Mrs. LILY M. DE COSTA, Appellant, and BANK OF CEYLON, RESPONDENT

101-NLR-NLR-V-72-Mrs.-LILY-M.-DE-COSTA-Appellant-and-BANK-OF-CEYLON-RESPONDENT.pdf


De Bank of Ceylon
457
1969 Present: H. N. G. Fernando, C.J., Sirimane, Jj, Alles, J.,Weeramantry, J., and WijayatiJake, J.Mrs. LILY M. DE COSTA, Appellant, andBANK OF CEYLON, Respondent8. G. 365/64 (F)—D. C. Colombo, 51102/AI
Cheques and dividend warrants—Collecting banker—Proceeds of a cheque credited toaccount of a person other than the true owner—Negligence—Liability of thebanker to the true owner—Burden of proof—English law doctrine of conversion—Inapplicability of it in Ceylon—Applicability to a cheque transaction—Roman-Dutch law—History and scope of its applicability in Ceylon—Proclamation of23rd September 1799—Adoption of Roman-Dutch Law Ordinance (Cap. 12)—An inaccuracy in s. 2 thereof—Ordinance No. 5 of 1852, s. 2—Scope and effectof it—Bills of Exchange Ordinance {Cap. 82), ss. 22, 27, 82, 9S (2)—LostCheque-Secondary evidence—Evidence Ordinance, ss. 65 (5), 65 (3)—Banker’sliability in English_.law-—Applicability in Ceylon—Civil Lato Ordinance(Cap. 79), s. 3—Action for money had and received—Maintainability-—Prescription Ordinance (Cap. tfS), s. 7—Quasi contractual liability—Condictioindebiti—Unjust enrichment.
Where a crossed “ not negotiable ” cheque in the form of a dividend warrantis indorsed by the payee with the words “ Credit my account only ”, a bankerwho collects payment of it and credits the proceeds to the account of a personother than the true owner is liable to pay the sum to the true owner if he actednegligently in crediting the collected sum to a wrong Account. In such a casesection 82 of the Bills of Exchange cannot protect the collecting banker, andhis liability has to be determined by the application of the English law ofconversion in respect of cheque transactions. The Bills of Exchange Ordinance(read with section 2 of Ordinance No. 5 of 1852) has the effect that theliability of a negligent collecting banker in Ceylon to the true owner of acheque is the same as would arise in England in a like case.
Alternatively, the collecting banker is liablo to the true owner on the basisthat ho received the money for the use and benefit of the true owner and,accordingly, an action for money had and received would lie.
Where a collecting banker is sued by the truo owner of a cheque for therocovery of the proceeds of the cheque credited by the banker to the accountof a person other than the true owner, tho onus, according to section 82 of thoBills of Exchange Ordinance, is on tho banker to show that he wa3 not negligentand that at tho. time when he received the cheque for collection there wassomething on the face of the cheque which justified the action taken by him ;in other words, the banker should show that the cheque was altered in such amanner as to mislead his officers.
Per Fehxaxdo, C.J., Alles, J., .and Weeramantry, J.—The English lawdoctrine of conversion is not part of the common law of Ceylon.
Per Sikimaxe, Weerajmajn'try and Wijayaiiuke, JJ.—Tho conversion ofa cheque by a collecting banker is also a matter of banks and banking, and ,thus affords another basis for the application of English law.
rxxri—20, 21, 22 & 232—J 12371—2,255 (3/70>
453
De Costa v. Bank oj Ceylon
Per SmiMATCE, J.—The general law of conversion has been considered to bopart of our law from very early times. But it is not necessary to decido it inthe present case.
Per IVefjumaktry, J.—The plaintiff is also entitled to succeed on the basisof tho law relating to unjust enrichment.
Daniel Stlva v. Johani3 Appuhamy (67 N. L. R. 457) discussed.
Appeal from a judgment of the District Court, Colombo.
Tho plaintiff, who was a shareholder of Den iy ay a Tea and RubberEstates Company, received from the Company a dividend warrant, inher favour for a sum of Rs. 30,637*13. The warrant was crossed “ NotNegotiable ” and was drawn on National & Grindlay’s Bank. The plain-. tiff made on the backof the warrant the indorsement “ Credit my accountonly” and duly affixed her signature. She then put the warrant in anenvelope, addressed it to her Bank, viz., the City Office of the Bank ofCeylon, and gave it to a servant to be posted, but there was no proofof posting. The warrant got into the hands of a third party, one Loga-nathan, who was said to be the proprietor of “ Movie & Co.”. It waspresented for payment at the Wellawatte Branch of the defendantBank of Ceylon and the money realised was credited to the account of“Movie & Co.”. The resultant position was that the amount collectedby the defendant Bank on the dividend warrant, the true owner of whichwas the plaintiff, was paid bj' the defendant to a person other than thetrue owner.
In the present action, the plaintiff sued the defendant for the recoveryof the amount of the dividend warrant on tire basis that the Bank hadwrongfully deprived the plaintiff of the proceeds of the warrant, oralternatively that the Bank had recovered tIre proceeds for the use ofthe plaintiff.
It was found by tho Supreme Court, in the present appeal filed bythe plaintiff, that the defendant’s officers acted negligently in creditingthe amount of the dividend warrant to the account of “ Movie & Co.”and that the trial Judge was wrong in his decision that there was nosucli negligence.
H. W. Jayeicardene, Q.C., with D. S. Wijewardane, M. Shanmuga-nalhan, Mark Fernando and B. Eliyalamby, for the plaintiff-appellant.
Banganalhan,Q.C., with N. Satyendra, C. Sandrasagara,
iV. Tiruchelcam and V. Jegasolhy, for the defendant-respondent.
Cur. ado. wit.
H. N. G. FERNANDO, C.J.—De Costa v. Bank oj Ceylon
459
December IS, 1909. H. N. G. Fernando, C.J.—
The plaintiff sued the defendant, the Bank of Ceylon, for the recoveryof a sum of Rs. 30,637-13, being the amount of a dividend warrant,on the basis that the Bank had wrongfully deprived the plaintiff of theproceeds of the warrant, or alternatively that the Bank had recoveredthe proceeds for the use of the plaintiff. The following facts as found bythe learned District Judge are not nov7 disputed.
In April 195S, the plaintiff received a dividend warrant drawn in herfavour “ pay Mrs. L. M. de Costa ” by a Company of which she wasa share-holder. The warrant was for a sum of Rs. 30,637-13 and wasdrawn on the National Overseas and Grindlays Bank, Colombo, whichmaintained a Dividend Account for the Company. The warrant whenissued by tho Company had been marked " & Co.”, and bore a rubberstamping "Not Negotiable”; the plaintiff then made on the back ofthe warrant the endorsement “Credit my account only — Mrs. L. M.de Costa ” and affixed her signature “ Lily de Costa ” below the endorse-ment ; the plaintiff had an account with the City Office of the Bank ofCeylon, and placed the warrant in” an envelope addressed to the CityOffice ; she had given the envelope containing the warrant to a servantto post, but there was no evidence of posting, and the warrant was notreceived in the post by the City Office of the Bank. It was howevercommon ground at the trial that the dividend warrant was in factpresented for payment on 30th April 1958, by the Bank of Ceylon tothe National Overseas & Grindlays Bank, which paid out to the Bank ofCeylon Rs. 30,637-13 being the amount of the warrant. This amount,however, was not credited to the plaintiff’s account.
The case for the Defendant Bank can be briefly stated : one Loganathan,under the business name “ Movie and Co.”, had a current account atthe Bank’s YVellawatte Branch, and had as its customer deposited tothe credit of that account the dividend warrant for Rs. 30,637-13 referredto in the plaint for the purpose of the proceeds thereof being collectedand credited to the said account; the Bank had received payment of- the amount of the dividend warrant for the said customer and had creditedthe proceeds to that customer’s current account; in receiving paymentof the dividend warrant and crediting the proceeds to the account of* 'Movie & Co.” the Bank had acted in good faith and wit hout negligence ;and the Bank had in good faith in the ordinary course of its business asa Banker paid out the proceeds of the warrant on cheques drawn by"Movie & Co.” on the said current account, before the Bank had noticeof the plaintiff’s alleged right in or to the dividend warrant or its proceeds.
The position for the plaintiff at the trial was that the first ba-sis ofthe claim against the defendant Bank was in delict, and that on thisbasis the plaintiff was entitled to recover as for a conversion if theEnglish law applies. The position for the plaintiff also was that even ifthe Roman-Dutch Law be applicable the defendant Bank was yet liablein delict. The learned District Judge over-ruled a submission for the
460H. N. G. FERNANDO, C.J.—De Costa v. Bank of Ceylon
defendant that tbe first causo of action pleaded in the plaint was basedon contractual liability and not on conversion ; I am in agreement withthis ruling of the District Judge, which was not challenged in appeal bydefendant’s Counsel, and I have nothing to add to the reasons statedby the Judge for his ruling.
In so far as the plaintiff claimed that the defendant was liable as fora conversion a3 known to the English Law^ the learned District Judgeconsidered himself bound by a decision of this Court in the Bank of Ceylonv. Kulalilake1 holding that the Law of Ceylon on the subject of a Banker’sliability is the same as in England. He nevertheless proceeded to holdfurther on the facts that the Bank had established that it had actedin good faith and without negligence, and that accordingly the Bankwas protected from liability by s. 82 (2) of the Bills of Exchange Ordinance(Cap. 82).
Subsequent to the delivery of the judgment of the District Judge inthe. present case, a Bench of three Judges of this Court decided thecase of Daniel Silm v. Johannis Appuhamy 2 and held that the Englishdoctrine of conversion is not applicable in Ceylon, and Tanibiah, J.further held that the case of Kulaiilake v. Bank of Ceylon had beenwrongly decided. It thus appeared, when this appeal was first arguedbefore my brother Sirimane and mj'self, that there was need to settlethe conflict of opinion as to the Law of Ceylon governing a matter ofgreat commercial importance, and hence the present appeal was reservedfor a decision of a Bench of five Judges. The long delay in the final disposalof the appeal by this Court is attributable to these circumstances.
One argument of Counsel for the Appellant was that the Englishdoctrine of conversion is part of the law of Ceylon, because the doctrinehas been applied in this country in judgments of this Court. Beforereferring to the judgments which were relied on for this argument,it is of interest to consider the question whether the law of Ceylonauthorised such a doctrine to be applied by our Courts, especially sincethe profitable researches of Mr. Satyendra have revealed that the Statutelaw relevant to that question may not have been properly understoodin the past. Our consideration of this matter has been much facilitatedby the Collection of Documents in Volume. II of Dr. G. C. Mendis’sedition of the Colebrook-Cameron Papers.
The first formal Commission to a British Governor of Ceylon, theLetters Patent issued on '19th April 179S to Governor Frederick North,declared the pleasure of His Majesty (George III) that the Governmentof Coylombe "placed as far as circumstances will permit under theDirection ” of " the United Company of Merchants of England tradingto the East Indies”. A similar declaration was contained in the KoyalInstructions of 26th March 179S also issued to Governor North. The 5thclause of these Instructions declared His Majesty’s Pleasure that theAdministration of Justice in Ceylon should nearly as circumstanceswill permit be exercised by the Governor in conformity to the Laws and1 (1957) 59 N. L. R. 13S.* (1965) C7 N. L. R. 457.
H. N. G. FERNANDO, C.J.—De Costa v. Bank oj Ceylon
461
Institutions that subsisted under the ancient Government of the UnitedProvinces. This clause permitted some deviations from those Laws,and the extent of the permitted deviations were set out in the Proclama-tion of 23rd September 1799, the Preamble and the first clause of whichit is useful to set out here fully :—
“ WHEREAS it is His Majesty’s gracious Command, that for thepresent and during His Majesty’s will and pleasure, the temporaryAdministration of Justice and Police in the Settlements of the Islandof Ceylon now in His Majesty’s‘Dominion, and in the Territoriesand Dependencies thereof, should, as nearly as circumstances willpermit, be exercised by us, in conformity to the laws and Institutionsthat subsisted under the ancient Government of the United Provinces,subject to such deviations in consequence of sudden and unforeseenemergencies, or to such expedients and useful alterations as mayrender a departure therefrom, either absolutely necessary and un-avoidable, or evidently beneficial and desirable; subject also to suchdirections, alterations, and improvements, as shall be directed orapproved of by the Court of Directors of the United Company ofMerchants of England trading to the East Indies, or the secretCommittee thereof, or by the Governor-General in Council of FortWilliam in Bengal.
We therefore, in obedience to His Majesty’s Commands, do herebypublish and declare, that the administration of Justice and Policein the said Settlements and Territories in the Island of Ceylon, withtheir Dependencies, shall be henceforth and during His Majesty’spleasure exercised by all Courts of Judicature, Civil and Criminal,Magistrates, and Ministerial Officers, according to the Laws andInstitutions that subsisted under the ancient Government of theUnited Provinces, subject to such deviations and alterations by anyof the respective powers and authorities hereinbefore mentioned,and to such other deviations and alterations as we shall by thesepresents or by any future Proclamation, and in pursuance of theauthorities confided to us, deem it proper and beneficial for thepurposes of Justice, to ordain and publish, or which shall or mayhereafter be by lawful Authority ordained and published.”
The Proclamation of 1790 thus declared that the Administration ofJustice shall be exercised by the Courts according to the Roman-DutchLaw, subject to deviations or alterations—
(а)iu consequence of emergencies, or absolutely necessary and un-
avoidable, or evidently beneficial and desirable ;
(б)by the Court of Directors of the East India Company or the Secret
Committee thereof or the Governor of Fort William ;
by Proclamation of the Governor ;
by lawful authority ordained.
But the Proclamation did not authorise any such deviations or alterationsto be made by the Courts of law.
4G2
H. N. G. FERNANDO, C.J.—De Costa v. Bank oj Ceylon
There were in fact several subsequent Proclamations passed by theGovernor under the power reserved by the Proclamation of 1799. Butthese became obsolete or inapplicable after a somewhat comprehensiveCharter of Justice was enacted in 1S33. Consequently, Ordinance No. 5of 1835 was enacted by the Governor with the advice and consent of the* Legislative Council. This Ordinance repealed the Proclamation of 1799and several other Proclamations, but the repeal of the Proclamationof 1799 was made subject to an express exception in the followingterms :
“ except in so far as the same (i.e. the Proclamation of 1799) doth,publish and declare that the administration of justice and policewithin the settlements then under the British Dominion and knownby the designation of the Maritime Provinces .should be exercised byall Courts of Judicature, Civil and Criminal, according to the lawsand institutions that subsisted under the ancient Government of theUnited Provinces ; which laws and institutions it is hereby declaredstill are and shall henceforth continue to be binding and administered. through the said Maritime Provinces and their dependencies, subjectnevertheless to such deviations and alterations as have been or shallhereafter be by lawful authority ordained.”
Thus the Legislature of Ceylon declared in 1835 that the Roman-Dutch Law shall continue to apply in Ceylon by virtue of the Procla-mation of 1799, and after the enactment of the Ordinance of 1835,deviations and alterations from or of the Roman-Dutch Law were notpermitted to any of the authorities specified in the Preamble- to the 1799Proclamation, and were permitted only if they were ordained by lawfulauthority. The meaning of this expression becomes clear when accountis taken of the fact that the Letters Patent of 23rd April 1S31 (Mendis,Vol. II, p. 13S) had established a Council of Government in Ceylon,the membership of which was prescribed in the Royal Instructions of30th April 1S31 (idem p. 142), and of the provision in the ninth clauseof these Instructions which required the Governor ordinarily to actwith the advice of that Council. From 1831 therefore,-the power to makelaws for Ceylon was committed to the Governor, acting with the advicoand consent of the Council, subject of course (as in all British Colonies)to the Governor’s special powers to act without such advice. What isimportant for present purposes is that the Proclamation of 1709 andthe Ordinance of 1S35 did not authorise the Courts to alter or deviatefrom the Roman-Dutch Law or to apply in Cc3'lon principles of English ■Law which conflict with the Roman Dutch Law. From 1S35 at least,such deviations or alterations could be effected only by Ordinance.
This examination of the relevant Documents and of the Ordinanceof 1S35 has shown that Chapter 12 of the Revised Edition of the Legis-lative Enactments of 195G is not an accurate reproduction of the provisionsof law relating to the application in Ce3*Ion of the Roman-Dutch Law ;Section 2 of Chapter 12 is incorrect in purporting to permit any deviationsor alterations other than those ordained by lawful authority.
II. N. G. FERNANDO, C.J.—Dc Costa v. Bank oj Ceylon
463
I pass now to refer to the judgments which, according to the argumentof Counsel for the Appellant in this case, were instances of the applicationin Ceylon of the English doctrine of liability for the conversion of chattels.The note of a case in 1877 Ram. 17, C. R. Matale 34526, states that thedefendant unlawfully detained and would not produce jewels whichhad been entrusted to him. The Court apparently held that the refusalto produce the jewels “ raised a strong presumption in favour of theopposite party This finding could well have been a reference to theestablishment as against the defendant of culpa, that is, of negligenceor fraud, which would be necessary for the Aquilian action in Roman-Dutch Law; the note docs not indicate that the Court regarded the caseas being one of "conversion” of the jewels. In a case reported in7 S. C. C. 86, the plaintiff had leased a still to the 1st defendant for aterm, and alleged that the 1st defendant had converted the still to hisown use by fraudulently transferring it to 2nd defendant. The 'plaintiffsued both defendants for restoration of the still and for damages. Thoplaintiff obtained judgment against the 1st defendant for the value ofthe still and there was no appealbytheTsfc-defcndant-against-the judg-ment. But the plaintiff himself appealed asking for judgment againstthe 2nd defendant for restoration of the still. This appeal was dismissedon the ground that having got judgment for the value of the still againstthe 1st defendant the plaintiff could not also get judgment a'gainst the2nd defendant for the return of the still. While the Court may haveassumed that the 1st defendant was liable as for a conversion, thereis nothing in the statement of facts or in the judgment to indicate thatthe 1st defendant would not have been liable otherwise than for a con-version, or that the/ Court admitted a basis of liability which did notarise under Roman Dutch Law. The case of Williams v. Baker Another1was one in which the plaintiff sued the defendants expressly on theallegation that they had “ unlawfully converted ” some coffee to thepossession of which the plaintiff was entitled. But the only questionwhich was disputed in the case was whether for purposes of limitationthe action had to be regarded as one ex delicto, and this question wasanswered in the affirmative. Here again the Court was not called uponto decide whether or not the acts of the defendants constituted a delictunder Roman-Dutch Law.
In the much later case of Sained v. Segutamby,2 Bertram C.J. andJayewardcne A.J. had occasion to consider the effect of decisions inCeylon which had apparently applied English Law in preference toRoman-Dutch Law, on a question concerning delictual liability. BertramC.J. made the following observations in this connection :—
“ Are we then to consider our own common law os supersededbecause certain eminent Judges in previous decisions and dicta havoignored or repudiated it ? On what principle can this be justified.These eminent Judges base their view upon tho proposition that' the Roman-Dutch Law, pure and simple, does not exist in this
1 (JSSS) 8 S. C. C. 765.* (1924) 25 N. L. B. 481.
i
464
H. N. G. FERNANDO, C.J.-—De Costa v. Bank of Ceylon
country in its entirety and that ‘it is not the whole body of Roman-Dutch Law, but only so much of it as may be shown or presumedto have been introduced into Ceylon * that is now applicable here!'a. With the very greatest deference to the high authority of these Judges,I-hesitate to apply such propositions to fundamental principles ofthe common law enunciated by authorities recognized as binding-wherever the Roman-Dutch Law prevails. Such principles may nodoubt, in course of time, become modified in their local applicationby judicial decisions, but it would be only by a series of unbroken• and express decisions that such a development could take place.Bui if our previous local authorities be examined, it will be foundthat they are by no means so formidable as might at first sightai^pear.”
It seems to me that the judgments relied on for the appellant in thepresent case, some of which merely used the word “ conversion ”, are noteven “formidable ” at first.sight. If, as well may have been the case insome of the instances, the facts were such as to found liability in delictunder Roman-Dutch Law, there was no purpose for a defendant tocontend that the more strict principle of liability for conversion underEnglish law is not applicable in Ceylon. None of the early decisions Ihave thus far examined has been shown to be one in which the liabilityof the defendant would not have arisen under Roman-Dutch Law, nor canit be said tliat they constitute “ a series of unbroken and expressdecisions ” applying an English law principle of liability unknown to theRoman-Dutch Law.
Jayewardene A. J., in the case last cited (25 N. L. R. at p. 495), quoteda statement from Black in his “ Law of Judicial Precedents ”, p. 43 :—
“ The authority of a precedent extends only to rules or principles oflaw expressly decided or tacitly assumed by the Court itself. Ineither case, there must have been an application of the judicial mindto the question of law involved, whether the result is explicitly statedor not. Hence when counsel in the argument of a case assume acertain principle advanced by them as correct law, and the Courtdecides the case upon the assumption thus made by counsel, w'ithoutdiscussing the correctness of the assumption, the opinion is not 1authority as to the legal validit3* of the principle so taken for granted.The rule is the same as to matters which, without being submitted tothe Court for determination, are simply treated as settled by theparties on both sides without objection.”
At the best, the Ceylon decisions in what are claimed to have been casesof conversion have applied the English principle merely on a presumptionthat the principle is applicable in Ceylon, and without any deliberatelyexpressed intention to introduce a basis of liability unknown to theRoman-Dutch Law of Delict.
H. N. G. FERNAXDO, C-J.—De Costa v. Bank of Ceylon
465
In the case of Dodwell <fc Co. t>. John1 their Lordships of the PrivyCouncil did not pronounce upon the question I am now considering.Although one of the causes of action pleaded in that case was that ofconversion, an alternative cause, namely that cheques were received bythe defendants with notice of a breach of trust on the part of the drawerof the cheque, was quite clearly established on the facts of the case, andtheir Lordships dealt with the case on this latter footing. They didhowever make the observation that "it may well be true that theprinciples of the English common law have been so far recognised in thejurisprudence of Ceylon as to admit of the same question being treated asone of a conversion having taken place. If so, undoubtedly there was aconversion according to these principles But this observation was notpreceded by any reference to the decisions of the Ceylon Courts which Ihave considered, nor was there need for Their Lordships (as there hasbeen for the present Bench) to examine the effect of the Proclamation of1799 and the Ordinance of 1S35.
The case of Punchi Banda v. Ratnam 2-was-one-in-which the Court andCounsel quite obviously assumed that the English doctrine of conversionwas part of our law. Neither in the judgment nor in the notes ofCounsel’s argument is there anything to show that the question whetherthe doctrine doss apply was in any manner disputed ; fhe only matter indispute appears to have been the question of the time from which anduntil which damages were payable for the wrongful deprivation of theplaintiff’s property. Considering that there had not been in fact anyprevious pronouncement by our Courts which considered and decidedthat the doctrine of conversion is applicable in Ceylon; and that theCourt in Punchi Banda v. Ratnam was not invited to decide whether ornot the doctrine is so applicable, the decision docs not support theAppellant’s argument.
I hold for these reasons that decisions of our Courts have not intro-duced and adopted the basis of liability for conversion which obtainsunder the English common law. This conclusion is, however, notdecisive of the question whether, as was held in the Bank oj Ceylon v.Kulalilake, the liability of a collecting Banker to the true owner of acheque is the same in Ceylon as it would be in England. It has beenargued for the appellant in this case that such liability does exist inCoylon in view of certain provisions of our Statute law which have nowto be considered.
Ordinance No. 5 of 1S52 introduced into Ceylon the law of England incertain cases. Section 2 of the Ordinance provided as follows :—
“The law to be hereafter administered in this Colony in respect ofall contracts and questions arising within the same upon or relating tobills of exchange, promissory notes, and cheques, and in respect of allmatters connected with any such instruments, shall be the same inrespect of the said matters as would be administered in England in the
{1918) 20 N. L. B. 206.
* {1941) 45 N. L. It. 198.
456
H. N. G. FERNANDO, C.J.—De Costa v. Bank of Ceylon
like case at the corresponding period, if the contract had been enteredinto or if the act in respect of which any such question shall havearisen had been done in England, unless in any case other provision isor shall be made by any Ordinance now in force in this Colony orhereafter to be enacted.”
At the time of the enactment of this section, the law of England con-cerning contracts upon bills of exchange, promissory notes and cheques,was the common law, including the law merchant as developed at thatstage, and s. 2. had accordingly the effect that the rights, duties andliabilities of parties to the contract upon any such negotiable instrumentwould be regulated by the English common law. But this was not theonly effect of the section ; for it provided that the English law wouldapply also in respect of all questions relating to suck instruments and of allmatters connected with such instruments. If then a question arose as to -the liability of a collecting Banker to the true owner of a cheque, it couldfairly be said that there was involved a question relating to a cheque :
. one of the special incidents affecting a cheque, and perhaps the mostimportant such incident, is the collection of a cheque by one Bank fromanother, and indeed the commercial practice of the making of paymentsin discharge of monetary liabilities by means of cheques is renderedeffective through the system of the collection by Banks of the proceeds ofcheques, and if in English law a Banker incurred a liability to the trueowner of a cheque because he had collected the proceeds and creditedthem to the account of a customer, the law by reason of which thatliability arose could fairly be regarded as the law in respect of a questionrelating to a cheque.
Counsel for the Bank in this appeal have contended that the Englishdoctrine of conversion is a doctrine which relates to all dealings withchattels inconsistent with the rights of the true ouaier, and is nottherefore a law in respect of questions relating to cheques within thecontemplation of s. 2. This contention pre-supposes that the framers ofs. 2 had consciously in contemplation certain particular principles ordoctrines of English law, and intended only these to apply in the casesreferred to in tho section. But the terms of the section indicate anintention that, in respect of the specified contracts, questions and matters,the English law as prevailing at the relevant time, shall be applicable.Emphasis was thus laid in the Section rather on the cases in which theprevailing English Jaw shall apply, than on any contemplated principlesor doctrines of English law which are to be applicable. Indeed s. 2 hadthe effect that some principle defined or recognised in England evensubsequently to the enactment of tho Section w'ould apply in suchcases.
The particular provision of s. 2 of the Ordinance of IS52 which I amnow examining is the declaration that “ in all questions relating tocheques, the law to be administered shall be the same as would boadministered iii England in like case”. The construction of this pro-vision requires primarily a determination whether there is for decision
H. N. G. FERNANDO, C.J.—De Costa v. Bank of Ceylon
4C7
some question relating to a cheque ; and if the determination is that thereis such a question, then the English law must be administered to decidethe question. I can concede that not every matter concerning a cheque,such as the mere theft of a cheque or the placing of a cheque in thecustody of some person, is a “ question ” contemplated in the provision.But where the alleged or proved circumstances indicate some dealingwith a cheque which is peculiar to its character as a cheque, and which isfor a purpose connected with that character, and some question thenarises as to the effect or consequences of such dealing, docs not thatquestion relate to a cheque ? If this be not so, the reference in the pro-vision under consideration to " questions relating to cheques ” apparentlyadds nothing to the matters denoted in the earlier reference in s. 2 to“ contracts ” upon cheques. Moreover, the subsequent reference in s. 2to “ all matters connected with cheques *' would appear to be quitewithout purpose if a dealing of the nature I am contemplating is not tobe regarded as such a matter. I rely in this connection on the reasonsstated by Lord Denning for the opinion that the collection of cheques bya Banker is characteristic of a Banker’s business. (United DominionsTrust v. Kirkwood J).
A further and ingenious argument of Counsel for the defendant Bankdepends on the fact that the English doctrine of conversion is one whichapplies to the taking of a chattel, and that what is taken in the presentcontext is a piece of paper, and not a cheque in its character of an order inwriting. Having pointed to this distinction, Counsel argued that whens. 2 referred to the law to be administered in respect of a question relatingto a cheque, what was contemplated is a question relating to the order inwriting, and not one relating to the paper on which it is written, or inother "words a question relating to a chose in action and not one relatingto a chattel. Since the doctrine of conversion is part of the Englishcommon law affecting chattels, there was no intention in s. 2 of theOrdinance of 1S52 to introduce such a doctrine, the intention of thesection being only to introduce the English law relating to certain chosesin action, including cheques in their character as such. The same argu-ment was presented in connection with a subsequent Cc3'lon enactment,and I shall have to consider it later in this judgment in that connection.But in the case of s. 2 of the Ordinance of 1852, the problem for solutionis not which principles of English law were intended to be introduced, but(in the present context) which questions relating to cheques were intendedto be determined b}r the administration of English law. -Even on a con-cession that a question properly relates to a cheque only in its characterof “ an order in writing ”, a collecting Bank does not deal with a merepiece of paper ; the Bank takes a piece of paper upon which is inscribedthe order in writing, and the tort of conversion is not complete until IheBank uses the paper in its character as an order in writing by presentingit for pa3rment. ■ Indeed, in the instant case, the defendant Bank wouldhave committed no tort even by so using the paper, if ultimately the
1 (1966) 1 A. E. R. 068.
468JET- 1ST. G. FERNANDO, C.J.—De Costa v. Bank of Ceylon
proceeds of the payment had been credited to the account of the plaintiff.There thus appears to be a clear distinction between a case of a chequewhich a Bank merely retains and refuses to surrender to the true owner,and of a cheque on which a Bank collects a payment which is not creditedto the true owner. In the former case, there may bo conversion of thepiece of paper with some writing on it; but in the latter case, there isconversion of the paper in its character as a cheque. I thus reach theconclusion that, even if the intention of s. 2 was only to introduce theEnglish Ioav relating to cheques in their character as choses in action, theintention covered a case in which a collecting Bank deals with acheque and the jjroceeds thereof in the manner established in the instantcase.
I have not found it necessary to rule xipon the submissions of Counsefor.the appellant regarding the history of the action for conversion inEnglish Law, and the manner in which that action became available toafford relief to the true owner of a cheque against a Bank which collectspayment of the cheque for a person other than the true owner. It sufficesto point out that the utilisation by the Courts in England of a legal fiction,for the purpose of rendering a collecting Bank liable to the. true oiracr ofa cheque, establishes the concern of the Courts with a problem whichspecially concerned Banks and cheques. That being so, there is muchforce in the submission of Counsel for the appellant that the English lawof conversion, in its application to the facts of a case such as a present one,should be regarded as a law relating to the collection of cheques by a Bankand therefore as being within the contemplation of s. 2 of the Ordinance of1S52.
For the reasons which have been now stated, I am satisfied that so longas s. 2 of the Ordinance of 1852 was in force, the liability of a collectingBank in Ceylon in circumstances such as exist in the instant casehad to be determined by the application of the English law. At firstthe relevant English law would have been the common law, includingthe law Merchant.
When and after the Bills of Exchange Act was passed in England in1SS2, to amend and codify the law relating to negotiable instruments, theeffect of s. 2 of our Ordinance of 1852 was that the liability' of a collectingBank had to be determined in Ceylon under the English Act- Accordinglya collecting Bank in Ceylon coukl rely on s. 80 of the English Act andwould not be liable to the true owner of a cheque if it could discharge theburden of proving that it had acted in good faith and without negligence(Marfcini v. Midland Bank Ltd.1).
In connection with the argument that s. 2 of our Ordinance of 1S52introduced onlyr the principles of English Law relating to negotiable-instruments, Counsel contended that s. SO of the English Act was a specialexception to the operation of the English doctrine of conversion, i.e., an
1 (1967) 3A.E.B. 967, at 973.
H. N. G. FERNAKDO, C.J.-—Dc Costa v. Bank of Ceylon
469
exception to a general principle of the common law and not to anyprinciple of liability applicable to dealings with negotiable instruments,as such. It is relevant however to consider the purpose of s. 97 (2) of theEnglish Act, which provided that “ the common law, including the lawof merchant, shall continue to apply to Bills of exchange, promissorynotes and cheques
Counsel who argued this appeal have not been able to discover anydecision in which an English Court has after 1SS2 considered the questionwhether s. 97 (2) of the Act had to be invoked in order to render acollecting Bank in England liable in conversion to the true owner of thecheque. The absence of such a decision however creates no doubtin my mind as to the true answer to this question. The terms ofa. 97 (2) are so wide and general that any basis of liability under thecommon law would be included in its scope. Even if it was not strictlynecessary to enact s. 97 (2) in order to continue the application ofsuch a basis of liability,-t-he enactment of that section_was ^expedientat least ex abundanti cautela.
In Daniel Silva's case1 T. S. Fernando J. construed 8.98 (2) of the CeylonBills of Exchange Ordinance, which corresponds to s. 97 (2) of the EnglishAct. In his opinion, the section was intended only to apply to anyomissions or deficiencies in the Ordinance, in respect of the law relatinginter alia to cheques. The words which I have just italicised do not how-ever occur in the section ; if they did so occur in the English s. 97 (2) theywould have implied a contemplation that, apart from the rules as codifiedin the Act, there remained some residuum of rules concerning negotiableinstruments which it was expedient to preserve. But the language ofs. 97 (2) as actually enacted did not seek to define in that narrow waythe nature or substance of the rules of the common law which the sectionintends to preserve, and there is no justification for reading into thesection words upon which to found the narrow construction. The opinionto which I refer was expressed without consideration of decisions inEngland, which resorted to s. 97 (2) for the purpose of applying rules ofthe English common law relating to estoppel (1907, 2 K.B. at p. 746) andto the conflict of laws (1904, 2 Q.B. $70). In neither instance was theremerely the question of supplying any deficiency or omission in the Act’scodification of the rules of law relating to negotiable instruments.
Having examined the English Act of 1SS2, I am satisfied that all itsprovisions applied in Cejdon by virtue of our Ordinance of 1852, and thatfrom 1882 the liability of a collecting Bank in Ceylon was the same as thatwhich arose in England in similar circumstances.
At the present time however it is not the Ordinance of 1852 whichdetermines the law to be applied in Ceylon to negotiable instruments.The Legislature in 1927 enacted the Bills of Exchange Ordinance (nowCap. 82). Counsel for the defendant Bank contended in this appeal
1 (1965) 67 N. L. B. at p. 461.
470
H. N. G. FERNANDO, C.J.—De Costa v. Bank oj Ceylon
that a proper consideration of the question of law disputed in this caseBhould commence with an examination of this Ordinance, and thatreference to the Ordinance of 1S52 is only permissible if someprovision of Chapter S2 necessarily requires such a reference to be made.I must explain why I have chosen the opposite course.
The Legislature in enacting the Ordinance of 1927 stated in the longtitle its purpose “ to declare the law relating to bills of exchange, cheques,banker’s drafts, and promissory notes ”. A statement of the same pur-pose was contained in the Statement of Objects and Reasons wlv'ch wasappended to the draft Ordinance in the Gazette No. 7,539 of July 30, 1926(Part-II). This statement included as a reason for introducing the draftordinance the fact that Judges of our Courts did not readily have availablecopies of the English Bills of Exchange Act, which at that stage was thelaw which those Judges had to apply. So unusual a reason for the intro-duction of a draft Ordinance which professed to declare the law wouldjust.if3' a departure from the rule that resort to a Statement of Objects andReasons should not ordinarily be made when constructing a Statute: butI rely on the Statement in this instance only for the lesser purpose ofunder-lining the Legislature’s intention to declare the law. The State-ment of Objects further emphasizes (his intention, when in reference toclauses 22 & 27 of the draft Ordinance, the point is made that the intentionis only to avoid doubt or to declare what is the existing law. Apart fromthe clauses specially explained in the Statement, the Ordinance is astraight copy of the English Act, subject to one significant difference :whereas the English Act was enacted to “amend and codif}' ” the law,the object of the Ceylon Legislature was only to “ declare ” the law. Ihave held that the former law of Ceylon in respect of questions relatingto cheques was – the English Act and (bj' reason of s. 97 (2) thereof)English common law, and it was therefore that law' which the CeylonLegislature intended .to declare. That precisely is my reason for havingexamined in the first place the scope and effect of s. 2 of the Ordinanceof 1S52.
Our Bills of Exchange Ordinance, like its. “ original ” the English Act,has no provision which declares or defines the liability of a collecting bankto the true owner of a cheque, but s. S2 of the Ordinance purports toafford to a collecting bank a defence against liability which is necessaryand explicable 011I3* on the basis that the Legislature assumed the law' tobe that a'collecting bank would be liable as for a conversion. I havealready stated my reasons for the opinion that the same assumption whichunderlies the corresponding s. SO of the English Act was a correct one,because in s. 97 (2) of the same Act the Legislature of England declaredthat the rules of the common law “ shall continue to apply " to negotiableinstruments. Considering that s. 9S (2) of our Ordinance is in terms almostidentical with those of s. 97 (2) of the English Act, there is ever}' reason forregarding as correct the assumption upon which our Legislature enactede. 82 of the Ordinance.
H. N. G. FERNANDO. C.J.—£>e Costa v. Bank of Ceylon
471
Counsel for the defendant Bank relied on certain South African decisionsholding that under the law of that country a collecting bank was notliable to the true owner of a cheque in the absence of proof of culpa.These decisions were reached despite the inclusion in the relevant SouthAfrican Statute of a provision corresi>onding to s. S2 of our Ordinance.The Courts in South Africa regarded that provision as being superfluousin purporting to make an exception to a liability which did not in factarise under the South African Law because the English common lawdoctrine of conversion was not part of the South African law. OurSection S2 was similarly regarded by Tambiah J. in Daniel Silva v.Johanis Appuhamy1. With respect, the learned Judge, although he didconsider s. 9S (2) of our Ordinance in his judgment, lost sight of the factthat the South African Statute contained no provision which corres-ponded to our s. 98 (2), and he took no account of the previous adoptionof English law by s. 2 of our Ordinance of 1852, and of our Legislature’sintention in 1927 to declare the Law which previously applied in Ceylon.With reference therefore to the-"argument—which depends on the decisionsin South Africa, it suffices to point out that the question decided in SouthAfrica was quite different from that which we have to decide. It wouldappear that the question which was decided in South Africa was onlywhether s. 80 of the Bills of Exchange Proclamation had hv implicationrecognized a ground of liability as against a collecting bank, which hadnot been previously a ground arising under the law applicable in thatcountry ; the question before us however is whether, by reason of thelong title to our Ordinance of 1927, considered together with ® 98 (2) ofthat- Ordinance and the pre-existing law of Ceylon, the Legislature^ inenacting s. 82 of our Bills of Exchange Ordinance correctly assumed that acollecting bank is liable to the true owner of a cheque for a conversion inthe sense understood in the English common law.
Counsel for the defendant bank relied also upon the difference inphraseology between s. 2 of the Ordinance of 1852 and that of s. 98 (2) ofour Ordinance of 1927. Conceding in this connection that between 1852and 1927 a collecting bank in Ceylon may have been liable as for a con-version in the circumstances of the instant case, he argued that s. 98(2) ofthe Ordinance of 1927, in providing that the rules of the common law ofEngland shall apply to negotiable instruments, did not include within itsscope any rule depending on a general principle of liability which is nota rule specially relating to dealings with cheques. Had we to considerb. 98 (2) by itself, I think there w’ould have been much force in this argu-ment, for that Section could have expressed more clearly the intentionthat the English common law should apply in Ceylon to the same extentas it had applied before 1927. But having regard to the express intentionof the Legislature to declare, and not to amend, our law, and to theassumption which under-lies s. 82 of the Ordinance, I am satisfied thatthe terms of s. 9S (2) sufficiently expressed that intention. Section 98(2)is fairly open to the construction that a case such as the present one must
1 (1065) 67 N. L. B. 457.
472
H. N. G. FERNANDO, C.J.—De Costa v. Bank oj Ceylon
be decided by the application of the rules of the English common law ; toconstrue it otherwise would be to discount the intention of theLegislature in 1927 to declare our law.
I hold for these reasons that, although the English doctrine ofconversion is not part of the common law of Ceylon, the Bills ofExchange Ordinance (Cap. 82) has the effect that the liability of acollecting Bank in Ceylon to the true owner of a cheque is the samo aswould arise in England in a like case.
As stated towards the commencement of this judgment the learned trialJudge in the instant case had held that the defendant Bank establishedat the trial that it had acted in good faith and without negligence andis thus protected from liability to the plaintiff by ?. 82 of the Bills ofExchange Ordinance. The grounds for this finding were : firstly thatthe dividend warrant did not reach the City' Office of the Bank through.the post despite the plaintiff’s intention that her letter containing thewarrant was to be posted by her servant; secondly, that in the absence ofthe warrant (because it had been stolen after being paid at the draweeBank) there was no evidence as to what endorsement the warrant boreat the time when it was paid in at the defendant’s Wellawatte Branchto the credit of Messrs Movie & Co. ; thirdly, that in the absence of thewarrant it was impossible to demonstrate that any doubt as to the titleof Movie & Co. would have been apparent to the naked eye or under exami-nation under an ultra violet ray, and also that the defendant Bank couldnot be held negligent for failure to examine the warrant under the ultraviolet ray ; and fourthly, that there was no proof of negligence on the partof the defendant Bank in opening the account at the Wellawatte Branchin the name of Movie & Co.
Counsel appearing for the plaintiff in appeal has strongly challengedthe correctness of all these grounds, save the first one.
The fact that the dividend warrant was paid in to be credited to thoaccount, of Movie & Co. was established by the Paying-in-slip PISpurporting to show that “ cheque item No. S Rs. 30,037.13 ” U'as paid tothe credit of Movie Sc Co., Account No. 3341 on 29th April 195S. Theslip bears the signature of Loganathan as the depositor of the cheque andthe signature of one Handy who at the relevant time was the Managerof the Wellawatte Branch. The collection register or schedule, P20A,of tho Wellawatte Branch for the 29th April 195S includes an item relatingto this dividend warrant as having been paid into the Bank for the creditof Movie & Co.
The evidence of Handy as to the practice concerning cheques presentedby customers was as follows :—
“ Exam inalion-in-chief :
This paying-in-si ip is dated 29th April 195S. This is signed by moabove the words Sub Accountant. When this comes it comes with
H. N. G. FERNANDO, C-J.— De Casla v. Bank of Ceylon
473
tlie document to which it refers. Along with this paying-in-slip andthe document to which it refers come the collection register scheduleof which PI9 is a photostat copy.
Q. When the schedule comes to you what is that jou do withregard to the cheques or dividend warrants?
A. When the schedule comes with the cheque I am supposed to seewhether there are credit instructions and whether there are nocontradictory instructions and if they are in order I intitial.
The credit instructions on the reverse of the cheque must tally withthe credit instructions in the credit slip. I always look at the reverseof the cheque to see whether credit instructions tally with theinstructions in the paying-in-slip. When I look at the reverse of thecheque if there are no suspicious circumstance or something unusualI pass it but if there are any suspicious circumstance or somethingunusual I wont send the cheque for collection.
In cross-examination he said :
“ A cheque is presented with a paying-in-slip. Normally it isreceived by a clearing clerk. I can trace who the clearing clerk was on29th April 1958. He receives and puts the receipt stamp on receiptportion of the paying-in-slip and he crosses the cheque and entersit in a schedule and takes it up to the officer for signing. At that timeone Thuraiappah was the officer (clearing clerk). Thuraiappah wouldhove seen that the name of the payee on the receipt portion was thesame as the name of the payee in the bank paying-in-slip. He willalso see the credit instructions. He would have seen whether the creditinstructions on the paying-in-slip tallies with the credit instructions onthe back of the cheque. ”
“ Altogether there about 60 cheques here. These cheques would beput to me at about G.30 in the night. I know that these cheques wouldhave been already examined by Thuraiappah for irregularities. Ihave to check the observations made by Thuraiapjrah. Usually I haveto scrutinize each cheque. It takes about 2 or 3 minutes for eachcheque.
Q. Is it that you would have taken about 3 hours to pass thesecheques?
A. It would have taken about half an hour to clear this. ”
It will be seen from this evidence that Handy did not directly or ofhis own knowledge testify to any matter concerning the receipt of thisdividend warrant at the Wellawatte Branch or to the particulars whichappeared on this warrant when it was so received. He testified only towhat should have occurred according to the practice prevailing in April1958 ; namely that Thuraiappah “ would have seen ” that the name of the
474‘. H. N. G. FERNANDO, C.J.—De Costa v. Bank of Ceylon
payee (i.e., the Bank’s customer) -was the same on both halves of thepaying-m-slipj and that the credit instructions on the paying-in-slip(i.e., ‘credit Movie & Co.’) were repeated on the back of the warrant;that being satisfied as to these two points Thuraiappah accepted thewarrant for collection, crossed it and entered it in the register or scheduleP20A, and that thereafter the paying-in-slip, together with some 60other slips and cheques and the collection register, were submitted toHandy. Handy himself knowing that each cheque had been alreadyexamined by Thuraiappah would check any observations made byThuraiappa and presumably there were no such observations in tin’sinstance. Further, having regard to his evidence in chief, Handy himselfmust have been satisfied that the last endorsement on the-back of thewarrant must have been “ credit Movie & Co.”.
The learned trial Judge has obviously inferred from the testimony ofHandy that the clerk Thuraiappah would not have accepted this warrantif there had been any apparent irregularity on its face or reverse, andthat therefore there could- have been no such irregularity. As to thismatter, however, the only facts established by the evidence were thatthe warrant was payable to Mrs. L. M. de Costa and that it bore on itsreverse the endorsement signed by her “ credit my account only ”.The inference dravm by the trial Judge assumed that either the name ofthe payee on the warrant or her endorsement on its reverse, or both,hid been altered or defaced in such maimer that the last endorsement“credit Movie & Co.” appeared to have been made by the true owner.The possibility of a defacement of the name of the payee can however besafely ruled out, since the Company for whom the warrant was drawnwas a private Company and it is improbable that National & GrindlaysBank would have made payment on a warrant which did not bear thename as payee of the plaintiff or of one of the other few shareholders ofthe Company. Thus there remains only the question of the validity ofthe Judge’s inference as to the apparent regularity of endorsements onthe reverse on the warrant.
It seems to me that in a case where a defendant Bank had the burdenof establishing the absence of negligence, it was unsafe lightly to applythe presumption that the common course of business was followed byofficers of the Bank itself. Thuraiappah, the Bank’s clearing clerk, wasthe person best able to testify as to his examination of this warrant andof the regularity of its acceptance for credit of Movie & Co., which theManager Handy assumed must have been performed by Thuraiappahand which the learned trial Judge inferred was actually performed byhim..-
Section .03 (5) read with s. 05 (3) of the Evidence Ordinance entitledthe defendant Bank in this case to adduce the oral evidence of Thuraiappahin proof of the particulars on the warrant. He had been named as oneof the Bank’s witnesses and was in Court during the trial, and was yet inthe Bank’s employment. Had he given such evidence, the judge might
H. N. G. FERNANDO, C-J.— De Costa v. Bank oj Ceylon
475
properly have reached the conclusion that the endorsements on thewarrant established the apparent regularity of its collection for Movieand Co., or even the lesser (though peihaps inadequate) conclusion thatThuraiappab must have acted in good faith and without negligence.In reaching both these conclusions despite the lack of Tlmraiappah’sevidence, the learned Judge fell twice into error. Since the burdenunder s. S2 of the Bills of Exchange Ordinance lay on the defendant,it was not for the plaintiff to demonstrate that there was anythingsuspicious on the warrant which could have been visible on simple ortechnical examination ; the learned Judge failed to realise that thedefendant had to adduce proof to the contrary. Again, in assumingThuraiappah’s good faith and care, the Judge did not act on his ownjudgment concerning Thuraiappah which could have been properlyformed only upon consideration of the evidence and demeanour ofThuraiappah; instead the Judge acted on the evidence of Handy, who didnot even venture an opinon as to Thuraiappah’s honesty or diligence.
The plaintiff’s position was that because the account of Movie & Co.had been recently opened, and had rarely been in credit for more thanabout Rs. 400, the presentation of a dividend warrant (and not an ordinarycheque) for Rs. 30,000 by Loganathan should have placed the defendantBank on inquiry as to Loganathan’s rights, and that again there wasopportunity for inquiry when nearly the whole of this large sum waswithdrawn 3 days after it was credited to the account. In fact on thislatter occasion some inquiry might have been made, had not Thuraiappahintervened to identify Loganathan as the drawer of the cheque forwithdrawal. Whether the comparatively large amount of the warrantwas in fact a matter which was or was not taken into considerationby Thuraiappah was a matter specially within Thuraiappah’s knowledgeand he was best able to relate and justify his own actions. Handy’sevidence did not show that his own “checking” of paying-in-slips andcheques involved consideration by himself at that stage of such mattersand could not establish either the fact that Thuraiappah had no groundsfor suspicion, or even the fact that Thuraiappah knew that the Bankhad a duty of care, not only to its own customers, but also to the trueowners of cheques.
The only facts clearly proved in this case were that the warrant borethe endorsement of the plaintiff “ credit my account only ”, and that theDefendant Bank did collect the proceeds of the warrant. There was noevidence to show that the Bank's Collection Department scrutinizescheques in order to ascertain whether the true owner of a particularcheque is in fact the customer of the Branch which forwards the chequefor collection. That being so, the defendant Bank failed to exclude the
possibility that the proceeds of this warrant were allocated to the
«
Wellawatte Branch merely because this Branch had forwarded forcollection a warrant which bore on its reverse the endorsement of thenamed payee.
476. H. N. G. FERNANDO, C.J.—De Costa v. Bank of Ceylon
There was produced without objection at the trial the letter PIOwritten by the lawyers for National Overseas and Grindlays Bank in.which it was stated that payment of the dividend warrant had beenmade on the genuine endorsement of the payee ; this statement at least.tends to support the possibility that the plaintiff’s endorsement remainedin the warrant when it was paid in at the Wellawatte Branch. Even ifthere had been some subsequent endorsement such as “ Credit Movie& Co.’*, Handy did.not claim that it was his practice to scrutinize allendorsements on a cheque with a view to checking on the regularity ofthe last endorsement. Knowing that Thuraiappah had accepted thiswarrant for the credit of Movie & Co., Handy may well have been satisfiedto pass this warrant for collection if the last endorsement in appearancetallied with the credit instructions on the paying-in-slip PIS. Thuraiappahalone was the person competent to negative the possibilities just envisaged,,each of which is sufficient to establish negligence on the part of thedefendant Bank.
The circumstances lead at least- to a suspicion that Thuraiappaheither deliberately or carelessly aided Loganathan’s criminal activity.If this suspicion be unfair to a person whose own explanations are notbefore the Court, Thuraiappah’s employer, the Bank, must take the. blame for that. The Bank of Ceylon at all relevant times enjoyed amonopoly in'the maintenance of current accounts for Ceylonese nationals.A.S such it is of extra-ordinary importance that the Bank should maintainthe confidence of the public and should display concern for the interestsof its numerous compulsory customers. Whatever may have been thegrounds of law upon which the Bank relied for its denial of liability to theplaintiff in this case, the denial of liability was morally justifiable onlyif the Bank had actual confidence in Thuraiappah’s integrity and diligence.The failure to call Thuraiappah as a witness has negatived the existenceof such confidence.
The learned trial Judge thought that the failure of the defendant Bankto call Thuraiappah as a witness was of no importance because “ Handyhad the ultimate responsibility in regard to the disj>osal of this warrant”.
I have tried to show however, that Hand}' relied largely on an assumptionthat Thuraiappah scrutinized this warrant, and also that Handy couldwell have passed this warrant after a cursory half-minute’s examinationwithout noticing that Movie and Co. was not its true owner. Theconclusion that the Bank disproved negligence was based, not on anyfact deposed to by Handy concerning this warrant, but on inferenceswhich virtually begged the matters of fact which the Bank had to prove.
I have no hesitation in deciding that the Bank failed to' establish thedefence available under s. S2 of the Ordinance.
I wish only to make a few further observations. The action in DanielSilva v. Johanis Appahamy1 was one, not against a collecting Bank,but against a‘.person who had received through his Bank the proceedsof a cheque bearing an endorsement purporting to be made by the payee, –
1 {19D5) 67 N. L. B. 457.
SIRIMANE, J.—De Casta v. Bank oj Ceylon
477
but being id fact a forged indorsement. Since that action did not involvea decision as to the liability of a collecting Bank, it is not now' strictlyneoessary to consider whether the judgment correctly decided that thedefendant in the action was not liable to the true owner of the cheque.But the later decision in Don Cornells v. de Soysa <£ Co., Ltd.1 has heldon similar facts that a person who is credited with the proceeds of a chequebearing the forged indorsement of the payee is liable to pay those proceedsto the true owner. In view' of this conflict of decisions, the present is asuitable opportunity for a Bench of superior numerical strength to expressan opinion which should serve to resolve that conflict, especially as thearguments addressed to this Bench have full}' covered all relevantconsiderations.
In reaching the conclusion that the English Law applies in the instantcase, I have relied greatly on the consideration that the collection of acheque by a collecting Bank is so much an activity peculiar to thecommercial-practice of-thouse of cheques that it renders that activity ama tter relating to a cheque. But I am not able with the same confidenceto hold that when a person who receives a cheque in the ordinary courseof business and transmits it to his Bank for the purpose of being creditedwith the proceeds, any question which may then arise as to his liabilityto the true owner of the cheque is one which “ relates to a cheque ”within the meaning of those words in s. 2 of the Ordinance No. 5 of1852. I do entertain some doubt whether the English law, that such aperson may be held liable as for a conversion, is applicable in sucha case.
Nevertheless, the draft judgments which have been prepared in thiscase indicate that a majority of ruy colleagues on the present Bench arein agreement with the decision in de Soysa's case, holding that thedefendant in that case was liable to the true owner on the ground thathe had and received money which he was liable to restore to theplaintiff. With some hesitation, I express my own agreement with thatdecision.
I should like to express my appreciation of the valuable assistanceafforded to the Court by the full and able arguments of Counsel for bothparties in this appeal and by their fruitful study of many matters whichwore relevant to the questions which arose for consideration.
The appeal is allowed with costs, and judgment will be entered for theplaintiff as prayed for in her plaint.
Shumate, J.—
This appeal raises an important question of law relating to the liabilityof a Banker in Ceylon, in circumstances which frequently arise intransactions between a Banker and a customer.
The facts are shortly as follows :
1 {1965) 68 N. L. B. 161.
47S
SIRIM AXE, J.—De Costa v. Bank of Ceylon
The Plaintiff received a Dividend Warrant for a sum ofRs. 30,637/17cts.drawn on National & Grincliays Bank from Messrs Carson Cumberbatch& Co. This money was due to her as a dividend declared by the Deniyaya- Tea & Rubber Estates Company Ltd., in which she held a large number ofshares, and for which Messrs Carson Cumberbatch & Co. acted as Agentsand Secretaries.
She wa3 the true owner of the Warrant. It had been crossed andmade payable to her. She endorsed it on the reverse and made it payableto her Account at the Defendant Bank. She had received similar DividendWarrants before, and on those too she had made similar endorsements, asevidenced by the old Warrants produced in the case.
•Her Account with the Defendant Bank was at its branch known as theCity Office. Having endorsed the Warrant she put it in an envelope,
. addressed it to the Bank of Ceylon and gave it to a domestic servant tobe posted. As this servant was not available as a witness at the time ofthe trial, there is no proof of posting.
This Warrant had got into the hands of one Loganathan, said to bethe sole proprietor of “ Movie & Co. ”.
Loganathan had opened an Account in the name of “Movie & Co.”with the Defendant Bank at its bracli at Wellawatte. The Account hadbeen opened about 7 months prior to May 195S, in circumstances whichappear to be suspicious. It commenced with the modest sum ofRs. 1,171-40 cts., and the person introducing Loganathan, andrecommending his application to be a customer had not filled in thecolumn in which he had to state the number of years for which he had-known the person whom he introduced. The initial amount was drawnout in small sums from time to time until on 5th May 195S there was onlya sum of Rs. 3S6.S7 cts. to the credit of “Movie & Co.”. On that daythe sum of Rs. 30,G37-17 cts. was credited to this Account.
Loganathan had presented this Dividend Warrant at the WellawatteBranch of the Defendant Bank with the Paying-in-slip PIS. An officerof t he Bank named Thuraiappnh, described as its " Accountant-Cashier ”or.“ Cashier-Supervisor ”, had received the Dividend Warrant and the•Paying-in-slip. His signature appears on it. He is therefore the oneofficer in the Bank who would be able to state with some degree of certainty.what appeared-on the face of the Warrant, and exactly how it wasendorsed, at the time it was presented for collection by Loganathan.
It was a very large sum of money which the Bank had to collect for acustomer who, up to that time never had even a tenth of that sum tohis credit. I
I find it difficult, for reasons which will presently appear, to resist tho .inference that Thuraiappah was acting in collusion with Loganathan infurtherance of a plan to misappropriate the proceeds of the Plaintiff’s
SJRIMANE, J.—De Costa t*. Bank of Ceylon
479
Warrant. The amount appearing on the Warrant was collected fromGrindlays Bank on 30lh April 195Sand thereafter credited to the Accountof “ Movie & Co.” on the 5lh of May 195S as already stated. TheDividend Warrant had then been stolen from Grindlays.
Three daj-s later a sum of Rs. 29,814/13 els. was drawn out from thisAccount on a cheque drawn by Loganathan in favour of " Thomas Felixde Costa ” or bearer. The Agent the Wcllawatte Branch on that day(one Fonseka) had felt suspicious at that stage, but on the drawer of thecheque being produced before him and identified by Thuraiappah, thislarge sum had been paid out apparently to Loganathan himself as he hasendorsed the cheque on the reverse after the name ** Felix de Costa ”,No one ever saw the Payee on the cheque.
The resultant position is that the amount collected by the DefendantBank on a Dividend Warrant, the true owner of which was the Plaintiff,was paid by the-Defendant to a person other than the true owner..
Tire Warrant had in fact -reached the Defendant Bank, and in myview the onus was on the Defendant to show that at the time that itreceived the Warrant for collection there was something on the face ofit which justified the action taken by the Bank. In other words, theDefendant should be able to show that the Warrant had been alteredin such a manner so as to mislead its officers.
Thuraiappah, who had so much to do with the Warrant, and with theman who presented it was not called as a witness, but the DefendantBank relied on the evidence of one Handy who was the Agent at thisbranch on the day that Thuraiappah received the Warrant and thePaying-in-slip.
The credit instructions on Paying-in-slips are checked with the billspresented with those slips by Thuraiappah, and at the end of the day all6ucli bills and slips are placed before the Agent, for theslips to be initialled.A person like Handy would scrutinize such slips and bills, only if Thurai-appah had drawn his attention to some irregularity in the endorsements.Though Handy says “ I always look at the reverse of the cheque to seewhether the credit instructions tally with the instructions in the Paying-in-slip”, it is clear from a reading of his evidence that he has no independentrecollection of the particular bill which had been placed before him withseveral others on that day. His evidence shows that he must have dealtwith about 60 bills and Paying-in-slips in the space of about half an hour..If a thief is acting in collusion with an officer in the Bank it is notdifficult to get a busy Agent to initial the Paying-in-slip without in anyway altering the bill which would be sent for collection. In this casethe letter P10 which had been admitted in evidence without objectionindicates that when the Warrant reached Grindlays Bank there was noalteration on it.
480SIRIMANE, J.—De Costa v. Bank of Ceylon
The disappearance of the Warrant from that Bank in no way helpstho thief—in this instance Loganatlian has been convicted and sent tojail—but it does help a dishonest ofTiccr in the Bank with whose aid themoney collected on the Warrant was credited to the thief’s account.' I have little doubt that Thuraiappah was not called because the Defendantknew that he had acted in collaboration with the thief.
The only evidence in regard to what appeared on the Warrant wasthat of an officer of Carson Cumbcrbatch & Co. who said that hewrote out the Warrant in favour of the Plaintiff and stamped it“Not negotiable”, and the evidence of the Plaintiff in regard to theendorsement she made.
I do not see any reason for concluding that the Warrant had beenaltered, and in my view tho Defendant as the collecting Banker wasnegligent in crediting the amount collected to the wrong account.
In dealing with this question the learned trial Judge said :
“ What was on the Warrant at the time it left Mrs. de Costa is thenproved, but what was on the Warrant when it was presented to the.Bank cannot be ascertained for the evidence is that the Warrantwhich should ordinarily have been in the custody of National &Grindlays Bank is no longer there having been stolen by a peon inthe employ of that Bank.”
He then assumed that Mrs. Costa’s endorsement was missing when theWarrant reached the Bank and that there must have been such analteration which was not visible to the naked eye but could only havebeen detected under the ultra violet ray. He therefore held that the*failure of the Defendant to examine the Warrant under the ultra violetray teas not negligence. It was only on the assumption that the Warrantand the endorsement on it had been altered that the trial Judge heldthat there was no negligence. I am of the view that he was in error there,and that issue No. 17 which raised the question Avhether the Defendantacted bona fide and without negligence should have been answered inthe negative.
The main argument addressed to us was on the footing that in theabsence of negligence the Defendant could be held liable only on thetort of conversion. It was argued that this doctrine was unknown to theRoman-Dutch Law, (Daniel Silca v. K. //. G. Juanis Appvhamy)', andthat the Defendant was therefore not liable. This argument proceededon the basis that the Roman-Dutch Law and not the English Law appliedto the claim in this action.
Counsel for the Appellant did not contest the position that the tortof conversion as known to the English Law was not part of the Roman-Dutch Law, and that in the action under Roman-Dutch Law—theaction ad exhibendum—there must be proof of dolus or culpa.
1 U065) 67 N. L. i?. 457.
SIRIMAXE, J.—De Casta, v. Bank of Ceylon
481
He contended however that “ Conversion ” of movables has beenintroduced into our law by judicial decision. The summaries of two oldcases—1870 Vanderstraten Reports, page 42, 1877 RamanathanReports, page 17, and the judgments in Don Jeronis v. Don Bastian 1and Williams c. Baker 2 favour the view that conversion was consideredto be part of our law from very early times. Though a scrutiny of thefacts in those cases may reveal a delict as known to the Roman-DutchLaw, I do not think that the learned Judges decided those cases on thatbasis.
In the first Schedule to the Civil Procedure Code of 1S89 (Chapter 101)our legislature has set out specimen forms of plaints. Under the Head“ Plaints for compensation upon wrongs ” is a form “ for the conversionof movable property
In Dodicell <L- Co. v. John 3 the Privy Council expressed the view (obiter)• “ It may well be true that the principles of the English Common Lawhave been so far recognised in the jurisprudence of Cej'lon as to admitof the same question being treated as one of a conversion having takenplace In Punchi Banda c. Rutnam4 the Plaintiff’s omnibus had beenforcibly removed by the Defendant, who thereafter sold it to a thirdparty. The only matter in dispute in appeal was the quantum of damages—which were aAvarded to the Plaintiffon the basis of a wrongful conversion.The Defendant’s liability for a conversion was never disputed. Butearlier in 1935 in Thomson v. The Mercantile Bank 5 the Defendant pre-vented the Plaintiff from removing a car which he (Plaintiff) had purchasedat a Fiscal’s sale until he produced some documentary proof of his title.The Defendant remained in possession of the car, but when the Plaintiffproduced the proof required, said that a third party had taken possession,and the Plaintiff lost the car. The Plaintiff was awarded damages andAkbar J. said " If this is an action in tort it is the Roman-Dutch Lawwhich should be applied
Even long before that in Wall <£ Co. v. Fernando6 it was held thatto maintain an action for the value of stolen property against apurchaser who had dispossessed himself of it, there must be mala tideson his part.
These are some of the reported cases.
In our original courts however, actions for conversion of movableproperty in the form of the plaint prescribed in the Civil ProcedureCode are frequently filed and as far as I know such plaints have neverbeen rejected on the ground that conversion is not part of our law.
Though I am inclined to agree with the submission of learned Counselfor the Plaintiff Appellant that conversion of chattels has now beenintroduced into our law, I do not think it is necessary to decide thatquestion for the purpose of this case.
1 (1885) 7 S. C. C. 86.
1 (1886) 8 S. C. C. J65.
* (1918) 20 N. L. R. 206.
4 (1944) 45 N. L. R. 198.8 (1935) 15 C. L. Ree. 61.• (1876) Ramanathan 301.
482
SIRIMAXE, J.—Dc Costa v. Bank of Ceylon
In order to arrive at a decision, in this case I would ask myself thequestion : “ What is the liability of the Banker here in Ceylon on the. facts established by the Plaintiff In answering that question I have nodotibt in my mind that there arises in this case “ a question relating toa bill of exchange” or at least “a matter connected ” wiih such billand also ” a question relating to the law of Banking ”. Iain convincedthat the English Law applies and that the Banker's liability is the sameas in England.
I am qtiitc unable to agree with the contention of Counsel for theDefendant Respondent that the question of the liability of the Defendantin this case is not one connected with a Bill of Exchange and not one towhich the law of banks and banking applies.
The basis of the Plaintiff’s claim is that there has been an infringementof her rights, as the true ouner of a bill of exchange, and lhat when theDefendant Bank collected on her bill—an act which only a Banker. can perform—the Defendant received the mone3'' for her use andbenefit.
Our law relating to Bills of exchange and Banks and Banking is thesame as in England. By Section 2 of Ordinance 5 of 1S52 the law ofEngland relating to bills .of exchange was introduced into Ceylon inthe following terms :•—
“ The law to be hereafter administered in this colony in respect ofcontracts and questions arising within the same, upon or relating tobills of exchange, promissory notes, and cheques, and in respect ofall matters connected ivith any such instruments, shall be the same inrespect of the said matters as would be administered in England inthe like case at the corresponding period, if the contract had beenentered into or if the act in respect of which any such question shallhave arisen had been done in England, unless in any case otherprovision is or shall be made by any ordinance now in force in thiscolony or hereafter to be enacted.”
I‘have no doubt in my mind that had this action been filed in 1S53for example the Banker would have, been liable as mder the EnglishLaw. To my mind it docs not matter on what ground that liability wasfounded—whether on the doctrine of conversion, or on any otherprinciple of law—but a Banker who was liable in England would boliable here too.
In 1SS2 the English Bills of Exchange Act was passed, and theprovisions of that Act by-the operation of Section"2 quoted abovobecame our law relating to bills of exchange.
The English Law then, was the law here for 75 years until 1927. Inthat year the Bills of Exchange Ordinance (Chapter 82) was passed byour legislature. It was “ an ordinance to declare the law relating to billsof exchange, cheques, banker’s drafts and promissory notes.”
483
SIRIMANE. J.—De Costa v. Batik oj Ceylon
It reproduced practically all the provisions of the English Act, andalso enacted Section 98 (2) in the following terms:—
“ Tho rules of the Common Law of England, including the lawmerchant, save in so far as they arc inconsistent with the expressprovisions of this ordinance, or any other enactment for the time beingin force, shall apply to bills of exchange, promissory notes aiid 'cheques."
The old Ordinance 5 of 1S52 was repealed.
I find it impossible to think that in 1927 our legislature intended toreintroduce the Roman-Dutch Law relating to bills of exchange, whichis, in effect-, the contention of the Defendant Respondent.
With great respect I am unable to share the view expressed by'T. S.Fernando J. in Daniel Silva v. Juanis Appuhamy (supra) that Section98 (2) was only intended to apply to any omissions or deficiencies in theordinance in respect of the law relating to cheques, and cannot form thebasis of a proposition that- where the delict—of- conversion was. in -relation to a cheque therefore the English Common Law of conversion,is introduced into our law.
In consequence of the two enactments referred to above (Section 2of 5 of 1S52, and Section 9S (2) of Chapter 82) I am of the view that inall matters connected with bills of exchange a person who would beliable in English Law would also be liable in Ceylon, and to that extentthe English Law ofconversion is part of our law.
Section 82 (1) of our Ordinance reads as follows :—
" Where a banker in good faith and without negligence receivespayment for a customer on a cheque crossed generally or specially tohimself, and the customer has no title or a defective title thereto,the banker shall not incur any liability to the true owner of the chequeby reason only of having received such payment.”
This section had to be enacted, as the law here, at the time theOrdinance was passed, was the English Law.
I am certainly not prepared to hold that in enacting this section ourlegislature was merely making ** a blind copy ” of the English Act, assubmitted for the Defendant Respondent.
Tambiah J. in Daniel Silva t>. Juanis Appuhamy (supra), in reachingthe conclusion that this section was superflous was apparently influencedby the decision in the South African case Yorkshire Insurance Co. v.Standard Bank 1 where the view was expressed that the correspondingsection in the South African Bills of Exchange Act (Section SO) was asuperfluity. Counsel for the Defendant Respondent conceded that in
1 (192S) W. L. D. 251.
484
SIRIMANE, J.—De Costa v. Bank of Ceylon
South Africa there was no enactment which corresponded to Section 2of Ordinance 5 of 1S52, nor even one similar to Section 9S (2) of Chapter
82.
In the absence of such vital legislation, the interpretation of a sectionsimilar to our section S2 (1) can be of little assistance in ascertaining thetrue intention of our legislature. In Daniel Silva -o. Juanis Appuhamythe attention of the learned Judges had apparently not been drawn toSection 2 of Ordinance 5 of 1852 for there is no reference to it'at all inthe judgment.
I would respectfully dissent from the decision in that case.
Apart from the question of the laAv relating to bills of exchange, theDefendant in this case is the collecting Banker.
It was conceded at the argument that a Banker in England placed inthe position of the Defendant in this case would be liable to make goodthe Plaintiff’s loss, without proof of faxdt or bad faith.
By Section 3 of the Civil Law Ordinance of 1S53 (Chapter 79)the English Law relating to Banks and Banking was introduced intoCeylon. The section enacts that—
“ In all questions or issues which may hereafter arise or whichmay have to be decided in Ceylon with respect to the law of partnerships,corporations, banks and banking, principals and agents, carriersby land, life and fire insurance, the law' to be administered shall bethe same as would be administered in England in the like case, at thecorresponding period, if such question or issue had arisen or had tobe decided in England, unless in any case other provision is or shallbe made by any enactment now in force in Ceylon or hereafter to beenacted :
Provided that nothing herein contained shall be taken tointroduce into Ceylon airy part of the Law of England relating tothe tenure or conveyance or assurance of, or succession to, any landor other immovable property, or any estate, right or interesttherein. ”
It Avas argued for the Defendant-RcsiAondcnt' that the liability of thebanker in England Aas based on the doctrine of conversion, and hadnothing to do Avith the laAV of Banks and Banking.
I am unable to accept this argument.
Different branches of the laAA* often overlap, and cannot be looked atin separate A'ater-tight compartments. Con'crsion has been adapted,modified, and applied to bankers and the business carried on by them,so much so that no book on the Iuav of banking can bo complete AA'ithout
SIR IM AXE, J.—De Costa v. Bank of Ceylon
4S5
a discussion on this subject. It has grown with the law of banks andbanking, and become part of that law. If the Plaintiff in this case hadconsulted a lawyer in regard to tho liability of the banker, I would notexpect the latter to refer to a treatise on the doctrine of conversion,or the Roman Dutch Law' relating to delicts, or the Principles of Negli-gence but rather to a text book on the law of banks and banking. I amin respectful agreement with the decision of Basnayake, Chief Justice,in the Bank of Ceylon v. Kvlatilaka1 that our law on the subject of abanker’s liability is the same as in England except where special provisionhas been made in our law.
There is one other matter to which I would like to refer, and that isthe alternative claim in the plaint for money bad and received by theDefendant for the use of the Plaintiff.
In Daniel Silva v. Juanis Appuhamy (supra) Tambiah J. aloneexpressed the view that an action for money had and received doesnot lie in Ceylon.
After that case, the question came up again for decision before ChiefJustice Sansoni and myself in Don Cornells v. De Soysa Co. Lid.2 andwe were of the view that such an action is maintainable in Ceylon. I donot wish to repeat here the reasons for our view which have been solucidly set out in the judgment of the learned Chief Justice. I am stillof that view, and only wish to add that the action for money had andreceived has been filed and relief obtained by parties in all parts ofour Island from the very inception of our courts. Nothing that wasurged at the argument has led me to think that for the last hundredyears or more our Courts have granted a remedy where none existed.Section 7 of the Prescription Ordinance (Chapter 68) which laid downthe prescriptive period for a claim “ for money received by thoDefendant for the use of the Plaintiff ” was enacted in 1S72.
The argument urged for the Defendant-Respondent was that theremust be “ a waiver of the tort ” before a claim for money had and receivedcould be made, and that since the tort of conversion was not part ofthe Roman Dutch Law there can bo no waiver of the tort.
The remedy was granted by our Courts on the broad equitable principlesof unjust enrichment and the condiclio indebili. It had nothing to do withthe waiver of a tort. My view is that this phrase merely means thatwhere the remedy in tort is also available the Plaintiff cannot claimtwice over.
Lord Denning in the Law Quarterly Review of 1949, Vol. 65, commentedon the phrase “ waiver of a tort He said at page 40 :
** This was a misleading phrase. It referred only to the form of theaction, not to the substance of the claim. After the forms of actioDwere abolished, the phrase remained, but its origin was forgotten.
1 (1957) 59 N. L. B. 1S8.* (1965) 68 N. L. JR. 161.
4S6■ SIRI.MANE, J.—De Costa v. Bank of Ceylon
Lawyers began to think that the bringing of this action was in fact awaiver of the tort: that it was assumed that there was no wrongfulact in receiving the money : and that therefore the Plaintiff couldnot complain if it was paid over by the Defendant to another beforethe Plaintiff asserted his claim. This was the view expressed b3r Philli-moro L. J. in Morrison's case, and considered by the Privy Councilin John v. Dodwell. But this and similar fallacies have now been setright by United Australia v. Barclay's Bank, which shows that theaction for money had and received docs not, and never did, involveany waiver of the tort but was, and is, an insistance on the Plaintiff’sright to money to which he is entitled.”
Counsel for the Defendant-Respondent laid great stress on one sentencein the judgment of Lord Simon in United Australia v. Barclay's Bank 1referred to above. That sentence which appears at page 29 is :
“ Indeed, if it wore to bo understood that no tort had been committed,how could an action in assumpsit lie ? ”
It was argued for the Defendant-Respondent, that the action formoney had and received v/as dependent on the existence of the tort ofconversion. Tire facts in that case were shortly as follows :—
One Emons, the Secretary and a Director of the Plaintiff, hadauthority to endorse cheques for collection by the Plaintiff’s bankbut not otherwise.
He however endorsed a cheque made payable to the Plaintiff, toanother company—M. F. G. Trust Limited. The Defendant Bank;collected on the cheque and credited the proceeds to M. F. G. TrustLimited. The Plaintiff first filed an action against M. F. G. TrustLimited, which went into liquidation, and that action automaticallyabated.
The Plaintiff then sued the Defendant Bank. The only defenceraised by the Bank which came up for consideration in appeal was,whether, having first sued M. F. G. Trust Limited the Plaintiff couldnow sue the Defendant Bank, and it was in this context that thequestion whether the Plaintiff had waived tho tort arose.
Lord Simon quoted with approval a Restatement of the Law ofRestitution promulgated by the American Law Institute, as follows :—
“A person upon whom a tort has been committed and who bringsan action for the benefits received b}* the tort feasor is sometimes saidto “waive the tort”. The election to bring an action of assutnjjsitis not however a waiver of tort but is the choice of one of tuo alternativeremedies.”
1 (19 JO) 4 . K. R. 20.
SIRIMAICE, J.—De Costa v. Bank of Ceylon
437
Lord Atkin in the course of his judgment said at page 3G :
" In cases where the money had been received as the result of awrong, he still had the remedy of claiming damages for tort in actionsfor trespass, deceit, trover and the like, but he obviously could notcompel the wrong doer to recoup him his losses twice over. Hence hewas restricted to one of two remedies, and herein, as I think, arose thedoctrine of “ waiver of the tort Having recovered hi contract it isplain that the Plaintiff cannot go on to recover in tort."
Lord Romer said at page 40 :
“ A person whose goods have been wrongfully converted by anotherhas the choice of two remedies against the wrong doer. He may suefor the proceeds of the conversion as money had and received to hisuse, or he may sue for the damages which he has sustained by theconversion. If he obtains judgment for the proceeds, it is certain thathe is precluded from thereafter claiming damages for the conversion.In my opinion however this is due not to his having waived the tortbut to his having finally elected to pursue one of his two alternativeremedies.”
In the sentence relied on by the Defendant-Respondent I think hisLordship wras emphasizing the fact that the action for money had andreceived was an alternative remedy and did not imply "a waiver ”. Inthe preceding sentence he said, ‘‘When the Plaintiff ‘ waived the tort *and brought assumpsit he did not thereby elect to be treated from thattime forward on the basis that no tort had been committed”. In thatcase the Plaintiff sued for—(a) damages for conversion ; alternatively—
(b) damages for negligence, and (c) in the further alternative, for moneyhad and received.
As stated earlier the action for money had and received was recognisedin Ceylon, as it was considered that the Defendant was doing something*' wrongful ” when he refuses to return to the Plaintiff money whichjustly belongs to the latter, and to which the Defendant has no right.The action was not dependent " on the w aiver of the tort of conversion ”as contended for by the Defendant-Respondent.
, Lord Denning in Kiriri Cotton Co. Ltd. v. JDeicani 1 referring to theaction for money had and received said :
" It is simply an action for restitution of money which the Defendanthas received but which the law says he ought to return to the Plaintiff”.
It was this same idea which he put forward earlier in 65 Law QuarterlyKeview 1949 (supra) at page 48 when he said :
"The action at law for money had and received was in fact aremedy for unjust enrichment—”
1 {I960) A. O. 192.
48S
AX.LES, J.—De Costa v. Bank of Ceylon
and it was on this basis that our Courts have always given relief. I amof the view* that the Plaintiff is entitled to succeed on his alternativecause of action as well and that issues 6 and 7 should have been answeredin favour of the Plaintiff.
After the arguments in this appeal were concluded, the Registrar at therequest of learned Counsel for the Appellant has sent up a reference to anold case decided by the Privy Council—Page v. Coiuasjee Aduljee 1—forconsideration by the Bench.
In that case the Defendant had bid for, and purchased the hull of astranded ship put up for sale at a public auction by the Master, and paida deposit. For certain reasons the Defendant declined to complete thepurchase, whereupon the vendor resumed possession and resold the hullat a loss. The action was brought by him to recover the differencebetween the original price bid by the Defendant and the sum realised atthe re-sale. The Defendant denied liability and claimed damages inreconvention. It was held infer alia that though the act of the Plaintiffin retaking the hull of the ship and selling her was wrongful, it entitled the •Defendant to bring an action for trover but did not amount to a rescissionof the contract.
It supports the contention of the Plaintiff Appellant that conversionwas part of our law from early times. I have already expressed myviews on this question and do not wish to say more.
I would set aside the judgment and decree entered in this case, andenter judgment for the Plaintiff as prayed for with costs both here andbelow.
Aules, J.—
The Deniyaya Tea & Rubber Estates Co. Ltd. by its Agents & Sec-retaries,. Messrs Carson Cumberbatch & Co. Ltd., sent to the plaintiff,Mrs. L. 51,' do Costa a Dividend Warrant on 17th April 195S forRs. 30,637-13 being her share of the final dividend of the Company forthe year 1957. The Dividend Warrant was crossed "not negotiable ”and according to the Dividend Account was numbered No. S and issuedin favour of 5Irs. Costa payable at the National & Grindlay’s Bank.5Irs. Costa received the Warrant, signed it and endorsed on the reversethat it should be credited to her account and gave the letter addressed tothe Bank of Ceylon, Colombo, containing the warrant to her servant boyto be posted. The warrant was not received in the post by the defendantBank and 5Irs. Costa became aware only several months later of the lossof the warrant when the Police came and questioned her. It has beenestablished in evidence that this Warrant No. S for Rs. 30,637-13 wascredited to the account of Messrs 5Iovie & Co., the sole proprietor of
1 (1SC6) 1 A. C. J27.
.4LLES, J.—De Costa v. Bank of Ceylon
48S4
which was one Loganathan, at the branch of the Bank of Ceylon atWcllawatte on 29th April 195S. On 30th April 195S the National &Grindlay’s Bank paid out the money on presentation of the warrant bythe Wcllawatte bank and on 5th May 195S the account of Movie & Co.was credited with this sum. On Sth May 195S Loganathan drew acheque for Rs. 29,413; 13 on account of Movie & Co. in favour of oneFelix de Costa and the money was paid to Felix dc Costa after Loga-nathan had identified him as the payee. Loganathan and several otherswere subsequently charged in the criminal courts in connection with thissame Dividend Warrant and Loganathan was convicted of a criminaloffence.
In the present case Sirs. Costa is suing the defendant Bank for therecovery of the sum of Rs. 30,637*13, being the proceeds of the saidDividend Warrant, which she alleged was cashed and converted into-money by the defendant Bank. Alternatively she claims that thedefendant Bank is liable to pay her the said sum which was received bythe defendant Bank for her use.
In my view many of the complex questions of law that, have been,argued in the course of this appeal can be resolved once there is acorrect appreciation of the facts. The important question of fact thathas to be determined is whether it has been established that the defen-dant Bank was negligent or acted in bad faith or had the knowledge thatMovie & Co. had no right to the Dividend Warrant and that Loganathanwas intending to misappropriate the proceeds. The trial Judge after aconsideration of the evidence has held that the defendant Bank hasdisproved negligence on its part and that its good faith was never inissue. In coming to this conclusion he has considered certain items ofevidence and also the submissions of Counsel, but in my view, he hasunfortunately failed to consider adequately certain very importantquestions of fact and paid too much stress to matters of lesser importance.Had lie considered all the attendant circumstances in their proper lightho could not have failed to arrive at a finding adverse to the defendantBank.
In I957-195S there was a spate of cheque frauds and this was wellknown in banking circles. Alwis, the clerk at Carson, Cumbcrbatch &
Co. states that “ in the latter part of 1957 and early in 1958 it appearedin the papers about the theft of cheques or forgeries of cheques ” and itwas thereafter that he put the crossing “not negotiable ” rubber stampon Dividend Warrants posted to shareholders. Sparks, a Senior officialof the Bank, admitted that there were cheque frauds in 1957 and that inconnection with these frauds the Head Office thought of installing ultraviolet light in its various branches in order to detect erasures andalterations. There is evidence that the Wcllawatte branch was suppliedwith such equipment sometime in 195S. Handy, the Manager of theWcllawatte branch, testified to the use of ultra violet rays for theexamination of forgeries. The defendant Bank did not choose to place
3—J 12371 (3/70)
• 400
ALLES, J.—De Costa v. Bank oj Ceylon
evidence before the Court as to when the Wellawatte branch was suppliedwith such equipment but the probabilities point to the fact that suchequipment was available at the Wellawatte Branch when the DividendWarrant was credited to the account of Movie & Co. Wien Sparks wasgiving evidence for the defendant, Counsel for the plaintiff in crossexamination moved to mark in evidence the deposition of one Thuraiappa,an employee of the defendant Bank, in the Magistrate’s Court, where,Thuraiappa had stated that he examined this cheque under an ultraviolet light. On objection being taken by Counsel for the Bank howeverthe objection was upheld and this evidence was not available at thetrial. Although the learned trial Judge was justified in his observationthat there was no legal obligation to have cheques for large amountsexamined under the ultra violet light to discover any erasures or altera-tions, it v.as incumbent on the defendant bank in order to rebut theallegation of negligence, to place evidence that-the light apparatus wasnot available in April 195S or alternatively that the cheque was examinedunder the ray and revealed no alterations. These were matters peculiarlywithin the knowledge of the defendant Bank but the Bank chose to adoptan attitude of silence on this issue. There is next the circumstance inregard to the opening of Loganathan’s account. The Manager of theWellawatte Branch in October 1957, when this account was opened, wasone Anthony. Anthony was not available at the trial as a witness totestify to the circumstances under which this account was opened. Theaccount was ojJened in favour of Movie & Co. with an initial deposit ofRs. 1,171 *40 (the minimum required being Rs. 1,000) and apart from thedeposit of the sum of Rs. 30,037 •13 on 5th May 195S and the withdrawal•of Rs. 29,814 -13 three days later the transactions only showed small•deposits and withdrawals. Loganathan was introduced as a customerto the Bank by an Audit clerk called Ariaratnam who had a modest-account at the Bank. In the absence of Anthony to testify to the•circumstances under which Loganathan was accepted as a customer, some.general evidence was given by Sparks that if a person had a. regularemployment and if his cheques were not- returned, he may be consideredas a good referee. Ariaratnam, who was a fellow lodger with Loganathanat the Y. LI. C A. stated that he knew Loganathan ; that lie used hisroom as an office ; that he told him he wanted to .do business and askedhim to recommend him as a customer. As the learned Judge rightlyremarked the opening of Loganathan’s account "played a major role inthe fraud in connection with the Dividend Warrant ” and one of thematters that must be considered is whether the Bank has discharged itsstatutory liability and its obligations to the public, in exercising sufficient•car© in regard to the opening of Loganathan’s account. While the learnedtrial Judge has addressed himself correctly in regard to the questions oflaw pertaining to the opening of new accounts, learned Counsel for theappellant has draw'll our attention to a serious discrepancy in the printedform opening the account where Ariaratnam has not filled the caption inwhich he was required to state how long he had known Loganathan. Inregard to a person who recommends a customer to a Bank, this cannot
ALLES, J.—De Casta v. Dank of Ceylon
491
be considered a trifling matter. In the absence of Anthony to testify tothe circumstances under which Loganathan was accepted as a customer,particularly at a period when the Bank had to be circumspect in regardto the opening of new accounts, and the lapse on the part of the Bank innot scrutinising whether the form opening the account had been properlyfilled, I am inclined to accept the submission of Counsel for the appellantthat the defendant Bank has been remiss in accepting Loganathan as acustomer. These are matters that have not been considered by the:learned Judge in the course of his judgment. In order to disprovenegligence, the defendant Bank has relied on the evidence of Handy andsome general observations in regard to banking practice deposed to bySparks. In my view this evidenco falls far short of the requisite proofnecessary to discharge the burden that rests on the collecting Bank underSection S2 of the Bills of Exchange-Ordinance.
Handy was the Manager of the Wellawatte branch on 29tli April 1958.He identified. thc.pa3'ing in slip, P 18, for Rs. 30,037*13 crediting thissura to the account of Movie & Co. He saj's that P lS must have beensent to him with the Dividend Warrant and the Collection Register. Hoadmits that he was aware that it must be a Dividend Warrant and not acheque as it bore only one numeral “ 8 “whereas a cheque has usually fivenumerals. According to him he examines the reverse of the cheque tosee whether any credit instructions tally with the instructions on thepaying in slip and if there are no suspicious circumstances he passes thecheque for collection. His duties w ere to initial the register, the payingin slip and the cheque. It is however apparent from his evidence thathe relied considerably on the judgment of the cashier clerk, Thuraiappa.According to Handy’s evidence Thuraiappa would have‘seen the name oftho payee on the receipt portion and verified whether it was the same asthe name of the pajree on the paying in slip and he would have alsoexamined the credit instructions on the reverse of the cheque. Headmitted that Thuraiappa would have examined the cheques for irre-gularities. Handy would therefore have to depend largely on theobservations of Thuraiappa. On this day there were about <50 chequesput up to Handy for scrutiny and the largest amount credited to a singleaccount was that on this Dividend Warrant. In spite of the fact thatthis was a Dividend Warrant and not a cheque and although a large sumwas credited to a small account, Handy’s suspicions were not aroused andho 2>assed the Warrant for collection. If Handy had been a little morealert he could not have failed to have discovered the fraud. In thisconnection Ithinkthefacts in Arafiojja£Hou.su!<7 Committee v. Cape of GoodHope Batik1 are relevant. In that case a cheque for a large sum crossed“not negotiable ” was posted and addressed to “ J. Daniels ”. It wasreceived by one John Daniels, an ex-Railway employee who had receivedcertain small amounts by cheque as gratuity. Honestly believing thatthis was also one such sum, he took the cheque to the defendant Bank towhom he explained the situation. On the face of the cheque appeared
1 (19C3) (1) S. A. L. R. 230.
492
ALLES, j.—De Costa v. Bank of Ceylon
the stamp of the National Housing Office and it was purported to besigned by the Secretary. The Judge quoting from Paget on the Law ofBanking, p. 301, where the learned author stated—-
“ The most obvious circumstances which should put the banker on
his guard (is)one where a cheque is presented for collection
which bears on its face a warning that the customer may havemisappropriated it.”
wa3 of the view that the teller in that case was obviousty put on hisinquiry and held that the Bank was negligent. In the instant case onthe face of it the Dividend Warrant was for a verjr large amount whichwas to be credited to a small account opened comparatively recently.Handy was not so pressed for time as not to make inquiries in regard tothis matter, particularly as it was the largest amount of the CO chequeswhich he had to scrutinise that evening.
The Dividend Warrant was stolen subsequently at the National &‘Grindlay’s Bank by a peon and is therefore not available for checking.It seems unlikely that the Warrant would have been stolen atthe instance of Loganathan who would not have been interested in themovements of the Warrant once the proceeds were credited to theaccount of Movie & Co. at the Wellawatte branch which enabled himto draw the money.
Handy’s evidence leaves a great deal to speculation and to say theleast is unsatisfactory and hardly sufficient to disprove negligence on thepart of the Bank. The position has however been made infinitely more•onerous for the defendant Bank by Tliuraiappa not being called as awitness. He was on -the list of witnesses for Iho defendant and waspresent in Court. It was he who first examined the Warrant, checkedon the endorsements, initialled the paying in slip, entered the particularsin the Collection register and submitted the documents to Handy.According to the Ledger Officer Alwis, when the cheque for Rs. 20,413 -13was cashed by Felix dc Costa, the drawer .Loganathan was identified byTliuraiappa.' Alwis stated that normally large amounts are not paid tothird parties and that was the reason why he called in the drawer andwanted him’to endorse the Warrant and take the money. The drawer-signed the cheque identifying the person who took the money as the payee.
In view of the important role played by Tliuraiappa in this transaction hewas an essential witness for the defendant on the vital issue as to whetherthere was negligence on the part of the Bank. He could have givenfirst hand evidence of the contents of the Warrant in the absence of theWarrant as a jiroduction. The learned trial Judge has dismissed thefailure to ca|l Tliuraiappa as a witness in one sentence by stating that anydefault in doing so was cured by Handy’s evidence. I am unable toagree.
ALLES, J.—De Costa v. Bank of Ceylon
493
The reasons given by the learned trial Judge for exonerating thedefendant Bank from its obligation to disprove negligence do not appearto be substantial. He states that it was not unusual for large sums to becredited to Company accounts for the purpose of evading Debits Tax;that there was nothing unusual in the opening of Loganathan’s accountand that there was no obligation on the part of the defendant to establishthat the cheque was examined under the ultra violet light. These, in myview, are inadequate reasons for holding in favour of the Bank in thelight of the more substantial matters referred to earlier. "When, therefore,one looks at all the attendant circumstances it seems to me that the Bankhas failed to disprove negligence. I would go further and hold that thefacts establish that the Bank had knowledge that Movie & Co. had noright to the Warrant and that Loganathan intended to misappropriatethe proceeds. There is no doubt that a fraud has been perpetrated inconnection with this Warrant and this could not have been done withoutthe connivance of _onc_or more members of the Wellawatte branch. Thedefendant Bank therefore, in my view, has not rebutted the presumptionunder Section S2 of the Bills of Exchange Ordinance. In that view ofthe facts it matters not whether the Bank’s liability is based on theEnglish Law or the Roman-Dutch Law because in either case the Bankwould be liable.
This case has been referred to a Bench of five Judges in view of thedecision in Daniel Silva v. Johanis Appithamy 1 where three Judges of theCourt unanimously held that the English doctrine of conversion was notapplicable to Ceylon since the tort of conversion was unknown to theRoman-Dutch Law.
The tort of conversion is one that had its origins in the early Englishforms of action and Tambiah J. in the above case at pp. 402, 403 hastraced its historical background. By the fiction of treating a cheque asa chattel the doctrine of conversion was extended to cheques. Thequestion that arises for consideration in this reference is whether the tortof conversion, which is really alien to the Roman-Dutch law of delict, hasbeen received into our legal system. There arc two methods in whichsuch a law could be introduced into the law of Ceylon—either by statutoryprovision or by an unbroken line of judicial decision which recognisedsuch a law.
The Proclamation of 23rd September 1790 and Ordinance No. 5 of1S35 (now incorporated as the Adopt ion of Roman-Dutch Law Ordinance—Cli. 12) declared that the Roman-Dutch law was to be the law of Cejdon
"subject to such deviations and alterations as the authorities
shall deem it proper and beneficial for the purpose of justice to ordain andpublish or which shall or may hereafter be by lawful authority, ordained
1 (J9G5) 67 N. L. Ji. 457.
494
ALLES, J.—De Costa v. Bank of Ceylon
and published Since 1S35 various brandies of the English law havebeen introduced into our legat system by special enactment. Section 2of Ordinance 5 of 1852 reads as follows :—-
“ The law to be hereafter administered in this Colony in respect ofall contracts and questions arising within the same upon or relating tobills of exchange, promissory notes and cheques, and in resjiect of allmatters connected with any such instruments, shall be the same inrespect of the said matters as would be administered in England in thelike case, at the corresponding period, if the contract had been enteredinto, or if tlio act in respect of which any such question shall havearisen, had been done in England ; unless in any ease other provisionis or shall be made by any Ordinance now in force in this Colony orhereafter to be enacted.”
This provision of the law was not brought to the notice of the Judgeswho heard Daniel Silva’s case (supra) and enabled Counsel, for theappellant to make the submission that had it been done the decision inthat case might have been otherwise. It Avas Counsel5s submission thatby this enactment the entirety of the English law relating to Bills ofExchange including the principles of the law of con'ersion has beenintroduced into our legal system. A close consideration of the languageof Section 2 would seem to indicate that the legislature in 1S52 did notcontemplate the introduction of the English doctrine of conversion intoour laAv dealing with cheques. Indeed at that stage the law ereu inEngland had not been fully developed and tire only source of law at thetime would have been the common law including the law merchant as itwas developed at that stage. Section 2 majr be recast in the followingmanner :—•
The law to be hereafter administered in Cc^'lon—
in resjject of all contracts relation to bills of exchange, promissory
notes and cheques ;
in respect of questions arising (within the contract) upon or relating
to bills of exchange, promissory notes and cheques ; and
in respect of all matters connected with such instruments shall
be the English lair in respect of the said matters as would bo
administered in the like case, at the corresponding period—
if the contract had been entered into in England ; or
if the act in respect of which any question (arising upon the
contract) had been done in England.
Although there must have been an inherent desire of the Englishmen of .the time, for the purposes of iiromoting trade and commerce in their .colonies to introduce bodily the law of England of the relevant periodrelating to bills of exchange, it docs not appear to me, that the languageof S. 2 gave effect to that intention. Under S. 2 the law of England of the
ALLES, J.—De Costa v. Bank oj Ceylon
495
corresponding period that would be applicable in Ceylon was the law" in respect of a contract and any question arising within the contractrelat ing to bills of exchange, promissory notes and cheques One canenrisage a situation where, in a contract relating to a bill of exchangeancillary questions within the contract may arise. For instance, wherea person signs a bill in his capacity as an agent or in a representativecapacity there can arise a question relating to the law of agency orpartnership. The English law of the corresponding period on the law ofagency or partnership would be applicable in such a case. Again wherea bill in one country is negotiated in another country the rights andliabilities of the parties to the contract may have to be determined, notonly under the contract relating to the bill of exchange but also underthe law relating to the conflict of laws which would be an ancillaryquestion arising within the contract. I can appreciate the arguments ofCounsel for the appellant in regard to the liability of the collectingbanker to the true owner of the cheque. The collection of cheques andthe payment of the proceeds thereof to the true owner is perhaps themost important functioh^bf the banker’s business. -Couldit however befairly said to be a question arising within the contract or would it ratherconstitute a function of the banker’s duties for which the liability fallsoutside the contract ?
The wrong of conversion consists in “ an act of wilful interference witha chattel, done without lawful justification whereby any person entitledto it is deprived of its use and possession ” (Salmond on Torts, 7thEdition, p. 375). X am inclined to take the view that it cannot fairly besaid, without doing violence to the language of S. 2, that a tort, whichhad its origins in the early English forms of action, and which by afiction of the law had been extended in England to cheques, can be saidto be “ a contract or a question arising within the same upon or relatingto bills of exchange, promissory notes and cheques.”
It might appear at first sight that the words “ matters connected withsuch instruments ” would be wide enough to include the liability of thecollecting banker as for conversion, but having regard to the concludingwords of the section which refers to the “ said matters ” as being thecontract or act “ in respect of which any question shall have arisen ”these words cannot possibly mean that all matters connected with suchinstruments should be governed by the English law. It may properlybe conceded that the theft of a cheque, which is broadly “ a matterconnected with a cheque” is not governed by the English law. Thereason for its exclusion, I should imagine, is because theft is a wrongagainst the State and cannot be included as one of the matters referredto in S. 2 just as conversion is a wrong and being a tort is excluded fromthe purview of matters which strictly fall within the province of S. 2. I
I am therefore attracted by the submission of Counsel for the bankthat the bank’s liability, when it deals with the chattel of another—inconsistent with that other’s rights, is not a question that arises on a
ALLES, J.—De Costa v. Bank of Ceylon
4lJt5
bill of exchange ox* a matter connected with any such instrument. Theact of the Bank constitutes a wrong and is not based on any contractualliability. Therefore even if the provisions of Ordinance 5 of 1S52 hadbeen brought to the notice of the Judges who heard Daniel Silva’s case,I am of opinion that the provisions of this law would not have persuadedthem to accept the view that the doctrine of conversion applied to thecollecting banker. In any event the action in Daniel Silva’s case wasnot against the collecting banker but against a third party who hadreceived the proceeds of the cheque on a forged endorsement.
When the law in regard to negotiable instruments was codified inEngland in 1SS2, the law of England in resjxect of negotiable instrumentsin so far as that law' had been introduced into Ce3~lon by Ordinance 5 of1S52, became part of our laxv. In 1SS2 the position, in my view was nodifferent from that in 1S52, except that there was certainty in regard _to the codified parts of the English Act which dealt with the contractualaspect of the law and matters ancillary to the contract. Therefore theintroduction of Section SO (which corresponded with our later s. S2)of the Act did not impliedly introduce the doctrine of conversion intoCej'lon although it did so in England. In my view even s. 97 (2) of theEnglish Act (which corresponded with our later s. 9S (2)) only introducedsuch parts of the common law* of England in resjxect of contracts relatingto negotiable instruments and questions arising upon the same and didnot extend to the common law rules relating to tortious liability. It isperhaps this uncertainty in the state of the law which prompted ViscountHaldane in Dodwell & Co. v. John 1 from deliberately refraining frommaking a definite pronouncement as to whether the doctrixie of conversionformed part of our law' or not. I am therefore unable to agree with theStatement of Objects and Reasons to the Draft Bill of the 1927 Act,when it assumed that the English Act of 1SS2 in its entirety was inforce in Ceylon by virtue of s. 2 of Ordinance 5 of 1S52.
Our law in regard to Bills of Exchange underwent a radical change in1927 and it is this change which, in my view, enabled Counsel forthe appellant to successfully argue that the English doctrineof conversion in so for as it affected the liability of the collecting bankerto the true owner of the cheque formed part of our law. Under Section97 (3) of Ordinance 25 of 1927, Act 2vo. 5 1852,which up to that timeconstituted our law on the subject, was repealed. The draft Bill appearedin Government Gazette jto.7,539 of 30th July 192Candtlic long titlc tothe Act stated that it was an Act to declare the law relating to Bills of.Exchange, cheques and promissoiy notes. The Act which came intooperation in March 192S also stated in the long title that the Ordinancew?as passed to declare the law relating to bills of exchange, promissorynotes and cheques. When the Statement of Objects and Reasons gaveas one of its reasons the unusual one that it was desirable that the lawshould bo reproduced in a local enactment for the benefit of the DistrictJudges who were not furnished with copies of the English Act, I think
1 (ID IS) 20 N. L. R. 200.
ALLES, J.—Be Costa v. Bank of Ceylon
497
there was an erroneous assumption that the entirety of the 1SS2 Actapplied to our law. Be that as it may, it would appear from the otherobjects and reasons therein stated that the legislature gave carefulconsideration as to what should be our law on the subject and in particulardealt with the impact of the Roman-Dutch Law on our law relating toBills of Exchange. Clause 3 of the Statement states that "Section 22makes it clear that capacity to contract is to be determined by the Roman-Dutch Law as modified by Ordinance Xo. 7 of 1SC5 and Section 502 ofthe Civil Procedure Code, 1SS9 and not English law. But for this provision,it might be arguablo that Section 9S (2) makes English law applicable.Section 22 leaves open the question by what law capacity to contractis determined. .. Clause 4 states that " S. 27 (1) (a) makes it
clear that ‘ cause * as understood in Roman-Dutch law docs not constitutevaluable consideration for a bill of exchange or promissory note. Thisis declaratory of the present law”.
Counsel for the appellant therefore strongly argues that the legislaturegave its mind to what portions of the Roman-Dutch-law-it intended toretain and what parts it considered could be omitted in declaring whatour law of Bills of Exchange should be. The doctrine of conversion beingalien to the principles of the Roman-Dutch law, in introducing Section82 into our law, our law impliedly accepted this doctrine as part of ourlaw in regard to the liability of the collecting banker. I am inclined toagree with this submission. The liability of the collecting banker fornegligence or lack of good faith can only be assumed on the footing thatthere was a denial to the true owner of the cheque of his lawful rights.The South African courts have taken the view that this section was asuperfluity since the rules of the common law of England were notintroduced under the various Acts in that country. But we in Cejdonmust consider the section in the light of the historical background and inparticular, that in 1927 our legislature declared Section 82 to be part ofour law. With all respect therefore to Tambiab J. who seemed to takethe view in Daniel Silva’s case that the same considerations whichapplied in South Africa applied in Ceylon for the rejection of Section82 as part of our law, I do not think it can be said that Section S2 ofour law is superfluous. If it can fairly be urged that the law in Section82 of our Act impliedly introduced the English doctrine of conversionas far as the collecting banker was concerned, I do not think it is necessaryto consider further whether this doctrine has become part of our lawunder Section 9S (2) of the Act.
It was further submitted by Sir. Jaycwardene for the appellant thatas Section 3 of the Civil Law Ordinance had introduced into Ceylon thelaw of England with respect to Banks and Banking that the commonlaw doctrine of conversion was part of the law of Ce3-lon in respect ofthe conversion of cheques. Tambiah J. in the Divisional Bench casehas drawn attention to the difference between the English law and theRoman-Dutch law in regard to the liability of the collecting Banker.
I agree with the views expressed by Tambiah J. that the rights and
498
AL.LES, J.—Da Cosla v. Bank of Ceylon
liabilities of the banker under our law are not affected bj' theintroduction of the English law of Banks and Banking. The decisions inKrishnapillai v. Hongkong tC- Shanghai Bank Corporation1 and 3Iitchellv. Fernando 2 support this view.
I shall now proceed to consider whether the decisions of our Courtshave introduced the doctrine of conversion into our legal system. BertramC.J. in Samed v. Segulamby3 stated that the principles of the Roman-Dutch law “ may no doubt, in course of time, become modified in theirlocal application by judicial decisions but it would bo only by a seriesof unbroken and express decisions that such a development could takeplace”. Jayewardene A. J. in the same case expressed sentiments tothe same effect at pp. 495 and 49G. Can it be said that there is in Ceylona series of unbroken and express decisions which have introduced thoEnglish law of conversion in relation to cheques into this country ?Tho decisions of the Courts during the last century can hardly be saidto have made any contribution to the law on tho subject. Prior to 1852,although the Courts had declared that commercial matters had to bodetermined iu accordance with the Roman-Dutch law, the Judges whowere trained in the principles of the English common law, decided thequestions in accordance with the English law—Vide Boyd v. Staples4and In re Poonan 5. Although the English common law in regard to nego-tiable instruments has been applied in our Courts prior to 1SS2 (VideThompson v. -NcumytambyG and C. 31. Bank v. Silva <0 Co.7) there isno case reported where the conversion of a cheque has been consideredby the Supreme Court. Tire decisions cited by Counsel for the appellantonly refer to the conversion of movables—(1SG1 Bcvcn & Siebel’s Reports117 ; (1870) Vandcrstraatcn’s Reports 42 ; (1S77) Ramanathan’s Reports17 and (1S8S) Williams v. Baker S S.C.C. 105). In all these cases itlias been assumed that the English doctrine of conversion applied andthere has been no discussion in regard to t He impact of the Roman-Dutchlaw. Tire first occasion when reference has been made to the law ofconversion in reference to a cheque is in the obiter dictum of ViscountHaldane in the Privy Council case of Dodwell <t- Co. v. John8 in 191Swhere ho made the following observation :—
“ It may well be true that tho principles of the English commonlaw have been so far recognised in the jurisprudence of- Ceylon as toadmit of the same question being treated as one of a conversion havingtaken place. If so undoubtedly there was a conversion according tothese principles.”
But the Supreme Court docs not appear to have been impressed by thedictum for 17 3*ears later iu Thompson v. 3Iercantile Bank 9, Akbar J. withwhom Koch J., agreed held that the English common law doctrine ofconversion found no place in the law of Ceylon. In Punchibanda v
1 (1932) 33 X. L. R. 2-10.
(194-5) 40 X. X. R. 265.
(1024) 2-5 X. L. It. 4SI at 4S7.
,(lS20-33) Ram. Reports 19 at pp. 20 and 21.
5 (JS20-33) Ram. Reports pp. SOand Si
* (ISGO) Rant. Reports SI.
(/<SC6) Rant. Reports 109.
(191S) 20 N. L. It. 200.
(193-5) 15 Ceylon Law Recorder 61 at 63
AL.LES, J.—De Cos la v. Bank of Ceylon
499
JRatnam1, also in regard to a movable, it was assumed by HowardC.J. that (he English doctrine of conversion was part of our law and inBank of Ceylon u. Kulatilake2 in the ease of a cheque, Basna3*akc J.has held that the Bank was liable in conversion. The question whetherthe English doctrine of conversion in relation to a cheque formed part oflaw was considered for the first time in Daniel Silva's case.
Although the statutory provision in Section 2 of Ordinance 5 of 1852was not considered by the Judges in Daniel Silva's case, I am of the view,that the English doctrine of conversion is no part of our law subject to thequalification that in the case of the collecting Banker he would be liable-as for conversion to the true OAvncr of the cheque. Since the defendantbank has not rebutted the defences available to it under S. S2, the plaintiffwould be entitled to succeed on the first cause of action.
In South Africa the rejection of the English doctrine of conversionhas been made less complicated for two reasons. Firstly there was nohistorical background j>imflar to that created in Ceylon by the introduc-tion of the English law in enactments similar to Ordinance 5 of 1S52 andOrdinance 22 of 1S66 and secondly when the provinces in South Africa(Natal in 1SS7, Orange Free State in 1902, Transvaal in 1902 and Capeof Good Hope in 1S93) introduced the provisions of the English Act ofISS2 they did not include what corresponded to our Section 9S (2) intotheir legislation. South Africa therefore deliberately refrained fromintroducing the rules of the common law of England including the lawmerchant into their legal system. It was therefore possible for the SouthAfrican courts very early in their legal history to decide that the lawof conversion formed no part of their law—Vide Leal cSi Co. v. Williams a.The decision of Innes C.J. in this case has been subsequently followed bythe Appellate Division in South Africa—Vide Morobane v. Bateman 4and John BeTl <t- Co. v. Esselen5. In view of these decisions the SouthAfrican Courts have held that their Section 80 (which corresponded to•our Section S2) was a superfluity. Section SO of the South African Act hasnow been replaced by a new section, which gives some limited protectionto the true owner and affords a remedy akin to the English action forconversion (Cowen—The Law of Negotiable Instruments in South Africa—3rd Ed., p. 372).
As early as 1900 Innes C.J. in Leal <fc Co. v. Williams (supra) at p. 559realised the hardship that would be caused to the true owner by thedoctrine of conversion not being available in South Africa, which madeit impossible for the true OAvner to sue the collecting Bank and describedthe position as being “ unfortunate ”. In 1943 by the Bills of ExchangeAmendment Act (noAV Section 81 of the South African Act of 1964) pro-vision has been made Avhich afforded a remedy akin to the English actionfor conversion, to the true owner of a crossed cheque bearing the Avords
111944) 45 N. L. It. 198.* 1906) T. P. D. 554.
* {1967) 59 N.L. B. 189.* (1918) A. D. 460.
* (1954) A. D. 147 of 153.
500
AL.LES, J.—De Costa v. Bank oj Ceylon
“ not negotiable”, an action even against the collecting banker—Seehowever the observations of Rosenow J. in National Housing CommissionV. Cape of Good Hope Bank1 (supra) at pp. 236,237. Tambiah J. in DanielSilva’s case remarked that “ Legislation on the lines enacted in SouthAfrica would be necessary in Ceylon to protect commerce ” but withrespect I am of the view that such a course is unnecessary since S. S2 istoday part of our law.
I will now pass to the second cause of action relied upon by the plaintiffand in my view she is also entitled to succeed in her alternative cause ofaction for money had and received. I do not agree with the observat ionof Tambiah J. in Daniel Silva’s case that sich an action is unknown toour law. . Indeed in the subsequent case of Don Cornells v. de Soysa cO Co.Ltd.2, '. here the decision in Daniel Silva’s case was considered, the Courtheld that such an action was available in Ceylon. Sansoni, C.J. in thecourse of his judgment stated that—
. “ there is no inconsistency in aprplying tho principle of the actionfor money had and received, which is founded on the same principleof equity as the Roman-Dutch law action of ‘ eoiulictio indebiti’and is a liberal action, founded upon large principles of equitp' wherethe defendant cannot conscientiously hold the money.”
The learned Chief Justice has stated why in such a case restitutionmust bo made to the true owner. It is on the basis of the doctrine ofunjust enrichment that a defendant cannot conscientiously hold themoney belonging to another. “ He who has come into possession ofproperty not his own, even though the acquisition might have beenmade accidentally or by mistake and without deliberate fraud, is undcrastrict obligation to return it or its value to the owner. This was thefoundation of the important action of condictio indebiti.” (per Schneider
J.in The Imperial Bank of India v. Abeysinghe 3.)
In regard to the Banker’s liability.tho position lias been succintlystated by Cowen (supra) at p. 372—
“ If a bank knowing that its customer’s title to a cheque is defective,collects payment thereof, it will be liable at common law to the trueowner. But a collecting banker who receives payment of cheques,whether crossed or not, on behalf of a customer who has no title theretois not liable at common law to the true owner of the cheques for anyloss sustained by him in consequence thereof, on the ground of ■negligence only; lie is liable only if he had knowledge that the customerhad no right to the cheques and was intending to misappropriate theproceeds.”
Tho learned author cites Yorkshire Insurance Co. Ltd .v. Standard Bank*where Tindall J. atpp. 27S-2S3 draws attention to the difference bet weenthe banker’s liability in the English law and the Roman-Dutch Jaw..
063) (1) S.A.It.R. 230.3 (1027) 20 X. L. It. 357.
<•** Os X. L. R. 162.* (1023) IF. L. D. 251.
X
*
WEERAM AXTRY, J.~Dc Costa v. Bank of Ceylon501
There is also a passage in Morohane v. Bateman (supra) which explainsthe basis of liability in the Roman-Dutch law. That was a case whereproperty was obtained by the defendant contrary to an express provisionof Jaw and which imposed a criminal liability on the purchaser. InnesC.J. in allowing the plaintiff’s claim said :—
“ The English doctrine of conversion finds no place in our law ;but tlxc purchaser of property belonging to a third person who hasredisposed of it may' nevertheless under certain circumstances be heldaccountable to the true owner. Voct (Ad Pand. G-1-I0) discusses theremedies which one who has been unlawfully deprived of Ills propertyhas against a third person through whose hands it lias passed. Ifthe latter acquired and resold the property mala fide and with know-ledge of the theft, then he would be liable to the owner, because he-would virtually be a party to the delict, and would be regarded in thesame position as if he has fraudulently parted with possession. Butif the acquisition and the re-sale had been bona fide then there would
be no-liability to make good the valueBecause.the good faith of the-
purchaser would protect him against a claim ex delicto, and therewould be no contractual relationship and no consideration of naturalequity. Now the position, though not identical with the examplediscussed by Voct closely resembles it, and must be decided on thesame broad principles. It is a very analagous case. If exactly thesame test had to be applied, it would be impossible, broadly speaking,to say that an acquisition which constituted a criminal offence wasa bona fide acquisition. But the expression bona tides was used byVoct merely to denote knowledge of the tainted title ; and here it maybe said there v-as no such knowledge. But the illegality of the contractleads to the same result as if there had been knowledge. Because itprevents any justification of the admitted handling and disposal of"the owner’s property.”
On the facts established in the present case it seems obvious that oneor more officials of the Wellawatte branch of the defendant’s Bank hadknowledge of the fraud that was being perpetrated by' Loganathan. TheBank received the Dividend Warrant with knowledge of its tainted titleand was aware that Loganathan was going to misappropriate the proceeds.Consequently'- the defendant would be liable to the true owner and theplaintiff is entitled to succeed on the action for money had and received.I'would allow the appeal with costs.
Weeramaxtry, J.—
This appeal raises matters of rare interest under our law. Amongthese are the questions whether the English doctrine of conversion formspart of the general law of Ceylon, and w hether in any event it forms partof the particular sections of our law which relate to negotiable instrumentsand matters of banks and banking. The resulting examination of the
4502
WEERAMANTRY, J.—De Costa v. Bank of Ceylon
precise areas of applicability of English and Roman-Dutch law hasstimulated far reaching researches into the manner in which a body ofmercantile law, English in origin, was worked into the texture of a legalsystem primarily Roman-Dutch. Indeed the basic fabric itself was sub-jected to a searching scrutiny at the argument before us and counselminutely examined the mode of introduction not only of our special-commercial law but of our general common law itself. Other problemsas well emerged, no less attractive and no less complex, relating to thenature and scope of the principles of quasi-contractual liability underboth English and Roman-Dutch law.
The plaintiff’s claim arises in consequence of a clever fraud relating toa dividend warrant for Rs. 30,037T3 crossed and made payable to theplaintiff. Inis warrant, though endorsed by the plaintiff and madepayable to her account, had found its wajr into the hands of one Loga-nafchan, an account holder of the defendant bank at its Wcllawattc.branch. This Loganatlian, who has since been prosecuted to convictionfor a criminal offence relating to this dividend warrant, had'some monthsearlier opened his account with the defendant bank in the name of “ Movie•& Co. ”. It was to this account that the warrant was credited, but howit came to be accepted to the credit of that, account, when the plaintiffhad already endorsed it and made it payable to her account, is by nomeans clear, and constitutes one of the crucial questions of fact in this•■case.
Apart from Loganathan, the key figure in this curious episode ,wasone Thuraiappah, the accountant-cashier at the bank,;4Who accordingto the evidence in the case, was the official entrusted With the duty ofreceiving cheques and checking paying-in-slips presented to the bank.Handy, the manager of the Wellawatte branch, has stated that it wasThuraiappah’s duty to examine the pajung-in-slipsandthe accompanying•cheques or warrants to see that thej’- tallied in regard to the creditinstructions, and also to examine the cheques or warrontsfor irregularities.After this process, the pa}'ing-in -slips, cheques or,war rants and collectionregister- are passed on to Handy who initials these documents, andpasses the cheques or warrants'for collection,-after himself seeing thatthe credit instructions on the cheques or warrants tally with those onthe jiayuig-in-slips.
Irrespective of the question on whom lay the burden of proof, therewas then evidence placed before the court by the plaintiff in regard tocrossing and endorsement, which required adequate contradiction or-explanation by the bank if the inference of negligence arising therefromwas to be displaced, for a cheque so crossed and endorsed at the time ofpresentment could not without negligence find its way into an account-other than that of the payee. This evidence thus involved the bank in thenecessity of proving the circumstances in which the endorsement referred■to was overlooked, or alternatively, such facts as alteration or obliterationof the endorsement at the timeof crediting. On these matters the bankhas signally failed to provide the court with satisfactory proof.
AY EE RAM AX TRY, J.—Dc Costa r. Bank of Ceylon
503
The witness best able to speak to these matters was Thuraiappah,who admittedly handled and examined the ■warrant at the time ofpresentment. As far as Handy was concerned, he was the officercharged with managerial and supervisory duties and itnablo to giveindividual transactions the detailed care and attention expected ofofficers specially entrusted with the performance of those particularduties. It is in evidence that some sixty cheques had been put up at theend of that day to Handy in the space of half an hour, and it would bereasonable to suppose that he relied to a large extent on tho dueperformance by his cashier clerk of the specific duties entrusted to him.In any event it is evident that he docs not have, nor indeed may hebe expected to have, a clear recollection of this particular transaction.
Now, this Thuraiappah was a witness listed by the defendant banksummoned to give evidence, and admitted by a senior official of the bankto have been in attendance in court. He was not however called as awitness by the defendant bank, nor any ground of excuse offered therefor,and without him we have ho proper eviUchccT>f anylendoreemcnts“ti*Kichwould have justified the bank in placing this warrant to the credit ofLoganathan’s account. Further, although the reluctance to callLoganathan may well be understood and does not attract the sameadverse comment as the failure to call Tlmraiappah, it is noteworthythat Loganathan was listed as a witness by the defendant’ directivesobtained on the superintendent of the Prison on more than one occasionto produce him in court, special batta deposited for his expenses andindeed a postponement of the trial obtained on the ground of his illness.Nevertheless, Loganathan was not called although he was the only otherperson who could have spoken to the endorsements on the warrant atthe time of presentment.
The Avarrant itself is not now available, having been stolen from Grind-lays’ Bank, on which it was drawn, and though the paying-in-slip PIShas been produced, it can by itself throw no light on the endorsementsupon the warrant. It is significant also that interrogatories were servedon the bank containing a question as to whether it made inquiries toascertain how “ Movie & Co.” became holders of a dividend warrant madeout in favour of the plaintiff. To this question the bank has given thesingularly unhelpful reply that the record of any inquiries made wouldappear on the dividend warrant and that in the absence of the dividendwarrant no answer was possible.
The matter does not however rest there.
It is in evidence that at of about the time when this cheque was pre-sented, the Wellawatte branch of the defendant bank had been providedwith an ultra violet ray apparatus capable of detecting alterations oncheques which would escape detection by the naked eye. If indeed anultra violet device had been available to the Wellawatte branch on thisdate it was material both to the question of endorsements and to the
504WEERAjNIANTRY, J.—De. Cosla v. Bank of Ceylon
question of negligence whether the apparatus had been used in regardto this warrant which, as far as the transactions of tlxat branch went,was for a conspicuously large amount. In fact the transaction was by,the standards of that branch so large as to dwarf all other transactions-for the day, and indeed any transaction ever recorded in the account inquestion. It is significant that during the entire history of tins accountafter the initial deposit with which it was opened, there were only foursums credited prior to the crediting of this sum of Rs. 30,037*13, andthese were trifling amounts of Rs. I44-SS, Rs. 05-00, Rs. 49-50 andRs. 231*39. Hence although there would be no obligation on the bank tosubmit all transactions to the scrutiny of such a device, it may wellbe contended that this was precisely the type of transaction for whose- proper scrutiny such a device was intended. If on the other hand thedevice had not yet been provided to the bank, that was a matter capableof easy proof, thus negativing any possibility of adverse commentarising from failure to use the ray. This was clearly a matter one would■expect to be reflected hi the records of any well-orderccl bank, and it isnoteworth)'* that Sparkes, the senior branch manager of the defendantbank, admitted in cross examination that Handy could have looked upthe records and ascertained when the raj* -was supplied to the Wellawattebranch’ Despite attention being focussed on this matter at the trial,
. the bank has failed to assist the court on the question whether the devicewas available to it on the day in question.
I am not here expressing any view as to whether the failure to use this■device, if available, constitutes negligence or not in the circumstances ofthis case, but the availability of the device on that day was as I have said.a material question indeed. Here again, then, the bank has failed tomake available to the court evidentiary material of the most obviousvalue.
This matter is rendered all the more significant when one sees that,at one stage in the cross examination of Sparkes, counsel for the plaintiffmoved to mark in evidence, presumably as an admission, the depositionof Thuraiappali in the criminal case, wherein he had statedthat ho had examined this cheque under ultra violet light.■Counsel for the bank objected to this evidence and the objection wasupheld.
It may well bo contended that the order upholding , this, objectionwas wrong, on the basis that the passage referred to was an admissionof an agent of the defendant. However, without in any way taking intoaocount the contents of that dcj>osition as evidence, one sees from thisopisode what significance could attach to the question whether the raywas available and if available whether it was used. These were moreovermatters peculiarly within the knowledge of the bank, and the conclusion;sceras inevitable that the bank has failed to place the best evidencebefore court of the endorsements on the cheque at the time ofpresentment.
WEERAMAXTRY, J.—De Costa v. Bank of Ceylon505
There is another piece of evidence concerning this device which Ifind most difficult to understand. Sparkcs has stated in evidence that thisray was procured because around that time there had been a spate offrauds connected with cheques which had been stolen in the post andaltered through the use of chemicals. Handy, the manager of the Wella watteBranch at the relevant time, sought however to maintain in cross examina-tion that he had never heard of any endorsements on a cheque havingbeen chemically removed. Quite apart from his lack of opportimity toexamine the endorsements on the cheque, I am afraid the bank wasresting its case upon a most insecure foundation when it chose to dependentirely on such a witness on the question of the endorsements on thecheque at the time of presentment-.
The conduct, then, of the bank in receiving this warrant to the creditof Loganatban’s account, is shrouded in mystery, and one feels assailedby the strongest doubts as to the innocence of Thuraiappah, its officerwho received this warrant, compared it with the paying-in-slip and putit up to Handy. My brothers have in their judgments set-but otherreasons strongly indicative of his complicity in Loganathan’s guilt andwith these observations I would respectfully agree.
On feels constrained to observe that the defendant in this case wasnot a litigant principally concerned with success in the immediate litiga-tion, but a public institution—indeed the leading bank in the countryand one entrusted by the legislature for some time with a monopoly ofthe right to open current accounts. Such a defendant was in my viewunder a duty to be of greater assistance to the court in placing beforeit the evidentiary material necessary for a determination of the difficultmatters it was called upon to decide.
Next in the history of this fraud is the manner in which the proceedscollected upon this cheque and deposited to Movie & Co/s account,were withdrawn. It would appear that three days after this sum had beencredited to the account of Movie & Co., a cheque for an amount nearlycorresponding in value to this credit, namely a sum of Rs. 29,S14'13,was witkdraAvn from the account upon a cheque drawn by Loganathanin the name of one Thomas Felix de Costa: Fonseka, the agent at theWcllawatte branch on that day, had wanted confirmation of the identityof the payee, but the drawer of the cheque, Loganathan, was producedbefore the agent and identified by Thuraiappah and the money was paidout to the drawer himself. The payee was not seen by anyone on thatday and we see again the hand of Thuraiappah at work in associationwith Loganathan.
Another aspect of alleged negligence on the part of the bank is inregard to the very opening of the account by Loganathan in the name ofMovie & Co. It would appear that one Ariaratnam, the person introducingLoganathan to the bank, had not even stated how long he had knownthe proposed customer—an important piece of information a bank
506WEERAMANTRY, J.—De Costa v. Bank oj Ceylon
would ordinarily be expected to require before it accepts a new customer.The manager of the Wellawatte branch at the time, who interviewed theprospective customer and decided on his suitability and also initialledthe account opening form 1)2, was one Anthony, who at the time of• trial was still in the service of the defendant bank at its London branch.This case was important enough and the circumstances of the openingof this account sufficiently material, to warrant his evidence being placedbefore the court either directly or'by other means available under ourlaw. This again was not done by the bank, although it has been observedthat if a bank manager fails to make inquiries which he should have made,“ there is at the very least a very heavy burden on him to show thatsuch inquiries could not have led to any action which could have protectedthe interests of the true owner.”1 There would appear therefore evenat that stage to have been an apjwrent want of care on the part of thebank which the bank has foiled to explain. However, for the purposesof the present case, mindful of the .observation in Marfuni <0 Co. Ltd.v. Midland Bank. Ltd.2 that one must resist the tendency in these casesto show wisdom after the event, I shall not take this circumstance intoaccount as a factor against the bank. I consider that -without resortto this factor the matters to which I have already referred are ampty*sufficient to bring into play the legal principles which I shall discuss.
I may add that I too incline to the view indicated in the judgmentof my brother Sirimane that a fraudulent official of a bank acting incollusion with a fraudulent account holder would not find it difficultto get a busy bank manager in the rush of business to initial a paj'ing-in-slip for the deposit of a cheque into a particular accovmt withoutaltering the endorsements on the cheque itself. Consistently with thisview we have the indication from letter P10 that when the warrant wasreceived by Grindlays’ bank, on which it was drawn, it was stillapparently unaltered.
One further circumstance to which I should refer is that the evidenceof a spate of banking frauds, involving thefts and forgeries of chequesduring the period in question, should have served to underline the needfor caution when a transaction of this nature presented itself, attendedas it was by so many circumstances of suspicion, and involving as itdid so large a sum of money.
The standard of care required of a banker as stated by Lord Warring-ton of Clyffe h Lloyds Bank Ltd. v. B. B: Savory ct- Co.3 is that it- mustbe judged ” by reference to the practice of reasonable men carryingon the business of bankers and endeavouring to do so in sxich a manneras may be calculated to protect themselves or others against fraud.”Moreover a particular circumstance which should have called for care onthe part of the banker was whether the transaction of paying in anygiven cheque coupled with the attendant circumstances was so unusual
1 Baker v. Barclays' Bank Ltd., (1055) 2 All B. R. 571 at 5S4.
1 COGS) 2 All E. R. 573." 3 (1033) A. C. at 221.
WTEER AM ANTR Y, J.—De Costa v. Bank of Ceylon507
that it should have placed the banker upon inquiry. To quote Scmlton,
J. in Lloyds Bank Lid. v. The Chartered Bank of India, Australiaand China1 “I accept the measure of duty stated by Lord Dunedinin Commissioners of Taxation t>. English, Scottish and Australian Bank2where lie says : “ 3Ir. Justice Isaacs says, * Apart from the well-esta-blished rule that whether or not the evidence establishes that a personacts without'negligence is a question of fact, the legal principles foundin jlI orison v. London County and Westminster Bank Ltd.3 and relevantto the present, are (1) that the question should in strictness be determinedseparately with regard to each cheque ; (2) that the test of negligenceis whether the transaction of paying in any given cheque was so out ofthe ordinary course that it ought to have aroused doubts in the bankers*mind, and caused them to make inquiry. ’ If there be inserted afterthe words * given cheque * the words ' coupled with the circumstancesantecedent and present *, their Lordships think this is an accurate state-ment of the law.” Lord Dunedin adds to it the qualification, whichI entirely accept,,that to require a thorough inquiry into the historyof each cheque would render banking business impracticable, and-thattherefore there must be something markedly irregular in the transac-tion.” I consider these tests of negligence to be sufficiently satisfiedby the circumstances to which I have referred.
I must however make it clear that when I hold there was negligenceI do not mean the bank had knowledge of Loganathan’s tainted title.Though there was certainly negligence—and that of a high standard—it means no more than that there were strong circumstances ofsuspicion necessitating inquiry by the bank in regard to the title of itscustomer. Knowledge is a more definite state of mind than suspicion,however strong, and it would be unsafe in the absence of more specificevidence of knowledge and more particularly in the absence of thewarrant itself, to hold that the bank, at the time it collected the cheque,had guilty knowledge of Loganathan’s tainted title.
It is this state of facts which highlights the importance of the questionwhether the transaction we are here examining is one which attractsthe principles of the English law of conversion or the normal principlesof our common law.
The essential difference between the two systems on this matter isthat a cause of action in conversion would not require fault or fraudon the part of the defendant. The position in English law is explainedby Diplock, L.J. in Marjani <k Co. Ltd. t>. Midland Bank Ltd * in theterms that : “ At common law one’s duty to one’s neighbour who isthe owner, or entitled to possession, of any goods is to refrain, fromdoing any voluntary act in relation to his goods which is a usurpationof his proprietary or possessory rights in. them. Subject to someexceptions which are irrelevant for the purposes of the present case,
111929) 1 K. B. 40 at 59.» (1914) 3 K. B. 356.
* (1920) A. C. 633 at 688.* (1968) AllE. R. at p. 578.
60S"WEERAMANTRY, J.—De Costa v. Bank of Ceylon,
it matters not that the doer of the act of usurpation did not know, andcould not by the exercise of any reasonable care have known*, of hisneighbour’s interest in the goods. This duty is absolute he acts- athis peril.”,
By way of contrast, the Roman-Dutch' law would not attach delictualliability in tire absence of (loins or culpa.
It is true there exists a general principle of the Lex Aquilia that apersoJi shall not injure another’s property by unlawful physical acts 1and that the right each person enjoys that others shall not injure him inhis person or property by their conduct involves a duty in such others toexercise x)rop>er care 1 2. However in the specific case of the purchaser ofstolen propert3r, in consequence of the special treatment, of that subjectin connection with the actio ad exhibendam, the Roman-Dutch law wouldappear to attach no liability on the ground of mere negligence but torequire mala tides, meaning, in this context, knowledge of defective title.Thus there would appear to be no liability in such a case merely on theground that there has been an omission of a jn-ccaution which might havesuggested itself to a careful person 3. By analogy this principle has beenheld applicable to the case of a collecting banker.4
In the words of Cowen5 “ Of course if a bank knowing that itscustomer’s title to a cheque is defective, collects paj'ment thereof, it willbe liable at common law to the true owner. But a collecting bankerwho receives payment of cheques, -whet her crossed or not, on behalf of acustomer who has no title thereto, is not liable at common law to thetrue owner of the cheques for any loss sustained by him in consequencethereof, on the ground of negligence only ; he is liable only if he hadknowledge that the customer had no right to the cheques and wasintending to misappropriate the proceeds.”
It would appear then that in the circumstances of this case, there is anabsence of the ingredients necessary to the maintainabil^ of an actionunder the Roman-Dutch law, for even though the facts reveal negligence,they Bill short of proving mala fides on the part of the bank. Thisexplains the necessity for the appellant to invoke the English doctrine ofconversion.
In Daniel Siha v. Johanis Appahamy G a Divisional Bench of thisCourt expressed, the view that the English doctrine of conversion is notpart of our law. In that case a not negotiable cheque on which thepayee’s endorsement was forged was transferred by the forger or someone
1 Grocher, Bex Aquilia, p. 231.
Union God. v. National Bank of S. Africa Ltd. (1021) D. 120.
3Broughton v. Pinson tG Co. (1S77), Nat. L. Jl. 1CJ.
4Yorkshire Insurance Co. Ltd. v. Standard Bank of South Africa Ltd.,
supra p. 233.
5The Law of Negotiable Instruments in S. Africa, 3rd ed. p. 372.
« (1003) 07 X. L. n. 157.
"WEERAMAXTR Y, J.—De Costa v. Bank oj Ceylon
509-
on his behalf to the defendant . The value of the cheque was credited bythe defendant’s bank to the account of the defendant and a like sumdebited in the same bank to the account of the plaintiffs who were thedrawers of the cheque. The plaintiffs averred that the defendant had notitle to the cheque inasmuch as (he endorsement of the payee had beenforged and that he consequently had no lawful authority to convert thecheque to his own use. It was held that the defendant being a bona fideholder for value in due course would not incur liability under the Roman-Dutch law of delict and that lie could not be held liable for the tort of'conversion as the English doctrine of conversion has not been introducedinto Cc3*lon and the tort of conversion is unknown to the Roman-Dutchlaw. The Court further took the view that section 9S (2) of the Bills ofExchange Ordinance which makes the rules of the common law ofEngland including the Law Merchant applicable to bills of exchange,promissory notes and cheques, so far as not inconsistent with the express-provisions of the Ordinance or any other enactment for the time being inforce, does not draw in the English law on this matter.
I take the view, with respect, that that judgment is correct in itsconclusion that the doctrine of conversion forms no pazt of the'generallaw of Ceylon. However that case did involve the rights of a bona fideholder for value of a negotiable instrument and in regard to such instru-ments wc are governed by the English law. For reasons which will!appear later in this judgment such a transaction does in my viewattract the English law relating to conversion although the doctrineof conversion forms no part of our general law. On this point-therefore, I would with the greatest respect, differ from that decision.
Moreover, it will be observed that the case of Daniel Silva v. JohanisAppuhamy1 was one relating to the liability not of the banker but of a.person to whom the cheque had been transferred by the forger or someoneon his behalf. That case therefore does not determine the questionwhether the law applicable to the collection of a cheque by a banker is theEnglish law and we arc faced in the present case with the further question,whether the transaction under examination attracts the English or theRoman-Dutch law by reason of its connection with matters of banking—-a matter on which Daniel Silva v. Johanis Appuhamy can afford us noguidance.
I will first set out my reasons for concluding that the doctrine ofconversion forms no part of our general common law and then examinethe question whether it forms part of our special commercial lawapplicable to a transaction such as the present.
A consideration of the first question is best prefaced by a briefhistorical discussion of certain aspects of the introduction of the Roman-Dutch law as the common law of this country. Against this backgroundthe precise limits of the inroads made thereon by the reception of English,law will ap|jcar with greater clarity.
1 (19C5) 67 N. L. R. 457.
£10
WEERAMAXTRY, J.—Dc Costa v. Bank oj Ceylon
I do not propose in this judgment to re-traverse the -well exploredground concerning the question whether the whole of the Roman-Dutchlav has been received in Ceylon. The many comprehensive judgmentsof this Court on this question more than adequately deal with this'matter. I shall however concern myself with the somewhat differentquestion urged on this appeal, that the terms in which the Roman-Dutchlaw was introduced into this country were not absolute but subject to apower expressly given to the courts to deviate from the general principlethat the common law was to be Roman-Dutch. Iu other words it issubmitted that a juinciple of English law may become part of our legalsystem not merely by tacit adoption by the courts over a long period oftime, but in fact that the courts may, by virtue of express legislative■authorisation in that regard, effect a deliberate deviation from theRoman-Dutch law.
In this connection reliance is placed upon the phraseology of theAdo2>tion of Roman-Dutch Law Ordinarree which has its origin inGovernor North's Proclamation of 23rd September 1799, and now•appears as Chapter 12 in the current edition (195G edition) of theEnactments.
Section 2 of that Statute declares that e: the administration of justiceand police in the island shall henceforth and during His Majesty’spleasure be exercised by all courts of judicature, civil and criminal, magis-trates and ministerial officers, according to tire laws and institutions thatsubsisted under the ancient government of the.United Provinces, subjectto such deviations and alterations by any of the respective powers andauthorities hereinbefore mentioned, and to such other deviations andalterations as _we-shall by these presents, or by any future proclamation,and in pursuance of the authorities confided to us, deem it properand beneficial for the purposes of justice to ordain and publish, orwhich shall or may hereafter be byr lawful authority ordained andpublished.”
This provision follows upon a Preamble which reads:
“ WHEREAS it is His Majesty’s gracious command that for thepresent and during His Majesty’s will and pleasure the temporaryadministration of justice and police in the settlements of the Islandof Ceylon, now in His Majesty’s dominion, and in the territories anddependencies thereof, should, as nearly as circumstances will permit,be exercised by us in conformity to the laws and institutions thatsubsisted under the ancient government of the United Provinces,subject to such deviations in consequence of sudden and unforeseenemergencies, or to such expedients and useful alterations as may rendera departure therefrom either absolutclj’ necessary and unavoidable orevidently beneficial and desirable.”
YYEERAMANTRY, J.—De. Costa v. Bank of Ceylon '
511
The phraseology of section 2 provokes inquiry into the identify ofthe powers and authorities therein mentioned, and it was the submissionof the appellant that, in the absence of any specification of these powersand authorities in any earlier portion of the Ordinance or in the Preamble,one must seek them in the earlier words of section 2 itself. On this basisthese powers and authorities would include the Courts of Judicature,civil and criminal, of the Island.
If such indeed were the position, the burden of satisfying this courtthat the English principle of conversion had been adopted in preferenceto the differing rule of Roman-Dutch law would be more easilydischarged than if reliance must be placed upon the unbroken andunequivocal chain of authority required to prove the tacit adoption ofa principle of English law.
One is apt however to be misled on this matter by the form in whichthis Proclamation now appears in the Enactments, for upon a perusalof the Proclamation in its original form.it-becomes clear_vha.t_ thcse“ powers and authorities hereinbefore mentioned ” are; and these“ powers and authorities ” are certainly not the courts of law.
The Proclamation of 23rd September 1799, reproduced in its originalform in Dr. G. C. Mendis’ work on the Colebrooke-Cameron Papers1,thows that the Preamble in its original form did not stop at the words" beneficial and desirable ”, as in recent editions of the Enactments,but continued with these words: “ subject also to such deviations,alterations and improvements, as shall be directed or approved by theCovrt of Directors of the United Company of Merchants of England, tradingto the East India Company or the secretCommiV.ee thereof, or by the Governor -General in Council of Fort William in Bengal." The words quoted wereomitted in later editions of the Enactments for the reason that theyM ere inconsistent with later legislative developments, as we shall presentlysee. When one has regard to the terms of the actual Proclamation, therecan be little doubt that “ the respective powers and authorities herein-before mentioned ”, in section 2, are the powers and authorities justmentioned and referred to in the deleted portion of the Preamble. How-ever when that deletion was made, the words, in section 2 " subject tosuch deviations and alterations b3r any of the respective powers andauthorities hereinbefore mentioned” Mere retained although the respectivepowers and authorities referred to were none other than the powers andauthorities that had been specified in the deleted portion of the Preamble.
It would be wrong therefore to construe the expression “ respective powersand authorities ” as appearing in section 2 today by reference only tosuch powers and authorities as appear in the form in which recent editionsof the Legislative Enactments carry the Proclamation.
The same result becomes clear also from the Royal Instructions whichGovernor North received from King George IV dated 26th March 1798*,for these are in terms simi’ar to those of the Proclamation of 23rd
» Vol. 2 p. JS4.
* Mendis, ibid, p. 70.
•512
WEERAMANTRY, J.—De Costa v. Bank of Ceylon
September, 1799. Article 5 of this Instrument states that “ for the presentthe temporary administration of justice and police in the settlement ofthe Island of Ceylon, non* under our Dominion, and in the dependenciesthereof should as nearly as circumstances will permit be exercisedby you in conformit}– to the laws and institutions that subsisted underthe Ancient Government of the United Provinces subject to such direc-tions as you shall now and hereafter receive from the Court of Directorsof the East India Company or (he secret Committee thereof or (he Governor-■ General of For' William in Council.” Likewise also the Instructions fromthe Court of Directors of the East India Company to Governor North1•contain a corresponding provision (Article 5).
This view, that thcro was no such authority expressly given to thecourts, is further confirmed by a perusal of the revised Royal Instructionsissued to Governor North on ISth February 1S01 2. Article 4 requiredthat the temporary administration of justice and police should as nearlyas circumstances would permit be exercised in conformity to the lawsand institutions that subsisted under the ancient Government of theUnited Provinces subject to such deviation in consequence of sudden and•unforeseen emergencies and to such expedients and useful alterations-as may render a departure therefrom either absolutely necessary andunavoidable or evidently beneficial and desirable. The samo articlerequired the Governor immediately to report to one of the PrincipalSecretaries of State for His Majesty’s ratification any such deviationsor alterations which he chose to make in terms of this Instruction. TheLetters Patent re-commissioning Governor North dated ISth April 1S013revoked tho earlier Letters Patent and everything therein contained.4
The picture emerging from these documents becomes complete when• one has regard to the courts in existence in 1799. There was at that timea breakdown of the administration of justice, for tho Dutch judicialsystem had come to a complete standstill after the capitulation of Colomboand “ there was an utter absence of courts for trying private civil•disputes.”5 On 1st June 179G there had indeed been passed an “ Act ofAuthorisation ” renewing the Dutch courts of justice at Colombo, Galleand Jaffna0 but the Act could not be implemented,7 and there werestill no courts of civil jurisdiction. When Governor North arrived inCeylon the only courts in existence were the Courts Martial, theCollectors’ Courts and a Court of Equitj' which had been established byde Meuron, the leader of the Swiss Mercenary Regiment originally raisedfor tho Dutch.East India Company but whose men had subsequentlyenlisted in the British Army and assisted in wresting the maritimeprovinces from the Dutch.8 This Court of Equity was established to tryin a summary manner and according to Dutch laws petty causes in•Colombo, but the members had refused to take the oath of allegiance.
1 Mcnrli/t, ibid p. SO.5 Coh'in R. de Silva, Ceylon under
ibid, p. 00.the British Occupation, p. 291.
. s ibid, p. 01.* ibid.
ibid, p. 02.7 ibid, p. 292.
8 Mills, Ceylon under British Rule, p. 3-5.
WEERAMAXTltY, J.—Dt Costa v. Bank of Ceylon
513
Indeed, since the acquisition of the maritime provinces in 1700, therehad been, to quote Governor North himself1, ** a suspension of almostall criminal and civil justice whatsoever." Even after Governor North’sarrival the civil judges refused for some time to take the oath ofallegiance. It thus seems evident that the established Courts were atthe time of the Proclamation by no means the appropriate authoritiesto decide upon the deviations and alterations which the Proclamation,envisaged.
For all these reasons I conclude that in terms of the Proclamation of23rd September 1709 the common law of Ceylon was the Roman-Dutchlaw, subject to such deviations and alterations as the specified authoritiesmight determine but that the authorities thus expressly empowered tomake deviations did not include the Courts.
These specified authorities were later replaced by legislative institu-tions within the Island itself, and wc see that when Governor Horton– received his Royal Instructions-dated 30th- April-1 S3I-he was givenfull power and authority with the advice and consent of the Council oFGovernment to enact, ordain and establish laws for the peace and goodgovernment of the Island.2 The Council of Government referred towas a Council consisting of the Chief Justice, the Officer in command of'the Forces, the Chief Secretary, the Chief Commissioner of Revenueand the Vice Treasurer and Commissioner of Stamps. This Council-Governor Horton was empowered to create by Letters Patent dated 23rdApril 1S313 commissioning him to set up a Council of Government ofCeylon. It would appear therefore that after the creation of this Councilthere was a body empowered to ordain legislation namely the Governorand Council and this authority took the place of the authorities mentionedin the original Instructions to Governor North. There followed the Charterof Justice of 1833 and Ordinance No. 5 of 1835 which repealed the Procla-mation of 1799 but expressly retained that part of it which providedthat justice should be administered according to the laws and institutionsthat subsisted under the ancient Government of the United Provincessubject to deviations by lawful authority.
This Ordinance also significantly goes on to declare, in terms evenmore categorical than those of the Proclamation of 1799, that thoselaws and institutions “ still are and shall henceforth continue to bebinding and administered throughout the Maritime Provinces and theirdex^endencies ” subject to the aforesaid deviations and alterations.
The Roman-Dutch Law was thus firmly enthroned as the common lawof this country subject to such deviations as might be legislativelyordained.
*
1 Undated despatch to the Directors, written from Madras, and cited byMills, Ceylon under British Buie, p. 35.
Article 10—vide Mendis, ibid, p. 146.
Mendis, ibid. p. 138.
514
WEERAMANTRY, J.—De Costa tv Sank of Ceylon
*= Since, then, there was no express legislative authority conferred onthe courts to vary the Roman-Dutch law, the plaintiff, in seeking toestablish that the English tort of conversion has been adopted intoour legal S3*stcm, must fall back upon the alternative and more difficultbasis of the tacit reception of that jirinciple into our legal system.Reference has been made in this connection to a series of cases where,it is submitted, our courts have invoked and applied the English mlesof conversion.
An examination of these cases docs not in my view support thecontention of the appellant that they indicate an unequivocal adoptionof the principles of English law in this regard. The mere use in some ofthem of the expression “ conversion ” is not conclusive of the deliberateand conscious application therein of the English principles relating toconversion, to the exclusion of Roman-Dutch principles, and indeedmany of the cases cited may equally well have been decided the sameway upon the basis of the Roman-Dutch principles relating to ■wrongfulappropriation of property.
These decisions have been analysed in the judgment of my Lord theChief Justice, and agreeing as I do with his assessment of theseauthorities, it is unnecessary for me to consider them further, exceptfor the brief reference I shall make to Dodwell v. John 1.
It will suffice to observe that in any event this thin line of decisions istoo tenuous to form a current of authority of the very high degree whichalone would suffice as a basis for the view that a principle of English lawforeign to and at variance with the principles of the Roman-Dutchsystem has now become ingrained 'in our law. As was observed in Sctmedv. Segutamby 2, although fundamental principles of the common law mayin course of time become modified by judicial decisions, it would be onlyby a series of unbroken and express decisions that such a developmentcould take place. The principle that delictual liability does notattach under the lex Aquilia in the absence of dolus or culpa is such afundamental principle of the common law.
A special word is necessary in regard to the Privy Council opinion inDodwell v. John1 in view of the importance Cf that authority. Althoughin South Africa it lias been expressly dissented from,3 we in Ceylon are ofcourse bound by that decision ; and if it did in fact apply the principle ofconversion, that recognition of the principle would no doubt greatlyadvance the appellant’s case.
Tambiah, J. has, with 'respect, rightly observed in Daniel Silva v.Johanis Appuhamy, 4 that the Privy Council did not in Dodwell v. Johnexpress a firm view that the principles of conversion applied in Ceylon.Their Lordships merely made a passing observation on this matter andwould appear deliberately to have refrained from making it the subject
* (1918) 20 N. L. It. 20G.3 Bell v. Essclcn, (1954) 1 S. A. L. JR. 147:
3 (1924) 25 N. L. i?. 481.* (19G5) 67 A*. L. S. 457.
WEERAMAXTRY, J.—Dc Casta v. Bank oj Ceylon
515
of a definitive pronouncement. The basis of that decision is the receiptof money with notice of the trust affecting it, and it was on the footingthat those facts gave rise to a right of recovery that their Lordshipsformed their opinion. Their Lordships were there apptying what theyreferred to as “ principles of jurisprudence based in part, though notwholly, on a foundation of Roman Jaw.” They went on to observeimmediately thereafter, “ If the appellants received such iuone}' withnotice of the trust affecting it, they would be bound to account for it tothe respondent. It is on this footing that their Lordships propose todeal with the question.” The principle so relied on was the principleunderlying the action for money had and received, but viewed againstthe liberal background, which their Lordships considered was availablein an appeal from a Court not confined to administering the common lawof England, that money is recoverable which the defendant ex aequo elbono ought to refund. Therein, and not in the principle of conversion,lies the ratio of that case, a matter evident also from the cautious lan-guage employed in reference to the applicability of the latter principle inCc3'lon. Indeed their Lordships went on to observe1 that in an3r eventrelief could not be granted upon the latter basis in view of the provisions ofthe Prescription Ordinance. Dodivell v. John is therefore no authorit3rfor the applicability in Ce3don of the tort of conversion.
It is indeed true that there is a specimen form of plaint for theconversion of movable property', set out in the schedule to the CivilProcedure Code, which bears all the marks of the English tort of conversion.Moreover the averments contained in that specimen would appearinsufficient to reveal any cause of action under the Roman-Dutch law.However, this circumstance constitutes insufficient material on which tobase a proposition that the English law of conversion of movables has becomepart of our Jaw, for any introduction of such a new principle of liabilityinto our common law could not be effected through the medium of aspecimen form in the schedule to the Code. The schedule does not makelaw and at the most shows the Legislature’s understanding of the existingstate of the Jaw—an understanding which though we should be slow todepart from it, is not binding upon us if upon a careful examination of thewhole question we should be convinced that it is wrong. I do notconsider, either, that we have.before us sufficient evidence to be able tosay that there has been a settled practice in our courts of first instance toaccept plaints containing only the requirements of the English tort ofconversion, as containing a good cause of action.
For^ these reasons I am in agreement with the view expressed b3r theDivisional Bench in Daniel Silva v. Jolianis Appuhamy that the tort ofconversion forms no part of the general law of this country.
The conclusion that the English law of conversion does not as a generaldoctrine form part of the law of this country does not of course dispose ofthe matter before us, in view of the further questions whether, in so faras concerns cheques and matters of banks and banking, the Englishprinciples of conversion are drawn into our legal system.
1 {1918) 20 N; L. R. 206 at 210.
-516WEERAMAXTRY, J.—Be Costa v. Bank of Ceylon
Dealing first with the question of cheques, reference must be made tosection 2 of Ordinance No. 5 of 1S52 which provided that “ the law to bo^hereafter administered in this Colony in respect of all contracts andquestions arising within the same upon or relating to bills of exchange,' promissory notes, and cheques and in respect of all matters connectedwith any such instruments, shall be the same in respect of the said matters• as would be administered in England at the corresponding period, if the•contract had been entered into or if the act in respect of which any suchquestion shall have arisen had been done in England, unless in any caseother provision is or shall be made bj' any Ordinance now in foi;ce in this•Colon3r or hereafter to be enacted. ”
Three quarters of a century later there was passed the Bills of Exchange•Ordinance No. 25 of 1927 described by the Legislature as an Ordinance to•declare the law relating to bills of exchange, promissory notes, chequesand bankers’ drafts. Containing as it did a series of specific statutoryprovisions in regard to such instruments, it obviated the need to retain-on the statute book the general provision relating to these instruments,contained in section 2 of Ordinance No. 5 of 1S52. Accordingly thatprovision was repealed, but the legislature took the precaution ofinserting in the Bills of Exchange Ordinance a provision contained insection 9S (2) thereof, to the effect that the rules of the common Jaw ofEngland, including the law merchant, except in so far as .they areinconsistent with the express provisions of that Ordinance, or any other•enactment for the time being in force, shall apply to bills of•exchange, promissory notes and cheques.
One notes at once the difference in phraseology between the provisionsrelating to English law contained in the Ordinance of 1S52 and 1927,and the fact that the first enactment is in terms far wider than the second.Not only docs it make the English law applicable in respect of contractsand questions relating to these instruments but it extends the applica-bility of that S3rstem to all matters connected with any such instruments.Indeed it does not halt there but goes on to provide that the law to beadministered would be the same as would be administered in Englandin the like case at the corresponding period if the contract had beenentered into or the act in rcspcctol ichich the question arises had been done inEngland.
These terms are sufficient^ ample in (heir scope to place it- bc3rond doubtthat had the matter wc are now considering fallen to be determined b3r theterms of the first enactment it would unquestionabty have attracted theEnglish law of conversion.
The question before ns is however whether the terms of the later andless sweeping provision arc sufficient for this purpose. In orderto determine this question, it would be necessary to view this provisionnot as an isolated piece of legislation but in the setting against which itmade its appearance.
WEERAMANTRY, J.—De Costa v. Bank of Ceylon
517
When in 1927 the Bills of Exchange Ordinance was promulgated, tiroEnglish law had unquestionably been the law applicable in respect of allmatters connected with bills of exchange, promissory notes and chequesduring that long span of our legal history which reached back threequarters of a century to the Civil Law Ordinance. During this vitalformative phase, our commercial law, till then amorphous, was settlinginto the moulds set for it by the Ordinance of 1S52. The ke3-notc of thisphase, during which our commercial law assumed the broad outlines ofits present aspect, was tire total displacement- of the Roman-Dutch lawon the matters specified in section 5 of the Ordinance of 1S52.
It would be unrealistic, moreover, to lose sight of the fact that itomood of experimentation underlay the decision to introduce the Englishlaw in IS52, but rather the urgent and growing need to provide a stablelegal base for a burgeoning economy. This was the era when the Britishhad consolidated their hold over the entirety of the Island and attemptedinsurrections against their rule—in particular the Kandyan revolt ofISIS—had been subdued. The British planter was makihgTIis ubiqiiitonsappearance in the remotest corners of the country desiring naturally tocarry with him his native law to govern his commerce—a commerceconducted almost exclusively with his own compatriots centred inColombo or in London. Coffee, having passed through a crisis in 1847which paralysed the industry for three j-ears, was now recovering and in3852 was about to enter upoir a period of increasing prosperity1 duringwhich the industry acquired a dominant position in the coffee market ofthe world. The new prosperity was based on sound finance and manage-ment as opposed to the unmethodical ways that had prevailed in the* forties’,2 for “ A reckless adventure towards El Dorado had become asober business enterprise ; and the new prosperity was based on muchfirmer foundations than the old ”.’3 Such a systematisation of commerceprovided the climate for a S3rstematisation of commercial law on lineswhich had the multiple advantages of being at once familiar,practical, modern and international. The decision so to s3'stcmatise thecommercial lawand todo awa3r wilhas3’stem which to the British was bothunfamiliar and vague could avcII be understood against this background,’more especial^ as the ancient economy of the country had died out andthere was little commerce in indigenous hands.
We learn from the address of Governor Sir John Anderson to theLegislative Council on 2nd Sept ember 1S514 that in Januar3r of thatyear the Chamber of Commerce had, in an address presented to him,made certain complaints “ as to the ill working of the present laws insome respects ” and that he had referred certain passages of that addressto the judges of the Supreme Court requesting the judges to state if■an3r amendments in the law as desired b3' the Chamber were called for.
1 Mills, Ceylon under British Buie, p. 236.
1 Mills, ibid, p. 237.
* Mills, ibid.
4 Addresses delivered in the Legislative Council of Ceylon by Governors ojthe Colony, vat. L p. 239.
518
WEEK AM AlfTRY, J.—De Costa v. Bank of Ceylon
Tho judges had suggested several alterations in the laws and amongothers indicated that they considered that all matters connected withshipping and all questions regarding bills of exchange shoxild be decidedby the law of England. The Council in its address in reply dated 5thSejitember 1S51 fully concurred in the need for important changes andexpressed the hope that the measures brought forward would havothe desirable effect among others f< of terminating some of those diffi-culties in legal proceedings in commercial cases, which have at timesoccasioned much public inconvenience.”1 Such a decision, then, reachedas it was on the considered advice of the Judges of this Court, was onenot lightly taken nor such as would lightly be reversed—and far lessafter it had gathered around it the accretions of seventy-five years ofjudicial decision.
We see moreover that this policy of introducing the English law was.carried forward by the Legislature through Ordinance Ho. 22 of 1SGG.In that year Governor Sir Hercules Robinson, addressing the Legis-lative Council2 on 5th January observed that in 1S52 an Ordinancehad been enacted introducing the law of England in the colony inmaritime matters and in contracts and questions arising out of bills ofexchange, promissory notes and cheques. He went on to observethat there were other commercial questions in which it was desirableto assimilate our law with that of England such as questions relating tothe laws of partnership, joint stock companies, corporations, banks andbanking, principals and agents and life and fire insurance. Heobserved that“ tho English law has been for years virtually administeredin these matters though it has not been formally declared in force ” andthat for this purpose an Ordinance would be laid before the Council.
The Judges of this Court were again consulted on this matter andtheir view was that an Ordinance on these lines was desirable, theironly opposition to it being one in connection with immovable propertywhich does not concern us here.3
Against this background of clear policy and settled law, the legis-lation of 1027 can scarcely be viewed as stemming from any desire toencl the long reign of English law as the established common law relatingto bills of exchange and to revert to the long abandoned rules of Roman-Dutch mercantile law. Had there been any intention on the part ofthe legislature to cut across three generations of development on linesconsciously. laid down by it in 1S52, one would expect the clcai'cst possible •indication to such effect. Wc see none such in section 9S (2).
Moreover, this section though not framed in the ample terms ofsection 2 of Ordinance Ho. 5 of 1S52, contains language wide enoughto bear the meaning that itt regard to tho conversion of a cheque our1 at p. 246.
3 Addresses delivered in- Legislative Council by Governors of the ColonyVol. 2, p. 07.
Sea Sessional Paper A*o. 12 of 1SGG.
AVEER AMAXTRY, J.—De Costa t>. Bank oj Ceylon
519
law would be the English law. To adox>t the phraseology of that section,the doctrine of conversion is a rule of the common law of England whichis applicable to cheques according to the law of that country, and isa rule not inconsistent with the Bills of Exchange Ordinance or anyother legislation in force in this country. A consideration of the sectionagainst its historical background reinforces this construction.
It should also be observed that by virtue of section 2 of OrdinanceNo. 5 of 1S52, the entirety of the English law governing these instru-ments was introduced into this country. By virtue of that provisiontherefore all English statutes relating to those instruments automati-cally became the ruling statute law of this country as well. Hencewhen in 1SS2 the English common law relating to bills of exchange wascodified and assumed the shape of the Bills of Exchange Act, that Actbecame an Act applicable to this country from the day it was passed.The formal promulgation of the Bills of Exchange Ordinance in 1927therefore marked the introduction of no new legislation. Indeed thestatement of objects and reasons for the introduction of this legislation1states, somewhat curiously but most significantly, that “ In view ofthe fact that many of the District Judges are not provided with, theEnglish Acts, it is considered desirable that the law should be reproducedin a local enactment.” This observation serves again to emphasizethat what the legislature was doing in 1927 was not to introducefresh matter into our statute book or to alter the law then prevalentbut merely to declare law' that had already found a place therein.These circumstances militate against the suggestion that in 1927 therewas a reversion to the Roman-Dutch lav as our residuary commonlaw in matters relating to bills of exchange, promissory notes andcheques.
On behalf of the respondent a distinction is sought to be made betweenrules of the English common law which are of general applicability toany subject matter and rules of the English common law which arespecially applicable to bills of exchange considered as such. It is sub-mitted that the doctrine of conversion is a rule of tortious liability whichis of general application to chattels and that its application to negotiableinstruments is but a particular application of that general rule, resultingfrom the fiction that it is a physical object, namely the paper on w'hichthe instrument is written, that has been converted. On this basis itis submitted that the rule applied is none other than a rule relating to•chattels pure and simple, and not one relating to negotiable instruments,and that the provision in section 98 (2) drawing in the English commonlaw applicable to negotiable instruments does not therefore draw inthe English law in so far as it concerns the conversion of a cheque.
It is of course clear that the mere circumstance that the transactionunder review happens to involve a bill of exchange would not in alleases suffice to subject that transaction to the English laAV. For example
1 See Government Gazette No. 7,538 of 23rd July 1926, p. 551 andGovernment Gazette No. 7,539 of 30th July 1926, p. 599.
620
WEERAMANTRY, J.—De Costa v. Bank of Ceylon
if there be a contract of deposit of a bearer cheque and it is lost throughthe negligence of the depositee, the rules applicable in determining thedepositee’s liability Mould perhaps be no different from those determininghis liability for the loss of an}' other valuable such as a diamond insimilar circumstances. There is in such cases no situation peculiar to-cheques nor the application of any rule particularly concerning orspecially evolved to govern such instruments. Where on the other handwe are dealing with the conversion of a cheque, we are.dealing with arule specially evolved for the particular case of negotiable instruments.It is clear that but for its special devclojnnent to cover such casesthe notion of conversion of a comparatively valueless piece of paperis unmeaning in regard to cheques whose intrinsic quality and worthdepend not upon the paper containing the writing but upon the writingitself.
The common law doctrine of conversion by. its very nature postulatesthe existence of a physical object and is inappropriate and inapplicableto a chose in action. Thegulf separating the realm of physical objectsfrom that of intangibles, which the doctrine of conversion may not cross,is, so to speak, bridged by a legal fiction, namely that it is the physicalpiece of paper on which the instrument is written which is converted ;
• and it is by this bridge that the doctrine of conversion is enabled tocross over into, the territory of the chose in action and thereby gainapplicability to the subject of cheques. But the employment of thisfiction to cover this case represents not merely an application of thelaw of conversion to cheques but a special development of that law'. ThusLord Chorley 1 speaks of the extension of the doctrine of conversion to-cover negotiable instruments as ‘! a difficult but on the whole successfuldevelopments thecommou law.” So alsoSlrect 2 observes of the extensionof conversion to negotiable instruments, that it “ makes substantialinroads on any possible rule, traceable to the former fiction of losingand finding, that conversion docs not lie in respect of rights in intangibleproperty. But this is not the limit of. the doctiine ; i3 Bavins, Junr. andSims v.. London and South Western Bank3 all the judges in the Courtof Appeal thought that the full value of a non-negotiable documentevidencing a debt could be recovered in an action for conversion.”
The very use, moreover, of a legal fiction to achieve this result is anotherindication that what we hare here is indeed a development or alterationof the law: and not the unchanged application of an existing rule. Patou4in discussing legal fictions observes that- they arc useful at a time whenlegal stability is desired, but a change in the application of the law isfelt to be imperative, and proceeds to cite Maine’s definition of a fictionin a ver}' broad sense as “any assumption which conceals or affectsto conceal the fact that a rule of law has undergone alteration, its letterremaining unchanged, its operation being modified.”
1 Lectures on Hanking, p. 31.3 {1000) 1 Q. B. 270.
* Law oj Torts, 4th cJ. p. 43.* Jurisprudence, 2nd cd. p. 42.
521
WEERAMAXTRY, J.~De Costa v. Bank oj Ceylon
Arc we then in the broad open spaces of the common law when weare examining the conversion of a cheque or would it not be more correctto say that we have entered the specialised field of the law relating tonegotiable instruments ? The answer, clear enough upon a considerationof the matters to which I have referred, becomes clearer still when weconsider the nature of legal classification.
It is of course tme that in the ultimate analysis all law is soclosely intertwined as to attract frequent comparison to a continuous andseamless web. There is, viewed from this standpoint, no rule of lawwhich belongs exclusively to any one section or department- without atthe same time having affinities with other areas of the law and thusbelonging in a sense to the greater body of law in general. Nevertheless,with the growth and development of the law over the centuries, theprocess of division docs set in, commencing with the division into greatbranches or departments such as the law of Property and the law ofObligations, and proceeding therefrom to a division into smaller andfiner groupings. The latter result when, xvith thc continued growth ofeach of these great departments, in due course there became discerniblewithin them the outlines of sub-divisions which assume a shape andcharacter of their own. These in time assume an independent statuswhen they gather within their ambit a sufficient body of principles dealingwith their particular field to make it the general sense of the profession thatsuch a field of law now exists as an independent entity. In this way thelaw of Contract, for example, threw out shoots and branches such as thelaw of partnership, the law of insurance, the law of agency, the law ofbills of exchange and the law of banking. No firm rules exist- for deter-mining whether a new branch of law has come into being, for while someare accorded early recognition, the recognition of others is sometimeslong delayed. Thus 'even as late as 1870 so eminent an authority asMr. Justice Holmes was inclined to think that torts was not a propersubject for a law book, and it was apparently not till 1S59 that thecollective name of torts was given to a treatise on the wrongs for whichtrespass and trespass on the case were permitted in various situations1.By way of contrast other titles of the law acquired their independentstanding comparatively early, as for example the law of motor insurance,which emerged comparative!}- soon after the appearance of-the class ofvehicles with which it was concerned. .
Once however the stage is reached when the existence of such a sectionof law has received general recognition, there would be legal principlesundeniably falling within its ambit for such reasons as that they haveparticular reference to that field or have been specially developed to meetits needs.
In determining whether a principle falls within such a specialised field,we must of course always pay due regard to the fact that the emergenceof a new department of law does not mean that rigid frontiers have been
1 See 54 L. Q. B. at 337.
4—J 12371 (3/70)
622
WEERAMANTRY, J.—De Costa v. Hank of Ceylon
demarcated for it or fences erected to close it in. As with all things else,the different sections of the law are in continuous change and develop-ment, ever extending or contracting their limits and in so doing drawingon other territories or yielding ground before them ; and thus these fresh• fields in the course of their continued growt) will undoubtedly draw uponand if necessary develop principles having particular relevance to thatspecial field even though such principles may have their origin in someother department of the law. A.s Plucknett observes 1 of the law of tort,in terms applicable to most other divisions of the law, “ this field isreally the residt of the enclosure of many different acres, and the oldboundaries between them are still visible.” In the same way, while thelaw' of negotiable instruments and the law of banking may have copiousresort to the principles of contract, there will at the same time be adrawing upon such other branches of the law as the law of trusts or thelaw of limitation or the law' of tort. It was thus, after the emergence ofthe law of negotiable instruments, that that body of law drew' on the. principle of conversion from the law of torts and developed that principleto meet the case of cheques. It seems to me that in its special develop-ment to cover the case of cheques, the law- of conversion has unmistakablybecome part of the law of negotiable instruments, in so far as it concernsthe conversion of a cheque, though the principle of conversion would nodoubt belong also to the general law of tort whence it derived. When inthis w-ay there has been an assimilation of such a principle to the parti-cular topic of law concerned, it would be unreal to consider such principleas still belonging exclusively to the department whence it came, for byits adoption, modification and adaptation in that specialised field, itbecomes also an integral part thereof.
If therefore the legislature had intended to bring in the English law' inrespect of matters connected with such instruments in 1S52, and in 1027to preserve this applicability of English law, by the provisions of section98 (2), it could scarcely have intended that on so important a matter asthe conversion of a cheque, on which the English law had evolved its ownspecial rule, the English law was to be excluded.
A reference to section 9S (2) of our Ordinance would be incompletewithout a reference also to section 97 (2) of the English Act, .which issimilarly phrased, and w as inserted as a safeguard against the contentionthat, once the common law relating to such instruments had mystalliscdinto a Code, the entire law governing the subject was thereafter containedwithin its confines.
It should be noted that in their discussions of section 97 (2), thecommentators on the English Bills of Exchange Act cite even cases ofthe application to bills of exchange of common law rules not speciallyrelating to bills of exchange but of general applicability to any subjectmatter. For example, Chalmers on Bills of Exchange 2 and Bylcs on
1 Concise History of the Common Law, 5th ed. p. 480.
* lllh ed. p. 287.
WEERAMANTRY, J.—Be Costa v. Bank oj Ceylon
523
Bills 1 cite under this provision such general rules as those relating toestoppels and the rules of private international law. These are quiteclearly rules of general applicability brought to bear on bills of exchangein a manner no different to their application to any other subject matter.Indeed an examination of the judgment of the Commercial Court inEmbiricos t. Anglo-Austrian Bank 2 shows that in applying to a nego-tiable instrument the rule applicable to any chattel, that the lawgoverning the transfer is the law of the place of transfer, the Court hasmade express reference to section 97(2). Walton, J. observed8 that" even if section 77(2) of the Act did not govern the case, he thought thegeneral principle did apply, and that the effect was the same as if achattel other than a negotiable instrument had been transferred atVienna.”
This consideration lends support to the view that the scope of section9S (2) is by no means as rigidly circumscribed as the argument on behalfof the respondent would suggest. It is not necessary however for thepurpose of this- niafter to invoke the principle implicit-in Embiricos v.Anglo-Austrian Bank 4, for it has already been sufficiently indicated thatconversion of cheques de])cnds on no ordinary application of the generallaw.
The arguments advanced by the resjxmdent do not for all these reasonsimpose any barriers in my view to the applicability in this country of theEnglish doctrine of conversion in relation to cheques.
I turn now to the question whether conversion of a cheque by a collectingbanker is a matter of banks and banking, and thus affords an alternativebasis for the application of English law.
One can see, of course, that where a particular transaction which isnot part of the ordinal course of a banker’s business as a banker iscarried out by a person who happens to be a banker, that transaction doesnot attract the law' of banks and banking. For example, if a bankeradvances money upon a mortgage, the law of banks and banking is notattracted to the transaction merety because the mortgagee or pledgeehappens to be a banker, and I concur with respect in the decisions of thisCourt in Krishnapulle v. Hongkong and Shatighai Banking Corporation5and Mitcliel v. Fernando 6 where this Court held that in such circumstancesthe English law was not drawn in.
The position is manifestly different however where the transaction inquestion is, as here, a transaction into which the bank enters in itscapacity as a banker. It is qua banker that the cheque in this case wascollected by the respondent and it is qua banker that its liability for thisact is under review.
1 21st cd. pp. 242 ct scq.* {1904) 2 K. B. D. 870.
1 {1904) 2 K. B. D. 870.1 {1932) 33 N. L. B. 249.
* ibid, p. 87G.* {1945) 46 N. L B. 265.
5?4WEERAMAKTR V, J.—De Costa v. Bank of Ceylon
As was observed in United Dominions Trust Ltd. v. Kirkwood1 “moneyis now paid and received by cheque to such an extent that no person canbe considered a banker unless he handles cheques as freely as cash.A customer nowadays who wishes to pay money into his bank takes withhim his cash and the cheques, crossed and uncrossed, paj-ablc to him.Whereas in the old days it was characteristic of a banker that he shouldreceive money for deposit, it is nowadays a characteristic of a banker thathe should receive cheques for collection on behalf of his customer. Howotherwise is the customer to pay his money into the Bank ? It is theonly practicable means, particularly in the case of crossed cheques.0Any modern definition of banking therefore gives prominence to thecollection of cheques. In the language of Paget2 “No one and no body,corporate or otherwise can be a ‘ banker ’ who docs not (1) take currentaccounts ; (2) pa3r cheques drawn on himself; (3) collect cheques for hiscustomer.” It emerges from these observations that the collection of acheque by a banker is a function forming an essential and integral partof the business of banks and banking.
This function of a banicer receives recognition also in sectionS2 of theBills of Exchange Ordinance, for this provision recognises that the bankerwould in the ordinary course receive payments for customers of chequescrossed generally or specially to such customers.
A large body of decided cases in England has held the doctrine ofconversion to be applicable to a banker who collects a bill, note or chequewith a forged endorsement or to which the customer has no title3. Asalready observed in relation to conversion and cheques, so also in regardto conversion and banking, it is bj' the legal fiction referred to that theremedy of conversion, drawn from the law of tort, while still bearing the. marks of its tortious origin, is linked with the law of banking and madepart and parcel also of the latter body of law. As Salmond observes,specific coins in a bank are not the property of a specific customer, and abank which pays out to some other person part of what it owes to itscustomer.is not at first sight converting its customer’s chattels4. Notionsof conversion are thus wholly inapplicable, but for the fiction which hasspecially developed the law to meet the needs of banking. No treatiseon banking is complete today without a section on the law of conversionand no banker is properly instructed in the rudiments of his calling ifhe has no instruction on this subject. It would be unrealistic in thissituation to take the view that the Jaw relating to conversion forms nopart of the law of banks and banking, and it follows therefore that theCivil Law Ordinance as amended by Ordinance No. 22 of 1S6G broughtinto this country the English rules relating to conversion in so far asthey had become the subject of special application to the law of banksand banking.
1 {1066) 1 All E. JR. 968 at 975.' Law of Banking, 6th ed. {1961) p.8.
:Paget, Law of Banking, 6th ed. p. 304.4 Salmond on Torts, 14th ed. p. 145.
525
WEERA.MAXTRY, -I .—De Covta »•. Hank aj Ceylon
The applicability of the English law of conversion to the transactionavc* arc examining thus results from the twofold consideration that thetransaction is both within the special sphere of cheques and within thespecial sphere of banking, either of which factors by itself would sufficeto draw in the English Law.
Of compelling weight in confirming the conclusion thus reached, is thoassumption in section S2 of the Bills of Exchange Ordinance, of theapplicability of the English Law of conversion to a banker who collectsa cheque for a customer. This provision, redundant and meaninglessagainst a background of pure Roman-Dutch Law, at once acquires apurpose and a meaning against a background of English Law and itsdoctrine of conversion. It is our duty to give to this section an effectivemeaning and to presume against redundancy. Moreover, wo in Ceylonhave section 9S (2) which is amply sufficient, as already observed, toinvest this section with a force and efficacy denied to its formercounterpart in South Africa, to which I shall presently refer.
It will be observed moreover that section 82 is not, as has been submitted,a. mere reproduction of the corresponding English provision, for- there iscontained within it as sub-section 2 a provision which derives from theCrossed Cheque. Act of 1906 and not the original English Act of 1SS2.The legislature therefore when it promulgated this Ordinance in 1927 hasmanifestly given its mind specifically to section S2 and adapted it tobring it into line with the statute law of England as it stood in 1927.The Ordinance bears other indications as well of a careful considerationby the legislature of the respective spheres of applicability of the Englishand the Roman-Dutch law. For example, section 27 particularlypreserves the English doctrine of consideration, conscious no doubt ofthe differences between .consideration and causa, while section 22 preserves,(he Roman-Dutch law of this country in so far as concerns the capacityof parties. Indeed in its statement of objects and reasons the legislaturespecifically indicated its awareness that but for section 22 it mightbe arguable that section 98 (2) makes English law applicable1. Alegislature giving its mind to the conflicting claims of the Roman-Dutchlaw and the English law in certain spheres of the area for which it waslegislating, must then be taken to have specifically intended that, butfor section 82, there would be liability attaching to a banker in respect ofcheques collected by him for a customer without fault or fraud. Thereis in my view no room in this context fora contention that this statutoryprovision is a redundancy, and with much respect I would differ from theview to this effect expressed by this Court in Daniel Silva v. JohanisAppuhamy.
This judgment would not appear, firstly, to have paid due regard tothe historical background against which section 98 (2) of the Bills ofExchange. Ordinance appeared, and in particular to the fact that by
1 See Oovt. Gazette No. 7,538 of 23rd July 1926 p. 551 and Govt. GazetteNo. 7,539 oj 30th July 1926, p. 599.
626
WEERAMAJNTRY, J.—De Costa v. Bank of Ceylon
section 2 of Ordinance 5 of 1852 the English law had been made thelaw applicable to bills of exchange, promissory notes and cheques.. Secondly it leaned too heavily, as I shall endeavour to show, on the law-in South Africa and in Canada relating to the inapplicability to chequesof the English doctrine of conversion.
It is necessary at the outset to distinguish the legal position in SouthAfrica by observing that the South African statutes which have fromtime to time been introduced in the several provinces of that country,do not embody a provision corresponding to section 9S (2) of our Ordin-ance. Moreover in South Africa the series of enactments appearingin the various provinces shortly after the codification of the Englishlaw in 1SS2, did not appear against a background such as that existingin Ceylon consequent on the Ordinance of 1852. Lacking a backgroundof the applicability of English law in matters relating to negotiableinstruments and lacking also an express statutory provision drawingin the law of England in residuary matters, the South African courts'were driven inevitably to the view that the law of conversion did notapply in regard to negotiable instruments in South Africa. It followedalso that the South African provision1 corresponding to section S2of our Ordinance, which denies liability where a banicer receives pay-ment of a cheque for a customer in good faith and without negligence,was a redundant provision, for indeed even the common law attachedno liabiJitj'- in the absence of these requisites2.
£
We do not have in Ceylon any reasons of so cogent a nature ascompelled the South African courts to the view that this provision wasa redundant section in the statute book of that country. The SouthAfrican decisions on the redundancy of this statutory provision havethus no applicability in this country. Moreover a finding that a sectionin an Act of the legislature has been redundantly introduced is onewhich the Courts should be very slow to arrive at, and should avoidexcept for reasons of the greatest cogency.
In regard to the- Canadian law relating to bills of exchange, section10 of the present statute (omitted from the Act of 1S90 but restored byan amending Act of 1S9I), provides that the rules of the common lawof England including the Law Merchant save in s • far as they areinconsistent with the express p^'o^ions of that Act, shall apply tobills of exchange, promissory notes and cheques. Falconbridgc observes 3that-the effect of this provision would appear to be that the backgroundof law applicable to transactions in which such bills, notes or chequesp>lay a part may be either the common law of England so far ns thatbackground consists of rules of the law of bills and notes in the strictsense, or the commercial law of a particular province outside the limitsof the law of bills and notes in the strict sense. The question arising
1 Section SO.
– Yorkshire Insurance Co. r. Standard Bunk (llrJS) W.L.D. 251 at 27S, 2S0.
Banking and Bills of Exchange in Canada, Cth cd. p. 4G.
3
WEERAMAXTRY, J.—De Costa v. Bank oj Ceylon
527
is whether item IS of section 91 of the British North America Act coverslegislation relating to bills and notes and whether federal legislation.orprovincial legislation would prevail on this matter. The learned authorexpresses the view that in the field of transactions involving the useof bills or notes as opposed to the law of bills and notes in the strictsense, the applicable law may be the law of a particular province andnot the common law of England. In this field provincial legislationmay be valid so far as it comes within any of the classes of subjectsassigned to the provincial legislatures br section 92 of the British NorthAmerica Act and so far as it is not inconsistent with valid federallegislation.
The conflict arising in Canada between federal and provinciallegislation has no-counterpart here, and it would be unsafe to draw anyguidance from the law of Canada on the question we have before us.It is true that the same author observes1 that the specific rules of thecommon law relating to conversion are not specifically in force-in theProvince of Quebec nnder the Civil Code-ofLower_ Canada—and indeedthis is only to be expected in a legal S3'stem based on the Civil law—but this affords us no guidance on the question whether the conversionof a bill of exchange would attract the principles of conversion or,-theprinciples of the Civil law. Furthermore, the case of Norwich UnionFire Insurance Society Ltd. v. Banque Canadienne Nationale2 referredto in Daniel Silva v. Johanis Appuhamy is not an authority to the effectthat the English doctrine of conversion is not in force in the Provinceof Quebec in relation to the conversion of a bill or note.
Neither the case law therefore nor the statute law of Canada would beof assistance to us in the matter we have to decide.
Discarding, then, the legislation of South Africa and of Canada asaffording no material guidance, we fall back simply upon the positionthat the terms of section 82 of the Bills of Exchange Ordinancetellingly confirm the applicability of the English law to the matterbefore us. For this and the other reasons earlier mentioned, the doctrineof coiiversion becomes applicable, and, upon the facts of this case,entitles the plaintiff to judgment as prayed for on her first cause ofaction.
I pass now to a consideration of the defendant’s position viewed bythe principles of quasi-contractual liability.
Our law relating to quasi-contractual liability is of course basicallythe Roman-Dutch law, but there would appear to have been from timeto time an importation of some of the terms and concepts of the Englishlaw, as for example in the case of the quantum meruit of English law. Soalso the action for money had and received, a product of the English law,has often been referred to and assumed to be applicable in this country.
1 ibid, p. 571.
* {1934) 4 Dominion Lav) Reports, p. 223.
528WEERAMANTRY, J.—Do Costa, v. Bank of Ceylon
Indeed the alternative cause of action set out in the plaint is couchedin terms appropriate to the English action for money had and received,and the question has been much debated before xis ■whether the actionfor money had and received forms part of our law. On the basis of theapplicability in this country of the English action for money had andreceived we have been addressed at much length on the technicalitiesof the English doctrine and on such questions as the necessity to waivethe tort in order to claim this relief. The applicability of the actionfor money had and received raises also the question of the extent ofsimilarity or difference between this action and the enrichment actionsof the Roman-Dutch law and whether the availability of the Englishaction supersedes in Ceylon any of the Roman-Dutch principles relatingto enrichment.
I shall first examine the question what constitutes the enrichment inthis case and thereafter proceed to consider the place in our legal systemoi the action for money had and received and whether any recognitionof this action involves a departure from the principles of Roman-Dutchlaw. I shall conclude by examining whether in the circumstances of thepresent case, unjust enrichment relief would be available according to-the principles of the Roman-Dutch law.
To deal first with the question of enrichment, it is true that thedefendant has paid out the money collected by it on the plaintiff's cheque,but this circumstance would suffice neither by the principles of Roman-Dutch law nor those of English law to negative enrichment. The bank,in so paying out was parting with the proceeds of the plaintiff’s warrantwhen it was not obliged to do so, and when, if it had not been negligent,it would have realised that the warrant had not belonged to Eoganathan,and a relevant time for determining whether the banker has compliedwith his duty of care towards the true owner of the cheque is when thebanker pays out the proceeds of the cheque to his own customer andso deprives the true owner of his fight to follow the money into thebanker’s hands.1
Consequently in paying out this money upon Loganathan’s chequethe bank was by its own negligent- act depriving itself of an asset whichthe plaintiff had a right to follow into its hands.
Under .the .Roman-Dutch law there must, for unjust enrichment,be an increase or benefit to the estate of the defendant, so that whenthe enrichment in the hands of the defendant diminishes or disappears,this would ordinarily have the effect of liberating him either pro ianloor entirely as the case may be. However it would appear that the defendantis entitled to be so liberated only if he is in a position to show that, neither
1 See per Diplock, L. J. observed in Marfani <£■ Cc. Ltd. v. Midland Bank, Ltd.,
{190S), 2 All E. 71. at 5S9-I.
WEERAMAXTRY, J.—Dc Costa v. Bank or Ceylon
529
■dolus nor culpa on his part had led to such diminution or disappearance.1There is always a duty on the party enriched not to allow the enrichmentto diminish in consequence of blameworthy conduct on his part.2
We see also from Grotius3 that if a party has enjoyed an asset andit is no longer with him he is nevertheless held to have been enriched.In the same context Grotius states with reference to minors that if theyhave lost what they have received or spent it in some unusual way,enrichment is not, in their c-ase, held to have taken place. The implicationseems clear that in the case of persons other than minors, if the}' losethe cirrichment or spend it in some unusual way, enrichment would.nevertheless be held to have occurred.
Viewed again from the standpoint of English law, the same resultensues, for both at law and in equity, the defence of change of positionbased on a parting with the money will not avail a party merely becauseho no longer has with him the money which he received. In Durrantv. The Ecclesiastical Com miss io ners in Engla nd and Wales 4 and in Stan disho. Boss 5 the court rejected the existence of any general defence of changeof position either at law or in equity. There had been earlier cases wherechange of position had been relied on as a defence to a claim for moneywhich the defendant had received from the plaintiff, but the two decisionsreferred to laid do™ for the common law the rule that the mere partingwith the money is not by itself sufficient to establish the defence. Inequity as well a similar position was reached through the case of in ReDiplock6 where Lord Simonds observed “ The broad fact remains thatthe Court of Chancery in order to mitigate the rigour of the commonlaw or to supply its deficiencies established the rule of equity which Ihave described and this rule did not excuse the wrongly paid legatee fromrepayment because he had spent what he had been wrongly paid.”
It is also of importance to note, as Lord Chorley observes,7 that incases where the bank is liable in conversion for collection of a chequea right exists to be indemnified by its customer, and therefore in thepresent case the defendant is not devoid of all benefits resulting fromthe money it had received, but has the advantage of a right of recourseagainst Loganathan to the extent of the sums paid out to him from theproceeds of the dividend warrant.
Reference should be made at this point to the decision of a DivisionalBench of this Court in Imperial Bank of India v. Abeysinghe 8 where ChiefJustice Fisher applied some of the English decisions to which I have
1 de Vos, Unjustified Enrichment in South Africa, i960. Juridical Reviewat p. 243.
de Vos, ibid
» 3.30.3.
(1880) 6 Q. B. D. 234.
(1849) 3 Ex. 527 at 534.
(1948), Ch. 465 affd. (1950) 2 All E. R. 1137sub nom. Ministry of Health
v. Simpson.
1 Law of Banking, 3rd ed., pp. 120-1.
J(1927) 29 N. L. R. 257.
530
WEE R AM A NT RV, J.—Dc Costa v. Bank of Ceylon
referred. In that case the defendant, a proctor, had received a chequein part payment of the consideration on the transfer of a land attestedby him. He had very little, if any, previous knowledge of either trans-feror or transferee. He presented the cheque drawn in his favour by thealleged transferee at the bank, and on receiving payment, handed themoney to the transferor. It turned out however that the signature onthe cheque was a forgery and that the land transaction was entirelyfictitious. The proctor had acted bona fide throughout. In an actionby the bank against -the defendant for the recovery of the proceeds of thecheque it was held by the majority of a Divisional Bench that the bankwas entitled, to recover the money despite the fact that the money hadbeen paid out by the defendant. Fisher, C. J. observed 1 in regard to thetrial judge’s finding that the proctor was negligent, that there was.somefoundation for it, inasmuch as the appellant, an experienced proctordealing with two strangers, had “ rather rashly jumped to the conclusionthat the matter was an.ordinary bone fide piece of business.” Theproctor had paid out the money “under a supposed but non-existentduty ” 2, and there was ho difference in principle between such a case andone where, on his leaving the bank, the money had been stolen or wherethe proctor had paid it to the forger himself. The defence that themoney had been paid out did not therefore avail the proctor even thoughhe had acted with perfect good faith throughout the transactionand had become unconsciously an unwilling participant in the scheme offraud.
The fact then that the bank had paid out the money would not in thelight of all these principles negative the availability of an enrichmentaction to the plaintiff, inasmuch as the bank in the present case'wasnegligent not only in collecting but also in paying out the proceeds of thewarrant and thus depriving itself by its own act of the right to invoke thefact that this enrichment has been diminished or disappeared. Since therequisites of enrichment under ^both systems are thus satisfied, I shallproceed to consider the question of unjust enrichment under eachsystem.
It is necessary to commence this discussion by referring once more tothe Divisional Bench case of Daniel Silva v. Johanis Appuhamy 3 wherethe view was expressed by Tambiah, J. that the action for money hadand received has never been received into our legal s3rstcm. AsSansoni, C. J. observed in Don Cornelis v. De Soysa t£? Go. Ltd. 4, the viewexpressed by Tambiah, J. on this point has not been expressed by citherof the other two judges who participated in that decision and cannottherefore be said to represent the views of the majority of that court.Moreover the learned judge was in that ease giving his attention mainlyto the question whether the English doctrine of conversion forms part, of
our law.
1 {1027) 20 X. L. It. 267 at 263.
,. – 2 ibid, at p. 262.
3 Supra.
* {1066) CS X. L. R. 161.
■VEERAMANTRY, J.—Do Costa v. Bank of Ceylon
531
The view of Tambiah, J. was perhaps unexceptionable in so far asconcerns the action for money had and received in its strict common lawform, with all its attendant technicalities. As Sansoni, C.J. has pointedout in Don Cornells v. de Soysa Co. Lid., the action in its common lawform no longer exists even in England since the abolition of the forms ofaction in that country by the Judicature Act of 1S73. In any event it isunlike'y therefore, that when this particular form of action was abolishedin England, it continued to survive in Ceylon if indeed it had ever beenintroduced here. The position is different however if in referring to the•action one refers to its underlying principles rather than to its historicalform ; for the similarity between this underlying principle and thatundertying enrichment in the Roman Dutch law is too close to admit ofits being considered foreign to our law.
If then we take the view that the true question before us is not whetherthe action in its original form is part of our law but whether, when weconsider the action as it exists today, shorn of its trappings of form, we•can say that its underlying principle" is known to oitr-law,-the answerwould, with respect, appear to be in the affirmative.
The old action for money had and received was but one of severalparticular actions such as the action for money paid, the quantum, meruitand the quantum valebat, and it lay in particular circumstances, as wherethe plaintiff had paid money to. the defendant under a mistake or for aconsideration which had wholly failed.
Bertram, C.J. in Saibo v. Attorney General1 endeavoured to show thatthe underlying principle of the action for money had and receivedcoincides with that of the condictiones of Roman law. Bertram, C.J.there pointed out that the action for money had and received may betreated as identical with the condictio available under our law and drewattention to the close similarity between Lord Mansfield's exposition ofthe principles of the English action in Moses v. Macfarlen and theRoman principles evolved in regard to the condictio indebiti. MoreoverEvans, the learned translator of Pothier’s Law of Obligations, pointsout in an interesting appendix to his work, that every passage in LordMansfield’s observations has its exact parallel in the Roman law and the•translator concludes therefrom that even a slight comparison wouldevince the source of Lord Mansfield’s pr nciples to have been “ thojuridical w'sdom of ancient Rome”. It is no doubt for this reason that"the English rules have been said to display a basically Romanesquearchitecture.
Schneider, J. expressed the same view in Imperial Bank of India v.Abeysinghe2 when he observed that even if the English law were notapplicable to the case before him, the English decisions on money hadand received would still be applicable r s that action was founded onthe same principle as the condictio indebiti of the Roman-Dutch law.
* (1927) 29 N. L. It. 255 at 264.
1 (1923) 25 N. L. It. 321.
532
WEERA5IANTRY, J.—Dc Costa v. Bank- of Ceylon
In more recent years Sansoni, C. J. in Don Cornell's v. de &'oi/sa <0 Co~Ltd.1 stated again that the principle of the English action for money hadand received •would be applicable under our legal sj^stem on the basis-that there is no inconsistency between that principle and the principle-• of equity which underlies the Roman-Dutch action of condictio indebili►The learned Chief J ust ice there expressly dissented from the view expressedby Tambiah, J. in Daniel Silva v. Johanis Appuhamy. The viewsexpressed by Chief Justices Bertram and Sansoni and by Justice Schneidermay, perhaps, with much respect, involve some measure of over-. simplification if they are intended to suggest a complete identity betweenthe action for money had and received and the condictio indebiti, butsuch an approach seems in broad outline to be an aid to the appreciationof the question before us in its correct perspective.
One obstacle however to such an attempt at equation of the governing-principles in both systems is the theory that quasi-contract-ual relief isbased in English law upon the existence of an imputed or fictional contract,in the absence of which such relief would not be available. This viewwhich achieved perhaps its highest expression at the hands of LordHaldane in Sinclair v. Brougham-2 and still has its powerful advocates,has to a large extent hampered the English law in its forward movementtowards the libez-al view that quasi-contractual relief arises from the-broad principle of unjust enrichment. The difficulties resulting fromit were highlighted for ns in the case of Dodwell v. John .where ViscountHaldane pointed out that if an imputed contract had to be found as thebasis for the action of money had and received, there would be difficultyin maintaining such an action. However the Privy Council did notconsider itself obliged to decide the matter before it- upon the applicationof such a restrictive rule of English law, as it took the view that in ajurisdiction such as ours where the courts administer both law and equityand the courts are not confined to administering the common law of'England, ** it could never have been difficult to treat- an action analogousto that for money had and received as maintainable in all cases where thedefendant has received money which ex aequo et bono he ought torefund/-’
It would appear then that if the English concept of unjust enrichmentis tied to the theozy of a notional contract, many a case of true unjustenrichment would fall outside its scope. Even the facts of the jncsentcase are such that there would be no little difficulty in spelling out fromthem a fictional contract, and if such a contract be the peg on which theaction for money had and received must hang, the present action wouldappear to rest precariously indeed.
Any attempt then, to equate the principles of the English action forunjust enrichment with that of the Roman-Duteh law becomes impossibleif this theory of notional contract and not the principle of enrichmentbe the governing view in English law, a ad if the view favoured by Chief/
1 {10G5) GS X. L. R. 101.
* (1014) A. C. 39S.
533
WKKK.A.M.AXTKY. 5.–Dc Co.it a r. Bank of Ceylon
Justices Bertram and Sansoni and by Mr. Justice Schneider is to beapplied to this case we must assure ourselves that the theory of impliedcontract is not of compelling authority in English law.
We.are assisted in this regard by the fact that though there is highauthority in favour of the implied contract theory, there is authority ofequal eminence and growing strength which stands four square againstthe notion that an implied contract provides the juristic basis for unjustenrichment in the English law. Which school of thought represents thetrue position in English law is still not settled, and though the clashof controversy set off Lord Haldane in Sinclair v. Brougham stillre-cchoes in the field of quasi contract, one perceives through the dustof conflict, the field being slowly gained by forces ranged againstthe imputed contract.
One starts any examination of the rival theory by referring, of course,to Closes v. Macferlan1, and it would be well at this point to refer to theactual words of Lord Mansfield. He observed2 t: if the defendant beunder an obligation, from the tics of natural justice, to refund, thiTlaw"implies a debt, and gives this action (sc. indebitatus assumpsit) foundedin the equity of the plaintiff’s case, as it were, upon a contract (“ quasiex contractu ” as the Roman law expresses it)’’ and again he followed thisup by stating 3 “ it lies for money paid by mistake ; or upon a considerationwhich happens to fail; or for money got through imposition (express, orimplied); or extortion ; or oppression ; or an undue advantage taken of theplaintiff’s situation, contrary to laws made for the protection of personsunder those circumstances. In one word the gist of this kind of actionis, that the defendant, upon the circumstances of the case, is obliged hg theties of natural justice and equity to refund the money."
As Fifoot the learned authority on the history and sources of thecommon law lias observed4, the single strand running through all thodecisions was the unfair advantage secured by the defendant at theplaintiff’s expense and the precedents were so numerous and the currentof opinion so steady that it wanted but the advent of a dominantpersonality to proclaim the principles of unjust enrichment as a singleand nil sufficient ratio decidendi.” Lord Wright has emphasised that inMoses v. Macferlan Lord Mansfield did not say that the law implies apromise, but that the law implies a debt or obligation, which is a differentthing. The obligation is a creation of the law just as much as an obligat ionin tort. It is as efficacious as if it were on a contract but Lord Mansfielddenies that there is a contract. Moreover Lord Wright observes thatLord Mansfield's statement of the law has been the basis of the modernEnglish law of quasi-contract notwithstanding the criticisms which havebeen launched against it and that in substance the juristic conceptremains as Lord Mansfield left it, the gist of the action being a debt orobligation (but not a contract) implied or imposed by the law.
1 (1760) 2 Burr. 1055.* ibid at p. 1012.
* ibid, at. p. 1008.* History and Sources of the Common Law, p. 598.
534
WEERAMANTRY, J.—De. Costa v: Bank of Ceylon
Lord Denning has in Kiriri Colton Co. Lid. v. Deicani1 referred to amisunderstanding of the origin of this action for money had and received.He observed that it was not an action on contract or imputed contractbut was simply an action for restitution of money which the defendanthas received but which the law says he ought to return to the plaintiff.All the particular heads of money had and received such as monej' paidunder a mistake of fact, money paid under a consideration which liaswholly failed and so on were observed by Lord Denning to be onlyinstances where the law says the money ought to be returned.
Lord Atkin has likewise expressed his distaste for “fantasticresemblances of contracts invented in order to meet requirements of thelaw as to forms of action which have now disappeared.”1 2
It would appear therefore that although there is high authority for theimputed contract theory,. opinion is hardening in favour of the more.liberal view of Lord Mansfield. Apart from the support of sucli eminentauthorities as Lords Wright, Atkin and Denning, the more liberal viewcommands also the approval of the majority of writers in the field ofcontract who consider the alternative theory inadequate.3 Indeed oneof the more recent texts on the subject of restitution describes theconcept as a “ meaningless, irrelevant and misleading anachronism.” 4Viewed from the angle of legal theory, the notion of implied contract hasagain attracted censure, for Professor Friedmann has observed of it 5 that“ it has had a deplorable effect upon the development of that branch ofEnglish law, an effect from which English law is trying to free itself.”
It will suffice finally to observe of Sinclair v. Brougham that though it is"a decision of the highest tribunal, its rationale is largely the assump'ion,untenable toda}–, that all actions must fall into one or other of therigid and exclusive compartments of contract and tort.6 Moreover, LordSumner’s observations were obiter dicta, as Lord Wright has observed inthe Fibrosa case.1 Lord Wright has there taken the view that Sinclair v.Brovgham has not closed the door to any theory of unjust enrichment inEnglish law, and to carry the metaphor forward in the manner clone byan academic writer 3 there arc others sucli as Professor Winfield who takethe view that even if it locked the door for the purposes of that case, itleft the key hanging on a nail so that if anyone now wishes to enter hocan still do so.
1 COCO) 1 All E. n. 177 at LSI.
9 United Australia Ltd. v. Barclay's Bank [1010), 4 All E. B. 20 at 37
9 C/iitty, 22nd cd. s. 1559 ; see also Cheshire <0 Fifoot, 6th erf.'p. 550 ;
Anson, 22nd ed. p. 603.
4Goff (0 Jones, The Law of JReslilution, p. 10.
553 L. Q. R. 419.
* [1914) A. C. at 452.
1 2'ibrosa v. Fairbairn Lawson Combe Barbour Ltd., [1942). 2 All E. R.
122 cl 136.
a H C. Cntteridye, 5 Cam L. J. at 223.
WEERAMAXTRY, J.—Dc Costa v. Bank of Ceylon
535
We see then that the theory of imputed contract is not nearly ascompelling as it -would otherwise appear and is not an obstacle to thereconciliation of the underlying principles of the English law with thoseof the Roman-Dutch. Lord Denning observed no less when he wrote:“ The action at law for money had and received was in fact a remedyfor unjust enrichment.”1 Such a conclusion enables us, on the linesindicated by Chief Justices Bertram and Sansoni and Mr. JusticeSchneider, to seek out the fundamental principle undertying the Englishaction for money had and received, without involving ourselves in thetechnicalities of the English law, and to note that this principle is nostranger to our legal system inasmuch as it underlies the condiclioindebiti of our law.
The technicalities of the English action need not therefore trouble usbut I would, because it was much debated before us, say a word on thequestion whether the action is dependent on the waiver of a tort. Onthis matter I would only wish to refer to the case of United Australia Ltd.v. Barclay's Bank 2 where many oLtketechnicalities ofjthis doctrine wereexplained. Lord Warrington there observed that " where waiving thetort was possible it was nothing more than a choice between possiblealternatives, derived from a time when it was not permitted to combinethem or to pursue them in the alternative and when there were proceduraladvantages in selecting the form of assumpsit.” So also Lord Atkindispelled many of the mysteries associated with it by pointing out that“ in the ordinary case however the plaintiff has never the slightestintention of waiving, excusing, or in any kind of way palliating the tort.If I find that a thief has stolen my securities and he is in possession ofthe proceeds, when I sue him for that, I am not excusing him. I amprotesting violently that he is a thief and because of his theft, I am suinghim. Indeed he may be in prison upon my prosecution.”3 It was inthis same case that Lord Atkin administered his celebrated warning tojudges not to entangle themselves in the niceties of out-moded doctrines,but to pass undeterred through these “ ghosts of the past who stand inthe path of justice clanking their mediaeval chains.” This technicalitymay then be dismissed, there being no necessity to launch upon anyfurther inquiry into the niceties of this ancient doctrine.
The principle underlying the action for money had and received is thussatisfied in this case, for the proceeds of the plaintiff's cheque lying in thebank’s hands were moneys which the bank was obliged by ties of naturaljustice and equity to refund. The bank in carrying on its functions as abanker has, through the negligence or fraud of its own servant or servants,collected the money due to the plaintiff upon her dividend warrant andby a further act of negligence deprived her of her right to follow themoney into its hands. In these circumstances the duty in naturaljustice and equity to refund is. too clear to enable the bank to ride offupon any technicality.
1 {1940) Go L. Q. R. at 48.* (1940) 4 All E. R. 20.
s (1940) 4 All E. Jt. at pp. 36-7.
536
– WEERAMAXTRY, J. —De Costa v. Bank oj Ceylon
If therefore the English action for money had and received be thedetermining factor,there would in my view be little difficulty in bringingthe facts of this case within the scope of that action.
Passing now to the question of unjust enrichment under the Roman-Dutch law, I proceed to consider the very interesting submission made onbehalf of the respondent that the facts of this case fail to conform to therequirements of an3r of the standard Roman-Dutch enrichment actions,-and that this is a case in which the Roman-Dutch law relating to unjustenrichment would therefore afford no relief.
The principal submission made in this connection was in regard to thecondiclio indebili and it was submitted that its requisites were not satisfiedas the sum claimed had not been knowingly paid by the plaintiff to thedefendant. It was further submitted that a direct payment by theplaintiff or his agent is a requisite of all the condicliones through whichquasi-'contractual relief may be sought.
No discussion of the question of imjust enrichment in the modernRoman-Dutch law is complete without reference to the valuable academicdiscussions which have in recent years done much to clarify the law, andfrom which the highest tribunals in South Africa have derived much•assistance h I refer to the writings of such jiu’ists as Professor Scholtens,Professor TVouter de Vos and Dr. Honore-whoso specialised study ofthis difficult branch of the law has time and again received recognitionin Soufh African decisions. I would have welcomed more adequatereference at the argument to these juristic discussions, and my•observations in regard to them arc subject to the infirmity that they arclargely the result of my own inquiries and would no doubt have beenmore comprehensive had I the benefit of such fuller assistance.
I am in agreement with the submission for tlie respondent that thefacts of this case clo not fit the condiclio in deb iti for that action requiresa conscious payment or transfer. Dr. Ilonore in a comprehensivearticle on condiclio and payment 2 in which he has sought to give anextended meaning to the concept of payment, has exhaustively analysedinto seven categories the various cases that amount to payment ortransfer for the purpose of the condiclio indebili and the condiclio oh reindati. The facts of the present case do not fit into any one of thosecategories, and it is clear that the condiclio indebili (or for that matterthe condiclio ob rem dali) would not be available to the plaintiff.
This would appear further to be a case where the facts cannot bebrought within the requisites of any of the other standard enrichmentactions of the Roman-Dutch law, such as the condictio causa data causanon secula or the condictio ob turjae.ni vel injustam causam or the condicliosine causa in the sense of recovery of money on failure of consideration.
1 Soo for oxaroplo Norlje en'n Ander v. Pool, 2V. 0. supra (1966), 3 S. A. 96(A-D.) ; Oouws v. Jester Pool (Ply.) Ltd. (196?), 3 S. A. 563.
* 19-58 Ada Juridica, p. 135.
WEERAMAXTKY, J.~D? Cast* r. Bunk of Ceylon537
The condiclio furtiva likewise Mould not be available because thedefendant M as acting bona fide in receiving and cashing the cheque.1Consequently, relief by May of unjust enrichment in the Roman-Dutchlaw M'ould not be available except on the basis of the recognition of a.general principle of enrichment as giving rise to an obligation torestore. It becomes necessary therefore to examine urhether such acomprehensive general action, which may be described as a condictio sinecausa generalis, receives recognition in the modern Roman-Dutch law,as a means of relief in those enrichment situations which do not fitinto the framework of any of the classical enrichment actions.
Statements of a general nature suggestive of the existence of a broadunderlying basic principle arc indeed not lacking in the works of theRoman-Dutch writers. Thus Grotius2 states u-ith regard to obligationsarising from enrichment (baettrekking): “ Inequality which profits ormight profit another (i.e., apart from contract) binds the person profited tomake compensation, u-ithout regard to the way in which he came by the_.profit-, and this with regard not only to things in specie but also to thingsin gencre ; e.g., if one man M ere fed with another man’s food ; for by t helaw of nature he is bound to make compensation, that is, to re-establishequality.” He also observes3 “ Obligation from enrichment (baetlrek-king) arises when some one without legal title derives or may deriveadvantage from another person’s property. ” Further, ProfessorScholtens in an illuminating article on the subject 4 has pointed out thatnot only Grotius but also Van Leeuwen and Huber mention baettrekking
(enrichment) as a source of obligation.
J
There are houever certain pronouncements both of this Court and ofthe Appellate Division of South Africa which would appear to militateagainst this view.
In Silva v. Fernando 5 Lascelles, C.J. observed that he could find noauthority in the text books in which the principle that no one should beenriched at the expense of another had been extended to a case like thatbefore him and that as far as he could ascertain the application of theprinciple M*as limited to certain M'ell defined cases.
Hou'ever for Ceylon there are other decisions of co-ordinate authorityindicating a broader view6 and the question is therefore an open one.
In South Africa however a bench of five judges of the Appellate Divisionhas quite recently examined the question in very great detail in the caseof Nortje en’n ander v. Pool N.O.1 and the majority decision in that case,
1 See Bell v. Easelen, (1954) 1 S. A. L. R. 147.
3.1.15.
3.30.1.
(1966) 83 S. A. L. J. 391 at 394-5.
(1912) 16 N. L. R. 114 at 116.
See Jayetilleke v. Siritoardane, (1954) 56 N. L. R. 73 at SO.
1 (1966) 3 S. A. 96 (AJD.).
■ 533
M'EERAM.AXTRY, J.—De Costa v. Bank oj Ceylon
one of compelling authority in that countrj*, creates much difficulty in.the way of the acceptance of a general principle of unjust enrichment.That decision rejected the contention that there is a general enrichmentaction in the Roman-Dutch law, and if that decision be correct, theplaintiff in the present case would not be able to succeed on her claim forunjust enrichment at any rate in so far as the Roman-Dutch law is-concemed. It would also indicate much divergence in practical appli-cation between the English principle of unjust enrichment and that of theRoman—Dutch law, and seriousl3r undermine any effort to relate them as-was attempted in Saibo v. Attorney-General1, Don Cornelis v. de Soysa drGo. Ltd.2 and The Imperial Bank of India v. Abeysinghe3.
Now, the decisions of the Appellate Division of South Africa havealways been treated in this country with the greatest respect as contain-ing authoritative statements of the Roman-Dutch law by the highesttribunal of the world’s largest Roman-Dutch jurisdiction, and thoughnot bound by these decisions, this Court has consistently treated themas of the greatest persuasive value. However, upon a very carefulexamination of the principle emerging from that decision I find myselfto be of a different view, -4=^3 being free in this jurisdiction to considerthis matter as still an open one, I would with the utmost- respect, ventxireto take a broader view of the scope of unjust enrichment.
In Nortje’s ca-se considerable expenditure had been incurred in dis-covering kaolin on land which was the subject of an invalid contract,and the plaintiffs claimed emichmcnt of the owner’s estate in that themarket value of the property had been enhanced by the exposure ofdeposits of kaolin in exploitable- quantities. The unjust- enrichment-averr.ed was the expense incurred by the plaintiffs in finding the kaolin.Relief was claimed by way of an extension of the action of the bona fidepossessor for 'impensae utiles, and alternatively by way of an extensionof this action to the bona fide occupier and in any event upon the basisof a general action for unjust enrichment. On this last- ground thedefendants urged that the claim did not come under any one- of therecognised enrichment actions of the Roman-Dutch law—a contentionwhich the court xiphoid by a majority jxidgment.
In reaching this conclusion the court relied inter cilia on an observationof Professor Woutcr dc Vos, one of the foremost writers on the subjectof unjust enrichment in the Roman-Dutch law, that there did not- appearto have been a general enrichment action in the classical Roman-Dutchlaw. …
Professor de Vos in his writings4 whilst strongly expressing the viewthat such a general act ion has been recognised and ought to be recognisedby the modem law, had pointed out5 that there did not appear to bo a
1 (1947) 4S N. L. Jt. 574.
(10C5) G.S N. L. R. 161 ; CO C. L. 11'. 24.
3 (1027) 29 N. L. Ji. 255 at 261.
Verrykingsaansprecklikhcid in die Siiid AJrikaanse, 1D5S anti to thesame effect in I960 Juridical Review pp. 125 and 126.
5 I960 Jttridical Review p. 142.
WEERAMAXTRY, J.—De Casio r. Bank of Ceylon
539
recognition in the Roman-Dutch law of the sixteenth and seventeenthcenturies of a general principle of enrichment. Professor de Vos statedin these works that he had been able to discover only one case where theHooge Raad had allowed an action ex aequilate because the case couldnot be brought within one of the recognised actions. The case so referredto was one reported by Bynkcrshoek1 in which the court simply alloweda claim on grounds of equity and made no attempt to classify. Professorde Vos thought that it did not appear warrantable to conclude on thestrength of that one case that the classical Roman-Dutch law recogniseda general enrichment liability. It was this conclusion to which theAppellate Division referred.
However since the publication of Professor de Vos to which I havereferred2 there has appeared in print the Observationcs TumultuariaeNovae of W. Pauw, a President of the Hooge Raad, who reported decisionscommencing where Bynkcrshoek left off, and covering the years 1743to 1755. This publication, the work of four editors, appeared in theyear 19G4, and the cases there reported-make-it~clear—in^the-woids-of-Professor Scholtens5 that “ the Roman-Dutch law of the eighteenthcentury had advanced far on this road of progress (i.e., towards a generalprinciple of enrichment3) nay, that it had arrived at its destination.”The particular decisions reported by Pauw which conclusively showthe existence of such a gexxeral principle include Nos. 12, 196 and 558,which may be found conveniently summarised in the South African Law-Journal4.
Professor Scholtens, in criticising the judgment of the AppellateDivision in Nortje’s case, has drawn attention to the fact that thesedecisions in the Observationes Tumultuariae Novae w-ere not availableto the Bench. Indeed Professor de Vos himself has acknowledgedthat Professor Scholtens is undoubtedly right when he contends that asa consequence of the further cases where a general enrichment actionwas granted, which have now become known as a result of the publicationof Pauw’s Observationes Tumultuariae Novae, it must be accepted thatthe Roman-Dutch law had in practice advanced beyond the point of amere patchwork of specific actions and that a general action oix unjustenrichmenfc had developed5. Professor de Vos himself considers it amoot question whether the decision in Nortje's case may not indeedhave gone the other way if the attention of the court had been drawnto the Observationes Tumultuariae Novae.
The factors to which I hare referred are indicative of the possibilitythat with fuller material based on valuable sources of Roman-Dutchlaw recently made'available, the court may well have decided differently.Furthermore it is my view with much respect that relief for unjustenrichment in the Roman-Dutch law has not in the past and shouldnot in the future be confined strictly to the various specific enrichmentactions evolved by that "system to meet specific classes of situations.
Observations Tumultuariae No. 303.* [1966) 83 S. A. L. J. at 402.
See Note 1 Supra.* (1966) S3 S. A. L. J. pp. 396-7.
* [1969) 86 S. A. L. J. at 230.
540
WEERAMAXTRY, J.—Dc Costa r. Bank of Ceylon
It would be well to refer briefly at this point to certain other decisions–ill the modern law which are indicative of the recognition of such ageneral enrichment action. In Hcuiman v. Norlje1 it was permitted to-a contracting party who was debarred from instituting a contractualaction to institute an action directly on the ground of unjust enrichmentwithout the necessity to invoke any particular form of action. This-judgment is of importance as establishing the availability of an enrich-ment action in modem law under circumstances which' could not befitted into any of the accepted categories of the classical Roman-Dutch,law.
Another significant development of the principle of general liability in.the modern law is the application of the principle in cases of compensa-tion for improvements, which did not fall within any of the establishedcategories of the classical law. Even more importantly the case ofPrelorius v. Van Zyl2 contained the following observation by de Villiers,J. P. :t: The doctrine against enrichment is well established . . .. The
doctrine has been recognised by the Appellate Division in several eases,for instance, Rubin v. Botha, Fletcher v. Bulawayo iVatemorks Co. Ltd.and Lechoana v. C’loete. It is true that these three cases deal with theoccupation of land, but the doctrine against enrichment is in themapplied to circumstances where the law as to compensation for improve-ment to landed p>rop>erty does not apply: in other words, in circum-stances -which would equally well have warranted its application to anyother cases of enrichment. On general reasoning too. it seems reasonableto suppose that- the doctrine against, enrichment-, as it exists at- all,must necessarily be of general application. I come to the conclusionthat the doctrine against enrichment- at the expjense of another is ofgeneral application.”
The principle underlying such cases as Rubin r. Botha and Fletcher v.Bulawayo Municipality was applied by the Privy Council in the Ceyloncase of flassanally v. Cassini3 where their Lordships proceeded on thebasis that the claim of the improver ” was based not on contractualrights under the leasebut upon an equitable principle which is an applica-tion of the cardinal rule againstunjnst enrichment. ” 4 The Privy Councilin that case corrected a long standing view of the Ceylon Courts basedupon Soysa v. Mohideen5 that it- was not competent to a lessee to setup a claim for compensation for improvements, observing that this viewwas based on the error of not applying this cardinal rule. TheirLordshipis went on to observe that in allowing the appeal they“ entertain no doubt that they follow the line of development of animportant equitable principle, and derive some satisfaction from thefact that the law of Ceylon will thus be brought into harmony with,that established in South Africa nearly a ccntnrj' ago.”
(1014) A. D. 293.3 (I960) 01 X. L. R. 029.
(1927) O. P. D. 220.* at p■ 539.
* (1914) 17 X. L. 11. 279.
WKKR.AMAXTKY, J.—Tie Cotta r. Bank- oj Ceylon
54!
To the same effect Gratiaen, A.C.J. observed in Jayatilleke v. Sirt-ivardene 1 : “ In England, the rule against- unjust enrichment lias beenadopted by gradual stages, with the assistance of legal fictions such asthe ‘ quasi-contract * and in more recent times, the ' quasi-estoppelBut in countries which are governed by the Roman-Dutch law, thisbroad and fundamental doctrine is unfettered by technicalities, andthere is no need to insist on proof that the general nde has been previouslyapplied in a precisely similar situation. The comprehensiveness of theRoman-Dutch law principle must be enforced whenever the * enrichment *asked for would in the facts of a particular ease, be demonstrably‘ unjust’.”
Dicta suggestive of a broad view of the scope of the equitable principleas affording a general cause of action, are also to be found in Knoll v.South African Flooring Industries.2
The effect of these decisions may be summarised in the words ofProfessor de Vos3 in terms that: ‘‘The courts have not merely added afew more classes of cases in which the person impoverished Mould havea claim—they have in truth decided that, in all cases where there hasbeen unjustified enrichment of one person at- the expense of another,and -where the case docs not fall into one of the old categories, thereshall be a liability except -where public policy militates against this.”
The view that srtch a general enrichment principle exists in the modemhvw finds support also in treatises on the modem lau Thus Hahlo &Kahn observe,4 after noting the opposing view on the matter, that thebetter view is that a general subsidiary action on unjust enrichmentforms part of the modern law. So also, Wille 5 observes that “toda3rthe old classification has been discarded in our law, and unjustifiedenrichment is recognised as a distinct source of obligation.” This latterstatement has received express judicial approval in Krueger o. Navratil6though of course it must not, as de Vos points out,7 be understood tomean that the old remedies no longer apply. To quote Professor deVos 8 “ It has been shown that there has been a tendency for centuriestowards making the maxims in the Corpus Iuris aimed against unjustifiedenrichment progressively more effective by granting remedies over anever-widening field. This enlargement of the remedy against unjustifiedenrichment uhich has taken place in South Africa is thus merely thelogical advance along this ancient road.”
'1 (1954) 56 N. L. R. 73 at SO.
(1951) 1 S. A. 404 (T).
1960 Juridical Review, pp. 230-9.
The Union oj South Africa, 2nd cd. p. 570.
Principles of South African Law, 5th cd. p. 408.
(1952), 4 S. A. 405 S. W. A.
1960 Juridical Review, p. 237.
•Ibid, v. 240.
542
WEERAMANTRY, J.—De Coala v. Bank of Ceylon
This case of Kruegerv. Ncivratil, just referred to, is a case of some particu-lar relevance to us in tlxe context of the facts of the present case, as itdeals with enrichment resulting from appropriation of stolen property.In that case the plaintiff claimed that- the plaintiff’s agent had wrong-fully and unlawfully approjmated certain items of property of theplaintiff to the benefit and profit of the defendant and that the defendantreceived the benefits and profits arising from this wrongful act. Theproperty apjxropriated included a motor lorry, a number of pelts andfourhundred sheep. The plaintiff averred that lie was entitled tothe recovery of this enrichment which consisted in tlxe items of stolenproperty enumerated.
The court applied the broad general doctrine of enrichment and foundthat a cause of action in unjust enrichment had accrued to the plaintiff.In so doing it relied on tlxe passage from Wille just referred to, and alsoon the statement of Grotius that obligation from enrichment ariseswhen someone without legal title derives or xxxay derive advantage fromanother’s property. This judgment went on to hold that the plaintiffwas entitled not only to tlxe actual benefit accruing to tlxe defendant butalso to the benefit which tlxe defendant may have derived fromthe use of such jxroperty and in that respect has probably been tooliberal in its assessment of tlxe scope of relief available1; but tlxe specialinterest of the case so far as we are concerned lies in its discussion of theavailability of the general enrichment principle to meet a case of theappropriation of stolen property by a receiver from the thief.
In thus recognising tlxe existence of a general jiriixciixle of enrichment,the modcrix Roman-Dutch law, it is important to note, is by no meansbreaking fresh ground in regard to the extension and development of theoriginal Roman prmicples but is, as de Vos observes, only keeping instep with other Romaixistic legal systems. The departure from theoriginal comparnxentalised attitude is to be found also in other relatedjxirisdictions.2 Thus although the Roman law did not recogixise a generalenrichment liability, tlxe German law gradually enlarged the specificenrichment action* of tlxe Roman law iixto a general enrichment action(see now section S12 of tlxe German Civil Code). So also Switzerland hasfollowed a not dissimilar course in recognising a general enrichmentliability as arising at common law and in recognising and regulating it bythe Federal Code of Obligations, section 02 of which jxrovides that “Anyperson who =is enriched without legal cause at the expense of another isbound to make restitution. Tlxe enrichment, must particularly bereturned where it-was received without a valid cause because the causewas not realised or because the cause has ceased to exist." In otherjurisdictions such as Quebec and Belgium tlxe general liability wouldappear to be the creation of the Courts.
1 Sco f 195.1) 70 S. A. L. J.9.
– See generally on this aspect Gultcridge cb David, 1933-5 Cam h. J. 201;
McGregor, 65 SA LJ and de k'os, 19G0 Juridical Review pp. 12-5-9.
WEERAMAXTRY, J.—De Costa v. Bank oj Ceylon
54 5-
It is true that the French Code Civile does not contain a generalprinciple of unjust enrichment but contains several specific piovisionsbased on this principle. Even under that system, however, it wouldappear that writers have urged that the special provisions thereincontained can only be explained on the basis of a general principle ofliability, and under the influence of the text writers a great changehas taken place towards the end of the last century, since when there hasbeen recognition of unjustified enrichment as a source of obligations.1It would appear that since a decision of June 15, 1S92 the Courts haveconsistently held that one person may not without justification derivean enrichment from the detriment of another and that although this isonty case-made law, and no precedent is binding in France, no defendantnow questions the existence of such a rule.2
It is also of much interest to note that although the draftsmen of theCode Napoleon preferred to refer to the special instances of enrichmentknown to the French law rather than to codify an all-embracing“underlying principle, Pothier who has-so much-significance for-usas anexpounder of the Civil law, and on whose writings so much also in theCode Napoleon is based, had indeed taken the view that the principles ofEquite (natural justice) must prevail over the niceties of the law, “ so 'that * natural justice ’ is a sufficient foundation for a civil obligationand a cause of action.”3 So also Potheir has observed 4 in regard toquasi-contracts that “ the law alone, or natural equity, produces theobligation, by rendering obligatory the fact from which it results.Therefore these facts are called quasi-contracts, because without beingcontracts, . . : they produce obligations in the same manner as actualcontracts.”
A comparison with these systems assists us then in arriving at theconclusion that there is no element of inconsistency with the Romangroundwork of our legal sj-stem in formulating such a general principleand that in taking such a step wc are not voj'aging into the unknownor venturing out alone.
Since then there is nothing in principle which militates against therecognition of such a liability in a system stemming from the Romanlaw, and since the better view would appear to be that the modemRoman-Dutch law does recognise such a general principle of liability,it only remains to examine what requisites may be extracted from thelearning upon the subject as being essential pre-conditions for theavailability of relief. These requisites cannot be better stated than theyhave been by Professor de Vos 5 who has set them out as being : (a) the
11960 Juridical Review pp. 126-7 ; S Cam JJ. J. at 208.
16 Cam L. J. at 208-9.
Pothier, Oeuvres, vol. 5 No. 182—See the references thereto in 5 Cam.
L. J. at p. 206.
Obligations, Pt. 1 c 1. s. 1 art 114.
4 Vcrrykingsaansprecklikheid in die Suid Afrikaanse, pp. 180-206; 1960Juridical Review pp. 241.-2.
544
WEERAMANTRY, J.—De Costa r. Bank of Ceylon
defendant must be enriched ; (6) the enrichment must be at the expenseof another (i.e., the plaintiff must be impoverished and there must be acausal connection between enrichment and impoverishment) ; (c) theenrichment must be unjustified; (d) the case should not como under thescope of one of the classical enrichment actions ; (e) there should be nopositive rule of law which refuses an action to the impoverished person.
All these requisites are satisfied by the circumstances of the presentease.
It is true the present case is not one of direct enrichment by a party tothe transaction but of enrichment by a third party. This circumstancedoes not however prevent an enrichment action from being available.In Roman, Roman-Dutch and South African law alike there are someoases in which a remedy for enrichment is given against third parties•who have indirectly or incidentally derived benefit from a transaction inwhich the plaintiff is impoverished.1 The reluctance to extend the-enrichment princij>le to cover benefits received by third parties is, asDr. Honore 2 observes, traceable to the importation into the sphere ofunjust enrichment of notions pertaining to the law of contract.
One may also note in this context an observation by Dr. Honore3 who,in criticising, though on another ground, the refusal to allow the condictioindebiti in Bell v. Esselen,4 made the significant observation that theplaintiff shou’d have been permitted to condict the money from thedefendant “ not because the English notion of conversion is applicableto Roman-Dutch law but by the well developed principles of Romanlaw which are amply sufficient to deal with the complexities of paymentsmade by cheque or bill of exchange.”
For all these reasons I strongly incline thc2i to the view that there isavailable in our law a general jwinciple of liability based on enrichment,
I do believe moreover that any other view runs counter to the spirit andthe essence of the Roman-Dutch law and that a compartmentalisedmethod of approaching the question cuts across the grain and traditionof that eminently liberal s’stem. There is, beneath the particularactions, a broader pr'nciplc at once necessitous of and amenable todevelopment; and of this principle the specific actions are no more thanparticular illustrations. Where possible, progress towards that generalprinciple rather than regress towards the particular actions, is theobligation of the courts.
If the view in Norije’s ca-se be correct we have, with much respect,reached the end of the development of the principle of unjust enrichment.
A principle vibrant with life and struggling for growth, would then be
I See A. M. Honore : Third Party Enrichment, Acta Juridica, 10C0 p.236.}.ibid, p. 253.
3 1058 Acta Juridica pp. 135-40.tyMot) 1 S. A. L. 71. 117.
WIJAYATILAKE, J.—De Costa v. Bank of Ceylon
545
locked for ever in tight compartments, a prisoner of the past. Such aview bodes ill for the future, for it cramps development in what truly isand surely ought to be an area of significant advance. We cannnot thuscry halt at one of the vital frontiers of the Jaw.
I hold therefore, that the plaintiff would be entitled to recover thesum claimed from the defendant on the basis of the general principleof enrichment which is recognised by the Roman-Dutch law.
In the result, then, the plaintiff is in my view entitled to succeed bothon the basis of conversion and on the basis of unjust enrichment, and,reversing the judgment of the learned trial judge, I would enter judgmentfor the plaintiff in the amount claimed. The plaintifF will be entitledto her costs both here and in the court below.
WIJAYATILAKE, J.
On the evidence led in this case two important questions of Law havearisen for determination—firstly whether the English Law ofconversiorFin respect of cheque transactions as in the instant case is part of our lawand if so whether a Banker is liable under the La w of conversion ; secondlywhether the plaintiff is entitled to the alternative remedy on the basis ofan action for restitution of money had and received which is in fact aremedy for unjust enrichment.
On a close scrutiny of the facts of this case, with great respect, Iagree with the views expressed above that both these questions have to beanswered in the affirmative. I do not think it necessary for me to repeatthe views already expressed but considering the importance of thequestions raised I would make a few general observations.
As the argument proceeded at a very high academic level I was beginningto wonder whether the system of law in this country is so anaemic andoutmoded that the plaintifF should be shut out from recovering what isjustly due to her. This case has been referred to a Bench of five Judgesin view of the decision of the Divisional Bench in the case of Daniel Silvav. Johanis Appuhamy *. Now that the judgment-s in this far reaching casehave been discussed and dissected in great detail it is doubtful whetherthat Bench would have taken the same view in regard to the applicabilityof the Law of Conversion in Ceylon in respect of cheques if only itsattention had been drawn to Section 2 of Ordinance 5 of 1852.
In my opinion the intention of the Legislature to bring a case of thisnature within the scope of Ordinance 5 of 1852 is clear when referring to
cheques it uses the words “and in respect of all matters connected
with such instruments or if the act in respect of which any question
shall have arisen, had been done in England ”. During the period of thisenactment shortly after the coffee crisis in 1847 and world-wide depression,in 1848 the British commercial interests were foremost and one could wellappreciate the urge on the part of the Banks which were entirely British
J (1965) 67 N. L. B. 457.
546WIJAYATILAKE, J.—De Costa v. Bank oj Ceylon
except for The Bank of Ceylon which had failed with the coffee crisisand the leading Commercial firms and Agency houses mostly British tosafeguard their transactions b}r adopting the Law of their country.No doubt, our common law was then as it is now, the Boman-DutchLaw. In the interpretation and construction of a statute there is apresumption against altering the common law. As Devlin J. observed" It is a well established principle of construction that a statute is not tobe taken as effecting a fundamental alteration of the general law unless .it uses words that point unmistakably to that conclusion ”. (NationalAssistance Board v. Wilkinson1.) As Dias in his treatise. on“ Jurisprudence ” (2nd cd.) at page 122 comments this principle is basedon the belief in the self-sufficiency of the common-law. Could we saythat in 1S52 our common-law was self-sufficient to meet a situation suchas the one that has arisen in this case 1 The answer to this question isin the negative and it is set out fully in the judgments of the DivisionalBench in the case of Daniel Silva v. Johanis Appuhamy referred toeaxlier. I am of opinion that the Bills of Exchange Ordinance thoughit is not in the same terms is sufficiently wide enough for us to hold thatin regard to a transaction of this nature pertaining to a cheque it is theEnglish Law which applies.
T.S. Fernando J. observes that section 9S (2) of the Bills of ExchangeOrdinance was only intended to apply to any omission or deficienciesin the Ordinance in respect of the law relating, inter alia, to cheques, andcannot form the basis of a proposition that, where the delict of conversionwas in relation to a cheque, therefore the English common law of conversionis introduced into our law ”. Tambiah J. observes that, “ this provisionwas intended to bring the substantive law of bills of exchange, promissorynotes and cheques and was not intended to affect the consequence and therights and liabilities of persons under the general law of the land when abank enters into transactions”. There is nothing to show in theirjudgments that their attention was drawn to the very vital Ordinance5 of 1S52. Perhaps, if they were made aware of it the provisions of theBills of Exchange Ordinance would have been seen in a differentbackground.
Tambiah J. has referred to the operation of the Bills of ExchangeOrdinance in South Africa and Canada : but so far as Ceylon is concernedthere was this important historical land mark—Ordinance 5 of 1852. Inmy opinion this is of great significance and it is a beacon light- we have toconstantly keep in mind when seeking to interpret the relevant provisionsof our Bills of Exchange Ordinance. With great respect, I might observethat there is a real danger in relying on foreign judgments interpretingstatutes without reference to the background of these statutes.
In the interpretation and const ruction of a statute we have to keep inmind the several rules laid clown by judicial precedent and lest we getentangled and enmeshed in them it would be well to remember how a
‘ (1052) 2 Q. B. 64$ at 661.
WIJAYATILAKE, J.—De Costa v. Bank of Ceylon
547
shrewd writer summed up the position. Dias quotes this in his treatiseat page 108 : “ A Court invokes whichever of the rules which producesa result that satisfies its sense of justice in the case before it
The history of this form of action has been discussed at length inDaniel Silva's case but that too being a case pertaining to a chequetransaction the omission to deal with the Ordinance of 1852 is so vitalthat this decision is open to question although the defendant there wasnot a Banker. I might also state that in dheussing these legal conceptsone has to guard against taking a too rigid and a parochial view of them.It would be quite unrealistic and academic to confine them to water-tight compartments, or barbed-wire encampments. One has to recognisethe fact that jurisprudence today does not stress the distinctions betweenthese legal concepts as in the past. Today jurists recognise the fact thatthey fuse into one another with the ultimate object of serving the publicinterest. It is the essence of justice that we have to keep in mind with aview to suppressing the mischief and advancing the remedy and to suppresssubtle inventions and evasions for continuance of the mischief and to addforce and life to the cure and remedy according to the true intent of themakers of the Act pro bono publico (Heyden’s Case—see Dias,.page 134).It would be well to remember the words of Bertram C. J. in Gunatilake v.Fernando1 : “ But we are no longer tied to forms of action. If the lawrecognizes a right, it will provide its own forms for enforcing it ”.
In Ceylon, although our common law is the Roman-Dutch Law, theprinciples of English Law have been introduced from time to time,jiarticularly in the field of banking. Vide Section 3 of the Civil LawOrdinance. Learned counsel for the respondent submits that the factsin this case do not constitute a transaction governed by the law of bankingas such. In my opinion it would be highly unrealistic to say that thistransaction falls outside the pale of “ the law of banks and bankingIt may be noted that the section refers not only to the law of bankingbut the law of banks. To quote the words of Lord Demiing M. R. in arecent case: “We (the Judges) are not the slaves of words but theirmasters. We sit here to give them their natural and ordinary meaningin the context in which we find them ”—Allen v. Thorn ElectricalIndustries2. Much has been said about the necessity to apply theprinciple of our common law—the Roman-Dutch Law—withoutadulterating it with the English Law. This view appears to be far tooout-dated and quite contrary to the progress and development of ourlaw. In fact Tambiah J. in Kamalauathie v. de Silva3 observes that Lawlike race is not a pure blooded creature and he stresses the inroads madeby English Law into the legal S3rstein of Africa.
As Tambiah J. states the English Courts granted this remedy by aprocess of extension by treating the cheque, the subject matter ofconversion, as a chattel, which was converted into money. Row that thisappeal has been argued very fully before us the question does arise whether1 {1919) 21 N. L. B. at 268.* {1968) 1 Q. B. 487 at 502.
3 {1961) 64 N. L. It. 252.
o43
WIJAYATILAKE, J.—Dc Cos/a v. Bank of Ceylon
the conclusion arrived at in Daniel Silva’s case that this particularremedy was not available under our Law in the context of the .facts inthat case is correct—assuming that in the instant case the remedy is infact available. In my opinion the mere fact the defendant in that caseuas apparently a bona fide holder for value in due course would notabsolve him as the Bills of Exchange Ordinance (read with Ordinance 5of 1S52) docs not restrict the cause of action as against a Banker only.It may be argued that if we hold that the view taken by this Court inDaniel Silva’s case is erroneous it will seriously hamper cheque transactionsbut, in my view, cheques cannot be equated with Government currency.It may well be that the English Courts granted this remedy by a processof extension with a view to checking careless and fraudulent transactionsin the field of commerce. The facts in Daniel Silva’s case are a pointerto this.
On the question of undue enrichment the facts arc so cogent that Ineed hardly repeat them. The Bank failed to call Thuraiappah who wasin Court. Surely it was the duty of the Bank to make a frank disclosureof all the facts. Why did the Bank fail to call Thuraiappah ? One needhardly answer the question. The answer is so eloquent. Obviously, thechief actor in the transaction lias been kept out and a volume of evidencehas been led leading the Court to a realm of speculation. The questiondid arise as to the use of (ho ultra-violet ray machine to check anyalteration oh the dividend warrant. It is significant that althoughThuraiappah appears to have in the Magistrate’s Court spoken to the useof this machine for examination of this particular dividend warrantthe Bank far from seeking to rely on this in these proceedings objectedto the plaintifF eliciting this fact 1 Furthermore, the loss of the dividendwarrant at National & Grind lay’s suggests that an officer or officers of theBank of Ceylon (Wellawatte Branch) have been actively interested inthis transaction. The mere fact that Handy has given evidence is oflittle value—when Thuraiappah who played the most vital part in thistransaction was not called. A public institution like the Bank of Ceylonshould have made a full disclosure instead of keeping the Court guessingon a matter of this nature. The dividend warrant was marked “ notnegotiable ” and endorsed by the plaintiff to her account. This wasthe largest sum changed on this clay and the only dividend warrant of thotransactions. I am satisfied that the negligence on the part of the Bankhas been clearly proved to found an action for money had and received.With great respect lam of the view that the jwinciple set out by Sanson iC. J. in Don Cornells v. de Soysa Co. Lid} ancl by Schneider J. in TheImperial Bank of India v. Abeyasinghe2 applies with equal force to thefacts in this case. I
I would accordingly allow the appeal and enter judgment for plaintifFag prayed for with costs in both Courts.
Appeal allowed.(1027) 20 N. L. R. 257-
1 (1965) 68 N. L. R. 161.