[1952] EACA 155

## 155

### COURT OF APPEAL FOR EASTERN AFRICA

### Before SIR BARCLAY NIHILL (President), SIR NEWNHAM WORLEY (Vice-President) and de Lestang, J. (Kenya)

# CAMPLING BROS. & VANDERWAL LTD., Appellants (Original Plaintiffs)

## UNITED AIR SERVICES, LTD., Respondents (Original Defendants) Civil Appeal No. 63 of 1951

(Appeal from decision of H. M. High Court of Tanganyika—Sinclair, J.)

Contract—Agency—Principal's failure to supply funds to enable contract to be performed—Whether implied term.

The appellants sued the respondents in the High Court of Tanganyika for breach of contract by failing to provide funds to enable an air carrier's business to be carried on by the appellants as managing agents for the respondents. The respondents counter-claimed alleging the appellants had committed a breach by stopping business.

The trial Judge found that the respondents had not committed a breach of the agreement by failing to supply the appellants with sufficient funds and so compelling the appellants to suspend flying operations.

The appellants argued that a term must be implied in the contract that it was the duty of the respondents to supply sufficient finance to ensure that the business would run satisfactorily. Further that as appellants had responsibility for the entire running of the respondents' affairs it was the appellants' plain duty to cease operations when they were aware that further operations could only end in loss.

Held $(2-10-52)$ .—(1) A term can only be implied if it is necessary in the business sense to give efficacy to the contract.

(2) That after appellants had handed over the company's property in good order subsequent deterioration cannot be assessed against them by way of damage.

Cases cited: Lazarus v. Cairn Line of Steamships, Ltd., 106 L. T. R. (1912) 378; Reigate v. Union Manufacturing Co. (Ramsbottom) (1918) L. R. 1 K. B. 592; Luxor (Eastbourne) Ltd. v. Cooper, (1941) A. C. 108; Inchbald v. Western Neilgherry Coffee Co. (1864) 17 C. B. N. S. 733; Burchell v. Gowrie and Blackhouse Collieries Ltd., (1910) A. C. 614.

Appeal dismissed—Counter-claim damages reduced. Costs apportioned.

### Salter for appellants.

### O'Donovan for respondents.

JUDGMENT (delivered by SIR BARCLAY NIHILL (President)).—This is an appeal from a judgment of the High Court of Tanganyika. The facts upon which the parties went to litigation are fully set out in the judgment appealed against and I do not think I need restate them in full. Both sides in their pleadings claimed damages.

The basis of the plaintiffs' case, who are the present appellants, was that the respondents, a limited liability company, known as United Air Services, Ltd., were bound by the agreement dated 24th June, 1947, either expressly or by implication, to supply them with funds sufficient to maintain the business of air carriers efficiently. The business relationship between the parties was somewhat exceptional. Although the respondents, who are a group of Asian business men living in Tanganyika, were incorporated under the inspiring title of "United

Air Services, Ltd.", neither the chairman of the board nor any of his co-directors. knew anything about aircraft or their operation. Without expert assistance and management they could not have carried on their business as air carriers even for a day. It is clear therefore that they were entirely dependent upon the appellant company as their managing agents for the operation of the business. This position is reflected in clause 2 of the agreement which inter alia laid down that the appellant as managing agent should be responsible for the entire administration of the respondents' business, and that to this end, the appellant should do "all things necessary or expedient for the carrying on of the business" and should refrain from doing anything "which may prevent or interfere with the development of the company's business". The respondents regarded the action of the appellants in stopping business on 4th May, 1949, as a breach of this undertaking and accordingly formally exercised their option of terminating the agreement under clause 18 (d) which reads as follows: $\frac{1}{2}$

"( $d$ ) at the option of either party hereof if the other shall commit a breach of any of the terms or conditions hereof; on the date of the said breach."

The plaintiff-appellants in their plaint pleaded a breach of the agreement by the respondents for their failure to provide any or sufficient funds, thereby compelling the closing down of the business and alternatively a further breach in that they wrongfully terminated the agreement under clause 18 $(d)$ . The damages claimed included anticipated loss of profit on agency fees during the term the agreement had still to run; it being an agreement for ten years from 24th June, 1948. The damages prayed for in the respondents' counter-claim are based on loss of profits, goodwill and the capital assets of United Air Services, occasioned by the stoppage of flying operations by the appellants and the consequences which followed.

The action went to trial on five issues, the first of which was framed as follows: -

"Whether the defendants committed a breach of the agreement of 24th June, 1947, by failing to supply the plaintiffs with sufficient funds so that the plaintiffs were compelled to suspend flying operations."

The learned trial Judge answered this issue in the negative and the crux of the appeal turns on whether there was any evidence or sufficient evidence to support the findings on which he came to this conclusion. If the learned Judge was justified in answering the first issue in the way he did, that is an end of the matter, for if the respondents committed no breach, the appellants certainly did so on the 4th May, 1949, and the respondents' action in subsequently terminating the agreement was strictly in accordance with the terms of the agreement (clause 18 (d)). The learned Judge in the course of his long judgment most carefully $\frac{1}{2}$ reviewed all the factors disclosed by the evidence, both oral and documentary, and I find it impossible to say that there was not material on which he could not justifiably arrive at his finding of fact that the appellants were not compelled by lack of sufficient funds to cease flying operations on 4th May, 1949, and that they clearly committed a breach of contract in doing so.

As regards the law I also consider that the learned Judge directed himself. properly and was not in error. The whole question before him turned on a proper construction of clause 4 of the agreement which reads as follows: -

"4. The managing agent shall provide at his own expense suitable premises in Dar es Salaam for the carrying on of the agency hereby constituted, and shall also provide at its own expenses for the services of a qualified staff consisting of a technical manager, book-keeper and typist. All other expenses shall be borne by the company."

This clause admittedly contains no express provision that the respondents should supply their managing agents with finance for the running of the company on their requisition. The question is whether from the fact that the company was responsible for meeting all expenses other than such as fell to be borne specifically by the managing agents, a term must be implied that it was the duty of the respondents to supply sufficient finance to ensure that the business would run satisfactorily and so, incidentally, also ensure that their managing agents could earn their percentage of the profits allowed by the agreement.

I think the Lazarus case answers this question, but not in the appellants' favour. (See Lazarus v. Cairn Line of Steamships, Ltd. 106 L. T. R. (1912) at page 378.)

That was a case where the plaintiff Lazarus claimed damages against a shipping company on the basis that as their sole booking agent for a certain area, it was a breach of contract for the company to cease to operate the ships for which the plaintiff hoped to provide passengers and so earn his contract commission. It was held by Scrutton, J., who reviewed the authorities that there was no implied term that the company need run any ships at all. So in the instant case, no implied term can be read into the agreement that it was the contractual duty of the respondents to keep their aeroplanes in the air merely to provide the appellants with an opportunity to recover a percentage of any profits earned in addition to their fixed managing agent's fee.

Mr. Salter has sought to distinguish the Lazarus case and the present one on the facts and has emphasized that here the appellants had the responsibility for the entire running of the company's affairs so that it was their plain duty to cease operations when they knew from their technical knowledge that further operations could only end in loss and disaster. That is an attractive argument but it leaves out of account the finding of fact arrived at by the learned trial Judge, a finding which, as I have said, is not an unreasonable one on the evidence namely that on the 4th May, 1949, the appellants were not in fact compelled to suspend operations because of insufficient funds, but that they did so for<br>other reasons. In my opinion, there is certainly evidence to sustain this view. Dilatory and exasperating as the refusal by the directors of the company to take the appellants' warnings seriously must have been to them, it was established and is agreed, that on the 4th May, 1949, before the appellants took their final step, they had knowledge that the company were prepared for a round table conference after they had conferred with Mr. O'Donovan who, on the 28th April, was away from Dar es Salaam (see letter of 28th April, 1949, exhibit H). When it is remembered that up to the 4th May the respondents had never defaulted in meeting any specific expense or in the payment of the agency fees, it seems to me that the inference is clear that the appellants made up their minds on 4th May, come what may, to back out of their obligations regardless of the consequences. In my view, therefore, the main ground of the appeal fails.

In the assessment of damages under the counter-claim, however, the learned Judge did, I think, fall into one error. He assumed that the deterioration in the company's assets, that is to say, in the aircraft and spare parts, directly flowed from the appellants' breach of contract and was accordingly their responsibility. That, on the evidence, was not a right conclusion. It was proved that after the cessation of flying operations on the 4th May, the company sent a technical representative to the appellants to whom was handed over all the property of the company in their possession, and in good order. The fact that, subsequently, over a period of time, there was deterioration owing to lack of expert care and maintenance cannot be laid at the door of the appellants. Mr. O'Donovan for the respondents has in fact conceded as much. It follows then that the damages

awarded to the respondents on their counter-claim must be reduced by the amounts awarded in respect of deterioration of aircraft and aircraft spares. namely Sh. 30,000 and Sh. 14,000 respectively. In my opinion then this appeal should be dismissed and judgment entered for the respondent-defendants for Sh. 16.000 on their counter-claim.

As regards costs both here and in the Court below after discussion with my learned brothers, we have come to the conclusion that the following order will be a fair one. In the Court below the Judge's order awarding the defendantsrespondents costs on the claim will stand but on the counter-claim they will be entitled to have only one-third of their taxed costs. This we consider just because their claim was an inflated one, a considerable portion of which has been shown to be unmaintainable.

In this Court the appellants have failed on their main submission but the damages awarded against them have been considerably reduced. The defendantsrespondents will be allowed three-quarters only of their taxed costs in this Court.

SIR NEWNHAM WORLEY (Vice-President).—I have had the advantage of reading the judgment prepared by My Lord the President and agree with the conclusions reached therein and with the orders he proposes.

Mr. Salter conceded that the only duty expressly laid upon the respondents by the agreement of the 24th June, 1947, was to pay to the appellants the fixed agency fee so long as the agreement remained in force or until the respondent company went into liquidation. But he contended that there was also an implied term that the respondents would keep the appellants supplied with sufficient working capital to meet current expenses as they arose from time to time. Clearly it would have been prudent to provide in the agreement for the creation and management of an operating account, and for all I know to the contrary it may well be ordinary business practice in such a concern as this was for the agents to work upon such an account. But I do not think that is sufficient reason to make the implication we are asked to make. In Reigate v. Union Manufacturing Co. (Ramsbottom) (1918) L. R. 1 K. B. 592, Scrutton, L. J., said: -

"The first thing is to see what the parties have expressed in the contract and then an implied term is not to be added because the court thinks it would have been reasonable to have inserted it in the contract. A term can only be implied if it is necessary in the business sense to give efficacy to the contract, that is, if it is such a term that can confidently be said that if at the time the contract was being negotiated someone had said to the parties, 'What will happen in such a case,' they would both have replied, 'Of course so and so will happen; we did not trouble to say that; it is too clear.' Unless the Court comes to some such conclusion as that, it ought not to imply a term which the parties themselves have not expressed."

Now if this test is applied to the instant case, it is in my view quite clear, that the Court cannot imply an unconditional promise by the respondents to keep the appellants supplied with funds. If the appellants had raised this question during the negotiations for the agreement the respondent company must, it seems to me, have replied: "Well we will do our best, but our capital is limited, and we do not know what profit we shall make."

But alternatively, the appellants seek to rely upon the principle expressed by Lord Simon, L. C., in Luxor (Eastbourne) Ltd. v. Cooper, (1941) A. C. 108 at page 118 and by Willis, J., in Inchbald v. Western Neilgherry Coffee Co., (1864)

17 C. B. N. S. 733 approved by the Privy Council in Burchell v. Gowrie and Blackhouse Collieries, Ltd., (1910) A. C. 614 at page 626. Viscount Simon stated the rule as follows: $-$

"If $A$ employs B for reward to do a piece of work for him which requires outlay and effort on B's part and which depends on the continued existence of a given subject-matter which is under A's control (as in *Inchbald* v. Western Neilgherry Coffee Co.) there may be an implied term that A will not prevent B doing the work by destroying the subject-matter. And generally speaking, where $B$ is employed by $A$ to do a piece of work which requires A's co-operation (e.g. to paint A's portrait), it is implied that the necessary co-operation will be forthcoming (e.g. A will give sittings to the artist)."

In the instant case, it is not suggested that the respondent company destroyed the subject-matter of the agreement, but it has been contended that they failed to give the appellants reasonable co-operation and by their acts prevented the appellants from carrying on the business and so earning their fee and commission. The conduct of the respondents which is complained of is withdrawal of nearly £5,000 from the operating account for the purpose of meeting capital expenditure and their failure to respond to the appellants' reports on the financial position and requests for more money.

On this aspect of the case I am in full agreement with the judgment of the learned trial Judge. £26,000 had been spent on the purchase of aircraft, a sum which exceeded the paid-up capital of the respondent company. This fact alone was sufficient to create difficulties in the running of the company, but the expenditure had been incurred with the appellants' approval. These difficulties began to appear more ominous in the early months of 1949, when profits began to fall off, but in my view the learned Judge was perfectly correct in his conclusion that the appellants were not compelled to suspend flying operations because of insufficient funds. No doubt the respondents were dilatory and unbusinesslike, but they were not wholly unco-operative and they had offered a conference with the appellants when the latter by their precipitate action put an end to the agreement.

On the question of damages I have nothing to add to what the learned President has said.

NAGEON DE LESTANG, J. (Kenya).—I have read the judgment of the learned President with which I concur. I also agree with the proposed order as regards costs.