011-NLR-NLR-V-28-PUNCHI-HAMINE-v.-UKKU-MENIKA.pdf

JaiosWab-
dbnBA.J.
Hdinin&v.
Ukhu
Meniha
claim -would be prescribed unless the action is brought within threeyears of its accrual r under section 11 of the-Prescription Ordinanceof 1871. If the rule of law be as contended for by learned Counselfor the appellant, that is, that under our law the cause of actionaccrues and. prescription commences to run- from the date of aconcealed fraud unless some fresh act is done, (which is absent inthis case) to • prevent the – detection of the fraud which would giverise to a fresh cause of action, plaintiffs right to bring the actioiipersonally would have become prescribed after three years from 1913,the date of the decree, and after three years from the date of Siri-sena's death which took place in 1919, in respect of her claim as suc-cessor in title to Sirisena. As the action was .only brought in 1924,both causes, of action would, therefore, be barred by prescription.But, in my opinion, the rule under our law in the case of concealedtraud is not as contended for by learned Counsel. A cause of actionarises on-the-discovery of the concealed fraud.. It is conceded thatunder the . English Law, as administered by the Courts of Equity,this is so: Thus in Ralfe v. Gregory,1 Westbury L. C. said: “ Asthe remedy is given on the ground of fraud, it is governed by thisimportant principle that the right of the party .defrauded is notaffected by lapse of time, or generally s> >king, by anything doneor omitted to be done, so long as he fema b, without any fault ofhis own, in ignorance of the fraud that has been committed, '* andin Bullicogl Mining Co. v. Osborne,2 Lord James of Hereford deli-vering the judgment of the Judicial Committee said: '* The conten-tion on behalf of the appellants that the statute is a bar unless thewrongdoer is proved to have taken .active measures in order toprevent detection (of a concealed fraud) is opposed to commonsense as well as to the principles of equity.” – See alsox Oclkers v.Ellis,3 where the above cases and others are referred to and followed.But it is said that our Prescription Ordinance1 applies to all actionswhether at law or in equity indifferently and time begins to run fromthe moment the cause of action accrues, that is on the commissionof the fraud, but a fresh cause of action might accrue not on thediscovery of the fraud, but on the commission of a positive actintended fraudulently to conceal the original fraud and the cause ofaction it gave rise to. This contention, it was strenuously submitted,is supported by the judgment of the Privy Council in the local caseof Dodwell & Co, v. E. John & Co.* In this case the Agent andManager of the Plaintiff Company had paid to the defendants largesums of money which he personally owed the defendants withcheques drawn by him as Agent for the plaintiff. The Agent washeld to have committed and concealed a fraud. To properlyunderstand the judgment of the Privy Council it i6 necessary tostate that .in the judgments of this Court in appeal, reported in 1915,
1 0865) 4 D, J. S. 576 (579).* (191 1) 9. K. B. 139.
* (1699) A. C. 351.4 (1918) 20 N. L. B, 206 .; (1918) A. C.
’ 1 ■ ■ -663.•‘ *
< 109 )
18 N: L. it., 133, tiie Court (Pereira, Ennis, and Shaw JJ.—Ennis J.•dies.)' applied the equitable principle laid down by the* EnglishCourts without qualification, and Pereira J, said: ** This Court has^ften pointed out that our Courts (in Ceylon) are Courts of Law andEquity, and it would be quite in order to give here the same reliefaa is given in English in cases of fraud. The point has hardly beencontested …. In my opinion, the term of prescriptionshould, be deemed to have commenced in this case, at the time ofthe actual detection ctf the fraud .. *
But this Court also held that the concealed fraud need not be thefraud of the person who seeks the protection of the Statute of Limi-tation, but might be that of any person through whom he claims.The judgment of Lord Haldane, in my opinion, shows that the PrivyCouncil upheld the applicability of the equitable principle referredto in the judgment of Pereira J., but pointed out that the concealedfraud must be the fraud of the defendant personally, or of someperson for whose action in doing so he is directly responsible bothunder the Boman Law and the English Law. It is on this secondpoint that the- Privy Council disagreed with the judgment of' theSupreme Court. ‘ In fact the first point was not contested beforethe Privy Council. See the argument of Counsel as reported in(1918) A. C„ pp. 565, 566. Lord Haldane, after pointing out thatunder the English Law the Statute of Limitations, did not apply-to any jurisdiction of Courts of Equity which was not strictlyconcurrent With the jurisdiction of the Courts of Common Law, thatis where the jurisdiction of the Courts of Equity was exclusive said:'‘The Prescription Ordinance of Ceylon governs the whole * of ajurisdiction, which is general, including law and equity in onesystem, and therefore the Ordinance is operative in the present caset.o bar-the claim to the extent of the two earlier cheques unless thecause of action can be shown to have arisen later than their datesbecause of discovery for the first time of a concealed fraud.'* ThenHis Lordship proceeded to discuss the question whether the fraudmust be the fraud of the defendant personally or of some person forwhose- action he was responsible, and decided it in the affirmative.“ This appears/* he observed, “ to have been the view held by theBoman lawyers on whose system the law of Ceylon is founded.*’Then after considering certain passages from the Digest, he said,“The passage quoted shows' that the doctrine of imputed fraudwas closely confined in its application by .the Boman Jurists to thedefendant either actually guilty of or legally responsible for thefraud. Their Lordships are, therefore, of opinion that, accordingto the Law of Ceylon, the cause of action accrued, under the circum-stances of this case, at the dates when the cheques were receivedand dealt with by the appellants … * . *’ that is not from
*the date when the fraud was discovered, as the fraud was not.thatof the defendant or of any person for whose acts he was directly
1986
JAXtWAH*D&iiis A.J•
Pttnfifyi'BaminS v,Vkku
Menihn
( 110 🙂
im
Jayewab-DENE A.J.
PimchiHcrmine v*UhkuMtnika
responsible. The passages I have cited from the Judgment of LordHaldane show that the discovery far the first time of a concealedfraud would constitute a cause of action arising later than the causeof action. arising at the date of the commission of the fraud. If itwere otherwise, it is difficult to understand why His Lordship shouldhave considered the second question, that is, whether the* fraudshould have been committed by the defendant personally or bysome one for whose action he was directly responsible. This questionwould not have arisen if the discovery of the fraud did not give acause of action. Learned Counsel for the appellant relies stronglyon a passage appearing lower down in the judgment where LordHaldane was pointing out the inapplicability of such cases asHuguenin v. Bascley,* from which this Court had sought supportfor its views that the fraud of any person through whom the defen-dant claims was sufficient to let in the equitable principle in question.His Lordship said (p. 215), “ But their Lordships have to point outthat Lord Eldon was not there speaking of any new cause of actionarising from a concealed fraud. No such question had arisen. Hewas simply illustrating the view taken by Courts of Equity inEngland when ordering the restitution of what they treated as atrust fund, and so exercising a jurisdiction which was exclusive,.and to which no Statute of Limitation had any application. Inthe present case there is a Statute of Limitation, and in order toescape from its application it is necessary to show that there is asubsequent and independent cause of action which arises from theconcealment of the fraud. Such a separate cause of action arises, astheir Lordships have already said, only out of the conduct of a personwho is held to have been responsible for the fraud aud has iu breachOff his duty concealed it. Such cases are very different from whatLord Eldon was dealing with in Huguenin v. Baseley …
This passage does not, in my opinion, lend support to the learnedCounsel's contention. The subsequent and independent cause ofaction which arises from concealment of the fraud ” is, in my opinion,the discovery of the fraud and not another act of fraudulentconcealment intended to prevent the detection of the concealed fraudor the original cause of action. This view is emphasized by wharimmediately follows: that such 3 separate cause of action arisesonly out of the conduct of a person who is responsible for the fraudand has concealed it in breach of his duty. In short, the Judicial.Committee held that in that case no new* cause of action art>s<-when the fraud was discovered since the fraud was not that of thedefendants nor of any person for whose acts they were responsible.So far as I can see in D&dwelVs case there is no departure from theequitable principle applicable under the English Law to cases like•the present. However, that may be, we are, I think,-now bound toapply the English principle, as section 118 of “ The Trust Ordinance
1 {1807) 14 Ves 273,
( 111 )
of 1917, ” which has come into operation since the Dodwell litigation,enacts that; “all matters with reference to any trust, or. yfitbreference to any .obligation in the nature of a trust arising or resultingby the implication or construction of law, for which no specificprovision is made in this or any other Ordinance, shall be determinedby the principle of equity for the time being in force in the High-Court of Justice in England.” In the present case the decree,entered by agreement which has been induced by fraud, creates anobligation in the nature of a trust arising by the implication orconstruction of law, and the person who has obtained the propertyor persons claiming from him as volunteers must hold it in trustfor the person defrauded. In DodweWs case the Privy Council held,that the money that pa66ed to the defendants on the cheques,fraudulently drawn by their Agent was in effect a trust fund. The.question when the cause of action accrues in a case like the presentis a matter with reference to an obligation in the nature of a trustfor it provides the very foundation for the creation of the trust,,the trust being created by the decree of Court in cases of fraud.The language of the section is very general and wise and is intendedto have a wide application. No specific provision exists in theTrust Ordinance or in any other Ordinance on the point. TheEnglish principle, which I have stated above, therefore, applies tothis oase, and the cause of action must be regarded as having accruedon the discovery of the fraud and the cause of action to have thedecree set aside is not barred by prescription. I have thought itnecessary to discuss the effect of the judgment in Dodwell1 s case,as section 118 of the Trust Ordinance was not referred to at.theargument, and its application to the present case was not discussed.But I have little doubt that it applies and must be given effect to.
What then is the effect of setting aside the decree on the groundof fraud? The person who obtained property under .the fraudulentdecree must hold it for the benefit of the person who was deprivedof it; Section 88 lays this dtiwn. It runs as follows; “Where*property is transferred in pursuance of a contract which is liable’ to'rescission or induced by fraud or mistake, the transferee must, onreceiving notice to that effect, hold the property for the benefit of thetransferor, subject to repayment by the latter of the considerationactually paid, and subject to any compensation or other relief towhich the transferee may be by law entitled.”
It is argued that this section has no application, to this case asthere is no “ contract ” here. The decree was based on an agree*ment or contract between the parties. The extracts from theproceedings in case No. 22,586, (P 3), show that-it was in consequenceof an agreement between the parties that the present plaintiff dadSirisena, the defendants iu that case waived their title to the lazidin dispute and consented to surrender possession on receipt ofcompensation. Decree was entered in terms of the agreement*28/11
1986
Jaybwar-
dbnbA.J.
Func/UHamine v.
Ukku
Menika
1926
Jaybwar-DBRB A.J.
Punch*
Hahtfncv.
Ukku
Mentha
(US)
•
The fac.t that a decree has been eiitered does not prevent- the -Courtfrom treating the decree as no more than the contract between theparties, subject to the incidents of such a contract. For as BaronParke said in Wentworth v. Bullen,1 ** The Contract of the partiesis not the less a contract and subject to the incidents of a contract,because there is superadded the command of a judge.” See alsoLievesby u. Gilmore. * Thus in an Indian case where a plaintiffsought to enforce by action a right to forfeiture contained in aconsent decree in terms of a compromise whereby the status ofLandlord and tenant was established between the plaintiff and thedefendant, it was held by a Full Bench of the Bombay High Courtthat the Court'in its equitable jurisdiction was not precluded fromgranting such relief against forfeiture as it might have grantedhad the status arisen from contract or custom. Sir LawrenceJenkins C.J., presently a member of the Judicial Committee of thePrivy Council, said: 44 The mere recording of the agreemment can inno way change its legal effect. Can the passing of the decree haveany 6uch result? I think not … . .It appears to me
on principle that as under the section (875, that is section 408 ofour .Code), the decree was to be in accordance with the agreement,it cannot have altered the relations of the parties as they existedunder the agreement. And as it was an incident of those relationsthat the right of forfeiture was subject to relief, that incident muststill apply when those relations are established by a decree passedin accordance with the agreement. It was laid down in Wentworthv. Bullen,3 and has since been repeatedly affirmed that the contractof the parties is not the less a contract, and subject to the incidentsof a contract, because there is superadded the command of a * Judge/and this, in my opinion, lends a sanction to the conclusion I haveexpressed: ” Krishnabai v. Hari Govind.4 The agreement or con-tract between the parties is embodied in the decree and not extin-guished by it. There i6, therefore, in my opinion, a sufficientcontract within the meaning of section 88 of the Trusts Ordinanceto bring this case within its operation.
•t
Has there been a transfer of property in pursuance of the con-tract? I think so. The deed of sale of 1884 was concealed, andKiri Banda’s title was alleged to be based on the deed of gift of theyear 1883 which being a Kandyan deed of gift was revocable, andhad in fact been expressly revoked. The hopelessness of questioningthe – right of revocation in the circumstances was realized by BariBanda’s widow, and she agreed to waive all claims she and her sonhad under the deed of gift of 1883 and. to surrender possession infavour of Punchirala. The agreement resulted in a transfer of therights which she and her son Sirisena had under the deed of sale,It i6 only’ however, on receiving notice that the contract has been
M1829) 9 B. & C. 850.3 {1829) 9 B.A C. 850.
* (1866) Tu R. 1 C. P. 570,« (1907) 31 Bom. 75.
( lid )
induced by fraud that the constructive trust arises. Such ucontract is voidable and not altogether void, and it is from thetime that the transferor makes up his mind to) impeach the contractthat the transferee must hold the property for the benefit of thetransferor. In the present case no notice appears to have beengiven, but the institution of the action might be regarded as suchnotice. If, therefore, before the receipt of a notice or the institutionof an action to set aside the contract, a transferee has been inpossession of the property transferred for over the time fixed foracquisition of title by prescription he would be entitled to set up atitle by prescription. This is clearly brought out by Lord Bedesdalin an Irish case Hovenden v. Lord Annesley 1 where the learnedJudge after stating that the possession of a trustee is no bar to uclaim by the cestui q-ue trust as his possession is according to histitle points oiut that: “ the question of fraud is of a very differentdescription; that is a case where a person who is in possession byvirtue of the fraud is not, in the ordinary sense of the word, atrustee, but is to be constituted a trustee by a decree of a Court ofEquity, founded on the fraud; and his possession in the meantimeis adverse to the tijble of the person who impeaches a transactionon the ground of fraud. 99(Lewin on “Trusts,” p. 1083, 11th
Edition). Then a question arises as to whether in this case thedefendant has acquired a title by prescription to the plaintiff'sinterests in the land. Section 111 of the Trusts Ordinance, 1917.deals with the law Of prescription in relation to trusts, and it excludesfrom the operation of the Prescription Ordinance, 1871, certainclasses of casds. It has adopted the law as enacted in the EnglishAct of 1888 called “ The Trustee Act. '* But sub-section (5) ofsection 111 declares that the exemption “ shall not apply to con-structive trusts except in so far as such trusts are treated as expresstrusts by the law of England." According to the case of Soar v.Ashwell,2 the following persons are treated under the English Lavas holding property under nn express trust although the trusts ariseby construction of law: —
1906
Jaybwab-DBNB A.J.
PunckiHomme vOkkuMention
/
A trustee de son tort or a stranger who assumes .to actin an express trust as if he were a duly appointedtrustee.
A stranger to the trust who is privy to, and participates in.
a fraudulent breach of trust by the trustee.
A stranger to the trust who receives the trust money knowing
them to be such and deals with them in a manner inconsis-tent with the trust.
One who is in a fiduciary and in the footing of such position
obtains possession of trust property.
1 2 Sch. 4s Lef. 630.
* (1893) 2 Q.B. 390
( )1926
•'AYEWAK-.'E.TE A..I.
Ptntchifiamine v.Ulibit.MtnUin
The present defendant does not come within any of the above*mentioned classes, and must be regarded as holding the property,(jjn a constructive trust which is not an express trust She is,therefore, entitled to rely on the Prescription Ordinance. Theplaintiff, as stated above, is entitled to a life intei*est in the one-third:share as the widow of Kiri Banda, and also to the property .itself;,s the heir of her son Sirisena. As the defendant has had possession;in terms of section 11 of the Prescription Ordinance for a periodexceeding ten years at the date of the institution of the action, shehas acquired a title by prescription to plaintiff’s life interest in theshare claimed by her. Sirisena was a minor when action No. 22,536terminated, and was a minor in 1919 when he died, and the plaintiffsucceeded to his rights. By virtue of section 14 of the Ordinanceof 1871 prescription would not run against him; it commenced torun against the plaintiff when she succeeded to his rights in 1919.But ten years had not elapsed after the death of 'Sirisena when thisaction was instituted. Therefore, the defendant has not acquiredSirisena’s rights by prescription. The plaintiff has lost her lifeinterest in the share claimed, but she is entitled to the one-third sharesubject to a life interest which is now vested in the defendant. Thefact' that the plaintiff had become entitled both to the life interestnnc][ the property itself cannot prevent her losing her life interestby adverse possession. The defendant will, therefore, be declaredentitled to possess the land so long as the plaintiff is alive. Theplaintiff will be declared entitled to a one-third share subject to thedefendant’s right as declared above. No question of damages orcompensation need be considered at this stage. The judgment,ojt the District Judge will–be varied, and decree will be entered interms of the declaration made above. All costs including the costsof this appeal will be borne by each party.
Appeal dismissed.