In the Court Of Appeal of New Zealand
CA293/2010
[2010] NZCA 423

BETWEEN	DIAMOND STUD LIMITED
First Appellant

AND	HA DUONG HAI
Second Appellant

AND	NEW ZEALAND BLOODSTOCK FINANCE LIMITED
Respondent

Hearing:	13 September 2010

Court:	Randerson, Rodney Hansen and Allan JJ

Counsel:	S R G Judd and N K McDonald for Appellants
JG Collinge for Respondent

Judgment:	16 September 2010 at 12.30 p.m.

JUDGMENT OF THE COURT	

A	The appeal is dismissed.

B	The appellants must pay costs to the respondent as for a standard appeal on a band A basis together with usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Randerson J)

Introduction
[1]	By a judgment delivered on 23 April 2010, Associate Judge Abbott entered summary judgment against the appellants for a sum in excess of $2.2 million.  The liability arose under two contracts whereby the respondent (NZBF) provided finance to the first appellant (Diamond Stud) for the purchase and maintenance of bloodstock.  The second appellant (Mr Ha) is the sole director and shareholder of Diamond Stud and personally guaranteed its obligations under the finance contracts.
[2]	Diamond Stud used the finance facility to purchase bloodstock in 2007.  In January 2008, Diamond Stud entered several horses in the National Yearling Sales conducted by New Zealand Bloodstock Limited (a company related to NZBF).  One of the Lots offered by Diamond Stud sold at auction for $540,000 on a bid by a registered buyer, a Mr McKee.  Another sold the following day for $420,000 to another registered buyer, a Mr Rogerson.  
[3]	Acting on the instructions of Diamond Stud’s manager, both horses were delivered to Diamond Stud’s stables.  On the understanding that these two horses were purchased on behalf of Diamond Stud, New Zealand Bloodstock Ltd (NZ Bloodstock) invoiced Diamond Stud for the purchases.  It also credited Diamond Stud with the net proceeds of sale of the horses, such sum being applied in reduction of the amount Diamond Stud owed to NZBF under the finance contracts.  No point was taken about the distinction in law between NZBF and NZ Bloodstock.
[4]	Diamond Stud and Mr Ha do not dispute that Messrs McKee and Rogerson were bidding on their behalf at the auction but they resisted the entry of summary judgment.  They contended that, in terms of the Conditions of Sale governing the auction, Messrs McKee and Rogerson were deemed to enter their bids as principals and, as such, were solely responsible to pay the purchase price.  It followed, in the appellants’ submission, that the purchase price had been wrongly debited to their account.
[5]	The sole issue for determination in this appeal is whether the Judge was right to decide that the Conditions of Sale did not exclude the usual rule at common law that an undisclosed principal may sue and be sued on a contract made by an agent on the principal’s behalf.
The conditions of entry and sale
[6]	The conditions of entry into the Yearling Sales provide that the sales shall be conducted in accordance with the Terms and Conditions of Sale set out in the catalogue produced by the Auctioneer.  The Conditions of Entry need not be further mentioned since it is the Conditions of Sale which are critical for present purposes.  
[7]	Conditions 1 to 7 prescribe conditions relating to the conduct of the sale.  In summary these relevantly provide:
•	Subject to any reserve price, the highest bidder acceptable to the Auctioneer shall be the Purchaser (the Purchaser being defined to mean “… the person or corporation to whom any Lot is sold”).
•	The Auctioneer has the right to bid as agent on behalf of the Vendor in respect of a sale on which a reserve has been placed.
•	Vendors are forbidden from bidding or allowing any agent to bid on their behalf with the exception of co-owners.
•	Full commission will be charged on any horse bought-in and, in the event of any improper bidding by or on behalf of a Vendor which results in the sale being rescinded, the Vendor is obliged to accept the return of the Lot and indemnify the Auctioneer for all costs and expenses.
•	On the fall of the hammer, the Purchaser must give the Auctioneer his name and address (along with the same details for the principal for whom he bids, if applicable) and must complete an Acknowledgement of Purchase form. 
[8]	Under the heading “Agency”, the Conditions of Sale relevantly provide:
8.	THE Auctioneer is agent for the Vendor for the purpose of achieving a sale of the Vendor’s Lot or Lots by auction or private purchase or otherwise and for the purpose of completing the sale including delivery and payment, and the Auctioneer is hereby given authority in its discretion to do all things necessary to achieve these purposes and without limiting the generality of the foregoing to allow credit on such terms as it thinks fit to release and deliver up (whether locally or overseas) the Lot to a purchaser, and to take such steps to recover payment as it thinks fit.
9.	SUBJECT to a bidder expressly satisfying the conditions specified in clause 10 each bidder shall be deemed, as between the Vendor, the Auctioneer and such bidder, to bid as principal party, and accordingly, notwithstanding any subsequent disclosure of agency, shall be and remain responsible for the payment of the purchase price of any Lot or Lots in respect of which he is the highest bidder.
10.	WHERE the bidder has lodged with the Auctioneer, prior to the auction taking place, written evidence of that bidder’s appointment as agent for another party, and where the Auctioneer has given approval for the bidder to bid in that capacity, such bidder shall not be held responsible by the Auctioneer for the payment of the purchase price of any Lot or Lots in respect of which he, as agent for the approved principal party, is the highest bidder, unless the agent has breached or exceeded the terms of the actual or apparent authority given to him by his principal.
[9]	Clause 10 of the Conditions of Sale does not apply in this case because no prior approval was obtained from NZ Bloodstock for Messrs McKee and Rogerson to bid as agents.  The critical clause is clause 9.
[10]	Under the heading “Payment Procedure”, the Conditions of Sale provide in summary:
•	Unless other arrangements have been made a Purchaser must make full payment in cash no later than 60 minutes after the fall of the hammer in respect of each purchase by that Purchaser.
•	The Auctioneer may cancel the sale if payment is not made.
•	For all accounts not paid, and where there has been no cancellation, the Purchaser becomes liable to pay the purchase price plus interest and costs. 
[11]	Under the heading “Possession and Title”, the title does not pass to the Purchaser until payment is made in full.
[12]	The only other relevant documentation is the “Acknowledgement of Purchase” form completed in respect of each purchase by Mr McKee and Mr Rogerson respectively.  The form records the sale and contains an acknowledgement that “… I bid for the said horse subject to the terms of the said Conditions of Sale …”.  The form provides for the “Signature of Purchaser or Agent”.  Mr McKee signed the form in his case under that heading without differentiation between Purchaser or Agent.  Elsewhere on the form, Mr McKee provided his name and address under the heading “Purchase To Be Invoiced To” and under the heading “Agent/Press details” he wrote the word “Same” in the space provided for name and address.  A note on the form is to the effect that:
Agent retains obligations of Principal as per Clause 9 of Conditions of Sale
[13]	The Acknowledgement of Purchase for the second Lot is in similar form except that it was signed by a Mr Gregory on behalf of Mr Rogerson.
[14]	Neither of the Acknowledgements of Purchase assist in resolving the issue in this appeal.  Neither provides any clear indication as to whether the bidders were buying as Purchaser or Agent.
The principles
[15]	A leading modern statement of the relevant law is that of Lord Lloyd in Siu Yin Kwan v Eastern Insurance Co Ltd:
(1)	An undisclosed principal may sue and be sued on a contract made by an agent on his behalf, acting within the scope of his actual authority.
(2)	In entering into the contract the agent must intend to act on the principal’s behalf.
(3)	The agent of an undisclosed principal may also sue and be sued on the contract.
(4)	Any defence which the third party may have against the agent is available against his principal.
(5)	The terms of the contract may, expressly or by implication, exclude the principal’s right to sue, and his liability to be sued.  The contract itself, or the circumstances surrounding the contract, may show that the agent is the true and only principal.
(Emphasis added)
[16]	Statements to similar effect are found in leading texts.
[17]	An intention to exclude any ability of an undisclosed principal to sue or to be sued under a contract effected by an agent can be evidenced by express words or by implication.  There is authority to the effect that the undisclosed principal’s liability may be excluded merely by the manner in which the parties to the contract are described.  For example, in the early English case of Humble v Hunter a charterer dealt with a person described as the “owner”.  It was held that parol evidence was not admissible to show that some other person was the owner.  Similarly, in Formby Bros v Formby, the term “proprietor” was construed in the same way.
[18]	This line of authority has been doubted.  For example, in Fred Drughorn Limited v Rederiaktiebolaget Transatlantic the House of Lords held that the description in a charterparty of one of the contracting parties as “charterer” did not of itself serve to designate that person as the only person who could fill that position.  In an action for breach of the charterparty brought by plaintiffs who claimed to be the undisclosed principals of the person described as the charterer, evidence was held to be admissible that the plaintiffs were in fact the charterers.  Lord Sumner distinguished the Humble line of authority stating:
Humble v Hunter and Formby Bros v Formby were expressly decided as cases in which the contract itself, truly construed, excluded the application of the rule as to undisclosed principals.  There is a clear distinction between words in a contract which can be construed as saying ‘A B, who prior to this contract was and who under it is and will be the single owner’, and words which can only mean ‘A B, who by this contract becomes liable to the obligations and entitled to the rights, which this contract allots to the charterer’.  I think these cases are not in point.
[19]	Viscount Haldane concluded similarly:
… it is in accordance with ordinary business common-sense and custom that charterers should be able to contract as agents for undisclosed principals who may come in and take the benefit of the charterparty.
[20]	Despite these criticisms, Moller J found in Murphy v Rae:
For myself I feel bound to hold that Humble v Hunter is still good law, but that the principle derived from it is applicable only to cases falling strictly within the words of Lord Haldane quoted by Gresson P in the extract from the latter’s judgment in Fawcett’s case set out above; that is to say, where a person is described in a written contract as the “owner” or “proprietor” of property, and where it is a term of the contract that he should contract as “owner” or “proprietor” of that property.  Moreover, I think that the principle is to be applied only when a full consideration of the whole contract brings it clearly within that area.
[21]	Moller J’s reference to Fawcett is to a decision of this Court where Gresson P, in a dissenting judgment, considered that Humble remained good law despite some adverse criticism.  The other members of the Court in Fawcett did not address the issue.
[22]	Although counsel were agreed on the principles to be applied, counsel were unable to locate any authority which might be helpful in deciding how the principles should be applied to the facts in the present case.  Plainly, it is a matter of construing the Conditions of Sale to determine whether, either expressly or by implication, they displace the common law rule entitling NZ Bloodstock to sue Diamond Stud as undisclosed principal.  To put the matter another way, the question is whether the Conditions of Sale, either expressly or by implication, mean that the agents are the true and only principals.  In that respect, we accept the submission made by Mr Collinge on behalf of NZBF that clear words would be needed to exclude Diamond Stud’s ordinary responsibility at common law.
[23]	In the case of written contracts, the Humble line of cases is authority for the proposition that parol evidence may not be admitted to enable an undisclosed principal to intervene where to do so would be inconsistent with the terms of the written contract.  But we endorse the view expressed in Reynolds & Bowstead on the Law of Agency:
Though the case [Humble v Hunter] has been followed, it has more often been distinguished, and it has also been judicially questioned.  It is obvious that if such a view was readily taken, the intervention of an undisclosed principal would be almost impossible.  It is therefore submitted that the undisclosed principal can only be excluded from intervening under the proposition stated in Rule (4) of this Article, and that evidence of such a principal will be admitted unless the exclusion of such a principal is expressed or implied by the terms of the contract, written or unwritten, as explained below.  Indeed the dicta of Lord Denman CJ in Humble v Hunter itself afford some support for this view, and Humble v Hunter may be explained as an example, if a curious one, of such exclusion.  This would be a true application of the parol evidence rule to this situation.  The relation between the two rules - the rule of law dealing with exclusion of the principal by the express or implied terms of the contract, and the rule of evidence against variation of written contracts by extrinsic evidence – has often been misunderstood.
[24]	Here, the terms of the contract are largely evidenced in writing in the form of the Conditions of Sale and the acknowledgement of the purchase.  While we accept the primary task is to construe the Conditions of Sale, we do not consider that the parol evidence rule excludes consideration of all the surrounding circumstances.  For example, evidence of the steps taken by the parties after conclusion of the sale might be considered as we discuss below.
Judgment under appeal
[25]	The Associate Judge considered that the present case did not fit easily in the Humble line of cases.  However, he concluded that the Conditions of Sale did not prevent NZ Bloodstock from pursuing Diamond Stud as undisclosed principal for the unpaid purchase price.  The Judge’s findings were summarised succinctly in the following passages:
I accept the submission of counsel for NZB Finance that the acknowledgement of purchase is ambiguous at best.  Both persons signed under the words “signature of purchaser or agent” without clarifying which capacity.  However, in each form the word “same” was written in the section for “Agent/press details” alongside where Mr McKee and Mr Rogerson were named under the heading “purchase to be invoiced to”.
I accept that Mr McKee and Mr Rogerson accepted that the terms as to bidding/conduct of sale applied, and that those terms prohibited a vendor from bidding through an agent other than the auctioneer.  However, the clauses also provide for consequences if the prohibition is not heeded.  They do not restrict liability for the purchase price to the bidder.  To the contrary, they specifically provide for the (true) vendor to retake the horse if the sale is rescinded.
I do not read the clauses on agency as requiring a different construction or imposing obligations in addition to those imposed by common law.  My view might have been different if clause 9 had stipulated that the bidder had sole responsibility for the purchase price (in which case it would have varied the position at common law), but it does not say that.
I find that the description of Mr McKee and Mr Rogerson as “purchaser or agent” coupled with the prohibition in the standard terms on a vendor bidding on his own lot do not meet the criteria for the application of the principle in Humble v Hunter as identified in the passage quoted above from Murphy v Rae.  Accordingly,  I find that NZB Finance is able to give parol evidence to establish the undisclosed principal.
Discussion
[26]	Mr Judd submitted on behalf of Diamond Stud and Mr Ha that the Judge was wrong to reach the conclusion he did.  Mr Judd submitted that the only interpretation that could be put on clause 9 of the Conditions of Sale was that Messrs McKee and Rogerson were bidding as principal parties to the exclusion of any responsibility on the part of the undisclosed principal.  That conclusion followed from the bidder being deemed to bid as principal party and was reinforced by the words “notwithstanding any subsequent disclosure of agency ...”.  While accepting that condition 9 did not state explicitly that the bidder would be solely responsible for payment of the purchase price, Mr Judd submitted this was clearly implied.
[27]	It was submitted further for the appellants that if condition 9 meant both the bidder and the undisclosed principal were liable to pay the purchase price, that interpretation would do no more than state the common law.
[28]	Mr Judd also submitted that there were only two options available to NZ Bloodstock.  The first was to rescind the agreement and the second was to sue Messrs McKee and Rogerson for the price.
[29]	We are satisfied that the interpretation of the Conditions of Sale preferred by the Associate Judge is correct.  We accept the submission made by Mr Collinge that the purpose of condition 9 is to make it clear to the bidder that, unless approval is obtained under condition 10 to bid as an agent (in which case the bidder would not be liable as he would be bidding for a disclosed principal), the bidder will be responsible for the purchase price even if it is later claimed the bid was on behalf of an undisclosed principal.  We accept the condition merely states the common law but we infer that the purpose of the condition is to state the position clearly to avoid any misunderstanding by bidders about their responsibilities. 
[30]	If the normal common law rule were intended to be overridden, then it would have been a simple matter to have stated in the relevant condition that the bidder was solely responsible for payment of the purchase price.  As it stands, the effect of condition 9 is to provide that, for bidding purposes, the bidder is to be treated as between the Vendor and the Auctioneer and himself as if he were a principal party.  The condition does not, either expressly or by implication, go so far as to exclude the undisclosed principal from the usual responsibility at common law. It does not make the bidder the true and only principal.   As the Judge said, a party dealing with an agent for an undisclosed principal may elect whether to sue the undisclosed principal or the agent, or both, unless of course that right is clearly excluded.
[31]	There are some odd consequences flowing from Diamond Stud’s interpretation of the Conditions of Sale.  Mr Judd accepted that the interpretation he contended for would mean that if the bidders were the true and only principals, Diamond Stud could not take the benefit of the sale as the purchase would be made by the bidders alone.  It would also mean that the bidders would be entitled to ownership of the horses.  Yet none of the parties acted on this basis.  The horses were delivered by NZ Bloodstock to Diamond Stud as its manager directed, Diamond Stud received the benefit of the net sale price after commission, and Diamond Stud was debited with the price.  Neither Mr McKee nor Mr Rogerson has ever asserted any entitlement to the horses.  Any attempt by Diamond Stud to recover the price from them would have been met with the entirely proper response that they were entitled to indemnity from Diamond Stud as their principal.
[32]	Estoppel was not pleaded or raised in argument but it seems to us to be distinctly arguable that Diamond Stud, by its conduct, is estopped from denying responsibility for the price.  It cannot, we think, be entitled to the benefit of the sale yet not have to bear the burden.  That is the effect of the submission made on Diamond Stud’s behalf.
[33]	In commercial terms, the court should be slow to attribute to NZ Bloodstock an intention to limit the opportunity for vendors to recover the purchase price solely from a bidder who might prove to be worthless while the true purchaser escapes responsibility.
[34]	Plainly, the Conditions of Sale are designed to prevent vendors’ bids other than through the Auctioneer and to prevent bids on behalf of third parties except with the approval of the Auctioneer under condition 10.  These conditions are no doubt intended in part to avoid distortions in the auction process through artificial or improper bids from undisclosed parties.  However, we are not persuaded that the Conditions of Sale are sufficiently clear to exclude responsibility on the part of an undisclosed principal should that occur.  We do not accept that the options available to NZ Bloodstock were limited as Mr Judd suggested.  It was, in the circumstances, entitled to hold Diamond Stud responsible for the purchase price and to debit their account accordingly.
Disposition
[35]	For these reasons the appeal is dismissed.
[36]	The appellants must pay costs to the respondent as for a standard appeal on a band A basis together with usual disbursements.

Solicitors: 
Oranga Law, Auckland, for Appellants
J G Collinge, Auckland, for Respondent