005-SLLR-SLLR-2008-V-2-SAMUEL-GNANAM-AND-OTHERS-v.-ISMAIL-LEBBE.pdf
Samuel Gnanam and Others v
SCIsmail Lebbe61
SAMUEL GNANAM AND OTHERSv
ISMAIL LEBBESUPREME COURTJAYASINGHE, J.
DISSANAYAKE, J. ANDMARSOOF, J.
S.C. APPEAL NO. 9/2006S.C. SPECIAL L.A. NO. 246/2005
A. NO. 950/94(F)
C. COLOMBO NO. 95342/MRAPRIL 26TH, 2006
Prevention of Frauds Ordinance – Interpretation of Section 18 – Partnershipaction – Manner in which partnership actions may be instituted in Sri Lanka.
The only question that emerged for determination in the Supreme Court waswhether the action filed by some, but not all the partners of a partnershipbusiness can be had and maintained for the recovery of certain sums of moneyalleged to be due with regard to goods supplied in terms of a DistributorAgreement to which not all of the partners were signatories, despite the failureto produce the Partnership Agreement in evidence.
The Supreme Court granted special leave to appeal on the following twoquestions of law –
Is the judgment of the Court of Appeal in respect of issue No. 7 in thatwhether in view of the Section 18 of the Prevention of FraudsOrdinance, the appellants can have and maintain the present actionwithout tendering in evidence the written Partnership Agreement?
Did the Court of Appeal fail to apply properly Section18 of thePrevention of Frauds Ordinance, in the circumstances of this case?
Held:
The term 'capital' as used in Section 18 of the Prevention of FraudsOrdinance should be construed to mean the initial capital and not thefluctuating capital of a partnership at any given point of time.
The onus of establishing the amount of the initial capital lies on theparty raising a plea based on Section 18 of the Prevention of FraudsOrdinance.
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Per Saleem Marsoof, J.-
“The learned District Judge was perfectly correct when he answeredIssue No. 7 with the words: “The Agreement is lawful.' It is patent thatthe Court of Appeal erred in assuming that the initial capital of thepartnership in question exceeded one thousand rupees in the absenceof any admission, or evidence to establish that fact, and failed toproperly apply Section 18 of the Prevention of Frauds Ordinance in thecircumstances of this case.“
Every partner is an agent of the firm and also for his other partners forthe purpose of the business of the partnership, and the partners maysue on a contract entered into by one or more of the partners in thecourse of the partnership business.Though a partnership, unlike acompany is not a distinct legal entity, the partners are entitled to suethird parties with whom any one or more partners had entered into acontract in the course of the partnership business.
Per Saleem Marsoof, J.—
"the circumstances that this action had not been instituted by all
the partners of the partnership firm does not affect the maintainability ofthe action, and no question of non-joinder or mis-joinder could arise -Objection of a technical nature such as non-joinder or mis-joinder ofparties, are by their very nature best be taken up by way of motion priorto the commencement of the trial and should ideally not be raised assubstantive issue at the trial."
Cases referred:
Pate v Pate, 18 NLR 289.
Abeygunesekera v Mendis 18 NLR 449.
Rajaratnam v Commissioner of Stamps 39 NLR 481.
Idroos v Sheriff 27 NLR 231,
Sivakumaranv Rajasekeram 61 NLR 556.
Silva v Silva, 5 C.W.R. 13.
Silva v Fernando, 24 NLR 191.
Sinno v Punchihamy 19 NLR 43
De Silva v De Silva 37 NLR 276..
Aralias v Francis 52 NLR 75.
(1~)Adlin Fernando and another v. Lionel Fernando and others (1995) 2 SLR25 at 27.
APPEAL from the judgment of the Court of Appeal.
Palitha Kumarasinghe, P.C. with Nuwan Rupasinghe for the plaintiff-
respondents-appellants.
Jacob Joseph with U.A. Mawjooth for the defendant-appellant-respondent.
Cur.adv. vult
Samuel Gnanam and Others v
SCIsmail Lebbe (Saleem Marsoof, J.)63
February 27, 2008SALEEM MARSOOF, J.
The only question that arises for determination in this appeal iswhether an action filed by some but not all, of the partners of a firm,for the recovery of certain sums of money alleged to be due withrespect to goods supplied in terms of a Distributorship Agreementto which not all of them were signatories, can be had andmaintained despite the failure to produce the relevant PartnershipAgreement in evidence.
The plaintiff-respondents-appellants (hereinafter collectivelyreferred to as the 'appellants') are admittedly partners carrying onbusiness under the firm name of 'St. Anthony's Industries Group’which is a well-known manufacturer and supplier of PVC pipes,bolts & Nuts and other hardware items. The 1st, 2nd and 3rd plain-tiffs-respondents-appellants, namely, Arulanandam YosuvadianSamuel Gnanam, Arul Selvaraj Gunaseelam Gnanam andRajaseelam Gnanam, are members of the famous 'Gnanam family'and the 4th plaintiff-respondent-appellant is the St. Anthony'sConsolidated Ltd., which is a limited liability company incorporatedunder the now repealed Companies Act No. 17 of 1982 and havingits principal place of business in Colombo. On 19th April 1983 the1st, 2nd and 4th plaintiffs-respondents-appellants entered into aDistributorship Agreement ('P2'), a copy of which was producedwith the plaint marked ’A', with the defendant-appellant-respondent, (hereinafter referred to as the 'respondent') whocarried on business under the name, style and firm of 'LankaHardware Stores'. By the said Agreement, the said appellantsagreed to supply to the respondent certain hardware itemsintended to be sold to dealers in terms of 'sales targets' to be fixedby the said appellants from time to time. By clause 3 of the saidagreement, the respondent agreed to make regular and promptpayments for all goods accepted by him within a certain number ofdays, depending upon the type of item supplied.
Action was instituted in the District Court of Colombo by theAppellants for the recovery of a sum of Rs. 231,120.70 which wasalleged to be the balance sum due from the respondent for goodssaid to have been supplied under the said Distributorship
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Agreement as set out in the Statement of Accounts produced inevidence marked 'P31. It may be observed that although in theDistributorship Agreement the names of the signatories thereofhave been filled in as 'partners', in the plaint filed in the DistrictCourt, the 1st, 2nd and 4th plaintiffs-respondents-appellants aredescribed as persons "Carrying on business under the name, styleand firm of St. Anthony's Industries Group" and there is noaverment clarifying whether the appellants instituted action as jointsellers or as partners. In his answer, the respondent denied that heentered into any Agreement with the appellants or that any causeof action has been disclosed in the plaint against him. Heparticularly averred that the 3rd plaintiff-respondent-appellant wasnot a party to the said Distributorship Agreement and that theappellants cannot have and maintain the action against him in viewof mis-joinder of parties.
When the case was taken up for hearing in the District Court on21 st January 1993, it was admitted on behalf of the respondent thathe signed the aforesaid Distributorship Agreement. Six issues wereraised at the commencement of the trial, three by either party, andit appears from the issues raised on behalf of the respondent thathis main defence was that the action cannot be had and maintainedinsofar as the 3rd plaintiff-respondent-appellant was not a party tothe said Distributorship Agreement (issue 4) and the 4th plaintiff-respondent-appellant company was not duly incorporated (issue 5).The issues raised on behalf of the respondent are set outbelow:-
Only one witness, namely Neelamani Deepthi Ponnamperuma,Credit Controller of St. Anthony's Industries Group, was called togive evidence on behalf of the Appellants. In her testimony shedisclosed that the action has been instituted by the partners of a
The said issue has raised the question whether in view ofSection 18 of the Prevention of Frauds Ordinance, Cap. 70 of theRevised Legislative Enactments of Ceylon (Official 1956 Edition),the Appellants can have and maintain this action without tenderingin evidence the written Partnership Agreement.
After the appellants' case was closed, the respondent gaveevidence and stated that although it is alleged in the plaint that hehad entered into the Distributorship Agreement with the fourappellants, he had in fact entered into the said Agreement only withthree persons, namely the 1st, 2nd, and 4th plaintiffs-respondents-appellants. The essence of his case was that there was no causeof action on which the four persons named in the plaint could havesued him.
The District Court went onto deliver judgment in favour of theappellants as prayed for in the plaint answering all issues in theirfavour. The respondent appealed against the said judgment to theCourt of Appeal, which by its judgment dated 29th September 2005rejected the submissions made on his behalf in regard to issues 1to 6, but held that the learned District Judge erred in answering
Samuel Gnanam and Others v
SCIsmail Lebbe (Saleem Marsoof, J.)65
firm carrying on business under the style, firm and name of"St. Anthony's Industries Group" and that at the time of theexecution of the Distributorship Agreement in question the saidpartnership consisted of 5 partners whose names appear in theCertificate of Business Name produced by her marked 'P1 Undercross-examination she admitted that although there were fivepartners at the relevant time, the said Agreement was signed onlyby 3 partners, and that the action has been instituted by 4 partnersof whom one was not a signatory to the Distributorship Agreement.The learned Counsel for the respondent thereupon questioned thewitness as to whether she was producing a copy of the relevantPartnership Agreement, and when she answered in the negative,he moved to raise the following issue which was duly accepted byCourt without any objection from the learned Counsel for theappellants >
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issue No. 7 in favour of the appellants. W.L.R. Silva,J. (withChandra Ekanayake, J. concurring) observed as follows:-
"In this case it is not the defendant-appellant who is seeking toestablish a partnership. The plaintiffs-respondents who enteredinto the Agreement (P2) with the defendant-appellant on thebasis of a partnership must prove that there was a validpartnership existing at the time the contract was entered into…. The learned District Judge has answered issue No. 7 in anawkward manner. His answer to the issue is: "The Agreementis lawful". This answer is certainly erroneous, it is notresponsive to the issue raised. It is out of context and is notrelevant. The lapse on the part of the plaintiff-respondents[present appellants] becomes more significant as the 3rdplaintiff-respondent [appellant] was not a party to theAgreement and not a juristic person either. The 3rd plaintiff-respondent [appellant] could have come to the case as one ofthe plaintiffs, only if the action was filed on the basis of apartnership …. For these reasons I am firmly of the view thatthe learned Judge should have answered issue No. 7 in thenegative in favour of the appellant". (Square brackets andItalics are mine).
The 3rd plaintiff-respondent-appellant, who was not a party tothe Distributorship Agreement, was Rajaseelan Gnanam, verymuch a natural person and a member of the Gnanam family, andW.L.R. Silva, J. in the above quoted passage was confusing thequestion whether the said appellant not being a signatory to theDistributorship Agreement can sue on that Agreement, with issueNo. 5 raised in the original court as to whether St. Anthony’sConsolidated Ltd., which was the 4th plaintiff-respondent-appellant,was duly incorporated. The latter issue had been considered by thelearned District Judge to be irrelevant, and no submissions appearto have been made in that regard in the Court of Appeal. In fact, theCourt of Appeal has held with the appellants on all matters raisedbefore it except for Issue No. 7 raised on behalf of the respondentin the original court. This Court has granted special leave to appealonly on the following substantial questions of law:-
Is the said judgment of their Lordships of the Court ofAppeal in respect of Issue No. 7 contrary to law?
Samuel Gnanam and Others v
SCIsmail Lebbe (Saleem Marsoof, J.)67
Did the Lordships of the Court of Appeal fail to properlyapply Section 18 of the Prevention of Frauds Ordinance, inthe circumstances of this case?
The learned President's Counsel for the appellants submits thatthe decision of the Court of Appeal was based on an erroneousinterpretation of Section 18 of the Prevention of Frauds Ordinancewhich provides as follows:-
"No promise, contract, bargain, or agreement, unless it bein writing and signed by the party making the same, or bysome person thereto lawfully authorized by him or her,shall be of force or avail in law for any of the followingpurposes:-
for charging any person with the debt, default, ormiscarriage of another;
for pledging movable property, unless the same shallhave been actually delivered to the person to whom itis alleged to have been pledged;
for establishing a partnership where the capitaIexceeds one thousand rupees: Provided that this shallnot be construed to prevent third parties from suingpartners, or persons acting as such, and offering inevidence circumstances to prove a partnershipexisting between such persons or to exclude paroltestimony concerning transactions by or thesettlement of any account between partners.'* (Italicsare mine).
It is contended by the learned President's Counsel for theappellants, that appellants filed this action in the District Court torecover the balance amount due as price for goods supplied undera sale of goods transaction, and that the said action was not filedfor “establishing a partnership." He submits that the Court of Appealfailed to properly consider the fact that the case was instituted onthe basis of the Distributorship Agreement marked ,P2' in terms ofSection 48 of the Sale of Goods Ordinance. He submits that thiswas a money recovery action and not a partnership action whichwould have entailed the establishment of a partnership.
The learned Counsel for the respondent, however, submits thatthis is not a simple money recovery action because the 3rd plaintiff-
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Appellant-appellant was not a signatory to the DistributorshipAgreement and stressed that he could have come into the case asan appellant only if the action has been instituted on the basis of apartnership. The learned Counsel for the respondent submitted thatin terms of Section 18 of the Prevention of Frauds Ordinance, theappellants have to establish the existence of a partnership to obtainrelief as prayed for in the plaint. He relied on the decision of thePrivy Council in Pate v Patefh in which.it was observed by LordSumner at 291 that "it could hardly be doubted that "establishing"means "establishing by proof" coram judice". Therefore, hesubmitted, that the appellants cannot succeed without producing inevidence the relevant Partnership Agreement. He relied on thedecision in Abeygunesekera v MendisL2), in which the SupremeCourt held that the admission in the answer of the existence of thepartnership by a defendant does not prevent him from setting up byway of defence the Prevention of Frauds Ordinance, where theagreement is not in writing and the capital exceeds one thousandrupees. He also relied on the decisions in Rajaratnam vCommissioner of Stamps<3), Idroos v Sheriff4) and Sivakumaran vRajasekeram*5). In the latter case, the Privy Council held that in theabsence of an agreement in writing as required by Section 18(c) ofthe Prevention of Frauds Ordinance, the action was notmaintainable.
As against the above authorities, the learned Counsel for theappellants has cited the decisions in Silva v Silva*-6) and Silva vFernando*7) to show that partnership need not be established whenpartnership is only incidental to the case. He also placed relianceon the following passage from Dr. C.G. Weeramantry'smonumental work “ The Law of Contract Vol. 1 page 210:-
"Writing is required only in cases where the plaintiff seeks toestablish a partnership so far as the defendant is concerned.Where therefore evidence of the fact of partnership is purelyincidental to the claim and is sought to be laid as part, of theres gestae, there is nothing in the Ordinance which preventssuch evidence being led although the partnership is not inwriting. Where for example persons carrying on business inpartnership sue their servant for the recovery of a sum ofmoney due from him, or where action is brought to enforce a
Samuel Gnanam and Others v
SCIsmail Lebbe (Saleem Marsoof, J.)69
1 — — -—■• —■-■ >■ ■■ . —■— i
trust in respect of land purchased in the name of one partnerout of moneys belonging to the partnership it is not essentialto the plaintiff's claim as against the defendant that apartnership be established. Evidence of the partnership is insuch an instance only a part of the history of the case and willbe permitted."
I am, however, inclined to agree with the submission of thelearned Counsel for the respondent that evidence of thepartnership is not merely a part of the res gestae and is an integralpart of the cause of action sued upon. Although the plaint filed inthis case does not disclose whether the cause of action pleadedtherein is alleged to have arisen jointly, severally or jointly andseverally, and the prayers to the plaint do not shed any light inregard to this matter, the 3rd plaintiff-respondent-appellant who isnot a signatory to the Distributorship Agreement,could have comeinto the case with the other appellants only on the basis that he isa partner in the firm, and for this purpose it is necessary to"establish" a partnership. The proviso to Section 18 of thePrevention of Frauds Ordinance which expressly lays down that therequirement of Section 18 should not be construed to prevent thirdparties from suing partners, or persons acting as such, and offeringin evidence circumstances to prove a partnership existing betweensuch persons, does not extend to a situation such as that arising inthis case where partners or persons acting as such are seeking tosue a third party on the basis of the existence of a partnership. I amtherefore of the view that the appellants cannot succeed withoutproving the partnership which is alleged to bind the appellantstogether.
Witness Neelamani Deepthi Ponnamperuma has testifiedbefore the original court to the effect that the 1st to 4th plaintiff-respondent-appellants, along with one other person, were carryingon business under the firm name 'St. Anthony's Industries Group' atthe time the relevant Distributorship Agreement was signed with therespondent in 1983. While this testimony has not been contradictedby the respondent, the only objection raised to the maintainabilityof the action is the non-production of the written PartnershipAgreement alleged to have been entered into by the said partners.It is this objection that has got crystallized as Issue No. 7. It has
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been submitted on behalf of the respondent that in view of Section18 of the Prevention of Frauds Ordinance, parol evidence of theexistence of the partnership cannot be led, and that it is essentialto produce in evidence the written Partnership Agreement,if any.
Learned President's Counsel for the appellants has strenuouslyargued that a written partnership agreement is required underSection 18 of the Prevention of Frauds Ordinance only where theinitial capital of the partnership exceeded thousand rupees, andthat the onus of proving that the capital exceeded this amount is onthe party relying on this provision. For these propositions, he relieson the decisions of this court in Sinno v Punchihamy^e) and De Silvav De Silvat9>. In the first of these cases it was held that the term'capital' refers to the initial capital and not to the amount that maystand as capital, after additions or withdrawals at any time duringthe course of business. This decision was followed in Aralias vFrancis^10) where the defendant who pleaded Section 18 in defencehad failed to produce cogent evidence that the initial capital of thepartnership exceeded one thousand rupees. Gunasekara, J. in theprocess of setting aside the judgment of the lower court upholdingthe plea, observed as follows at 77:-
"…. the language of the judgment suggests an assumption thatthe burden lay on the plaintiff to prove that the capital of thepartnership was less than Rs. 1,000. Not only does the burdenon this issue lie on the defendant but that burden is, in thelanguage of Sir Thomas de Sampayo in Sinno v Punchihamy(supra), a heavy one and in the words of the samedistinguished Judge, "the defendant, having admitted thepartnership, the Court will exact from him the most strict proofof any facts on which he may rely as entitling him to takerefuge under the Ordinance."
There can be no doubt that the term 'capital' as used in Section18 should be construed to mean the initial capital and not thefluctuating capital of a partnership at any given point of time, andthat the onus of establishing the amount of the initial capital lies onthe party raising a plea based on Section 18 of the Prevention ofFrauds Ordinance. In the instant case, there was no admission or
Samuel Gnanam and Others v
SCIsmail Lebbe (Sateem Marsoof. J.)71
issue in regard to the amount of the initial capital of the partnership,and absolutely no evidence had been led in regard to the amountsthat the partners had contributed as the initial capital. In thecircumstances, the learned District Judge was perfectly right whenhe answered Issue No. 7 with the words: "The Agreement is lawful."It is patent that the Court of Appeal erred in assuming that the initialcapital of the partnership in question exceeded one thousandrupees in the absence of any admission, or evidence to establishthat fact, and failed to properly apply Section 18 of the Preventionof Frauds Ordinance in the circumstances of this case.
Before parting with this judgment, it is necessary to advert to twoother matters which, though not strictly arising in this appeal, weretaken up in the course of the submissions of learned Counsel. Thefirst of these relates to the manner in which partnership actions maybe instituted in Sri Lanka, and the second relates to the practice oftechnical objections such as mis-joinder and non-joinder of partiesbeing taken up as issues for determination at a civil trial.
Every partner is an agent of the firm and his other partners forthe purpose of the business of the partnership, and the partnersmay sue on a contract entered into by one or more of the partnersin the course of the partnership business. While a partnership,unlike a company, is not a distinct legal entity, the partners areentitled to sue third parties with whom any one or more partnershad entered into a contract in the course of the partnershipbusiness. When instituting such action, all the partners have to benamed in their proper names as plaintiffs. In England, Order 81 hassimplified the procedure by permitting the action to be filed in thefirm name. In Sri Lanka, in the absence of such a provision, theaction has to be fifed in the names of all the partners as plaintiffs.However, as pointed out by Lindley and Banks on "Partnership"17th Edition, page 444, "a failure to join one or more of them willnot itself be fatal." Therefore, the circumstance that this action hadnot been instituted by all the partners of the partnership firm doesnot affect the maintainability of the action, and no question of non-joinder or mis-joinder could arise. In terms of section 11 of the CivilProcedure Code, Cap 101 of the Revised Legislative Enactment ofCeylon (Official 1956 Edition), all persons may be joined asplaintiffs in whom the right to any relief claimed is alleged to exist,
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whether jointly, severally, or in the alternative, in respect of thesame cause of action, and judgment may be given for such one ormore of the plaintiffs as may be found to be entitled to relief for suchrelief as he or they may be entitled to without any amendment ofthe plaint for that purpose. The question whether the cause ofaction upon which the appellants instituted this action was joint,several or joint and several has not been raised in appeal, and Itherefore refrain from expressing my views on this aspect of thecase.
Regarding the second matter, it is necessary to stress that asobserved in Adlin Fernando and another v Lionel Fernando andothers <11), objections of a technical nature such as non-joinder ormis-joinder of parties, are by their very nature best taken up by wayof motion prior to the commencement of the trial and should ideallynot be raised as substantive issues at the trial.
For the foregoing reasons, I make order setting aside thejudgment of the Court of Appeal and affirming the judgment of thelearned District Judge. I make no order as to costs in all thecircumstances of this case.
JAYASINGHE, J.-I agree.
DISSANAYAKE, J.-I agree.
Appeal allowed.
Judgment of the District Court upheld.