Judgment

[Please note that this case has not been edited in accordance with the current Singapore Law Reports house style.]

      Judgment reserved.

FA Chua J:

1           The plaintiffs claim against the defendants the sum of $350,832.08 for electric cables sold and delivered to the defendants.

2           The defendants are a company incorporated in the United Kingdom and carried on business at No 96 Somerset Road, #11-03/04 UOL Building, Singapore (‘the city office’).

Plaintiff’s case

3           In June 1986 the defendants were constructing an electric power station for the Public Utilities Board on Pulau Seraya and had a site office there. On 19 May 1987, one Richard Kwan Chuan Seah (‘Richard Kwan’) telephoned Miss Jackie Tan Mui Hiang (‘Jackie Tan’), the sales co-ordinator of the plaintiffs. Richard Kwan told Jackie Tan that he was calling from Pulau Seraya and that he was an engineer employed by the defendants and needed 150 MM2 and 10 MM2 cables and asked her to send the quotations by fax to the Pulau Seraya site office of the defendants, which she did. On 26 May Jackie Tan received a telephone call from Richard Kwan who said that he was calling from Pulau Seraya and that he needed 70 MM2 cable ex stock and asked her to fax the quotation to the defendants’ site office at Pulau Seraya, which she did. On 27 May Richard Kwan telephoned again to Jackie Tan and asked for 240 MM2 cable ex stock and asked her to fax the quotation to him, which she did. Then Richard Kwan telephoned her the same day. He asked for another size of cable: 300m of 630 MM2. He was told that the plaintiffs did not have the whole length of 300m but had in stock lengths of 94m, 148m, 163m, 182m and 186m. Richard Kwan asked for a quotation. Jackie then prepared a proforma invoice dated 27 May 1987 addressed to the defendants at the city office ‘attention Mr Kwan’ for 300m 630 MM2 cable for $8,772 signed by Mr Chin of the marketing department and it was sent by post. Richard Kwan telephoned again the same day and said he might need three lengths: 148m, 163m and 182m and asked for a quotation. An amended proforma invoice signed by Shirley Tan of the marketing department for $14,415.32 was sent to the defendants’ city office by post.

4           On 28 May Richard Kwan telephoned Jackie Tan and said he wanted to confirm those quantities which Jackie Tan had faxed him. He said he was coming to collect the cables that afternoon. Jackie Tan asked for the purchase order and was told that the purchase order number was 380215. Jackie Tan then prepared the delivery order which was signed by Shirley Tan. The total price of the order was $32,665.32. That afternoon Richard Kwan came in a vehicle and saw Jackie Tan. That was the first time Jackie Tan had met Richard Kwan. He was wearing the NEI badge on his shirt. Jackie Tan introduced Richard Kwan to Low Lean Siew, the plaintiffs’ sales engineer. Low Lean Siew had met Richard Kwan once before at the Pulau Seraya site in 1987. Jackie Tan handed the delivery order to Richard Kwan who then went to the plaintiffs’ store and collected the cables and took them away in the vehicle.

5           On 30 May Richard Kwan telephoned Jackie Tan and asked for cables for the Pulau Seraya project and asked for a quotation. Later that day Richard Kwan telephoned Jackie Tan and confirmed the order and said he was collecting the cables that afternoon. Jackie Tan asked for the purchase order number and was given the number ‘380218’. The amount of the second order was $19,079.11. Jackie Tan prepared the delivery order and the invoice addressed to the defendants at the city office. Richard Kwan collected the cables from the plaintiffs’ store that day.

6           On 1 June Richard Kwan telephoned Jackie Tan and asked for cables. Jackie Tan gave a quotation. Richard Kwan asked her to fax the quotation which she did. On 3 June Richard Kwan telephoned Jackie Tan and confirmed the order for two items. Richard Kwan gave the purchase order number as ‘380222’ and said he was coming to collect the two items. Jackie Tan prepared two delivery orders. She also prepared two invoices addressed to the defendants at the city office; one invoice for $6,324.48 and the other for $105,000. Richard Kwan collected the two lots of cables that day. When Richard Kwan came to collect the cables on 3 June, he confirmed an order for another lot of cables and gave the purchase order number as ‘380244’. Jackie Tan prepared the delivery order. She also prepared an invoice for $105,000 addressed to the defendants at the city office.

7           On 5 June Richard Kwan telephoned Jackie Tan and asked for another lot of cables. Jackie Tan faxed the quotation. That same day Richard Kwan confirmed the order. Jackie Tan prepared the delivery order and an invoice for $24,000 addressed to the defendants at the city office. On 5 June Richard Kwan collected two lots of cables: the one for $105,000 and the other for $24,000.

8           On 9 June Richard Kwan telephoned Jackie Tan who was then on leave and his call was transferred to Low Lean Siew. Richard Kwan made inquiries about the price of some cables. Having learnt of the price from Low Lean Siew, Richard Kwan accepted the quotation and confirmed the order and quoted the purchase order number. He ordered two lots of cables. Low Lean Siew prepared two delivery orders and two invoices both addressed to the defendants at the city office. One invoice was for $22,322.39 and the other for $6,222.96. Richard Kwan collected these two lots of cables on that day.

9           On 13 June 1987 Jackie Tan telephoned the Pulau Seraya site looking for Richard Kwan and she was told by a girl that he was on medical leave. She asked the girl who was the person in charge of purchase orders and the girl told her that Richard Kwan was the one.

10       On 15 June Richard Kwan telephoned Jackie Tan and asked for cables. Jackie Tan asked him for the purchase orders and he promised to bring all the purchase orders to Jackie Tan that afternoon. Richard Kwan came to Jackie Tan’s office in the afternoon and brought all the purchase orders (eight purchase orders collectively marked exh P6; also in bundle PB2 pp 1–8) and also the defendants’official rubber stamp. The purchase orders were already signed and affixed with the defendants’ rubber stamp over the signature ‘For NEI Parsons Ltd’. Jackie Tan handed to Richard Kwan all the plaintiffs’ delivery orders and he stamped the defendants’ rubber stamp on them.

11       On the same day, Richard Kwan confirmed another order for cables. Richard Kwan did not bring along the purchase order but gave its number as ‘380324’. Jackie Tan prepared the delivery order and an invoice for $30,217.82 addressed to the defendants at the city office. Richard Kwan collected this lot of cables on 16 June.

12       The plaintiffs sent a statement of account dated 31 May 1987 (exh P7) to the defendants at the city office which was received by the defendants on 5 June 1987. The plaintiffs also sent a statement of account dated 30 June 1987 to the defendants at the city office which was received by the defendants on 8 July 1987.

13       On 16 June 1987, Low Lean Siew went with the plaintiffs’ general manager Mr Han to Pulau Seraya to visit the defendants’ site office to thank them for purchasing the substantial quantity of cables. There they met Mr Bright and asked where Richard Kwan was and was told that Richard Kwan was on leave. Mr Bright denied having placed any order for cables from the plaintiffs.

Defendant’s case

14       The defendants were building a power station at Pulau Seraya for the PUB. Richard Kwan was originally employed by the defendants through an employ- ment agency as an electrical supervisor. In May 1986 Richard Kwan was directly employed by the defendants as a cabling assistant. The defendants employed a sub-contractor Temes to carry out all cabling work for the project and Richard Kwan was employed to assist in checking the installation and termination of the cables. From 1 July 1986 the type of work required of Richard Kwan was changed to that of ‘making alive’ engineer. His duties were to check the completeness and safety of the equipment before making it alive. He was responsible for liaison between the defendants and the PUB engineer for this work. In fact he was to put power, switch power, on to the equipment.

15       Richard Kwan was not given any responsibility to purchase any materials.

16       The defendants had a rubber stamp similar to the one appearing on the delivery orders of the plaintiffs which were produced in evidence but it was a small rubber stamp. The defendants had a total of five rubber stamps: one held by the project manager, Mr Johnson, at the city office, the other four stamps were in the Pulau Seraya site office of which one was held by Mr Bowman the site manager, and the other three by Mr Bowman’s assistant managers. As regards the purchase orders exh P6, these were the defendants’ order forms kept in the defendants’ site office at Pulau Seraya. However, when the order form was issued officially, a label of the defendants’ Singapore city office was stuck over the address of the defendants’ head office in England at the column ‘Invoice to’.

17       It was not part of Richard Kwan’s duty to keep the purchase order forms. The same four people issued with the rubber stamps of the defendants were authorized to place orders for materials.

18       In June 1987 the defendants had not issued the company’s badge to their employees. Between 1984 and 1987 the defendants’ employees had to wear badges issued by the PUB to gain entry to PUB installations. The badge which Richard Kwan was issued with had ‘PUB’ and the defendants’ name and Richard Kwan’s name and photograph.

19       It was not the defendants’ policy to collect equipment or materials purchased by them. The defendants expected the seller to be responsible for safe transportation to the defendants’ site particularly to the Pulau Seraya site which was on an island.

20       There was one occasion in April 1987 when Mr Johnson made arrangements for the purchase of cables from the plaintiffs and the purchase order (PB1 pp 12 and 13) was issued by the defendants’ city office. The cables were delivered by the plaintiffs on 30 April 1987 to Jurong Power Station which the defendants had built in 1972–1974 and carried on providing service.

21       None of the authorized persons had any knowledge of the purchase orders exh P6. It was only when people from the plaintiffs visited the Pulau Seraya site office on 16 June 1987 that the defendants became aware of the purchase orders exh P6. Exhibit P6 did not bear labels of the defendants’ Singapore city office.

22       Richard Kwan had taken sick leave before 16 June 1987. The matter was reported to the police and Richard Kwan was dismissed.

Findings of the court

23       The main question to be determined by the court is whether Richard Kwan had the authority to purchase the cables for and on behalf of the defendants.

24       The plaintiffs can succeed in their claim only if they can establish either: (a) that Richard Kwan had actual authority to purchase the cables on behalf of the defendants; or (b) that Richard Kwan had apparent or ostensible authority to purchase the cables on behalf of the defendants.

25       It is not the plaintiffs’ case that Richard Kwan had actually been authorized to make the purchases on behalf of the defendants. What the plaintiffs contend is that the conduct of the defendants as a whole amounted to a representation that Richard Kwan had the necessary implied or apparent authority to purchase the nine lots of cables on behalf of the defendants. It is submitted that the defendants had by their actions and acquiescence represented that Richard Kwan had the authority to purchase the cables on their behalf.

26       The evidence adduced by the plaintiffs which they say supports their submissions is as follows:

(a)    On seven occasions between 19 August 1986 to 5 June 1987 five faxes and two proforma invoices of the plaintiffs’ price quotations of the cables were sent to the defendants. The five faxes were faxed to the defendants’ site office at Pulau Seraya and the two proforma invoices were mailed to the defendants’ city office.

(b)    As no evidence was adduced by the defendants to the contrary, the court is entitled to presume that these documents had been received by the defendants in the ordinary course of natural events.

(c)    These documents were addressed to the defendants for the attention of Richard Kwan. They bore the name of the plaintiffs which the defendants knew were suppliers of cables in Singapore and contained details of cables quoted and their prices. Upon receipt of these documents, the defendants did not at any time object to or deny Richard Kwan’s authority to ask for quotations for cables or to purchase these cables. By their acquiescence the defendants represented to the plaintiffs that Richard Kwan had the authority to ask for quotations for cables and accordingly the necessary or incidental authority to purchase the cables in relation to the quotations.

(d)    The plaintiffs after the sale of the first two lots of cables on 28 May 1987 and 30 May 1987 sent to the defendants a statement of account for the period 31 May 1987 (exh P7) showing these two sales and the amount owing by the defendants to the plaintiffs for these two sales. The defendants on receipt of exh P7 on 5 June 1977 must know that there were two sales of cables to the defendants and that Richard Kwan was involved. By not immediately objecting or denying Richard Kwan’s authority after receipt of exh P7, the defendants again represented that Richard Kwan in fact had the authority to purchase the cables on their behalf. This further induced the plaintiffs to continue to sell more cables to Richard Kwan.

(e)    Richard Kwan wore a NEI PARSONS badge each time he visited the plaintiffs’ premises to confirm orders for the cables and to collect the cables. On each occasion when he came he drove the defendants’ van to collect the cables during normal office hours.

(f)     Richard Kwan was able to bring along the defendants’ purchase orders and the defendants’ official rubber stamp in the transactions with the plaintiffs.

(g)    The defendants had conducted their business such that it was easy for Richard Kwan to leave the defendants’ office during normal office hours and to have access to the defendants’ van and rubber stamp and purchase order forms until 15 June 1987.

(h)    On 13 June 1987 Jackie Tan made a telephone call to the defendants’ site office at Pulau Seraya and she was told that Richard Kwan was the person who was in charge of purchase orders.

(i)     The plaintiffs had made one sale of cables to the defendants in April 1987. The procedure adopted for that sale was similar to the procedure adopted in respect of the nine purchases made by the defendants through Richard Kwan: the purchase order number was given by the defendants to the plaintiffs and the cables were delivered on the strength of the said purchase order number. It was only at a much later date that the actual purchase order was delivered by the defendants. In the previous sale, the purchase order number was given by the defendants to the plaintiffs on 8 April 1987; the cables were delivered on 30 April 1987 and the actual purchase order (PB1 pp 12 and 13) was only received by the plaintiffs from the defendants on 5 May 1987.

27       Diplock LJ in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd stated (p 503):

An ‘apparent’ or ‘ostensible’ authority, on the other hand, 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.

In ordinary business dealings the contractor at the time of entering into the contract can in the nature of things hardly ever rely on the ‘actual’ authority of the agent. His information as to the authority must be derived either from the principal or from the agent or from both, for they alone know what the agent’s actual authority is. All that the contractor can know is what they tell him, which may or may not be true. In the ultimate analysis he relies either upon the representation of the principal, that is, apparent authority, or upon the representation of the agent, that is, warranty of authority.

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.

28       In Ebeed v Soplex Wholesale Supplies Ltd, the Court of Appeal held that in determining whether a principal had represented that his agent had authority to enter into a particular transaction, the court had to consider the totality of the principal’s conduct. It was not right for the court to restrict its inquiries to an assessment of what was the normal or usual authority of the particular type of agent in question, although this undoubtedly would be a relevant factor and on occasions it may be the only evidence available for determining the agent’s apparent authority.

29       Browne-Wilkinson LJ in his judgment said (p 411):

It is important to bear in mind that the doctrine of holding out is a form of estoppel. As such, the starting point is that the principal must be shown to have made a representation, which the third party could and did reasonably rely on, that the agent had the necessary authority. The relevant inquiry, therefore, in all cases, is whether the acts of the principal constitute a representation that the agent had a particular authority and were reasonably so understood by the third party. This requires the court to consider the principal’s conduct as a whole. In many cases, the holding out or representation by the company consists solely of the fact that the company has invested the agent with a particular office, eg ‘managing director’ or ‘secretary’. For example, in a case such as British Bank of the Middle East v Sun Life Assurance Co of Canada (UK) Ltd [1983] 2 Lloyd’s Rep 9, [1983] BCLC 73, the only holding out by the defendants to the third party was to invest someone with the title ‘branch manager’, which enabled him so to describe himself in correspondence relied on by the third party: in such a case, the only representation which the third party can reasonably rely on is the representation that that person has the powers normally or usually enjoyed by a branch manager. Therefore, in such a case, the only relevant inquiry is as to the powers normally enjoyed by branch managers in general. But where, as in the present case, the holding out is alleged to consist of a course of conduct wider than merely describing the agent as holding a particular office, although the authority normally found in the holder of such an office is very material, it must be looked at as part and parcel of the whole course of the principal’s conduct in order to decide whether the totality of the principal’s actions constitute a holding out of the agent as possessing the necessary authority.

I therefore cannot accept either of the ways in which counsel for Refson put his case. It is not right in this case simply to inquire what is the normal authority of documentary credit managers in general. Nor is it right to start by seeking to establish the normal authority of documentary credit managers in general and then looking to see whether there are any additional factors which alter the position. The only correct approach is the one adopted by the judge, which is to consider the whole of Refson’s conduct to determine whether it amounted to a holding out by Refson of Mr Booth as having the necessary authority.

30       In the present case there was never any representation by the defendants to the plaintiffs as regards the authority of Richard Kwan. Prior to 16 June 1987, the plaintiffs were told that Richard Kwan was an engineer employed by the defendants only by Richard Kwan himself. The plaintiffs cannot rely on the representation of Richard Kwan as to his actual authority (per Diplock LJ in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd at p 505).

31       In any case, even if the defendants had represented to the plaintiffs before any of the purchases were made by Richard Kwan that Richard Kwan was their engineer, the plaintiffs could only succeed if they can establish that the purchases made by Richard Kwan were within the scope of authority of an engineer. The mere representation by the defendants that Richard Kwan was their engineer did not of itself amount to a representation that Richard Kwan had authority to make the purchases on behalf of the defendants (per Diplock LJ in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd at p 508).

32       It is clear from the evidence adduced by the plaintiffs that Jackie Tan and Low Lean Siew relied on the position held by Richard Kwan in the defendants and had considered that the position of engineer carried with it the authority to make the purchases which Richard Kwan purportedly made on behalf of the defendants.

33       It is for the plaintiffs to establish that the purchases made by Richard Kwan were within the scope of authority of an engineer (see Kreditbank Cassel v Schenkers GmbH v Schenkers). This the plaintiffs have failed to do.

34       The duties normally associated with an engineer do not include the purchase of materials or goods although an engineer may advise on the type of materials required. The decision to purchase from suppliers and the price to be paid are matters within the scope of the duties of the manager or other persons specially authorized by the management of the company.

35       The plaintiffs cannot establish the authority of engineers to make purchases on behalf of their employers by merely relying on the evidence of Jackie Tan and Low Lean Siew that engineers were known to them to make purchases from the plaintiffs; nor was their evidence sufficient to establish that engineers have by customs and usages in Singapore implied authority to make purchases of materials or goods on behalf of their employers.

36       Richard Kwan was employed by the defendants as a ‘making alive’ engineer. His duties were to check the completeness and safety of the equipment before making it alive by switching on power to the equipment. He was not involved in the design or construction of electrical devices. Clearly it was no part of his duty to purchase materials or goods on behalf of the defendants or even advise the defendants on the type of materials required.

37       I now come to deal with the other matters relied on by the plaintiffs. Do they constitute a representation by the defendants that Richard Kwan had authority to make the purchases on behalf of the defendants?

38       The plaintiffs cannot assume from the absence of any response from the defendants to their faxes and proforma invoices that Richard Kwan had authority to purchase or transact business for the defendants. The most the plaintiffs can assume was that Richard Kwan had been requested by the management of the defendants to obtain price quotations. The authority to request for price quotations cannot be construed as authority to make purchases or a representation of authority to make purchases. The task of making enquiries or obtaining quotations is commonly assigned to very junior employees.

39       Neither a badge which identifies a person as an employee of a company nor the use of the company’s vehicle can conceivably be understood as a representation that that person has authority to conclude contracts or make purchases on behalf of the company. If the plaintiffs are right, then any employee can bind the company by wearing the company’s badge and using the company’s vehicle. The wearing of a company’s badge and the use of the company’s vehicle are common everyday occurrences.

40       The fact that Richard Kwan made use of the defendants’ purchase order forms and rubber stamp cannot be a representation unless the defendants knew and allowed Richard Kwan to use them. This has not been established by the evidence adduced. In fact the evidence was that it was not part of Richard Kwan’s duty to keep the purchase order forms and he was not issued with the defendants’ rubber stamp.

41       Even if the defendants’ purchase order forms and rubber stamp were kept by Richard Kwan, that would not amount to a representation or holding out that Richard Kwan had the authority to use them and bind the defendants. It cannot be said that it was wrong of the defendants to let Richard Kwan keep the rubber stamp (see The Mayor, Constables & Company of Merchants of the Staple of England v The Governor & Company of the Bank of England at p 167). There is no reason why purchase order forms should be treated differently from other stationery bearing a company’s letterhead. Both purchase order forms and stationery bearing the company’s letterhead are capable of being used to order goods when properly completed or typed up. In fact stationery bearing the company’s letterhead are capable of serving other important functions when they are typed up. Yet these documents and the company’s rubber stamp are commonly kept by clerical or secretarial staff and are used everyday. It cannot be that those clerical or secretarial staff could bind the company if they made use of the purchase order forms, or the stationery bearing the company’s letterhead and the rubber stamp.

42       The fact that a company may have allowed its employee to retain possession of documents which would enable the employee to perpetrate or which would facilitate the perpetration of a fraud on a third party does not entitle the third party to claim against the company (see Farquharson Brothers & Co v C King & Co).

43       In Tham Seow Hing v Chop Kwong Fatt Cheong,6 the court held that the branch manager of the defendant firm did not have authority to borrow on behalf of the defendant firm and the mere possession of the seal of the defendant firm did not extend the manager’s actual, implied or ostensible authority to borrow money, where such borrowing was not necessary for the defendants’ business.

44       It should be noted that the purchase orders exh P6 and the defendants’ rubber stamp were not produced by Richard Kwan until 15 June 1987 by which time Richard Kwan had collected the cables for eight out of the total of nine orders he made.

45       When Jackie Tan telephoned the defendants’ Pulau Seraya site on 13 June 1987 to look for Richard Kwan he was on medical leave. She then asked the girl, who was probably the telephone operator, who was the person in charge of purchase orders and the unidentified girl told her that Richard Kwan was the one. A statement that a person was in charge of purchase orders is not a statement that that person has authority to make purchases. A person could be in charge of purchase orders in that he is the one who keeps the purchase orders or who attends to enquiries relating to purchase orders. For the plaintiffs to rely on this statement they must establish that the representation was made by a person who had actual authority to manage the defendants’ business either generally or in respect of the purchases of cables. In any case it is clear from the evidence adduced and the conduct of Jackie Tan that the plaintiffs did not rely on this telephone conversation of 13 June 1987 in their dealings with Richard Kwan because their dealings with Richard Kwan commenced on 28 May 1987 when they allowed him to collect the first order of cables and by 13 June 1987 he had collected eight orders totalling $320,614.26.

46       The fact that the defendants did not immediately object or deny Richard Kwan’s authority after they received exh P7, the statement of account for the period 31 May 1987, did not constitute a representation. The plaintiffs’ plea of estoppel based on the silence of the defendants can only succeed if the plaintiffs prove:

(a)    that the defendants’ managers or senior officers had knowledge of facts which they were legally obliged to inform or warn the plaintiffs;

(b)    that the defendants failed to inform or warn the plaintiffs; and

(c)    that the plaintiffs had acted to their detriment as a consequence of the defendants’ failure to inform or warn the plaintiffs.

47       The plaintiffs’ amended reply in support of their pleading of estoppel was:

(a)    that the defendants knew of the faxed price quotations and the proforma invoices which were sent to the defendants’ site office and city office respectively;

(b)    that the defendants permitted Richard Kwan to use the plaintiffs’ official rubber stamp and the defendants’ motor vehicle to collect the goods from the plaintiffs’ premises.

48       There is no evidence that anyone in charge of the management of the defendants knew of the faxed price quotations and the proforma invoices, or that the defendants permitted Richard Kwan to use the defendants’ rubber stamp or motor vehicle. I have already dealt with these matters earlier in my judgment.

49       It is not reasonable to assume that persons who are authorized to seek price quotations are also thereby authorized to make purchases. I have already commented on this earlier in my judgment. Therefore, there was no duty on the part of the defendants to inform or warn the plaintiffs even if any of their officers knew that Richard Kwan had sought price quotations from the plaintiffs.

50       The defendants also had no obligation to warn or inform the plaintiffs or all their suppliers that the drivers of their motor vehicles, their clerks or employees in charge of keeping their rubber stamps or even their purchase order forms, had no authority to contract or make purchases on their behalf.

51       In Negara Traders Ltd v Pesuroh Jaya Ibu Kota, Kuala Lumpur, the manager of the plaintiff company received a telephone call purportedly to be from the defendants’ Municipal Health Department, KL, asking for quotations for a number of goods. After being told of the prices, the caller informed the manager that he would issue a local order and send it through a messenger. He further requested the manager to deliver the goods to the messenger. About one hour later the office messenger of the defendants’ health department arrived wearing the authorized uniform of the defendants and presented a local order to the plaintiffs’ manager. The local order was, in point of form, genuine inasmuch as it was the local order form used by the defendants and was correctly entered and appeared to be signed by the head of the health department with the official rubber stamp affixed to it. On the strength of the local order the manager prepared the delivery advice note, obtained the office messenger’s signature and handed him the goods. On the following day he sent the invoice to the health department. Seven similar orders were purportedly issued by the defendants. The same office messenger presented those local orders to the plaintiffs’ manager; he then took delivery of the goods after acknowledging receipt of them on the delivery advice notes. The invoices and the goods never reached the defendants. Nor were they aware of the transactions until a month later when the plaintiffs confronted them with a request for payment. They immediately refuted liability and refused to pay. It transpired that those orders were forgeries.

52       The plaintiffs brought a claim for the goods sold and delivered against the defendants on the principle of ostensible authority. It was proved that the defen- dants themselves were not at fault, that they had no previous dealings with the plaintiffs and that it was not the duty of the office messenger to issue local orders.

53       The court held that the office messenger did not have authority to guarantee the genuineness of the local orders which were forgeries; that as the defendants did not hold him out to the plaintiffs as having authority to issue local orders and as it was not part of his duties to issue them, the defendants were not vicariously liable to the plaintiffs for the forgeries committed by the office messenger.

54       The plaintiffs in the present case have not pleaded in support of their claim on estoppel that they had posted the statement of account exh P7 to the defendants and they cannot rely on it. However, the defendants’ evidence which I accept was that exh P7 was received on 5 June 1987 and would go to the accounts section. Generally the process by the accounts section to check whether they had ordered the cables would take some time. In this particular case exh P7 did not state the defendants’ purchase order numbers and the accounts section would not be able to verify who made the purchases and when they were made and whether the cables had been delivered to the defendants.

55       Although exh P7 had the remark ‘Attn: Richard Kwan’, still it would take some time for the defendants to realize that the purchases were unauthorized. The plaintiffs have not in their evidence or in cross-examination of the defendants’ witness established that the defendants could have known of the unauthorized sales earlier than 16 June 1987 if they had exercised due diligence.

56       The law does not impose a general duty on the defendants to take precautions, in the general course of carrying on their business, not to conduct their business in a manner which could facilitate fraud by any of their employees (see Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd; Kepitigalla Rubber Estates Ltd v National Bank of India Ltd).

57       The plaintiffs cannot rely on the previous transaction between the plaintiffs and the defendants. The issue in this case is not whether the procedure adopted by the plaintiffs in the sale of cables to Richard Kwan was similar to the procedure adopted in a previous sale between the plaintiffs and the defendants. It would be perverse to accept a proposition that a company would be bound by a transaction if the procedure adopted in the transaction is similar to the procedure adopted in a previous transaction by authorized officers or employees of that company. The issue here is whether the plaintiffs have dealt with the right person, a person authorized by the defendants to make purchases on their behalf or held out by the defendants as having been so authorized. It is clear in this case that the plaintiffs had not. There was not even any previous transaction between the plaintiffs and the defendants through Richard Kwan which the defendants had accepted and paid for. The purchase order of the defendants in the previous transaction (PB1 pp 12 and 13) was signed by a person described as their purchasing manager. The plaintiffs should have known then that the purchase was made by the defendants’ purchasing manager and not engineer. The plaintiffs’ evidence was that they knew Richard Kwan to be an engineer of the defendants.

58       The plaintiffs themselves had not taken reasonable steps to safeguard their interests in the conduct of their business. They were aware from the previous dealing with the defendants that the defendants would issue a purchase order when they purchased goods. Yet they were content to deal only with Richard Kwan orally throughout and allowed him to order and collect cables totalling $320,614.26 by 15 June 1987 without any purchase orders or other documents from the defendants acknowledging the orders or receipt of the cables. They only realized the obvious irregularity in the transactions on 13 June 1987 when Jackie Tan became concerned and telephoned Richard Kwan at the Pulau Seraya site office to ask him to produce the purchase orders but Richard Kwan was on medical leave. It was only on 15 June 1987 that Jackie Tan pressed Richard Kwan to produce the purchase orders when he telephoned her to ask for more cables and he came that afternoon with the purchase orders and handed them to Jackie Tan. Jackie Tan admitted that by 13 June 1987 she was concerned having delivered $320,614.26 worth of cables without purchase orders and without receiving any payment.

59       The plaintiffs have failed to prove that the conduct of the defendants as a whole constituted a representation that Richard Kwan had the necessary authority to purchase the cables on behalf of the defendants.

60       The plaintiffs’ claim is dismissed with costs.

Plaintiffs’ claim dismissed.

Reported by Kenneth Huang