030-NLR-NLR-V-57-P.-KANDASAMY-Appellant-and-S.-R.-KANDIAH-et-al-Respondent.pdf
Present : Gunasekara, J., and Fernando, A.J.P.KANDASAMY, Appellant-, and S. R. KANDIAH et al., RespondentsS. C. 53—D. C. Jaffna, 5,S9G/3I 'Contract—Prohibitory statute—Illegality—Construction—Excise Ordinance (Cap. 42)'—Sections 17, 24, 43, 45.
Where an agreement does not expressly contemplate the commission of abreach of any statutory provision, it can be held to be unlawful only if its per-formance would necessarily involve such a breach or if extrinsic evidence indi-cates the intention or the need to commit such a breach.
' -'• The 1st and 2nd defendants -who possessed, exclusive and nonrtransferable
licences for the sale of arrack entered into an agreement of “ partnership ” with,the plaintiff and the 3rd defendant. The agreement did not envisage that any one-but the actual licensees would be responsible for the sale of arrack at taverns, -and the object of the partnership was only to contribute capital and to share theprofits and losses. When the plaintiff sued for an accounting and to recoverhis share of the profits, the trial Judge dismissed the action on the preliminaryissue that the agreement was illegal and contrary to public policy and couldnot therefore be enforced. '■
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' Held, that the contract did not contravene any relevant provision of the-Exciso Ordinance and was not illegal.•-
PPEAXj from a judgment of the District Court-, Jaffna.
V. Perera, Q.C., with C. Chellappah and Sivagurunathan, for theplaintiff appellant.-
– S. Nadesan, 'Q.C., with S. Sharvananda, for the 1st defendant res-pondent.
Cur. adv. vull.
September 28, 1954. Feesakdo, A.J.—.
The 1st defendant in this action Was the holder of the exclusive privilege* (granted under the Excise Ordinance) of selling arrack by retail in tavernsin a certain area during the period October 194S to September 1949, andthe 2nd defendant was the holder of a similar privilege in respect oftaverns in certain other areas for the same period.' The conditions forthe exercise of the privilege which are laid down by virtuo of powersconferred by s. 24 of the Ordinance, include the following :—Non trans-ferability of Licence. Manager to be approved. No privilego of manu-facture, supply or sale or any interest therein shall be sold, transferredor sub-rented without the Government Agent’s previous permission norif the G. A. so orders, shall any agent be appointed for the management ofany such privilege without his previous approval.
Shortly after the privilege had been granted, those two defendants andthe plaintiff and 3rd defendant entered into an agreement which com-menced with a recital that the 1st and 2nd defendants “having taken ”the plaintiff and 3rd defendant “ as partners shareholders tee are desirousof carrying on the said business of purchase and sale of arrack with a capitalof Rs. 120,000/- ”, and that each party would contribute a specified partof the amount.._..
The agreement itself contains provisions which are substantially asfollows :— ■■…..■-
(1) that each party would have.certain shares (proportionate to hi&contribution of capital )
(2) that moneys already deposited with the Government as securityfor certain purposes connected with the privileges wouldbe regarded as being contributed by the parties aceoi'ding to theirrespective shares and that when the deposits becamo due forrefund they ■would be divided proportionately between theparties ;
that the 1st defendant and the 2nd defendant shall curry on and -manage
the said business and deposit monthly money duo for arrackpurchased (from tho Government) and pay for all espouses ;
that the Jsl defendant and 2nd defendant shall keep -proper accounts
which shall be in the custody of the 1st defendant, and thatmoneys not actually required for the business shall bo in thecustody of the 1st defendant ;
that the parties shall meet monthly and ascertain the correctness of
the accounts, and that profits or losses shall be paid or borneproportionately every six months :
(0) that additional capital if required shall he contributed proportion-ately.
Tho plaint in this action recites that the 1st defendant and tho 2nddefendant were the holders of the privileges and that the 1st defendantand the 2nd defendant agreed to take the other two parties as partners andto share the profits in t he specified proportions, and the plaintiff sues for anaccounting and to recover his share of the profits for the period. Thelearned District Judge has dismissed the action on the preliminary issuethat- the agreement was illegal and contrary to public policy and cannottherefore be enforced..
The provisions of Jaw relevant to the determination of the preliminaryissue are condition 13 which has already been set out, as well as S. 17 of thoOrdinance (which prohibits tho sale of an excisable article without alicence), S. 43 (which declares a person who sells an excisable article incontravention of the Ordinance to be guilty of an offence), and S. 45 (whichrenders a breach of a condition an offence).
“ The question whether a particular transaction comes within themeaning of a prohibitory' statute is manifestly one of construction. Wchave in each case to ask, does the Act mean to forbid this agreement ornot t And in each case, the language of the particular Act must beconsidered on its own footing.” (Pollock, Principles of Contract, 13th Ed.■p. 274). Tho learned author cites in this connection a dictum of Field J.
(4 Q. B. D. at p. 224) :—“ Before we can make but that a contract is
illegal under a statute; wc must make out distinctly that the statute hasprovided that it he so.”
The two questions we have to decido in this case are, what.is the natureand effect of the agreement entered into between the parties, and did thoLegislature intend to prohibit- and lender unlawful an agreement of sucha nature and effect ?-
With respect to tho first of these questions, Mr. Nadesan (for the res-pondents) contended that the effect of tho agreement was to constitute apartnership having as its object the carrying on of the business which wastho subject of tiie exclusive privileges. Ho maintained that all the assetsof the business including arrack purchased for the purposes of sale wouldbe tho property, not of the 1st or 2nd defendant, but of tho partnership,and would be treated as such in the event of a dissolution, that the sales ofarrack at each tavern must be held to be sales, not by the holder ofthe appropriate privilege in respect of the tavern, but by the fourpartners, and that cacli of them who did not actually hold the appropriateprivilege would be contravening the prohibition of unlicensed sale.Mr. Nadesan reiiedinthis connection on the principle that partners are theagents of each other and that each would therefore be responsible for theacts of the others. In this view the object of the agreement was to vestin the partnership the rights conferred bj' the exclusive privileges grantedto the 1st and 2nd defendants, an object prollibited by Condition 13 and inaddition contrary to the policy of the Ordinance forbidding sales of arrackby unlicensed persons. He further contended that at the least the agree-ment was contrary to Condition 13 in that it purported to transfer tounauthorised persons an interest in the e.rclnsire privileges.
Mr. Perera argued that the object of the agreement was nothing morethan the contribution of capital, and the sharing in the profits or losses, ofthe business which the 1st and 2nd defendants respectively were entitledto carry on by virtue of tho privileges they had secured. He pointed tothe fact that the operative clauses expressly preserve to those defendantsthe right and tho duty to cany on the business of the purchase and sale ofarrack and do not authorise the other parties to carry on or manage thebusiness ; in addition to that, they merely effect an arrangement for thefinancing of the business and for the sharing of profits and losses in pro-portion to the sums contributed by each of the parties. Mr. Perera alsoargued that the agreement does not purport to relieve the 1st and 2nddefendants of any of the responsibility attaching to them as holders of theprivileges, and that despite the agreement they would remain answerableto the Government for the due observance of the conditions governingthe exercise of the privilege. There being nothing in the operativeclauses whicli contemplated any breach of the Kxeise law or which effecteda transfer prohibited by the relevant condition, the mere expression in therecitals of a desire to carry on the business as partners cannot, lie said, beconstrued as indicating that such was the real object- of the agreement.
Considering the matter apart from authority I am much inclined to theview put forward by Mr. Perera. Where an agreement docs not ex-pressly contemplate the commission of a breac-h of any statutory pro-vision, it can be held to be unlawful only if its performance would neces-sarily involve such a breach or if extrinsic evidence indicates the intentionor tho need to commit such a breach ; ami where on the face of the agree-ment it appears that performance is possible, either in a lawful manneror else in an unlawful manner, it should be assumed until the contrary isshown that the parties contemplated a lawful means of performance.
Iii the present ease, even without such an assumption, the better cons-truction of tho agreement is that tJio 1st and 2nd defendants were tocarrv on and manage the respective businesses authorised by the privilegesgranted to them and that- " tho partners " as such had no concern in the1 nisi nesses, but were “interested” in the lay sense of that term in thattliev contributed capital and were to share tho profits or losses, I cansec nothing strange in an arrangement whereby a number of personsbecome “ interested ” in that sense in a venture to bo carried on solely bjrone of their number or even by a person who is not- himself a partner.The object of the partnership would not then bo to carry on the venture,but to finance the actual operator and to recover or' bear the profits madeor losses incurred by the operator.
Chief Justice Wood-llenton, in his dissenting judgment- in Fernando v.llumanulhan*, was of opinion that an agreement, in many respects similarto the one before us, constituted a partnership to carry on the businessof selling opium, and found support in the earlier decision in MeyappaChctly v. liamanathan – and in certain Indian cases, including Padmana-bhan v. Sarda 3. The learned Chief Justice was of opinion that “ eachpartner 55 was engaged in *’ selling “ opium, whether he did so directly orthrough the agency “ of a co-partner This opinion involves also theview that each partner would be selling opium without a- licence, in con-travention of the Opium Ordinance. If that be so, then, in a case likethat before us, an “ unlicensed ” partner could have been convicted ofselling arrack without a licence even though the physical transactionof sale was actually carried out at the tavern by another partner who heldthe privilege in respect of that tavern. Wo have had on this point theadvantage of considering an argument which was not apparently adducediii the earlier eases. Hr. Perera contends that the principle that a partneris liable for the acts of his co-partners, as also the general principle ofliability for the acts of an agent, applies purely for the purposes of thecivil law and cannot be availed of in order to impute penal liability. Totake, for example, s. 123 (1) (o) of tho Motor Traffic Act, will an owner beguilty of the offence of driving a motor vohic-lc without a licence if in facthis vehicle is driven by an unlicensed driver? It is evident that tho Legis-lature did not contemplate any such vicarious liability for the. act of driving,since it proceeds immediately to make it an offence for a person to employan unlicensed person to drive a- vehicle. There arc numerous instances inour statute law where employers and owners can be punished for contra-vention committed by their agents, but in all of them the vicarious liabilityattaches by reason of explicit provision in that behalf and not of the appli-cation of any implicit principle. With very great respect I take theview that since the agreement under consideration does not envisage thatany one but the holder of the appropriate privilege would be responsiblefor the sales of arrack at taverns, neither the parties nor any “unlicensedpartner could have been convicted of selling arrack without a licence.Kunis J. (who wrote one of the majority judgments in Fernando v.Rrunanatkan (supra)) said at p. 351, “ Nothing in tho terms of tho Ordi-nance or in the conditions of the licence prohibit, in my opinion, a person
1 (1013) 16 .V. L. R. 337.3 (1013)16 -V. L. R. 33.
35 Madras 582.
carrying on the business of selling opium through persons duly licensed tosell; and the object- of the Ordinance, which is to control the possession andsale of opium, would, it seems to me, bo attained without extending theprohibition on sale contained in S. G to the partners in a business carriedon through duly licensed persons who have the control and management oftho shops.” Even therefore on the assumption that the agreement inthe present case constituted a partnership to carry on the business ofselling arrack it would not invol ve a contravention of the Excise Ordinance.
As to the principal question, namely the nature and effect of the agree-ment, I would adopt with respect the opinion of Pereira J. in the same case(at p. 349).“ Clearly, the duties and liabilities of the licensees with
respect to their own respective licences remain untouched. The agree-ment is no more than one to pool the profits, and there is no stipulationwhatever allowing or requiring a partner to do anything forbidden by theOrdinance. That is the most important feature of the agreement. ”
accordingly hold that here too the object of the partnership was to con-tribute capital and to share the profits and losses, but not to carry ontho business of selling arrack.
Mr. Isadcsan made one further submission, namely that this case mustbe distinguished from that of Fernando v. Famanalhan (supra) in that, inthe latter ease there w as no condition which prohibited tho transfer of thoprivilege or of any interest theroin. In fact Ennis J. refers to thisfeature in attempting to distinguish one of the Indian cases where theagreement in question had been hold to be unlawful. This submissionwould be decisive only if it can be held that the partnership agreementconstitutes a transfer of the privilege of sale or of an interest therein, and thatthe 1st and 2nd defendants have by entering into the agreement committeda breach of the relevant condition punishable under s, 45 of the Ordinance.
hero would be such a breach if they purported to assign to the partner-ship an interest in the right of selling arrack in the taverns, but as I havealready indicated, tho agreement left unimpaired the exclusive rightsgranted to them and only created an interest in the profits derived bythem through tho exercise of those rights. The Legislature has no-where in the Ordinance or in the prescribed conditions attempted toregulate such matters as the source from which the holder of the privilegeobtains funds in order to cany on the undertakings or the destination ofthe profits gained from the undertakings ; and an agreement with respectto such matters cannot bo construed as falling with the class of trans-actions discouraged by the relevant condition unless it in addition pur-ports to create an interest in the management and control of the businessauthorised by the privilege.
. Eor these reasons, I would set. aside the decree entered by tho learnedJ.)istrict Judge, and remit the case for trial on the basis that tho agreement-was valid and enforceable. Tho appeal is allowed with, costs. Thecost-s of the proceedings in tho District Court- will be costs in the cause.
QcnaseKara, J.—I agree■•
Appeal allowed.