039-SLLR-SLLR-1999-V-2-SANGADASA-v.-HUSSAIN-AND-ANOTHER.pdf
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Sangadasa v. Hussain and Another
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SANGADASA
v.HUSSAIN AND ANOTHER
SUPREME COURTFERNANDO, J.,
DHEERARATNE, J. ANDGOONEWARDENE, J.
S.C. APPEAL NO. 36/93COURT OF APPEAL NO. 180/84D.C. KURUNEGALA NO. 13322JANUARY 26, 1994.
Landlord and tenant – Action for ejectment of tenant – Subletting – Exclusivepossession of premises by the subtenant – Burden of proof – Defence ofpartnership agreement.
The plaintiff filed action to have the defendants ejected from business premiseslet to the 1st defendant on the ground that the 1st defendant tenant had subletthe premises to the 2nd defendant. The defendants while denying subletting,pleaded that by virtue of a notarially executed agreement they had entered intoa partnership to run a business at the premises.
Held:
It is sufficient for a landlord to establish a prima facie case of sublettingand the burden then shifts to the tenant to explain the nature of theoccupation of the alleged subtenant.
Exclusive possession of premises by a subtenant is a necessary ingredientof subletting.
The plaintiff led sufficient prima facie evidence of a subletting by proofof the fact that the 2nd defendant was in the premises doing businessand that the 1st defendant appeared to have relinquished his control ofthe premises. Consequently, the burden shifted to the 1st defendant toexplain the presence of the 2nd defendant on the premises doing business.This the 1st defendant failed to do.
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The partnership agreement was demonstrably a sham. The inference could,therefore, be drawn that the 2nd defendant was in exclusive possessionof the premises, managing a business which admitted no owner but himself.On a balance of probability, the only inference the Court could draw wasthat the 1st defendant had rented out the premises to the 2nd defendant.Hence, the plaintiff was entitled to judgment
Cases referred to:
Thaha v. Sadeen – (1969) 72 NLR 142.
Britto v. Swamikandu – (1972) 74 NLR 209.
Seyed Mohamed v. Meeralebbe – (1968) 70 NLR 237.
Suppiah Pillai v. Muttukaruppa Pillai – (1953) 54 NLR 572 at 574. 575.
APPEAL from the judgment of the Court of Appeal.
H. L de Silva, PC with 6. L Geethananda for appellant.
N. R. M. Daluwatta, PC with M. S. A. Hassen for 1st respondent.No appearance for the 2nd respondent.
Cur. adv. vutt.
May 9, 1994.
DHEERARATNE, J.
Plaintiff-appellant filed this action on 11.3.1981 to have the defendantsejected from business premises No. 45, Perakumba Street, Kurunegala,on the ground that his tenant, the 1st defendant, had sublet thepremises to the 2nd defendant on or about March, 1980. The premisesis admittedly rent-controlled. Defendants in their joint answer, whiledenying subletting, pleaded that by virtue of notarially executedagreement No. 496 dated 18.3.1980 (produced at the trial markedD18) they had entered into a partnership to run a business called'Hussain Stores' at the premises. The learned trial Judge dismissedplaintiff's action and his judgment was affirmed by the Court of Appeal.Both Courts took the view that the plaintiff failed to establish that thepremises was sublet.
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Plaintiff obtained leave from the Court of Appeal to appeal to thisCourt on the following four points of law, of which, the first two wereformulated by counsel for plaintiff and the last two by counsel fordefendants:
Whether having regard to the facts and circumstances ofthe case the partnership agreement D18 was merely a cloakor device to conceal the unlawful subletting of premises.
Whether the Court of Appeal has correctly applied theprinciples governing the burden of proof in such a disputein this case.
Whether the plaintiff has failed to establish exclusive occu-pation by the alleged subtenant, the 2nd defendant, in thiscase, and as such does the subtenancy arise in this case.
Where the plaintiff has failed to establish exclusive posses-sion by the alleged subtenant the 2nd defendant, does thequestion of legal relationship between the 2nd defendant andthe 1st defendant arise for determination by the Court.
What is the nature of the burden cast on a plaintiff landlord whoalleges subletting? It is too well-known that the act of subletting(without the permission of the landlord) of rent-controlled premises isdone in stealth for obvious reasons, (see Thaha v. Sadeerf1)). Thelandlord may not be able to ascertain the true nature of the occupation .of the alleged subtenant with precision because that is usually a matterwithin the exclusive knowledge of the tenant and subtenant only, (seeBritto v. Swamikandt/2*). In these circumstances it is sufficient for alandlord to establish a prima facie case of subletting and the burdenthen shifts to the tenant to explain the nature of the occupation ofthe alleged subtenant, (see Seyed Mohamed v. MeeralebbeF).
Section 10 (1) of the Rent Act, No. 7 of 1972 specifies when anypart of a premises shall be deemed to have been sublet to any person.That is 'if, and only if, such person is in exclusive occupation, in
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consideration of the payment of rent, of such part, and such part isa defined and separate part over which the landlord or the tenant,as the case may be, has for the time being relinquished his rightof control; and no person shall be deemed to be the tenant or thesubtenant of any part of any premises by reason solely of the factthat he is permitted to use a room or rooms in such premises',(emphasis added). Phohibition for a tenant to sublet rent-controlledpremises is spelt out in section 10 (2) of the Rent Act. No. 7 of 1972.Section 10 (2) (a) deals with the prohibition relating to (whole) premises,whereas section 10 (2) (b) deals with the case of part premises.Therefore, the statutory definition of subletting part premises specifiedin section 10 (1) is linked only to the prohibition contained in section10 (2) (b). As far as subletting of whole premises is concerned, onehas to look for the common law concept of letting/subletting. Thiscommon law concept was considered in the case of Suppiah Pillaiv. Muttukaruppa PillaP which dealt with section 9 (1) of the RentRestriction Act, No. 29 of 1948 containing a prohibition on a tenantto sublet either (whole) premises or part premises; that Act containedno definition of subletting part premises, as contained in Act No. 7of 1972. In that case Gratiaen, J. having considered the Roman DutchLaw (and English Law which appears to be identical) on generalprinciples of incidence of subletting, reached the conclusion thatexclusive possession of premises by a subtenant was a necesaryingredient of subletting (pages 574 & 575). It seems to me thatincidence of the right of exclusive occupation by a subtenant has thecorollary incidence of relinquishment of the right of occupation by atenant; generally proof of one right may occasion the inference of theother.
Plaintiff giving evidence, stated that he was a trader who carriedon business at premises No. 57, Perakumba Street, Kurunegala, whichwas situated in close proximity to the premises in question. From aboutMarch, 1980, 1st defendant was not seen in the premises but wasseen once in two or three months. The business in the premises wasseen to be done by the 2nd defendant. Plaintiff stated that when hequestioned the 2nd defendant, the latter informed him that he hadtaken on rent the premises from the 1st defendant. Plaintiff was not
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cross-examined on this item of evidence and 2nd defendant failedto contradict this position as he chose not to give evidence. TheGramasevaka of the area who was called to give evidence on behalfof the plaintiff too stated that it was the 2nd defendant who was seenrunning the business at the premises. Under cross-examination hedid say that the 1st defendant was registered as a voter at thepremises by virtue of his residence; however, no documentary evidencewhich should have been readily available was produced to supportthis position.
The main thrust of the defence as stated before was the partnershipagreement dated 18.3.1980 to explain away occupation of thepremises by the 2nd defendant. By this agreement, the party of the1st part (1st defendant) "being ill and unable to carry on the saidbusiness without some assistance," agreed with the party of thesecond part (2nd defendant) to carry on the business called "HussainStores" already carried on in the premises, in partnership for a periodof five years commencing on 15.3.1980 and ending on 14.3.1985.Principal covenants of the agreement are briefly these. The capitalof the partnership business for the time being agreed upon was Rs.
to be contributed in equal shares. 1st defendant agreed tocontribute Rs. 25,000 in cash and the balance Rs. 50,000 by wayof the value of the furniture, fittings, sewing machines and other itemsbelonging to him lying in the premises mentioned in the schedule tothe agreement. Provision was made for adjustment of profits in theevent of any party failing to contribute his share of the capital in theaforesaid proportions. 2nd defendant was to be the managing partnerof the business and the management and control and conduct ofbusiness was to be in consultation with the 1st defendant. Notwith-standing, the last covenant 1st defendant was entitled to be presentat the place of business and look after his interests in the said businesswithout any hindrance by the 2nd defendant. 2nd defendant as themanaging partner was to keep books of account which were to bekept at the place of business. Profit and loss was to be shared bythe partners. Although the use and occupation of the premises wasto be utilized for the partnership business, all rights relating to thetenancy and right of occupation of the premises for all purposes was
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deemed to have vested and exercised by the 1st defendant. Onwinding up the partnership 1st defendant was to resume occupationof the premises.
That was ostensibly a perfect partnership agreement where allrights of tenancy of the premises remained in the hands of the 1stdefendant. However, the picture which emerged from the cross-ex-amination of 1st defendant was completely different. As regards thebalance stock in trade of the sole business of 1st defendant, remainingat the commencement of the alleged partnership, he sold outright tothe 2nd defendant for a sum of Rs. 8,000 and obtained cash. Althoughthis stock consisted of textiles that was not utilized as a part of 1stdefendant's contribution towards the capital. The 1st defendant,admittedly a businessman of about 25 years standing, could not saywhat the terms of the partnership agreement were. He made nocontribution whatsoever in cash towards the partnership; only 2nddefendant "contributed” Rs. 25,000 in cash. Some time soon after thepartnership agreement was signed, 1st defendant obtained a sum ofRs. 50,000 from 2nd defendant on two cheques which money wasnever returned. A receipt was given by 1st defendant to 2nd defendantin respect of that sum but that was not produced by either defendant.At one stage 1st defendant stated that Rs. 50,000 was taken assecurity for his furniture and fittings. This position does not seem tobe consistent with the position that the value of his furniture and fittingswas his sole contribution towards the capital of the partnership. Nextcomes the question of sharing profits and losses. No accounts havebeen maintained or produced. 1st defendant was unable to say withany degree of clarity or precision what profit or loss the partnershipmade for any particular years; or indeed how much he obtained asprofits or incurred as losses. His evidence was nothing but a rambleof his so-called borrowing money from the 2nd defendant and repayingthe same which had nothing to do with the partnership business.
1st defendant's address in the plaint was given as "No. 27,Meeripenne Road, Dharga Town, Aluthgama". This was the addresswhich was given by 1st defendant as his “general address of resi-dence'1 on 7.8.1980 in his application for registration of business names
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of the partnership business as "Hussain Stores". However, on anapplication made by plaintiffs attorney-at-law on 27.3.1981 stating that1st defendant was no more resident at the address given in the captionand *was now residing at the shop premises', summons was servedat the latter address on 10.4.1981. Meanwhile, summons on 2nddefendant was served on 16.3.1981; it is likely, therefore, that 1stdefendant had prior knowledge of the action before summons wasserved on him. In my view plaintiff led sufficient prima facie evidenceto establish that there was subletting by proof of the fact that 2nddefendant was in the premises doing business arid that 1st defendantappeared to have relinquished his control of the premises. The burdenmust then necessarily shift to the 1st defendant to explain the presenceof the 2nd defendant on the premises doing business – a right 1stdefendant was entitled to exercise by virtue of his tenancy.
1st defendant produced several receipts for payment of electricitybills in respect of the premises – receipt (IV9) dated 21.9.1981 relatingto the month of August, 1981, receipt (IV10) dated 20.1.1982 relatingto the months of September and October, 1981, and receipt (IV11)dated 8.9.1981 relating to the month of July, 1981. He also producedbusiness licences for the year 1981 issued on 16.4.81 (IV12), for theyear 1982 issued on 20.5.1982 (IV13) and for the year 1983 issuedon 8.8.1983. All these documents issued in the name of the 1stdefendant seem to have impressed the learned trial Judge notwith-standing the fact that they had originated after the case was filed,leading him to believe that 1st defendant retained control of thepremises.
In the light of the foregoing circumstances neither the original Courtnor the Court of Appeal did consider whether the alleged partnershipagreement was a sham or a blind to hide the true nature of thetransaction between 1st and 2nd defendants, and if it was not apartnership what inferences could be drawn from the totality of evidenceon the actual relationship between the two defendants. This failurewas probably due to the assumption that the plaintiff must first prove“exclusive possession" of the premises by the 2nd defendant beforethe Court should embark upon a consideration of the defence case.
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The partnership agreement is demonstrably a sham. According to1st defendant's own evidence, he appears to have had no interestin the premises or a stake in the business run in the premises whichleads to the conclusion that he had relinquished his right of controlof the premises. The inference therefore could be legitimately drawnthat 2nd defendant was in exclusive possession of the premises withhis own stock in trade, managing a business which admitted no ownerbut himself. It is not the defendants’ case that 1st defendant sold,leased or assigned his business to 2nd defendant. What then wasthe relationship between 1st and 2nd defendants hidden behind afacade of a partnership agreement? On a balance of probability theonly inference this Court could draw is that 1st defendant rented outthe premises to 2nd defendant and 1st defendant's bi-monthly or tri-monthly visits to the premises, was for the purpose of collecting rent.
The appeal is allowed with costs of this Court and of both Courtsbelow payable to the plaintiff-appellant. Judgment is given for theplaintiff as prayed for in the plaint.
FERNANDO, J. – I agree.GOONEWARDENE, J. – I agee.
Appeal allowed.