A. S. CHATOOR, Appellant, and THE GENERAL ASSURANCE SOCIETY, LTD., Respondent

045-NLR-NLR-V-60-A.-S.-CHATOOR-Appellant-and-THE-GENERAL-ASSURANCE-SOCIETY-LTD.-Respondent.pdf


Chatoor v. General Assurance Society, Ltd.
169
1958 Present: H. IT. G. Fernando, J., and Sinnetamby, J.A. S. CHATOOR, Appellant, and THE GENERAL ASSURANCESOCIETY, LTD., Respondent8. 0. 796—D. G. Colombo, 27216/M
Principal and agent—Fiduciary relationship—Duty of agent to act with perfect good
faith—Profits made by agent in the matter of his agency—Duty to account
and pay over—Burden of proof—Trusts Ordinance, s. 90—Marine Insurance
Act, s. #4.
Where an agent enters into any contract or transaction with his principal,he must act with perfect good faith, and must make full disclosure of all thematerial circumstances and of everything known to him respecting the subject*matter of the contract or transaction which would be likely to influence
the conduct of the principal.
Where any question arises as to the validity of any such contract ortransaction or of any gift made by a principal to his agent, the burden of provingthat no advantage was taken by the agent of his position and that thetransaction was entered into in perfectly good faith and after full disclosure,lies upon the agent.
It is an inflexible rule that no agent can be allowed in the matter of hisagency to make any profit for himself without the consent of his principal,
‘ and the fact that the principal did not suffer any injury by reason of the dealingof the agent cannot be taken into consideration in the application of therule.
An agent, who had been authorised by his principal, an insurance company,to issue within a reasonable time marine insurance policies on behalf of theprincipal in respect of rubber shipped to China, took advantage of his positionas agent to issue unauthorised policies after the reasonable time had elapsed.He further availed himself of his position as agent to withdraw from theprincipal’s bank account the amount of the premia without authority fromthe principal and without even affording the principal any means ofascertaining whether, in accordance with instructions, cancellation of thepolicies had been effected.
Held, that the agent was liable to account to the principal and pay over thevalue or measure of the benefit he received by issuing the policies. In such acase, the burden of establishing good faith lies on the agent.
Held further, (i) that the case fell within the scope of section 9 of the TrustsOrdinance.
(ii) that upon the findings of fact in the present case there was “ illegality ”within the meaning of the English Marine Insurance Act (which applies inCeylon via the Civil Law Ordinance).
-^^PPEAL from a judgment of the District Court, Colombo.
E. P. N. Gratiaen, Q.C., with Walter Jayawardene, John deSaram andM. Hussein, for the defendant-appellant.
W. Jayewardene, Q.G., with P. Navaratnarajah, Neville Samarakoon,8. Sharvananda and P. Banasinghe, for the plaintiff-respondent.
Our. adv. vult.
8LX
a3. V. B 11018—1,593 (1/69)
170 H. N. G. FERNANDO, J.—Chatoor v. General Assurance Society, Ltd.
March 17,1958. H. N. G. Fernando, J.—
The dispute in this case arises out of what Counsel has describedas certain “ exciting ” events which took place in the second half of theyear 1951 when a few businessmen in Ceylon entered into contractsfor the export of rubber to the Republic of China and after a periodof anxious delay caused by the difficulties of obtaining shipping spaceand by the risk of seizure or blockade by “ hostile ” parties, were ableto reap handsome profits from their shipments. The defendant wasone of these individuals and he apparently had in June 1951 eitherobtained or expected to obtain a contract with the Chinese NationalImport and Export Corporation of Canton to ship 1,500 tons of rubber
I.F. to Tientsin, and he expected to be able to ship the rubber inJuly 1951 under arrangements to be made for the purpose by thepurchaser.
– The defendant besides being a businessman carrying on his ownbusiness under the name of A. S. Chatoor and Company, had underthe same name been appointed the Chief Agent in Ceylon of the plaintiffSociety, an Insurance Company registered in India. The terms of theAgency agreement (document DIO) authorised the defendant to collectpremia and to issue receipts for premia at rates set out in the agreement.Although no express provision was made in the agreement for com-mission on business other than Life business, it is common ground thatthe defendant had actual authority to accept Marine Insurance andto issue policies in respect of such Insurance in the name of the Company,the agreed rate of commission for such business being 37 £ per centumof the amount of the premium, but that the defendant had no authorityto aooept Insurance for an amount exceeding Rs. 350,000 in respectof cargo on any one ship. The defendant also had authority to issuepolicies to himself in respect of produce shipped by him, and indeedone of the terms of the understanding was that his shipments wouldordinarily be insured with the plaintiff Society.
The shipment contemplated in June 1951 being a very much largerone than would be covered by the defendant’s ordinary authority, thedefendant sent telegram P3 of 25th July 1951 to the Society in thefollowing terms:—
“CHATOOR INTERESTED INSURANCE MARINE WFAWAR FOR EIGHT MILLION RUPEES SHIPMENT RUBBERTO TIENTSIN CHINA CHARTERED VESSEL CHINESE ORPAN AMERICAN FLAG TELEGRAPH MAY INSURE SHIP-MENT PROBABLY MIDDLE JULY.”
(Counsel at the argument in appeal are agreed that the words “ mayinsure ” meant “ may I insure ? ”). To this telegram the Society repliedimmediately by P4 agreeing to accept Insurance Up to 35 lakhs perbottom. This telegram was confirmed by the Society’s letter D4 of29th June 1951 in which it was further stated that the Chief Agencycommission for this particular business must not exceed 15% of the
H. N. Q. FERNANDO, J.—Chatoor v. General Assurance Society, Ltd. 171
premium. The defendant then expressed his disappointment at therate of commission and inquired by P6 of 3rd July what maximumamount the Society would be prepared to take keeping the existingrate of commission. On 13th July the Society explained in P7 then-reasons for restricting the total to 35 lakhs and the commission to 15%,the reason apparently being that they would only retain Insurancefor 4 lakhs per bottom and could re-insure for the excess up to 31 lakhsin London, themselves receiving only a commission of 15 per centumof the premium for this excess amount. This explanation was apparentlyacceptable to the defendant who replied by P8 of 20th July merelystating that the contents of P7 had been noted and that he wouldwrite to the Society “ when the occasion arises re the shipment of rubberto China”. The oral evidence both for the plaintiff and the defendantmakes it clear that the contemplated ship did not materialise for variousreasons and that the defendant as well as other interested shipperswere themselves ffenziedly attempting to secure alternative shippingspace. Ultimately an alternative ship, a Polish vessel “ Mickiewicz ”,was secured for the carriage of the defendant’s shipment as well as ofcertain other shipments of rubber from Ceylon to China. In this con-nection there was produced at the trial a telegram D15, received byMackies Ltd., who also had a contract for the shipment of rubber toChina, in which the Chinese purchasers informed Mackies that spaceon the “ Mickiewicz ” was fully arranged. In fact it would appearfchat a relative of the defendant, Shivajee, had assisted considerablyin securing space on this particular ship.
The Chinese buyers of the rubber must late in August have becomeaware that shipping space was secured, for the necessary arrangementsfor payment in Ceylon for the rubber were made between the Bank ofChina at Calcutta and the Bank of Ceylon in Colombo, which latter on29th August 1951 advised the defendant of their receipt from the Bankof China of what has been described as an advice of payment or a letterof credit. In lay language the Bank of Ceylon was authorised to paythe defendant for three different consignments of rubber, each of 500tons of Grades 1, 2 and 3 respectively, the total credit being for anamount of ten million odd rupees. In order to receive payment, thedefendant had inter alia to produce to the Bank of Ceylon an Insurancepolicy covering Marine Risks, War Risks, WPI and NPA—Blockade,Seizure and Capture. The fact that the contract was CIF is reflectedin the reference in the letter of credit to insurance being effected by theshipper and the freight being pre-paid by the shipper. It would appearalso from the terms of the advice of credit that it would expire on 5thOctober 1951. !
The defendant had not himself shipped rubber before and had arrangedwith Mr. de Soysa of Mackies Ltd. to purchase and ship 1,500 tons ofrubber on his behalf. In pursuance of this arrangement, the defendantissued an irrevocable authority to the Bank of Ceylon (P53 of 11thSeptember 1951) to pay to Mackies Ltd., on the negotiation of docu-ments, the sums otherwise payable to the defendant on the advice ofpayment.
172 H. N. G. FERNANDO, J.—Chatoor v. General Assurance Society, Ltd.
I have to turn now to the defendant’s arrangements to effect insurancein fulfilment of his CIF contract with the Chinese buyers. On 4thSeptember 1951 he sent to the plaintiff Society the following telegram(P9) :—
“ MAY ACCEPT TEN MILLION RUPEES MARINE SHIPMENTONE THOUSAND FIVE HUNDRED TONS RUBBER IN BALESTO TAKUBAR CHINA PER POLISH VESSEL MICKIEWICZLOADING NEXT WEEK OTHERS QUOTING FOUR PERCENTWAR RISKS INCLUDING SEIZURE BLOCKADE STOP PRO-VIDED CHIEF AGENCY COMMISSION AGREE TWENTYPER CENT REPLY IMMEDIATELY. ”
Here too it is agreed by Counsel that the words “ may accept ” meant(“ may I accept ? ”). The Society did not reply by telegram but didso by their letter P10 dated 5th September. By this they briefly in-formed the defendant “ of our inability to accept same (i.e ten millionrupees Insurance) and even what we suggested in our letter of 13thJuly 1951 in view of the conditions now prevailing in China”. Thedefendant’s evidence is that P10 did not reach him until 10th September.His next step was to send the telegram Pll of 13th September to theSociety:—
“YOUR LETTER FIFTH SEPTEMBER COVER ALREADYISSUED FOR THIRTY FIVE LAKHS ON STRENGTH OF YOURLETTER 29TH JUNE AND 13TH JULY ISSUING POLICIESTODAY PREMIUM TEN PERCENT. ”
On 15th September the defendant again wired to the Society “ canwe accept further 30 lakhs rubber to China 1 ” and added “ UnitedIndia, Sterling and Legal and General covering ”. The Society’s replyto both these telegrams was PI 3 of 17th September “ cancel rubbercover immediately: yours 15th declined ”, and they followed up witha letter P14 of the same date pointing out that the authority givenby the letters of 29th June and 13th July had lapsed and advising thedefendant to cancel the cover already issued and the policies. Inanother telegram P16 of 19th September the Society reiterated theposition that the defendant had no authority whatever to issue the coverand the policies and altogether repudiated them. They further directedthe defendant to cancel and to inform them of the name of the negotiatingBank “ whether the documents were negotiated or not ’*. This telegramtoo was followed up by a confirming letter declaring that the cover andthe policies are void and stating that it would be the defendant’s dutyto see that the policy is cancelled and is not used for payment by anyBank. By P18 of the 20th the defendant replied that the policies hadalready been issued and negotiated and that cancellation was nowimpossible, but stated in addition that he had cabled Hong Kong fcr re-insurance and will intimate reply. There followed further corres-pondence in which the Society continued to take up the position that
H. N. G. FERNANDO, J.—Chatoor v. General Assurance Society, Ltd. 173
the policies had been issued without authority and were void andrepeated their request for cancellation, while the defendant maintainedthat the June-July authority covered the issue. Ultimately by P29of 13th October 1951, the defendant cabled the Society as follows :—
" REFERENCE YOUR LETTER 29TH SEPTEMBER BUYERSAGREED HAVE INSURANCE THEIR END RETURNING OURPOLICIES AIR MAIL STOP WITHDRAWING FULL PREMIUMDEPOSITED YOUR ACCOUNT MONDAY PLEASE CONFIRMOUR ACTION URGENTLY”
and he again cabled thus by P31 of 16th October :—
"REFERENCE.OUR TELEGRAM THIRTEENTH PREMIUMWITHDRAWN POLICIES TREATED CANCELLED OUR RES-'PONSIBILITY. ”
The Society’s reply to P29 was apparently received after P31 wasdespatched, because P31 dated 16th October was clearly a follow-upto P29 and contained no reference to P30 of the same date. The textof P30 from the Society was as follows:—
“YOUR TELEGRAM STOP CANCELLATION ACCEPTEDWITHOUT PREJUDICE TO OUR RIGHTS TO CLAIM FROMYOU PROPORTIONATE PREMIUM STOP PLEASE FORWARDCONFIRMATION OF THE BANK IN WHOSE FAVOUR THEPOLICIES WERE NEGOTIATED.”
The evidence establishes that a total premium amounting toRs. 311,344*50 was paid into the Society’s account with the IndianOverseas Bank, Colombo on the 25th September, by cheque drawnby Mackies Ltd., that this amount was the premium payable on thepolicies covering a part of the defendant’s shipment of rubber to thevalue of 35 lakhs, that on October 4th 1951, by cheque drawn in hisfavour “(M/s Chatoor and Co. or bearer) ” the defendant withdrewfifty odd thousand rupees, and that thereafter the defendant on 16.10.51issued a cheque drawn on the Society’s account for Rs. 256,340*43payable to bearer, the amount of which sum was paid out to the defendantacross the counter. The defendant admits in his evidence that he with-drew the money on the second cheque himself and it would seem thatthe earlier cheque included a sum of Rs. 55,000 odd which, accordingto his computation, was the commission due to him on the premiumpaid for the insured shipment of rubber.
On the material which I have summarized above the Society on 17thSeptember 1952 instituted their action based on the preliminary aver-ment inter alia that the Society had appointed the defendant its ChiefAgent in Ceylon for all classes of Life, Fire, Marine Accident andMiscellaneous Insurance bumness and that the defendant functionedand served as Chief Agent raid was appointed and became its Attorneyin Ceylon for the said-purposes. The first cause of action pleaded inthe plaint was on the basis that the defendant had on behalf of thq
2*—J. N. B 110X3 (1/59)
174 H. N. Q. FERNANDO, J.—Chatoor v. General Assurance Society, Ltd.
Society issued the cover note of 7th September 1951 and the policieson 13th September 1951, that the Society was accordingly the insurerand that the risk of loss and damage was upon them and that accordinglythe Society is entitled to receive from the defendant the total premiumof 311 odd thousand rupees. The learned Judge has held that thepolicies were void and of no effect : hence this cause of action failed,and so also did the fifth cause of action which also rested on the validityof the policies. The third cause of action was on the basis that the properpremium was 40J per centum and constituted a claim for premiumat that rate. With respect to this cause the learned Judge has heldthat the proper premium was not 40J per centum. The correctnessof the findings with regard to these three causes of action was notchallenged in appeal and we are not called upon to re-consider them.
The fourth cause of action (cf. paragraphs 13 and 15 of the plaint)alleged that the defendant received a benefit by issuing policies in hisown favour; that the value of the benefit is rupees one million odd{based on the amount of premia at the rate of 40J per centum) andthat the defendant must in law account to the Society and pay overthe value or measure of this benefit. On this cause of action the learnedJudge held in favour of the Society, subject to the modification that theValue 6f the benefit was the amount of the premium calculated at therate of i0 per centum, on the footing that the defendant issued the policiesWithout the requisite authority from the Society (a point whichUnderlies the Judge’s conclusions with respect to all the causes of actionand to which I shall refer later) and that he did receive a benefit re-ferable only to the circumstance that he was the Society’s agent. Thebenefit—it might be better termed an advantage—was that he wasable to produce to the Bank of Ceylon a policy covering the insuredpart of his shipment of rubber, without which payment would not havebebn made on the Advice of Credit. The value to the defendant of thisbenefit or advantage was at the lowest the amount of the premiumordinarily payable on such a policy. (The value might conceivablyhave been computed as the equivalent of the nett profit which accruedtb the defendant from the “deal” in rubber, but the plaint■cfcmtaihed no claim on this basis). But by the payment of the premiuminto the Society’s account on 25th September 1951, the defendant wouldappear to have fulfilled his obligation to hold for or pay over to theSociety the value of the benefit or advantage. The subsequent with-drawal of the premium was in this view a separate and distinct act,the propriety and consequences of which were made the subject of theplaintiff’s second cause of action. In any event, even if the withdrawalcan be said to have “neutralized” the effect of the earlier paymentand thus given rise to the fourth cause of action, the points which wouldhave to be considered are substantially the same as those arising on thesecond cause of action.
Before dealing with the plaintiff’s second cause of action it & Con-venient tb refer to certain findings of fact of the trial Judge which,although not directly relevant to the matters involved in the Secondcause of action, must very properly have influenced the mind bf the tMal
H. N. G. FERNANDO, J.—Chatoor v. General Assurance Society, Ltd. 175
Judge in considering the credibility of the defendant’s evidence withrespect to those matters. These findings were (a) that the correspon-dence ending with the defendant’s letter P8 of 20th July 1951 onlyauthorised the insurance up to an amount of 3£ lakhs per bottom of ashipment to be made within a reasonable time and did not authoriseany insurance of any shipment due to be made about the end of September1951; (6) that the defendant was aware of this lack of authority whenhe sent the cable P9 of 4th September 1951 which on its face was a newapplication for authorisation; (c) that the defendant was guilty of abreach of duty if, as he maintained, he issued a cover note on the 7th ofSeptember because he was aware at this stage that the earlier authorityhad lapsed, and that he took advantage of his position as agent to issueunauthorised cover notes; (d) that the defendant was guilty of a breachof duty when he issued the three policies on September 13th, becauseit was perfectly clear from the plaintiff’s letter P10 of 5th September,received by the defendant on 10th September the latest, that the Societyhad declined the Insurance. Indeed the defendant had ultimatelyto admit in the course of cross-examination that he may have takenthe view that P10 had revoked any such authority as he might previouslyhave thought himself to have had.
Counsel for the defendant at the argument in appeal very propertyconceded that in law the earlier authority had lapsed and the policieswere accordingly issued without authority. But he argued that thedefendant might in good faith have thought that he still had authorityto issue the cover note on the 7th of September. Even if this be so,the Judge was surely right in holding that the policies were issued onSeptember 13th with the full knowledge of the absence of authority.Whatever the rights or claims which might have arisen against theSociety by reason of the issue of the cover note, the defendant as theSociety’s agent was bound to withhold the issue of the policies. Thegeneral authority to insure his own shipments gave the defendant noright to treat himself differently to a third party: if the cover notehad been issued to a third party would the defendant have issued thepolicies despite the Society’s letter P10 ? He would surely have withheldthe polioies even at the risk of exposing the Society to some action, ifany, maintainable upon the note.
In my view the only reasonable inference in the circumstances isthat, having regard both to the chances of large profits and to the diffi-culty of obtaining freight if shipment was not made on the “Miekiewicz”,the defendant was anxious at all costs to perform his contract withthe Chinese buyers and considered it essential to possess himself of apolicy of marine Insurance in order to fulfil his obligations under thecontract.
The answer of the learned Judge to the issues 4 (n) mid 5 (d) thatthere was fraud in the issue of the policies was reached after considerationof the matters I have just enumerated as well as of certain other points,to two of which I must refer. It was held that the statement in thetelegram P9 of 4th September, 1951, that other Companies were quoting4 pet centum was a false statement. On this point the Society was
176 H. N. G. FERNANDO, J.—Chatoor v. General Assurance Society, Ltd.
unable to tender evidence of falsity but there was ample evidence offalsity at the end of the case to justify the Judge’s finding. If at thetrial the defendant made no adequate attempt to prove the truth of hisstatement which related to matters within his own knowledge, it isnot legitimate to say in appeal that the onus was wrongly placed on thedefence.
It has been strongly pressed upon us that the finding of the trial Judgeupon issue 4 (/) to the effect that the cover note was actually issued after7th September but antedated to 7th September was erroneous andvitiated the main conclusion as to fraud in issuing the policies. Despiteappearances, however, there was no such finding and the answer to theissue did not constitute such a finding. In that part of the judgmentwhich deals expressly with the matter, the conclusion which the Judgereached was that he was unable to believe the defendant’s evidencethat he issued the cover note on 7th September, and that there was astrong suspicion that the cover note was antedated. The conclusionwas, in brief, only that 7th September was not proved to have been thetrue date. The answer given to the issue at the end of the judgmenthas to be read in the light of the comments made at the stage when thelearned Judge examined the relevant evidence which led to that con-clusion. Having regard to all the material upon which a finding of fraudin regard to the issue of the policies could have been reached, I cannotagree that the Judge's opinion as to the antedating of the covernote, even if erroneous, must be held to have vitiated the finding offraud.
The issues framed upon the second cause of action (alleged in paragraph
of the plaint) were the following:—
(e) Did the defendant as plaintiff’s agent having effected insuranceson its behalf pay into the account of the plaintiff Companypremia due to it in respect of such insurances 1
5 (/) Did the defendant thereafter withdraw the amount withoutauthority from the plaintiff Company 1
(ff) If issues 5 (c) and 5 (/) are answered in the affirmative was the
withdrawal of the said sum of K,s. 311,344-50 unlawful orfraudulent ?
Is the premia returnable by the plaintiff Company whether the said
policies of Insurance were void or not ?
la the plaintiff Company entitled to the sum of Es. 311,344-50 and
to recover the same from the defendant t
The principal question involved in these issues, and indeed as it turnsout the principal question for decision in the whole case, is whetherthe learned Judge correctly answered issue 5 (/) in favour of the plaintiff.If this issue had correctly to be answered in the affirmative, it was inmy opinion unnecessary for the plaintiff to rely on fraud or illegality,in the act of withdrawal and accordingly the question whether issue5 (g) was correctly answered is not material. With regard to the with-drawal, the arguments of Counsel for the defendant have-been (a) that
H. N. G. FERNANDO, J.—Ohatoor v. General Assurance Society, Ltd. 177
the Society did authorise the withdrawal of the premia, and (b) that inany event the burden lay on the Society to establish that the premiawere withdrawn without authority.
In order to consider these arguments it is necessary to determine byreference to the relevant correspondence what was the authorisation ifany given to the defendant and what were the terms of such authorisation.
The plaintiff Society had on several occasions requested or directedthe defendant to cancel the policies on the ground that they were issuedwithout authority and were void. But these requests and directions wereall at a stage prior to the departure of the ship from Ceylon: the lastof them was in the letter P24 of 29th September, which refers to thefact that the ship (Mickiewicz) “ is still at the wharf ” and to a Reuter'smessage stating that the ship had been comprehensively insured by theChinese Government—a circumstance which would enable the defendant "to withdraw the cover “even now and all matters set at rest". The“ mandate ” to cancel (as it was termed by Counsel for the defendant)was given at a stage when the risk of the voyage had not commenced,though risk of loading may have commenced earlier. If, therefore,cancellation had been effected before the departure of the ship fromCeylon, the defendant might have been able to maintain (although I donot so decide) that the mandate to cancel implied also a mandate torefund the premia, whether to himself or to the appropriate party, andthat there was implied authority to withdraw the premia. Toput the matter simply the Society, although it regarded the policies asvoid and might reasonably have expected that opinion to be confirmedin a Court of Law, would quite naturally have preferred to avoid notmerely the possibility of risk but also the possibility of dispute, by meansof a cancellation. If, therefore, the defendant had represented thatcancellation could be secured if the premia were refunded, the Societymight well have agreed to the refund upon the faith of that representation;and had the refund been made in such circumstances the argument thatthe falsity of the representation had to be established by the Societymight well have been entitled to succeed.
In fact however the defendant’s statement in his telegram P29 that thepolicies had been cancelled and were being returned to him by air wasmade after the departure of the Mickiewicz from Ceylon and accordinglyafter the stage had been reached when there existed the possibility of a•claim and a dispute. But even at this stage it is quite conceivable thatan offer of cancellation in consideration of the refund of the premia wouldhave been acceptable to the Society. But P29 was not an offer of can-cellation, but rather a statement that cancellation had in fact been effected,so that there was no question then of consent to a refund on the faith■of a promise to cancel. What then must be the meaning which canreasonably attach to the Society’s reply P30? For the defendant it isargued that the Society impliedly authorized the refund in the belief thatthe policies had been cancelled, or in other words, that they allowed themoney to get out of their control on the faith of a representation thatthe risk of liability had terminated. Much store has been placed on the•circumstance that P30 made no reference to the defendant’s statementof intention to withdraw the premia, and that the only matter reserved
178 H. N. G. FERNANDO, J.—Chatoor v. General Assurance Society, Ltd.
was a possible claim for a proportion of the premium. This argumenthas to be considered in the context of the situation existing at the time.The Society was in P29 informed by the original assured that an assigneeto whom the rights under the policy had passed had in fact waived thoserights. If that information was reliable, there would be no ground tofear any future claim or dispute and therefore no need for undue hastein returning the premia, which the Society literally had in its pocket atthe time. Suppose that the Society’s principal in Calcutta had beeninformed across the table of the facts alleged in P29: would he haveforthwith returned the premia, or would he rather have said “ everythingseems settled now; bring the cancelled policies and I will refund thepremia ”1 Suppose that the defendant himself had without authorityissued a policy to some third party who subsequently informed him of acancellation by an assignee: would he not have awaited the returnof the cancelled policies before making any refund ? While an insurermight reasonably refund a premium as an inducement to the holderof a policy to effect a cancellation, it would be quite un-businesslike tomake a refund after an alleged cancellation except upon surrender of thecancelled policy. In my opinion, therefore, the most favourable con-struction which the defendant can seek to place on the document P30,was that the Society thereby impliedly authorized the withdrawal of thepremia upon the condition that the policies had in fact been cancelled.The defendant as the Society’s agent had no authority to repay the premiaunless the policies had actually been cancelled. What he did in fact wasto withdraw the amount himself without even affording the Society anymeans of ascertaining whether cancellation had in fact been effected.All that the Society knew for certain at the time of the institution of theaction was that the amount of the premia had come into the hands of thedefendant in his private capacity, a situation which brings into operationprinciples of the Law of Agency and of Equity which have been expressedas follows:—
“ Where an agent enters into any contract or transaction with hisprincipal, or with his principal’s representative in interest, he mustact with perfect good faith, and make full disclosure of all the materialcircumstances, and of everything known to him respecting the subjectmatter of the contract or transaction which would be likely to influencethe conduct of the principal or his representative.
“ Where any question arises as to the validity of any such contractor transaction or of any gift made by a principal to his agent, theburden of proving that no advantage was taken by the agent of hisposition, or of the confidence reposed in him, and that the transactionwas entered into in perfectly good faith and after full disclosure, liesupon the agent.” (Bowstead—Agency, 9th Edn. Art. 52).
“ It is an inflexible rule of the Court of Equity that no agent can beallowed in the matter of his agency to make any profit for himself withoutthe consent of his principal, and the fact that the principal did notsuffer any injury by reason of the dealing of the agent cannot be taken,into consideration in the application of the rule.
H. N. G. FERNANDO, J.—Ohatoor v. General Assurance Society, Ltd. 179
“ James, L.J., in Parker v. McKenna said: ‘ The rule is an inflexibleone and must be applied inexorably by this Gourt, which is not entitled,in my judgment, to receive evidence or suggestion or argument as towhether the principal did or did not suffer any injury in fact by reasonof the dealing of the agent, for the safety of mankind requires that W>agent shall be able to put his principal to the danger of such inquiryas that.’
“ The relation is of a fiduciary nature whenever the principal reposetrust and confidence in the person whom he selects as agent. This is so inall cases of general agency, but where the agency is not a general onpits fiduciary nature depends upon the circumstances of the particularc.ase.
“ An agent will not be allowed to put his duty in conflict with fais.interest, and therefore he must not enter into any transaction likelyto produce that result unless he has made to his principal the fullestdisclosure of the exact nature of his interest, and the principal hasassented.” (Vinter—A Treatise on the History and Law of Fiduciary.Relationship and Resulting Trusts—3rd Edn. pp.154 and 155).
The “ transaction ” here in question was the act of withdrawal by meansof a cheque drawn on the Society’s account by the defendant acting as theSociety’s agent. Unless the policies had in fact been cancelled, thewithdrawal constituted an undue advantage to the defendant which hecould not have gained except for the power he had, as agent, to operateon the Society’s account. Hence the burden of proving cancellation andof establishing good faith lay on the defendant. This burden, accordingto the findings of the District Judge, the defendant has failed to discharge*
In his answer to issue No. 25 the Judge holds that there is no acceptable,evidence that the policies were cancelled. Counsel for the defendanthad to concede at the argument in appeal that if the burden of provingcancellation lay on the defence, the best evidence of cancellation had notbeen adduced; the production of the alleged policies was by itself quitpinadequate in the absence of proper proof (a) that they were the identicalpolicies issued to cover the rubber shipment, and (5) that they had infact been cancelled by the holder for the time being. Despite this, thelearned Judge might have held infavour of cancellationif he had felt ab}^to accept the oral evidence that the amount of the premia had beenrepaid by the defendant, either directly to the buyers or indirectly by;effecting cover in substitution for that issued in the name of the Society,.But this evidence too was rejected by the trial Judge upon grounds,which appear to be sound and which have not been seriously criticisedin appeal. In failing to prove that the policies were in fact cancelled,the defendant failed to establish that the act of withdrawal was authorisedby his principal.
Considered from another aspect, the circumstances in my opinion bringthe case within the scope of section 90 of the Trusts Ordinance. Un-doubtedly the defendant did have the authority to refund the premia
180 H. N. G. FERNANDO, J.—Chatoor v. OenercU Assurance Society, Ltd.
in appropriate cases upon cancellation of policies. But let us supposethat in a given month a dozen policies had been issued and the premiapaid into the Society’s account, and that the respective amounts had beensubsequently paid out of that account upon cheques drawn by the de-fendant and cashed by him at the Bank. If the withdrawals were queriedby the Society, would it suffice for the defendant merely to answer,without adducing proof of cancellation or refund, that he had afterwithdrawal of the cash, refunded the respective amounts in considerationof cancellations ? I think without hesitation that in such a case the receiptof cash by means of cheques drawn by the defendant in his capacityas agent constitutes an apparent advantage to himself, which the defendantwould be bound to hold for the benefit of his principal in terms of section90, unless of course he can show affirmatively that the cash was actuallyapplied for the purpose of making authorised refunds. Where, if anyother view be permissible, would there be the fulfilment of an agent’sduty to make the fullest possible disclosure of the facts and circumstancesof transactions with his own principal 1
“ The doctrine of fiduciary relationship is a doctrine of equity, therule being that a person must not take advantage of that relation toobtain a gift or other benefit to himself. Equity treats a breach of thisrule as a ‘ constructive fraud ’, and although there may be no fraudin fact the transaction is deemed fraudulent, because it is an abuseof some fiduciary relation, or, in other words, undue influence ispresumed from confidential relationship.” (Vinter op.cit. p.2)
The author (later on the same page) makes it clear that the doctrineapplies not only where the possibility of undue influence exists, but gene-rally in the case of persons standing in a fiduciary relation to others.
It is necessary to deal only with one further argument raised on behalfof'the defendant. One of the grounds on which the plaintiff Societysucceeded at the trial was that the premia paid in respect of the policieswere not returnable to the assured for the reason that although the policieswere void, there was fraud or illegality on the part of the assured. Section84 of the Marine Insurance Act (which applies in Ceylon via Cap. 66
L.E.) provides that where the consideration for the payment of thepremium totally fails, and there has been no fraud or illegality on thepart .of the assured, Ike premium is thereupon returnable to the assured.The argument for the defendant has been twofold—firstly that this is nota case of a failure of consideration but one where there was no consensus-ad-idem and therefore no contract, and secondly that even if section 84is applicable there was no fraud or illegality within the meaning of thatsection.
The first argument is in essence that this is not a case of void or voidablecontract, but one where there was no contract at all: and that thereforethe question whether the plaintiff is entitled to recover the premiumhas to be determined without reference to the Statute. While concedingthat where a contract is void as being prohibited by Statute or contraryto public policy a person who has paid any consideration is precludedfrom recovering it for the reason that he cannot plead his own illegal
H- N. 6. FERNANDO, J.—Chatoorv. General Aasurance Society, Ltd, 181
act, Counsel has argued that the position is different 'where the ground on■which recovery is claimed is merely that the opposite party did notin fact enter into a contract at all. But even if one assumes this argumentto be sound, it does not in my opinion avail the defendant. In issuingthe policies in the name of the plaintiff Society, the defendant made tohimself a representation that he had authority to issue the policies, and■what he is now seeking to do is to plead that he did not have the authority.To admit this plea would be tantamount to allowing the defendant torely on his own breach of duly to his principal and on conduct whichthe learned trial Judge has rightly found to have been fraudulent.
As to the second argument, it has been urged that section 84 deals onlywith a case of fraud or illegality on the part of the assured in his capacityas such, that is to say, with cases where the assured has obtained thepolicy either in contravention of some Statute or of some rule of publicpolicy, or by means of some fraud committed in relation to the Insurer.The present case, it is argued, does not fall within section 84 becausethe fraud, if any, was committed by the defendant not in his capacityas the assured but in his capacity as the agent of the insurer. I have justpointed out with respect to Counsel’s first argument that even if section84 does not apply, he must fail for the reason that the defendant cannotplead his fraud in his capacity as agent in order to seek recovery in hiscapacity as the assured. But quite apart from that consideration itseems to me that the section does apply because there was “illegality ”within the meaning of the section. Upon the findings of fact of the learnedDistrict Judge, the defendant acted at least dishonestly when he issuedthe policies knowing that he had no authority so to do. He intended tocause wrongful gain to himself by possessing himself of a document to beutilised for the purpose of deceiving the Bank of Ceylon into the beliefthat the policy was one duly issued on the Society’s behalf, and in fact hesucceeded in carrying out this deception. I am inclined to the opinionthat the circumstances bring the case within the principle to which illus-tration (d) to section 453 of the Penal Code furnishes an example. In thatillustration the case is one where the agent has actual authority to inserta sum not exceeding Rs. 10,000 on a blank cheque already signed by hisprincipal: but the mere fact that the agent fraudulently enters a largersum renders him guilty of forgery. That case illustrates the point thata fraudulent misuse of authority is equivalent to an act done withoutany authority.—
I must lastly mention the fact that Counsel for the defendant did notpress any claim for the retention of agency commission on the amount ofthe premia paid on the policies. If the act of issuing the policies cons-tituted a fraudulent breach of duty, the defendant would have no rightto a commission on the transaction.
I see no ground for interfering with the judgment and decree entered inthe District Court. The appeal is dismissed with costs.
Sinnetamby, J.—I agree.
Appeal dismissed.