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Present: Viscount Haldane, Lord Blanesburgh, and Lord Darling.
SOOSIAPPA PILLAI i BASTIAN FERNANDO.
D. C. Colombo, 4,133.
Partnership deed—Agreement for three years—Collateral memorandum—
A partnership for carrying on the business of landing and shippingagents was constituted, for a period of three years, between twopersons by deed No. 740 dated January 30,1914. On December 11,1914, one partner assigned to the other his share of the businessfor a certain consideration. The deed of assignment was accom-panied by a memorandum in the following terms :—
“ I, H. B. Fdo hereby promise and agree to grant
to P. de S. Wone-third share of the profits
that may be earned by the ‘ Colombo Landing andShipping Agency ’ in the business carried on under deedNo. 740 dated January 30, 1914 . . . .”
Held, that the profits earned during the period of three yearsfixed by the partnership deed were alone within the contemplationof the parties as the subject matter of division.
A PPEAL from a judgment of the Supreme Court. The facts arefull}’ stated in the judgment of the Judicial Committee ofthe Privy Council.
October 20, 1925. Delivered by Lord Blanesburg :—
One question only—and that a short question of construction—remains to be determined on this appeal. Other issues raised bythe appellant and discussed, albeit somewhat cursorily, by counselbefore the Board have not survived that discussion. But somereference to them will tend to a fuller appreciation of the reasonswhich have led their Lordships to the conclusion they have reachedon the remaining question between the parties.
The matters in contest arose between the respondent and aMr. Peter de Silva WijeyeratDe, now referred to as the insolvent,his interests in these proceedings being represented by the appellant,his present assignee in bankruptcy. They arose upon the purchaseby the respondent on December 11,1914, of the insolvent’s interestin a business of landing and shipping agents at Colombo, which,since the beginning of that year, had been carried on- by the two inpartnership under the style of “ The Colombo Landing and .ShippingAgency.”
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The deed constituting the partnership is dated January 30, 1914,and it is convenient here to summarize some of its relevantprovisions. The capital of the firm was to be Rs. 150,000,contributed by the partners in equal shares. The partners wereto be equally interested in the capital and property of the business.The term was one of three years from January 1, 1914—noextended time was ever agreed to but either party might at the endof the first or any subsequent year retire from the partnership onthree months’ notice, whereupon the partnership was to determine—the retiring partner being entitled, if the continuing partner electedto purchase it, to have repaid to him his share in the capital andproperty of the partnership, in lieu of current profits anallowance of 9 per cent, per annum on the amount of such share,calculated, if this happened during the first year, from thecommencement of the partnership. No value was to be placed onthe goodwill of the business as a partnership asset, and the retiringpartner was to bind himself for twenty years from the date of hisretirement to refrain, directly or indirectly, from carrying on orbeing concerned or interested in the business of landing and shippingagents as principal, agent, manager, traveller, or servant, in Colombo.
The partners were by turns each for one year to manage thebusiness, and for the first year the management was committed tothe insolvent. The business in that year was not successful. It iscommon ground that serious trading losses were sustained, and itseems clear that for some adequate reason, the precise nature of which,however, remains doubtful, the insolvent was desirous of beingrelieved of his responsibilities in relation to this particular venture.On September 16, 1914, he addressed to the respondent a letterwhich, unless it meant a great deal more than in terms it says, wasquite otiose in view of the provisions of the partnership deed on thesubject:—
“ Referring to the agreement entered into between both of us.”it says, “ I hereby give three calendar months’ notice asmanaging partner, that you do relieve me of the responsi-bility of managing the business of the Landing andShipping Company from January 1, 1915.”
Their Lordships do not say that this notice was either operativeor actually intended to terminate the partnership on January 1,1915,but they have little doubt that the negotiations for the purchaseby the respondent of the insolvent’s share, which immediatelyfollowed, were embarked upon with the view of bringing aboutthat result on terms somewhat less onerous to the insolvent thanthose fixed by the provisions of the partnership deed in that behalf.
Mr. J. A. Perera, originally introduced by the insolvent, had actedas notary for both parties in the preparation of the deed of pai*tner-ship. and in the supervening negotiations he acted in the same
capacity. These culminated in the deed of assignment of theinsolvent's interest in the partnership executed on December 11.1914. along with an accompanying memorandum, the true effectof which is the question now remaining for decision.
By that deed in consideration of the payment of Rs. 50,000 to theinsolvent and of the assumption by the respondent of all the debtsand liabilities of the partnership and of an indemnity against allclaims and demands in respect thereof, the insolvent assigned to therespondent all the “ estate, right, title, interest, claim, and demandwhatsoever of him (the insolvent) in and to the said partnershipbusiness."
The accompanying memorandum was in the terms following :—
“X, fclic undersigned Hefctiakanclege Basfcian Fernando, of * Deyncourt,*Colpetfcy, in Colombo, do hereby promise and agree to give to Mr. Peter deSilva Wijeyeratne, of Castle street, in Colombo, one-third share of the profitsthat may be earned by the 4 Colombo Landing and Shipping Agency 1 in thebusiness carried on under deed No. 740 dated January 30, 1914, attested byMr. J. A. Pcrera, Notary Public.
Colombo, December 11, 1914.(Signed) B. FKRXAX'DO.
Now, while the true effect of that memorandum is the questionwhich remains for consideration, many others were discussed in theCourts below. The circumstances in which the memorandum wasexecuted, its true intent and purpose—these were the serious issuesin the suit. The case of the appellant with regard to them was thatto the knowledge of the respondent the insolvent was on the vergeof bankruptcy in December, 1914 : that the purchase of his sharewas earned out then to protect the business and the respondent’sinterest in it from the interference of the insolvent’s creditors ; thatthe memorandum, not, like the deed of assignment, an attestednotarial instrument, embodied an arrangement, designed to beconcealed from these creditors, effective to provide a fund for theinsolvent personally and thus to supply an inducement for him toexecute the deed. In short, it was a fraud upon the creditors of theinsolvent, instigated by the respondent and Mr. Perera, his notary,and it was claimed that the whole transaction should accordinglybe set aside and declared of no effect in law.
It is noteworthy that a case so serious was only introduced intothe proceedings by an amendment made seven months after thesuit—originally merely one for an account—had been instituted,and it is not surprising that the insolvent was beset with manydifficulties in making it out. First of all the memorandum inquestion was in fact the work not of Mr. Perera. but of Mr. Fernando,a notary who, as it happened, taking Mr. Percra’s place at theexecution of the purchase deed, himself there and then preparedthe memorandum for signature by both parties as a documentembodying a term of the bargain between them which had beenoverlooked by Mr. Perera.
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To Mr. Fernando no intimation was ever given that the documentwas intended to be secret and, in fact, he, as proctor for the insolvent-in the subsequent insolvency proceedings—which it may be observeddid not supervene for some months—actually took the advice ofcounsel upon the question whether, as no profits had been receivedor were in prospect, it was necessary to include the memorandumin the insolvent’s statement of affairs.
Nor had the suit, so far at least as this charge was concerned, agenuine appearance. It was only in 1922 that it was commenced,and not only did the insolvent in the course of it go out of his way to.proclaim his own turpitude, but it appeared that his original and.responsible assignee in bankruptcy had refused to take the case up,and it was being carried on by a new assignee introduced for thepurpose and financed by the insolvent’s wife, all instructions beinggiven personally by the insolvent himself. This procedure becomesmore intelligible when it is added that at the moment the suit wascommenced the insolvent’s creditors, disappointed with the resultof the insolvency proceedings, were threatening the insolvent withpunitive proceedings :—
" The insolvent's liberty is now in jeopardy,” says the trial Judgein his judgment, “ and this action is, I have no doubt,engineered and financed by him to postpone the evil
But while the appellant’s case was so beset, it did derive someassistance from the fact that the substantive answer put forwardby the respondent did not, in all particulars, commend itself toeither of the Courts in Ceylon.
They did not accept his story that the memorandum which hadin fact come into his possession, had been returned to him by theinsolvent as part of an arrangement under which all claims in respectof it were renounced, although it must be added that the insolvent scircumstantial story that the memorandum was returned by himto Mr. Perera, acting for the respondent, and at his urgent requeston the very evening of the day of its signature is probably at leastequally unreliable in view of the terms of Ex. P. 5, written subse-quently by Mr. Fernando on the insolvent’s personal instructions.
Both Courts, however, took the view, and their Lordships are inentire agreement with them, that there was not shown on the partof the respondent in relation to this memorandum any intent ordesire to defeat or delay the insolvent’s creditors. Any fraud inconnection with the transaction is to be found only in the insolvent’sinterested and belated discovery of its existence. The evidenceappears very clearly to indicate that the transaction to him was ahighly beneficial one. A full price for his share in the business waspaid and lie was relieved of all its liaoilities, which were heavy. If
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the whole arrangement had been contained in one instrument—instead of being embodied in two—it is manifest that no kind ofobjection to it could even have been suggested either by the insolventor his creditors.
In these circumstances, as the creditors now have the full benefitof the memorandum the only question which remains is as to itstrue effect. Does it, as contended by the appellant, mean that therespondent is to account to him for one-third share of the profits ofthe business referred to so long as it may be carried on by himself,or does it mean, as contended by the respondent, that the period ofaccounting came to an end on December 31,1916, the date when theoriginal term fixed by the deed of January 30, 1914, came to an end.Doth Courts in Ceylon have taken the respondent’s view. TheirLordships agree with it.
The question is whether the reference in the memorandum to“ the business carried on under deed No. 740 dated January 30,1914,” is made only for the purpose of defining the business in whichthe divisible profits are to be earned or is made for the purpose alsoof importing the period during which a share of them is to beaccounted for.
In determining this question it must not be forgotten that theeffect of the assignment of December 11, 1914, was to bring thepartnership between the parties to an immediate end and to abrogateas from the date of its execution every provision of the deed ofJanuary 30, 1914. Failure to appreciate this fact makes it easierto place upon the memorandum the construction adopted by bothof the Courts in Ceylon. But giving to that consideration full effectthe result, in their Lordship’s judgment, still remains the same.
If the only object in referring to the deed of January 30, 1914,was to define the business to which the memorandum relates, itseems to their Lordships impossible to limit the obligation as theappellant would, to the period when the business was being carriedon by the respondent. The “ Colombo Landing and ShippingAgency ” had never been and need never be synonymous with therespondent alone, and the construction contended for by theappellant leads necessarily in their Lordships’ Anew to a conclusionwhich if only in the light of the provisions made in the same eventby the partnership deed is quite extravagant. On the other hand,the extreme precision with which that deed is referred to in thememorandum, the fact that the purchase of the insolvent’s sharehad led to a premature determination of the association fixed by it,the likelihood that the respondent would work out by himself theterm during which the association of the respondent had therebybeen contemplated and the circumstances in which the memorandumwas prepared—all these considerations lead their Lordships irresis-tibly to the conclusion that profits earned during the three yearsfixed by the partnership deed were alone within the contemplationof the parties as subject matter of division.
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The learned Judge of the District Court of Ceylon took this view,but by his order of July 26, 1923, he dismissed the action on theground that the appellant had not proved that any profits wereearned during the period in question. The Supreme Court of theIsland, taking the same view of the meaning of the document held,and as their Lordships think, rightly, that the appellant was notbound to prove at the hearing that profits had been earned, but wasentitled on proper terms to have an account taken to ascertain theiramount, if any, due regard being had to all questions of limitation.And on February 4. 1924; that Court made an order giving effectto its views.
In their Lordship's judgment that order was in all respects correct.The present appeal from it is misconceived, and their Lordships willhumbly advise His Majesty that it be dismissed, with costs.