055-NLR-NLR-V-53-SRI-LANKA-OMNIBUS-CO.-LTD.-Appellant-and-L.-A.-PERERA-Respondent.pdf
LORD NORM AND—Sri Lanka Otnnibiu Co., Ltd. t>. L. A. Perera
265
[In the Privy Council]
1951Present: Lord Porter, Lord Normand, Lord Oakseyand Lord RadcllffeSRI LANKA OMNIBUS CO., LTD., Appellant,and L. A. PERERA, Respondent
Privy Council Appeals Nos. 33-89 of 1950S. G. 376—382—D. C. Colombo, 15.925-15,931
Contract—Measure of damages for breach—Contract to allot shares in Company—Order for specific performance—Compensation claimable in addition—OmnibusService Licensing Ordinance, No. 47 of 1942—Schedule I—Payment ofcompensation.
The party complaining of a breach of contract is not entitled to be put in abetter position than he would have enjoyed if the contract had performedaccording to its terms.
In a case of breach of contract by a Company to allot shares the aggrievedparty's position is fully restored when the shares have been allotted to him underan order for specific performance and he has received the equivalent of thedividends he would have received if the contract had been duly performed,with interest on the dividends until payment.
Obiter : There is no warrant in the Omnibus Service Licensing OrdinanceNo. 47 of 1942 for the proposition that operators of routes before theenactment of that Ordinance were entitled to expect to get a living out ofthe compensation for which the Ordinance provides, or out of shares whichthey might choose to take instead of claiming compensation.
.^^.PPEAL from a judgment of the Supreme Court.
M. D de Silva, K.C., with R. K. Handoo, for the defendant appellant.
N. R. Fox Andrews, K.C., with Stephen Chapman, for the plaintiffrespondent.
Cut. adv. vult.
December 5, 1951. [Delivered by Lord Normand]—-—
In these consolidated appeals the sole question submitted for deter-mination by the Board is one of damages for breach of contract, inparticular what is the correct method of assessing damages in' an actionin which the Court, having found that the defendant company wasin breach of a contract to allot shares to the plaintiff, had granted anorder for specific performance of that contract.
The appeal taken by defendant and appellant company againstMr. L. A. Perera as respondent has been selected as the leading appealMid the Board’s decision upon it will govern the appeals consolidatedwith it.
The appellant company was incorporated on the 24th November,1942, and it was brought into being for the purpose of operating anexclusive road service under the Omnibus Service Licensing Ordinance,No. 47 of 1942, on the Colombo to Kandy road in the Island of Ceylon,though under the objects clause of its Memorandum of Assciation it
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LORD NORMAND—Sri Lanka Omnibus Co.', Ltd. o. L. A. Perera
was empowered to apply for licences to operate on other routes. Beforethat Ordinance was enacted owners of omnibuses obtained route licences,which frequently overlapped, so that several licensees were entitledto ply along the same route. This, as is stated in the judgment of theSupreme Court, sometimes resulted in unhealthy rivalry and competitionbetween the licensees and even led to breaches of the peace and to thecommission of serious offences. It was to remedy this mischief that theOrdinance of 1942 was enacted. It provided (section 2 (1) ) that noomnibus should on or after the 1st of January, 1943, be used on anyhighway for the conveyance of passengers for fee or reward, exceptunder the authority of a road service licence issued by the Commissionerof Motor Transport, and (section 7 (1) ) that, subject to a proviso andto an exception which are not material, the issue of road service licencesshould be so regulated by the Commissioner as to secure that differentpersons were not authorised to provide regular omnibus services onthe same section of any highway. By the First Schedule to the Ordi-nance applications made by two or more persons for road service licencesto come into force on or before 1st January, 1943, in respect of the sameroute or of routes which were substantially the same were assigned anorder of preference which the commissioner was bound to observe indeciding which application should be granted. First in this order of pre-ference was an application by a company or partnership comprising theholders of all the licences for the route in force under the Ordinanceof 1938. Second in the order of preference was an application by acompany or partnership comprising the holders of the majority of suchlicences. There were further priorities not material to this case. TheSchedule, as a condition of the grant of the licence, required paymentof compensation by the applicant to other holders of licences for theroute under the Ordinance of 1938, unless they had a pecuniary interestor share in the business proposed to be carried on by the applicant.
On the Colombo route and its subsidiaries the largest operators andlicence holders were the M.J. bus service of which the proprietor was
M.Jayasena, the B.J. bus service of which the proprietor was B. J.Fernando and the Little Service Bus Company of which the proprietorswere W. K. Fernando and P. Don Francis Alwis. These four namedpersons in association were in a position to claim that they were withinthe second priority as defined by the Schedule and it was they whoformed the appellant company and who were the subscribers to theMemorandum of Association. They were also the directors of thecompany, and in return for the omnibuses and licences which theytransferred to the company they received 5,850 shares of Rs. 100 eachpaid up as to 90 per cent., making a total subscribed capital of Rs. 526,500out of an authorised capital of Rs. 1,000,000. In addition they took up50 shares paid up as to 90 per cent., making a further sum of Rs. 4,500.There remained available for subscription among the other existingoperators under old licences for the Kandy-Colombo route 4,100 sharesof Rs. 100 each.
After the company was incorporated negotiations took place betweenthe company and those other holders of licences for the route underthe Ordinance of 1938, among whom were the respondent Perera andthe respondents in the other six consolidated appeals. It is not necessary
LORD NORMAND—Sri Lanka Omnibus Co., Ltd. v. L. A. Perera
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to consider the course of these negotiations, for it lias been determinedby concurrent findings of the District Court and the Supreme Court,acquiesced in by the appellant company, that the company agreed toallot to the respondent Perera shares to the value of Rs. 5,000, that theappellant company had failed to perform its obligation and that therespondents was entitled to damages from 1st January, 1943, for suchfailure and breach of contract. By the orders of the Courts belowthe company was required to allot to the respondent shares to the valueof Rs. 5,000.
On the sole question now in dispute, the proper measure of damages,the respondent’s plaint contained the single – statement that by reasonof the breach he had suffered loss and damages to the value of Rs. 750per mensem, and it is necessary to observe that there was no allegationthat the value of the shares or the quantum of profit or the rate ofdividend had been reduced by fraud on the part of the directors or byany unlawfulness or irregularity in the conduct of the company’s affairs.Issues were framed, and on damages the only issue was to what damageswas the plaintiff entitled for failure to allot up to the date of allotment.In the record of the evidence a note was inserted by the DistrictJudge the importance of which requires that it should be quoted. It runs,“ I intimate to Mr. Wickremenayake (the respondent’s counsel) that theassessment of his damages at Rs. 750 a month would be on a false basis asthat would not be the earning capacity of a bus after the route licence wasgiven to the defendant company. He therefore states he is' prepared torestrict his claim to such amount as he would be entitled to for the sharesand profits on the figures in the balance sheet P 11. This will be the basisof assessment of damages in all the cases. Mr. Choksy (the appellantcompany’s counsel) states that in view of this statement he does not wantto cross-examine any of the plaintiffs on the question of damages ”. Thisnote is not in all respects as clear as might be desired. But it seems to theBoard beyond dou.bt that the respondent’s counsel admitted that for thepurpose of assessing damages the figures as they stood in the balancesheet were correct and that the appellant’s counsel thereafter conductedhis case on the footing that the balance sheet would not be questioned.Moreover it was the respondent who produced thp balance sheet, whichcovers the period January, 1943, to January, 1944, and he did so withoutmaking any comment or criticism, remarking only that the expenseswere Rs. 20,000 less than the receipts as they approximately were. ' Therewas evidence that the appellant company had for the first year of theoperations declared a dividend of one per cent.
The District Judge awarded as damages a sum equal to 50 per cent,per annum on Rs. 5,000, the nominal value of the shares which ought tohave been allotted, from 18th January, 1943, to the date of allotment. Inthe High Court the respondent’s counsel admitted that this award couldnot be supported and their Lordships are therefore relieved from the dutyof – considering it further. The Supreme Court assessed the damages at asmn equal to 20 per cent, per annum of the nominal value of the sharesfrom 18th January, 1943, to the date of allotment.
• The contention of the appellant company is that the respondent
having obtained an order for specific performance of the obligation to
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LORD NORMAND—Sri Lanka Omnibus Co., Ltd. t>. L. A. Perera
allot the shares, was not entitled to an award of damages of more than theequivalent of the dividends at the rates declared by the company betweenthe date when the shares should have been allotted and the date of actualallotment, with interest on the dividends until payment. Their Lordshipsare of opinion that this is the correct measure of damages. Theparty complaining of a breach of contract is not entitled to be put in abetter position than he would have enjoyed if the contract had beenperformed according to its terms. When the contract is a contract to-allot shares, the aggrieved partyposition is fully restored when theshares have been allotted to him under an order for specific performanceand he has received the equivalent of the dividends he would have receivedif the contract had beeh duly performed, with interest during non-payment. The Supreme Court recognised that that was in general theprinciple to be applied, but it found that the balance sheet containedinaccuracies which ought to be rectified before damages were computed.In particular it disallowed an item of Es. 124,179 for depreciation, on-the ground that the company had entered into an agreement with branchmanagers, who were themselves directors, by which each branch managershould take 90 per cent, of the gross takings of his branch, out of whichhe was to pay various outgoings including the cost of replacing omnibusesas they became old or unserviceable. This sum of Es. 124,179 the-Supreme Court added to the profits as brought out in the balance sheet,and dealt with the whole balance sheet profits thus swelled as a sumwhich ought to have been distributed as dividend. The Court then calcu-lated that on this basis a dividend at the rate of 20 per cent, oughtto have been distributed among shareholders including the respondent.The Board has no hesitation in rejecting the considerations which movedthe Supreme Court in making the award. It is a fatal objection thatthe trial had been conducted on the footing that the balance sheet figureswere correct and it was not open to the Supreme Court to readjust themin this manner. It is also a fatal objection that the issue whether thesum of Es. 124,179 was properly charged for depreciation was never raisedin the pleadings, in the issues or in the evidence. It is a question-of accountancy whether the company did not correctly set aside a reservefor depreciation of the omnibuses which were in fact its property, thoughthe branch managers had become personally bound to replace the amni-buses out of their portion of the gross takings. There is no accountancyevidence because this question was never in' issue. Finally it is not correctto assume that the profits shown in the balance sheet or an adjustedbalance sheet would have been or ought to have been wholly distributed'as dividends. *
* The respondent’s counsel did not argue the appeal on the groundson which the Supreme Court had proceeded. He maintained that theSupreme Court’s award could be justified on the ground that it representedthe loss which would reasonably, be in contemplation of the parties whenthe contract was made as the probable result – of the breach of it.He asserted that an operator of a route before the enactment of the Ordi-nance No. 47 of 1942 became entitled, either by way of compensation or byan allotment of shares of the company applying for a licence under thatOrdinance, to enjoy, or at least to expect to enjoy, a living in return
LORD NOBMAND—Sri Lanka Omnibus Co., Ltd. t>. L. A. Peseta
269
for the property and rights of which he was deprived, and that he wasalso entitled to expect that the business of the company would be con-ducted in an ordinary or normal manner, and so that this expectationof obtaining a living would not be defeated. He complained of thearrangement by which the branch managers retained 90 per cent, ofthe gross takings of their branch, and of resolutions by which the com-pany became a private company with restrictions on members’ rights totransfer shares, and a limitation of the number of members. All these,he said, were departures from the normal conduct of the company’saffairs as contemplated when the contract to allot shares was made andhad disappointed the respondent’s expectation of obtaining a living fromhis shareholding.
Their Lordships would first observe that these contentions stray intoregions not less far removed from the issues properly raised in this casethan the considerations which weighed with the Supreme Court. It isaccordingly not necessary to consider them in detail. It may, however,be said that there is no warrant in the Ordinance for the proposition:that operators were entitled to expect to get a living out of the compensa-tion for which the Ordinance provides, or out of shares which they mightchoose to take instead of claiming compensation. It would be strangeindeed if the respondent who had one omnibus and used, according tohis own evidence, to make Its. 200 or Us. 300 a month less expensesshould expect to make a living out of compensation for the loss of hisbusiness. The failure of the supposed expectation of obtaining a livingis a conception too vague and desultory to be the foundation of a claimfor damages. Further a shareholder must take a company in which heinvests his money with all its legal rights and powers and he will notbe heard to complain that his expectations have been defeated by thelawful and regular exercise of its powers. Now counsel admitted thatit was not competent for him in this case to impugn anything that wasdone in the conduct of the company’s business as in excess of power orotherwise unlawful or oppressive and his complaint that the company’saffairs were carried on in an abnormal manner, besides being lacking inprecision, is wholly irrelevant. This new presentation of the case for therespondent therefore fails to justify any departure from the ordinaryprinciples of assessing compensation.
Their Lordships will humbly advise His Majesty that the consolidatedappeals should be allowed, and that for the Order of the Supreme Gourtaffirming the judgment of the District Court subject to the modificationthat for the figure 50 the figure 20 should be substituted therein, thereshould be substituted an order affirming the judgment of the DistrictCourt subject to the modification that the defendant company shall payto the plaintiff as damages a sum or sums equivalent to the dividendor dvidends at the rate or rates declared between 18th January, 1948,and the date of allotment, together with interest on such sum or suchsums respectively from the date or dates when .the declared dividend ordividends became payable till the date of payment of such sum or suchsums. The respondent will pay the costs of the appeal.
Appeal? allowed.