevant reliance.
In this regard, certain matters are not contentious. First, reliance is a question of fact, in respect of which the onus of proof rests on and remains with the plaintiff: Sidhu v Van Dyke (2014) 251 CLR 505; [2014] HCA 19 at [55], [58], [61].
Secondly, the inducing conduct which founds the estoppel need not be "the sole inducement operating on the mind of the party setting up the estoppel": Sidhu v Van Dyke at [71]. It is sufficient that the inducing conduct be a contributing factor: Sidhu v Van Dyke at [73]. In Amalgamated Investment & Property Co Ltd (in liq) v Texas Commerce International Bank Ltd [1982] QB 84, cited in Sidhu v Van Dyke by the plurality at [72], Robert Goff J said, at 104-105:
"… the question is not whether the representee acted, or desisted from acting, solely in reliance on the encouragement or representation of the other party; the question is rather whether his conduct was so influenced by the encouragement or representation ... that it would be unconscionable for the representor thereafter to enforce his strict legal rights." (emphasis in original)
The plurality in Sidhu v Van Dyke continued, at [73]:
"Similarly, in Steria Ltd v Hutchison, Neuberger LJ said that it is sufficient for the representee to show that 'the representation was a significant factor which he took into account when deciding whether to [act as he did]'. This approach conforms to that taken by the High Court as long ago as Newbon v City Mutual Life Assurance Society Ltd, where it was said that the 'supposed belief' of the representee as 'a contributing cause' of the representee's conduct was a 'sufficient connection between the assumption and the position of detriment'. It is the view which continued to prevail in Gould v Vaggelas." (citations omitted)
Reliance upon a representation for the purposes of estoppel and, relevantly in this case, ostensible authority, is therefore a question of causation. In Sidhu v Van Dyke, the plurality rejected the proposition that there was or could be a presumption of reliance. Their Honours referred, at [52], to the following observation of Wilson J, with whom Gibbs and Dawson JJ agreed, in Gould v Vaggelas (1984) 157 CLR 215; [1984] HCA 68:
"If a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract there arises a fair inference of fact that he was induced to do so by the representation."
Their Honours also referred to Brennan J's observation that:
"An inference of inducement may be drawn when a party enters into a contract after a material representation has been made to him, but it is no more than an inference of fact and it is settled law that such an inference may be rebutted by the facts of the case."
Their Honours continued, at [58]:
"Reliance is a fact to be found; it is not to be imputed on the basis of evidence which falls short of proof of the fact."
The Court in Sidhu v Van Dyke was required to determine whether the respondent, who claimed that the appellant was estopped from denying the respondent's interest in certain property, had proved, in fact, that the respondent had relied upon the appellant's promises: see at [63]. In that context, and by adapting the words of Wilson J in Gould v Vaggelas, the plurality identified, at [66], the question to be determined as:
"… whether, when all the facts are in, the court is satisfied on the balance of probabilities that the promises in question contributed to the respondent's conduct in deciding to commit to her relationship with the appellant and adhering to that relationship (with all that that entailed) for eight and a half years."
Their Honours reiterated, at [76], that the relevant question was:
"… whether the respondent would have committed to, and remained in, the relationship with the appellant, with all that that entailed in terms of the effect upon the material well-being of herself and her son, had she not been given the assurances made by the appellant."
Gageler J agreed with the reasons of the plurality and added the following observations as to why he concluded that the respondent had discharged her onus of proof:
"[91] To establish that the belief to which [the respondent] was induced by the appellant's representations was a contributing cause to the course of action or inaction which she took, the respondent needed to establish more than that she had the belief and took the belief into account when she acted or refrained from acting. She needed to establish that having the belief and taking the belief into account made a difference to her taking the course of action or inaction: that she would not have so acted or refrained from acting if she did not have the belief.
[92] … 'the real detriment or harm from which the law seeks to give protection is that which would flow from the change of position if the assumption were deserted'. There can be no real detriment if the party asserting the estoppel would have been in the same position in any event.
[93] The question of causation is therefore ordinarily appropriately framed, as it was implicitly framed by the primary judge in the present case, as being: 'Despite any other contributing factors, would the party seeking to establish the estoppel have adopted a different course (of either action or refraining from action) to that which [the party] did had the relevant assumption not been induced?'
[94] The only authority of this Court potentially in conflict with that approach is Lynch v Stiff. There is a statement in the joint reasons for judgment in that case to the effect that 'it is sufficient if [a] party [asserting an estoppel] acts to his prejudice upon a representation made with the intention that it should be so acted upon, though it is not proved that in the absence of the representation he would not have so acted'. That statement, however, does not address what is necessary to establish that a party 'acts to his prejudice' in the first place. The statement was made in a context where the plaintiff was found to have acted to his prejudice on the basis that his evidence established that he had extended credit 'because he believed' in the representation of the defendant." (footnotes omitted)
The passage in Lynch v Stiff (1943) 68 CLR 428; [1943] HCA 38 to which Gageler J referred is as follows:
"In our opinion there is no justification for making any addition to the requirements of the section by holding that the person who has given credit must show that, apart from the holding out, he would not have given credit. The doctrine of holding out is a branch of the law of estoppel. So far as the element of action by the party relying upon an estoppel is concerned, it is sufficient if that party acts to his prejudice upon a representation made with the intention that it should be so acted upon, though it is not proved that in the absence of the representation he would not have so acted."
The section to which reference is made in this passage was the Partnership Act 1892 (NSW), s 14, which provided that a person who holds themselves out or permits themselves to be held out as a partner, is liable as a partner to anyone who, on faith of the representation, provides credit to the firm. To the extent that Lynch v Stiff may be viewed as positing a lower threshold than a 'contributing cause' test, given the case was concerned with a specific statutory provision, I do not consider it provides assistance in determining what needs to be established to prove causation for the purposes of estoppel.
Gageler J, in citing Lynch v Stiff, also referred to K R Handley, Estoppel by Conduct and Election (Sweet & Maxwell, 1st ed, 2006) at 83, where the learned author states:
"The relation between the state of mind induced by the representation, and the change of position, must be one of cause and effect, but the representation need only be a contributing cause. Inducement without a resulting change of position, will not support an estoppel … Where inaction was a natural consequence of the representee accepting the truth of the representation a causal connection may be inferred. A representee who acts on a representation may establish an estoppel without proving that but for the representation he would not have acted as he did." (footnotes omitted)
After citing Lynch v Stiff for this proposition, the author, by way of footnote, stated:
"The 'but for' test is a necessary but not sufficient condition for proof of causation: March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506. It is not a necessary test in cases of misrepresentation because the actual or inferred intention to induce justifies the less demanding test. See J E B Fasteners Ltd v Marks Bloom & Co [1983] 1 All ER 583 CA, 589, a case of negligent misrepresentation per Stephenson LJ ('thought not by itself a decisive part') …"
A question raised by the cases is whether, in establishing reliance, the party seeking to rely on the estoppel must satisfy the court that 'but for' the conduct of the other party, the first party would not have acted as it did. White J (as his Honour then was), in Priestley v Priestley [2016] NSWSC 1096, after carefully analysing the authorities, considered that that was their effect. However, his Honour's view has not been the prevailing view and certainly the language in the authorities is not that of 'but for' causation.
In dealing with this question in Steria Ltd v Hutchison [2006] EWCA Civ 1551, Neuberger LJ said:
"[117] In order to succeed in a claim based on estoppel, it is probably not necessary for a claimant to satisfy what is known in a somewhat different area of the law as the 'but for' test. In other words in the present case it does not appear to me that Mr Hutchison has to show that, if the representation in question had not been made, he would not have joined the scheme. He merely has to show that the representation was a significant factor which he took into account when deciding whether to join the scheme."
This was the passage referred to by the High Court in Sidhu v Van Dyke: see [128] above.
Similar observations were made by this Court on the appeal in Priestley v Priestley [2017] NSWCA 155. Emmett AJA set out the relevant principles as follows:
"[136] The question is not whether the promisee or representee acted, or desisted from acting, solely in reliance on the promise or representation of the other party. Rather, the question is whether the conduct of the representee or promisee was so influenced by the promise or representation that it would be unconscionable for the promisor or representor thereafter to enforce her or his strict legal rights. It is sufficient for the promisee or representee to show that the promise or representation was a significant factor taken into account by the promisee or representee when deciding whether to act or not to act. If the belief of the promisee or representee is a contributing cause of the conduct of the promisee or representee, that will be a sufficient connection between the assumption induced by the belief and the detriment. The question is whether the promisee or representee would have committed to and continued in particular conduct that had a detrimental effect on the promisee or representee if the relevant promise or representation had not been given to the promisee or representee by the promisor or representor.
[137] A promisee or representee has the onus of establishing that she or he believed the promise or representation made by the promisor or representor and of establishing that, on the faith of that belief, the promisor or representee took a course of action or inaction that would turn out to be to her or his detriment, were the promisor or representor to be permitted to depart from the promise or representation. The promisee or representee does not need to establish that the belief to which she or he was induced by the promise or representation was the sole or predominant cause of the course of action or inaction engaged in by her or him. It is only necessary to establish that the belief was a contributing cause.
[138] The primary judge held that, for Duncan to establish detrimental reliance on the assumption and belief that Gordon encouraged, namely that he would inherit Gordon's estate on his death, it was necessary for Duncan to show that he would have acted differently if Gordon had not encouraged him in that assumption and belief. The test is not whether Duncan would have acted differently if Gordon had not encouraged his assumption and belief but whether he was influenced, in a significant or material way, such that it was a contributing cause to his conduct or made a difference to his action or inaction, so that it would be unconscionable for Gordon to resile from the assumption and belief that he induced in Duncan." (emphasis in original) (footnotes omitted)
As these passages illustrate, to use the language of 'but for' causation in the context of estoppel risks being misinterpreted or misapplied, particularly if understood as a 'sole cause' test. The question is whether, on the whole of the evidence, reliance has been proved, including by the drawing of appropriate inferences. It is significant that in Sidhu v Van Dyke, neither the plurality nor Gageler J used the language of 'but for' causation. Nor did this Court in Priestley v Priestley. I consider that there is good reason why that is so. In the first place, where the 'but for' test is the accepted basis for proof of causation, it does not stand on its own. This is apparent from March v E & MH Stramare Pty Ltd (1991) 171 CLR 506; [1991] HCA 12.
Secondly, and this may be an aspect of the first point, reliance as a fact usually represents the reactions of individuals to a particular circumstance or set of circumstances. Those reactions may not necessarily be a direct or express response to the circumstances which found the estoppel. Often other factors are operating on the mind or response of the person whose reliance is in issue that are unarticulated and often not the product of analytical thought processes. When the representee is a corporation, factual reliance may involve the actions of persons within the organisation at various levels of seniority and with various levels of experience, and who operate based on existing systems, practices and usual business practice. The 'but for' test does not easily encompass this range of circumstances.
Mr Lo gave direct evidence of the bases of his reliance, including the email of 24 November 2014, into which Ms Fan, who was a member of the Corporate Account Support section which processed orders, was copied, and that Mr Toomalatai was the contact person for three orders placed in 2015. To the extent that he stated he relied on the email of 24 November 2014, he was not cross-examined on the basis that that evidence was false or inaccurate. The evidence was accepted by the primary judge. In addition, Mr Lo said there were "other conversations as well". Although he was cross-examined to suggest that he did not rely on these "other conversations", I do not understand his evidence to have accepted that suggestion. Rather, the reason for his focus on the email of 24 November 2014 was that he had it "in writing".
The appellant's challenge to the issue of reliance was that Mr Lo's was not the relevant mind for the purpose of establishing reliance. Rather, it was Ms Pattrick who dealt with Mr Toomalatai and so, on the appellant's argument, the question was whether she had relied on the email of 24 November 2014. The answer to that question has to be in the negative as she had never seen the email, Mr Lo did not contend that he had spoken to her about it and Ms Pattrick was not called to give evidence.
However, the evidence was not as straightforward as the appellant's submission would suggest. I have set out the relevant portion of Mr Lo's evidence above at [13]-[14] and his cross-examination at [36]. His evidence at [13] was not the subject of direct cross-examination. Paragraph (15) of that evidence is of particular relevance. It is worth repeating at this point:
"15. My continued dealings with Graham Lott and his predecessors on behalf of Wilh. Wilhelmsen and this email led me to believe that Tony Toomalatai also had authority to place orders on behalf of Wilh. Wilhelmsen."
In cross-examination, when questioned as to whether Ms Pattrick was the person with whom Mr Toomalatai was dealing, Mr Lo responded "That's correct, as well as myself". He acknowledged that Ms Pattrick processed the orders. He also acknowledged that he knew that was the case because he had been shown documents by his employer for the purpose of preparing his affidavit. However, he also said that it was "standard practice within the business". Mr Toomalatai had placed an order for goods on 23 August 2016, which the appellant did not contend was unauthorised.
I am of the opinion that, contrary to the appellant's submission, the fact that Mr Lo did not give any express direction to Ms Pattrick to fill the orders was irrelevant to proof of reliance. In the usual course of business, a person in a position of authority would not permit an order to be filled if he or she knew or believed the person placing the order was not authorised to do so. In any event, Mr Lo's evidence and, in particular, his evidence in para (15) of his affidavit, was to the opposite of any such proposition.
In my opinion, it is quite artificial to confine proof of reliance to Ms Pattrick's direct evidence. There was an established course of dealing between the parties. I have already outlined the manner in which the appellant and the respondent conducted their business relationship. In my opinion, the process by which the fraudulent orders placed were processed was essentially the same as that which operated in respect of the legitimate orders placed, dating back to 2011. In that regard, I am of the opinion that, subject to the question of reasonableness, reliance can be inferred from the course of dealing itself. Since 2011, the dealings between the parties involved the respondent dealing with various employees of the appellant, and not only with Mr Scifleet and Mr Longhurst. It also dealt with employees from other entities in the Wilh. Wilhelmsen Group. The inference and, in my opinion, the only available inference, was that the respondent relied upon a representation by the appellant, implicit in its course of business dealings, of Mr Toomalatai's authority. To find otherwise would ignore the manner in which the parties did business with each other.
Mr Lo also gave direct and uncontested evidence of his reliance. In this regard, it is to be remembered that the appellant was Mr Lo's customer. He was copied into the first order, as well as a number of later orders.
In my opinion, the respondent has established reliance.
[10]
Appeal ground 3: was it reasonable for the respondent to have relied upon the appellant's representation of Mr Toomalatai's authority?
[11]
Parties' submissions
The appellant submitted that appeal ground 3 ought to be upheld because there were sufficient circumstances to put the respondent on enquiry that the placement of the orders was unusual. That being so, and the respondent having made no enquiries, its reliance on the appellant's representation of Mr Toomalatai's authority was unreasonable.
The appellant relied on a number of factors in support of this submission, namely that: Mr Toomalatai had not previously placed an order; the orders were for a large number of phones over a relatively short period of time and for a high cost in comparison with the appellant's purchasing history over the previous five years; although the initial orders placed by Mr Toomalatai had some appearance of legitimacy, for example, the first order was for eight phones and the second for 12, the numbers of phones ordered increased significantly; in some of the later orders, Mr Toomalatai said in his emails that he would take whatever stock Ms Pattrick indicated was available; and Mr Toomalatai picked up the goods which was unusual in the course of business dealings between the parties - the usual, although not invariable, practice was that the respondent would deliver the goods.
The respondent pointed out that not only was the appellant an existing customer that had ordered goods of the same type previously, but those orders had been placed by persons within the IT section of the company. Mr Toomalatai's emails indicated that he was also in the IT section. Given that Mr Lo had understood that the appellant was in an expansionary mode, the placement of orders for a greater number of goods did not sufficiently alert it to anything being awry with the orders. The respondent further submitted that a business using about 100 phones at any one time would replace them from time to time, such that large orders would not be unexpected or raise suspicion.
[12]
Consideration
In my opinion, it was open to the primary judge to find that the respondent's reliance on the representation of Mr Toomalatai's authority to purchase goods was reasonable. The appellant acknowledged that there was nothing in the first couple of orders to arouse suspicion.
That might be said of the first few transactions. The number of phones ordered in the first six transactions was 8, 12, 7, 15, 11 and 10. Thereafter, the number of phones ordered varied, sometimes with a significant increase. The number of phones ordered in the last eight transactions was 33, 20, 15, 11, 15, 25, 5 and 10. However, when the number of phones ordered was unusually high, as compared to the appellant's historical purchases, Mr Toomalatai provided an explanation, save for the order for 25 phones on 20 September 2016, as evidenced by his email of 13 September 2016, set out above at [24].
The value and frequency of the orders also increased. However, this occurred in the context where Mr Lo understood that the appellant's business model included expanding by the acquisition of other businesses and in circumstances where, on 15 September 2016, for example, Mr Toomalatai provided an explanation as to why the phones were required.
In my opinion, when taken against the background of dealings between the parties, the appellant has not demonstrated that the primary judge erred in finding that the respondent's reliance was reasonable.
[13]
Appeal ground 2: did the primary judge err in finding the appellant vicariously liable for Mr Toomalatai's conduct?
[14]
Parties' submissions
The appellant submitted that the primary judge ought not to have considered the question of vicarious liability as that case had not been pleaded. The appellant submitted that if it had known that the question of vicarious liability was in issue, it would have called more evidence about what was and was not within the scope of Mr Toomalatai's employment. The appellant submitted that, in any event, what was established on the evidence was that it was not within the scope of Mr Toomalatai's authority to purchase goods on behalf of the appellant. Accordingly, the appellant submitted that it could not be vicariously liable for his conduct.
The appellant submitted that, although it was not clear from the primary judge's reasons whether his Honour made this finding as a separate ground of liability or in support of his finding of ostensible authority, the question of vicarious liability had not been raised until the hearing. When it was raised, the appellant objected to it being raised in both opening and closing oral submissions.
In its closing submissions at trial, the respondent referred the primary judge to Pioneer Mortgage Services Pty Ltd v Columbus Capital Pty Ltd (2016) 250 FCR 136; [2016] FCAFC 78, which considered the case of Lloyd v Grace, Smith & Co [1912] AC 716. The respondent also relied upon Ffrench v Sestili. In that case, Debelle J approved the following statement made by Gummow and Hayne JJ in New South Wales v Lepore (2003) 212 CLR 511; [2003] HCA 4:
"… vicarious liability may be imposed where the wrongful act is done in ostensible pursuit of the employer's business or in the apparent execution of authority which the employer holds out the employee as having." (emphasis in original)
The respondent submitted that, having found that Mr Toomalatai had ostensible authority, such that the appellant was liable to pay for the goods ordered by him, the primary judge was doing no more than confirming that the appellant was liable for Mr Toomalatai's actions. The respondent submitted that vicarious liability was not a separate cause of action but a consequence of the finding that Mr Toomalatai had ostensible authority deriving from the appellant.
[15]
Consideration
The question whether the principles of vicarious liability apply to contract remains unresolved. There are express references to its application in contract in the judgments of Earl Loreburn and, in passing, in that of Lord Macnaghten in the House of Lords in Lloyd v Grace, Smith & Co. To the extent that that case has been cited with approval in Australian decisions, including those referred to above, at [161], and by the High Court in Prince Alfred College Inc v ADC (2016) 258 CLR 134; [2016] HCA 37, it has been in the context of tort law and in respect of criminal conduct. Lloyd v Grace, Smith & Co has been cited with approval in these cases as authority for other propositions, but not for the proposition that an employer can be vicariously liable for the fraudulent conduct of an employee where the cause of action is brought in contract.
As there is no clear authority before the Court that vicarious liability applies where the cause of action is based in contract, I do not consider it appropriate for this Court to embark on that course. In any event, where vicarious liability was not pleaded, I do not consider that the primary judge should have entertained the argument.
Although I have found that the primary judge erred in respect of appeal ground 2, that ground occupied a very small part of the parties' argument, such that no separate order for costs should be made in respect of that part of the appeal. However, for the reasons already given, I have determined that the appellant has not otherwise been successful in its challenge to the primary judge's decision, so that the overall effect of my judgment is that the appeal be dismissed.
[16]
Orders
I propose the following orders:
1. Appeal dismissed.
2. The appellant to pay the respondent's costs.
WHITE JA: The facts giving rise to this appeal are for the most part contained in the reasons for judgment of Beazley ACJ, which I have had the advantage of reading in draft. I will not repeat them. As her Honour explains, although the appellant's submissions at trial and on appeal concentrated upon Mr Lott's request to Mr Lo in his email of 24 November 2014 that the respondent accept all orders and service requests from Mr Toomalatai as it would from Mr Lott, the respondent's case was not confined to a representation of Mr Toomalatai's authority conveyed by that email.
In Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, Diplock LJ said (at 505):
"The commonest form of representation by a principal creating an 'apparent' authority of an agent is by conduct, namely by permitting the agent to act in the management or conduct of the principal of business ... they thereby represent to all persons dealing with such agent that he has authority to enter on behalf of the corporation into contracts of a kind which an agent authorised to do acts of the kind which he is in fact permitted to do usually enters into in the ordinary course of such business."
As Professor Dal Pont observes (G E Dal Pont, Law of Agency (3rd ed, 2014, LexisNexis Butterworths) at [20.9]):
"... It is unusual for a principal to make an express representation to a third party as to the scope of an agent's authority. That the representation is usually inferred from the circumstances may undermine the accepted estoppel requirement that it be unequivocal ..."
In the present case orders for the supply of mobile phones and associated products and services were placed by the appellant with the respondent for many years by persons having the title "IT Administrator" (Mr Scifleet), or "Group IT Manager" (Mr Longhurst and Mr Lott) as well as by others, a "Business Analyst" (Mr Andersen) and a "Managment/Operations Accountant" (Mr Groenendijk).
Mr Toomalatai was given the title of Information Technology Systems Administrator on 6 November 2014 and "Group Technology Officer" in about March 2016.
Mr Stratford deposed that Mr Toomalatai did not fill Mr Lott's role when Mr Lott left his employment with the appellant. In cross-examination he accepted that "in part" the reason for the change in Mr Toomalatai's position in March 2016 was the result of Mr Lott's leaving the appellant's employment and Mr Toomalatai had to pick up some of the tasks of Mr Lott. No-one else was employed to fill Mr Lott's position. Mr Stratford said that the appellant relied more heavily on external providers. Evidently, Mr Toomalatai's responsibilities widened after Mr Lott's departure. This is reflected in his change of title.
By its conduct in allowing persons with titles referred to at [170] above to order products from the respondent without conveying to the respondent that there were any limitations on that authority, the appellant represented that a person having a like title, namely Mr Toomalatai having the title of Group Technology Officer, had authority to purchase mobile phones and related products and services from the respondent (Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35 at [38]; Clarey v Permanent Trustee Co Ltd [2005] VSCA 128 at [107]).
The representation was conveyed by conduct. There is a question as to whether it was limited to a representation that a person having a similar title to the titles used by employees to purchase goods in the past had authority to place orders for mobile phones or related products in approximately the same numbers or to the same value as had been placed in the past by such persons. That depends on context and in particular the extent of the appellant's use of mobile phones for its workforce or those of the group of which it was part. The respondent through Mr Lo knew the nature of the appellant's use of mobile phones through its workforce. Mr Lo had had discussions in 2012 with Mr Andrew Longhurst, the appellant's Group IT Manager, about the appellant's "mobile fleet" and how the respondent could assist it. It was common ground that the appellant had more than 100 mobile telephones for use by its employees or employees of its group of companies for which it was billed by Telstra.
For an organisation of that size and with a potential need to replace phones from time to time I do not think there is such an implied limitation to the representation conveyed by conduct. This evidence is also relevant to the appellant's contention addressed below that any reliance on the representation was unreasonable.
Mr Stratford deposed that Mr Toomalatai did not have any authority to purchase mobile phones from external providers, including the respondent. So much was common ground. He also deposed that Mr Lott did not have power to confer authority on Mr Toomalatai, or any other employee, to purchase goods or services on behalf of the appellant.
The primary judge must be taken not to have accepted this part of Mr Stratford's evidence. His Honour found (Judgment [64]) that "Mr Lott did have actual authority and was able to represent authority to Mr Toomalatai in the way in which he did". This must be understood as a finding that Mr Lott had actual authority to make a representation as to Mr Toomalatai's authority. Otherwise it does not make sense. That finding was not challenged. Accordingly, I do not consider that the High Court's decision in Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising and Addressing Co Pty Ltd (1975) 133 CLR 72; [1975] HCA 49 stands in the way of the respondent's also relying upon the email of 24 November 2014 as conferring ostensible authority on Mr Toomalatai to place orders.
However, as Emmett AJA observes, Ms Pattrick, who processed Mr Toomalatai's orders, was not called to give evidence and there was no evidence that she relied upon that representation of authority.
Reliance is a question of fact to be proved and not presumed (Sidhu v Van Dyke (2014) 251 CLR 505; [2014] HCA 19 at [58], [64] ("Sidhu v Van Dyke"); Caringbah Investments Pty Ltd v Caringbah Business and Sports Club Ltd (In liq) [2016] NSWCA 165 at [77]). Nonetheless, evidence of the parties' conduct can give rise to a fair inference of reliance. In the absence of her giving evidence I would not infer that Ms Pattrick relied on the representation of authority conveyed by Mr Lott's email of 24 November 2014 to Mr Lo. But her conduct in filling the orders placed by Mr Toomalatai is only consistent with her assuming that he had authority to place the orders, which assumption would naturally arise from the consistent pattern of persons, in a like position to his, placing orders.
In my view it is unnecessary to explore the causal threshold to establish reliance for the purposes of estoppel. With respect to the reasons of Beazley ACJ (at [142]), in my view, in Sidhu v Van Dyke (2014) 251 CLR 505; [2014] HCA 19, Gageler J did use the language of "but for" causation. Paragraphs [91]-[94] of his Honour's reasons (quoted by Beazley ACJ at [134]) and paragraph [95] are an express adoption of the "but for" criterion. Whether that was the position taken by the plurality in Sidhu v Van Dyke is a more difficult question which might not be resolved by the decision of this court in Priestley v Priestley [2017] NSWCA 155 ("Priestley v Priestley"). The relevant principles as stated by Emmett AJA are quoted by Beazley ACJ at [141]. The statement of principle expounded by Emmett AJA in the last sentence of [136] might also be considered to be a statement of the "but for" test of causation. This Court in Priestley v Priestley did not consider the matters raised by Dr A Silink in her article "Causation in Equitable Estoppel" (2017) 43 ABR 320. In ADM v FDGK [2018] NSWSC 442 Ward CJ in Eq undertook a detailed examination of the authorities including Sidhu v Van Dyke, Miller Heiman Pty Ltd v Sales Principles Pty Ltd [2017] NSWCA 106 at [45]-[49] and my judgment and this Court's decision in Priestley v Priestley (at [901]-[1076]). Her Honour expressed a preference for the view that although a relevant assumption need not be the sole inducement on the mind of the person relying on the estoppel and it is enough that it be a contributing cause (at [1037]),
"… the better reading of this test is that propounded by Gageler J (Sidhu v Van Dyke), White J (Priestley v Priestley), and Macfarlan JA (Miller Heiman; Priestley v Priestley); in any event I do not think that the competing formulations, in the great majority of cases and certainly not the present, are likely to affect the outcome - here I consider that the plaintiffs would succeed on either formulation)." (at [901(6)])
In my view it is unnecessary to decide this issue or to explore it further in this appeal. It was not the subject of any considered submissions. It can readily be inferred that but for the appellant's having, by its conduct, represented that persons in the position of Mr Toomalatai had authority to purchase products and services from the respondent, Ms Pattrick would not have processed his orders. A fortiori it can be inferred that its conduct influenced her behaviour in a significant or material way. The reliance placed by Mr Lo on both the history of placement of orders and the representations in the email of 24 November 2014 would also satisfy a "but for" causal threshold.
The question then is the reasonableness of Ms Pattrick's continued reliance upon her assumption that the orders were authorised. As Emmett AJA observes, the dealings over the course of some 30 days in which Mr Toomalatai placed orders were of a totally different scale from dealings between the parties prior to 29 August 2016.
I also agree with the reasons of Beazley ACJ at [146]-[151] for concluding that Mr Lo's evidence was sufficient to establish the respondent's reliance on both the representation of authority by conduct and the representation contained in the email of 24 November 2014.
I agree with Beazley ACJ that it was reasonable for the respondent to have relied on the representation (by conduct and word) of Mr Toomalatai's authority. I agree with her Honour's reasons in this respect at [156]-[158] and would add a reference to the primary judge's finding that the fraud practised by Mr Toomalatai was "not an unsophisticated one" (Judgment [67]). The primary judge held that:
"68 ... Only with the benefit of hindsight, could the transactions be regarded otherwise. In the ordinary commercial world in which the plaintiff and defendant were operating, the transactions had the appearance of normal commercial transactions, albeit, perpetrated in such a way as to give the appearance of legitimacy, for example, the use by Mr Toomalatai of the reason for the order referred to above, namely, 'I have 50 techs arriving today'."
69 In no way were the circumstances such that they warranted inquiries made of the defendant, or senior employees employed by it as to the validity of those transactions."
Those findings were open to the primary judge.
For these reasons I would order that the appeal be dismissed with costs.
EMMETT AJA: A former employee (the Fraudster) of the appellant, Wilh. Wilhelmsen Investments Pty Ltd (the Employer), defrauded the respondent, SSS Holdings Pty Ltd (the Supplier), of 197 mobile telephones between 29 August 2016 and 23 September 2016. He did so by representing that he was buying the telephones for the Employer. In fact, the Fraudster had no authority to do so and was acting fraudulently. The Supplier delivered the telephones to the Fraudster without insisting on payment and the Fraudster absconded with them.
The Supplier commenced proceedings in the District Court against the Employer, claiming the price of the telephones, amounting to $189,103, on the basis that the Fraudster had ostensible authority from the Employer to purchase the telephones on its behalf. For reasons published on 29 March 2018, a judge of the District Court (the primary judge), directed a verdict for the Supplier against the Employer in the sum of $189,103, together with interest under s 100 of the Civil Procedure Act 2005 (NSW), from 14 February 2017 to 29 March 2018, in the sum of $11,600. The primary judge ordered the Employer to pay the Supplier's costs of the proceedings.
By Notice of Appeal filed on 29 June 2018, the Employer appeals from the orders made by the primary judge. The Employer relies on three grounds, which may be restated as follows:
The primary judge erred in finding that the Fraudster had the ostensible authority of the Employer to place orders for the telephones;
The primary judge erred in finding that the Employer was vicariously liable for the conduct of the Fraudster;
If the Supplier did in fact rely on a representation as to the authority of the Fraudster, the primary judge erred in finding that such reliance was reasonable.
The principal witness for the Supplier was Mr Gavin Lo, who was employed by the Supplier as a sales manager. In March 2012, the Supplier began dealings with the Employer. From that time, orders were placed with the Supplier on behalf of the Employer by Mr Robert Scifleet, who was the Employer's IT Administrator. Mr Scifleet's practice was to place orders by email for the supply by the Supplier to the Employer of telephones and of services. In each such case, the Supplier fulfilled the order and sent an invoice to the Employer by email. The invoices showed the devices and services supplied and the amounts outstanding.
In October 2012, Mr Scifleet was replaced by Mr Andrew Longhurst, whose title with the Employer was Group IT Manager. In October 2012, Mr Lo received an email from Mr Longhurst seeking a meeting to discuss what the Supplier could do to assist the Employer further. Mr Lo had this meeting with Mr Longhurst, at which they discussed the Employer's "mobile fleet" and how the Supplier could optimise and identify any cost savings in relation to the "mobile fleet". Mr Lo understood from that meeting that Mr Longhurst was the IT manager for the various entities that made up the Wilh.Wilhelmsen Group.
In May 2014, Mr Graham Lott was introduced to the Supplier as the Employer's new Group IT Manager. In that role, Mr Lott regularly placed orders with the Supplier for mobile phones together with various other products and services. The orders were often placed by email.
On 24 November 2014, Mr Lo received an email from Mr Lott entitled "New IT staff at WWI". The email said as follows:
"Hi Gavin, I'd like to introduce my new colleague, [the Fraudster], who joined me at WWI a little over two weeks ago.
Please accept all orders and service requests from [the Fraudster] as you would from me."
The email was copied to the Fraudster.
Mr Lo said that he understood from the email that Mr Lott made it clear that any orders placed by the Fraudster were to be fulfilled as if they had been placed by Mr Lott. At no time was Mr Lo informed by the Employer or anyone acting on behalf of the Employer that the Fraudster or other authorised employees had limits on the monetary amount of orders that could be placed on behalf of the Employer. As a consequence of Mr Lo's dealings with Mr Lott and his predecessors, on behalf of the Employer, together with the email of 24 November 2014, Mr Lo believed that the Fraudster had authority to place orders on behalf of the Employer.
On the basis of the facts briefly stated above, the Supplier claimed that the Fraudster had ostensible authority to place orders, and accept delivery in person, of some 14 batches of mobile telephones aggregating 197 telephones in all. The orders for the telephones were placed by email sent by the Fraudster to Ms Kim Pattrick, an employee of the Supplier. Many of the emails were copied to Mr Lo, who raised no question as to the authority of the Fraudster to place orders on behalf of the Employer.
There was no evidence that Ms Pattrick was aware of any of the discussions engaged in by Mr Lo with Mr Scifleet, Mr Longhurst or Mr Lott. There was no evidence that Ms Pattrick was aware of the email of 24 November 2014 from Mr Lott to Mr Lo. There was no evidence as to the duties and authorities of Ms Pattrick. Ms Pattrick was not called to give evidence. She was no longer employed by the Supplier but there was no suggestion that she was unavailable to give evidence.
Mr Lowe's evidence-in-chief was given by affidavit. Paragraph 59, which was admitted without objection, was in the following terms:
"Based on the previous representations of Graham Lott and our dealings with [the Fraudster] during 2015 I believe that [the Fraudster] had authority to place [the orders for the telephones] and so the orders were fulfilled."
That is the only evidence to suggest that the Supplier was induced to supply the telephones in question on the basis of a holding out of the Fraudster by the Employer as having authority to place orders for telephones.
It was accepted by the Supplier that the Fraudster did not in fact have authority to place orders on behalf of the Employer for the telephones in question. However, the Employer also denied that Mr Lott had authority on behalf of the Employer to authorise the Fraudster to place orders on behalf of the Employer.
[17]
Ground 1
Clearly enough, paragraph 59 of Mr Lo's affidavit ought to have been rejected had there been objection taken to it. Had there been objection, evidence may have been adduced from Mr Lo explaining the steps, if any, that he would have taken to prevent Ms Pattrick from supplying telephones to the Fraudster had he not received the email of 24 November 2014. As the evidence stands, paragraph 59 is the only basis for concluding that there was a causal connection between, on the one hand, the actions of Ms Pattrick, in supplying telephones to the Fraudster and, on the other hand, Mr Lo's belief, induced by the email of 24 November 2014 and his prior dealings with Mr Scifleet, Mr Longhurst and Mr Lott, as to the authority of the Fraudster.
Mr Lo was called as a witness. However, he gave no evidence as to any causal connection between his belief, on the one hand, and Ms Pattrick's actions in supplying telephones in accordance with directions given by the Fraudster, on the other. In those circumstances, no inference should be drawn in favour of the Supplier [1] . The question is whether the evidence contained in paragraph 59 of Mr Lo's affidavit and, in particular, the statement "and so the orders were filled", is sufficient to support a finding that there was such a causal connection. The essence of the Supplier's case is that that paragraph is evidence of the relevant causal connection, notwithstanding that it may well have been rejected had objection been taken to it. The question of such a causal connection was not explored in cross-examination of Mr Lo, although he was cross-examined as to his belief that the Fraudster had authority to place the relevant orders.
The question is whether the Court should be persuaded that it is more likely than not that Mr Lo communicated with Ms Pattrick and informed her that the Fraudster was authorised to place orders on behalf of the Employer. Mr Lo did not say so in para 59. I do not consider that the somewhat equivocal use of the word "so" supports the conclusion that there was a relevant causal connection between the email of 24 November 2014 and the defrauding of the Supplier. Rather, it is more likely than not that Ms Pattrick simply assumed that the Fraudster had authority to place orders on behalf of the Employer. He did not in fact have that authority. Accordingly, the Employer had no responsibility for his fraudulent conduct.
[18]
Ground 2
The thrust of the Employer's complaint in relation to ground 2 is that there was no allegation in the Supplier's statement of claim that the Employer was vicariously liable for the fraudulent actions of the Fraudster. Putting aside any pleading deficiency, the real question is whether, if there was no holding out of the Fraudster by the Employer, there is any basis for concluding that the Employer is in some way vicariously liable for the actions of its employee, the Fraudster, in defrauding the Supplier. The evidence is clear that the Fraudster did not have actual or ostensible authority to place orders for the telephones in question. Further, his actions were not undertaken in the course of the performance of his duties as an employee of the Employer. They were engaged in solely for his own benefit, though this is not determinative of whether vicarious liability should be imposed on an employer: see Prince Alfred College Incorporated v ADC (2016) 258 CLR 134; [2016] HCA 37, at 150, citing Lloyd v Grace, Smith & Co [1912] AC 716. In the absence of ostensible authority binding the Employer, there is no basis for concluding that the Employer has any vicarious liability for the fraudulent conduct of the Fraudster. The fraudulent conduct was directed entirely to the Supplier and was not in any way authorised by or for the benefit of the Employer.
[19]
Ground 3
Ground 3 only arises if the Employer is unsuccessful in its primary contention that the Fraudster did not have ostensible authority to place orders for the telephones on behalf of the Employer. There are significant differences between the Supplier's dealings with the Fraudster, on the one hand, and its previous dealings with the Employer. Nevertheless, the primary judge concluded that, by reason of the email of 24 November 2014 and the course of dealing between the Supplier and the Employer from April 2011 to October 2015, the Fraudster had ostensible authority to place orders on behalf of the Employer for the purchase of 197 telephones within the space of less than a month.
During the period of four and one half years from 24 April 2011 to 1 October 2015, the Employer placed orders for, accepted delivery of and paid for no more than 29 telephones, at a total cost of approximately $19,000. For the most part each of the orders was for a single telephone although, in August 2015, two separate orders were placed for three telephones each. On the other hand, during the period of four weeks from 29 August 2016 to 24 September 2016, 14 separate orders were placed by the Fraudster for parcels ranging from five telephones to 33 telephones at a time, at a total cost of $189,103.
The dealings over the course of some 30 days were of a totally different character from the dealings between the Employer and the Supplier prior to 29 August 2016. The procedures adopted were not in accordance with the procedures that had been in place for the legitimate orders submitted by the Employer to the Supplier during the period 2011 to 2015. There were very significant departures from the usual procedures that might be expected, quite apart from the vast increase in the numbers of telephones purportedly ordered on behalf of the Employer. Those irregularities and departures were sufficient to signify to a reasonable seller in the position of the Supplier that the Fraudster may not have had authority to place the fraudulent orders on behalf of the Employer.
[20]
Conclusion
It follows from the conclusions stated above that the appeal should be allowed. The orders made by the primary judge should be set aside. In lieu thereof, there should be a verdict for the Employer. The Supplier should pay the Employer's costs of the trial and of the appeal.
[21]
Endnote
See Commercial Union of Assurance Co of Australia v Ferrcom Pty Ltd (1991) 22 NSWLR 389
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Decision last updated: 26 February 2019
Solicitors:
KCL Law (Appellant)
Hunt & Hunt (Respondent)
File Number(s): 2018/122722
Decision under appeal Court or tribunal: District Court
Jurisdiction: Civil
Citation: SSS Holdings Pty Ltd trading as MobileCorp ABN 22003702725 v WILH Wilhelmsen Investments Pty Limited CAN 076859151 [2018] NSWDC 77
Date of Decision: 29 March 2018
Before: Mahony SC DCJ
File Number(s): 2017/46884
[This headnote is not to be read as part of the judgment]
For some years, the appellant, Wilh. Wilhelmsen Investments Pty Ltd (Wilhelmsen) has purchased mobile phones and associated products and services from the respondent, SSS Holdings Pty Ltd (SSS Holdings). From 2012, Mr Gavin Lo was employed by SSS Holdings as Sales Manager. On 2014 November 2014, Mr Lo received an email from Mr Graham Lott, Wilhelmsen's Group IT Manager. In that email, Mr Lott introduced Mr Lo to Mr Tony Toomalatai, and wrote, "Please accept all orders and service requests from Tony as you would from me." As Group IT Manager, Mr Lott had actual authority to purchase phones and related services up to a limit of $10,000, though the respondent had no knowledge of this limit. In the course of business dealings between the appellant and respondent, it was common for orders to be placed by email. Mr Lott left Wilhelmsen in early 2016. Mr Toomalatai was appointed Group Technology Officer in March 2016, undertaking some of Mr Lott's duties, though not succeeding to his role (and its associated grant of actual authority) as such.
Between 29 August 2016 and 23 September 2016, Mr Toomalatai placed fraudulent orders for phones, purportedly on behalf of Wilhelmsen, but in fact for his own gain. Over 14 separate occasions, Mr Toomalatai ordered 197 phones by email for a total value of $189,103. SSS Holdings never received payment for the phones delivered.
SSS Holdings commenced proceedings in the District Court, claiming the price of the phones supplied, namely, $189,103. SSS Holdings claimed that sum from Wilhelmsen on the basis that Mr Toomalatai had ostensible authority from the appellant to purchase phones on its behalf.
The primary judge held that Mr Toomalatai had ostensible authority to act on behalf of the appellant, that the respondent's reliance on representations of the appellant was reasonable, and that the appellant was accordingly liable for the cost of the goods. His Honour also held that the appellant, as Mr Toomalatai's employer, was vicariously liable for his fraudulent conduct. His Honour ordered that Wilhelmsen pay to SSS Holdings the price of the phones, plus interest, as well as the respondent's costs in the proceedings.
Wilhelmsen raised three grounds of appeal, listed here out of numerical order, but reflecting the relative importance of the grounds:
Appeal Ground 1: Whether the primary judge erred in finding that Mr Toomalatai had the ostensible authority of the appellant to place the orders for the mobile phones.
Appeal Ground 3: In the alternative, if SSS Holdings in fact relied on a "relevant representation of authority" so as to found the existence of ostensible authority, whether the primary judge erred in finding that that reliance was reasonable.
Appeal Ground 2: Whether the primary judge erred in finding that the appellant was vicariously liable for the conduct of Mr Toomalatai in circumstances where vicarious liability was not pleaded.
The Court of Appeal (Beazley ACJ and White JA, Emmett AJA dissenting) dismissed the appeal and ordered that the appellant pay the respondent's costs. The Court held:
In relation to Appeal Ground 1:
(i) Per Beazley ACJ and White JA: the primary judge did not err in finding that Mr Toomalatai had the ostensible authority of the appellant to place the orders. The course of business dealings between the appellant and respondent was such that the appellant clothed Mr Toomalatai with ostensible authority: [124], [179].
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 referred to.
Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72; [1975] HCA 49 considered.
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35 referred to.
(ii) Per Beazley ACJ and White JA: Further, the fact of the respondent's reliance on the appellant can be inferred from the course of business dealings between the appellant and respondent: [149], [151], [181], [183].
Lynch v Stiff (1943) 68 CLR 428; [1943] HCA 38 distinguished.
Steria Ltd v Hutchinson [2006] EWCA Civ 1551 referred to.
Sidhu v Van Dyke (2014) 251 CLR 505; [2014] HCA 19 considered.
Priestley v Priestley [2016] NSWSC 1096 referred to.
Priestley v Priestley [2017] NSWCA 155 considered.
(iii) Per Emmett AJA: the primary judge erred in finding that Mr Toomalatai had ostensible authority to place the orders. The evidence did not support the causal finding that SSS Holdings relied on the representation in the email of 24 November 2014 to its detriment: [201].
In relation to Appeal Ground 3:
(iv) Per Beazley ACJ and White JA: the primary judge did not err in finding that the respondent's reliance was reasonable: [158], [184].
(v) Per Emmett AJA: the primary judge erred in finding that the respondent's reliance was reasonable. The dealings between SSS Holdings and Mr Toomalatai were of a 'totally different character' to those between SSS Holdings and Wilhelmsen, such as would signify to a reasonable seller in the position of SSS Holdings that Mr Toomalatai may not have had authority to place the orders in question: [205].
In relation to Appeal Ground 2:
(vi) Per Beazley ACJ: As vicarious liability was not pleaded, the primary judge should not have entertained the argument. Further, there was no clear authority before the Court supporting the proposition that an employer can be vicariously liable for the fraud of an employee when the cause of action is based in contract: [164].
Lloyd v Grace, Smith & Co [1912] AC 716 considered.
New South Wales v Lepore (2003) 212 CLR 511; [2003] HCA 4 referred to.
Ffrench v Sestili (2007) 98 SASR 28; [2007] SASC 241 referred to.
Pioneer Mortgage Services Pty Ltd v Columbus Capital Pty Ltd (2016) 250 FCR 136; [2016] FCAFC 78 referred to.
Prince Alfred College Inc v ADC (2016) 258 CLR 134; [2016] HCA 37 referred to.
(vii) Per Beazley ACJ: Though the ground was therefore made out, it occupied a very small part of the parties' arguments, and was not decisive of liability. In those circumstances, no order was necessary in respect of this ground: [164]-[165].
(viii) Per Emmett AJA: Irrespective of any deficiency in the pleadings, in the absence of ostensible authority binding Wilhelmsen, there was no basis for concluding that Wilhelmsen was vicariously liable for the fraudulent conduct of Mr Toomalatai: [202].