The Attorney-General v. Fonseka
[In the Privy Council]
Present : Lord Reid, Lord Tucker, Lord Denning, Lord Morris ofBorth-y-Gest, Mr. L. M. D. de SilvaTHE ATTORNEY-GENERAL, Appellant, and H. R. FONSEKAand another, RespondentsPrivy Council Appeal No. 38 of 1959
S.C. 820—D. C. Colombo, 37090
Contract—Can a person contract with himself ?—Excise licence to sell arrack—Liabilityof a person acting in two distinct capacities in respect of two distinct lice ices—-Arrack rent sale conditions— Interjyretation.
A person acting in two distinct capacities can, for the purpose of a contract,be regarded as capable of entering into an agreement with himself.
The exclusive privilege of selling arrack for a period of twelve monthsin certain taverns in Colombo Municipality was granted by the Governmentupon certain conditions to any person who offered to pay the highest “ rent ”for every gallon of arrack that would be removed by him from the GovernmentWarehouse for sale in the taverns.
Condition No. 13 provided that if, by mutual agreement between the outgoingand incoming grantees, an incoming grantee took over from the outgoing granteetie balance of arrack remaining in a tavern after the closing hour of the date ofexjirv of the privilege of the outgoing grantee, the incoming grantee should payto the Government in respect of every gallon taken over by him froir the out-going grantee an amount equivalent to the rent payable by him for the privilege.In default of agreement the outgoing grantee was bound to deliver the balancearrack to the Excise Warehouse where he would be paid a certain price for itper gallon.
The respondents were the grantees of the privilege for tl e year ending 30thSeptember 1953. They subsequently became grantees also for the followingyear ending 30th September i954, upon the same conditions. When theybecame grantees for the second year, they took over the balance of 1,S32 2/3gallons of arrack that had remained unsold at the end of tho first year.
Field, that when the respondents became grantees for the second year anddecided to take over the balance arrack remaining unsold in the taverns at theend cf the first year, they were liable to pay rent to the Government for the• balance arrack at the full rate stipulated in Condition Xo. 13. There was noreason why Condition No. 13, which tho res^ ondents had bound themselves toperform, could not be performed in a case where the same persons were co t-. cemed with two distinct privileges in reference to which they had the distinctcapacities of outgoing and incoming grantees.
LORD MORRIS OF BORTB”-Y-GrEST—The Attorney-General v. Foneeka 9
Appeal from a judgment of the Supreme Court.
E. F. N. Gratiaen, Q.C., with Walter Jayaivardena, for the defendant*appellant.
T.O. KeUock, for the plaintiffs-respondents.
Cur. adv. wit.
January 31, 1961.[Delivered by Lord Morris of Borth-y-Gest]—
This is an appeal from the judgment and decree (dated the 31st July1958) of the Supreme Court of Ceylon (Basnayake C.J. and Sansoni
J.: Pulle J. dissenting) dismissing the appeal of the Attorney-Generalof Ceylon from the judgment and decree dated the 25th October, 1956of the District Court of Colombo (Mr. W. Thalgodapitiya, DistrictJudge). By the judgment and decree of the District Court the respondentssucceeded in their claim for a sum of Rs. 7,882*03 (with legal interestand costs) which they alleged had been wrongfully withheld from themout of a sum of Rs. 66,800 which they had deposited as security uponthe grant to them of the exclusive privilege, for a particular period,of selling arrack on certain specified premises. The appeal raisesquestions as to the construction of the Special Conditions which governedthe grant of the privilege to the respondents.
By a notification published in the Gazette of the 25th July, 1952 theExcise Commissioner directed that the grant of the exclusive privilegeof selling arrack by retail within any local area during the period com-mencing on the 1st October, 1952 and ending on the 30th September,1953 and subsequent periods should be subject both to the GeneralConditions in force which were applicable to all Excise Licences andalso to the Special Conditions as set out in the Gazette. Those desirousof obtaining a grant could in the prescribed form tender for thepurchase of the exclusive privilege of selling arrack within a particulararea. The Government Agent could in his discretion reject any or allof the tenders received and if he rejected all tenders he could call fortenders again or he could put up the privilege either at once or afterfurther notice for sale by auction. Certain of the Special Conditionsrelated to any sale by auction that might take place. There followedConditions in these terms :—
“ 8a. Grant of Privilege. The privilege will be granted to theperson who offers the highest price for every gallon of arrackremoved from the appropriate warehouse referred to in scheduleB hereto for sale in the tavern or taverns to which the privilege
10 LORD MORRIS OF BORTH-Y-GEST—The Attorney-General v. Fonseka
relates. Such, price (hereinafter referred to as the “ rent ”) shallnot include the price at which arrack is issued from, the warehouseas fixed by the Excise Commissioner under condition 16.”
“ 9.—(1) (a) Security deposit. Every grantee shall, immediatelyon being declared to be the purchaser of the privilege—(1) sign theseconditions ; and (2) pay to the Government Agent as security forthe due performance of these conditions such sum as may be speci-fied in Schedule D hereto in respect of the tavern or taverns towhich the privilege relates.”
Condition 16, which was referred to in Condition 8a, was in thefollowing terms :—
“ 16. Issue Price Payable. Issue Strengths. In addition to therent the grantee shall pay to the Government Agent in respect ofevery gallon of arrack issued and removed from a GovernmentWarehouse an amount calculated at rates to be determined fromtime to time by the Excise Commissioner by notification publishedin the Gazette. The difference between the price so determinedand the selling price at the grantee’s tavern or taverns shall in thecase of every quality of arrack be Rs. 3'80 per gallon where arrackis sold in bottle and Rs. 6 per gallon where arrack is sold in bulk.
Provided, however, that if the issue price is increased duringthe period of this privilege, the grantee shall pay to the GovernmentAgent in respect of the entire quantity of arrack remaining unsold in atavern after the closing hour on the day immediately preceding theday on which the increased price comes into force an amount equivalentto the increase in issue price.
The Excise Commissioner shall, by notification published in theGazette prescribe from time to time the strength of each quality ofarrack issued from a Government Warehouse.”
There followed Condition 16a which was in these terms :—
** 16a. Payment of Rent. The grantee shall pay to the GovernmentAgent rent at the same rate at which he has purchased the privilege,on every gallon of arrack in bulk or in sealed bottles to be removedfrom the warehouse.”
It would appear from a consideration of the Conditions that a granteeof a privilege would, for the term granted to him, have the exclusive pri-vilege ’of selling arrack by retail in certain specified premises, that he wouldobtain his arrack from a specified Government Warehouse, that he would
LORD MORRIS OF BORTH-Y-GEST—The Attorney-General v. Fonseka – II
pay a specified amount in respect of every gallon issued and removedfrom such Government Warehouse and that by way'of payment for hisexclusive privilege he would pay a price or rent (being the price or rentper gallon offered by him) on every gallon of arrack removed by himfrom such Government warehouse.
A Condition (No. 28) which provided that there should be no com-pensation or remission of rent for loss or damage included the following :—
** (2) No remission of the rent payable in respect of the privilegewill be granted on any plea of the grantee’s having over-estimated' the value of any tavern or on any other ground.”
Certain other Conditions which are of particular consequence in theseproceedings were as follows :—
" 13.—(1) Taking over of Balance Arrack by Incoming Granteeby Mutual Agreement. The grantee shall take over from the out-going grantee and pay to him an amount which may be agreed on,
’ in respect of the cost of
the balance of arrack, in bulk and in bottles, remaining in a tavern*after the closing hour of the date of expiry of the privilege of theoutgoing grantee : and
transport, wastage, and other miscellaneous charges.
The grantee shall pay to the Government in respect of everygallon taken over by him from the outgoing grantee an amountequivalent to the rent payable by him for the privilege.”
“ 14. In default of agreement, Outgoing Grantee to deliver BalanceArrack at nearest Warehouse. (1) Where the incoming and outgoinggrantees cannot agree with regard to the sum to be paid as aforesaid,the outgoing grantee shall forthwith remove the balance of arrack on apermit, to the nearest Excise Warehouse, and deliver it to the Ware-house Officer in charge thereof, and obtain a receipt. Such arrack shallbe of the strength prescribed by Notification for the time being in forcein that behalf under condition 16.
The outgoing grantee shall present such receipt to the ExciseCommissioner, who shall pay to such grantee the value of the arrackso delivered at the rates at which such grantee purchased such arrack.
If the sum payable by the incoming grantee at the time the arrackis so taken over by him, is higher than the sum actually paid for thesaid arrack by the outgoing grantee, the incoming grantee shall, withinfourteen days of the commencement of his privilege, pay the differenceto the nearest Kaehcheri.”
12 LORD MORRIS OF BORTH-Y-GEST-^-JP/ie Attorney-General v. Fonseka
The respondents were declared to be the purchaser of the privilege ofselling arrack in certain taverns in Colombo Municipality for the yearending the 30th September, 1953 and pursuant to Condition 9(1) (a) theysigned an Agreement in the following terms :—
“ AGREEMENT(Condition 9 (1) (a) )
WE, KATHEGESU SELVADURAI and HEWAFONSEKAGERUBAN FONSEKA of 105, 5th Cross Street, Colombo, do herebyacknowledge that we have this day been granted the hereinbefore-mentioned exclusive privilege for the sum of Rupees four and centsthirty per gallon on the conditions set forth above, and we do herebybind myself/ourselves to perform the said conditions.
(Sgd.) K. SELVADURAI
(Sgd.) H. R. FONSEKA.
They also made the requisite security deposit the receipt of which wasduly acknowledged by the Government Agent.
It was recorded in the Ceylon Government Gazette dated the 19thJune, 1953, that the Acting Excise Commissioner directed that the grantof the exclusive privilege of selling arrack by retail within any local areaduring the period commencing on 1st October, 1953, and ending on30th September, 1954, should be subject, in addition to the GeneralConditions, to the Special Conditions then set out in the Gazette. SuchSpecial Conditions were (except for certain numbering differences) thesame as for the previous year. For that new period the respondentsagain became the grantees in respect of the same specified premises. Theyhad offered a price or rent of Rs. 4 91 per gallon. By agreement datedthe 30th July, 1953, in terms which, mutatis mutandis, were similar tothose of their agreement dated the 22nd August, 1952, they acknowledgedthat they had been granted the exclusive privilege and they bound them-selves to perform the Conditions. They also made the appropriatedeposit (which was of Rs. 66,800) as security for the due performance ofthe arrack rent sale conditions.
LOBD MORRIS OF BOB.TH-Y-GEST—The Attorney-General v. Fcnseka 13
By a letter dated the 30th June, 1954, written by the respondents tothe Government Agent the respondents sought to elucidate the positionas regards the quantities “ of balance arrack ** at the specified premisesat the close of business on the 30th September, 1953 “ and taken overby ourselves for stock against the 1953-54 rent period ”. They submittedthat had they been vacating the premises after the 30th September, 1953,they would either have received a sum representing Rs. 4*30 per gallonfrom the incoming renter if he had taken over the stocks of arrack orif he had not been willing to take over the stocks that they would havesurrendered the stocks to the Government and would have claimeda refund of Rs. 4 30 per gallon.
The balance of the stocks of arrack at the premises at the close ofbusiness on the 30th September, 1953, was 1,832 2/3 gallons. Therespondents submitted that if it was contended that as incoming rentersthey had been liable to pay Rs. 4*91 per gallon on the 1,832 2/3 gallonstaken over on the 1st October, 1953, then they were entitled to reim-bursement at the rate of Rs. 4 • 30 per gallon. If, therefore, they submitted,the sum of Rs. 8,998 73 (being 1,832 2/3 gallons at Rs. 4*91) was payableby them, the sum of Rs. 7,880 47 (being 1,832 2/3 gallons at Rs. 4’30) waspayable to them: on the nett transaction they submitted that thedifference of Rs. 1,1 IS*26 was payable by them to the Government.
One of the issues raised in the proceedings is whether on a properconstruction of the conditions the respondents would have been entitled,had they vacated after the 30th September, 1953, and had they returnedthe balance of arrack to the Government Warehouse, to receive areimbursement of the sum of Rs. 7,880*47 (being 1,832 2/3 gallons atRs. 4*30).
The Government of Ceylon denied that the respondents were entitledto set off any sum against their liability to pay an amount representingrent at Rs. 4*91 on 1,832 2/3 gallons.
In due course the respondents instituted an action against the appellantas representing the Crown. Their plaint dated the 5th December, 1955,included the following paragraphs :—
“ 8. On the 1st October, 1953, the plaintiffs commenced businesswith the said 1,832 gallons 32 drams left over from the previous yearreferred to in paragraph 4 above for which the plaintiffs had paid asum of Rs. 7,882*03 at the rate of Rs. 4*30 per gallon and for which theplaintiffs had to pay the Government a further sum of Rs. 1,117*97 at61 cents per gallon so as to bring it to the amount of Rs. 4*91 payableduring the year 1953-54.
On the termination of the said period of sale, viz. : On 30thSeptember, 1954, the said Government Agent became liable to refundto the plaintiffs the said security deposit of Rs. 66,800 lesstthe said sumof Rs. 1,117*97 but the said Government Agent wrongfully and un-lawfully withheld a further sum of Rs. 7,882*03 less the said sum ofRs. 1,117*97 and has returned the balance of the said security deposit.
14 LORD MORRIS OF BOETH-Y-QEST—The Attorney-General v» Fonseka
A cause of action has arisen to the plaintiffs to sue the defendantas representing the Crown for the recovery of the said sum ofRs. 7,882-03 together with legal interest thereon.”
The respondents prayed for judgment for Rs. 7,882*03 (with interest andcosts).
The answer of the appellant dated the 9th March, 1956, included thefoil owing paragraphs.
“ 4. Answering further the defendant states that—(a) the plaintiffswho were the outgoing grantees of the privilege for the period 1st October,1962, to 30th September, 1963, became also the incoming granteesfor the period 1st October, 1953, to 30th September, 1954.
(6) the plaintiffs did not in their capacity of outgoing grantees atthe termination of the contract for 1952-53 on 30th September, 1953,deliver to the warehouse officer in charge of the nearest warehouse thebalance quantity of arrack referred to in paragraph 4 of the plaint,but instead in their capacity of incoming grantees took over the saidbalance quantity remaining in the taverns from themselves in theircapacity of outgoing grantees.
by reason of the averments contained in sub-paragraphs (a) and /or (b) of this paragraph the plaintiffs became liable under condition 15
of the Arrack Rent Sale Conditions for 1953-54 to pay to the Govern-ment in respect of every gallon so taken over and remaining in then-hands in their taverns at the termination of the contract for 1952-53an amount equivalent to the rent per gallon payable by the plaintiffsfor the privilege of selling arrack for the period 1953-54.
the rent payable under the contract for the said privilege inthe period 1st October, 1953, to 30th September, 1954, was Rs. 4-91 pergallon at which rate the plaintiffs became liable to pay to the Govern-ment under the said Condition 15 (2) referred to above the total sumpayable by the plaintiffs being in consequence Rs. 8,998-40.”
“ 5. The plaintiffs having failed or refused to pay to the Govern-ment the said sum of Rs. 8,998*40 the Government Agent as helawfully might withheld the said sum of Rs. 8,998*40 from the sum ofRs. 66,800 deposited by the plaintiffs as security for the performanceof the contract in respect of the period 1st October, 1953, to 30thSeptember, 1954.”
The appellant prayed for a declaration that the Government Agent>on behalf of the Crown, was entitled to withhold the sum of Rs. 8,998*40from the deposited amount of Rs. 66,800.
At the trial which took place on the 26th September, 1956 the respon-dents admitted that the Crown had been entitled to retain Rs. 1,117*97
JjORD MORRIS OF BORTE-Y-GrEST—The Attorney-General v. Fonseka 1ft
(being the difference between the two rates of Rs. 4*91 and Rs. 4*30
e. 61 cents per gallon in respect of-the 1,832 2/3 gallons) but claimed thatthe retention of Rs. 8,998*40 by the Crown was wrongful to the extentof Rs. 7,882 *03.
Only one issue was framed. It was in the following form :—-
“ 1. Are the plaintiffs liable under Condition 15 (2) of the ArrackRent Sale Conditions for 1953-54 to pay to the Government in respect* of the 1,832 gallons 32 drams at the rate of Rs. 4*91 per gallon beingan amount equivalent to the rent agreed upon ? ”
Condition 15 (2) of the 1953/4 Conditions was in the same terms asCondition 13 (2) of the 1952/3 Conditions as set out above.
The learned District Judge (Mr. W. Thalgodapitiya) gave judgment forthe respondents as prayed. He took the view that the rent payable bya grantee of the privilege of selling was to be calculated by referenceto the number of gallons of arrack which he actually sold. He held thatthough, for convenience, payment was made in advance rent was onlydue and payable in respect of the quantity actually sold. In his judgmenthe said :—
“ Now the rent payable for the privilege is the sum for which therenter has purchased the exclusive privilege to sell. The privilegeis for selling, and not for removing or storing. No doubt the pay-ment is made in advance for the sake of convenience and for the pro-tection of the Government from fraud or from default in payment ;but still the payment is for the privilege to sell as set out in PI, P2, P3,and P4, and the rent becomes payable only for every gallon sold.
“ Therefore the renter who has a stock in hand and who sells thatstock to the incoming grantee will, in my view, be entitled to claim arefund of the money he has already paid to the Government for the pri-vilege to sell that stock, because he has not sold that stock. In thiscase the outgoing grantee and the incoming grantee were the same ;but that does not alter the situation. The incoming grantee could haveeither claimed a refund of the Rs. 4 * 30 per gallon he had already paidto Government and paid Rs. 4*91 per gallon for the stock he took over,or he could pay the difference between Rs. 4*91 and Rs. 4 30, whichcomes to the same thing.”
He considered that the demand of the Crown-was unconscionable andwas not justified according to the Conditions. His answer to the issuewhich was framed was as follows :—“ Yes but only the difference betweenRs. 4 *91 and Rs. 4*30 per gallon.”
The appellant appealed to the Supreme Court of Ceylon. By a majority(Basnayake C.J. and Sansoni J., Pulle J. dissenting) the appeal wasdismissed.*
16 LORD MORRIS OF BORTH-Y-GEST—The Attorney-General v. Fonseka
Basnayake C.J. considered that the agreement and conditions madeno provision for the case "where the same person was the grantee in twosuccessive years. He did not understand why the respondents hadconceded that under their agreement in relation to the second yearthey were liable to pay 61 cents per gallon in reference to the 1,832 2/3gallons. He said :—
“ It is trite law that a person cannot contract with himself and thatfor the formation of a contract or agreement at least two persons naturalor juristic are essential There can be in the instant case no such agree-ment or taking over as is contemplated in Condition 15 (1) and the plain-tiffs are under no legal obligation to make the payment provided for inCondition 15 (2). The author of agreement—the Crown—must sufferfor its failure to provide for the case of the same person being the granteein two successive years especially as it was signed at a time when itwas well aware of the situation that would arise on the grant of the pri-vilege to the plaintiffs for the succeeding year. The omission to makespecial provision for the case of the plaintiffs must in the circumstancesbe presumed to be deliberate.
It is not clear why the plaintiffs have conceded that under agree-ment P2 they are liable to pay 61 cents per gallon. In making thatconcession they seem to have proceeded on the basis of a notional deli-very of the arrack in the taverns at the nearest Excise Warehouse undercondition 16 for which no payment has been made as provided therein.The Crown contended that the privilege-holder delivering arrack at anExcise Warehouse is not entitled to a refund of the price paid per gallonfor the privilege, as that price was a rent for the privilege. With that. contention I am unable to agree.”
(Conditions 15 and 16 to which reference was made correspond to Con-ditions 13 and 14 set out above.) The learned Chief Justice consideredthat had Condition 16 applied, which in his opinion it did not, the Crownwould have been bound to refund Us. 4 • 30 per gallon of arrack deliveredat the Excise Warehouse in addition to the issue price. He said :—
“ Now what are the words which limit the meaning of the word ‘ value ’in its context ‘ the value of the arrack so delivered at the rates at whichsuch grantee purchased such arrack ’? In the instant case the ‘ ratesat which the grantee purchased the arrack ’ is the rent or privilege priceplus the issue price. The total of those two prices is the ‘ value * ofthe arrack.”
He also considered that the Crown were seeking to enrich themselvesat the expense of the respondents by charging twice over for the arrackin their taverns on the 30th September, 1953 and he said that the Courtswould not permit any such unjust enrichment.
Sansoni J. was of the opinion that the terms of Condition 15 (2) of theAgreement for the second year (which accorded with Condition 13 (2)of the Agreement for the first year) did not apply. He said that the
I.ORD MORRIS OF BORTH-Y-GEST—The Attorney-General v. FonsekaIT
question was whether there was any legal justification for the demandof the Crown that the respondents should pay rent twice over in respectof tbe same quantity of arrack. He said :—
" I cannot see on what basis the Crown seeks to make the plaintiffsliable to pay a second rent on this quantity of arrack at the rate ofRs. 4*91. They were only liable to pay, and they had in fact paid rent,at the rate prevailing at the time of removal. Since, however, theyhave accepted liability to pay the difference between Rs. 4 30 endRs. 4-91 per gallon, the Crown benefits tp that extent, but such anacceptance of liability does not decide the question in issue.
“ There is the further consideration that it was the privilege of sellingarrack that the plaintiff purchased. The plaintiff received no benefitfrom merely storing the 1,832 gallons 32 drams until 30th September,1953. It is not necessary to decide the hypothetical question whetherthe plaintiffs would have been entitled to claim a repayment of theissue price and rent paid for this quantity of arrack left unsold on30th September, 1953, if they did not become the renters for thefollowing year. They did in fact, become the renters again, andthe contract contains no prohibition against such a quantity of arrackbeing sold in the following year. ”
Pulle J. was of the contrary opinion and considered that the appealshould have succeeded. He said that the question that had to be deter-,mined was whether on the 30th September, 1953, the respondents hadacquired the right to a refund of Rs. 4 • 30 per gallon on the 1,832 2/3 gallons.
He said :—
“ In my opinion once a payment is made on account of rent it is notsubject to the condition that the purchaser of the * privilege *, whichas was submitted was in the nature of an incorporeal right, wouldbecome entitled to a refund if the arrack in respect of which the rentwas paid was unsold, any more than the purchaser would have becomeentitled to a refund had the arrack which passed into his possession beenlost through the negligence of his servants or been stolen. ”
He referred to Condition 14 as set out above (which was Condition 16in the agreement for the second year) and said :—
“ My interpretation of paragraph (2) is that by its very terms theoutgoing grantee is disentitled to a refund of any sum paid by way ofc rent ’. A refusal to refund in those circumstances to an outgoinggrantee can hardly be described as unconscionable.
“ I have dealt with this appeal solely on the merits of the groundurged by the plaintiffs that because a certain quantity of arrack wasunsold on 30th September, 1953, they became immediately vestedwith the right to claim a refund of the sum paid as e rent ’ for thatquantity. That was the basis on which the case for the plaintiffswas fought in the court below and that was also the basis on whichthe trial Judge gave judgment for the plaintiffs. In my opinion theplaintiffs’ position is untenable and I would allow this appeal, with costshere and below. ”
1ft LORD MORRIS OF BORTii-Y-GEST— The Attorney-General v. FonseTca.
On the 10th October the appellant was granted final leave to appealto Her Majesty in Council.
It is to be observed that in the District Court the argument of therespondents was that in respect of their second year as grantees of theprivilege they were liable to pay a rent of Rs. 4- 91 on the 1,832 2/3gallons but that this liability only involved their paying an additional61 cents per gallon because in the previous year they had already paid arent of Rs. 4-30 on that quantity.
It will be appropriate to consider in the first place what the positionwould have been if the grantees for the two years had been two differentpersons and if a balance of 1,832 2/3 gallons of arrack had remained at theend of the first year. If by mutual agreement between the outgoing andincoming grantees the incoming grantee had taken over the balance arrackwhich remained then the Condition would have been applicable whichprovided that the incoming grantee should “ pay to the Government inrespect of every gallon taken over by him from the outgoing grantee anamount equivalent to the rent payable by him for the privilege Iftherefore the incoming grantee had taken over 1,832 2/3 gallons from theoutgoing grantee the incoming grantee would have had to pay rent to theGovernment in respect of that quantity at the rate of Rs. 4'91. Further-more if the price at which arrack was then issued was higher than the sumactually paid for such arrack by the outgoing grantee the incoming granteewould have had to pay the difference to the Government Agent. If theoutgoing grantee and the incoming grantee had not agreed with regard tothe sum to be paid by the latter to the former then the outgoing granteewould have been under obligation to take the balance arrack to the nearestExcise Warehouse.
The question arises as to what payment the outgoing grantee wouldunder such circumstances have received. Their Lordships consider thatthe Rent Sale Conditions (see Condition 16 of the Conditions for thesecond year in terms as set out in Condition 14 recorded above) providethe answer. The outgoing grantee would obtain a receipt for the arrackthat he removed from his taverns (and delivered to the nearest ExciseWarehouse) and upon presenting such receipt to the Excise Commissionerhe would be paid “ the value of the arrack so delivered at the rates atwhich such grantee purchased such arrack ”. Their Lordships cannotagree with the view that the “ value ” that would be paid would includethe “ rent ” payable on the grant of the privilege. The “ value ” to bepaid would be the value of the arrack that had been delivered to thegrantee and which remained unsold. It would be the value “ at the ratesat which such grantee purchased such arrack The rates so referred towere the rates or prices at which from time to time the Government hadsold the arrack. Those rates might vary. But they were quite separatefrom the “ rent ” which was a payment that had to be made for the pri-vilege of selling. A grantee had to buy his arrack : he had to buy from
' LORD MORRIS OF BORTR-Y-GEST—'The Attorney-General v. JPonseka – 19
the Government and he had to buy at the rates or prices which were fixedfrom time to time. The price paid for the privilege of selling was quitedistinct from the price paid on a purchase of the arrack itself. ThusCondition 8a cited above (which is the same as Condition 9 in the 1953-64Conditions) states that the privilege of selling in the specified places willbe granted to the person who offers the highest price for every gallonremoved from the appropriate warehouse and provides that “ such price(hereinafter referred to as the “rent ”) shall not include the price at whicharrack is issued from the warehouse as fixed by the Excise Commissionerunder Condition 16 Condition 16 (which corresponds to Condition 18of the 1953—54 Conditions) provides that the issue price of arrack (whichis in addition to the rent) is a payment “ in respect of every gallon of arrackissued and removed from a Government Warehouse ” and that it is pay-ment of “ an amount calculated at rates to be determined from time totime by the Excise Commissioner by notification published in theGazette. ” Those “ rates ” are, in their Lordships’ view, the “ rates atwhich such grantee purchased such arrack ” which are referred to inCondition 14 (2) cited above. The payment to be made to an outgoinggrantee who returns balance arrack to a Government Warehouse is there-fore the value of the arrack so delivered at the “ rates ” at which hepurchased. Such “ rates ” would not include the “ rent ” paid for theprivilege of selling.
Their Lordships conclude therefore that had a grantee whose privilegeterminated on the 30th September, 1953, returned his balance arrack toa Government Warehouse he would not have been entitled to receive areturn of the sum that he had paid by way of rent in respect of his unsoldbalance.
Their Lordships cannot accept the view (held by the learned DistrictJudge) that “ rent ” was not lawfully due until arrack was sold by agrantee. It was said that though amounts of “ rent ” had to be paid whenarrack was removed from a warehouse such payments w ere only by way ofdeposit : it was said that they were payments in advance and that liabilityonly accrued when and if there were actual sales. In their Lordships’view the whole tenor of the conditions runs counter to this contention.Payments are made for the privilege of selling. It is expressly provided(see Condition 2S (2) cited above or Condition 31 (2) of the 1953-54Conditions) that no remission of the rent payable in respect of the privilegewill be granted on any plea of the grantee’s having over-estimated thevalue of any tavern or on any other ground.
The Conditions do not include any provision' enabling a grantee toobtain the return of any “ rent ” paid by him in respect of any arrackthat he does not sell. Furthermore there is no Condition which providesthat the liability to pay “ rent ” only arises in respect of quantitiesactually sold. Though a grantee is under obligation to have certainminimum quantities of arrack in his taverns it must be for a grantee todecide as to the quantity that he will purchase. The existence in the
20 LORD MORRIS OF BORTH-Y-GEST—The Attorney-General v. Fonseka *
Conditions of provisions for the return by an outgoing grantee in certaincircumstances of balance arrack and for the payment to him of “ thevalue of the arrack ” returned by him “ at the rates at which such granteepurchased such arrack ” shows that purchase price may be returned butnot rent. This is understandable when it is appreciated that “ rent ”represents a payment for enjoying the exclusive privilege of having theopportunity to sell. There is no failure of consideration merely becausethe opportunity to sell has not resulted in actual selling. The amountof the rent has undoubtedly to be paid over at the time when arrack isremoved from Government Warehouse. The privilege is granted to theperson who offers the highest price “ for every gallon of arrack removedfrom the appropriate warehouse ”. (See Condition 8a cited above—which is Condition 9 in the 1953-54 Conditions.) So also Condition 16acited above (which is Condition 19 of the 1953-54 Conditions) providesthat a grantee must pay rent at the same rate at which he has purchasedthe privilege “ on every gallon of arrack in bulk or in sealed bottles tobe removed from the warehouse The absence of any Condition asto any possible repayment of “ rent ” after it has once been paid is tobe noted. If “ rent ” was merely being paid by way of a deposit inadvance as against the time when, by actual sales, a legal liability topay it or to account for it arose—then it would be reasonable to expectsome express Conditions as to accounting in regard to quantities actuallysold by retail. What, it might be asked, would be the position if arrackin a tavern were destroyed by fire or removed by theft ? What alsowould be the position if a grantee in some legitimate manner used aquantity of arrack for his personal requirements ?
Their .Lordships conclude that “ rent ” is payable for the exclusiveprivilege of having the opportunity to sell arrack in certain places fora defined period, that it is payable in respect of the quantity issued andremoved from a Government Warehouse, and that it does not cease tobe payable or become recoverable in respect of any quantity that thegrantee does not sell. It follows from this that had the incoming granteesfor 1953-54 been different persons from the outgoing grantees for 1952-53the Government would have been entitled to retain the amount of therent paid in respect of arrack which was unsold at the end of the firstyear and if the incoming grantees took over such unsold quantity fromthe outgoing grantees the Government would have been entitled to claimrent at the new figure of rent in respect of such quantity from the incominggrantee. Whether this result be or be not regarded as desirable is nota matter for their Lordships but the contractual arrangements freelyentered into would have brought it about and neither incoming noroutgoing grantees could justifiably have asserted that there was “ unjust-enrichment ”.
The question next arises as to whether the respondents can claim thatin respect of the second year the Conditions dealing with the taking overof balance arrack by an incoming grantee did not apply to them withthe result either as the majority in the Supreme Court apparently thought
LORD MORRIS OF BORTH-Y-GEST—-'the AttS^-Chmera}^. Pofvs^}fq fl
that they need not have paid any further rent in respect of the. soppedyear in reference to the 1,832 2/3 gallons or as the District Judge thoughtthat they were obliged to pay further but only to the extent of the differencebetween Rs. 4-91 and Rs. 4*30 per gallon. It was on the basis of- thelatter view that the respondents made their claim in the action.* ■ – .•, j.
It was argued on behalf of the respondents that Condition 15 (2) ofthe Conditions for the second year (which corresponds to Condition 13 (2)cited above) did not apply to them because, they asserted, they werenot incoming grantees who were taking over from an outgoing grantee :it was urged therefore that they were not liable to pay “ rent ” in respectof the balance arrack since it was not taken over by them from anoutgoing grantee. It is to be observed however that pursuant to the noticein the Ceylon Government Gazette of the 19th June, 1953, it was opento all persons to make offers for the privilege of selling in the periodfrom the 1st October, 1953, to the 30th September, 1954. The privilegeof selling was to be granted to the person who offered to pay the highestprice or “ rent An outgoing grantee could make a bid just as anyoneelse could and there was no provision which would entitle him to havean advantage over others or which would cause the Government to beless satisfactorily placed if ah outgoing grantee rather than someone elseobtained the new monopoly for the new period. The respondents enjoyeda privilege in respect of the year down to the 30th September, 1953.They decided to make an offer with a view to being granted a newand different privilege i.e. one in respect of the year beginning the1st October, 1953. They succeeded in obtaining the new privilege. Inrespect of it and in respect of the new period covered by it they wereincoming grantees. In respect of their old privilege and in respectof the period covered by it they were outgoing grantees. In thesecircumstances there was no reason why in different periods they shouldnot have different capacities. The respondents themselves had nodifficulty in appreciating the different capacities as is shown by the termsof their letter dated the 30th June, 1954, addressed to the GovernmentAgent in which they stated :—“ Our position is that we were theincoming renters for 1953-54 as well as the outgoing renters for 1952-53.The balance stocks as at 30th September, 1953, were duly carried overby us against the 1953-54 period in respect of each tavern ”. When theywere successful in obtaining the new privilege for the second year theysigned an acknowledgment that “ We have this day been granted thehereinbefore-mentioned exclusive privilege for the sum of Rupees fourand cents ninety-one on the conditions set forth above and We do herebybind ourselves to perform the said conditions The learned DistrictJudge does not seem to have considered that there was any practical'difficulty in honouring the Conditions. He however decided the caseas he did because he concluded that any “ rent ” paid could be recoveredif the arrack in respect of which it was paid was not sold. He saidtherefore (in the passage cited above) that a grantee who sold to anincoming grantee could claim a refund from the Government of “ jrent
22 LOUD MORRIS OF BORTH-Y-GEST—The Attorney-General, v. Fonseka
in respect of unsold arrack. He added :— “In this case, the outgoinggrantee and the incoming grantee were the same ; but that does notalter the situation. The incoming grantee could have either claimeda refund of the Rs. 4 30 per gallon he had already paid to Governmentand paid Rs. 4‘91 per gallon for the stock he took over, or he could paythe difference between Rs. 4-91 and Rs. 4-30, which comes to the samething ”.
For the reasons which they have stated above their Lordships rejectthe view that liability to pay “ rent ” only accrued or was only finalisedwhen the arrack in respect of which it was handed over was actuallysold.
It follows that the respondents, who had admitted their liability topay at the rate of Rs. 4-91 in respect of the balance arrack, were notentitled to a refund at the rate of Rs. 4'30 and on this ground theirclaim in the action should in their Lordships’ view have failed.
Furthermore their Lordships see no reason why Condition 15 inreference to the second year (in terms of Condition 13 cited above)which the respondents bound themselves to perform could not be performedin a case where the same persons were concerned with two distinctprivileges in reference to which they had the distinct capacities of outgoingand incoming grantees. If the respondents had taken the view thatthere could not be a taking over at an agreed amount then as outgoinggrantees they should have returned the balance arrack to GovernmentWarehouse and have received a-return of what they had paid for thearrack but not what they had paid as rent. They did not do that butin the capacity of incoming grantees they took over the balance arrackand accordingly, under one of the Conditions which they had undertakento perform, they became under a liability to pay an amount per gallonequivalent to the rent payable by them for the privilege.
For the reasons which their Lordships have set out the respondentsbecame under liability to pay rent at Rs. 4-91 per gallon for the year1953-54 on the balance stock and were not entitled to a refund ofRs. 7,882 03 which they had paid as rent in the year 1952-53 in respectof the arrack which remained unsold and which formed the balancestock. It follows therefore that the claim of the respondents shouldhave failed. Their Lordships will humbly advise Her Majesty that theappeal should be allowed and that the judgment and decree of the DistrictCourt and of the Supreme Court should be set aside and that therespondents’ action should be dismissed. The respondents must pay thecosts before their Lordships’ Board and the costs in the District andSupreme Courts.
THE ATTORNEY-GENERAL, Appellant, and H. R. FONSEKA and another, Respondents