Sri Lanka Law Reports
(1982) 2 S L R
BROWN AND COMPANY
STEUART INDUSTRIES LTD.
COURT OF APPEAL
ATUKORALE, J., AND L.H. DE ALW1S, J.
C.A. (S.C.) No. 500/73(F) – D C. COLOMBO 69000/MFEBRUARY 24, 25 AND 26, 1982.
Res judicata – Civil Procedure Code, Sections 33, 34(1), 207 – One agreementTwo separate and distinct obligations – Two separate actions possible – Sale ofGoods Ordinance, Section 49(2) and 49(3) – Available market – Computation of
By an agreement dated 12.1.63 the Respondent granted'to the Appellant thesole rights for the sale'of and distribution of all Brother and Steuart SewingMachines assembled or manufactured in Sri Lanka. The appellant in turn agreedto purchase all the Brother and Steuart Machines assembled or manufactured in. Sri Lanka and guaranteed to purchase a minimum of 250 machines per month.The agreement was to come into effect on L 12.64 and was terminable on threemonths notice. The. Appellant failed to purchase the minimum number of machines
CABrown and Company v. Steuart Industries Ltd. (Alukorale, J.)441
per month and by letter dated 30.4.65 gave notice ot termination of agreementwhich terminated on 31.7.65. The Appellant had purchased only 181 machinesin December (shortfall 69) and 443 machines for the period 1.1.65 to 31.7.65(shortfall 1307).
The Respondent had filed action No.66972/M on 12.11.66 in D.C. Colombofor the recovery of half share- of total expenditure incurred by the Respondenton publicity in terms of the agreement. Judgment was given in favour of theRespondent. The Appellant contended that since the Respondent failed to includethe above claim in that action he was debarred from maintaining the presentaction. The District Judge held that Res Judicata did not apply and that damageswas awarded on the principle of S. 49(2) of the Sale of Goods Ordinance andnot S. 49(3).'
That the failure tu pay the advertisement charges’in terms of clause 1(0*01the agreement amounted to failure to fulfil that obligation. The failure topurchase the requisite number of machines under Clause 2(0 of the agreementconstituted a failure to fulfil a different obligation which is separate anddistinct from the obligation . to pay the advertisement charges. Hence theprinciple of res judicata did not apply.
That as the Judge had found special circumstances which made it unjust and
inequitable to apply the prima facie rule in Section 49(3) of the Sale ofGoods Ordinance the Judge was right in awarding damages on the principleembodied in Section 49(2).
Cases referred to:
Samichi r. PeirLs (1913) 16 NLR 257.
Vanderpoorten v. Peiris (1937) 39 NLR 5.
Mohideen v. Pitche (1913) 17 NLR 410.
Ceylon Estate Agency and Warehousing Co. Ltd. v. de Alwis (1966) 70NLR 31.
Croos v. Goonewardene Hpmine (1902) 5 NLR 259.
Dunkirk Colliery Co. v. Lever (1898) 9 Ch.' D. 20.
W. L. Thompson Ltd. v. R. Robinson (Gunmakers Ltd.) (1955) 1AER154.
Charter v. Sullivan (1957) 1AER 809.
APPEAL from judgment of the District Court of Colombo.
H.W. Jayewardene Q C. for the defendant-appellantC. Renganathan Q.C.. for plaintiff-respondent
May 27, 1982.
The appellant appeals from the judgment of the learned AdditionalDistrict Judge of Colombo awarding the respondent a sum of Rs.110,000/- as damages for breach of a contract entered into betweenAt the hearing of the appeal before us certain facts were
442Sri Lanka Law Reports(1982) 2 S.L.R.
either admitted or accepted as having Deen established on the evidencein the case.
By and upon Agreement bearing No. 1358 dated 12.1.1965 (markedP8) the respondent granted to the appellant the sole rights for thesale and distribution of all ‘Brother' and ‘.Steuart' sewing machinesassembled or manufactured by .the respondent in Ceylon subject tocertain terms and conditions stipulated therein. The appellant agreedto purchase for cash all the ‘Brother’ and ‘Steuart' sewing machinesas assembled or manufactured in Ceylon by the respondent coveringthe entire importation stocks to be drawn monthly or as mutuallyagreed upon. The:’ appellant also guaranteed the purchase of aminimum of ,250 machines every month from the respondent. Thisagreement (P.8) was to commence with effect from 1.12.1964. It wasterminable on 3 months’ notice being given by either party. Theappellant, in breach of this agreement, failed to purchase the minimumnumber of machines per month and by its letter of 30.4.1965 (P17A)gave notice of the termination of the agreement. The agreement wastherefore terminated with effect from 31.7.1965 and remained inforce only for a period of 8 months. Although the parties were atissue on this point in the lower court, it was not disputed before usthat P8 constituted an agreement for the purchase and sale of sewingmachines and that the relationship that- was brought into existencebetween the parties was that of a seller and purchaser. It was alsonot in dispute before us that the docurtient P9 set out accurately thetotal number of machines which the appellant had purchased fromthe respondent monthly from 1.12.1964. to 31.7.1965 i.e. during theperiod the agreement was in force.'Aicdrding to P9 the number ofmachines purchased by the appellant for the month of December1964 was 181 and for the period 1.1.1965 to 31.7.1965 was 443.There was thus a shortfall of 69 machines for December 1964 anda further shortfall of 1307 machines for the latter period, the appellanthaving failed to purchase for any one month the requisite minimumof 250 machines. At the trial, however, no claim seems to have beenpursued in respect of the shortfall for December 1964 and therespondent’s claim for damages on this score was confined to theshortfall for the period 1.1.1965 to 31.7.1965.
It is also common ground that the respondent on 12.11 1966 filedaction No. 66972/M of the District Court of Colombo against theappellant claiming the sum of Rs.3,889.43 cts. being the appellant’shalf share of the total expenditure incurred by the respondent on
CAHrown and Company v. Steuart Industries Ltd. (Atukorale, J.)443
account of advertisement and publicity, charges for the full period of8 months the agreement was in force:i According to the respondentthe appellant became liable to. feimbulrse the respondent in this sumin terms of clause 1(f) of the agreement P8. Certified copies of theplaint, the appellant's answer, the judgment and the decree in thiscase have been produced marked D9, D9A, D9C and D9D respectively.The respondent succeeded in the case and judgment was entered inits favour as prayed for in the plaint. One of the contentions of theappellant in the instant case, both in the lower court as well asbefore us. was that the respondent having failed to include -*thepresent claim for damages in that earlier action (a claim whichadmittedly had accrued to the respondent at the time of the institutionof that action) is now debarred from maintaining the present claimin the present ease.
The learned Additional District Judge in his judgment held withthe respondent on the issue of res judicata and awarded the respondenta sum of Rs. 110,(MX)/- as damages. He also held that the principleupon which the quantum of damages should be computed is thatwhich is embodied in s. 49(2) of the Sale of Goods Ordinance(Chap.84, Vol 3. N.L.K.) and not the prima facie rule laid down ins. 49(3). It is not in dispute that if the learned judge was correctin holding that the measure of damages is the one set out in s.49(2),the sum awarded constituted a correct estimate of the damagessuffered by the respondent."
Learned counsel for the appellant urged before us that the findingof the learned judge on the issue of res judicata was erroneous. Hiscontention was that the failure of the appellant to pay its share ofthe advertisement charges and its failure to purchase thfe minimummonthly amount of machines were failures to fulfil obligations arisingout of the same contract. They were inseparable obligations, onebeing tied up with the other. The agreement P8 is an indivisible oneand all claims arising out of it constitute one and the same causeof action and must therefore be included in one action. He alsosubmitted that the expression ‘cause of action’ in s.34(l) of the CivilProcedure Code has been given a broad and liberal construction witha view to giving effect to the principle embodied in S.33-, namely-,that every action must be so framed so as to prevent a multiplicityof actions and to ensure finality in litigation. He■ tti'Cis maintainedthat the learned judge was wrong in holding that the two claims inthe two actions constituted two different causes of action.
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Learned counsel for the respondent submitted that the failure topay the advertisement charges in terms of clause 1(f) of the agreementamounted to a failure to fulfil that obligation. The failure to purchasethe requisite number of machines per month in accordance withclause 2(f) of the agreement constituted a failure to fulfil a differentobligation which is separate and distinct from the obligation to paythe advertisement charges. The appellant has thus failed to performtwo separate and' distinct obligations arising out of the same contractwhich in turn has given .rise to two different causes of action andnot* to one. He also submitted that the purpose of s.33 is to preventa multiplicity of actions but in respect of the same cause of action.He therefore maintained that the learned judge was correct in comingto the conclusion that the causes of action in the two cases aredifferent and that as such his finding on the issue of res judicatamust be upheld.
On the question whether the two relevant clauses in the agreementP8. namely clause 1(f) and clause 2(f) referred to above, create twoindivisible and inseparable obligations or two separate and distinctobligations 1 am of the view that a perusal of the terms of theagreement clearly shows that the obligations cast on the appellantby the two clauses are quite separate and distinct from each other.Clause 1(f) refers to the sharing of the advertisement expensesbetween the two parties whilst clause 2(f) refers to the minimumnumber of machines that the appellant is obliged to purchase. Nodoubt as pointed out by learned counsel .for the appellant the firstclause does stipulate that the respondent’s (manufacturer’s) share ofthe advertisement expenses is restricted to a maximum of 3% of theappellant's purchase of machines. The maximum amount the respondentis liable to contribute as advertisement charges is thus dependent onand fixed by the value of the machines purchased by the appeljant.However the respective obligations of the parties under the twoclauses are totally different and independent. 1 am unable to acceptthe submission of learned counsel for the appellant that the obligationsunder the two clauses are tied up with one another. The real questionthat arises for our determination is therefore whether the claims ofthe respondent in the earlier action and in the instant case arose,as maintained by the appellant, on one and the same cause of actionor, as maintained by the respondent, on two different and distinctcauses of action.
As stated above learned counsel for the appellant contended thatok? courts have piven a broad and liberal construction to the words
CABrown and Company r. Steuart Industries Ltd. (Atukorale, I.)445
'cause of action ’., He argued that the obligation which the appellantfailed to fulfil in the first action was the failure to pay the sum ofmoney claimed as due from it on the agreement P8. The obligationwhich the appellant failed to fulfil in the instant case was its failureto pay another sum of money also on the same agreement. Theobligation in either case was therefore to pay a certain sum of moneydue on the same agreement. He thus submitted that the cause ofaction in the two actions was the same. I dp not think it is necessaryto refer to all the cases cited at the hearing, before us. In supportof his submission learned counsel for the appellant referred us tothe case of Samichi v. Peiris (1). In that case a sum of money dueto a judgment 'debtor under a contract was seized by thejudgment-creditor. A claimant claimed that money as the assigneeon a deed of assignment of all the debtor’s rights under the contract.The judgment-creditor consented to the claim being upheld and themoney seized was thereupon released from seizure. A further sumof money accruing later to the same debtor under the same contractwas seized by the same judgment-creditor. The same claimant setup title under the same assignment to this money too. Lascelles,C.J. and Wood Renton, J. held that the previous consent orderoperated as res judicata and that the judgment-creditor was debarredfrom challenging the claimant’s title to the money seized on thesecond occasion. Lascelles, C.J. in the course of his judgment statedas follows:
"The expression ‘cause of action' has different meanings, asis shown by the not very helpful definition in the Code. ButI do not think that, when a question of res judicata arises,the term means merely the denial of a claim. The ‘action’ wasthe claimant’s claim to the money. It is surely no answer tothe question what was the ‘cause ’ of the action?’ to say ‘Thejudgment-creditor's denial of this claim’. This carries the matterno further. It merely amounts to a statement that the claimwas disputed. The true ‘cause of action,’ it seems to me, isthe right in virtue of which this claim is made; the foundationof the claim which, in this case, is the right claimed underthe assignment. This was the true cause on which the actionwas founded.”
Wood Renton, J. in the course of his judgment expressed the sameview. He observed thus:
‘‘I am quite unable to interpret the expression ‘cause of action’contained in the explanation to that section (S.207), as being
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: 19H2) : S.L ft.
restricted to the particular subject matter claimed. The causeof,action must be held to include the denial of the right tothe relief^which a. litigant claims and, inferentialiy, a denialof the title by which he claims it.”
Applying, the' test. laid downin the above case to the facts of thisCase, it appears to me. that the cause on which the first action wasfounded was the, failure ,or refusal by the appellant to pay its shareof .the advertisement charges whilst the cause on, which the instantaction was based was the appellant’s failure or refusal to purchasethe stipulated minimum number of machines. Though arising out ofthe same contract, the claims of the respondent related to twoseparate and distinct obligations which the appellant had to fulfil interms of the contract P8. As observed by learned counsel for therespondent the decision in the above case seems to ; art rather thanhelp the appellant.
Learned counsel for. the appellant also relied on the decision inVanderpoorten v. Peiris (2). In that case the plaintiff in a previousaction sued the defendant for arrears of rent and for a cancellationof a lease bond on the ground that the defendant had, contrary tothe terms of the bond, sublet the premises to another. The defendantduring the course of that earlier action consented to a cancellationof the bond and the case proceeded to trial only on the questionof arrears of rent. The plaintiff thereafter filed the present actionto recover damages from the defendant for failure to keep thepremises in proper condition and to restore the compound to itsformer condition. The action was held to !be. barred by the decreein the previous action. It will be observed that there was in theprevious action a claim by the plaintiff for a cancellation of the bondfor a breach of one of its covenants. At the time of its institutionthe defendant had also committed a breach of the convenant to keepthe premises in proper condition which would also have entitled theplaintiff to a cancellation of the bond. In appeal it was urged onbehalf of the defendant, (the appellant) that as the plaintiff hadelected in the previous action to treat the tease as cancelled heshould in that case have included all the causes of action which hadthen accrued to him. In his judgment Poyser, J. (with Soertsz, J.agreeing) stated as follows:
“Having regard to the wording of section 34 of the CivilProcedure Code, I think the appellant’s contention must succeed Both in this case and the previous one the cause
CABrown and Company v. Sieuarl Industries Ltd, (Atukorgle, J.)447
of action was the same, viz,-the breach of covenants containedin lease No. 1506. If in the first action the plaintiff had notclaimed a cancellation of the lease and possession of the leasedpremises the position would have been different”
Although the matter is not free of doubt, it appears to me that theCourt took the view that where at the time of the filing of an actionseveral grounds exist for the cancellation of a lease but a plaintiffsues for a cancellation and damages on one or more but not on allthe existing grounds, he is precluded from maintaining a subsequentaction for damages on the remaining grounds, in the instant caseno cancellation was prayed for by the respondent. In fact the contractP8 had been lawfully terminated by the appellant by giving duenotice. In the above case Poyser, J. himself seems to suggest thatif cancellation had not been claimed in the previous action, the lateraction claiming damages for breach of the covenant to keep thepremises in a proper condition could have, been maintained.
Another case relied upon by counsel for the appellant is that ofMohideen v. Pitche (3). The plaintiff and the defendant in that caseentered into ah agreement by which the plaintiff was to sell for thedefendant in Europe certain produce delivered to him by the defendant.One term of the agreement was that the defendant was liable tomake good shortages on the transactions on receipt of the accountsof the sales. The plaintiff sued the defendant to recover the valueof some of these shortages. The defendant pleaded that the actionwas barred inasmuch as in a previous action he had been sued forthe recovery of the value of similar shortages under the sameagreement but the plaintiff had failed to include in that action thesubject-matter of the present action although the plaintiff had receivedprior to the filing of that action the account sales of the variousconsignments in question. The present action was held to be barred.The cause of action was held to be the same in both actions, namely,the failure of the defendant to discharge the obligation imposed uponhim by the agreement to make good the shortages. It will be seenthat the breach complained of in both actions was the breach of thesame obligation and not, as in the instant case, the breach of differentand distinct obligations. This case which, perhaps, signifies the utmostextent to which our law of res judicata extends can therefore bedistinguished from the instant case.
Learned counsel for the appellant referred us also to the case ofCeylon Estate Agency and Warehousing Co. Ltd. v. de Alvis (4). Inlhav case L.B. de Silva, J. stated that the expression ‘cause of action’
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has been given a broad meaning by Wendt, J. in Croos v. GunawardenaHamine (5) in the following passage in his judgment:
“1 think that the word 'obligation' in this definition is to beunderstood not in the narrow sense in which a parol promiseto pay, a promissory note and a mortgage, although given forthe same debt, may be described as three different obligations,but in the more generally understood sense of a liability topay that sum of money. Reading the definition in this causeof action was the same in both cases, namely the failure topay one and the same debt.”
B. de Silva, J. applying this test held that though two separatedocuments had been executed they were in fact one and referred-tothe same obligation, the obligation to repay the loan of Rs.40.000/-.This case does not appear to me to have much relevance to theinstant case.
On- a consideration of the above matters.I am of the opinion thatthe learned trial judge was correct in his conclusion that the twoobligations contained in clauses 1(f) and 2(f) of the agreement P8were distinct obligations giving .rise to two different causes of action.His finding dn the issue of res judicata must therefore be upheld. .
There remains for our consideration the question of the assessmentof damages. It is conceded that the appellant failed to purchase theminimum of 250 machines per month for any one' of the monthsfrom January to July 1965. There was thus a breach by the appellantof clause 2(f) of the agreement P8. What then is in the eye of thelaw the true measure of the damage suffered by the respondent asa result of this breach? Learned counsel for the appellant maintainedthat the assessment of damages should be based not on the generalprinciple set out in s.49(2) of the Sale of Goods Ordinance (Chap.84)but on the basis of the prima facie rule set out in s.49(3). s.49 readsias follows:
“49. (1) Where the buyer wrongfully neglects or refuses toaccept and pay for the goods, the seller may maintainan action against him. for-damages for non-acceptance.
The measure of damages is the estimated loss directlyand naturally resulting, in the ordinary course of events,from the buyer’s breach of contract.
Where there is an available market for the goods inquestion the measure of damages is prim? '—*" u“
CABrown and Company v. Steuart Industries Ltd. (Atukorale, J.)449
ascertained by the difference between the contract priceand the market or current price at the time or- timeswhen the goods ought to have been accepted, 'Of, if notime was fixed for acceptance, then, at the time, of the.refusal to accept,,.
There seefns to be a dearth of local judical authority on theinterpretation of the above section. Our Sale of Goods Ordinance5is based on the Sale of Goods Act, 1863, of England. The sectionof the English''Act which corresponds to our section 49 is section30. One has therefore to look to English decisions for guidance onthis matter.
It was the appellant’s contention that there was in this case anavailable market for sewing machines of the particular descriptionswithin the meaning of s.49(3) of the Ordinance and hence the measureof damages should be ascertained on the basis of the prima facierule in s.49(3). If this contention be accepted as correct, it is notin dispute that the respondent would be entitled to no more thannominal damages. Learned counsel for the respondent on the otherhand submitted that there was in this case no available market withinthe meaning of 'that subsection and that even if there was, the specialcircumstances in this case displaced the application of the prime, facierule in favour of the general rule set out in s.49(2) of the Ordinance.
What is an available market has been the subject of a few Englishdecisions. In Dunkirk Colliery Co. v. Lever (6) James, L. J. indealing with s.50(3) of the English Sale of Goods Act said:
“What I understand by a market in such a case as this i»,that when defendant refused to take the three hundred tonsthe, first week or the first month, the plaintiffs might have, jrenti?; in. waggons^ somewhere else, where they could sell it,just as they sell com on the Exchange, or cotton at Liverpool:that is to say, that there was a fair market where they couldhave found a purchaser either by themselves or through someagent at some particular place.” ,..
This definition of a market enunciated by James, L.J. Was referredto and accepted as binding on«him by Upjohn, J. in W.L. ThompsonLtd. v. R. Robinson (Gunmakers) Ltd., (7), He, however, added: ..
“Had the matter been res integfa, I think I should have foiihdthat an ‘available market’ merely means that the situation inthe particular trade wi the particular drea Was such'that tft£particular goods could be freely sold, and that there was a
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demand sufficient to absorb readily all the goods that werethrust on it, so that if a purchaser defaulted the goods inquestion could be readily disposed of.”
Referring to the above definition of a market by James, L.J. andthe more extended meaning of the phrase 'available market’ givenby Upjohn,J. in the above cases, Jenkins, L.J. in Charter v. Sullivan(8) made the following observations:
“I doubt if James,L.J.’s observations in Dunkirk Colliery Co.v. Lever should be literally applied as an exhaustive definitionof an available market in all cases. On the other hand, I donot find Upjohn, J.’s definition entirely satisfactory. 1 will not,however, attempt to improve on it, but will content myselfwith the negative proposition that I doubt if there can be anavailable market for particular goods in any sense relevant tos.50(3) of the Sale of Goods Act, 1893, unless those goodsare available for sale in the market at the market or currentprice in the sense of the price, whatever it may be, fixed byreference to supply and demand as the price at which apurchaser for the goods in question can be found, be it greateror less than or equal to the contract price. The language ofs.50(3) seems to me to postulate that in the cases to which itapplies there will, or may, be a difference between the contractprice and market or current price, which cannot be so wherethe goods can only be sold at a fixed retail price.”
It is , however, unnecessary to make in this case any pronouncementon the precise meaning of the words ’available market’ in s.49(3) ofour Ordinance, although I am of the view that the definition of‘market’ by James, L.J. in Dunkirk Colliery Co. v. Lever (6) appearsto be far tod narrow and restricted. It is now settled law in Englandthat s.50(3) of the Sale of Goods Act, 1893, provides only a primefacie rule and that if: on an investigation of the facts in a particularcase it is found that it is unjust to apply that rule then it shouldnot be applied – vide W.L. Thompson Ltd. v. Robinson (Gunmakers)Ltd., p. 160 and Schmitthoff on the Sale of Goods, (2nd Edition)p.181. In the instant case the learned trial judge declined to adoptthe prima facie rule given in s..49(3) and awarded damages on thegeneral principle set out .in s.49(2). He has adduced cogent reasonsfor doing so. There was evidence to show that the government hadbanned the importation' of sewing machines in 1961. A system ofquotas was then introduced. Initially each manufacturer was granted
CADrown and Company r. Steuart Industries Ltd. (Atukorale. J.)451
a quota of one million rupees in foreign exhange. The quota thateach manufacturer was entitled to receive thereafter depended onthe amount of machines he had produced and sold earlier. Thelearned-Judge has reached the conclusion that in this case if thepurchaser (the appellant) had purchased, as agreed upon, the minimumof 250 sewing machines per month, the respondent would have beenable to obtain a higher quota and consequently would have beenable to manufacture more “machines and earned more profit. Therewas, therefore, as found by the learned judge, a special circumstancewhich made it unjust and inequitable to apply the prima facie fulein this case, even on the assumption that there was an availablemarket. The learned judge was in my opinion right in awarding therespondent damages on the principle embodied in s.49(2) of the Saleof Goods Ordinance.
For the above reasons the appeal is dismissed with costs.
H. DE ALWIS, J. — I agree.