Ceylon Carriers l td. v. Peiris
CEYLON CARRIERS LTD.v.
COURT or APPEAL.
soza, j. and de si lva, j.
C. A. APPLICATION 117/80 D.C. COLOMBO 1394/HE.
MAY 20, 21, 1981.
Civil Procedure—Application ior execution ot decree appealed against- Settlemententered at inquiry into such application- Judgment debtor required to pay sum ofmoney before last day of each month without two consecutive defaults-Writ to issueon such defaults – Standing order given to bankers of judgment debtor to make saidpayments in time- Failure to make payments due to inadvertence on part ofbankers Whether writ will issue-Laches – Scope of equitable doctrine lela’mg topenalties and forfeitures-When strict compliance with terms dispensed with Whetheranalogy of default in compliance with compromise entered under sectinn JO8 of CivilProcedure Code applicable.
Where an application was made for stay ol wr't pending appeal hy thedefcndant-petitionei(judgment-debtor), a settlement was arrived at according to which thp defendant petitionercompany had to fiay the current monthly damages on ot before the last day of eachmonth without making two consecutive defaults II there was such default both writswere to issue without notice to the defendant petitioner The defendam peu'ioneithereafter qave a standing order to its bankers to remit the said sum to the pljmtillrespondents on or before the 20th of each month so as to comply with the settlementbut the bankers by some inadvertence omitted to make two consecutive paymentsdue for June and July 1979. The plaintiff respondent applied for writ in terms ol thpsaid settlement and, on the defendant-petitioner ohjectmy the matter was inquired intoby the learned District Judge who made order directing the issue of writ Thedefendant-petitioner moved the Court of Appeal by way of revision ond/oi foi leave toappeal.
(1! The analogy of the circumstances under which the Court would interpose to amendor set aside a compromise decree under section 408 of the Civil Procedure Code ismisleading and not applicable when it comes to enforcement of arrangements enteredinto by the parties themselves of consent in regard to execution of decrees and reducedinto an order of Court.
(2I The equitable doctrine relating to penalties and forfeitures does not apply to"pre-payment orders” and to orders made for the stay of execution on agreed termsand strict compliance with such terms will be insisted on except where there is absoluteimpossibility of performance.
There had been laches on the part of the defendant-petitioner and a party guilty ofleches '.■.-!!! cot ■ c any event be granted equitable relief. The defendant petitioner uuuldhave caused the bank statement for June 1979 to be perused and would then haverealised that the payment for June had not been remitted but this had not been done.
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Cases referred to
Newton v. Sinnadurai, (1951) 54 N.L. R. 4.
Ram Copal Mookerjea v. Samuel Masseyk and Thomas, (1860) 8 Moore's IndianAppeals 239.
Venkataramana v. Gurappa, (1916) A.I.R. Madras 1006.
Mahalakshmamma v. Venkatachalamayya, (1954) A I.R., Madras 870.
Sanoon v. Theyvenderarajah, 11963) 65 N.L.R. 574.
Ramanaden Chetty v. Fernando, (1923) 24 N.L.R. 411.
Balprasad v. Dharnidhar Sakharam, (1874-1875) unreported.
Mayer v. Harding, (1867) L.R. 2 Q.B. 410.
Shirekuli Timapa Hegda v. Mahablya and others (1886! 10 Bom. 435.
Punchi Nona v. Peiris, (1924) 26 N. L. R. 411.
Simon Singho v. William Appuhamy, (1925) 26N.L.R. 408.
Perera v. Gonaduwa, (1971) 74 N.L .R. 207.
Rajapakse v. Appuhamy, (1975) 79 (1) N.L.R. 457.
APPLICATION in revision and/or for leave to appeal from an order of the DistrictCourt, Colombo.
C. Ranganathan Q.C.. with D. R. P. Goonetilleke, K. S. Tillekeratne and T.Yogesunderam, for the petitioner.
Eric Amerasinghe, with Vernon Martyn, for the respondent.
Cur. adv. vult.
This is an application for revision and/or leave to appeal fromthe order made on 9.12.1980 by the learned District Judge ofColombo directing that the writ in execution of the decree enteredin this case be issued. It would be useful to have before us a resumeof the incidents which lead to the making of the order sought tobe reviewed.
The respondent who is the plaintiff in this case instituted thisaction on 17.12.1969 for the ejectment of the petitioner companywhich was the defendant in the case from premises No. 45/2,Alwis Place, Colombo 3, and for the recovery of arrears of rentand damages. After trial judgment and decree were entered infavour of the plaintiff-respondent on 28.7.1973. The defendant-petitioner appealed. The plaintiff-petitioner moved for executionof the writs and the defendant-petitioner moved for stay ofexecution. On 9th October, 1973, the matter was settled on thefollowing terms:
"After giving credit for all the payments made by thedefendant up-to-date, it is agreed that a sum of Rs. 51,485 isdue as arrears of damages up to 30th September, 1975. Of
Ceylon Carriers Ltd. v. Peiris (Soza, J.)
consent, writs are stayed pending the decision of the appeal,in the event of:
the defendant paying a sum of Rs. 2,135 per month tothe plaintiff, as from 1st October, 1975, on or beforethe 1st day of each and every month, commencing from31st October, 1973, without making two consecutivedefaults;
the defendant paying to the plaintiff's proctors a sumof Rs. 705 per month out of the accruing damages, asfrom 1st October, 1975, on or before the 1st day ofeach and every month, commencing from 31st October,1973, without making two consecutive defaults; and
the defendant paying to the plaintiff's proctors a sumof Rs. 2,000 per month out of the aforesaid accrueddamages of Rs. 51,485 as from 1st October, 1973, onor before the last day of each and every month,commencing from 31st October, 1973, without makingtwo consecutive defaults.
If the defendant makes default in any of the paymentsas aforesaid, both writs will issue without notice to thedefendant If writs issue after one year they are to issuewithout notice to the defendant.
The payment under (b) and (c) above will be retainedby the plaintiff's proctors till the final decision of theappeal and be paid out in accordance with the resultsof the appeal.
I n the ca leu lation of the accrued damages of Rs. 51,485legal interest provided for in the decree have not beentaken into account".
Under the settlement the defendant-petitioner had to pay thecurrent monthly damages of Rs. 2,135 on or before the last dayof each month beginning 1st October, 1973. On 13th November,1973, the defendant-petitioner gave a standing order to its bankersto remit to the plaintiff-respondent the said sum of Rs. 2,135 onor before the 20th day of each month beginning from 20thNovember, 1973, until further notice. The bankers of the
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defendant-petitioner made the payments directed on the standingorder but by some inadvertence omitted to make the paymentsdue for June, 1979 and July, 1979. The defendant-petitionertendered these payments later but the money was not accepted.Instead, the plaintiff-respondent moved for writ in terms of thesettlement that had been entered into on 9th October, 1973.The defendant-petitioner objected to the application beingallowed and the matter was inquired into by the District Judge ofColombo on 3rd September, 1980. On 9th December, 1980, theCourt made order directing the issue of writ and it is the validityof this order that the defendant-petitioner seeks to canvass beforeus.
Before I deal with the main argument that was advanced in thiscase, I should make a passing reference to an argument that wasadvanced on behalf of the defendant-petitioner on a wrongassumption of facts. It was submitted that the plaintiff-respondenthad consented to accept payment in the manner arranged by thedefendant-petitioner through its bankers on the standing orderreferred to earlier. It was however pointed out that theplaintiff-respondent did not give such a consent. On the contraryhe wrote to the defendant-petitioner refusing to inform him ofany defaults of payment that were made by the bankers of thedefendant-petitioner. The entire responsibility for payment wasthus cast on the defendant-petitioner. When these facts werebrought to the notice of learned counsel for the defendant-petitionerhe did not press the argument founded on the assumption thathaving consented to the form of payment it is not open to himnow to complain of an inadvertent omission made by the bankers.
I will come now to the main argument that was submitted inthis case. Learned counsel for the defendant-petitioner referred tosection 408 of our Civil Procedure Code which deals with theadjustment of actions out of Court before decree. Where suchadjustments of the action are made out of Court, they can benotified to the Court by motion made in the presence of or onnotice to all the parties concerned and the Court would then passa decree in accordance therewith so far as it relates to the actionand such decree would then become final so far as it relates to somuch of the subject-matter of the action as is dealt with by suchagreement or compromise. It has been held by the SupremeCourt that such decrees commonly called compromise decreescan be rectified by the Court in its equitable jurisdiction so as to
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give effect to the real intention of the parties but which owingto a common mistake has been inadequately expressed. Where it isnecessary it would even substitute fresh terms which would bemore in accordance with the results which the parties intendedto achieve. The real scope of the equitable jurisdiction is notto rectify the contract itself but to rectify the instrument in whichthe terms of the contract have been inaccurately represented.The Court will interfere where the documents which the partieshave prepared leave no doubt as to the general ambit of theirobligations, but they have omitted through inadvertence orfaulty draftsmanship to cover an incidental contingency, and thisomission unless remedied, would frustrate their design—see thediscussion of Gratiaen, J. in the case of Newton v. Sinnadurai (1).In fact a consent decree could be set aside on grounds of fraud,mistake or misrepresentation. Learned counsel referred to theIndian Civil Procedure Code Order 23 Rule 7 Note 24. Chitaley &Rao in their Commentary on the Code of Civil Procedure 1908,7th ed. Vol. 3 (1963), explain the principles applicable tocompromise decrees as follows at pages 3509, 3510:
"Where a suit is terminated by a compromise decree, a breachof its terms does not restore the parties to the rights whichthey had prior to the decree. But a compromise decree is acreature of the agreement on which it is based and is subjectto all the incidents of such agreement. A compromise decree isbut a contract with the command of a Judge superadded to it.Hence such a decree is of no greater validity than the contracton which it is based. It can, therefore, be set aside on any of thegrounds, such as fraud, mistake, misrepresentation, etc., onwhich a contract may be set aside. For the same reason, wherea compromise decree contains any term which is in the natureof a penalty under s. 74 of the Contract Act or of a forfeiture,it is open to the Court to grant relief against the forfeitureincurred under such penal clause. As a minor's contract is void,a decree on a compromise with a minor is a nullity. As betweenparties to a compromise the title of each party prior to thecompromise cannot be set up so to defeat a title acquired underthe compromise. Where, however, the nature of the title of aperson in possession is being enquired into as between personsclaiming under him, it cannot be said that title prior to thecompromise must be ignored as non-existent".
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Learned counsel for the petitioner referred us to some Indiancases also on this question. The oldest of these is the Privy Councildecision in Ram Gopal Mookerjea v. Samuel Masseyk andanother (2). The point which Their Lordships had to consider herewas the manner in which a court would give effect to a compromiseentered into between parties. The facts in this case as they appearin the headnote are as follows: Pending the execution of decrees insuits between A, lessee, and B, under-lessee, for balance rent Cpurchased B's interest in the under-lease. For the protection of theproperty suits were then brought by C against A. An agreementwas then entered into by A and C to put an end to the litigation.This agreement recited that C was indebted to A in a certain sumwhich C agreed to pay upon a remission by A of part of his claim,by two instalments at specified dates; and the agreement thenprovided that if default was made by C in paying the instalments,then the remitted money was to be held due to A by C andsecured upon certain property comprised in the under-lessee aswell as by making C himself liable. No place was specified nor wasthere any custom established by the evidence where the moneywas to be paid. The instalments were to be paid but not untilsometime after the date specified in the agreement. The moneyhad been tendered to A's agent but refused by him because Awas absent and also because interest was not tendered. Aafterwards brought an action against B and C to recover the sumremitted under the agreement on the ground that by theconditions of that agreement the instalments should have beenpaid on the specified days, which had not been done nor had anylegal tender been made. The Judicial Committee of the PrivyCouncil held that although A had agreed to remit part of hisdemand on condition of receiving payment on specified days or indefault that the remitted sum was to be paid, yet there wasnothing in the agreement which made the payment of theinstalments on the dates fixed the essence of the contract. Thetechnicalities of English Law with respect to breach of contractswould not be applied to such an agreement but the Court wouldlook at what the real intention of the parties was and inquirewhether it appears from the evidence that there has been anyfailure by B and C in the substantial performance of the contractand if there was any default to whom such default is attributable.The penalty could not be enforced as there was a bona fideendeavour to pay the money on the specified dates. Further, theagreement had been substantially performed by the payments anda strict legal tender was not necessary. The next case that was
Ceylon Carriers Ltd. v. Peiris (Soza, J.)
cited was the case of Venkataramana v. Gurappa (3). In this casethe plaintiff sued the defendant to recover a certain propertywhich was sold by the defendant to the plaintiff. The suit wascompromised on condition that the defendant would pay intoCourt a certain sum of money within a certain date and getback the promissory notes exhibited in the suit and return themcancelled to the plaintiff within the said date. The defendantpaid the money within the date but took out the notes anddeposited them after the date. On his applying for entering ofsatisfaction of decree the Court held that the provision regardingpossession to be given to the plaintiff, if the conditions were notcomplied with within the time limit was penal, the object beingto secure the prompt payment of the money. The money itselfwas paid before the time fixed. The provision for the return of thepromissory notes was intended to safeguard against their possiblefraudulent negotiation. As they were in the custody of the Courtthere was no possibility of the plaintiff suffering from theirnon return within the time limit. In this type of case time is notthe essence of the contract and when the interests of third partiesare not affected justice will be defeated by too strict an adherenceto the wording of the compromise without regard to the objectintended to be secure by it. In such a case where the rights of thirdparties are not being prejudiced, the Court will grant relief to thedefendant from the penalty.
The next case to which reference was made is that ofMahalakshmamma v. Venkatachalamayya (4). Here under the termsof a compromise decree A had agreed to convey certain propertyto B for a certain amount and that proper documents would beexecuted within one month after the date of the compromise.The decree further provided that both the parties should be atliberty to have the right and interest enforced in execution of thedecree without reference to a separate suit. B filed two executionapplications to keep the decree alive. When he subsequently filedan execution petition which was within time praying thatA should be directed to execute sale deeds in his favour in termsof the compromise decree, A contended that having regard to thelong delay and the rise in prices of properties the executionpetition should be dismissed. It was held that the mere factthat there had been delay in enforcing the decree for specificperformance did not extinguish A's rights. The delay must be suchthat it may be properly inferable that the party has abandonedhis rights or on account of delay there must have been such a
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change of circumstances that a grant of specific performancewould prejudice other parties. In the present case it was notpossible to infer waiver or abandonment as B had filed two earlierexecution petitions indicating thereby his intention to enforcethe decree for specific performance. It was further held that therising prices of properties were not a hardship within the meaningof the law. The question of hardship had to be judged as at thedate of the transaction and not in the light of subsequent events.The hardship should be one collateral to the contract, and not inrelation to a term of the contract. It was held further that thecompromise decree cannot be regarded as a mere contract but ithas a sanction far higher than the agreement between the partiesand although Courts can interfere and refuse execution ofcompromise decrees, in order to relieve parties against penal clauseor against forfeiture, and compromise decrees embodying termswhich are opposed to public policy or any statutory provisionwould also not be enforced in execution by Courts, yet theseprinciples do not warrant any further extension by importingfurther equitable considerations. Learned counsel for thepetitioner submitted that the application of equitable principleswas limited in England to cases of rent and ejectment and we haveimported the equitable doctrine as applied in England.
The doctrine of equity is that where a penalty clause is insertedin an instrument merely to secure the performance of some actor the enjoyment of some benefit the performance of the act orthe enjoyment of the benefit is the substantial intent of theinstrument and the penalty is only accessory and in such a case theCourt will view the penalty clause as having been put in simply interrorem. The same principle applies even in regard to forfeitureclauses for non-payment of rent—see Modern Equity by Hanbury,8th ed. (1962), pp. 51, 52, 88, 89. These principles he submittedwere applied in the case of Sanoon v. Theyvenderarajah (5) where
N. G. Fernando, J. (as he then was) considered the authoritiesand adopted the English principle that in equity the constructionput on a clause of forfeiture of a lease on non-payment of rent isthat it is a mere security for the payment of rent, and that as thebreach of that covenant is capable of a just compensation a Courtof equity may award the compensation and abstain from enforcing
the forfeiture. H. N. G. Fernando, J. laid down that the Courtshave accepted the English principle that jurisdiction to grant reliefagainst forfeiture for non-payment of rent does exist.
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Submitting all this material learned counsel for the petitionerinvited this Court to apply similar principles to the matter we havebefore us. The authorities relate to compromises and agreementsembodied in decrees under section 408 of our Civil Procedure Codeand the parallel provisions of the Indian Civil Procedure Code.It is hardly necessary to emphasise that the principles contendedfor by learned counsel for the petitioner apply to agreements andcompromises entered into before decree is entered. When it comesto execution it is elementary that the decree as it stands must beexecuted. At the execution stage even where the decree is oneentered in a rent and ejectment case we have no longer a landlordand tenant but a decree-holder or judgment-creditor and ajudgment-debtor—see section 217 of the Civil Procedure Code.
The analogy of the circumstances under which the Courtwould interpose its intervention to amend or set aside acompromise decree is misleading and not applicable when it comesto arrangements made of consent in regard to execution. Theprinciples which govern the enforcement of contracts andmodification of their terms when justice requires it do not applywhen it comes to the enforcement of terms and conditions enteredinto by the parties themselves for their convenience in regard toexecution of decrees and reduced into an order of court. Thedecree so long as it stands will be executed by the Court at theinstance of the judgment-creditor. If the circumstances spelledout in the relevant provisions of the Civil Procedure Code existthe Court will grant a stay of execution. A stay of execution canalso be granted by the Court on terms agreed upon by the parties.
The compromise decree entered under section 408 of the CivilProcedure Code may limitedly be regarded as being in substancea contract to which is superadded the command of the Judge—thelimitations being such as our law as accepted imposes. A stay ofexecution on terms proposed by the parties of their consenthowever is outside the field of contract. This is an advantagegiven to the judgment-debtor with agreed safeguards to thejudgment-creditor. Such stays of execution are more closelyanalogous to cases where postponements of trials or inquiriesare granted on agreed terms than to compromise decrees undersection 408 of the Civil Procedure Code.
When a party ts not ready on a trial date and is granted a dateon terms what happens is that an indulgence is extended to the
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party who has moved for the postponement When a case is fixedfor trial the Court will ordinarily try it. If a party is not ready forthe trial when he should have been ready for trial and the Courtpostpones the case on agreed terms what really happens is thatthe Court grants that party an indulgence. So when a prepaymentorder is made what happens is that the Court is granting the partyconcerned an indulgence upon terms consented to by both sides. Infact even where the adverse party is agreeable to a postponementon terms the Court can refuse to grant the postponement Heretoo there is no question of a contract. Hence if the recipient ofthe indulgence does not make strict compliance with the termsimposed on him the provision made in respect of defaults will beenforced. There is no question here of penalty or forfeiture. Thisis clear from the decided cases. Thus in the case of RamanadenChewy v. Fernando (6) an application for a postponement by thedefendants was granted on their consenting to pay Rs. 75 to theplaintiff as his costs of the day along with a sum of Rs. 6.50before the next date of trial. In default of such payment thedefendants agreed to judgment being entered as prayed for. Onthe trial date the defendants tendered the money but the plaintiffrefused to accept it and claimed judgment. The Supreme Courtupheld the plaintiff's contention and gave judgment for him asprayed for with costs.
The principles which the Courts apply in such cases are thesame as those enunciated by West, J. in the unreported Indiancase of Balprasad v. Dharnidhar Sakharam (7). Here the decreewas based on an agreement made by the parties that thejudgment-debtors would pay a fixed sum within two months butfailing such payment within the stipulated time, a much highersum. Owing to the Court vacation there were available to thejudgment-debtors only two months less than two days to makethe payment. The judgment-debtors were out of time by two daysin making the payment The judgment-creditor then claimed thehigher sum. West, J. said as follows at page 438:
"If the parties, instead of submitting to the judgment of theCourt before which they have placed their dispute, make adecision for themselves by an agreement which they then askthe Court to reduce to a decree, there is no authority, that weknow of, for treating the decree thus obtained as to be enforcedin any way differently from one proceeding solely from themind of the Judge. The principles which govern the enforcement
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of contracts and their modification, when justice requires it, donot apply to decrees which, as they are framed, embody andexpress such justice as the Court is capable of conceivingand administering. The admission of a power to vary therequirements of a decree once passed, would introduceuncertainty and confusion. No one's rights would, at any stage,be so established that they could be depended on, and theCourts would be overwhelmed with applications for themodification, on equitable principles, of orders made on a fullconsideration of the cases which they were meant to terminate.It is obvious that such a state of things would not be farremoved from a judicial chaos; and as ordinary decrees are thusunchangeable, so we think are those in which, through a specialprovision for the convenience of parties, their own disposalsof their disputes are embodied. The doctrine of penalties is notapplicable to such a class of cases; and those who, with theireyes open, have made alternative engagements and invitedalternative orders of the Court must, if they fail to perform theone, perform the other, however greatly severe its terms maybe".
West, J. went on to refer with approval to the principle laiddown in the case of Mayer v. Harding (8) that where the lawrequires something to be done within a given time, it must equallybe done within that time, though performance during some partof the time is impossible.
The judgment of West, J. was relied on by Birdwood, J. in thecase of Shirekuli Timapa Hegda v. Mahab/ya (9) where it isreproduced as a footnote. The case before Birdwood, J. was atenancy suit and the consent decree entered in the case in effectcreated a perpetual tenancy but subject to the stipulation that theplaintiff would be entitled to re-enter the property if it wasalienated or if the defendant failed to pay the rent. The Judgerefused to apply the doctrine of penalties to the stipulation inthe decree giving effect to the compromise.
The decision of West, J. was cited with approval byJayewardena,A. J. in the case of PunchiNona v. Peiris (10). Here a postponementof the trial of the case had been granted to the defendant on hisconsenting to pay the plaintiff a fixed sum of money by way ofcosts before the next date of trial. The defendant also agreed tojudgment being entered for the plaintiffs if he made default in the
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payment of costs. The defendant defaulted in the payment of thecosts but pleaded that this was due to his being hindered by thefloods. But it could not be said that he was prevented by floodsfrom paying the sum he had agreed to pay during the whole ofthe period allowed to him. It was held that the Court had nopower to grant relief to the defendants against the breach oftheir undertaking to pay costs in terms of the agreement. Butthis is not an inflexible rule. It will yield in cases whereperformance of the agreement is absolutely impossible.
The rule however is applicable even where the terminal datefixed for the prepayment of costs falls on a Sunday—see the caseof Simon Singho v. William Appuhamy (11). This case wasfollowed by Samerawickrema, J. in Perera v. Gonaduwa (12)where the defendant was held to his agreement to judgment beingentered against him if he failed to pre pay costs before a fixeddate.
The judgment of Jayewardena, A. J. in Punchi Nona v. Peiris(supra) was followed in the case of Hemamala Rajapakse v. PeirisAppuhamy (13). Here the plaintiff had been granted a date onhis undertaking to pay the defendant a stipulated amount as costsbefore 10 a.m. of a specified date. He agreed to his action beingdismissed with costs in default. The plaintiff failed to make thepayment of costs as agreed but attempted unsuccessfully to proveimpossibility of performance. His action was dismissed with costsin accordance with his agreement
One can conclude that the equitable doctrine of penalties andforefeitures does not apply to cases where the Court enforceswhat is commonly called a pre-payment order. Strict compliancewith the terms will be insisted on except where there is absoluteimpossibility of performance. In regard to orders made for thestay of execution on agreed terms the legal position is nodifferent. Strict compliance with the terms will be insisted onexcept where there is absolute impossibility of performance. Theequitable doctrine relating to penalties and forfeitures does notapply. This is so even when the case in which the decree wasentered is a tenancy suit.
In the instant case the terms on which stay of execution wasgranted were eminently reasonable. In fact none of the terms canbe interpreted as a penalty or forfeiture. This is a case where the
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judgment-creditor was asking for execution and thejudgment-debtor for stay of execution of the decree. It is thesubstance of the total relief which the judgment-creditor isentitled to claim by virtue of the decree in the case. Hence theprovision for execution of the decree on a breach of the terms onwhich stay is granted is not a penalty or forfeiture put in simplyin terrorem. Indeed in the instant case in the terms on which stayof execution was granted there is provision even to cover defaults.It is only upon two consecutive defaults that writ will issue.There were in fact two consecutive defaults. If the defendantpetitioner had only caused the bank statement for June 1979which should have been available in the first half of July1979 to be persued it would have realised that the payment forJune 1979 had not been remitted. There has been laches on itspart and a party guilty of laches will not in any event be grantedequitable relief.
There is therefore no merit in the application of the petitionerto this Court and it is refused with costs.
DE SILVA, J.–I agree.
J. P. de Almoida,Attorney-at-Law
CEYLON CARRIERS LTD. v. PEIRIS