Ceramics Corporation v Premadasa (L. H. De At.vis. J)
S. C No 48/83 – C A. No 325/74 (F) – D. C. COLOMBO 73754/M.
JUNE 18 TO 20. 25 TO 27, 29. 1984
JULY 2 TO 5. 9 TO 11, 13. 16 TO 19. 23 TO 27. 30.31. 1984
AUGUST 1 TO 3. 6. 7. 9. 27. 1984.
Jurisdiction of Supreme Court to review concurrent findings of fact arrived at by thelower Courts – Articles 127 and 128 of the Constitution-Assessment of demeanour.of witnesses by trial Judge – Non-production of Register – Presumption under section
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114 of the Evidence Ordinance – Obligation to send bank statements bypost – Acquiescence – Imputation of agent's knowledge to principal — Estoppel byacquiescence – Scope of servant's authority — Effect of prohibition to determinewhether an act of fraud and negligence by an employee was done in the course of andwithin the scope of his employment – Negligence and remoteness -ofdamages – Novus acu.s interveniens — Onus of proof – Effect of fraud committed byofficers and Directors of the Company who are not its directing mind and will and not incontrol of the operation of the company – Duress – Commercial pressure asduress – Estoppel by convention.
The plaintiff was a company dealing in motor vehicles, repairs and spare parts and hadan overdraft facility of Rs. 3 1/2 million on its account No. 22200 with the defendantbank. In August 1968, Harasgama, Managing Director of the Plaintiff-company madean application to the defendant-bank to have the overdraft facility increased to Rs. 5million stating that the overdraft amount then drawn was Rs. 2 million. When thisapplication was processed it was found that the amount overdrawn was much more.This was discovered on 28.11.1968. A check revealed that a large number of items ofcheques and cash which according to the Bank statements and deposit counterfoils inthe possession of the plaintiff amounting to Rs. 1,275,883.66 had not been creditedto the plaintiff's account and further a sum of Rs. 49,546.16 had been debited asinterest. Moreover fictitiously inflated stock statements which did not correspond withthose in the possession of the plaintiff had been tendered month after month to theBank to enhance the overdraft facility and so enable as much as Rs. 3.431,409.99inclusive of interest, expenses and charges to be overdrawn. The fraud had gone on for12 years and involved over a million rupees. The Bank Statements were found to befabricated and so were the counterfoils.
On 05.12.1968 the defendant-bank sent the plaintiff a certificate of balance showingthe overdraft as at 28 1 1.1968 to be Rs. 3.403,099.92 and this was accepted by theplaintiff without protest. On 30.12.1968 the plaintiff-company, having earlier on
executed a primary mortgage in favour of the bank hypothecatingpremises No. 101, D. S. Senanayake Mawatha, Colombo against its indebtedness,signed a document admitting that as at close of business on 14.12.1968 the amountoverdrawn by it on its account was Rs. 3,381,497.28.
The plaintiff-company instituted this action on 22.11.1970 against the defendant-bankpraying for a declaration that cheques and cash to the value of Rs. 1,275,883.03 weredeposited by the plaintiff to the credit of its current account No. 22200 with thedefendant-bank and the said account was wrongfully debited with a sum ofRs. 49,546.16 alleged to be due as interest and that the plaintiffs said account wasoverdrawn on 18.11.1 968 only in a sum of Rs 2,268,381 34.
For a first alternative cause of action the plaintiff pleaded that if the said cheques andcash to the value of Rs 1,275.883.03 had not in fact been deposited then suchnon-deposit and/or misappropriation was due to the fraud and/or negligent acts oromissions of the defendant and/or its servants and agents acting in the course of their
Collettes Ltd. v Bank of Ceylon
2 55
employment and within the scope of their authority. The defendant-bank had actedfraudulently and/or negligently in that it had permitted unauthorised persons to haveaccess to and control of blank forms of statements of account, forms used to certifybalances and/or other security documents and issued or caused or permitted to beissued or facilitated the issue of fabricated or incorrect receipts and monthly and weeklystatements of accounts and certificates of balances to the plaintiff. The plaintiff thussuffered a loss of Rs. 1,275.883 66 together with debited interest in a sum ofRs 49.546 16.
For a second alternative cause of action, if the cheques and cash to the value ofRs. 1.275.883.66 had not been brought to deposit, the defendant and/or its servantshad jointly with one Ingram who was the Sales Manager of the plaintiff and a Director ofCollettes Finance Ltd. a subsidiary of the plaintiff-company misappropriated them andplaintiff was entitled to recover the said sum as loss and damage suffered.
The defendant-bank took up the position that the cheques and cash referred to had notin fact been deposited and the receipts in respect of such alleged deposits were fakedand disclaimed liability for the fraudulent actions and concealments of Ingram who wasplaintiffs Sales Manager and also a Director of one of its subsidiaries. On the fraudulentrepresentations made monthly by the plaintiff to the defendant in regard to the value ofits stocks, the plaintiff was able to overdraw on its current account more than it wouldotherwise would have been entitled to overdraw and the damages if any suffered by theplaintiff was due to its own fraud. The defendant had sent the plaintiff statements ofaccounts, and certificates of balances relating to the current account of the plaintiff andso also had the auditors sent confirmation slips of the state of its current account butthe plaintiff had not questioned them nor had it at any time material to the actionimputed fraud to the defendant's employees. The plaintiff had accepted the certificateof balance of 05.12.1968 without protest and signed the document of 30.12.1968acknowledging it had overdrawn a sum of Rs. 3,381,497.28. In addition the plaintiffhad executed a primary mortgage in respect of premises No. 101, D. S. SenanayakeMawatha. On the faith that no allegations of fraud were being made against it thedefendant extended further credit facilities to the plaintiff. Therefore the plaintiff wasestopped from now denying the sum due or asserting fraud and negligence andclaiming damages The plaintiff company then filed a further pleading on 10.12.1971averring that it, through two of its Directors, was induced to sign the mortgage dated
and document dated 30 12.1968 by the deliberate misrepresentations,suppressions of facts, duress, undue influence and threats of harm to the Company bythe defendant's General Manager, C. Loganathan, and by a breach of the fiduciary dutythe defendant owed the plaintiff-company and its Managing Director Harasgama.
At the conclusion of the trial Counsel for the plaintiff-company conceded he had failedto prove his main cause of action viz. the alleged deposit of cash and cheques to thevalue of Rs. 1.275.883.66 and the District Judge found accordingly but he (Counselfor plaintiff) relied on the two alternative causes of action based upon fraud andnegligence and/or misappropriation on the part of the Bank's agents and employeesacting in the course of and within the scope of their duties.
The bank employee mainly involved was Abeywickrema. He worked in the ForeignDepartment of the defendant-bank as a ledger clerk from 1955-1957 and in the LoanDepartment from 1957-1962 and from 1962 to June 1966 again in the Foreign
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Department as clerk-in-charge of checking export documents. From 15.06.1966 heworked in the York Street .Branch 0n Ledger No. 8 where plaintiff's account was untilSeptember 1966. He later worked on Ledger No. 9 from 11 06.1968 to 23.08.1968and during this period plaintiff's account was in this Ledger. Amerasinghe was alsoworking with Abeywickrema from 12.08.1965 at the defendant-bank and hesucceeded Abeywickrema as Ledger clerk-in-charge of plaintiff's account on
right up to 28.11.1968 when Ingram's fraud was discovered. ThePlaintiff's case was that Abeywickrema went out of his way to pilfer plaintiff'sstatements of accounts when he was not in charge of plaintiff's account and later whenhe was in charge of its account between June to September 1966 and June to August1968 and fraudulently handed them over to Ingram. From August to November 1968Amerasinghe handed over the statements to Abeywickrema to be delivered to Ingram.
On the first alternative cause of action, the trial Judge found that the defendant-bankhad been negligent in the matter of storing its blank forms and keeping them away fromthe reach of unauthorised persons. It had failed to follow its own Rules and instructionsset out in the Bank of Ceylon Manual of Operations with regard to the delivery of bankstatements and certificates of balances. Its employee Abeywicrema helped later byanother employee Amerasinghe had in the course of his employment intercepted thegenuine bank statements and certificates thus preventing them from going by post andsubstituted them with fabricated statements and certificates on pilfered obsolete anddiscarded blank forms available in the Bank and handed them to Ingram for delivery tothe plaintiff-company and also introduced into the bank fabricated stock certificatesreceived from Ingram who was his brother-in-law. These acts and omissions the trialJudge held established negligence and complicity on the part of the Bank in the fraudcommitted by its employees mainly Abeywickrema. The trial Judge therefore held withthe plaintiff on the first alternative cause of action and entered judgment for plaintiff in asum of Rs. 1,169,240.93 as representing the loss and damage sustained by theplaintiff.
On the second alternative cause of action the trial Judge held that no misappropriationbv the defendant's employees had been proved and that it was Ingram the plaintiff'sSales Manager who had misappropriated the cash and cheques.
The appellate jurisdiction of the Supreme Court is all embracing and unfettered. Onleave to appeal being granted under Articles 127 and 128 of the Constitution theSupreme Court is vested with power as a final Court of Civil and Criminal appellatejurisdiction to consider the correctness of the decision appealed against on any groundwhether on questions of fact or law and to affirm, reverse or vary any judgment ordecree of the Court of Appeal or any Court of First Instance, tribunal or other institution.It has jurisdiction to revise concurrent findings of fact reached by the lower court inappropriate cases. However, ordinarily it will not interfere with findings of fact basedupon relevant evidence except in special circumstances as for instance where thejudgment of the lower Court shows that the relevant evidence bearing on a fact has notbeen considered or irrelevant matters have been given undue importance or that theconclusion rests mainly on erroneous considerations or is not supported by sufficientevidence. In the instant case the District Judge had grievously gone wrong in hisopinion. The judgment by its manifest errors of law and fact would result in amiscarriage of justice if the Court of Appeal had affirmed it
Collettes Ltd. v. Bank ol Ceylon
An appellate Court can interfere, although it will do so rarely, with the trial Judge'sassessment of demeanour. The demeanour of a witness ought not to be adopted by atrial Judge without testing it against the whole of the evidence of the witness inquestion The trial Judge had been so carried away by the demeanour of the witnessHarasgama Managing Director of the plaintiff-bank that he failed to take into accountthat Harasgama's principal claim was false and untenable to his own knowledge, thathis evidence on the non-receipt of the Bank’s statements by post when the othersubsidiaries of the Group had received theirs by post was open to question, that he hademployed private detectives to steal documents from the defendant and that he had nottaken timely steps to prevent Ingram’s flight from Sri Lanka.
For the defendant-bank to be liable for the acts of Abeywickrema and Amerasinghethey must have been committed fraudulently or negligently in the course of and withinthe scope of their employment as Ledger Clerks under the defendant. In order todetermine whether the proved act of negligence or fraud cn the part of a servant iswithin or without the scope or course of his employment, it is not enough to decidewhether or not what was done was prohibited conduct. The prohibition may either limitthe scope of his employment or merely regulate his conduct within the sphere of hisemployment. If the latter the employer will be vicariously liable but not if it is the former.Even an express prohibition will not save the employer from liability if the act was merelya mode or method of doing what the servant was employed to do. The distinction isbetween an order which limits the scope of the employment and an order which limitsthe method in which the duties of the servant may be performed.
According to the Bank rules the Ledger Clerk is prohibited from having anything todo with the sending out of the bank statements which is handled by an independentofficer called the Adjuster who in this area of duty was an ’outsider" and his actions didnot bind the Bank.‘The Ledger Clerk was permitted to hand over weekly statements to acustomer or to an agent of a company authorised by the company and this action isentered in a book maintained by the Ledger Clerk the entries wherein are initialled onidentification by the cheque book clerk. In practice these statements are handed over bythe Ledger Clerk to the person who comes to deposit the Company's monies.
The rules of the Bank's Manual of Operations are merely counsels of perfection andthey afford valuable criteria of the risk against which the bank has to guard. They do notconstitute a legal measure of the liability of the Bank and failure to comply strictly withthem cannot render the Bank negligent. The trial Judge erred in thinking otherwise. TheBank's admitted obligation to send the statement of accounts to the plaintiff could befulfilled by sending them by post or by delivering them to plaintiff's representatives.
In any event the plaintiff-company’s employees Paul Fernando the Accountant andLionel Fernando the Assistant Accountant and their predecessors before them and theAccounts Section were aware of and acquiesced in the handing over of the monthlystatements (from 1958 to 1962) and weekly statements (from 1962 to November1968) to Ingram (their Sales Manager and Director of one of their subsidiaries) and theirknowledge is in law the knowledge of the Company even if the Managing DirectorHarasgama was, though this is unlikely, unaware of it. The knowledge of an agent willgenerally be imputed to his principal where the agent received the information inconnection with a transaction in which he is acting for his principal and where it is hisduty to communicate that information to his principal.
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An acquiescence is not a question of fact but of Jegal inference from facts found. It mustbe intentional conduct with knowledge. Plaintiff is now estopped by twelve years (1956to 1968) of acquiescence from complaining that the delivery of the bank statements toIngram is wrongful: it is bound by such performance Although the plea of estoppelarising from acquiescence was neither pleaded nor raised in the issues, yet the trialJudge dealt with the issue of plaintiff's acquiescence and found against the defendanton it Hence this matter can be dealt with in appeal.
By acquiescing in Ingram's acts of collecting the bank statements the plaintiff heldhim out to the defendant as having authority to collect the monthly and weeklystatements and thereby dispensed with the necessity of sending them by post. Theplaintiff by its conduct ratified and adopted the delivery of the statements to Ingram onits behalf and the obligation of the defendant to send them to the plaintiff was therebydischarged. There was here estoppel by acquiescence.
When Abeywickrema handed over the bank statements to Ingram when he was notfunctioning as Ledger Clerk in charge of plaintiff's accounts, he did something soremote from his duties as to be altogether outside and unconnected with hisemployment. There was no evidence that the plaintiff or Ingram relied on any ostensibleauthority of Abeywickrema to hand over the statements or changed positions upon thefaith of it nor is there evidence of any representation made by the defendant bank. Theessence of ostensible authority is that the employer by his words or conduct representsto third parties that his servant has his authority to perform certain types of acts andonce the third party has acted on the faith of that ostensible authority the master is notentitled to deny that the servant in truth had such authority. A prohibition cannot effecta servant's ostensible authority unless it is known to the other party. The vicariousliability of the employer will not be affected by an order which limits the method or modeby which the duties of the servant may be performed.
During the two spells June to September 1966 and 11 th June to 23rd August 1968when Abeywickrema was functioning as Ledger Clerk working on plaintiff's accounts hehad authority according to the Bank Rules to hand over the statements to theplaintiff-company or its accredited representative and if he had negligently, fraudulentlyor otherwise wrongly assumed that Ingram was an authorised representative of theplaintiff-company and delivered to him the bank statements the bank will be liable.
Abeywickrema and Amerasinghe acted in the transaction to help Ingram. The issuingof the statements to Ingram was acquiesced in by the plaintiff-company. Hence theplaintiff-company cannot claim against the defendant-bank on the basis of the negligentor fraudulent acts committed by defendant's agents or servants.
The trial Judge's finding that Abeywickrema prepared the false bank statementsrelating to plaintiff's account cannot be sustained and must be set aside.
The evidence in any event does not conclusively establish that during all the 12 yearperiod 1956 to 1968 none of the Bank statements and certificates came to the plaintiffby post Except for the 75 weekly statements admitted by Abeywickrema to have beendelivered by him to Ingram the plaintiff must be held not to have proved that the othermonthly and weekly statements from August 1956 to the end of November 1968 hadnut been received by post by the plaintiff-company because
Collettes Ltd. v. Bank of Ceylon
Ingram could have, on the basis of the arrangements for handling plaintiff'smail at its own office, appropriated the genuine bank statements andcertificates at the plaintiff's own office on their arrival by post and substitutedthem with faked ones
One Ledger Clerk at least of the Bank namely Bunny during the period hehandled plaintiff's account had not handed over the bank statements toAbeywickrema and these statements would have gone by post
The Bank Statements of the other companies of the Collettes group wereadmittedly coming by post.
|d) The plaintiff had called for weekly statements from the Bank obviously in itsanxiety to monitor its finances more closely and would want to scrutinize theBank statements regularly and if these were not coming by post it would havebeen known to the Accounts Section and Directorate of the plaintiff.
(e) The burden of proof of the non-receipt by post of the Bank Statements was onthe plaintiff but the Inward Mail Registers of the plaintiff which would haveshown the non-receipt of the Bank Statements by post though listed were notproduced raising an adverse inference on the basis of section 114 of theEvidence Ordinance
It would have been impossible for the bank to ensure against its Ledger Clerkpilfering bank statement forms. In any event the bank cannot be liable for forgeriescommitted by a third party on discarded forms stolen from the bank. It would befar-fetched to say the bank facilitated the forgeries. It is a clear case of novus actusinterveniens. Assuming there was negligence, the damage complained of could nothave been contemplated as a reasonably foreseeable consequence of such negligence.The damages claimed are too remote.
The onus of proof is on the plaintiff to show that a particular item of damage is nottoo remote before he can recover it Plaintiff has not discharged this burden.
A company is liable in torts for all the wrongful acts of the persons who control themanagement of its undertaking when they are acting as such Those persons may bethe Directors collectively, or some of the Directors who in fact manage the Company'sbusiness or the governing body may be a single Managing Director or even a Managerwho is not a Director at all. These will be in the "brain area' of the company and be itsdirecting will and mind, its alter ego. But Ingram was not the directing mind and will ofthe Company He was not in the "brain area' or in the top management area of theCompany and did not hold any position of control nor share in the management. Therole he played in the administration of the company was a subserv.ent role, the role of atrusted employee or servant or agent Nor can the co-perpetratcrs of the fraud from theCompany's Directorate – Samuel (Finance Director). Wickremasirche and Classen(Directors) – be individually or collectively identified with the Company as representingits directing mind and will They were not in control of the operation of the Companyand cannot be identified with the company. Hence the plaintiff's act on cannot fail onthe principle that a wrong-doer is out of court The maxim of public poi'cy ex turpi causanon oritur actio does not apply.
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The allegations of duress, influence and threats in connection with the admissionof the amount of the overdraft and mortgage bond made for the first time in theplaintiff's further pleadings of 10.12.71 are an afterthought and not borne out by theprevious correspondence and the concession that Rs. 1,273,883.60 in cash andcheques was not in fact deposited Further the bond and the document admitting thequantum of the overdraft were voluntarily approved by the Board of Directors of theplaintiff-company. There was not that coercion that will vitiate consent. Harasgama hadno ground to doubt the correctness of the bank's accounts and the Bank's demand fora certificate accepting the correctness of the accounts even though supported by acertain measure of economic pressure was lawful. The plaintiff was still free not tosuccumb to such pressure. It had the benefit of independent advice and it raised noprotest until three years later. The demand of the defendant-bank was neither unjust norunconscionable. Therefore the commercial pressure under which the plaintiff acted didnot amount to duress. The District Judge's finding on duress is wrong.
When the parties made the basis of their transaction an agreed statement of factsthe truth of which is assumed by the convention of the parties, each will be estopped asagainst the other from questioning the truth of the statement of the facts so assumed.-This is the principle of estoppel by convention. It was on the certificate admitting thequantum of liability and the Mortgage bond that the defendant continued to extendoverdraft facilities to the plaintiff. The plaintiff having obtained this advantage to which itbecame entitled on the basis of acceptance of the certificate and the execution of theMortgage bond cannot now resile from them and say they are void. The plea ofestoppel by convention is entitled to succeed.
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Collettes Ltd. v. Bank of Ceylon
H. L Bolton (Engineering) Co. Ltd. v T. J. Graham & Sons Ltd. [1956] 3 All ER624. 630
Applebee v Percy [1874] L R. 9C. P. 647. 656.
Stiles v. Cardiff Steam Navigation Co. [ 1864] 33 L.J.Q.B. 310.
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Sn Lanka Law Reports
[1984] 2 Sri L .R.
S. S. Singleton Abbey v. S. S. Paludina [1927] A C. 16, 25-26 (H.L ).
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APPEAL from the Court of Appeal.
P Navaratnarajah. Q.C. with H. L de Silva. P. C . K Kanag Iswaran, S Mahenthiran, K.Neelakandan, Miss U. Weerasinghe, Miss. R Kandasamy and A A M llliyas forplaintiff-appellant
H lN. Jayewardene, Q C. with J W Subasinghe, PC, K. N Choksy, PC . L. C.Seneviratne and Lakshman Perera for defendant-respondent
Cur. adv vult.
October 10, 1984.
This appeal has come up before this court, with leave granted by theCourt of Appeal on the ground that it involves substantial questions oflaw and also with leave granted by this court, under article 128(2) onthe ground that this was a fit case for review by this court. When sogranting leave this court granted permission to both plaintiff-appellantand the defendant-respondent to make submissions on the entirecase, both on facts and on the law involved in this case.
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Concurrent findings of facts
At the hearing before us when Counsel for thedefendant-respondent canvassed the correctness of certain findingsof fact made by the trial Judge which were confirmed by the Court ofAppeal, counsel for the plaintiff-appellant objected to the reviewing byus of the concurrent findings of fact arrived at by the lower courts andurged that this court should not disturb the concurrent findings of fact.Counsel for the appellant invited this court to adopt the practice of theJudicial Committee of the Privy Council, of declining to review theevidence for the third time when there are concurrent judgments oftwo courts on clear questions of facts and referred us to certainpropositions enunciated by the Privy Council in Srimati Bibhabati Deviv. Kumar Ramendra Narayan Roy (1). With reference to that practicethe Privy Council said at page 521 :
"In order to obviate the practice, there must be some miscarriageof justice or violation of some principle of law or procedure. Thatmiscarriage of justice means such a departure from the rules whichpermeate all judicial procedure as to make that which happened notin the proper sense of the word judicial procedure at all".
I have observed that the practice of non-interference in a case of
concurrent findings of facts "is not a cast-iron one, andthere
may occur cases of such an unusual nature as will constrain the Boardto depart from the practice."
Article 127 of our Constitution spells out the appellate jurisdiction ofthis court. It provides that this court (Supreme Court) is a final court ofcivil and criminal appellate jurisdiction for the correction of all errors infact or in law which shall be committed by the Court of Appeal or anycourt of first instance, tribunal or other institution and that this courtmay, in the exercise of its appellate jurisdiction, affirm, or reverse orVo'y any judgment or decree of the Court of Appeal. It will thus beseen that the appellate jurisdiction of this court is all embracing andunfettered. On leave being granted under Article 128 to appeal to thiscourt, this court is vested with the power, as a final Court of Appeal toconsider the correctness of the decision appealed against on anyground, whether on questions of fact or law. This is a court ofre-hearing. Silva v. Swaris (2), Sansoni, J. in Nawadun KoraleCo-operative Stores Union Ltd. v. Premaratne (3). The leave grantedunder Article 128, though it is a precondition for the maintainability ofan appeal to this court, cannot circumscribe the scope of the appeal.Sri Lanka Ports Authority v. Pieris (4). Thus this court undoubtedly has
Collettes Ltd. v. Bank of Ceylon (Sharvananda, J.)
the jurisdiction to revise the concurrent findings of fact reached by thelower court in appropriate cases. However, ordinarily it will notinterfere with findings of fact based upon relevant evidence except inspecial circumstances, such as, for instance, where the judgment ofthe lower court shows that the relevant evidence bearing on a fact hasnot been considered or irrelevant matters have been given undueimportance or that the conclusion rests mainly on erroneousconsiderations or is not supported by sufficient evidence. When thejudgment of the lower court exhibits such shortcomings, this court notonly may, but is under a duty to examine the supporting evidence andreverse the findings.
Counsel for the defendant-respondent has persuasively arguedbefore us that this court being the final appellate court for and withinthe Republic of Sri Lanka, is the counterpart of the House of Lordswhich is the Supreme Court of Appeal in Great Britain, and it would bemore appropriate that this court should follow the practice of theHouse of Lords in the exercise of its appellate jurisdiction on questionsof fact, rather than that of the Judicial Committee of the Privy Council,which is the final court of appeal of the British Commonwealth andBritish colonies. In the nature of things the Privy Council labours undercertain handicaps in embarking on a fresh examination of facts for thepurpose of reviewing concurrent findings by lower courts. The courtfrom which an appeal is taken whether from a colony or someDominion is naturally better adapted to appreciate local customs,conditions, habits and ways of the witnesses. The local court is betterequipped to assess evidence involving questions of relationships andconduct peculiar to the locality from which the case came,and whosesignificance is specially within the knowledge of the courts of thatcountry. The Privy Council suffers inevitably from its alienage, thoughit is the apex of the hierarchy of courts. I would therefore prefer toadopt the practice of the House of Lords in the matter of considerationof questions of facts since that court, like the Supreme Court of SriLanka, suffers no such limitations as the Privy Council in the matter offindings of fact by an alien trial court.
Halsbury Laws of England, 4th Edition, Vol. 10, para 744 at page340 and 341 states the jurisdictional practice of the House of Lordsas follows :
"Except in cases when the findings of fact by the tribunal appealed
from are made final by statute, questions of fact are as much open
tc review by the House of Lords as are questions of law. The House
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is, however, reluctant to disturb concurrent findings of facts of thecourts below, but will revise the findings if it considers themerroneous or if fresh evidence is available. Moreover the House willhesitate to interfere with the findings of the judge who saw andheard the witnesses, unless it is a question not of credibility of thewitnesses, but of sufficiency of the evidence. However, the Housewill more readily form an independent opinion where the finding offact is really an inference drawn from facts specifically found by thejudge and where there is no question of the credibility of thewitnesses."
In this connection the observations of Lord Wright in Flower v. EbbwVale Steel, Iron & Coal Company Limited (5) at 220, 221 are relevantto the consideration of the judgment under appeal :
"It was said that Your Lordships should not differ from a finding offact by the trial judge, and reliance was placed on a recent decisionof this House in the case of Powell v. Streatham Manor NursingHome (6). But as was pointed out in that case, every appeal from ajudge trying a case without a jury is a retrial, so that the appellateCourt is bound to exercise a judgment of its own because theappellate Court is in its turn a judge of fact. What was pointed out inthat case was that where the personality of the witnesses was anessential element in the decision, there being a conflict of evidenceof fact, an appellate Court ought not save in the clearest cases toset aside the decision of the trial judge who has seen and heard thewitnesses. But in the present case it is not really a question of thecredibility of the witnesses but a question of the sufficiency of theirevidence to establish what the respondents haijl to prove. Theevidence, if fully believed,may still be inadequate to prove the case.
t is further objected that there are here concurrent findings of fact.That would not be a relevant consideration if the case were one inwhich there was no evidence at all that any such specificinstructions as were relied on were brought home to the appellant'smind. I do not feel it necessary to say whether I am so satisfied, butI am quite clear that there is no sufficient evidence. I do not thinkthat in any event this is a case in which the fact of concurrentfindings below should prevent Your Lordships from setting aside thefinding, if satisfied that it should not have been made. There is norule binding this House not to interfere with concurrent findings of
Collettes Ltd v Bank of Ceylon (Sharvananda. J]
fact. This House will always in proper cases reconsider the evidencenotwithstanding that there are concurrent findings of fact, and thisis a case in my opinion in which reconsideration is justified."
Circumstances in which an appellate court will interfere and ought tointerfere with the judgment of the trial Judge on questions of factlargely founded on opinion of witnesses' demeanour are set out vividlyby Lord Greene M.R. in Yuill v. Yuill (7) as follows :
"We are reminded of certain well known observations in the Houseof Lords dealing with the position of an appellate court when thejudgment of the trial Judge has been based in whole or in part upon hisopinion of the demeanour of the witnesses It can, of course, only beon the rarest occasions, and in circumstances where the appellatecourt is convinced by the plainest considerations that it would bejustified in finding that the trial Judge has formed a wrong opinion. Butwhen the court is so convinced it is, in my opinion, entitled and indeedbound to give effect to its conviction. It has never been laid down bythe House of Lords that an appellate court has no power to take thiscourse Puisne judges would be the last persons to lay claim toinfallibility, even in assessing the demeanour of a witness. The mostexperienced Judge may, albeit rarely, be deceived by a clever liar orled to form an unfavourable opinion of an honest witness and mayexpress his view that his demeanour was excellent or bad, as the casemay be. Most experienced counsel can, I have no doubt, recall at leastone case where this has happened to their knowledge. I may furtherpoint out that an impression as to the demeanour of a witness oughtnot to be adopted by a trial judge without testing it against the wholeof the evidence of the witness in question."
In my view the opinion of the trial judge on vital questions of fact isflawed by the kind of shortcoming referred to by Lord Greene M RThe trial judge has overlooked relevant considerations in theassessment of the evidence. He had not directed his mind to relevantquestions and had failed to apply correct principles of law to the facts.The deficiencies in the judgement are such that I am convinced that anappeal court will be failing in its primary duty if it inhibits itself byregarding the- findings of fact arrived at by the District Judge asunreviewable and final just because credibility of witnesses is involved.It was significant that Counsel for the plaintiff when asked tosubstantiate certain findings of fact, could fall back only on the merefact of the Judge's finding in his favour and not on any othersupporting material I have no doubt, in fact I am convinced, that the
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District Judge has grievously gone wrong in his opinion. It is ajudgment which by its manifest errors of law and fact would haveresulted in miscarriage of justice had the Court of Appeal affirmed it.The trial judge seems‘to have been carried away by the demeanourand manner in which Harasgama, the Managing Director of thePlaintiff-company and the chief witness in the case, gave his evidenceand withstood the cross-examination of counsel for the defendantbank. He had not tested his testimony by the intrinsic merit and natureof the evidence in the case. It is unfortunate that the trial Judge haslost his priorities in the matter of testing the credibility of witnesses.When one goes by the record, certainly, Harasgama's testimony doesnot bear examination. The favourable impression that he had createdon the District Judge by his demeanour in court has outweighed ordisplaced all other relevant considerations in determining the veracityof the witness. The trial Judge had, in assessing Harasgama'sevidence, failed to take into account the fact that plaintiff's principalclaim to the sum of Rs. 1,273,883.66 that was alleged to have beendeposited with the defendant bank was a false claim, false to theknowledge of Harasgama who gave instructions for the preferring ofthat claim. Counsel for the plaintiff at the end of the trial, in his finalsubmission, was obliged to abandon that claim as the evidencemilitated against the claim. Plaintiff's auditors had prior to theinstitution of tjie action reported to Harasgama, that the claim wasuntenable. The effort made by Harasgama, in the course of hisevidence to distance Ingram from him, his reluctance to reportIngram's fraud to the Police and have the fraud investigated and hisemployment of private detectives, not to uncover the fraud inside hiscompany but to steal defendant's documents, all disclosed adesigning nature, not disposed to candidness. These matters shouldhave made the trial Judge wary of accepting Harasgama's evidenceon vital issues. Certainly, on the crucial question whether the plaintiffwas receiving the Bank's weekly statements by post, during the timeHarasgama was Managing Director, 1962-68, his evidence that hewas not aware that the plaintiff-company was not receiving them bypost cannot be accepted with confidence and was not sufficient todischarge the onus that lay on the plaintiff to establish non-receipt ofthem by post. The trial Judge erred in basing his acceptance of hisevidence on his demeanour in the witness box, without submitting histestimony to a critical examination as to why for six years he had failedto notice such an irregularity if it in fact existed. When the companywas receiving the monthly statements relating to No. 2 account of the
Collettes Ltd v. Bank of Ceylon (Sharvananda. J)
company and of the company's subsidiaries regularly by post, but wasfor some mysterious reason not receiving by post the weeklystatements relating to No. 1 overdraft account, it is unbelievable that abusinessman like Harasgama was not interested, if such was the fact,in ascertaining why the Bank was not sending by post the weeklystatements. This criticism of the trial judge's assessment ofHarasgama applies also to his assessment of Lionel Fernando.
I have had the advantage of reading the judgment of Abdul Cader, J.He has dealt with the salient facts of the case and the errorscommitted by the trial Judge. I agree with his analysis of the errors. Inmy view the Court of Appeal was justified in reversing the judgment ofthe District Court. Since Abdul Cader, J., has dealt with the facts and Iagree with his conclusions, I shall deal mainly with the issues of lawinvolved in the appeal.
The plaintiff-company instituted this action on 22.11.70, againstthe defendant bank praying for a declaration that cheques and cash tothe value of Rs. 1,275,883.03 were deposited by the plaintiff to thecredit of the current account bearing No. 22200 with the defendantbank ; and that the said account was wrongfully debited with a sum ofRs. 49,546.16 alleged to be due as interest and the plaintiff's saidaccount was overdrawn on 18.11.1968 only in a sum ofRs 2,268,381.34.
For a first alternative cause of action the Plaintiff pleaded that if thesaid cheques and cash had not in fact been deposited, then suchnon-deposit and/or misappropriation thereof was due to thefraudulent and/or negligent actions or omissions of the defendantand/or its servants and agents, acting in the course of theiremployment and within the scope of their authority, for whose actionsand omissions the defendant is in law liable and responsible ; thedefendant-bank had fraudulently and/or negligently issued or causedor permitted to be issued or fabricated or facilitated the issue offabricated or incorrect receipts and weekly statements of accounts tothe plaintiff, particularly in that:
(a) The defendant bank, being aware that incorrect weeklystatements and receipts were being issued to and received bythe plaintiff company, failed and neglected to inform the plaintiffand/or to stop such issue and/or to take reasonableprecautions ;
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The defendent-bank failed and neglected to exercise propercare and control in respect of the custody and issue of blankforms of statements of accounts.
The defendent-bank had failed and neglected to exercise propercare and control in respect of the issue and delivery of receiptsand weekly statements of accounts and certificates of balancesto the plaintiff.
The defendant permitted unauthorised persons to have accessto and control of blank forms of statements of account, formsused for certifying balances and/or other security documents.
The plaintiff stated that the above were the causes of suchnon-deposits and/or misappropriation thereof and that by reasonthereof the plaintiff had suffered loss and damage in the said sum ofRs. 1,275,883.66 together with a further sum of Rs. 49,546.16being interest debited.
For a second alternative cause of action the plaintiff averred that ifthe aforesaid cash and cheques totalling Rs. 1,275,883.66 had not infact been deposited, the defendant and/or its servants had jointly withone W. L. Ingram (who was both the Sales Manager of the plaintiffcompany and a Director of Collettes Finance Ltd., a subsidiary ofCollettes Company) misappropriated such cash and cheques and thatthe plaintiff was entitled to recover the said sum as loss and damagesuffered by the plaintiff from the defendant bank.
The position taken up by the defendant-bank, in the amendedanswer is briefly : that the cheques and cash alleged by the plaintiff tohave been deposited with the defendant-bank have not in fact been sodeposited ; that the documents purporting to be receipts of thedefendant-bank in respect of such deposits are all faked documents ;that the defendant-bank is not liable for any of the fraudulent actions orconcealments attributed to Ingram who was the Plaintiff's SalesManager by the plaintiff; that, by reason of fraudulent representationmade by the plaintiff-company to the defendant-bank monthly inregard to the value of the stocks held by the plaintiff-company, theplaintiff was able from time to time to overdraw monies on theplaintiff-company's aforesaid current account in excess of the amountwhich the plaintiff was entitled to overdraw ; that the damages, if any,suffered by the plaintiff-company are due to the fraud which wasentirely engineered and accomplished by the plaintiff-company ; that
Collettes Ltd v Bank of Ceylon (Sharvananda, J.l
the defendant-bank had sent the plaintiff-company from time to timestatements of accounts and also certificates of balances relating tothe aforesaid current account of the plaintiff company ; that theauditors of the defendant-bank also sent, in the usual course ofbusiness, confirmation-slips showing the state of the plaintiffcompany's said current account , that the plaintiff-company neverquestioned the correctness of the aforementioned bank statements,certificates of balance and/or the confirmation slips, and acceptedthem without demur ; that, at all times material to this action, theplaintiff-company made no allegation of fraud on the part of theemployees of the defendant-bank ; that, at the express request of thedefendant-bank, the plaintiff-company gave a primary mortgage of thepremises bearing No. 101, D. S. Senanayake Mawatha, Colombo, inrespect of the monies found to have been overdrawn by theplaintiff-company as on the 28th November 1968 ; that on 30.12.68the plaintiff-company expressly admitted that the plaintiff-companyhad overdrawn the amount which the defendant-bank stated had beenso overdrawn as on 14.12.68 and further admitted that the said sumwas still due and owing to the defendant-bank as on 30.12.68 ; thatthe defendant-bank having been intentionally made to believe that theplaintiff-company was making no allegation of fraud against thedefendant-bank in regard to the loss sustained by theplaintiff-company, the defendant-bank extended further credit facilitiesto the plaintiff-company and refrained from stopping or curtailing inany way the existing facilities ; the plaintiff-company was nowestopped from denying the genuineness and the receipt of theaforementioned statements and the correctness of the amountoverdrawn by the plaintiff and was precluded from asserting that thedefendant-bank has been guilty of fraud-negligence, and claimingdamages on such basis.
After the defendant-bank filed its amended answer, theplaintiff-company filed further pleadings by which theplaintiff-company averred that the plaintiff-company, through two ofits directors, was induced to sign the document, dated 30.12.68(and referred to in the amended answer) acknowledging the amountstated by the defendant-bank as having, by 14.12.1968, beenoverdrawn by the plaintiff-company, not only by the deliberatemisrepresentations and suppressions of facts made by thedefendant-bank's General Manager. C Loganathan, but also by theexercise of duress, undue influence and threats of harm to the
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plaintiff-company's business by the said Loganathan, and also by abreach by the defendant-bank of the fiduciary duty it owed towardsthe plaintiff-company.
The case proceeded to trial on 30 issues. Counsel for the plaintifffrankly conceded in his written submissions, after the trial wasconcluded, that the plaintiff-company had failed to prove that theplaintiff-company had deposited to the credit of its account with thedefendant-bank the various amounts in cash and by cheque set out inthe schedule "B" to the plaint, that therefore issues 1 and 2 whichwere based upon the main cause of action be answered against theplaintiff-company. Accordingly the said issues were answered in thenegative. The plaintiff's main cause of action as set out in the plainthaving failed, the plaintiff then relied on the two alternative causes ofaction set out in the plaint, based upon the fraud and negligence ofand the misappropriation by the defendant-bank's agents andservants, acting within the scope and in the course of their duties.
In regard to the second alternative cause of action the trial Judgeheld that no misappropriation of any money belonging to theplaintiff-company by the employees of the defendant-bank had beenproved and that it was Ingram "plaintiff's employee" who would havemisappropriated the said cash and cheques belonging to theplaintiff-company and dismissed that claim. The plaintiff makes nocomplaint against this finding.
The trial Judge however held that the first alternative cause of actionhad been established against the defendant-bank and had enteredjudgment in favour of the plaintiff in a sum of Rs. 1,169,240.93 asrepresenting the loss and damage sustained by the plaintiff by reasonof the negligence of the defendant and/or its servants.
In regard to the first alternative cause of action the trial Judge foundthat the defendant-bank –
(a) was negligent in that ;
(i) Abeywickrema, the Ledger Clerk of the defendant-bankhad during the period June 1966 to 19.8.1968 violatedthe instructions relating to the delivery of bankstatements ;
Collettes Ltd v. Bank of Ceylon (Sharvananda. J.)
(ii) In respect of the period before and after the period duringwhich Abeywickrema was the Ledger Clerk, the employeesof the defendant-bank had failed to follow instructions withregard to the delivery of bank statements ;
(in) That the defendant-bank had failed to carry out periodicalchecks of the stocks of the plaintiff-company ;
(iv) The defendant-bank had failed to have proper care andcustody of its blank Bank Statement Forms ;
(b) Was guilty of fraud in that Abeywickrema had during the period,he was Ledger Clerk from June 1966 to 19.8.1968. in thecourse of his duties prepared false bank statements in respectof the plaintiff-company's accounts.
The trial Judge has held that negligence and complicity in the fraudon the part of bank employees, mainly Abeywickrema andAmerasinghe, have been established and that in order to consider thelegal implications of Abeywickrema's complicity in the fraud, it had tobe viewed in this way –
He extracted genuine bank statements and handed them toIngram.
He introduced into the bank fabricated stock certificates havingreceived them from Ingram, knowing them to be so.
He probably pilferred obsolete blank statement forms.
The District Judge has held that neither the extraction of genuinestatements nor the introduction of fabricated stock certificates was anact done in the course of Abeywickrema's duties and the introductionof stock certificates by carrying and handing them over to the bank'srelevant officer, was also not done in the course of his duties, and thatthese were clearly done for his and Ingram's purposes. He further heldthat Abeywickrema prevented genuine statements from going intoCollettes by post; he also held that the forms were obtained byAbeywickrema or obtained aided by him, But that this act of pilferingwas not done in the course of performance of his duties. That it wasalso outside the scope of his duties and the bank was not liablebecause Abeywickrema stole the forms and gave them to Ingram. Heheld that the bank was guilty of negligence, in that it did not takeproper care of its obsolete forms and that the free availability of theforms enabled a fraud to be perpetrated.
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Concluding this analysis of the evidence the trial Judge has held asfollows :
"With regard to the extraction of statements, as in pilfering ofblank forms, it was not done in the course of the performance ofAbeywickrema's duties as assigned to him by the bank, but wasdone for his own purpose. From 1.7.56-May 1966Abeywickrema had not been in the York Street Branch. He had beenthere from June 1966 to 19.8.1968. Thereafter till 28.11.68 itwas Amerasinghe. During Abeywickrema's period at the ledger,could the preparation of false statements by him make the bankliable ? At this time he was perpetrating the fraud in the course of hisduties, no matter that those were not the instructions given to himby the bank. The instructions of the bank to him were to preparestatements, but he prepared false statements in the course ofperforming the duties .he was assigned, and preparation ofstatements was incidental to the carrying out of the bank's orders.He could also be said to be negligent in that instructions for deliveryof statements had been observed in the breach. So wasAmerasinghe and others.
As far as the periods before and after Abeywickrema's service atthe' ledger department go the negligence of the bank, arises fromthe failure of officials to follow the important instructions with regardto the delivery of statements.
Thus it would be seen that the acts of commission and omissionby various servants of the defendant amount to negligence ascontemplated by law."
The issues that were framed in connection with the first alternativecause of action and the District Judge's answers to same are-
Was the defendant under a duty arising from agreement,practice and/or course of dealing to send correct receipts andcorrect weekly statements of accounts to the plaintiff ?
Ans : Yes – also admitted after the issue was suggested.
Had the defendant by its servants or agents acting in the courseof their employment and within the scope of their authorityand/or for whose acts and omissions the defendant is in lawliable and responsible, fraudulently issued, caused or permitted,to be issued incorrect receipts and weekly statements ofaccount to the plaintiff ?
Ans : Yes, only weekly statements ; not receipts
Collettes Ltd v. Bank of Ceylon (Sharvananda. J )
Did the defendant by its servants or agents acting in the courseof their employment and within the scope of their authorityand/or for whose acts and omissions the defendant is liableand responsible.' fabricate or cause or permit to be fabricatedthe said incorrect receipts and weekly statements ofaccounts ?
Arts . Yes. only weekly statements ; not counterfoil receipts.
11 (i) Did the defendant fail and neglect to exercise propercontrol over and in respect of the-
custody and issue of blank forms of statements ofaccount and forms used for certificates of balances andother security documents ?
issue and delivery of receipts, weekly statements ofaccount and certificates of balances to the plaintiff ?
Ans : 11 (i) (a) Yes.
(b) Yes, of weekly satements of account only.
11 (ii) Did the defendant by its servants or agents –
'acting in the course of their employment and within thescope of their authority and/or
for whose acts or omissions the defendant is in lawliable and responsible facilitate the issue or fabricatethe incorrect receipts or weekly statements ofaccount ?
Ans :11. (ii) (a) Yes – weekly statements only.
(b) Yes – weekly statements only.
12. Did the defendant by its servants or agents acting in the courseof their employment and within the scope of their authorityand/or for whose acts or omissions the defendant is in lawliable and responsible fraudulently conceal from the plaintiffthat the said receipts and weekly statements of account wereincorrect ?
Ans : Yes – weekly statements of account only.
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13. Even if the sum of Rs. 1.275,883.66 had not been depositedto the credit of the plaintiff's account, but if issues 8 and 9 to12 or any of them are answered in favour of the plaintiff, hasthe plaintiff suffered loss and damage in a sum ofRs. 1,325,425.82 ?
Ans: Yes.
Counsel for the defendant at the outset admitted the Bank's dutyreferred to in issue 8 above and stated that the issue could beanswered in the affirmative. The case for the plaintiff in the trial courtwas that Abeywickrema had handed over regularly fabricated bankstatements to Ingram. But, perhaps in view of the faGt that genuinebank statements could not have been altered to fall in line with theaccounts maintained in the plaintiff-company's office as it would havebeen very necessary for Abeywickrema to have knowledge of theentries appearing in the books of the company and there was noevidence that he had any such knowledge, counsel for plaintiffmodified his case in argument before us and stated to us that,presently, his case was that Abeywickrema had handed over genuinebank statements which contained the true and accurate position of theplaintiff company's current account with the defendant-bank as set outin the books of the defendant-bank and that Ingram had fraudulentlysubstituted altered statements and that the statements that were inthe possession of the plaintiff-company were statements fabricated byIngram. It was only after the genuine statements had got into thehands of Ingram that fabrication could have taken place. The partplayed by Abeywickrema was to pilfer the genuine statementsprepared by the bank before they were posted and to deliver them toIngram. Thus, on the concession of counsel for the plaintiff, it has tobe held that what Abeywickrema handed over to Ingram were genuinebank statements and not the false statements that were substituted forsame by Ingram and that neither the Bank nor its servants took part inthe fabrication of the statements that ultimately reached the plaintiff.On the basis of this concession, the District Judge's aforesaid findingthat the defendant-bank is guilty of fraud, in that Abeywickrema hadduring the period that he was the Ledger Clerk from June 1966 toAugust 1968, in the course of his duties prepared false bankstatements relating to plaintiff's account cannot be sustained and hasto be set aside. The answers to aforesaid issues 9 and 10 by the trialJudge too correspondingly get vitiated as the defendant-bank was notinvolved by itself or through its agents in the issue or fabrication of the
Collettes Ltd v Bank of Ceylon fSharvananda. J)
false weekly statements in the possession of the plaintiff. The weeklystatements referred to in issues 9 and 10 are the fabricatedstatements. Assuming that the plaintiff has established thatAbeywickrema had stolen all genuine weekly bank statements and hadirregularly delivered the same in person to Ingram, that fact by itselfdoes not implicate the bank in respect of the weekly statementsfabricated by Ingram. The delivery of the genuine bank statements toIngram, although irregular, in that they had not been sent by postcannot in any sense be said to conduce to the fabrication of the falseweekly statements ; it only enabled Ingram to thwart the genuinestatements reaching the plaintiff. The false statements could havebeen prepared from the knowledge that Ingram had of what moniesand cheques were deposited with the bank and what were not. I shalllater deal with the finding of the District Judge that Abeywickremagave the statements to Ingram with full knowledge that Ingramobtained the statements for a fraudulent purpose and that Ingramwanted the genuine statements before they went by post to theplaintiff and that the perpetration of the fraud was made possible bysuch delivery and how far that finding affected the defendent-bank.
Issue 1 2 refers to fraudulent concealment from the plaintiff "that thesaid weekly statements of accounts were incorrect". There is noevidence that the bank by itself or through its servants was aware ofthe substitution of the false weekly statements. The submission ofcounsel that Abeywickrema gave the genuine bank statement toIngram, with knowledge that Ingram obtained the statements forfraudulent purposes did not extend to suggest that the bank by itsservants was concealing from the plaintiff the fact that the falseweekly statements in the possession of plaintiff were incorrect.
The trial Judge has come to a finding that from 1956 to November,1968, Abeywickrema delivered the bank statements (monthly from1956 to 1962 and weekly statements from 1962-1968) to Ingramand that the said statements were not sent by post to the plaintiff asclaimed by the defendant-bank. The Court of Appeal has not disagreedwith this finding. It has assumed the correctness of this finding withoutanalysing the evidence in support of such a finding. I agree with AbdulCader, J., for the reasons stated by him, that this crucial finding is notsupported by the evidence and probabilities of the case. The DistrictJudge has failed to consider the question of burden of proof that wason the plaintiff to establish that the bank statements were not sent bypost by the bank, a fact in issue for the establishment of the plaintiff's
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case. Since the relevant period extends from 1956-1968 and therewas no witness who could speak for the whole period of 12 years, theonly reliable documentary evidence that was available to the plaint.ff toestablish the non-receipt of the bank statements was the Inward LetterRegisters which it regularly kept in the course of its business, andwhich were available for production at the trial as they have beenincluded in the plaintiffs list of documents. These registers wouldhave reflected whether these statements came by post and were thebest evidence to prove the fact that they did not come by post.
For the reasons given by Abdul Cader, J., one cannot, withconfidence, accept and act on the oral evidence of witnesses likeLionel Fernando or Samuel or Harasgama himself.
Presumption under Section 114 of the Evidence Ordinance
The plaintiff could have supported its evidence with the registers,which were regularly and contemporaneously kept, showing theincoming mail. They undisputedly afforded relevant and substantiveevidence. But for some reason best known to the plaintiff, theseregisters, which would have been conclusive, have not been put inevidence by the plaintiff. Since the relevant documents, namely theInwards Mail Registers which were admittedly in existence have notbeen placed before this court, an adverse inference has therefore tobe drawn against the plaintiff that these registers would, if produced,have belied plaintiff's assertion. Since the plaintiff has withheld thesedocuments which are in its possession, the Court may properly draw apresumption under section 114 of the Evidence Ordinance that thesedocuments, if produced, would refute the plaintiff and show that thebank statements were in fact being received by post by theplaintiff-company, and that the plaintiff's witnesses were not speakingthe truth when they testifed that these statements were not coming bypost. "All the relevant documents admitted to have been in existencehave not been placed before the Court and an adverse inference has,therefore, to be drawn against the appellant." Raghavamma v.Chenchamma (8). Counsel for the plaintiff in his written submissionshas referred to certain Indian cases in support of his contention that "Itis an established principle of law that it is for the suitor to decide whichwould be the best evidence to prove his case and for failure toproduce one piece of evidence, an adverse inference should not bedrawn against a party who has chosen not to file it unless the otherside has called for that evidence." I cannot accept the correctness ofthis proposition of law. I have examined the cases referred to by the
Collettes Ltd v Bank of Ceylon fShan/ananda. Jj
plaintiff, namely Mt.Bilas Kunwar v. Desraj Ranjit Singh (9). Thiruma/ailyengar.v.Subba Raja (10) Karwadi v. Shambharkar (11) RamanathanChettiar v. Viswanathan Chettiar (12); none of these cases supportthe plaintiff’s proposition that no adverse inferences should be drawnagainst a party who had chosen not to produce a relevant documentunless the other side has called for that evidence. The Sheet-anchorfor his contention is the following statement of Farwell, J., in the caseof Mt. Bilas Kunwar v. Desraj Ranjit Singh (9).
"The High Court Judges ’attach great significance' to thenon-production of the books showing the accounts of the generalestate, and appear to draw an inference therefrom adverse to theplaintiff's claim ; any such inference is, in their Lordships' opinion,unwarranted. These books do not necessarily form any part of theplaintiff's case ; it is, of course, possible that some entries mighthave appeared therein relating to the bungalow. But it is open to alitigant to refrain from producing any documents that he considersirrelevant ; if the other litigant is dissatisfied, it is for him to apply foran affidavit of documents, and he can obtain inspection andproduction of all that appear to him in such affidavit to be relevantand proper. If he fails so to do, neither he nor the court at hissuggestion is entitled to draw any inference as to the contents ofany such documents. There is no ground for any inference such asis made in the High Court that the books, if produced, would haveshown rent credited to Jagmag or set off against some claimagainst her. They related to a different property, and the possibilityof entries relating to the bungalow therein is very remote, but even ifit had been greater, the Court was not entitled to draw any suchinferences. It is for the litigant who desires to rely on the contents ofthe documents to put them in evidence in the usual and properway ; if he fails to do so no inference in his favour can be drawn asto the contents thereof."
This statement of law by Farwell, J., has to be appreciated in thecontext of the facts in which it was stated and not isolated from thecontext. In that case, the plaintiff's case was that the purchase of thebungalow in suit by the deceased Taluqdar in the name of hisMohammadan mistress Jagmag Bibi was a benami transaction, inthat, the purchase money was paid by Taluqdar. After his death thepossession and management of the bungalow was given to theplaintiff who was one of the two widows of the deceased and she hadmanaged the property in question from the time of the death of the
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deceased. The defendant resisted the plaintiff's claim to the bungalowon the ground that Jagmag the Mohammadan mistress of thedeceased was the absolute owner of the bungalow and that she hadpaid the purchase money and had collected the rents of the bungalow.The Privy Council accepted the finding of the trial Judge that theevidence given by Jagmag was quite untrustworthy and also acceptedthe evidence of the plaintiff that all rates, rents and taxes and repairs,ground rent of the bungalow had been paid by the plaintiff, and thatshe had let out to various tenants from 1891 down to thecommencement of the action the premises in suit. It was in thiscontext that the Privy Council stated that the High Court of Allahabadwhich set aside the judgment of the trial court had erred in attachingsignificance to the non-production of the books of the deceased'sestate which it was the contention of the defendant, if producedwould show that rent had been credited to Jagmag. It is to be noted inthis case that the plaintiff was not relying on any entry in the books insupport of her case. On the other hand, it was the defendant whopleaded that there were entries in the plaintiff's books whichsupported her. It is in this context that the Privy Council stated thatnothing adverse could be drawn against the plaintiff's non-productionof the books which according to her were not relevant. On the otherhand since the defendant was relying on certain alleged entries in thebook it was for him to ave taken proper steps to have summoned theplaintiff to produce the books and in the event of the plaintiff failing toproduce the books after the summons then an inference could havebeen drawn against the plaintiff that had the books been produced itwould have supported the defendant's case. The judgment of thePrivy Council does not lend any support to the proposition that ifplaintiff fails to produce documents in his possession which arerelevant to support his case, he should have been summoned by thedefendant to produce them before the presumption under section114 of the Evidence Ordinance could be drawn. He is not bound toproduce documents which prove defendant's case unless he has beensummoned, acording to law, to produce same by defendant. ThePatna High Court had in Chandra Narayan Deo v. RamachandraSerawgi (13) misunderstood or misapplied the judgment of the PrivyCouncil in the above case by taking one portion of the judgment out ofits context and relying on the isolated statement as the ratio decidendiof that judgment. The High Court had failed to note that the booksreferred to in the Privy Council judgment, did not form part of theplaintiff's case and that it was the defendant who was relying on them.
Collettes Ltd. v. Bank of Ceylon (Sharvananda, J.)
In those circumstances the Privy Council rightly held that thepresumption under section 114 of the Evidence Ordinance.could notbe drawn against the plaintiff.
On the other hand in the instant case, it is to be noted that theburden was on the plaintiff to prove the non-receipt of the bankstatements and in that connection the Inward Registers referred to byplaintiff's witnesses as supporting their oral evidence were highlyrelevant. It was not necessary for the defendant-bank to havesummoned the plaintiff to produce the Inward Register as no burdenlay on the defendant to establish the non-receipt and the defendantwas not relying on them in support of its case. The plaintiff was relyingon the Inward Registers to support its case that it did not receive bypost the bank statements and no explanation has been given for theirnon-production.
In the other cases Ramanathan Chettiar v. Viswanathan Chettiar
and Karwadi v. Shambharkar (11), relied on by, the plaintiff, theevidence was that the relevant accounts or register were not availableor had been lost and that explanation had been accepted by the Judgeand hence there was no question of withholding the evidence fromcourt. Hence the court quite properly said that no adverse inferencecan be drawn for non-production of the said documents though theywere relevant. Woodroffe and Ameer Ali in their Law of evidence,12th Ed. vol. 3 at page 2153 have stated the correct position in law-
"A distinction should be made between documents relevant toone's case and those which are not so relevant. If a party to a casedoes not produce the document which is the best evidence insupport of his contention an inference can be drawn that, ifproduced, it would be against his contention. But if the document isnot relevant to his case no adverse inference can be drawn from hisnon-production unless he was asked to produce the document andhe fails to do so."
Had the trial Judge had the above relevant consideration in mind it ishighly improbable that he would have held that the plaintiff had provedthat it did not receive any of the bank statements from 1956 right upto November 1968. The Inward Letters Registers were relevant alsofor the purpose of showing that the plaintiff did not receive, not onlythe bank statements but also the certificates of balance sent annuallyby the defendant-bank, the confirmation-slips sent out annually
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by the auditors of the defendant-bank, the overdraft limit advicesetting out the limit of the over-draft, alleged to have been sent outmonthly by the defendant to plaintiff setting out the limit of theoverdraft from January 1966. According to the plaintiff, though thedefendant-bank had regularly sent overdraft limit advices from1 962 to the end of December 1965, apparently for no good reasonthe defendant-bank had stopped sending such advices from January1 966 and the plaintiff never questioned the defendant-bank about thisalleged non delivery of overdraft limit advices though they werenecessary to the plaintiff to ascertain the limit of the overdraft availableto it.
I agree with Abdul Cader, J., that except for the 75 weeklystatements admitted by Abeywickrema to have been delivered by himto Ingram, the plaintiff has not proved that the other monthly andweekly statements from August 1956 to the end of November 1968had not been received by the plaintiff-company. It was admitted byplaintiff that if any one of these statements did reach theplaintiff-company unaltered and untampered, the plaintiff-companycould have become aware of the fraud committed by Ingram and thisalternative cause of action could not have been maintained by him.
Let me now assume, for the purpose of argument, that the DistrictJudge was correct in finding that none of the monthly and weeklystatements were sent by post by the defendant-bank to the plaintiffbut were delivered personally by Abeywickrema to Ingram : what is thelegal consequence of such failure ? It is in evidence that PaulFernando, Chief Accountant and his Assistant Lionel Fernando wereaware and their predecessors in office should also have been aware ofthe fact that the bank statements were not coming by post but weredelivered by Abeywickrema to Ingram, who in turn brought them to thecompany. It is highly significant that throughout the period of 1 2 yearsfrom 1956 to 1968 there was no protest by the plaintiff-companyagainst this personal delivery of bank statements to Ingram. In itsplaint the planintiff stated that the defendant-bank was under a dutyarising from agreement, practice and/or course of dealing to sendcorrect weekly statements of accounts to the plaintiff. The plaint doesnot specify how the weekly statements of accounts were to be sent toplaintiff whether by post or through a representative of the company.The defendant-bank's position was that it normally sent its statementsby post.
Collettes Ltd. v. Bank of Ceylon (Sharvananda. J.)
In answer to issue 8 the defendant-bank has admitted its obligationto send weekly statements of account to the plaintiff. Now thequestion arises whether the only way that the bank could havedischarged its obligation of sending weekly statements was by post orwhether delivery of the bank statements to a representative of thecompany without any protest from the company was a substitutedmode of performing that obligation of sending the monthly statementsand was sufficient. The reference to "practice and/or course of dealingby the plaintiff and the defendant' referred to in the plaint and issue 8,is significant. The fact that the plaintiff never objected to thesubstituted mode of performance by defendant-bank of its obligationtends to show that the plaintiff was satisfied that the defendant-bankshould perform its obligation of sending the weekly statements bydelivering the same to Ingram on behalf of the company and hadwaived the defendant's obligation to send by post and that the plaintiffaccepted the personal delivery by hand of the monthly statements toIngram as proper delivery to itself, perhaps because of the specialstatus accorded to Ingram in the company in connexion with its bankmatters. The defendant-bank was in the circumstances entitled toassume that the company had acquiesced in the bank/its servantstreating Ingram as its accredited representative to receive, on itsbehalf, the statements from the bank. It is relevant to note that theevidence shows that in its dealings with the bank, the plaintiffemployed Ingram to exclusively handle them. In these circumstances itshould be held that by its conduct the plaintiff company acquiesced inthe bank delivery of its statements to Ingram as regular by it and thatthereby the bank discharged its obligation of sending the weeklystatements to it. As the plaintiff-company had approbated the handingover of the monthly statements to Ingram from August 1956 it wouldnot be open now for the plaintiff-company after 12 years to disownthe delivery of the monthly statements to Ingram as improper andallege want of due performance by the defendant of its obligation ofsending the weekly statements of accounts to it.
A waiver or acquiescence must be an intentional conduct withknowledge.
But it was contended that Harasgama, the Managing Director of theplaintiff-company was blissfully not aware that the company receivedthe bank statement through Ingram and that since the Managing
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Director of the plaintiff-company had no knowledge of the receipt byIngram of the bank statements on behalf of the company, thecompany cannot be credited with knowledge of that mode of deliveryof the bank statements. However, the evidence in the case is that PaulFernando, the Chief Accountant and Lionel Fernando, the AssistantAccountant were aware of the receipt by Ingram of the monthlystatements and presumably their predecessors in office in theaccounts section of the company must have also been aware of thatfact. That Ingram was himself bringing the bank statements to theplaintiff-company seems to have been not only well known in theplaintiff-company but was accepted as the regular thing by those inthe plainiff-company whose business it was to receive and scrutinisesuch.documents. Lionel Fernando, an Assistant Accountant of theplaintiff-company to whom Ingram admittedly handed over the allegedbank statements stated that when there was a delay in the receipt ofthe bank statements Paul Fernando did not get in touch with thedefendant-bank, but used to request him to find out from Ingramabout such delays. Assuming that Harasgama was speaking the truth,when he testified that he was not aware of the fact of the receipt byIngram of the bank statements, though it is difficult to believe hisevidence on this point, particularly, for the reason that he did not, forsuch a long period of time, inquire as to how the bank statements ofthe plaintiff-company which the defendant-bank had been speciallyrequested to send weekly from 1962 and not monthly, were not beingreceived by post while the subsidiary companies of Collettes and thecompany's other account No. 22201 were receiving their statementsby post from the defendant-bank, yet in my view the knowledge of therelevant officers or servants of the plaintiff-company who, in thecompany's organisation, were in charge of the company's accounts,namely Paul Fernando and Lionel Fernando and their predecessors inoffice must be attributed to their employer and be deemed in law to bethe knowledge of the plaintiff-company, their employer.
Knowledge of servant, when imputed to employer
It is well settled that the knowledge of an agent will generally beimputed to his principal if the agent received the information inquestion in connection with a transaction in which he is acting for hisprincipal and it is his duty to communicate that information to hisprincipal –
"Where, any fact or circumstance, material to any transaction,business, or matter in respect of which an agent is employed.
Collettes Ltd. v. Bank of Ceylon (Shan/ananda, J.)
comes to his knowledge in the course of such employment, and isof such a nature that it is his duty to communicate it to his principal,the principal is deemed to have notice thereof as from the timewhen he would have received such notice if the agent hadperformed his duty, and taken such steps to communicate the factor circumstance as he ought reasonably to have taken. Providedthat where an agent is a party or privy to the commission of a fraudor misfeasance upon or against his principal, his knowledge of suchfraud or misfeasance, and of the facts and circumstancesconnected therewith, is not imputed to the principal." Bowstead onAgency, 12th Ed. pp. 242 and 243.
Atiyah in his Treatise on "Vicarious Liability in the Law of Torts,"discussing the topic of imputation of knowledge to an employer,states at page 189 –
"It seems that the servant's knowledge will only be imputed to theemployer where the information in question is relevant to the taskbeing performed by the servant, and where it is part of the servant'sduties to take any necessary action consequential on theinformation, or at least to inform his employer of it. Henceinformation acquired by subordinate staff, even if acquired whilethey are actually in the course of performing their duties, does notnecessarily fall to be treated as known to the employer. However inthe case of companies and other corporations, knowledge ofdirectors and managers and other "responsible officials" is normallytreated, in accordance with modern principles of company law. asthe knowledge of the company itself and this is probably soirrespective of the circumstances in which the knowledge isacquired, so long as it is in connection with the company's businessin some way or other."
Lord Parker, L.J., in John Henshal (Quarries) Ltd. v. Harvey (14)expressed the view that –
"There is fundamentally no difference between a master who is anindividual and a master who is a limited company, save that in thecase of a limited company their knowledge must be the knowledgeof those whom, in the case of H. L. Bolton (Engineering) Co. Ltd. v.T. J. Graham & Sons Ltd. (15) Denning, L.J., referred to as thebrains of the company. There is no doubt there are many caseswhere somebody who is in the possession of the brains-may be adirector, managing director, the secretary or a responsible officer ofthe company – has knowledge, his knowledge has been held to bethe knowledge of the company."
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In Applebee v. Percy (16) Lord Coleridge, C.J., said –
“Where a certain business or the performance of a certain duty isdeputed to a servant, a notice to the servant so acting is a notice tothe master, because he has placed the servant in his stead torepresent him quoad that particular business or duty."
In Stiles v. Cardiff Steam Navigation Co. (17) Crompton, J., said –
"I quite agree that the knowledge of a servant representing hismasters and acting within the scope of their delegated authoritymay be competent to affect his masters with that knowledge."
and Shee, J., said –
"Corporations are in this respect in no different position fromprivate owners ; and if it could be shown that the mischievouspropensity of the dog was known to any person having the controlof the business, or of the yard, or even of the dog, or whose duty itwould be Jo inform the company of what the dog had done, it mightdo."
In Penhallow v. Mersey Docks and Harbour Board (18) Blackburn,
J., said –
"If a Corporation cannot know anything except by its servants, itwould seem that the Corporation must be liable for the knowledgeof its servants and acts of its servants or not liable at all."
In Sunlife Assurance Co. of Canada v. W. H. Smith & Son Ltd. (19)Greer, L.J., said –
"A company of course is, as a person, incapable either of beinginnocent or guilty, but has only a persona; for by theory and law itmust act by an agent. When the question is as to a libel which hasbeen disseminated or published to some member of the public by acompany or an individual whose business it is to exhibit documentssimilar to that which contained the libel in question, then you willhave to consider, was the dissemination innocent ; and if acompany leaves it to one of its salesman to sell a paper, or to one ofits salesman to exhibit on his stall an invitation to buy a paper, it isjust as much responsible for the state of mind the agent has whenhe disseminated the defamatory matter as if it was there itself as. aperson exhibiting the poster or selling the paper, as the case maybe."
Collettes Ltd. v. Bank of Ceylon (Sharvananda, J.)
In Dodwell & Co. Ltd. v. John (20) the Manager of theplaintiff-company drew upon the plaintiff-company's banking accountfour cheques and delivered the same to defendants who werepartners of the firm of E. John & Co. carrying on business as share andproduce brokers. The Manager had no authority to draw cheques forhis private transactions. The Trial Court held that the defendants werenot personally aware that they had received among the items paidover to them for the purchase of the shares which they bought forWilliams, the aforesaid Manager as his brokers, cheques fraudulentlydrawn on the plaintiff's funds and that they took the cheques honestlywithout noticing the names of the drawers and without thinking ofthem as in a different position from the other cheques received in thecourse of their transactions with him. The Privy Council however heldat page 208 –
"But it is obvious that the appellants' (defendants') clerks, whobrought the cheques to the partners for endorsement, must haveseen’that the name of the drawers was that of the respondents (theplaintiff-company). However little the clerks may have known ofWilliams's (the Manager of the plaintiff-company) real transactionsand however innocently the cheques were brought and endorsed,the knowledge of the names on the part of the clerks was theknowledge of the appellants (the defendants)."
In the present case the knowledge of Paul Fernando, the ChiefAccountant and that of Lionel Fernando Assistant Accountant andtheir predecessors in office who were the plaintiff's responsibleofficials in charge of the accounts of the plaintiff-company must beregarded as knowledge of the plaintiff-company and their knowledgeshould be attributed to their employer, the plantiff-company. In thisview of the matter the company should be held to have been awarefrom 1956 of the delivery to Ingram of the bank statements and tohave acquiesced in such delivery to Ingram as respresentative of theplaintiff-company, by the Bank in the discharge of its obligation ofsending its weekly statements of accounts to the plaintiff.
"If a person having a right and seeing another about to commit, or inthe course of committing an act infringing upon that right, stands by insuch a manner as really to induce the person committing the act, andwho might otherwise have abstained from it to believe that he assentsto its being committed, he cannot afterwards be heard to complain of
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the act. This is the proper sense of the term 'acquiescence', and inthat sense may be defined as quiescence under such circumstancesas that assent may be reasonably inferred from it, and is no more thanan instance of the law of estoppel by words or conduct" Per Thesiger,L. J., in De Bussche v. Alt (21).
"If a man, either by words or by conduct has intimated that heconsents to an act which has been done, and that he will offer noopposition to it, although it could not have been lawfully donewithout his consent, and he thereby induces others to do that fromwhich they otherwise might have abstained, he cannot question thelegality of the act he has so sanctioned, to the prejudice of thosewho have so given faith to his words or to the fair inference to bedrawn from his conduct… I am of the opinion that, generallyspeaking, if a party having an interest to prevent an act being donehas full notice of its having been done, and acquiesces in it, so as toinduce a reasonable belief that he consents to it, and the position ofothers is altered by their giving credit to his sincerity, he has no moreright to challenge the act to their prejudice, than he would have hadif it had been done by his previous license” Per Lord Campbell, L.C.in Caimcross v. Lorimer (22). This passage was quoted withapproval by the Privy Council in Sarat Chunder Dey v. Gopal ChunderLaha (23).
An acquiescence is not a question of fact, but of legal inferencefrom facts found. In view of the inference that the plaintiff-companyshould be deemed to have been fully aware that the defendant-bankwas handing over the bank statements to Ingram by way ofdischarging its obligation to send the documents to the plaintiff, andh&d acquiesced in such discharge of the obligation, plaintiff is nowestopped by twelve years of acquiescence from complaining that thedelivery to Ingram is wrongful; it is bound by such performance.
The proposition of law enunciated in Spencer Bower – Estoppel byRepresentation (2nd Ed.) pp. 261-262-as applied to the facts of thepresent case may be re-formulated thus-
"Where the plaintiff-company has a legal right to due delivery ofthe weekly bank statements which has been infringed over a periodof years by defendant-bank under the mistaken belief that the Bank'sacts of delivering to Ingram are not infringements of plaintiff's rightsat all and plaintiff is all the time aware of its own legal rights in thematter and of the bank's infringement of that right and the bank's
Collettes Ltd. v. Bank of Ceylon (Sharvananda, J.)
erroneous belief that it is not in any way infringing on plaintiff's legalrights but exercising rights of its own and yet with that knowledge,the plaintiff so conducts itself or so abstains from objection, protestor other action as to foster or maintain the erroneous belief in thebank and thus induces the bank to continue in such course ofconduct on the faith of the plaintiff's inaction, then the plaintiffcannot be permitted afterwards to assert its own rights or contestthe bank's right to have delivered the bank statements throughIngram."
Counsel for the plaintiff-appellant has protested that the plea ofestoppel arising from acquiescence was not pleaded in the answer norraised in the issues and therefore should not be entertained by us. ButI find that the trial Judge dealt with the issue of plaintiff's acquiescencewhen he posed to himself the question "Was there such a course ofconduct known to the Chief Executive Harasgama and acquiesced inby him ? Was the bringing of statements by Abeywickrema to Ingramknown to Harasgama ? Harasgama says 'No'. I believe him. Was heacquiescing in its coming into Collettes by any process other than thepost ? There is no evidence to that effect," and answered "In my viewthe effort made to lead me to the inference that Ingram's removal ofthe Bank statements and Harasgama's acquiescence fails." In view ofthe District Judge's answer to the plea of acquiescence Counsel forthe defendant-bank is entitled to canvass in the Appeal Court thecorrectness of the Judge's finding on the question of estoppel byacquiescence and I hold that the Judge has not looked at the questionin the correct perspective and has therefore erred in his answer to thequestion of acquiescence.
Scope of servant's authority – effect of Prohibition
The evidence shows Abeywickrema was working in the ForeignDepartment of the defendant-bank as a Ledger clerk from 1955-57and was working in the Loan Department from 1957-62, as aclerk-in-charge of bank investments, guarantees and security and from1962 to June 1966 again in the Foreign Department as aclerk-in-charge of checking export documents. Then he wastransferred to York Street Branch on 15.6.1966 and worked onLedger No. 8 where the plaintiff's account was, from June-September1966. He again worked in No. 9 Ledger from 11.6.68 to 23.8.1968(plaintiff's account was in this Ledger during this period). He was senton relief panel on 24.8.1968 and worked in the Savings Department,Foreign Department in Moratuwa and Maradana branches.
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Amerasinghe was also working with Abeywickrema from12.8.1965 and he succeded Abeywickrema as LedgerClerk-in-Charge of plaintiff's account on 23.8.68 right up to 28.11.68when Ingram's fraud was discovered. According to the Trial JudgeAbeywickrema went out of his way to pilfer plaintiff's bank statementswhen he was not in charge of plaintiff's account and later when hewas in charge of plaintiff's account during the two periods June 1966to September 1 966 and June 1968 to August 1 968 he fraudulentlyhanded them over to Ingram ; and Amerasinghe when he was theLedger Clerk-in-Charge of plaintiff's accounts between August toNovember 1968 on the advice of Abeywickrema, handed over thebank statements to Abeywickrema to be delivered to Ingram. Theplaintiff states that both Abeywickrema and Amerasinghe, theservants of the defendant-bank had fraudulently and/or negligently,acting in the course of their employment and within the scope of theirauthority, issued the bank statements to Ingram, and that the bank isin law liable for the fraudulent acts of the said servants. Thus thedefendant-bank is sought to be made liable vicariously. The trial Judgehas held that the extraction of genuine bank statements byAbeywickrema and Amerasinghe and delivery of same to Ingram wasnot an act done in the course of their duties, and that the bank washence not liable for their said acts. The District Judge has however,held that during the period Abeywickrema was the Ledger Clerk fromJune 1966 to 19th August 1968, he was preparing false statementsin the course of performance of his duties and that the bank wasthereby implicated. The plaintiff has conceded in this court that thisconclusion cannot be supported and I have already held, supra, thatthis finding that Abeywickrema prepared the false statements isuntenable ; hence the defendant-bank cannot be cast in liability on thisground.
Counsel for the plaintiff-appellant however persisted in contendingthat the defendant-bank was vicariously liable as employer for thealleged acts of Abeywickrema and Amerasinghe in handing over thebank statements to Ingram.
For the defendant-bank to be liable for the acts of Abeywickremaand Amerasinghe they must have been committed fraudulently orotherwise in the course of and within the scope of their employmentas Ledger Clerks under the defendant-bank.
Collettes Ltd. v. Bank of Ceylon (Sharvananda, J.)
The Bank of Ceylon Manual of Operations P 253/D 56 sets out therules of the bank for the despatch of their monthly or weeklystatements to their constituents. It sets out:
End of Month Despatch of Statements
'The statements will be initialled by the Ledger Officers after checking them againstthe end of the month's Trial Balance and passed over to Adjuster for despatch to thecustomers. The Adjuster will obtain a certificate of despatch of statements duly signedby the Ledger officer, clerk enclosing and the post clerk.
Daily or Weekly Despatch of Statements
"The Adjuster will be responsible for the sending out of these statementsalso . . . The Adjuster will secure the necessary clerical assistance for the enclosure ofstatements into envelopes. As far as possible those allotted to this duty must not beconnected to the current accounts department. . . The Ledger officer intials theseafter verification of the balance and sends them in a book maintained for the purpose tothe post clerk. The latter initials for the number of statements received by him afterdespatch to the customers by post."
Statements that are handed over to customers directly over the counter or to theirauthorised representative are entered in a book maintained for the purpose by theLedger Officers and sent to the cheque book clerk to be initialled by him and handedover to the customers on identification."
The Bank rules relating to Ledger operation (D 46) set out the dutiesof the Adjuster as follows :
'The responsibility for the despatch will come under an independent officer who willbe called the 'Adjuster'. In regard to this aspect of the duties he performs, in a largeoffice there will be no difficulty in selecting an officer unconnected to current account toperform this duty in addition to other work. In a small office the Manager himself willperform the duties of an Adjuster."
From the bank rules (P253/D56 and D46) it is clear that the bankhad a definite purpose in keeping the Ledger Officer in charge of thecurrent account at a distance away and unconnected from the officeof the Adjuster who was responsible for the sending out of the weeklystatements of the bank. The bank attached great importance to thefact that the responsibility for the despatching of the statements cameunder an independent officer called Adjuster who had no connectionwith the current accounts. In its scheme of distribution and definitionof duties the bank was very particular that the office and duties of theLedger Clerk were distinct and removed from the office and duties ofthe Adjuster. In fact the Adjuster was purposefully kept remote fromthe Ledger Clerk. It was not a case of the Ledger Clerk being merely
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prohibited from having anything to do with the despatch by post of theweekly statements to the customers. It was a case of delimitation ofthe area of his work and duties, so that if the Ledger Clerk purported todo any part of the Adjuster's work he did something which did notcome within the scope of his employment and which was outside hisemployment. As far as despatch of weekly statements by post wasconcerned, as the trial Judge has rightly observed he was an"outsider" and the bank was not bound by his actions. However, theLedger Clerk was permitted to hand over the weekly statements to acustomer or to the agent of the company who has been authorised bythe company (an authorised representative)
Abeywickrema has in evidence referred to the bank rule that "thestatements that are handed over to customers directly over thecounter or to their authorised representative are entered in a bookmaintained for the purpose by the Ledger Officer and sent to thecheque-book-clerk to be initialled by him on identification and addedthat Ledger Clerks deviate from the rule, and that in most cases theManaging Director of the company does not come to collect thestatements but sends the person who comes to deposit the money tocollect the statements and in practice it is accepted, and that he hadgiven such statements not only in Collettes' case but also in the caseof other companies to whose representatives the statements werehanded over and that it was the normal practice. He also claimed thathe had authority to give statements to persons who he thought hadthe right to receive them.
Mr. Loganathan, the General Manager of the defendant-bank hasstated in evidence that an authorised representative of the customerwas entitled to ask for those statements of accounts and that"authorised" means authorised to ask for a specific statement orauthorised for a specific occasion or on standing instructions ; for aspecific statement a writing is necessary ; where there is express orimplied authority it is not necessary; it is like the customer himselfcoming and getting it; it depends on the circumstances."
In order to determine whether the proved act of negligence or fraudon the part of a servant is within or without the scope or course of hisemployment, it needs to be pointed out that it is not enough to decidewhether or not what was done was prohibited conduct. Theprohibition may either limit the scope of his employment or merelyregulate his conduct within the sphere of his employment. "There are
Collettes Ltd. v. Bank of Ceylon (Sharvananda, J.j
prohibitions which limit the sphere of employment, and prohibitionswhich only deal with the conduct within the sphere of employment."Per Lord Dunedin in Plumb v. Cobden Flour Mills Co. Ltd. (24). In theformer case, the employer will not be liable, in the latter he will.Express prohibition of the wrongful act is no defence to the employer,if that act was merely a mode of doing what the servant was employedto do An example of this kind is Limpus v. London General OmnibusCo. (25) where the defendant company was held liable for an accidentcaused by the act of one of its drivers in driving across the road so asto obstruct a rival omnibus. It was held to be no defence that thecompany had issued specific instructions to the drivers not to racewith or obstruct other vehicles. The driver whose conduct was inquestion was engaged to drive and the act which did the mischief wasa negligent mode of driving for which his employer must answer,irrespective of any authority or of any prohibition.
Another example of the kind is Canadian Pacific Railway v. Lockhart(26) where a servant in disregard of a written notice prohibitingemployees from using private-owned motor cars for the purpose ofthe company's business unless they were adequately protected byinsurance, used his uninsured private motor car for the purpose ofcarrying out his duties, and the employers were held liable on theground that an order to employees not to use uninsured cars merelylimited the way in which the work was to be performed, so that theliability of the employer was not excluded if damage is caused whenthe order is disobeyed. In the course of his judgment, Lord Thanbertonat page 468 said
"If the prohibition had absolutely forbidden the servant to drive hismotor car in the course of his employment, it might well have beenmaintained that he was employed to do carpentry work and not todrive a motor car, and that, therefore, the driving of a motor car wasoutside the scope of his employment, but it was not the acting asdriver that was prohibited, but the non-insurance of the motor car, ifused as a means incidental to the execution of the work which hewas employed to do." Per Lord Thankerton in Canadian PacificRailway Co. v. Lockhart, (supra)
An example of the other kind is Twine v. Bean's Express Ltd. (27),where the employers had expressly instructed their drivers not to allowunauthorised persons to travel on their vehicles and affixed a notice to
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this effect on the driver's van. Despite this, the driver gave a lift to aperson who was killed by reason of the driver's negligence. The Courtof Appeal held that he was acting outside the scope of hisemployment and accordingly his employers were not liable. The act ofgiving a lift to an unauthorised person is not merely a wrongful modeof performing an act of a class which the driver is employed to performbut the performance of an act of a class which he was not authorisedto perform at all and hence he was acting outside the course or scopeof his employment. Where a servant acts outside the course of hisemployment he ceases pro hac vice to be a servant; an act donesolely for the servant's own interests and purposes, and outside hisauthority is not done in the course of his employment, even though itmay have been done during his employment.
The fact that the servant disobeys the orders of his master does notnecessarily mean that he acted outside the course of his employment.The distinction is between an order which limits the scope of theemployment, the disobedience to which means that the servant is notacting in the course of his employment and an order which limits themethod in which the duties of the servant may be performed thedisobedience to which does not mean that the servant is actingoutside his employment. Once a prohibition is properly treated asdefining or limiting the scope of the employment, any action ofdisobeying thereof does not constitute a mode of performing an actbut is a performance of an act which the servant was not employed toperform.
One matter which may be relevant, in considering the effect of anexpress prohibition is the reason for the prohibition. If the only reasonfor the prohibition is that the master wishes, by this means to escapevicarious liability for his servant, it is not likely to succeed. In CanadianPacific Railway v. Lockhart (supra)the only reason for the prohibitionwas that the employer wished to avoid liability and it was there heldthat the prohibition did not have the desired effect. A prohibition whichindicates what the servant is employed to do will exempt the masterfrom liability for acts done outside the prohibited realm. But one whichlimits the mode of "performance" leaves the master liable. In thepresent case it appears to me the defendant-bank had, in its schemeof work, a definite purpose in excluding the Ledger Clerks from thearea of work assigned to the Adjuster The Ledger Clerk's area of workwas restricted to the preparation of the monthly statements and hehad to hand over the prepared statements to the Adjuster to be
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posted. The prohibition against the Ledger Clerk transgressing into theAdjuster's duty of getting the statements posted, thus relates to thescope of employment of the Ledger Clerk and not to the mode ofperformance of his duty. The District Judge has correctly observedthat "it will be seen from the instruction (P56) that the personnel in thecurrent accounts departments are to be eliminated from the duty of
enclosing the statements in envelopesand above all that this
duty of despatch or delivery is to be held by a special officer."
When Abeywickrema handed over bank statements to Ingram whilehe was not functioning as a Ledger Clerk in charge of plaintiffsaccounts he did something so remote from his duties as to bealtogether outside and unconnected with his employment. Such actsof Abeywickrema therefore Should be regarded as outside therelationship of master and servant and as that of a stranger
In Story on Agency, the learned author states in section 452-
"The general rule is that the principal is liable to a third person in acivil suit 'for the frauds, deceits, concealments, misrepresentations,torts, negligence and other malfeasances or misfeasances andomissions of duty of his agent in the course of his employment,although the principal did not authorise, or justify or participate in, orindeed know of such misconduct, or even if he forbade the acts ordisapproved of them."
He then proceeded in section 456 :
"But although the principal is thus liable for the torts andnegligence of his agent, yet we are to understand the doctrine withits just limitations that the torts or negligence occur in the course ofthe agency. For the principal is not liable for torts or negligence ofhis agent in any matters beyond the scope of the agency, unless hehas expressly authorised them to be done or he has subsequentlyadopted them for his own use and benefit.'
These passages from Story we're quoted with approval by LordMacnaghten in Lloyd v. Grace. Smith & Co. (28) where the House ofLords held that the principal is liable for the fraud of his agent's actwithin the scope of his authority, whether the fraud is committed forthe benefit of the principal or for the benefit of the agent.
Counsel for the appellant relied heavily on the case of UxbridgePermanent Benefit Building Society v. Pickard (29) where it was heldthat the defendants, a firm of solicitors were liable for the fraud of their
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Managing Clerk in purporting to negotiate a mortgage for anon-existent property with forged title deeds. As in Lloyds case(supra) the clerk had full authority to conduct the business of asolicitor’s office in the name and on behalf of its principal. It was notwithin his actual authority to commit a fraud but it was within hisostensible authority to perform the acts of the kind that came withinthe business conducted by a solicitor. The Managing Clerk put incharge of that office was unquestionably given, in fact full authority toconduct the business of a solicitor’s office, on behalf of and in thename of his principal. That authority would cover, not merely acting forclients but also carrying through all transactions which would normallybe carried through by a solicitor. So long as he was acting within thescope of this class of action, his employer was bound, whether or notthe clerk was acting for his own purposes or for his employer’spurposes. In the course of his judgment Greene, M. R. said at page348 :
"In the case of a servant who goes off on a frolic of his own, noquestion arises of any actual or ostensible authority upon the faith ofwhich some third person is going to change his position. The veryessence of the present case is that the actual authority and theostensible authority. . . . were of a kind which, in the ordinarycourse of an everyday transaction, was going to lead to third
persons, on the faith of it, changing their positionThat is
within the actual and ostensible authority of the clerk. It is totallydifferent in the case of a servant driving a motor car, or in cases ofthat kind, where there is no question of the action of third partiesbeing affected in the least degree by any apparent authority on thepart of the servant."
In the Uxbridge case, the third party was dealing with a ManagingClerk occupying the position of the principal whose authority to dealwith the third parties was not denied. But where the issue is one ofactual authority or total absence of authority, the case gives nosupport for an argument that authority need not be proved.
If a servant is expressly prohibited from doing an act he cannot betreated as having either express or implied authority to do the act inquestion. If therefore the servant commits a tort in the course of doinga wholly prohibited act he will not, prima facie, have been doing anauthorised act and the master will not be liable. However a prohibitioncannot affect a servant's ostensible authority unless it is known to the
Collettes Ltd. v. Bank of Ceylon (Sharvananda. J.)
other party. 'The essence of ostensible authority is that the employer,by his words or conduct, represents to third parties that his servanthas authority to perform certain types of acts on his master's behalf,and once the third party has acted on the faith of that ostensibleauthority, the master is not entitled to deny that the servant in truthhad the authority. It is, in short, a form of estoppel by representation."Atiyah at page 234.
In the Uxbridge case, the third party had relied on the ostensibleauthority of the clerk who was put in charge of the plaintiff's businessand hence having full authority to conduct the business of a solicitor'soffice on behalf of and in the name of his principal. But in the presentcase there is no evidence that the plaintiff or Ingram relied on anyostensible authority of Abeywickrema to hand over the monthly bankstatements or changed their positions upon the faith of it, nor is thereevidence of any representation made by the defendant-bank thatAbeywickrema did have the authority to deliver the bank statementswhen he was not working as a Ledger Clerk in charge of plaintiff'saccounts. "The whole foundation of liability under the doctrine ofostensible authority is a representation believed by the person towhom it is made, that the person claiming to contract as agent for aprincipal has the actual authority of the principal to enter into thecontract on his behalf." Per Lord Diplock in Metropolitan PoliceCommissioner v. Charles (30) ; vide also similar enunciations of thelaw in Freeman and Lockyer (a Firm) v. Buckhurst Park Properties(Manga!) Ltd. (31) at page 641 by Pearson L. J., and at 646 byDiplock, L. J.
In the above circumstances the defendant-bank cannot be heldliable for the pilfering of bank statements and the unauthorised issue ofthem to Ingram by Abeywickrema during the periods when he was notfunctioning as a Ledger Clerk, in charge of plaintiff's account, as theseacts were not done in the course of his employment. The defendantwill not be liable also for the issue of the bank statements byAmerasinghe to Abeywickrema after Abeywickrema left the YorkStreet Branch of the defendant-bank, to be handed over to Ingram ashe had no authority to do so. The bank rule (D 56) did notcountenance such handing over as Abeywickrema did not purport tobe an authorised representative of the plaintiff. But the same cannotbe said of the issue of bank statements by Abeywickrema to Ingramduring the two spells namely June-September 1966 and 11.6.1968to 23.8.1968, when Abeywickrema was functioning as Ledger Clerk
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working on plaintiff's accounts. It would appear from the above rulesthat Abeywickrema had, during this period, authority to hand overbank statements to the plaintiff-company or to its accreditedrepresentative. If he had negligently, fraudulently or otherwise wronglyassumed that Ingram was an authorised representative of theplaintiff-company and had delivered to him the bank statements, thebank will be liable for such mistaken or wrong exercise or performanceby its officer of his duties.
In the recent case of Kooragang Investments Pvt. Ltd. v.Richardson & Wrench Ltd. (32) the Privy Council stated that indetermining whether an act done by a servant or agent was done inthe course or within the scope of his employment in cases where therewas no dealing by the injured third party with the servant or agent andwhere the issue was one not of ostensible authority but of actualauthority or total absence of authority. It was necessary in order torender the master liable, to prove that he had authorised the act, andauthority could not be inferred from the fact that the acts done were ofa class which the servant or agent was authorised to do in themaster's behalf. In this case the evidence was that the servant, avaluer, did valuations for a group of companies during a period whenhe was ordered by his employer not to do business with them and itwas clear that he had no authority to make the valuations in questionand in making them had acted totally outside the course and scope ofhis employment.
In the case of United Africa Co. Ltd. v. Saka Owoade (33) (cited byplaintiff) a transport contractor introduced to the appellants two menrepresenting them as his driver and clerk and stated that when theappellants had goods to be carried they should be given to the twomen. Goods were given by the appellants to one of the two men forcarrying. But the goods were never delivered. The Privy Council heldthe contractors liable because fraud was committed in the course ofthe servants' employment and the true inference from the facts wasthat the conversion of the goods was done within the course of theservants' employment.
In London Country Council v. Cattermoles (Garages) Ltd (34)(relied on by Plaintiff) the defendant who was the owner of a garageemployed 'P' in the garage to assist in moving cars, so as to make wayfor other cars. 'P' had no driving licence and he was forbidden to drivevehicles The defendant was held liable for the man's act ; in driving
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the van into the highway so as to back it into the garage, clear of theaccess to the petrol pumps lying on the ground, he was doing an actwithin the scope of his employment, though he was doing it in anunauthorised way. Although it was illegal for 'P' to drive on thehighway as he had no licence the fact that the accident occurred whenhe took the van off the garage premises on to the highway did notaffect the result. "Where the servant is doing some work which he isappointed to do, but does it in a way which his master has notauthorised and would not have authorised, had he known of it, inthese cases, the master in nevertheless, responsible." Per LordPhillimore delivering the judgment of the Privy Council in Goh ChoonSeng v. Lee Kim Soo (35).
Counsel for the defendant-respondent invoked also the principleenunciated in Biggar v. Rock Life Assurance Co., (36) to resist theclaim against the bank for the alleged fraud of its officersAbeywickrema and Amerasinghe.
"His conduct (the agent's) in this case was a gross violation ofduty, in fraud of his principal, and m the interest of the other party.To hold the principal responsible for his acts, and assist in theconsummation of the fraud, would be monstrous injustice. When anagent is apparently acting for his principal, but is really acting forhimself or third persons and against his principal, there is no agencyin respect to that transaction, at least as between the agent himself,or the person for whom he is really acting, and the principal. . . .The fraud could not be perpetrated by the agent alone. The aid ofthe plaintiff or the insured, either as an accomplice or as aninstrument, was essential. . . " (p 525). "The power of the agentwould not be extended to an act done by him in fraud of thecompany and for the benefit of the insured." (p. 525).
Here in this case 'T signed the proposal form, riddled with falsestatements invented by 'Y an agent of the defendant-insurancecompany without reading and he was held disentitled to recover onthe policy on the ground that 'Y' invented the answer having reallyacted not as an agent for the company, but as an agent for 'Z'.
In my view the principles of this case would not apply if the wrongfulacts of Abeywickrema and Amerasinghe were (according to theplaintiff's case) not done for the benefit of the plaintiff-company, butfor the benefit of Ingram who, according to the plaintiff, was not
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collecting the statements as agent for the plaintiff-company. But asAbeywickrema and Amerasinghe acted in the transaction to helpIngram, the issuing of the statements to whom, according to myfinding, was acquiesced in, by the plaintiff-company, the plaintiffcannot, according to this principle, claim against the defendant-bankon the basis of the fraudulent acts committed by defendant's agentsor servants.
Remoteness of Damages – Novus Actus Interveniens
"Negligence alone does not give a cause of action , damage alonedoes not give a cause of action. The two must co-exist." PerReading, C.J. in, Monday v. London County Council (37) cited withapproval by Lord Simon in East Suffolk Rivers Catchment Board v.
Kent, (38)."
It is not the act but the consequences on which tortious liability is
In cases of negligence, damages can only be recovered if the injurycomplained of, not only was caused by the alleged negligence but wasalso injury of a class or character foreseeable as a possible result of it.(Vide Overseas Tankship (U. KJ v. Morsts Docks & Engineering Co. TheWagon Mound No. 1 (39) Hughes v. Lord Advocate, (40). "Theessential factor in determining liability is whether the damage is ofsuch a kind as the reasonable man should have foreseen"
"In the law of negligence the test of whether the consequenceswere reasonably foreseeable is a criterion alike of culpability and ofconsequences."
Per Viscount Symonds in the Wagon Mound No. 1 (1961) 1 All E.R.404 at 415 (supra).
It is not for every consequence of a negligent conduct that a man isresponsible in law. The guiding principle is that though the negligenceof the defendant may have been one of the inducing causes leading upto the damage (a cause without which damage would not have beensuffered-causa sine qua non), he will not be liable unless it was the"actual", "effective", "proximate" cause (causa causans) in the sensethat he was blameworthy in being the cause of the plaintiff's damage.The defendant would not be liable, even though his negligence hadbeen proved, if such negligence did not proximately cause thatdamage. The defendant's negligence should have actually caused the
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damage – vide Macintosh and Scoble on Negligence in Delict, 5th Ed.at 77. Lord Wright in Mclean v. Bell (41) said “The decision howeverof the case must turn, not simply on causation, but, on responsibility."
At one time the law was that unforeseeability was no defence (RePolemis and Furness Whithy & Co. Ltd. (42), but the law now is thatthere is no liability unless the damage is of a kind which is foreseeable.The Wagon Mound No. 1 (supra). The liability for damage today isthus based on the concept of foreseeability. The damage should havebeen foreseen by a reasonable man as being something of which therewas a real risk, unless the risk was so small that the reasonable manwould feel justified in neglecting it.
Although in the law of Negligence the duty to take reasonable carewas confined to reasonable, foreseeable dangers, the fact that thedanger that actually materialised was not identical with the danmgerreasonably foreseeable did not necessarily result in liability not arising.The Wagon Mound case (No. 1) seeks only to bar recovery of anunforseeable type of damage. If the damage be of a type that isforeseeable, then recovery is still available, even if the degree ofdamage is unforeseeable or if the precise manner in which the damageoccurs is unforeseeable. Even if the plaintiff proves every otherelement in tortious liability he will lose his action if the harm which hehas suffered is too remote a consequence of the defendant's conduct.Damage may be too remote because it is not in the view of the lawcaused by the wrong. Hughes v. Lord Advocate (supra).
"Between the act of the wronged doer and the final harmfulconsequences there may intervene either the act of some personor… . some natural force which makes such a contribution to theultimate result as to immunize the wrog doer's act and, in effect,insulate it from the result complained of. Where such an interveningforce becomes a superseding force so as to exonerate thewrong-doer from liability, the latter is entitled to base his defence onthe maxim novus causa interveniens." Macintosh andScoble – Negligence in Delict 4th Ed. 67.
If the intervening act of a third party be malicious or of an intentionalcharacter, then it does become a superseding cause, unless thewrongdoer should have realised and appreciated the likelihood of itsoccurence by reason of the situation created by him – a new cause isnot to be regarded as independent if its intervention was a risk inherentin the situation created by the defendant's act.
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Onus of Proof
Before enlarging on the subject of remoteness of damage it isrelevant to consider the question of onus of. proof. Lord Sumner in S.
S. Singleton Abbey v. S. S. Paludina (43) said "that the plaintiff mustshow that a particular item of damage is not too remote before he canrecover it." Similar statements appear in the judgments of the Court ofAppeal in The Paludina (44) by Bankes, Scrutton & Atkin L. J Jrespectively. In the 'Oropesa' (45) Langton J., treated the onus asbeing on the plaintiff and Lord Wright in the Court of Appeal (TheOropesa (46)) agreed entirely with his judgment. On the other hand, ithas been said by Lord Haldane & Lord Dunedin in Canadian PacificRailway Company v. Kelvin Shipping Company Limited (4 7) that thedefendant must show that a particular item of damage is too remote ifhe is not to be held liable for it. These various dicta were considered byLord Merriman P., in The Guildford (48) and without attempting toresolve the divergence of opinion in the House of Lords, he favouredthe view that it was the plaintiff's onus.
In Me Williams v. Sir William Arrol & Co. (49) Viscount Kilmuir, L.C.said at page 626 :
"The necessity, in actions by employees against their employers ongrounds of negligence, of establishing not only the breach of dutybut also the causal connection between the breach and the injurycomplained of is in my view part of the law of both England andScotland".
And Viscount Symonds said at page 628 – "I do not doubt that it isa part of the law of Scotland as it is part of the law of England that acausal connection must be established between a breach by anemployer of his duty at common law or under a statute and thedamage suffered by his employee."
Since the plaintiff has to prove that the damage that he has sufferedis the "direct", "natural”, "the natural, proximate" consequence of thedefendant's action, I am of the view that the onus of proof even onissues of remoteness is on the plaintiff. Referring to the question ofonus of proof McKerron in his Law of Delict – 6th Ed. at page 128states –
The plaintiff must prove that the damage is traceable to thedefendant's act with reasonable certainty, and is not merely aconjectural result of it. He must further prove that the act was eitherthe cause or a cause, legally responsible for the damage ; in otherwords, that the damage is not too remote."
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"Foreseeability, which involves a hypothetical person, looking withhandsight at an event which has occurred, is a formula adopted byEnglish law, not merely for defining, but also for limiting, the personsto whom the duty may be owed, and the consequences for which anactor may be held responsible." Per Lord Wilberforce – McLoughlin v.O'Brian. (50).
A consequence is too remote if it follows a break in the chain ofcausation or is due to novus actus interveniens. "It is the quality of theact" said Lord Simonds, "which determines the issue, for it is not everyintervening act which breaks what is called the chain of causation. If Ithrow a squib into a crowd, I am liable to the man who is hurt, thoughintervening hands have passed it on. When I speak of the quality of theact, I refer in particular to that aspect of it which I believe to be allimportant in . . . the law of tort, namely whether it is an act which theactor could reasonably have contemplated or foreseen". Woods v.Duncan (51). What is new and independent which could notreasonably be foreseen, is generally a supervening human act. "Ingeneral" said Lord Sumner "(apart from special contracts andrelations and the maxim respondeat superior), even though 'A' is infault, he is not responsible for injury to 'C' which 'B', a stranger to him,deliberately chooses to do. Though 'A' may have given the occasionfor 'B's mischievous activity, 'B' then becomes a new andindependent cause." Consistently with this it was held that if 'A' writesa libel pn 'C', which is published by 'B' over whom 'A' has no control,A' is not liable to 'C Until publication, no tort at all is committed, andwhen publication does take place, it is due to 'B' not to 'A'Weld-Biundell v. Stephens (52). Lord Reid in Me Kew v. Holland &Hannen & Cubitts (Scotland) (53) at 1623 said –
"If a man is injured in such a way that his leg may give way at anymoment he must act reasonably and carefully. It is quite possiblethat in spite of all reasonable care his leg may give way incircumstances such that as a result he sustains further injury. Thenthat second injury was caused by his disability which in turn wascaused by the defendant's fault. But if the injured man actsunreasonably, he cannot hold the defender liable for injury causedby his own unreasonable conduct. His unreasonable conduct isnovus actus interveniens. The chain of causation has been brokenand what follows must be regarded as caused by his own conductand not by the defendant's fault or the disability caused by it. Or onemay say that unreasonable conduct of the pursuer and what follows
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from it is not the natural and probable result of the original fault ofthe defender or of the ensuing disability. I do not think thatforeseeability comes into this. A defendant is not liable for aconsequence of a kind which is not foreseeable. But it does notfollow that he is liable for every consequence which a reasonableman could foresee. What can be foreseen depends almost entirelyon the facts of the case, and it is often easy to foresee unreasonableconduct or some other novus actus interveniens as being quitelikely. But that does not mean that the defender must pay for thedamage caused by the novus actus. "
Again in Home Office v. Dorset Yacht Co. Ltd. (54) at 298 LordReid stated-
"It is said that the respondents must fail because there is a generalprinciple that no person can be responsible for the acts of anotherwho is not his servant or acting on his behalf. . . So the question isreally one of remoteness of damage. And I must consider to whatextent the law regards the acts of another person as breaking thechain of causation between the defendant's carelessness and thedamage to the plaintiff.
There is an obvious difference between a case where all the linksbetween the carelessness and the damage are inanimate so that,looking back after the event, it can be seen that the damage was infact the inevitable result of the careless act or omission, and a casewhere one of the links is some human action. In the former case thedamage was in fact caused by the careless conduct, howeverunforeseeable it may have been at the time that anything like thiswould happen. At one time the law was that unforeseeability was no
defenceBut the law now is that there is no liability unless the
damage was of a kind which was foreseeable. . . .
On the other hand, if human action (other than an instinctivereaction) is one of the links in the chain, it cannot be said that,looking back, the damage was the inevitable result of the carelessconduct. . . Yet it has never been the law that the intervention ofhuman action always prevents the ultimate damage from beingregarded as having been caused by the original carelessness. Theconvenient phrase novus actus interveniens denotes those caseswhere such action is regarded as breaking the chain and preventingthe damage from being held to be caused by the careless conduct.But every day there are many cases where, although one of the
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connecting links is deliberate human action, the law has no difficultyin holding that the defendant’s conduct caused the plaintiff loss. . .What then is the dividing line ? Is it foreseeability or is it such adegree of probability as warrants the conclusion that the interveninghuman conduct was the natural and probable result of whatpreceded it ? There is a world of difference between the two. . .""These cases show that, where human action forms one of the linksbetween the wrong doing of the defendant and the loss suffered bythe plaintiff, that action must at least have been something verylikely to happen if it is not to be regarded as nows actus interveniensbreaking the chain of causation. I do not think that the foreseeablepossibility is or should be sufficient, for then the intervening humanaction can more properly be regarded as a new cause than as aconsequence of the original wrong doing. But if the interveningaction was likely to happen, I do not think that it can matter whetherthat action was innocent or tortious or criminal." (p. 300)
It will have to be shown that the commission of the offence was thenatural and probable, as distinct from merely foreseeable result of thedefendant's wrong. But where a stranger intended to inflict thedamage upon the plaintiff, generally such a wrongful intention on thepart of the stranger-third party will relieve the defendant of liability.That this is not always so can. again be illustrated by cases ofnegligence consisting in a failure to guard against the very act thathappened. In Petrovitch v. Callinghams Ltd. (55) the defendants, whohad been engaged by the plaintiff's husband to carry out decorationson his London house, were held liable for the theft of the plaintiff'sjewellery by a thief who had entered the house through the street doorleft ajar by one of the defendants' painters during the tea break. Seealso Stansbie v. Troman (56) where the theft by a thief was regardedas the kind of thing which was likely to happen ; the defendant washeld responsible on the ground that the act of the third person couldnot have taken place but for the defendant's own fault or breach ofduty.
The dictum of Lord Reid in Home Office v. Dorset Yacht Co. (supra)that "where damage was caused by intervening human action liabilityfor damage should be limited to that which was "likely" or "very likely"was criticised by the Court of Appeal in Lamb v. London Borough ofCamden (57) as being not sufficient since that could still extend thedefendant s liability beyond all reason and lead to bizarre or ludicrousresults. Oliver, L. J. observed that "'likelihood' is a somewhat
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uncertain touchstone" and that "it may be that some more stringentstandard is required. There may, for instance, be circumstances inwhich the court would require a degree of likelihood amounting almostto inevitability before it fixes a defendant with responsibility for the actof a third party over whom he has and can have no control", (p. 418)
Watkins, L. J. thought that reasonable foreseeability should alwaysbe applied without any gloss and suggested that "a robust andsensible approach to this very important area of the study ofremoteness will more often than not produce, I think, an instinctivefeeling that the event or act being weighed in the balance is tooremote to sound in damages for the plaintiff", (p. 421)
The action or default of the plaintiff may thus serve to extinguish hisclaim for damage by reason of the fact that he had acted unreasonablyor unlawfully. His irrational or felonious act may break the chain ofcausation between defendant's wrong and his damages. In thiscontext as between the plaintiff and the defendant each is identifiedwith any third party for whom he is vicariously responsible. The rulethat negligence of a servant in the course of his employment isimputed to his master applies whether the master is the plaintiff or thedefendant. In the instant case, even assuming that the defendant-bankwas negligent in failing to take care of the blank forms, it is manifestthat the loss and damages sustained by the plaintiff by reason of themisappropriation of the amount of Rs. 1,169,240.93 is attributableto the fraud and misappropriation committed by the plaintiff’s ownofficers, chief among whom was, according to plaintiff, Ingram. Thealleged negligence of the defendant-bank might have been causa sinequa non, but it was not sufficient in the circumstances to prevent thefraud of the plaintiff's officers from being the causa causans of theloss. Their fraudulent behaviour provides a glaring example of what ahypothetical reasonable man in the position of the defendant could nothave reasonably foreseen as likely to result from the alleged acts ofnegligence. No bank would reasonably reckon with its customer whois a business-man remaining silent for weeks, months and yearstogether without bringing to its notice that he was not receiving bypost the monthly or weekly statements, if there was such a default. Itis strange behaviour on the part of plaintiff's officers that even in 1962when at the plaintiff's request the arrangements had been altered forthe statements to be sent weekly and not monthly, they chos^to keepsilent about this non-receipt by post of the bank statements. The rulesof fair dealing between man and man impose a duty on a customer
Collettes Ltd, v. Bank of Ceylon (Sharvananda. J.)
vis-a-vis his banker to notify the banker of his objection to thenon-posting of the statements, if the bank had failed to post them. Thedefendant-bank was, in the circumstances entitled to assume in theabsence of such complaint that the plaintiff had no complaint in thematter of the receipt of the statements by it. The defendant could nothave reasonably counted on plaintiff having in its employ ormanagement dishonest or incompetent persons. In any event, thetenuosness of the linkage between defendant's negligence, if any, andthe loss suffered by the plaintiff is so apparent that the plaintiff's claimto connect the two as cause and effect strikes me as far-fetched andfanciful. The loss suffered by the plaintiff is remote beyond the pale ofdefendant's reasonable foreseeability.
In my judgment this is essentially a case in which, as between twoinnocent persons, one of whom must suffer for the fraud of a thirdperson he should suffer who by his conduct or indiscretion hasenabled such third person to commit the fraud or occasion theloss-Vide Lord Halsbury in Henderson v. Williams (58). TheDirectorate of the plaintiff company must be presumed to have knownthe manner in which the administration of their office, was organisedand conducted. It reposed exessive confidence in Ingram and placedhim in the sole charge of its transactions with the defendant-bankwithout exercising any effectual supervision over him – if theallegation is true fthat it did not receive by post thebank-statements – and by acquiescing in his collecting the bankstatements held him out to the defendant as having authority to collectthe monthly or weekly statements and thereby dispensed with thebank sending such statements by post in performance of its obligation.The plaintiff cannot after the lapse of twelve years now be heard to saythat Ingram had no real authority to receive on its behalf the bankstatements and that the defendant had defaulted in its obligation tosend by post the said statements. The plaintiff had, by its conductratified or adopted the delivery of the statements to Ingram on itsbehalf and thereby had induced the defendant-bank to forbeartransmitting the statements by post.
The District Judge has found that the defendant was negligent inthat, it had failed to be careful in the storing of blank forms which wereto be used for its statements. The evidence shows that the fabricatedweekly statements in the possession of the plaintiff company weretyped in forms which had been discarded as far back as 1960 and hadceased to be in use after 1960. The trial Judge has held that
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Abeywickrema had pilferred the blank forms though "there is no directevidence of his doing so”- "since he had opportunities for handlingthem, being an employee of the bank”. He has also held that this act ofpilfering was obviously not done in the course of the performance ofhis duties and that the bank is therefore not liable, as Abeywickremahad stolen the forms and given them to Ingram. But he has held thatthe pilfering by Abeywickrema was possible because of the negligentmanner in which the forms were stored or permitted to be availed ofby anyone, particularly one working in the bank. I cannot appreciatethe rationale of this finding. As a ledger clerk Abeywickrema hasnecessarily to have access to those forms. It would have beenimpossible for the bank to insure against its ledger clerks pilferingthose forms. For the performance of their duties, they had to beentrusted with these forms and it would be well-nigh impossible tohave a check on their disposition of these forms. These forms, bythemselves, are of no value and a bank cannot reasonably be expectedto expend as much care in their preservation as if they were theproperty of third parties. It has to be remembered that the bank wasthe owner of those forms. Pilfering of such property by its employee isbad enough but to make the bank liable for what a thief does with suchstolen property would, in any event, offend the rule of remoteness ofdamage. If somebody steals my revolver from my unlocked drawerand shoots a third person, I cannot be fixed with responsibility for thecrime. Similarly a bank cannot be liable for the forgeries committed bya third party on forms stolen from the bank. It is far-fetched then to saythat the bank facilitated the forgeries-it would be a clear case of novusactus interveniens. Though the trial Judge has come to the finding ofnegligence from the act of pilfering, he has however failed to connectthis negligence to the loss suffered by the plaintiff How the losssuffered by the plaintiff is caused by this item of negligence has notbeen examined by the trial Judge. I agree with the Court of Appealthat, even assuming that the defendant was negligent in the storing ofthe old blank forms, the damage that the plaintiff complains of in thiscase could not have been contemplated as a reasonably foreseeableconsequence of such negligence.
In the Bank of Ireland v. Evans Trustees (59) the trustees who werea corporate body called upon the bank to replace a stock sold under aforged power of Attorney bearing the genuine impression of theircorporate seal. The defence was that the carelessness of the trusteesin the custody of their seal enabled the clerk to impose on the bank
Collettes Ltd. v Bank of Ceylon (Sharvananda. J )
and disentitled them to relief. The court rejected the defence on theground that the negligence, if there was negligence in the custody ofthe seal, was only remotely connected with the transfer which thebank set up as good against the trustee.
" If a man should lose his cheque-book, or neglect to lock the deskin which it was kept, and a servant or stranger should take it up, it isimpossible in our opinion to contend that the banker paying hisforged cheque would be entitled to charge his customer with thatpayment. Would it be contended that if he kept his goods sonegligently that a servant took them and sold them, he must beconsidered as having concurred in the sale, and so be disentitled tosue for their conversion ? " Per Parker,J. at pp. 410, 411.
The District Judge has also held as an item of negligence againstthe defendant that its failure to have periodical inspection ofplaintiffs stock enabled Ingram to carry out the fraud. I agree withAbdul Cader, J. and the Court of Appeal that this finding has nofoundation in law. The rule for periodic inspection was arequirement provided for defendant's benefit, to protect itsinterests. That was a right of the defendant and not a duty owed byit to the plaintiff. Hence failure of the defendant to exercise that rightis not a breach of duty owed to the plaintiff and no question ofnegligence on the part of the defendant arises in the absence of aduty.
The ultimate basis of the trial Judge's finding of negligenceagainst the defendant-bank is the violation by Abeywickrema andother bank officials of the bank's instructions embodied in the bank'sManual of Instructions (D 56) respecting its internal administration ;particularly the manner of delivery of the weekly bank statements ofthe plaintiff company.
The legal position relating to such rules framed by a bank wasconsidered by the House of Lords in the case of Lloyds Bank Ltd. v. E.
Savory & Co. (60) where Lord Buckmaster stated at page 109( [1932] All ER).
"These rules and statements are not a legal measure of the liabilityof a bank. They may fall short, or they may exceed what the courtmay regard as their duty in a particular case, but they afford a veryvaluable criterion of obvious risks against which the bank thinks it istheir duty to guard."
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The question was also considered by Goddard, J. in the case ofMotor Traders Guarantee Corporation Ltd. v. Midland Bank Ltd. (61).
"But it is said, and said with great force, by Mr. Willink, that, if heshows that the officers of the bank did not obey their ownregulations, he goes a very long way to establishing a case ofnegligence. I think it cannot be taken always as a universal principle,because, if the facts showed that the bank cashier had taken everyreasonable precaution to satisfy himself, and that he was satisfiedwith the information he had got, and that the conclusion which hehad been able to draw from that information was such as wouldsatisfy anyone that the bank might safely and properly take thatcheque, I do not see how-it can be said that, because he had notfollowed out to the letter the regulations of the bank, because hehad not submitted it to the Manager's attention directly, the bankwould have been guilty of negligence. . . ."
At page 96 Goddard, J. continued –
"I again say that – I am far from saying that the plaintiffsare
entitled to rely upon a literal performance, or are entitled to require aliteral performance, by the bank of these regulations. The bank doesnot owe a duty to them to carry out this rule, that rule, or the otherrule. Indeed, I doubt whether they owe their own customers theduty of carrying out all the rules which they may lay down ascounsels of perfection. The question in every case is not whetherthe bank requires a particular standard of conduct, but whether theparticular acts which are done are enough to discharge the onuswhich is upon the bank either in respect of their own customer or inrespect of some other customer."
In Orbit Mining & Trading Co. v. Westminster Bank Ltd. (62)Harman, L. J. approvingly referred to the two cases abovementionedand said –
"So far as the Westminster Bank's rules are concerned, I am ofopinion that they are, no doubt counsels of perfection, but the factthey are not always entirely complied with does not convict the bankof negligence, though no doubt where the rules are not kept, thematter needs close attention."
The above dicta emphasise that the rules of a bank are merelycounsels of perfection and that, though they afford valuable criteria ofthe risk against which the bank has to guard against acts done by
Collettes Ltd. v. Bank of Ceylon (Sharvananda. J.)
themselves, they do not constitute a legal measure of the liability of abank and that failure to follow strictly any such rules contained in theManual of defendant-bank's Instructions (D 56), could not by itselfrender the bank negligent.
The District Judge has erred in law in assuming that –
"when Abeywickrema, Amerasinghe and others chose to avoidcompliance with these rules, they were acting negligently" andwhen he reasoned "as far as the periods before and afterAbeywickrema's services in the Ledger Department go, thenegligence of the bank arises from the failure of officials to followimportant instructions with regard to the delivery of statements."
Directing Mind and Will of the Company
We were treated to a very interesting and attractive argument bySenior Counsel for the defendant-bank that the fraud of Ingramcoupled with the misconduct of Samuel, Classen and Wickremasinghemust, in law, be considered to be the fraud of the plaint company asthese officials should be identified with the company. According tohim they constituted "the directing mind and will of the plaintiffcompany"
A company is liable in torts for all the wrongful acts of the persons,who control the management of its undertaking, when they are actingas such. These persons may be the directors collectively, or they maybe merely some of the directors who in fact manage the company'sbusiness, or the governing body may be a single managing director oreven manager who is not a director at all. The court is not bound bythe formal provision of the company's memorandum and articles indiscovering who controls the management of the company'sbusiness; the answer in each case will depend on the way thecompany's affairs are actually managed at the date the tort iscommitted.
The directors and the members in general meetings are the primaryorgans of the company between whom the company's powers aredivided. However in relation to the internal operation of a company,the general meeting, the board of directors and even a ManagingDirector have, in effect, come to be treated as organs of the companyrather than merely as its agents.
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In order to fix a company with liability, the relation of principal andagent or of master and servant must be established between thecorporation and the person who commits the tort, in respect of thetort in question.
In general the wide doctrines of agency and vicarious liabilitydeveloped by English Law enable a company to be held liablewhenever justice so requires. But circumstances can arise when aperson is not held liable unless he himself is personally at fault. Ifapplied strictly to corporate bodies this would mean that in suchcircumstances they would never be held liable. To avoid thisconsequence the courts have evolved the theory that the acts andtorts of certain agencies of a company may be regarded as those ofthe company itself. In effect these agencies are treated as organicparts of the company or as the alter ego of the company, distinct fromthose who are merely employees or servants. The judicialdevelopment of this aspect of corporate personality is traceable to thespeech of Lord Haldane in Lennard's Carrying Co. Ltd. v. Asiaticpetroleum Co. Ltd. (63). In that case a company which owned a shipwas seeking to take advantage of the limitation of liability undersection 502 of the Merchant Shipping Act, 1894. This limitation isavailable only where the injury is caused without the owner's "actualfault or privity." The loss resulted from the default of Leonard, itsManaging Director, and it was argued that the Manager's fault orprivity was not the fault or privity of the company which was the ownerand that it must be the actual persona! fault or privity of the company.It was contended that Lennard, though he had the supreme control ofthe technical management of the ship, was nothing more than theagent or servant of the company and that he did not represent thecompany in the sense of making his fault the fault of the company; inshort that he was not the alter ego of the company. In holding thecompany liable. Viscount Haldane delivering the judgment of theHouse said at pp. 713, 714-
"My Lords, a corporation is an abstraction. It has no mind of itsown any more than it has a body of its own; its active and directingwill must consequently be sought in the person of somebody whofor some purposes may be called an agent, but who is really thedirecting mind and will of the corporation, the very ego and centre ofthe personality of the corporation – …. If Mr. Lennard was thedirecting mind of the company, then his action must, unless acorporation is not to be liable at all, have been an action which was
Collettes Ltd. v. Bank of Ceylon (Sharvananda. J.)
the action of the company itself within the meaning of section 502…. It must be upon the true construction of that section, in sucha case as the present one that the fault or privity is the fault or privityof somebody who is not merely a servant or agent for whom thecompany is liable upon the footing respondeat superior, butsomebody for whom the company is liable because his action is thevery action of the company itself."
In the case of Fanton v. Denville (64) Greer, L.J. observed at page329 –
"In actions against companies a general manager of the businessis deemed to be the alter ego of the company, and it would beresponsible for his personal negligence."
In Rudd v. Elder Dempster & Co. (65) Scrutton, II. summarised
the position as follows :
"The company is liable for the fault or privity of somebody who isnot merely a servant or agent for whom the company isliable …. because his action is the very action of the companyitself."
"A corporation …. is liable to its workmen for the negligence onlyof its governing body, directors, or general manager."
In H.M.S. Truculent, The Admiralty v. The Divina (Owners)(66) – The third Sea Lord was held to be the "directing mind"of theAdmiralty and that "his fault or privity was the fault or privity ofsomeone who is not merely a servant or agent for whom the Admiraltywas liable on the footing of respondeat superior but someone forwhom the Admiralty was liable because his action was the "very actionof the Admiralty itself". In the case of The Lady Gwendolen (67) thefault of the assistant Managing Director of the plaintiff-company washeld to constitute "actual fault" of the plaintiff-company. In the courseof his judgment Willmer, L. J. said at 294 –
"It is necessary to look closely at the organisation of the companyin order to see of what individual it can fairly be said that his act oromission is that of the company itself," and further observed at p.295 "Where … a company has a separate traffic department,which assumes responsibility for the running of the company'sships, I see no good reason why the head of the department, even
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though not himself a director, should not be regarded as someonewhose action is the very action of the company itself, so far asconcerns anything to do with the company’s ships." Winn L.J,, saidat page 302 . . . "wherever the fault either occurs in a function orsphere of action which the owner has retained for himself or is thatof a manager independent of the owner to whom the owner hassurrendered all relevant powers of control, it is actual fault of theowner within the meaning of the section."
According to Wilmer & Winn L.JJ. it would appear that a personwhose fault is to be taken as personal to the corporation need notnecessarily be a director. On this analysis a departmental managercould be treated as alter ego of a corporation in respect of suchdepartmental matters provided the primary control in fact was placedin his hands. Thus it would appear that a company will be liable for theacts and omisions of the "top management". Who constitutes "topmanagement" will have to be decided by careful investigation andanalysis of the particular corporation organised in relation to the factsof a particular case. The general principle may involve lifting of thecorporate veil to discover the true factual position with respect to themanagement of the company.
Useful guidelines on how the mind and will of a company may bemanifested are also to be found in the judgment of Denning, L. J. in H.L. Bolton (Engineering) Co. Ltd. v. T. J. Graham & Sons Ltd. (supra)at 630 – where he said in vivid language :
"A company may in mgny ways be likened to a human body. Theyhave a brain and nerve centre which controls what they do. Theyalso have hands which hold the tools and act in accordance withdirections from the centre. Some of the people in the company aremere servants and agents who are nothing more than hands to dothe work and cannot be said to represent the mind or will. Othersare directors and managers who represent the directing mind andwill of the company, and control what they do. The state of mind ofthese managers is the state of mind of the company and is treatedby the law as such." A little later he continued at page 630 – "Sohere the intention of the landlord company can be derived from theintention of their officers and agents. Whether their intention is thecompany's intention depends on the nature of the matter underconsideration, the relative position of the officer or agent and theother relevant facts and circumstances of the case."
Collettes Ltd v. Bank of Ceylon (Sharvananda, J.)
In that case the Court held though the directors of the landlordcompany did not hold any meeting of the board or pass any resolutionor record their decisions in any minutes, since the conduct of thecompany’s business was left to the directors individually; havingregard to the standing of the directors in control of the company'sbusiness the intention of the directors was held, in the circumstances,to be the intention of the company.
In Tesco Supermarkets Ltd. v. Nattrass (68) Lord Reid said, in thisconnection, at pages 131, 132 :
"A living person has a mind which can have knowledge orintention or be negligent and he has hands to carry out hisintentions. A corporation has none of these ; it must act throughliving persons, though not always one or the same person. Then theperson who acts is not speaking or acting for the company. He isacting as the company and his mind which directs his acts is themind of the company. There is no question of the company beingvicariously liable. He is not acting as a servant, representative, agentor delegate. He is an embodiment of the company or, one couldsay, he hears and speaks through the persona of the company,within his appropriate sphere, and his mind is the mind of thecompany. If it is a guilty mind then that guilt is the guilt of thecompany. It must be a question of law whether, once the facts havebeen ascertained, a person in doing particular things is to beregarded as the company or merely as the company's servant oragent. In that case any liability of the company can only be astatutory or vicarious liability.”
Referring to the passage in the judgment of Denning, L.J. quotedabove. Lord Reid said .
"In that case the directors of the company only met once a year;they left the management of the business to others, and it was theintention of those managers which was imputed to the company. Ithink that was right. There have been attempts to apply Denning,L.J.'s words to all servants of a company whose work is brain work,or who exercise some managerial discretion under the direction ofsuperior officers of the company. I do not think that Denning, L.J.intended to refer to them. He only referred to those who representthe directing mind and will of the company, and control what itdoes.
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I think that is right for this reason. Normally the board ofdirectors, the managing director and perhaps other superior officersof a company carry out the functions of management and speak andact as the company. Their subordinates do not. They carry outorders from above and it can make no difference that they are givensome measure of discretion. But the board of directors maydelegate some part of their functions of management giving to theirdelegate full discretion to act independently of instructions fromthem. I see no difficulty in holding that they have thereby put such adelegate in their place so that within the scope of the delegation hecan act as the company. It may not always be easy to draw the linebut there are cases in which the line must be drawn.’ (p. 132).
Lord Morris held in that case that 'C' who was one of the severalhundreds of Managers of the appellant company's supermarkets,could not have been identified with the company. He said at page140 :
"The company had its responsibilities in regard to taking allreasonable precautions and exercising all due diligence. The carefuland effective discharge of those reponsibilities required the directingmind and will of the company. A system had to be created whichcould rationally be said to be so designed that the commission ofoffences would be avoided. There was no delegation of the duty oftaking precautions and exercising diligence. There was no suchdelegation to the manager of a particular store. He did not functionas the directing mind or will of the company. His duties as themanager of one store did not involve managing the company. Hewas one who was being directed. He was one who was employedbut he was not a delegate to whom the company passed on itsresponsibilities. … He was a person under the control of thecompany … He was, so to speak, a cog in the machine which wasdevised : it was not left to him to devise it. Nor was he within whathas been called the ‘brain area' of the company."
Lord Diplock, posed the question at page 155:
"what natural persons are to be treated in law as being thecompany for the purpose of acts done in the course of its business"and not merely its agents, and the answer 'is to be found byidentifying those natural persons who by the memorandum andarticles of association or as a result of action taken by the directors,or by the company in general meeting pursuant to the articles, areentrusted with the exercise of the powers of the company."
Collettes Ltd. v. Bank of Ceylon (Sharvananda, J.)
Lord Diplock did not extend the "brave and nerve centre" beyondthose who by, or by action taken under, the company's articles ofassociation are entitled to exercise the powers of the company. Hedisapproved the dicta to the contrary in The Lady Gwendolen (supra).It is to be noted that Lord Diplock was alone in thus limiting the class ofpersons whose acts are to be regarded in law as the personal acts ofthe company itself to those who by, or by action taken under, itsArticles of Association are entitled to exercise the powers of thecompany. The evidence discolses that Ingram, an employee of theplaintiff-company was a Director of the company called CollettesFinance Ltd., which was in fact a subsidiary of the plaintiff company ;that he was a Sales Manager of the plaintiff-company ; he wasengaged in various aspects of the banking activities of theplaintiff-company and its subsidiary more particularly in depositingcash and cheques to the credit of the plaintiff company's account,opening of Letters of Credit, preparing stock certificates, regularlychecking the bank balances of the plaintiff-company and the loanpayments due from the plaintiff-company from the FinanceDepartment of the plaintiff-company and that the plaintiff-companyhad taken out a fidelity guarantee policy covering Ingram.
The Trial Judge has found that Samuel, together with Ingram wasengaged in this fraud and the Court of Appeal has affirmed this finding.Samuel was a Finance Director of the plaintiff-company and wasresponsible in submitting forged certificates of balances to theauditors of the plaintiff-company. Wickremasinghe and Classen,directors of the plaintiff-company had certified false stock certificateson the basis of which overdraft facilities were obtained from thedefendant bank.
Counsel for the defendant-respondent submitted in the light ofthese facts that the fraud of Ingram and of Samuel, Wickremasingheand Classen must in law be regarded as the fraud of theplaintiff-company on the ground that they represented "the directingmind and will" of the company and their acts and state of mind are theacts and state of mind of the company itself. Though the evidencediscloses that Ingram was a trusted employee of the plaintiff-companyand played a number of roles in the activities of the company, I cannotagree with the Court of Appeal in holding that he was "the directingmind and will" of the plaintiff-company or that he was within the "brainarea" of the company. He was not holding any position of control in
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the company,- nor did he share the management of the company. Therole he played in the administration of the company was a subservientrole, the role of a trusted employee. He was always regarded as thecompany's servant or agent. He was a person under the control of thecompany and not in any way in control of the company. He was not inthe area of top management and all his activities did not involvemanaging the company and he cannot hence be identified with thecompany. The evidence on record is not sufficient to hold that Ingramwas a "limb" of the plaintiff-company. The evidence does not showthat Ingram could on his own independent initiative take any decisionregarding the administration of the company. Even on the question ofoverdraft it. was Harasgama who approached the Chairman of thedefendant bank for overdrafts and arranged the overdraft facilities andit was Harasgama whom Loganathan, the Manager of the defendantbank contacted when the discrepancy in the accounts was detectedon 28th November 1968. In my view, in no sense can Ingram bedescribed as a "directing mind and will" of the plaintiff-company. Norcan Samuel, or Wickremasinghe or Classen individually or collectivelybe identified with the company as representing the "the directing mindand will" of the plaintiff company. They were not in actual control ofthe operation of the company. They cannot be regarded as theCompany.
The evidence does not show that in committing the fraud referred toby the counsel for the defendant, they acted as the Board of Directorsof the plaintiff-company. The findings of the courts below are thatHarasgama, the Managing Director did not participate in the fraudreferred to. Certainly his acts would have implicated theplaintiff-company as he would have been, by himself, and along withthe persons referred to above, constituted the "directing mind andwill'of the plaintiff-company. Abdul Cader J., has dealt fully with theinvolvement of Harasgama. Though he finds Harasgama guilty ofmisconduct he does not convict him of any positive fraud. In thecircumstances, the invitation of counsellor the defendant to identifyIngram, Samuel, Classen, and Wickremasinghe as theplaintiff-company and to hold the plaintiff-company guilty of fraud anddeny it any relief on that ground cannot be upheld. In view of thesefindings the question of the nature and extent of the applicability of theprinciple of public policy elaborated in Smith v. Jenkins (69) that awrong-doer is out of court, does not arise for consideration.
Collettes Ltd. v. Bank of Ceylon (Sharvananda. J.)
In its answer the defendant-bank stated inter alia, that the plaintiffadmitted that‘the bank statements in its possession P10 werefabricated ; and that at the close of business on the 28th November,1968, the balance standing to the debit of the plaintiff-company wasRs. 3,403,099.32 by way of over draft, and that a certificate of suchbalance was duly sent to the plaintiff-company on 05.12.1968 andthe company accepted the certificate without protest and that thecompany made no allegation of fraud on the part of thedefendant-bank or its employees and that in respect of the moniesover drawn by the plaintiff-company in excess of facilities to which theplaintiff-company was entitled, the plaintiff-company gave a primarymortgage of the premises No. 101, D. S. Senanayake Mawatha,Colombo, with the buildings thereon, at the request of the defendantbank and that the defendant-bank thereafter extended further creditfacilities to the plaintiff-company and refrained from stopping facilitiesto plaintiff and from curtailing existing facilities. Defendant pleadedthat in the circumstances the plaintiff company is by its conductestopped inter alia –
from denying that a sum of Rs. 3,403,099.32 had beenoverdrawn by the plaintiff-company as on 28.11.1968 ;
from asserting that the defendant-bank had been guilty of anyfraud or negligence ;
from asserting any claim for damage on the basis of factspleaded in the plaint.
By its amended answer dated 23.10.71, the defendant-bankfurther averred that on 30.12.68, the plaintiff-company expresslyadmitted to the defendant-bank that as at close of business on14.12.68, a sum of Rs. 3,381,497.28 was overdrawn by theplaintiff-company and that the said sum was still due or owing to thedefendant. Thereafter the plaintiff-company, by further pleadingsdated 10.12.71 for the first time, took up the position that theplaintiff – company through two of its directors was induced to signdocument dated 30.12.68 (subsequently marked D 132) andmortgaged bond dated 21.12.68 marked D 121 in consequence ofdeliberate misrepresentation of facts and deliberate suppression madeby the defendant-company and by Longanathan, its General Manager,of the existence and contents of documents indicating that the plaintiff
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owed much less than the said sum and that the documents in thepossession of the plaintiff were genuine, authentic and/or dulyreceived, and also because of duress, undue influence and threat ofharm by Loganathan to plaintiff's business and reputation. Plaintifffurther pleaded that the defendant bank acted in breach of its fiduciaryduty to the plaintiff and Harasgama, its Managing Director in includingthe plaintiff to sign the said document.
In respect of the above matters the following issues were framedand answered by the District Judge thus :
(25 E) At the close of business on 28.11.1968, had a sum of Rs.
been overdrawn by the plaintiff.
Ans. Yes.
(25 F) Was a certificate of balance showing such overdraft of Rs.
duly sent to the plaintiff-company on5.12.1968 ?
Ans. Yes.
(25 G) Did the plaintiff-company accept such certificates ?
Ans. Yes, But under duress.
(25 H) Did the plaintiff thereafter give a primary mortgage ofpremises No. 101, D. S. Senanayake Mawatha, to covermoneys overdrawn by the plaintiff-company in excess of thefacilities which the plaintiff is entitled ?
Ans. Yes.
(25 I) Did the defendant-bank thereafter extend further creditfacilities to the plaintiff and refrain from stopping facilities andcurtailing existing facilities ?
Ans. Yes.
(25 J) By document under the seal of the plaintiff-company andattested by its directors dated 30.12.68, did theplaintiff-company expressly admit that at the close ofbusiness on 14.12.68, a sum of Rs. 3,381,498.28 hadbeen overdrawn by the plaintiff-comapny on its currentaccount ?
Ans Yes.
Collettes Ltd. v. Bank of Ceylon (Sharvananda, J.)
32 7
(26) Is the plaintiff-company estopped from denying that a sum ofRs. 3,404,099.32, inclusive of interest, expenses andcharges had been overdrawn by the plaintiff as at 28.11.68 ?Ans. No.
(28) Was the plaintiff through two of its directors induced to signthe document dated 30.12.68 (D 132) and the mortgagebond (D 121) referred to in issue 25 H in consequence ofdeliberate misrepresentation and other matters referred to in2a to 2c of the plaintiff's further pleadings ?
Ans. Yes.
(29/ Did the defendant and its then General Manager, Loganathan,act in breach of its fiduciary duty to the plaintiff end itsManaging Director S.T. B. Harasgama in inducing the plaintiffto sign the said documents ?
Ans. Yes. With regard to the forms and disposal of statements.
(30) If issue 28 and/or 29 are answered in the plaintiff's favour isthe plaintiff bound in any manner by the documents referred toin issue 28 ?
Ans. No.
The answer to issue 29, as very relevantly remarked in the Court ofAppeal, by the Trial Judge is not at all intelligible. Issue 29 related tothe signing of documents dated 30.12.68 (D132) and the mortgagebond D121, but the Judge has answered issue 29, "Yes, with regardto forms and disposal of statements." This answer indicates that theTrial Judge had not found that there has been a breach of allegedfiduciary duty in respect of the two documents D121 and D132.
To appreciate whether there is any basis for the allegation of duressmade by the plaintiff as vitiating, the documents D121 and D132 it isnecessary to refer to certain correspondence that took place betweenthe parties, prior to the dates of the documents.
By the letter dated 5.12.68 the defendant-bank sent to the plaintiffcertificate of balance relating to the plaintiff's current accounts No.22200 and 22201 indicating that the balances standing to the debitof the account of the plaintiff-company (C. A. 22200) on the close ofbusiness on 28.11.68 was Rs. 3,403,099.32 and that standing tothe credit of the account of the plaintiff (C. A. 22201) on 28.11.68was Rs. 38,077.30.
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By letter dated 7.12.68 (P219) Harasgama wrote to the GeneralManager of the defendant-bank “first we wish to thank you for all theassistance given by you to check the bank ledger statements for thepast several years with the statements we have received from thebank. By letter dated 13.12.68 (P220) Loganathan wrote toHarasgama-
"As you are aware it was the bank that discovered and reported toyou the discrepancy in your current account balance. You thenproduced at the request of the bank a file of statements alleged tohave been sent by the Bank of Ceylon. I pointed out to you afterexamining those 'statements' which you had in your possessionpurporting to be Bank of Ceylon statements that they we^e not
genuine bank statements, but were complete fabrications
subsequently your auditors were given an opportunity of checkingthe bank ledger with the 'purported' bank statements and it was asa result of that you had been convinced that a fraud had been
committed On behalf of the bank I would emphatically deny
that those documents are genuine bank statements and I wouldpoint out that they are complete fabrications"
By letter dated 15.12.68 (P221) Harasgama wrote to Loganathan"the writer is fully cognizant of the bank's position in regard to the
'bank statements'We are fully conscious that the bank's position
is and at all times has been that 'bank statements' in our possessionare fabrications. As we have explained to you at our discussion, wehad every reason to believe that the statements were genuine, butfrom the points mentioned to us by you and the officers of your bankwe now know that in relation to the bank ledger the statements inquestion are fabrications.
The minutes of the Board Meeting (D182) of the plaintiff-companyheld on 6.12.68, stated –
"the General Manager informs the Board that a large defalcationhad taken place in the books of the company which is in the presentstage of investigation, estimated to be 1.2 million rupees. TheGeneral Manager recommended that the facilities in the limitapplication submitted were necessary for the company to continueits business ; although the company had a severe setback thetangible nett worth of the company which as at 31.3.1967 stood atthree million would justify these facilities. The General Manager wasauthorised to take whatever steps he determines necessary to
Collettes Ltd. v. Bank of Ceylon (Shan/ananda. J.)
ensure that the bank interests were adequately protected. He wasalso authorised to grant them the facilities in the limitedapplications, submitted and also such other facilities he mayconsider necessary."
In his complaint to the Police dated 20.12.68 (P236) Harasgamastates "the scrutiny that is being carried out by the auditors nowreveals that the cash of the company entrusted to him (Ingram) fromtime to time to be deposited to the company's bank account at YorkStreet and Foreign Department had not been reflected in the bankledger."
In regard to the mortgage bond D121 or to the letter D 132 it hasto be noted that there is no complaint of any compulsion with regardto them in any of the letters written by the plaintiff company to thedefendant bank and no complaint in regard to them has been madeand no relief claimed in respect of it in the plaint either. In fact theplaintiff in its letter, for example D 143 dated 6th February, 1969confirms the bond D 121. The first time that such a complaint wasmade was only by the further pleading dated 10.12.71, almost threeyears subsequent to the execution of the mortgage bond. Theallegation is evidently an after thought. The plaintiff-company hasadmitted in the written submissions made to the trial Judge that itssubstantive claim for a declaration that cash and cheques to the valueof Rs. 1,273,883.66 were deposited by the plaintiff-company withthe defendant-bank, must fail, as the said sum had in fact not been sodeposited. With this admission, as the Appeal Court has remarked"the bottom was knocked off the allegations of duress andcompulsion." Furthermore the documents D 121 and D 132 had thevoluntary approval of the Board of Directors of the plaintiff company ;by their certificate of total borrowings as at 31.12.68 (D 136), theseven directors of the plaintiff-company, including H. V. Perera Q.C.,affirmed the amount due to the defendant bank as claimed by thedefendant bank.
To give validity to a contract the law requires the free assent of theparty who is to become liable under it. It therefore allows him to avoidmy promise extorted from him by terror or violence, whether on thepart of the person to whom the promise is made or that of his agent.Duress, whatever form it takes, is a coercion of the will which vitiatesconsent.
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Economic pressure can in law amount to duress ; and that duress, ifproved, not only renders voidable a transaction into which a personhas entered under its compulsion but is actionable as a tort, if itcauses damage or loss – Barton v. Armstrong (70) and Pao On v. LauYiu Long at p. 635 (71 )-
"In a contractual situation commercial pressure is not enough.There must be present some factor which could in law be regardedas a coercion of his will so as to vitiate his consent. … Indetermining whether there was a coercion of will such that therewas no true consent, it is material to inquire whether the personalleged to have been coerced did or did not protest; whether, at thetime he was allegedly coerced into making the contract, he did ordid not have an alternative course open to him such as an adequatelegal remedy ; whether he was independently advised ; and whetherafter entering the contract he took steps to avoid it. All thesematters are, as was recognised in Maskell v. Horner, (72) relevant indetermining whether he acted voluntarily or not.
"The compulsion had to be such that the party was deprived of hisfreedom of exercising his will"
American Law Williston on Contract, 3rd Ed. now recognises that acontract may be avoided on the ground of economic duress. Thecommercial pressure alleged to constitute such duress must,however, be such that the the victim must have entered the contractagainst his will, must have had no alternative course open to him,must have been confronted with coercive acts by the party exertingthe pressure – Williston, 3rd Ed. Vol. 1 3, Ss 1603. American Judgespay great attention to such evidential matters as the effectiveness ofthe alternative remedy available, the fact or absence of protest, theavailability of independent advice, the benefit received, and the speedwith which the vicitim had sought to avoid the contract. Recently twoEnglish Judges have recognised that commercial pressure mayconstitute duress the pressure of which can render a contractvoidable. Kerr J. in Occidental Worldwide Investment Corporation v.Skibs A/S Avanti (The “Siboen" and the "Sibotre") (73) and Mocatta,J. in North Ocean Shipping Co. Ltd. v. Hyundai Construction Co. Ltd.(74) both stressed that the pressure must be such that the victim'sconsent to the contract was not a voluntary act on his part. In theirLorships' view, "there is nothing contrary to principle in recognisingeconomic duress as a factor which may render a contract voidable.
Collettes Ltd v Bank of Ceylon /Sharvananda. J.)
provided always that the basis of such recognition is such that it mustamount to a coercion of will which vitiates consent. It must be shownthat the payment made or the contract entered into was not avoluntary act”, per Lord Scarman delivering the judgment of the PrivyCouncil in Pao On v. Lau Yiu Long, (supra) at 635 – 636. LordDiplock, in Universe Tankships Inc. of Monrovia v. InternationalTransport Workers' Federation (75) identifying the rationale of thedevelopment of the legal concept of duress stated "It is not that the
party seeking to avoid the contractdid not know the nature or
the precise terms of the contract at the time when he entered intoit … . The rationale is that his apparent consent was induced bypressure exercised on him by that other party which the law does notregard as legitimate, with the consequence that the consent is treatedin law as revocable unless approbated either expressly or byimplication after the illegitimate pressure has ceased to operate on hismind." (pp. 75, 76):, continued "Commercial pressure, in somedegree, exists wherever one party to a commercial transaction is in astronger bargaining position than the other party. It is not, however, inmy view, necessary, nor would it be appropriate in the instant appeal,to enter into the general question of the kinds of circumstances, if any,in which commercial pressure, even though it amounts to a coercionof the will of a party in the weaker bargaining position, may be treatedas legitimate and, accordingly, as not giving rise to any legal right ofredress", (p. 76).
Lord Scarman, though he dissented on another legal-issue, statedthe law as follows at page 88 –
“The authoritiesreveal two elements in the wrong of
duress :
(1) pressure amounting to compulsion of the will of the victim ;and (2) the illegitimacy of the pressure exerted.
There must be pressure, the practical effect of which iscompulsion or the absence of a choice. Compulsion is variouslydescribed. … as coercion or the vitiation of consent. The classiccase of duress is, however, not the lack of will to submit but thevictim's intentional submission arising from the realisation that thereis no other practical choice open to him. This is the thread ofprinciple which links the early law of duress (threat to life or limb)with later developments when the law came to recognise as duressfirst the threat to property and now the threat to a man's businessor trade."
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The real issue in this appeal is …. as to the second element in thewrong duress ; was the pressure applied by the I. T. F. in thecircumstances of this case one of which the law recognises aslegitimate ? For as Lord Wilberforce and Lord Simon in Barton v.Armstrong (supra at p. 121) said –
", . . . the pressure must be one of a kind which the law does notregard as legitimate."
As Lord Wilberforce and Lord Simon remarked. "In life, including lifein commerce and finance, many acts are done under pressure,sometimes overwhelming pressure, but they are not necessarily doneunder duress. That depends on whether the circumstances are suchthat the law regards the pressure as legitimate.
In determining what is legitimate two matters may have to beconsidered. The first is as to the nature of the pressure. In many casesthis will be decisive, though not in every case. And so the secondquestion may have to be considered, namely, the nature of thedemand which the pressure is applied to support…. The present isa case in which the nature of the demand determines whether thepressure threatened or applied, was …. lawful or unlawful. If it wasunlawful, it is conceded that the owner acted under duress and canrecover. If it was lawful, it is conceded that there was no duress andthe sum sought by the owners is irrecoverable". P. 89, Lord Scarmanproceeded "…. the law regards the threat of unlawful action asillegitimate, whatever the demand. Duress can, of course, exist even ifthe threat is one of lawful action; whether it does so depends on thenature of the demand. Blackmail is often a demand supported by athreat to do what is lawful, e. g., to report criminal conduct to thepolice. In many cases, therefore, 'what (one) has to justify is not thethreat but the demand'." (p. 89). See Thorn v. Motor TradeAssociation (76) – Per Lord Atkin. The plea of 'duress' poses thequestion whether the demand made by the defendant-bank that theplaintiff should accept the certificate of balance showing that theplaintiff had over drawn the sum of Rs. 3,403,099.32 was alegitimate demand in the sense that although compliance with it hadbeen enforced by economic pressure that pressure was in thecircumstances lawful,so that there was no duress and theplaintiff-company is not entitled to deny the correctness of thecertificate D 132. Here are two commercial institutions wanting to dobusiness with each other. It may be that the defendant-bank was in a
SCCollettes Ltd. v. Bank of Ceylon (Sharvananda. J.)327
stronger bargaining position than the plaintiff-company ; that does notmean that the defendant-bank, in order to protect or secure itself,should not bargain with the other party and in the process exert somemeasure of commercial pressure to fortify itself with an admission bythe other party that its accounts to date, which it honestly andreasonably believed to be correct, reflected the correct position, andthat, according to the said account, a certain amount which was dueto it on account of past dealings was in fact correct and representedthe liability of the other party. In the present case, with hindsight weknow that the defendant's ledgers represented the correct accountsof the plaintiff and the plaintiff itself has admitted in court whatdefendant had been urging right from 28.11.1968, that the allegedbank statements in plaintiff's possession were fabrications and thatthe sum of Rs. 3,381,497.28 reflected in defendant's ledger are duefrom it to the defendant-bank. In its letter dated 15.12.1968 (P 221)Harasgama had voluntarily written to Loganathan that, in relation tothe bank's ledger, the statements in the company's possession werefabrications. This letter was written before the letter dated 17thDecember 1968(P 226) written by Loganathan to Harasgama that"we have today cancelled the overdraft facility of Rs. 3,487,165granted to your above account." It is to be noted that when theimpugned certificate P132 was given on 30.12.68, the plaintiff orHarasgama had no ground to doubt the defendant's accounts and infact did not contest the correctness of the said accounts at any time.In the circumstances that the parties were placed on 30.12.68, whenthe certificate P 1 32 was given by plaintiff the demand of thedefendant that the plaintiff give such a certificate, even thoughsupported by certain economic pressure was lawful and no questionof duress arises. The demand was neither unconscionable nor unjust.In any event, I am not satisfied that the plaintiff-company was not insuch a desperate situation as to have no other practical choice but toaccept the certificate. On 30.12.1968 the date of P 132 its financialplight was not so gloomy for it to have no freedom to exercise its willbut to succumb to the demand of the defendant-bank ; it had thebenefit of independent advice and as stated earlier, it raised no protestor complaint until three years later, when by way of further pleadings itchose to buttress an admittedly false claim.
In my view, there is neither factual nor legal foundation for plaintiff'sbelated plea of duress or misrepresentation in giving the mortgagebond D 121 and the certificate D 134.
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The plaintiff has, in its further pleading, complained that thedefendant and Loganathan had, at the time that the document P 1 21and P 132 were executed, suppressed from Harasgama certain actsof negligence and irregularities on the part of defendant's officers,insinuating thereby that had he been aware of them at the relevantdates, he would not have signed them. This is an absolutely falseaverment, false to the knowledge of Harasgama ; for, Harasgama had,prior to the execution of these documents, come into possession ofdefendant's documents which he got stolen from the defendant bankand had thus become aware of the alleged negligence andirregularities.
In my opinion issue 25 G should have been answered by the DistrictJudge in the affirmative without the qualification "but under duress,"and issues 28 and 29 should have been answered in the negativeagainst the plaintiff company.
Estoppel by Convention
Defendant had in issue 26 raised the question of estoppel. The TrialJudge, though he has answered the issue in the negative has notdiscussed the merits of the plea of estoppel advanced by thedefendant. The plea is based upon the documents D 121, D 132given by the plaintiff-company to the defendant, on the basis of whichthe defendant-bank continued the overdraft facilities previouslyextended to the plaintiff company, and afforded the utilisation of suchfacilities by the plaintiff company. The kind of estoppel relied on by thedefendant-bank is what is known as estoppel by convention of theparties.
The principle of the estoppel was formulated by Lord Denning M. R.,in the following passage in Amalgamated Investment and Property Co.Ltd. v. Texas Commerce International Bank Ltd. (77)as follows :
"when the parties to a transaction proceed on the basis of anunderlying assumption (either of fact or of law, and whether due tomisrepresentation or mistake, makes no difference), on which theyhave conducted the dealings between them, neither of them will beallowed to go back on that assumption when it would be unfair orunjust to allow him to do so."
The Court of Appeal in Keen v. Holland (78) in the judgment ofOliver, L. J. was of the view that the above proposition was toobroadly stated.
Collettes Ltd v Bank of Ceylon (Sharvananda, J.)
Quoting Spencer Bower on Estoppel by Representation-3rd Ed.(1977) pp. 157 to 160-Brandon. L. J. stated in AmalgamatedInvestments and Property Co. Ltd. v. Texas Commerce (supra) atpage 591 that-
"This form of estoppel is founded, not on a representation of factmade by a representor and believed by a representee, but on anagreed statement of facts the truth of which has been assumed, bythe convention of the parties, as the basis of a transaction intowhich they are about to enter. When the parties have acted in theirtransaction upon the agreed assumption that a given state of factsis to be accepted between them as true, then as regards thattransaction each will be estopped as against the other fromquestioning the truth of the statement of facts so assumed."
The governing principle of this species of estoppel was stated in"Blackburn Contract of Sale" 3rd Edition, page 204 as follows :
"That when parties have agreed to act upon an assumed state offacts, their rights between themselves are justly made to depend onthe conventional state of facts and not on truth."
Latham, C. J. in Grundtv. Great Boulder Proprietary Gold Mines Ltd.(79) said at page 657 :
When a person obtains advantage by relying upon rights whichcan exist only upon the basis of an assumed state of facts, he is notpermitted there after to rely upon other rights in relation to the sameperson which are inconsistent with the existence of rights formerlyasserted "
Scrutton, L.J. in Verschures Creameries v. Hull & NetherlandSteamship Co. Ltd. (80) stated the principle :
A person cannot say at one time that a transaction is valid andthereby obtain some advantage, to which he could only be entitledon the footing that it is valid, and then turn round and say it is voidfor the purpose of securing some other advantage. This is toapprobate and reprobate the transaction."
The evidence discloses that it was on the basis and faith of thedocuments D121 and D132 that the defendant bank continued toextend to the plaintiff overdraft facilities. The plaintiff, having enjoyedthe benefit of such facilities and in every respect acted upon the basis
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of the regularity and validity of the aforesaid documents and thecorrectness of the statements embodied therein, cannot now bepermitted to resile from the representations made in the saiddocuments. Departure by the plaintiff company from the assumptionsthereon is unjust and unconscionable. I agree with the Court of Appealthat the plea of estoppel by convention is also entitled to succeed.
Before I part with the record I am constrained to record mydisapproval of the conduct of Harasgama, the Managing Director ofthe plaintiff company who conducted the litigation on behalf of theplaintiff company, in employing detectives to steal documents fromthe defendant-bank. He has admitted that he had done so and in doingso he is certainly guilty of the offence of aiding and abetting theft. TheTrial Judge has not taken into account the fact that the man who isguilty of such misconduct, is capable of resorting to any strategy toachieve his object and that his evidence should be regarded withcaution. The court should have been wary in accepting hisuncorroborated evidence.
Though I deeply appreciate the great pains that the trial Judge hastaker over his judgment, I cannot persuade myself to salvage it. Iaffirm the judgment of the Court of Appeal reversing the judgment ofthe District Judge and dismissing the plaintiff's action. I dismiss thisappeal with costs.
The plaintiff Company which enjoyed an overdraft facility with thedefendant-Bank by application P218 of August, 1968, applied to theBank to grant the Company a much larger overdraft facility than theexisting 3 1/2 million. When this application was processed, it wasfound that the statement made by the plaintiff concerning the sumoverdrawn was much less than the sum in fact, overdrawn from theBank. This was discovered on 28.11.1968. Promptly, Harasgama,the Managing Director of the plaintiff-company, was informed and onhis orders the Accountant of the Company, Paul Fernando, took theweekly Bank statements to the Bank and it was found that large sumsof money, which, according to the alleged Bank Statements in theCompany's possession, had been deposited in the Bank, were not, infact, deposited and that the weekly statements alleged to have beensent by the Bank to the plaintiff were totally different from ledgeraccounts in the possession of the defendant
Collettes Ltd v Bank of Ceylon (Abdul Cader, J.)
The overdraft facility extended to the plaintiff was up to a sum equalto 100 per cent of the landed costs of the goods in the possession ofthe plaintiff each month, the total overdraft, in any event, not toexceed 3 1/2 million rupees with an agreed variation after March,1968, which I shall refer to later. The Bank fixed the overdraft limit onreceipt of the stock statements monthly from the plaintiff. It becamenecessary, therefore, to examine the stock statements sent by theplaintiff to the defendant and Samuel, the Finance Director, turned upthat evening with the copies of the stock statements in the possessionof the plaintiff-Company. It was now found that the stock statementssent to the defendant month after month did not correspond to thecopies of the stock statements in the custody of the plaintiff; that theformer had been overloaded with fictitious stocks ; the Bank had actedon these overloaded fictitious statements and granted the overdraftfacility ; and that the plaintiff had operated on and drawn money onthe basis of the overdraft limit advices, the fraud running into over amillion rupees.
Meanwhile the plaintiff-Company entrusted the entire matter to theirown auditors who, after extensive investigation into the documents inthe possession of the plaintiff and with the consent of the defendant,the documents in possession of the defendant, submitted their report' P103 ' in February, 1972. The plaintiff filed this action in November,1970.
For a principal cause of action, the plaintiff averred that thedefendant intentionally caused and permitted the plaintiff to believethat the representations in the counterfoil receipts issued by the Bankon deposits of moneys in the Bank and weekly statements of accountwere true and to act upon such belief. The plaintiff also averred thatcash and cheques to the sum of Rs. 1,275,883.66 which thedefendant Bank claimed had not been deposited were, in fact,deposited to the credit of the plaintiff's account and that a sum of Rs.49,546.16 which had been debited by the Bank as interest was not,in fact, due. On this principal cause of action, the plaintiff prayed for adeclaration that the sum of Rs. 1,275,883.66, which the Bankdenied, was in fact due to the plaintiff from the defendant and that thesum of Rs. 49,546 16 was not due from the plaintiff to thedefendant.
For a first alternative cause of.action, the plaintiff averred that thedefendant had fraudulently and/or negligently issued incorrect
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counterfoil receipts and weekly statements of accounts and facilitatedthe issue of or fabrication of incorrect receipts and weekly statementsof accounts to the plaintiff particularly in that.
the defendant being aware that incorrect receipts and weeklystatements were issued to the plaintiff, failed to inform theplaintiff and/or to stop that issue and/or to take reasonableprecaution,
defendant failed to exercise proper care and control of thecustody of the blank forms of the statements of accounts,
the defendant failed to exercise proper control over the issueand delivery of receipts and weekly statements of accounts andcertificates of balances, and
the defendant permitted unauthorised persons to have accessto such blank forms.
The second alternative cause of action was that, if as claimed by thedefendant, this sum of money had, in fact, not been deposited, thedefendant and/or its servants jointly with one Ingram and/or otherpersons unknown to the plaintiff misappropriated that sum of moneyand, therefore, the defendant was liable in this sum as damages.When issues were framed, issues 1 to 7 covered the principal causeof action ; issues 8 to 13 covered the first alternative cause of action ;issues 14 to 17 covered the second alternative cause of action.Certain consequential issues were framed by Counsel for thedefendant. He also raised further points of contest with reference to aprimary mortgage given by the plaintiff to the defendant Bank andestoppel based thereon. (Issues 25h to j and 26) whereupon Counselfor the plaintiff raised issues 28 to 30 to meet the charge of estoppel.
Before I go on to the evidence in this case, I wish to make one thingvery clear that I cannot appreciate how the plaintiff came to Court withthe principal cause of action. This trial went on for a very long period inthe District Court and Counsel were involved in a wild goose chase,especially Counsel for the defendant, as a result of the principal causeof action pleaded by the plaintiff. Immediately, this fraud wasdiscovered on 28.1 1.68, it would have been clear to Harasgama thatthe fraud had taken place in his office and that this sum of Rs.1,275,883.66 had not been deposited into the plaintiff's account inthe Bank. As I have said earlier, the weekly statements in the custodyof the plaintiff had been checked with the ledger of the defendant-Bank
Coiiettes Ltd v Bank of Ceylon (Abdul Cader, J i
on the morning of the 28th November and it was discovered that theweekly statements did not reflect the true state of affairs in the Bankledger That evening, it was discovered that an enhanced overdraftfacility had been obtained from the Bank and operated on fabricatedstock statements sent by the plaintiff to the defendant. Harasgamawas a lawyer and the Managing Director of the Company. It shouldhave dawned on him that the fraudulent original stock statementswould have originated only from his Company. He submitted that hesuspected that Ingram was the culprit and he started searching forhim. In the written submissions, the plaintiff has admitted thatHarasgama suspected Ingram on the 29th. Harasgama called in hisauditors and they investigated fully and reported their findings 9months before the plaint was filed that the amount in contention hadnot been deposited with the Bank to the plaintiff's credit. Therefore, itis indeed amazing that Counsel had settled a plaint in totalcontradiction of the obvious truth and in disregard of the report of theplaintiff's own auditors, on the basis that this sum had been depositedwith the Bank. The plaintiff framed not only issues 1 to 7 on the basisof this obvious untruth, but went on with the trial on these issues untilthe very end of the trial. Counsel for the defendant was obliged tospend a good deal of his time and energy on meeting these issues,with the result that certain matters relevant to the real disputebetween the parties were not fully explored, for which the plaintiffalone should take responsibility.
Before us. Counsel for the plaintiff gave his explanation for thisamazing conduct. He put the responsibility on Counsel for the plaintiff,an eminent Queen s Counsel who is no more, that because letterdated 31st December, 1968 (P 228), written by the plaintiff to thedefendant, inquiring whether the defendant was "now in a position toconfirm or deny the genuineness of the documents in our possession"was not replied to, this cause of action was introduced. By 'D 132' of30.12.68 (previous day) the Directors of the plaintiff-Company hadacknowledged and declared that as at close of business on 14thDecember, 1968, a sum of Rs. 3,381,497.28 had been overdrawnby the Company on current Account No. 222000. The defendant,therefore, ignored this letter sent by the plaintiff. The plaintiff could nothave had any doubt that the relevant documents in its possessionwere fabricated documents and that the disputed amount was neverdeposited in the defendant-Bank. In the written submissions to the
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District Judge dated 6th August, 1974, filed at the conclusion of thetrial, the plaintiff had conceded that issue No. 1 be answered in thenegative and issue No. 23 be answered in the affirmative. Issue No. 1reads as follows
(1) "Did the plaintiff between 1.7.57 and 28.11.68 deposit to thecredit of its account with the defendant-Bank the variousamounts set out in Schedule B to the plaint ?-
The plaintiff has stated as follows :
"Turquand Young & Company's reports establish that there isno evidence at all that the amounts set out in Schedule B to theplaint had been paid into the Bank."
Issue No. 23:
"On 28.11.68, was the plaintiffs account overdrawn by thesum of 3,431,409.99 inclusive of interest, expenses andcharges ?"
The plaintiff had intimated this issue has to be answered in theaffirmative.
These Reports were available to the plaintiff even before this actionwas instituted. The question does arise whether the plaint was settledin ignorance of these Reports because they were not handed over toCounsel by Harasgama.
Even a Junior, not to speak of eminent Queen's Counsel, would notever frame a cause of action based on a mere failure to reply a claimmade after the plaintiff had admitted liability by certain documents,especially after plaintiff's own auditors had reported that the monies,had not been deposited. It is an insult to the intelligence of thatCounsel and not worthy of consideration at all. Even Harasgama didnot put forward this ground as the reason for this fantastic principalcause of action. He said that Counsel had been talking of some form ofestoppel, but I do not find any estoppel pleaded either in the plaint orin the issues in respect of this cause of action. It appears to me thatHarasgama was so desperate that he was prepared to cling to anystraw available so long as he could file a plaint against the defendantand drag it into Court. Even if it be that, the principal cause of actionwas introduced due to wrong instructions, why did eminent Counselwho conducted the trial proceed with that cause of action after all thefacts would have become known to him at his conferences with the
Collettes Ltd v Bank of Ceylon fAbdul Cader. J )
plaintiff The only reason that can be thought of is the obduracy ofHarasgama who did not want to give up his false claim till the defencewitnesses had been called The cause was hopeless, but he persistedat the expense of judicial time. The District Judge had no alternativeexcept to answer the issues 1 to 7 against the plaintiff.
As regards the second alternative cause of action, the DistrictJudge held that it was Ingram, an employee of the plaintiff-Company,who would have misappropriated the money and that neither thedefendant nor its employees joined in such misappropriation and,therefore, this second cause of action failed. In fact, plaintiff placed noevidence in support of the allegation that the defendant's employeesmisappropriated the money or any part thereof. However, strangely,the District Judge answered the issues 14 to 17 in respect of thissecond alternative cause of action in favour of the plaintiff. Thismistake the Court of Appeal corrected by answering these issuesagainst the plaintiff.
Counsel for the plaintiff before us did not question the correctnessof the decision on these two causes of action and arguments wereaddressed to us only in respect of the first alternative cause of action.Issues 8 to 1 3 relate to this cause of action. Issue 8 that thedefendant was under a duty to issue correct counterfoil receipts andto send weekly statements of accounts to the plaintiff was admitted byCounsel for the defendant.
Issue 11 (1) (a) charges the defendant with failure to exerciseproper control over the custody and issue of blank forms ofstatements of accounts and forms used for certified balances andother security documents. The District Judge held in favour of theplaintiff. As regards blank forms of weekly statements, it is notsomething like a blank cheque leaf which any reasonably prudent manshould know could be put to a fraudulent purpose. No reasonablyprudent man can expect forms discarded in 1960 to be put to use in acomplicated fraud and in my opinion the District Judge's findingagainst the bank on this question is unreasonable. The District Judgehas not discussed the question of forms used for certified balancesand "other security documents", covered by this issue. I believe thatwhat is meant by "certified balances" is forms used for the certificateof balance. These certificates were sent regularly by the defendant tothe plaintiffs auditors. There was no fraud in respect of thesecertificates of balances till 1965. Thereafter, it was as a result of a
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certain fraudulent request on the part of the Finance Director of theplaintiff-Company that these certificates of balance were sent to theplaintiff direct. I shall consider this aspect later on. After 1965, thecertificates of balance were received by the plaintiff from the Bank, butthey were substituted with fictitious certificates by Ingram, Samuel orby some other employee of the Company to tally with the plaintiff’sbooks or accounts. The fraud, therefore, took place within theplaintiff-Company. Therefore, the "forms used for these balances" donot come into question at all.
The District Judge has not considered any other security documentand we were not told what other security documents there were inrespect of which the defendant failed to exercise proper control.Therefore, the District Judge was wrong in anwering this issue in theaffirmative. The answer should be in the negative.
Issue No. 11 (1)(b) relates to the delivery of receipts, weeklystatements of accounts and certificates of balances. The DistrictJudge has answered this issue as follows :
"Yes, of weekly statements only."
Therefore, he'has held against the plaintiff in respect of counterfoilreceipts and certificates of balances. Therefore, the only question thatneeds consideration in this case is the question of weekly statementsand whether the District Judge has answered this issue correctly. Thisis the only substantial issue in this case, which I shall discuss in detaillater.
Although there was no issue directly in point, the District Judgepermitted evidence to be led on the question of the inspection of thestocks pledged to the Bank by the plaintiff The District Judge went onto hold that the failure to make such verification "constitutednegligence which enabled culprits to draw moneys on inflated,fabricated stock certificates." It is, indeed, surprising that the Bankshould be penalised for a fraud perpetrated by the plaintiff'semployees, taking advantage of the defendant's failure to inspect andverify the stocks pledged to the Bank when the plaintiff has not raisedany issue that the defendant owed a duty to the plaintiff to inspectstocks It owed no duty to the customer and if the Bank chose not toinspect, it did so at its own risk. In this case, particularly, it wascommon ground that the plaintiff-Company was being treated as aspecially favoured customer-specially for the reason that the plaintiff
Collettes Ltd. v. Bank of Ceylon (Abdul Cader, J.)
and the defendant had at this relevant period the same eminentgentleman, Mr. H. V. Perera, Q. C., as chairman. Under thecircumstances, I am not surprised that the Bank did not care to inspectthe stocks even after a subject clerk had raised the routine querywhether the stocks were to be inspected. This is yet another straw.
I find no negligence on the part of the defendant on which theplaintiff can rely to buttress its hopeless cause.
Yet another episode that the plaintiff put forward in support of itscause is not found among the issues. In March, 1968, by P216Harasgama requested the Bank that the Company be permitted toenjoy a one million rupee overdraft facility on the security of the “actualselling price of the stocks of spare parts etc. or 2/3rd the value of theselling price of the stocks of spare parts." This request was made onthe basis that although a million rupee facility had been permitted oncertain other terms, that facility could not be availed of due to certaindifficulties referred to in that letter. Consequent to this application,there was a discussion with the Bank officials and De Mel, the CreditIntelligence Officer of the Bank, prepared a minute (D75 dated25.03.68) to the General Manager. This minute has an interpolationin the penultimate paragraph "or 65 per cent of the selling pricewhichever is lower”. In the course of the discussion with the Bankofficials, it had been found that all that the plaintiff was immediatelyinterested in was a further sum of five lakhs which could easily beaccommodated by increasing the formula then existing at 100 percentof the landed cost to 125 percent on the basis of Harasgama'sstatement in the course of the discussion that the company was thenutilising a two million rupee overdraft. It has been suggested by theplaintiff that this interpolation was done by the Bank officials after thediscovery that the moneys drawn by the plaintiff had, in fact, come upto about three million rupees and realising that if the formula of 125percent of the landed costs was applied the overdraft facility wouldexceed the ceiling of 3 1/2 million this interpolation was made toaccommodate Ingram and his associates. The plaintiff contends thathad the defendant's employee pointed out to Harasgama that theplaintiff-Company had drawn about three million rupees on thisoverdraft facility and not two millions, the plaintiff would have known inMarch, 1968, that there was a fraud being perpetrated on theCompany and the loss that the Company suffered thereafter couldhave been avoided.
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There appears to be some substance in the plaintiff's assertion thatthis interpolation is an afterthought. The first 4 paragraphs give ahistory of the overdraft and this application. The fourth paragraph endswith the following words :
Their immediate requirements will be met if we grant an overdraftup to the extent of 25 percent of the landed cost of their stocks".
The next paragraph reads as follows
We recommend that the Bank advance against the stocks beincreased to 1 25 percent of the landed cost, or 65 percent of theselling price whichever is lower and not the landed cost at present.
What I have emphasised is the interpolation. If we ignore the wordsemphasised, the last paragraph will be consistent with the previousparagraph, namely, that the immediate need of five lacks could be metby an increase of the 100 percent facility to 125 percent. It wouldtherefore, appear that the interpolated clause was introduced to meeta special situation. It, is no doubt, true that if this had beencommunicated to Harasgama, he would have become alive to thefraud. But that is no reason to hold that the Bank is liable to the plaintifffor this manipulation. There is no doubt that this new provision wascommunicated to the Company because immediately thereafter fromMarch, 1 968, the stock statements started arriving in the Bank givingthe selling price which was a concept originally suggested byHarasgama in P 216 in place of the earlier market price. There was noduty cast on the defendant to communicate to Harasgama personally .Secondly, the plaintiff sought to make out that Hashim, who was theLoans Officer who dealt with this application, should have noticed thatdiscrepancy of two million in the first paragraph of D 75. Hashim wascalled as a witness by the plaintiff and no questions were addressed tohim why he failed to notice this discrepancy, though the next witnesswas questioned with reference to the duty to check the statement ofHarasgama about the overdraft drawn. His statement to the Policedoes not touch this question. De Mel was cross-examined on thismatter and he took the very consistent stand that it was not forHashim to study the first paragraph of the minute, but all that wasexpected of Hashim was to carry out the instructions issued to him tocalculate the permitted overdraft on the new terms and that he, DeMel. took full responsibility for the interpolation. The District Judge hascast doubts on the integrity of De Mel. This doubt is not warranted asHarasgama who had had dealings with De Mel stated in evidence that
Collettes Ltd. v. Bank of Ceylon (Abdul Cader. J.j
De Mel was an honourable man and he should know better. Thirdly,even if some of the Bank officials were influenced to keep thisinformation away from Harasgama that the plaintiff-company wasutilising only a two million overdraft when, in fact, the figure had goneup to three million, it is a situation which has been created by theplaintiff’s employees. The defendant Bank enjoyed no benefitsthereby. It is possible that some officers in the plaintiff Company andjudging by their conduct which I shall refer to later,Samuel, theFinance Director, two other directors of the Company,Wickremasinghe and Classen, and the all important Ingram could havebeen responsible for this situation. I cannot see how the plaintiff canbenefit by a fraud, if it was one, perpetrated by its own directors andofficers by influencing the officers of the Bank to commit a wrong. Ifsuch a thing was done by the plaintiffs directors, it was as perniciousas the admitted theft of the Copy of D 75 along some otherdocuments by the plaintiff. In my opinion, this episode cannot give riseto any relief against the Bank.
I now come to the real issue in this case on which hangs, in myopinion, the entire case for the plaintiff. Did the Bank fail in its duty tosend the weekly statement of accounts to the plaintiff-company ? Theburden was on the plaintiff to establish that the defendant failed tosend those statements to the company. The plaintiff’s Counsel agreedthat if it is proved that even one statement had been delivered to theplaintiff, the plaintiff's case would fail. Counsel,however, made it clearthat if the statement had been delivered to Harasgama or any otherdirector of the Company then, the defendant would be deemed tohave delivered the statement to the Company. But Ingram was not adirector of the plaintiff-Company and any delivery to Ingram would notbe a delivery to the Company. I am not going into the question as it isnot material for the purpose of my judgment.
On the basis of these submissions of Counsel for the plaintiff, hasthere been delivery of weekly statements to the plaintiff-Company bythe defendant-Bank ? Counsel contended that both the lower Courtshave decided that there had been no delivery to the Company and thateven the written submissions filed by the defendant-respondent beforeus have accepted the correctness of that finding.
Counsel for the defendant, however, whilst admitting that suchsubmissions have been filed, denied that such submissions would bindthe defendant or that the defendant accepted the correctness of thatfinding. Counsel for the plaintiff urged that this Court should not
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disturb the concurrent findings of the two Courts on a question of factwhich, according to him, were more or less sacred. The Court ofAppeal has gone into this question and after considering several casesset down the principle as follows :
".where the trial judge's findings on questions ot fact are
based upon the credibility of witnesses on the footing of the trialjudge's perception of such evidence then such findings are entitledto great weight and also the utmost consideration, and should bereversed only if it appears to the appellate court that the trial judgehas failed to make full use of the "priceless advantage" given to himof seeing and listening to the witnesses giving viva voce evidenceand the appellate court is convinced by the plainest considerationthat it would be justified in doing so ; that where the findings of factare based upon the trial Judge's evaluation of facts, the appellatecourt is then in as good a position as the trial judge to evaluate suchfacts, and no sanctity attaches to such findings of fact of the trialjudge : that, if on either of these grounds it appears to the appellatecourt that such findings of fact should be reversed, then theappellate court "ought not to shrink from that task."
I am in agreement with that view. The question whether all thestatements over the period of 1 2 years had been delivered or not tothe plaintiff-Company was not one which could be decided onevidence alone. A good deal of inference had to be drawn by theDistrict Court before it came to that decision. Even the plaintiff hasadmitted that the decision was dependent partly on circumstantialevidence. On a consideration of all the material available in the case, itis clear that the District Judge missed this very important aspect ofthis question, namely, that it is spread over a period of 12 years from1956 to 1968 during the course of which, it was urged by theplaintiff, not a single statement of accounts had been received by theplamtiff-Comoany. When dealing with this question, the District Judgestates that the Bank statements in the possession of Collettes from1.7.56 till 30.11.68 appear not to have been sent by post becausenone of them bore the serial numbers and date-stamp. He failed toconsider that if statements were received by post and substitutedafter they went to the respective departments or AccountsDepartment, obviously the substituted statements would not bear theserial number and the date-stamp He then went on to state that alarge number of these statements were not machine-printed The
Collettes Ltd. v. Bank of Ceylon (Abdul Cader. J.)
same reason would apply for the absence of machine-printedstatements as. obviously, a substituted fabricated statement wouldnot be machine-printed He then went on to consider the evidence ofAmerasmghe and Abeywickrema. Amerasinghe had assumed office asa ledger clerk only on 19.8.68 There is no doubt that duringAmerasinghe's period the weekly statements were delivered toAbeywickrema. but that evidence would only relate to just 3 months,to just 12 weekly statements before the fraud was discovered.
Sirimanne about whose evidence the District Judge had doubts andwho the District Judge stated was "made to say certain things" hadadmitted in answer to the interrogatories that there were about 75statements that had been handed over by Abeywickrema to theplaintiff In fact, Abeywickrema in his statement to De Mel (D48) hadstated that "he had supplied not less than 10 or more than 75statements (the number of statements sent out to Collettes wereabout 300)". Nevertheless, Sirimanne admitted the maximum 75 inhis answer to the interrogatories. This was an admission made bySirimanne at a time when Sirimanne did not know that the plaintiff hadbeen able to steal a copy of Abeywickrema's statement from the Bank.That alone should have been sufficient to convince the District Judgeof the integrity of Sirimanne When the District Judge stated thatSirimanne had been "made to say", had he asked himself by whom, hewould have been confronted with a situation which, I am certain, hewould not have been able to answer. Sirimanne was not a minoremployee of the Bank, but a gentleman who had reached the pinnacleas General Manager of the Bank and at the time he gave evidence hewas not even in office. The Court of Appeal had much to say about theDistrict Judge in respect of the assessment of Sirimanne's evidencewith which I quite agree. There was, therefore, direct evidence inrespect of 75 statements only. Abeywickrema in his evidence wouldnot even admit the whole of it. However, granted that 75 statementswere handed over by Abeywickrema to Ingram, it only means that afraction of the statements had been handed over to Ingram.Abeywickrema has also referred to 300 statements in D48. 300statements will cover 6 1/4 years only. Weekly statementscommenced in December, 1962 The 300 statements will cover thisperiod only. The period prior to 1962 is not covered at all.Abeywickrema had stated in D48 that he had handed over thesestatements both during the time he was a ledger officer and also priorto that during the time when he was in the loans department, and
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outward bills department. In his evidence in Court, he stated that hehanded the statements only when he was the ledger officer and notprior to that. Now Abeywickrema was ledger officer at the York Streetoffice from 15.06.1966 to September, 1966 and from June, 1968to August, 1968, in charge of plaintiff's ledger. So that allAbeywickrema's evidence would not cover the period prior to15.06.1966. All that the District Judge held on a consideration of thisevidence was that "Abeywickrema and Amerasinghe and others whohad made statements available to Ingram had acted in breach of aduty of care which the Bank owed to Collettes." Amerasinghe spoke toonly a 3 months of the period in issue, August to November, 1968,after he succeeded Abeywickrema. There is no evidence that otherledger officers had made statements available to Abeywickrema. Onthe other hand, there is a statement of Bunny who was also a ledgerclerk that so far as he was concerned, he did not deliver any statementto Ingram or to Abeywickrema (D192). He stated that he had workedas a ledger clerk for about 5 months ; that no one collected anystatements from him. That will cover about 20 weekly statementswhich should have in the routine gone by post. No other ledger clerkshave been called to say that they handed over any statements toAbeywickrema. It is unreasonable to presume that ledger clerks otherthan Abeywickrema and Amerasinghe followed a course outside theinstructions, to accommodate Abeywickrema. The District Judgeappears to have then fallen into an error in coming to the view thatsince there could be no pilfering in the plaintiff's mail room, there wasno delivery. He failed to consider that even though there could havebeen no fraud in the mail room, a statement received by post could besubstituted elsewhere in the Company. Such a substitution could havetaken place, for instance, in the Accounts Department, and if such asubstitution was possible, it cannot be said that the plaintiff haddischarged its burden.
To consider whether such a substitution was possible, it isnecessary to go into the conduct of several directors and officials ofthis Company during the relevant period dealt with by the DistrictJudge, namely, 1966-68. The Finance Director, Samuel, entered thefray by directing the Bank to send the certificates of balance from1966 onwards, yearly, to the plaintiff direct instead of to the plaintiff'sauditors with which instructions the defendant Bank complied. Thisenabled the plaintiff Company to forward to the plaintiff's auditorsfabricated certificates of balance in keeping with the fraud that was
Collettes Ltd. v. Bank of Ceylon (Abdul Cader, J.)
being perpetrated by officers of the plaintiff Company. Even-theDistrict Judge was constrained to reject Samuel's explanation for thissudden change of routine. Samuel whose duty it was to send to theBank stock statements month after month, thereafter chose to avoidsigning the statements that went to the Bank. Two other Directorscame into the scene to assist the commission of this fraud,Wickremasinghe and Classen with knowledge or without knowledge ofthe fraud, signing as many as 11 and 23 stock statementsrespectively after January, 1966. These were fabricated statements.These did not bear the initials of the typist. This was a job within thepurview of Samuel. Neither Wickremasinghe nor Classen attempted tofind out from Samuel whom they met daily in the mail room why thisburden had fallen on their shoulders. I am not convinced that theywere totally innocent in this transaction. These statements carrycertificates. Wickremasinghe and Classen were engineers, notaccountants. Their explanation that they were misled by Ingram will, inany event, amount to recklessness.
We have then the evidence of Lionel Fernando who was anAssistant Accountant dealing with these accounts. The District Judgefound him truthful and satisfactory as a witnesss. He stated he did notfind any evidence which involved him in any objectionable conduct inrelation to matters relevant to this case. If the District Judge hadconsidered all the evidence relating to Lionel Fernandodispassionately, he could not have come to that conclusion. In fact,the District Judge has said in a different context that Lionel Fernandosaid that Ingram telephoned him and he went into Ingram's room andthere he found Abeywickrema who gave some statements to Ingramand Ingram handed them to him. Lionel Fernando had an accountancyqualification. He was Accounts Clerk in 1950 in a different firm. Hethen worked in the Chartered Bank. Then, he joined Mercantile Creditin 1958, and joined Collette Finance in 1959 as AssistantAccountant. Ingram was then Sales Manager. In 1960, he joinedMahajana Finance and in 1967 he joined Collettes Ltd. as AssistantAccountant. With this vast experience of finance and banking, heshould be presumed to have known that statements had to be sent tothe plaintiff Company by post, but he did not find the statementscoming via Abeywickrema and Ingram objectionable. When somestatements had been delayed, he had reported it to the Accountant,Paul Fernando, who had told him to check with Ingram. It will bereasonable to presume that if statements do not arrive in time, the
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proper authority from whom information should be sought would bethe Bank itself. When Ranasinghe was appointed to deposit moniesfrom 1 10.67 in place of Ingram, Ingram changed that arrangementand continued to deposit the cash himself without any protest fromLionel Fernando Ingram produced counterfoil receipts in respect ofcash deposits which were not machine-printed, while the receipts forcheque deposits were machine-printed. That did not arouse hissuspicion. Instead. Lionel Fernando was satisfied with Ingram'sexplanation that he did not wish to wait m the queue. He had not caredto ask Ingram why he should wait at all when it was Ranasinghe's jobto do it. From the Bench, the President pointed to two cash depositreceipts in P 15 issued on the same day, one machine-printed and theother not. Some receipts did not bear the account to which the moneywas deposited or even the name of the branch. He did not think it is amatter worthy of any form of action. In fact, it was by this process thatthe entire sum in issue in this case had been misappropriated byIngram. He stated that Ingram telephoned him and got him down tohis office and handed over the weekly statements to him and that allthe statements from 1.4.67 were received through Ingram. In hisstatement to the police he had stated the Bank statements were keptunder lock and key. But Ingram who masterminded this complicatedfraud could not have been deterred by lock and key maintained by thecomplainant, a fellow officer. Above all, Lionel Fernando's suspicionswere not roused when all the statements of the associate companieswere coming in one type of forms while the statements of Colletteswere in a different set of forms, which were at the trial shown to bediscarded forms There is evidence that Ingram had a free hand in thiscompany and enjoyed a high reputation. Lionel Fernando had workedwith Ingram and trusted him to do no wrong. It is even possible thatLionel Fernando was made to believe that whatever Ingram had donehad the acceptance of the Company.
Counsel for the defendant urged that Lionel Fernando was alsoinvolved in the fraud. It is not necessary to make a decision on thatquestion. It is sufficient for my purpose to hold that though he may nothave participated consciously in the fraud perpetrated by Ingram,nevertheless, that Lionel Fernando gave a blind eye to Ingram'sactivities in the Accounts Department. The fact that the 3 otherdirectors were involved directly or indirectly in this fraud could wellhave further lulled Lionel Fernando into that sort of inactivity In thesecircumstances, Ingram could very well have subst'tuted the fabricated
Collettes Ltd v Bank of Ceylon (Abdul Cader, J.j
statements after the statements were received by post (except thosethat were handed over by Abeywickrema to Ingram) in the AccountsDepartment This is a probability which I cannot overlook and theburden was on the plaintiff to rebut this probability. The plaintiff had anopportunity to produce the Inward Register of the Group of Companiesanu .he Inwa.d Recj.ster of this particular Company to prove that whilethe other statements were being received by post the statementsrelating to the plaintiff – company were not received. Although theplaintiff listed these registers in the list of documents, they were notproduced. If these registers had been produced, the plaintiff wouldhave been in a position to show very convincingly by contemporaryrecord of evidence that while all the other statements were beingreceived by post, the Collettes' statements were not received. Theplaintiff has submitted that no adverse inference should be drawnagainst the plaintiff for the failure to produce these registers, butwithout going into the law, it is sufficient for my purpose to agree withthe Court of Appeal that "they were of immense value in disprovingthat the documents which the defendant-Bank contended werereceived by the plaintiff-company were not, in fact, so received by theplaintiff-company." Instead, plaintiff has relied only on the oralevidence of Lionel Fernando, which is suspect and unreliable and ofAbeywickrema which does not extend to more than 75 statements.
As regards the mail room, Rajaratnam, Assistant Secretary, saidthat "the mail relating to Collettes Ltd. is taken out and left on Mr.Ingram's side . . ." Mr. Ingram sorted out the Collettes Ltd. mail…. The mail relating to Collettes Ltd. is opened by Jamaldeen and
given to Mr. Ingram for date-stampingThe entering of the
Inward Letter Register is done by me or Mr. Ingram, or Jamaldeen
Whenever Collettes mail was voluminous I had assisted Mr.
Ingram . . Whenever Mr. Ingram was not available to open the mail
Mr. Samuel, Director Finance, took his placeUp to February,
1968 …. mail was opened in the Board Room in M/D's Office. The
opening was done within his sightI can say that once a letter is
received in the mail bag it is not possible for it to be stolen or
misplaced before they are distributedIn 1965, Mr. Ingram was
on two days' leave … In 1967, 1 1/2 days leave on 8 to 10thApril, 3 days from 20th to 23rd April and 5 1/2 days from 28th Aprilto 5th May to go to Singapore
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t have quoted as much as are relevant from Rajaratnam's statementD76. He did not give evidence. His statement indicates that Ingramalmost exclusively dealt with the Collettes mail when he was present.In all probability he entered the register in respect of Collettes' mail.(As Rajaratnam has not stated who entered which register). Ingramtook little leave in 1965, only two days. In 1966 ml and though hetook 10 days in April-May, 8 days leave was taken to go to Singapore.The substitute in his absence was none other than Samuel who washimself involved in the fraud. Therefore, Rajaratnam's ipse dixit that itwas not possible to pilfer in the mail room may not be after all, to saythe least, very accurate. It should be remembered also that the 75statements handed over by Abeywickrema may have been partlyduring the days when Ingram was absent. The question also ariseswhy Ingram should have taken so few days' leave, except to pilfer thestatements. If Abeywickrema was handing over all the statements,Ingram need not have been niggardly in respect of his leave. (The 6months when Abeywickrema and Amerasinghe were ledger clerks wasin 1 968 and the 1968 leave particulars are not available in evidence).
The principal witness on whose evidence the District Judge actedwas Harasgama. Counsel for the defendant argued vehemently thatHarasgama was himself involved in the fraud and, therefore, was aparty to manipulation in the mail room. Once again, it is not necessaryfor my purpose to decide this difficult issue. I will adopt the view thatthe Court of Appeal took that "Harasgama had placed considerabletrust and confidence in Ingram in the conduct of the affairs of theplaintiff-company".
According to Harasgama, all the mails were opened in his presence.Ingram was one of those who opened the mail-as many as 6 of themof whom at least 3 of them were present to open the mail. Collettesand C.M.T. letters were opened by Jamaldeen and passed over toIngram or whoever else was present for date-stamping ; that he(Harasgama) was not present always when the mail was opened. Atpage 512, he gave further evidence. "All the mail was opened by
Jamaldeen. I did not see Ingram opening the mailI have seen
Jamaldeen handing the documents to Ingram for the purpose ofstamping. I would not know what Ingram did (with) every document."Therefore, Harasgama, too says that Ingram handled the Collettesstatements and he did not know what Ingram did with them.
Collettes Ltd v Bank of Ceylon fAbdul Cader, J j
Paul Fernando said that Harasgama told him that Ingram used toopen the Collettes mail – a contradiction, this time, from Harasgamahimself through Paul Fernando.
Harasgama is honest when he says he did not know what Ingramdid with any document. This has to be so, as no person can beexpected to watch the progress of hundreds of documents from theenvelopes to the respective dockets. This is, in my opinion, a vitaladmission.
In the light of these circumstances, is this story that pilfering in themail room was not possible so foolproof ? Add to this the loss thatloomed on the horizon for Harasgama who would sustain a direct lossof 40 percent of the 1.2 million involved and possible damage of thebalance 60 percent if shareholders sue him for negligence.
The District Judge has not considered all these deficiencies. He hadnot considered the many other deficiencies in the plaintiff's case,which I shall set down later. Yet Counsel for plaintiff says thatHarasgama is a lawyer, a Managing Director of a large firm and aboveall believed by the District Judge to be an honest and truthful witness,which should not be disregarded. He also says that this finding, too,received further sanctity by the endorsement of the Court of Appeal.But the Court of Appeal has not considered the matter at length. Theyhad set down the failure to produce the Inward Postal Registers, thefailure of Harasgama to question why the statements of Collettes onlywere not coming by post, and says that this could be due to the factthat Harasgama knew that these statements were coming via Ingram.The Court then states that the fact that other documents from theBank which would have probably arrived by post should have putHarasgama on his guard, and finally ended up by saying that theDistrict Judge had come to the finding that the statements were neverreceived by post and that "this finding is supported by the evidenceand the statement of witnesses Abeywickrema and Amerasinghe."But Amerasinghe's evidence covers 3 months and Abeywickrema's atthe maximum 75 statements.
Clearly the Court of Appeal has not analysed the evidence of themail room witnesses nor considered the contradictions, and theadmission by Harasgama that he did not know what Ingram did withthe Collettes documents that came by post. In any event this decisionwould relate only to a very short part of the 12 years in issue.
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The only reason given by Harasgama for his insistence that thestatements did not arrive by post is the absence of the Collettes stampon the statements in Collettes' possession. The evidence reads asfollows (p. 512) :
"Qes. Are you telling the Court that you know personally that nostatements from the Bank came by post ?
Ans. If the statements came by post they would be seriallynumbered and date-stamped.
Qes. Are you telling the Court here on oath that no statementsfrom the Bank came by post ?
Ans. As far as I recall, if the statements came by post, they wouldhave the date – stamp and the serial number.
Qes. Are you telling me here in the witness box that no statementsfrom the Bank came by post ?
Ans. If the statements came by post they would have thedate-stamp and the serial number.
Qes. You cannot give any other answer ?
Ans. No."
As against the Honkong & Shanghai Bank, a similar action was filedfor a similar failure to send statements. Harasgama's evidence on thissubject is revealing. Unlike in this case, he does not know who handedover the statements from that bank to whom and yet he holds theHongkong Bank, too, liable, probably for the same reason that theweekly statements did not bear the Collettes' stamp. But he hasoverlooked the fact that if statements came by post, and they werestamped and if the fabrication was done later, the fabricatedstatements will not have the . ollettes' stamp.
Harasgama said this in evidence, page 571 :
"I gave instructions to file the plaint in this case.
Qes. Were your lawyers under the belief that all the moneys weredeposited in the Bank of Ceylon ?
Ans. I do not know what their belief is.
Qes. Did you tell them that the money was deposited in the Bank ?
Ans. I told them that we have not got credit for the moneys thatwere deposited in the Bank.
Collettes Ltd. v Bank of Ceylon (Abdul Cader, J.}
I brought that to their notice when filing the plaint. I said that
some money had not gone to the Bank. Then they mentioned
something about estoppel.
Qes. When the plaint was filed your lawyers believed that themoney was deposited in the Bank ?
Ans. I know now that the money has not gone to the Bank. I askedthem “why are you claiming all this money."
Qes. At the time the plaint was filed, you thought the money hadgone to the Bank ?
Ans. I said we had not got credit for this.
Qes. Later on you came to know that the money went to theHongkong & Shanghai Bank ?
Ans. I don't accept that. I asked my lawyers why they wereclaiming this amount. They were claiming 4.7 million rupees.Then I recall their mentioning something about estoppel.
Qes. Did you tell the Court that when the plaint was originally filedyou were of the view that you have not been given credit forthe moneys that went to the Bank of Ceylon ?
Ans. I told my lawyers that, and I also told that "I am now awarethat this money had not gone to the Bank of Ceylon".
"I think I told them that after they filed the plaint."
I am of the opinion that the last line is an afterthought.
Having set his lawyers on an incredible path to prove the impossible,even after the cross-examination had brought his case on the principalcause of action crashing down, he yet maintains he was right. At page496, his evidence is as follows :
"Qes. You still claim this money from the Bank of Ceylon ?
Ans. Yes, because of the utter negligence of the Bank of Ceylon.It is as a result of the negligence of the Bank of Ceylon thatthey permitted this cheque to be deposited in the Hongkong& Shanghai Bank."
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How can the evidence of such a person be trustworthy-one who islikely to conceal the truth in his anxiety to win at any cost.
I will now come to Harasgama's evidence on two incidents whichcan be checked with reference to contemporaneous documents.
In respect of Ingram's flight to Australia, the first statement made byHarasgama to the I.G.P. was on 7.12.68 (P218). It should be notedthat this statement was prepared in advance and handed over to theI.G.P. and, therefore, made after deliberation and probably inconsultation with his lawyers. In this statement, he has said, “Theyinformed me yesterday (i.e. 6.12.68) that their Singapore officeinformed them yesterday (i.e. 6.12.68) that they had been asked byone Ingram for the issue of a visa to Australia and wished to haveconfirmation that they may comply with the request." It would,therefore, appear that Harasgama had been informed by the HighCommission on the 6th December that they had been queried aboutthe issue of a visa on the 6th. In the next statement on 20.12.84,P236, he stated that "Ingram had sought entry into Australia byQF738 on 30th November, 1968." He does not state from where hegot this information, but what is important to note is that he statesthat Ingram had sought entry into Australia on 30th November, 1968.This, too, was a prepared statement. It is difficult to believe that theSingapore office informed the High Commission only on the 6th of arequest for a visa for a flight on 30th. The next statement P114 makesthis clear, when it is read in its proper context.
The next statement he made was on 27th (P114). This statementwas made on 28.12.68. To analyse this statement, it is necessary toreproduce this statement:
"On 30.11.63 I became aware that Mr. Ingram had left theIsland. I thereupon inquired from the Australian High CommissionVisa Officer whether a Visa had been issued in Ceylon for Australiafor one Mr. Ingram. He replied in the negative. Later in the afternoonhe telephoned and informed me that they received a cable from theirSingapore office stating that a Mr. Ingram had asked for the issue ofa visa to Australia and whether it was in order to issue one to him. Inthe morning when I spoke to him I did not give him any details forthis inquiry. In the afternoon when he telephoned me I went acrossto the Australian High Commission and told him that Mr. Ingramwas under heavy suspicion in respect of a fraud in the Company's
Collettes Ltd. v. Bank of Ceylon (Abdul Cader. J.)
Bank Account and that I would be happy if a visa is not issuedhim. The officer thereupon explained that such inquiries are at timonly a formality and a visa may already have been issued. This tcplace on 6.12.68. In between I was preoccupied trying to ascert;further details and to elicit that information regarding the matteconnected with the fraud. I asked him to cable. I asked him to caland ascertain whether a visa had already been issued and on tfollowing day he telephoned and told me that a visa had alreabeen issued and that Mr. Ingram had already left for Australia30.11.68 by flight No. QF. 738."
If one were to read this statement as it stands, it means that he hcontacted the Australian High Commission on 30.11 68 morninthat same afternoon (30.11.68) the High Commission informed hthat they had received a cable stating that Mr. Ingram had askedthe issue of a visa and whether it was in order to issue one. That sarmorning when he spoke to the High Commission viz. 30.11.6Harasgama did not give any details, but in the afternoon when tHigh Commission telephoned him, he went there and told them tlMr. Ingram was under heavy suspicion and that he would be happy ivisa was not issued to him. It would appear that all those took place30.11.68.
However, this sentence appears at the end of this :
"This took place on 6.12.68."
Counsel for the plaintiff, taking advantage of this single sentemsubmitted that that incident that happened later in the afternoon ref<to 6.12.68, while what happened in the morning refers to 30.11.6This interpretation does not appeal to me. How could the Ambassathave asked Harasgama on the 6th whether a visa could be issu<when in fact Ingram had left on the 30th. His statement, 'This tcplace on 6.12.68" appears to be an afterthought. If, as I hold, 1entire conversation took place as 30.11.68, the information thatgave the I.G.P. will not be true.
In the evidence before the Magistrate (P115) Harasgama has stathat on the 30th evening, the Australian High Commission rang himand told him that Singapore had contacted them and wantedformal approval to issue a visa to Mr. Ingram. This certainly isconflict with P218 and contradicts the interpretation placedCounsel for the plaintiff on P114. This evidence accords withinterpretation. The District Judge dismissed it all as "confusionthought." I do not agree.
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Counsel for the defendant has urged that this confusion on the partof Harasgama is due to the fact that (1) the story of a conversationwith the Australian High Commission is totally false to give theimpression that Harasgama has made every effort to prevent Ingramfrom proceeding to Australia or (2) if he made contact with the HighCommission, he is not telling the truth as regards when and whathappened.
The next allegation against Harasgama is that he had failed to informthe Police at the earliest possible opportunity. The Court of Appeal hasgone into this question at length. There is, no doubt, that Harasgamahad to be driven to the Police by Loganathan, General Manager of thedefendant-bank, and he made his first statement only on the 7th, 10days after the discovery of the fraud, but even in that statement to theI.G.P. he did not want action. It was only after De Mel told him that hehad made a statement to the Police that Harasgama went to the Policeon 20.12.68.
The District Judge glossed over this failure and to6k the view thatHarasgama had reported to the auditors, which was sufficient. But hehimself has stated in a different context that had investigationscommenced immediately the Police would have been able to detectblank forms in Ingram's house. Counsel for the defendant took it onestep further and submitted that the Police would have searchedplaintiff's premises, too, as it was another likely place where the falsereturns could have been prepared.
What did Harasgama wish to avoid by his failure to notify the Police,which was the first obvious thing to do ? Why did he not make anyattempt to trace Ingram to Nuwara Eliya through the Nuwara EliyaPolice on the 28th ? (It was only on the 29th evening that he came toknow that Ingram had not gone to Nuwara Eliya). Did he wait till he gotinformation from the High Commissioner that Ingram had gone toAustralia to go to the I.G.P. Even then why did he not want any actionby the Police ? These are vital questions for which I have not beengiven an acceptable explanation. The only inference I can draw is thatwhen Harasgama came to know that the fraud had been committed byhis own employee, he tried to cover up the fraud. But I will not go onto ho'd as Counsel for the defendant suggested, that Harasgama gaveinformation to Ingram and assisted him to leave Sri Lanka and the restwas a vast pretence. Rather, he probably thought that had he gone tothe Police they would search Ingram's premises and Collettes
Collettes Ltd v. Bank of Ceylon lAbdul Cader. J.)
premises and pinpoint the fraud on Collettes itself and that they mighteven make criminal charges against some of his men. He. therefore,played safe by calling in his auditors. But even to his auditors he didnot hand over the document P 216 relating to the 65 percent sellingprice formula and they had to discover the new formula from relevantbank documents Harasgama was asked to produce his old passports.He gave the lame excuse that he had not preserved them. Had heproduced them it would have been possible to check the periods of histrips abroad, and how often he was absent from the mail room.
Assuming that he was present on almost all days or a vast majorityof the days, his evidence was that he discussed the contents of theletters with the heads of divisions. A bank statement is an importantstatement to discuss, as a company which was running on a massiveoverdraft would have found it necessary to check its balance regularlyto conduct its business. Presumably, it is for this reason that inDecember, 1962, plaintiff requested the defendant to send weeklystatements. (Unfortunately this letter has not been produced to checkwhether Harasgama signed this letter personally). There would be nopoint in calling for weekly statements unless there was a special needfor it and we have not been told of any other reason. Therefore, onewould expect Harasgama to discuss these statements with his fellowDirectors and to notice their absence if they were not received bypost.
Yet another circumstance that would have definitely drawn attentionis the fact that the statements of all other associate companies werebeing received by post Surely, it should have dawned on anyinteiligent person that the statements of one particular company weremissing week after week, if such statements had not come.
Plaintiff has submitted that Ingram ran a great risk by permitting thestatements to go by post. But it is even more true that Ingram ran agreater risk if the statements did not go by post week after week, asHarasgama and the other directors were bound to notice theirabsence. (This is on the basis that Harasgama did not know thatIngram was receiving direct).
There were yet other statements involved. The limit statementswhich the bank sent monthly indicating the overdraft permitted, wereequally important documents. They, too. were sent by post. Except tosay that they were not received after January. 1966, plaintiff has notproduced the inward mail register to prove that evidence. The limit
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statements up to February, 1968, were sent on the basis of 100percent landed cost. Counsel stated that Harasgama did not have tolook into the limit advice as he knew that the overdraft would be for thefull value of the stocks. But this is yet another untenable explanation.The stocks varied from month to month sometimes by several lakhs,as it was bound to in any large commercial establishment. If thisexplanation is correct, to know the overdraft limit Harasgama wouldhave had to look into the stock statement. But that statement wouldnot be a guarantee that the limit advice would have the same figure,though it is a probability. Besides, the limit operates from the date ofthe advice and not the date of the statement What is more naturalthan that, if Harasgama had to look into a document, he would lookforward to the limit advice, look into it and discuss it with his fellowdirectors. How could he have planned his business for the monthexcept by discussions with his co-directors with the limit advice inhand ? It is inconceivable that the plaintiff Company would haveremained silent without inquiries from the Bank, had it not received thelimit advices after January, 1966. Admittedly, these advices werereceived by post prior to 1966. How is it that no one noticed theirabsence in the post in 1966 and thereafter ?
After March, 1968, the limit was worked on a more complicatedformula. Harasgama admittedly knew that the basis was 125 percentof the landed value of stocks, (granting that he did not know of the 65percent formula)-all the more reason for looking into the limit advicerather than the stock statement.
Issue 11 (2) framed by the plaintiff reads as follows" Did the defendant by its servants or agents –
acting in the course of their employment and within thescope of their authority and/or
for whose acts of omissions the defendant is in law liableand responsible facilitate the issue or fabricate the incorrectreceipts or weekly statements of account ?"
Abeywickrema who is alleged to have handed over all the statementswas a mere ledger clerk. The defendant knew nothing about it. Howmuch more the contribution of Harasgama, Samuel, Wickremasmgheand Claessen, all directors of the plaintiff Company when they failed tonotice the absence in the post of the weekly statements and limit
Coilettes Ltd. v. Bank of Ceylon (Abdul Cader, J.)
advices-a failure which would amount to utter negligence, at the leasttowards facilitating Ingram's fraud, and this failure was taking place tothe knowledge of Ingram.
In addition, inasmuch as the above 4 were directors of the plaintiffCompany, the negligence of the directors will amount to knowledge onthe part of the Company.
Therefore, if there was any facilitation, the negligence of the plaintifffacilitated this fraud rather than the negligence on the part of thedefendant's servants, Abeyv.ickrema and Amerasinghe, and suchnegligence was responsible for the fraud perpetrated on the plaintiff.
But this is academic as I have held that the plaintiff has failed toprove that all the weekly statements were not sent to the plaintiff bypost.
Counsel for the defendant contended that the evidence againstHarasgama was so overwhelming that we should not hesitate to holdthat he, too, was in the fraud. I do not think so in respect of the eventsbefore the discovery of the fraud. But in respect of his conduct afterthe discovery of the fraud, Harasgama had not only attempted tosuppress a Police investigation, but had also stooped to stealdocuments from the Bank, probably assisted by bribery, yet anotheract of dishonesty. It is sufficient for my purpose to hold that hisevidence is not such as to be trusted. I have said enough, I believe,why I cannot, accept the finding of the District Judge or the Court ofAppeal that there was no possibility of pilfering in the mail room.
I have also held that there is a probability of the statements beingsubstituted in the accounts department.
Issues 25(e), (f) and (g) to the effect that a sum ofRs. 3,403,093.32 had been overdrawn by the plaintiff and that acertificate of balance showing the overdraft was sent to the plaintiff on5.12.68 and the plaintiff accepted such a certificate without protesthave all been answered by the District Judge in the affirmative. But inrespect of the last issue he has answered that the certificate wasaccepted without protest "under duress". He answered issued 25(h)that the plaintiff thereafter gave a primary mortgage to cover themoneys overdrawn by the plaintiff in excess in the affirmative. He thenanswered issued 25(j) in the affirmative, to the effect that the plaintiffCompany under its own seal expressly admitted that the sum of
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Rs. 3,381,497.28 has been overdrawn by the plaintiff. Issue 26 thatthe plaintiff was estopped from denying that a sum of Rs.3,403,099.32 exclusive of interest, expenses and charges had beenoverdrawn by the plaintiff as at 28.11.68 was also answered in the
In response to these issues. Counsel for the plaintiff framed issueNo. 28 which reads as follows :
"Was the plaintiff through two of its directors induced to sign thedocuments dated 30.12.68 and the mortgage bond referred to inissue No. 25(h) in consequence of the deliberatemisrepresentations and other matters referred to in paragraph 2(a),2(c) of the plaintiff's further pleadings ?"
This paragraph 2 also speaks of the failure of the defendant to informthe plaintiff of various defaults by the defendant referred to in the plaintand in addition duress, undue influence and threats by Loyanathan.
The District Judge examined this dispute at length and answeredissue 28 in favour of the plaintiff. But he failed to consider the fact thathe himself had come to the conclusion, after the plaintiff abandonedthe primary cause of action, that a sum of fls. 1.2 million had not beendeposited to the credit of the plaintiff in the plaintiff's account. Thebalance of the 3.381 million had been moneys admittedly utilised bythe plaintiff for its business. I have held that Harasgama knew of thissituation even before the plaint was filed especially after its ownauditors had revealed that 1.2 million rupees had beenmisappropriated by plaintiff's own officers. In those circumstances, Icannot see how it can be said that there has been any fraud,inducement or misappropriation by the Bank. The plaintiff neededfurther moneys for its business. The Bank helped the plaintiff tocontinue in business by giving a higher overdraft on additionalsecurities. This, the bank had to do not only to ensure to itself thepayment of the admitted sum of 3 381 million together with furthermoneys to be lent, but also to ensure that the business would continuein the interest of the country's economy and the hundreds ofemployees employed in this firm. If Loganathan took the necessaryprecautions to take adequate security that was something that he hadto do as the Managing Director of the Bank and also in terms of thedirections given by the Board. In fact the Bank was helping the plaintiffto extricate itself from a difficult situation and to continue in business.
Collettes Ltd. v Bank of Ceylon (AodJ Cade:. J j
It may be noted that the landed cost of stocks with Coliettes as atMay. 1967 was 2,821.000 and ever since there had been a gradualreduction of stocks up to September, 1968, which is the last stockstatement available in P103, which was 2,088,550 millions.Therefore, while the need for further money had increased, +he stockshad decreased. It was in that situation that the Bank helped out theplaintiff to continue in business and I take the view tr>at t'ne D'strictJudge misdirected himself when he haid against tne cafeoduru on thisissue. In fact, the Bank deserved gratitude instead of allegations ofduress.
Counsel for the plaintiff has urged several points in favour of theirproposition in the final written submissions to this Court which I shallnow consider:
The fraud was not detected by the plaintiff Company, itsauditors or by its bankers.
The cross-examination of Paul Fernando discloses that chequesmeant for one bank were deposited in another Bank, cheques werenot deposited in time, cash deposits were not supported bymachine-printed receipts and many mom. Obviously, this was dueto negligence on the part of its own officers. Had they done theirduty properly, the fraud could have been detected long, long earlierand stopped. Ingram took advantage of the lapse of his fellowofficers. In 1966, 3 directors joined in. The auditors were preventedfrom doing a proper audit by Samuel’s change of routine in 1966.On the other hand, the defendant could not have known of the fraudtaking place within the plaintiff Company.
The substitution of fabricated statements was an essentialelement in the concealment of non-deposit of funds. The Bankhad nothing to do with it and had no knowledge of it, and
The District Judge has found that pilfering of statements at themail meeting was impossible. It was fraught with a high degreeof risk,
I have held against the District Judge's view Risk is alwayspart of a conspirator's armour,
Ingram would have preferred a less risky method A reliablemode was through Abeywickrema.
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I agree. But there were also other ledger clerks involved whoseco-operation was necessary. We have Bunny's evidence that he didnot hand over statements. There is no evidence that the other ledgerkeepers, except Amerasinghe, had not done their official dutiescorrectly and properly,
There is direct evidence that Abeywickrema handed overstatements-Yes, 75 only.
Avoidance of detection was vital.
Yes, only if circumstances permitted.
There is no evidence that the ledger officers, exceptAmerasinghe and Abeywickrema helped Ingram,
Evidence of Amerasinghe supports transmission viaAbeywickrema.
This covers only 3 months out of 12 years,
Defendant has not adduced evidence that statements weresent by post-no adjuster or ledger officer called to giveevidence.
There is no burden on defendant to prove this, as admitted byplaintiff's Counsel.
There is evidence that statements are sent to the adjuster whoposts them after making an entry of the total number of statementssent. The bank had no means of placing evidence of posting ofstatements to individual customers,
The Court of Appeal has not said anything contrary to thefinding of the lower Court.
I have dealt with this at length that the Court of Appeal merelyadopted the view of the District Judge without analysis.
The defendant had not challenged this finding in its writtensubmissions to the Court.
True, Counsel admitted that it was an oversight. He maintained andI agree that that will not debar the defendant from agitating a questionthat was very much in issue at the trial.
The plaintiff filed this action claiming that no Statements ofAccounts had been sent by the Bank to the defendant for a period of12 years from 1956 to 1968. Even as plaintiff's Counsel admitted, it
Collettes Ltd. v. Bank of Ceylon (Abdul Cader. J.)
involved the task of proving that not a single statement had beenreceived by the normal channel viz. by post. If the plaintiff was tosucceed on oral evidence alone, it was almost an impossible task.asthe officers who worked during this long period could have retired,gone abroad or passed away. Nevertheless, that was the burden thatthe plaintiff undertook and the plaintiff cannot succeed unless that taskis accomplished. That is why in his written submissions. Counsel forthe plaintiff stated, "Since the relevant period extended over a periodof 12 years, the evidence relied on by the plaintiff was partly direct andpartly circumstantial.
There was no need for the plaintiff to depend on "partlycircumstantial" evidence to prove this fact, if the plaintiff had producedcontemperaneous records maintained by it in respect of receipt ofletters received by post. This the plaintiff for some unknown reasonfailed to do. Even in respect of the recent period of 1966 to 1 968, theinward letters registers, which had appeared on the plaintiff's list ofdocuments, were not produced.
Secondly, if the plaintiff is to succeed on circumstantial evidence,the evidence led in respect of 1966 to '68 should be so convincingthat the Court cannot come to any other conclusion except that themodus operand! that was operated in this latter period was the onlymodus operandi that could have operated prior to 1966 too. But inthis case, that is not the only conclusion possible. For instance,statements received by post could have been pilfered in the accountsdepartment of the plaintiff. There is no evidence except that of LionelFernando, but that evidence relates to the period after 1965. Whatpossibilities existed prior to 1966 is not spoken to by any witness, andthe burden is on the plaintiff to exclude such a possibility.
As regards the possibility of pilfering in the mail room, the onlyevidence on the subject is that of Harasgama and Rajaratnam.Rajaratnam has not stated when he joined Collettes or when hestarted duties in the mail room so that his evidence cannot be relatedto the period prior to 1966. As regards Harasgama I have held that hisevidence cannot be accepted with confidence.
In any event, this is academic as I have held that even in respect ofthe period 1966 – 1968, the plaintiff has failed to exclude thepossibility of pilfering in the mail room or accounts department.
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At the end of the trial the plaintiff conceded that the moneys alleged•to have been deposited with the defendant-bank had beenmisappropriated by Ingram or some other officers of the Companybefore moneys were deposited with the defendant-bank.
This was an admission that it was the plaintiff's officials whowere the miscreants.
For the purpose of perpetuating their fraud various other fraudulantacts had been committed by the plaintiff's officers,
Non-machine printed fabricated deposit slips purporting to bereceipts for payment of moneys deposited with thedefendant had been handed over to the AccountsDepartment of the plaintiff and they had been acceptedwithout verification,
Samuel instructed the Bank to send the Certificates of BankLedger balances to the plaintiff direct from 1966 and theyhad been suppressed and instead certificates fabricated inthe office of the plaintiff had been sent to the plaintiff'sauditors,
Stock Certificates were fabricated in the office of theplaintiff-company and were signed by two directors of theCompany who owed no duty to sign them,
Confirmation slips had been received by post at Collettes andthey had been pilfered or suppressed in the office of theplaintiff-company,
Admittedly, overdraft limit advices had been received till theend of 1965. The plaintiff stood nothing to lose by admittingthe receipt of overdraft limit by post till 1965, because theytallied with the stock statements sent by the plaintiff to thedefendant. Those received after 1965 have beensuppressed.
In view of all these circumstances, specially the fraudulent actscommitted by the employees of the plaintiff-company themselves, it issurprising that the plaintiff chose to file this action. In my opinion, thisis litigation that should not have been embarked on over which severalmonths of judicial time had been wasted.
Collettes Ltd v Bank of Ceylon (Abdul Cader, J.j
Counsel for the plaintiff are not to blame as they had to carry out theinstructions of Harasgama whose only obsession was to succeed.
So far as the defence was concerned. Counsel for the defendanthad to put forward all the defences that were available to them, whichis quite natural, as the stakes were high and the reputation of the bankwas also involved.
Had I the power to order state costs, I would have done so.
I wish also to add that the various epithets that the District Judgeused on Loganathan were unnecessary and uncalled for. Certainly hewas entitled to reject his evidence and to give the reasons for rejectinghis evidence. But the epithets were unnecessary and should have beenavoided.
In response to the plaintiff's case, the defendants raised severalpleas of law which led to several weeks of erudite arguments on bothsides. I did not deal with these questions of law for the reason that Ihave held that the plaintiff had failed to prove the primary facts which itwas its duty to prove before the need areas to discuss the defences inlaw raised by the defendant. However I have since had the benefit ofreading the Judgment of Sharvananda, J. who in his characteristicmanner has dealt with all the matters of law that were submittedbefore us, and come to certain conclusions with which I respectfullyagree.
I agree that the Judgement of the District Judge be reversed and theAppeal dismissed with costs.
Collettes Ltd. (a firm) is a Colombo-based firm of dealers incommercial motor vehicles and spare parts. It had started as a familyconcern which had built itself into a prosperous and reputed firm. InMay 1962 Mr. Harasgama, a proctor by profession but moresuccessful in business purchased forty per cent of its shares andbecame its Managing Director. Still la:er in May 1963, its stars wereso propitious that Mr. H. V Perera, Q.C., the brightest star that evershone in the legal firmanent of the Island, came into its ken, as itsChairman. Its bankers were the Hong Kong and Shanghai Bank and theBank of Ceylon The Bank of Ceylon is the premier bank of the countryand the Chairman of that too was Mr. H. V. Perera, Q.C. at the
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material time. The Firm had substantial overdraft facilities with theBank of Ceylon from about 1962. Prior to that it had overdraft facilitieswith the Hong Kong and Shanghai Bank. From time to time the Firmhad sent for deposit with the two banks, cash and cheques. As at theend of 1968 the sums so sent and not deposited had amounted toRs. 1,275,883.66. This was during a period of 12 years. The Firmhad not been, during this time, sustained by a cent of this money andhad lived and survived on the overdraft facilities – a fact it is allegedwas not known to Mr. Harasgama who from May 1962, after hejoined the Firm, drew cheques on the Firm's Bank account with theBank of Ceylon as and when required and found them honoured.
The Firm's upper limit of overdraft facilities with the Bank of Ceylonwas Rs. 3.5 million and in August 1968 Mr. Harasgama required anupper limit of 5 million rupees and he made an application to the Bankof Ceylon (Bank) accordingly. On this occasion he had told the Bankthat as at that date he had overdrawn only 2 million rupees. Theapplication was thereafter processed and on 28th November 1968Mr. Sivagnanasothy of the Bank of Ceylon who was the officer whoprocessed that application found that the amount overdrawn hadexceeded 3 million rupees and not 2 million as Mr. Harasgamarepresented. Mr. Sivagnanasothy had not suspected a time bombhidden in this discrepancy, and as a matter of businesscommunication informed Mr. Harasgama of ,what he had found in theoverdrawn balance of the firm. Mr. Harasgama did not believe it. So,he hurried to the Bank with bank statements collected from his officeto contradict Mr. Sivagnanasothy. Then the explosion. The Bankstatements were found to be fake. Not one or two of them but thewhole lot of them. Mr. Sivagnanasothy was right. The Firm had beendiddled for years and years. The Firm had lost a million rupees andmore and the Bank was itself a casualty. Thus started an investigationand allegations and counter allegations. The case from which thisappeal arises is the result.
The Firm finding itself in this predicament put the blame for its losson the Bank and perhaps desperately sued the Bank to recover its loss.This is what the Firm said : It had on its staff a Mr. Ingram who hadjoined the Firm in 1952 at a time when the Firm was in the hands of itsfounder, the Collette Family. He became the Firm's Sales Manager in1965. The Firm also had subsidiaries one of which was CollettesFinance Ltd. Mr. Ingram was a Director thereof. He belonged to the
Collettes Ltd. v. Bank of Ceylon (Rodrigo, J.)
same community as the Collette's family and from even prior to 1956the year from which the Firm's tale of woe begins had entrenchedhimself in the confidence of the Firm in his ability and integrity to suchan extent that he became its principal and even exclusive bankingofficer entrusted with all banking business and deposits of the Firm'scollections of cash and cheques. Even after Mr. Harasgama becamethe Firm's Managing Director in May 1962 he had not effectivelychanged Mr. Ingram's role in the firm. I say effectively because anofficer in one Mr. Ranasinghe had been assigned the task of takingcash and cheques to the Bank with a fidelity policy of insurance beingobtained in his favour. But in fact, Mr. Ingram had got Mr. Ranasingheto side-step and carried on as before as the Firm's exclusive BankingOfficer. Mr. Ingram had a brother in the Hong Kong and Shanghai Bankand also found himself a brother-in-law in 1956 in the Bank of Ceylon.The Bank supplied statements of accounts monthly till December1962 when Mr. Harasgama introduced a change in that regard andrequired statements of accounts to be supplied we.ekly. It is the Firm'saccount of what had happened that Mr. Ingram from July 1956 hadcarried the Firm's cash ostensibly for deposit with the Bank, but onmany occasions he had deposited the cash and cheques in his ownpocket instead of in the Bank and covered it up with appropriatefabrications of the bank statements. To enable him to do this he had toget hold of the bank statements at some point in their passage fromthe Bank to the Firm and this he did, though there is controversy as tothe point at which he did it. Even this was not enough for a successfulfabrication. There was the necessity to get possession of monthlyoverdraft limit advices and annual confirmation of balance slips. Thesetoo were successfully intercepted.
Though there was an accountant he was only a figurehead. He hadneither authority nor experience. In any case he had joined the Firmrather late in the day to have been in a position to become wise towhat was going on. Mr. Lionel Fernando was for all practical purposesthe Accountant. He has been there at all material times. He had thefirst opportunity and he had the resources' to detect that the weeklystatements and prior to that the monthly statemens were fakes andfabricated.
Anybody who has a bank account krows that the Banks send astatement usually monthly to its constituents of the state of his currentaccount. It will show the debits and credits and entries relating to
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withdrawals, deposits and transfers. This is the normal practice of theBank. It is useful to the constituent. This did not absolve theconstituent from keeping his own account of the transactions with theBank. In fact the statement requires the account holder to check itsentries carefully and bring to the notice of the Bank any error ordiscrepancy therein promptly. This can be done only if the accountholder himself keeps his own account of the transactions. Anyway theFirm had done that and found no errors or discrepancy in thestatements. That is because the statements had been fabricated. TheFirm, however, blames the Bank for this fabrication. It says that thisfabrication was possible because of the conduct of the Bank. Theconduct alleged.is that the Bank had handed over the monthly andweekly statements to Mr. Ingram instead of sending them by post as isusually done. This departure from practice has enabled or facilitatedMr. Ingram to obtain possession of the statements and fabricatethem. If Mr. Ingram had not got possession of the statements this wayhe would not have been able to fabricate them and prevent the Firm'saudit and accountants from detecting on the one hand themisappropriation of money and on the other, Mr. Ingram would nothave been able to misappropriate moneys for more than a month thelongest. The Bank is also blamed for Mr. Ingram having got possessionof blank bank statement forms without which these fabrications wouldnot have been possible.
But the Bank disowns reponsibility. It denies having handed over thestatments. It admits that a Mr. Abeywickrama, Mr. Ingram’sbrother-in-law who was the Ledger Officer in the Bank for two spells ofthree months each in 1967 and 1968 respectively had handed overto Mr. Ingram the Firm's bank statements and also on a few otheroccasions but not totalling more than 75 statements. The rest of thestatements are said by the Bank to have been sent by post. Thestatements handed over by Mr. Abeywickrama are said by the Bank,and it is not seriously disputed, to be genuine statements. It is also thecase for the Bank that in whatever manner Ingram got possession ofthe Bank's statements, they were genuine statements at the time Mr.ingram got possession of them. The Firm on its part denies that thestatements ever came by post and that they had always beencollected by hand 7om the Bank. If in fact the Bank could establish thatthe statements had been sent to the Firm by post over the period orfor a matter of tnat, even a few of the statements had been sent bypost during the period, then the bottom will drop from the Firm's case.
Collettes Ltd. v. Bank of Ceylon (Rodrigo. J}
There is. however, a finding by the Courts below that the statementshad been in fact delivered by hand to Mr. Ingram by Mr.Abeywickrema. Counsel for the Bank strenuously challenges thisfinding and seeks support for the Bank's assertion that the statementsother than the seventy five referred to were sent by post from anevidentiary presumption of fact. The Firm had not produced inevidence its inward mail register to disprove the Bank's assertion,though the Firm had listed it as a document to be marked in evidence.
I shall address myself to the question of the Bank's liability on thebasis of the finding in the Court below that the statements had beendelivered by hand over the period. The despatch of bank statements tocustomers, though a gratuitous service, is regulated by rules framedby the Bank itself for guidance of its staff. According to them they aredespatched by an adjuster to whom the Ledger Officer sends thestatements after they are prepared by him. In the case of branches ofthe Bank the statements are despatched by the Manager himself.They can, of course, be collected at the Bank by the customer himselfor an authorised representative of the customer. In that event aRegister is maintained for the person collecting the statement to signan acknowledgment of its receipt.
Mr. Ingram had collected the statements from the Bank but notaccording to the rules In the result it may be said that Mr. Ingram hadcollected the statements in the Bank premises but not from the Bank.But then this is taking a very technical view of bank practice. If Mr.Ingram in fact had authority to collect these statements, it could nothave mattered that the rules referred to had not been complied with.Mr. Ingram's brother-in-law on the Staff of the Bank had obliged Mr.Ingram by collecting the statements himself apd handing them over tohim. They had been collected from the Ledger Officer, when he washimself not the Ledger Officer in charge of the Firm's account.
It is this conduct of Mr. Abeywickrema that is at the root of thiscase. For the Bank it is contended that it is not bound by Mr.Abeywickrema's delivery of statements to Mr. Ingram because it wasnot part of his job in the Bank. That is to say it was not done within thescope of his employment or in the course of it. For the Firm it is saidthat the statements never came by post but were always collected byMr. Abeywickrema and handed over to Mr. Ingram in pursuance of aconspiracy between the two of them to defraud the Firm. But thealleged complicity of Mr. Abeywickrema is only circumstantial. It can
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well be that Mr. Abeywickrema was merely obliging his brother-in-law.It is a common experience that a customer will bespeak the goodoffices of a friend or an acquaintence in the Bank to expedite hisbusiness. It must not be forgotten that Mr. Ingram had occasion tocome to the Bank practically everyday to deposit cash and cheques andattend to opening of letters of credit and so on. It is not that he cameto the Bank only to collect statements. The point however is,assuming that the statements were never posted, whether Mr.Abeywickrema's conduct irrespective of his innocence or guilt is abreach of duty by the Bank, howsoever arising. Normally thestatements would have gone by post. Their delivery in this mannerwas unauthorised though some customers collect them over thecounter rather irregularly. But this is generally overlooked. Where anofficer dishonestly or even innocently but in a manner that is notauthorised and outside the scope of his employment delivers themover the counter, is the Bank liable to a customer for any lossoccasioned thereby ? This is the crux of the problem. In Foster v.Essex Bank (81) (approved in Giblin v. McMullen (82) ) the Cashierand Chief Clerk of the Bank fraudulently took and absconded withspecie deposited by a customer. The Court held that the Bank was notresponsible for their fraud or felony as when they abstracted thecustomer's gold from the cask in which it was contained, they werenot acting within the scope of their employment , and added :
"The Bank was no more answerable for their act than it wouldhave been if they had stolen the pocket book of any person whomight have laid it upon the desk while he was transacting somebusiness at the bank."
So that apart from negligence facilitating such an act on the part of theBank, a Bank is not liable for the loss of a customer's goods by thefraudulent felony of members of its staff. What has happened here isno different at the worst to the statements being stolen by Mr.Abeywickrema. It must be the same if the delivery of the statementsby a member of the staff was innocently done actuated by a desire tobe helpful to the customer. It makes no difference that Mr.Abeywickrema innocently thought that Mr. Ingram was in fact takingthese statements to the Firm. He may well have thought so, as therewas never a protest over this long period of twelve years from the Firmabout Mr. Ingram's bringing them from the Bank by hand. True it is Mr.Ingram was fabricating the statements and Mr. Abeywickrema's
Collettes Ltd v Bank of Ceylon fPodngo. JI
conduct was facilitating Mr. Ingram to do so. But where was thenegiigence of the Bank apart from Mr. Abeyw'ckrema's conduct tofacilitate the fabrication by Mr Ingram ? It is in evidence that it wasadministratively impossible for the bank to oversee the despatch ofindividual statements to the different customers. They are entered in aregister in bulk by the adjuster. So that if a particular statement isabstracted and delivered separately ?here is no way of detecting it.This is not negligence on the part of the Bank. There is yet anotheraspect to this matter. There is no negligence without a duty. Theordinary duty of the Bank is to repay the money deposited and honourthe customer's cheques The sending of statements by the Bank is agratuitous service. Where an expectation is created gratuitously in thecustomer that statements will come regularly from the Bank showingthe state of his account the Bank is only obliged to do its best withwhat it has got. It must use all facilities of which it is possessed, but itis not bound to do more. It is not bound to provide at its own expensethe means of ensuring a higher degree of performance. See Giblin v.McMullen (supra at p. 339). The relationship of the banker tocustomer is one of debtor and creditor only. It excludes any fiduciaryrelations in the banker with regard to the current account. See Foley v.Hill (83). This is because tha banker does not hold the customer'smoney in trust for the customer. The banker is the borrower of themoney which he is free to spend as he likes like any other borrower.Normally the Money Lending Ordinance would have applied here tobankers as well but for ss. 7 an 8 thereof as amended. So that there isnc, statutory duty for the bank even to keep accounts and much less tofurnish statements of account. It is the business of banking that hadbrought into being these practices which do not make the banker aprofessional accountant for the customer. The statements beingabstracted and deli ered in an unauthorised manner to anunauthorised person by d member of the staff not acting within thescope of his employment without the Bank itself being negligent infacilitating such conduct, I have already said, does not involve theBank in any liability for the loss sustained by the Firm by Mr. Ingram'smisappropriation and fabrication of the accounts. This will be more so,if as Mr. Abeywickrema says the number of statements delivered wasonly seventy-five most of which were during two spells of threemonths each as stated earlier. If Mr. Abeywickrema’s evidence is truethen the genuine statements that went by post would have had to beintercepted by Mr. Ingram in their passage to the Firm. If that were sothe fabrications have been committed without the Bank's unwitting
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assistance- to facilitate them. If the dank cannot be faulted for thedelivery, in the premises of the Bank, of the statements to Mr. Ingramby Mr. Abeywickrema the case for the pie-miff Firm in my view unsinto a blind alley. What is the position ar-smg from the failure on thepart of the Firm to produce its inward mail register to disprove theassertion by the Bank that other than the seventy-five statementsreferred to the statements had always been sent bv post ,n the normalcourse of its business ? There is no direct evidence of Mr.Abeywickrema handing over the statements other than those referredto. It is only circumstantial. One circumstance that breaks the chain isthe evidence of Bunny, the Ledger Clerk who says that nc statementswere collected by Mr. Abeywickrema from him For the Firm it hadbeen contended that the presumption arising from the failure toproduce, the inward mail register is rec -tted by exceptions that areapplicable to the facts of this case. If I had to reach a decision on thisaspect of the matter I am not sure that I would net have been inclinedto apply the presumption. In the view, however, I have taken thattaking the facts at its worst for the Bank in this regard, still no liabilityattaches to the Bank, I do not cons-der it necessary to decide thispoint.
The Courts below have reached a finding of fact that the bankstatements had in fact not been posted but all along collected in theBank premises by Mr. Ingram. The Bank sought to build an argumentbased on that finding oi fact to the effect that Mr. Ingram had impliedauthority from the Firm to collect the statements. In the Court ofAppeal, he was labelled 3n accredited representative. In support ofthis argument authorities wer e cited at length invoking such principlesof law as estoppel among others. This, in the first instance, is whollycontradictory of*the assertion by the Bank that the statements otherthan the 75 referred to had been posted and that the inward mailregister, had it been produced, would have clinched that assertion. Onan examinat nn of the evidence it appears to me that this argumentslurs over what has emerged as a basic fact that the statements, ifthey had been collected ss hey would appear to have been overa long period of time, had been so collected by Mr. Ingram fromMr. Abeywickrema who had delivered them to him in an unauthorisedmanner to oblige Mr. Ingram as a friend and brother-in-law. This line ofargument compelled the Bank to bring in a symbiotic argument thatthe corporate veil of the Firm had to be lifted to look closer to ascertainthe real standing of Mi . Ingram in rhe Firm'? set-up. The argument is
Collettes Ltd v Bank of Ceylon (Rodrigo, J j
that Mr. Ingram though the Sales Manager of the Firm from 1965 anda Director of Collettes Finance Ltd. from 1963 was in practice on apar with the Directors of the Firm by reason of his long associationwith the Firm and the trust and confidence thereby enjoyed by him. Hewas therefore not merely a Senior Executive, the argument ran, but infact was a directing mind of the Firm capable in law to bind it by hisconduct Thus, when he took delivery of the statements from anofficer of the Bank, it was in effect the same thing as the company orthe Firm itself taking delivery. Anyway, at the least, it is said,Mr. Ingram thus became the accredited representative of the Firm tocollect the statements though there was no written authority grantedto him, by the Managing Director of the Firm. This line of argumentopened the flood gates to no end of authorities and works onjurisprudence and the juristic nature of corporations and to decidedinstar,ces of when and how the corporate veil could be lifted to lookbehind the stage. The submission, however, ran into inevitabledifficulties in the factual matrix of the case. The Bank itself had notauthorised the delivery of the statements to Mr. Ingram. They hadbeen collected and delivered through what appears like a familyarrangement. It was never the Bank's affirmative case that its SeniorExecutive Officers or anybody high up in its hierarchy was aware of thecollection of the statements by Mr. Ingram and tha* they had given thepractice its stamp of approval in the normal course of its business.There was no evidence given by any bank officer includingMr. Sirimane or Mr Loganathan to attach that kind of character toMr. Ingram's conduct and neither has such a position been evenadumbrated in the pleadings or in the answers. I have touched on thisin deference to Counsel who took some time in expounding the law onthis matter. But it is unnecessary in my view to further consider thisquestion or examine tho authorities cited since there is no factualfoundation for this comcntion. I have already said that the manner inwhich the statements were delivered and collected did not involve theBank in any liability for the reasons referred to.
Then the Bank turned to yet another ground to absolve itself fromthis alleged liability namely to a wholesale fraud on the part of everydirector and every principal officer in the Firm other than theAccountant who it was said was only a figurehead as I had indicated.The argument is not that the Bank by any omission or commission onits part facilitated Mr. Ingram to commit a fraud on the Firm but theFirm itself from the Managing Director downwards to three other
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directors and its accounts officer including M,. Ingram was engaged indefrauding the shareholders of the Firm and the Bank itself. Thoughthe submission was vague as to the respective share of the spoils ofthe active participants in the fraud it was pointed in the direction thatMr Ingram did not take the money beyond the f-ont door o' ihe Firmbut made an about turn at the front door and found his way back to theroom of the Managing Director. Support is derived for this from theadmitted fact that from early 1S66 the Stock Sheets of tne Firm sentto the Bank which was the basis of the overdraft facility weredishonestly inflated to show a false stock position to obtain overdraftswhich otherwise it would not have got. These Stock Sheets had beensigned by two Directors Mr. Claessen ana Mr. Wickremasinghe whichwas unusual for them. They should have been normal'y signed byMr. Samuel, another Director but he did not. Dishonesty is allegedagainst the three of them. I have already pointed out that Mr. Claessenand Mr. Wickremasinghe might well have signed the statements notnecessarily through dishonesty but -hrough misplaced confidence inMr. Ingram. To avoid risks of detection, it was said that Mr. Samuelrequired certificates of balances coming from the Bank's Auditorsdirect to the Firm's Auditors to be diverted to the Firm itself thusby-passing its Auditors. Then there were the monthly limit advices.These were not collected by Mr. Ingram. They should have come bypost. But there is no evidence as to what happened to them assumingthey came by post in ordinary course and there is no satisfactoryevidence that they did not come by post or otherwise reach the Firm.The same was the position as to the fate of the Annual ConfirmationSlips. The inference of fraudulent conduct on the part of the ManagingDirector himself acquires added weight, it is said, from the conduct ofthe Managing Director himseif subsequent to the disclosure of thefraud by the Bank on 28 November 1968 in that he allowedMr. Ingram to take flight from the Island on 29 November anddeliberately delayed till 19 December to make a detailed complaint tothe Police though he had sent a tentative communication to the Policeon 7 December.
The point in this exercise is to invoke a principle that will absolve theBank from liability if it were otherwise liable. The basic Roman DutchLaw maxim that enunciates this principle is ex turpi causa non orituractio which in English Law finds its expression in the form ex dolo malonon oritut actio. The principle derived from this maxim, based as it ison public policy, is to deny the assistance of the Court to a plaintiff to
CoUettes Ltd. ■' Bank of Ceylon IRodrigo. J )
extricate himseif from the difficulties in which his own improbity hasplaced him. See De Zilva v. Cassim (84). It must however arise in atransaction which is either illegal, immoral or in the nature of afraudulent confederacy. See Broom's Legal Maxims-9th Ed. page473 Does *ms pnncipie then apply in the circumstances of this case ?
I thmk not The cases cited such as Gray v. Barr (85) wherein caseslike Colburns v. Patmore (86) and Hardy v. .Motor Insurers' Bureau(87) cited and referred to in the Court below are not applicable to thefacts of this case. There is no general principle that whenever theplaintiff is the wrong-doer in his own conduct without being involved ina conspiracy he cannot succeed in his claim or that it provides adefence to the defendant. If it were otherwise it will lead to the absurdresult that if you stole a bottle of whisky from me that I had purchasedin the Duty Free Complex without a duty free entitlement, I cannot sueyou successfully. If the plaintiff's Firm here is seeking to establish itsown fraud as part of its cause of action against the defendant-Bank themaxim, of course, will apply. But the Firm is seeking to do no suchthing. In fact though the claim of the plaintiff has magnitude in terms ofmoney, the issue in the case has hardly any. The issue is in inverseratio to the magnitude of the claim. The crux of the complaint of theFirm is this : It tells the Bank : "See what somebody in your Bank hasdone. He has handed over the statements of account to a scoundrel inour Firm. This has enabled him to misappropriate cash and cheques ofthe Firm and keep us in the dark as to the true position of our accountby a fabrication of the statements." to which the Bank says "He had nobusiness to do it. He had done it on his own. We are not bound by it."Whether this was a correct reply is what the Court has to decide. Seealso "Selected Essays" on the Law of Torts by H. S. Davis (1924)pages 558 to 571. lam of the view therefore that it was notnecessary for the Bank to use this principle based on public policy toresolve this simple issue of alleged liability of the Bank. The Bank doesnot have a need to concern itself with' the fraud committed by servantsof the Firm, be they exalted or low. It is true that the Bank itself hadbeen defrauded by inflated stock sheets. But it had not made anycounter claim for the fraud practised and it has no direct link to theground of claim of the Firm. It is therefore an error in my view toidentify the Firm itself in the alleged fraud on the part of its servants.There is no direct evidence that Mr. Ingram misappropriated themonies of the Firm or that he fabricated the statements. It is the
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circumstances that suggest strongly that he has. The fact of Mr.Claessen and Mr. Wickremasinghe signing the Stock Sheets whichwere false and inflated will make the Firm answerable to the Bank. Butto argue that they by that fact itself are proved to have signed thestatement fraudulently is not tenable. The principle of Derry v. Peek(88) has been invoked to clothe the conduct of Messrs. Claessen andWickremasinghe in fraud. Derry v. Peek is much misunderstood. SeeLe Lievre v. Gould (89). I do not think that Derry v. Peek (supra) willassist when it comes to invoking the maxim ex turpi causa non orituractio. As I have said this is simply a case of some servants, highlyplaced in the Firm misappropriating the monies of the Firm. Not one ofthem had committed a fraud on the Bank though the Firm isanswerable to the bank for the conduct of its servants in respect of theStock Sheets. Mr. Ingram and Mr. Samuel had deceived the twoDirectors into signing the Stock Sheets. Mr. Ingram's purpose inengineering false Stock statements was not so much to defraud theBank as to defraud the Firm by providing a cover-up formisappropriation by him. It is by no means a case of fraudulentconspiracy between the Bank and the Firm. Hence the totalinapplicability of the maxim referred to, to the facts of this case, whichcan be decided without regard to any such maxim. It is also a principleof law that where a dispute can be decided without invoking theprinciple of public policy it should be decided without invoking it.
The Bank then relied on a mortgage bond executed in favour of theBank after the discovery of the fraud to furnish additional security as acondition for continued availability of the overdraft facility from theBank. This, it was said, contains an admission by the Firm that theBank does not owe anything to the Firm. For the Firm it was arguedthat the mortgage bond was given under duress and therefore theadmissions contained therein are void. In the view I have taken andreferred to earlier in this Judgment that the Bank has not facilitated thecommission of the fraud by Mr. Ingram and so the Bank is not liable, itis not necessary to consider this submission.
would therefore dismiss this appeal with costs.
Appeal dismissed.