WEERASURIYA ,Appellant ,and FUARD Respondent

014-NLR-NLR-V-54-WEERASURIYA-Appellant-and-FUARD-Respondent.pdf

QRATTATTN' J.—Weeraauriya v. Fuard
49
1952Present: Gratiaen J. and GunasekaraJ.
WJSJjIttAS URIYA, Appellant, and FUARD, RespondentS. C. 387—D. C. Colombo, 18,596
Proctor and client—Fiduciary relationship—Conflict between interest and duty—
Allegation of fraud—Breach of professional duty established—Duty of Court
to give relief to client.
A Proctor, who was employed, by a client as legal adviser for the purposeof making an investment of a certain sum of money, caused the money to belent on security which to his knowledge was precarious, and, by such investment,benefited financially three of bis close relatives who had already interests asprimary or secondary mortgagees in the same security. The investment, asany reasonable person should have foreseen, proved disastrous.
Held, that the Proctor’s conduct in the transaction fell short of the highstandard of conscientious duty exacted by well defined principles of thecommon law and that the client, who lost his money on the investment,was entitled to claim an indemnity from the Proctor for the loss which hehad sustained.
A Court of Law, “ exercising jurisdiction as a Court of conscience ”, mustalways demand a very high standard of conscientiousness from legal advisersto whose contractual obligations there are superadded certain “ duties ofparticular obligation ” arising from a fiduciary relationship of a special nature—such as, for instance, where a Proctor is invited to act professionally for a clientin a transaction from which either the Proctor or his close., relatives stand tobenefit materially.
It was the duty of the Proctor to have informed the client not only of theexistence of the subsisting mortgages on the security but also of the identityof the mortgagees whose claims were to be settled out of the money invested.He should have insisted that the client should obtain legal advice from anindependent and disinterested lawyer.
Held further, that in such a case it does not necessarily follow that, ifsufficient facts have been proved entitling him to succeed in his claim to beindemnified, the client should be denied justice merely because his pleaderover-stated his case by unsuccessfully raising against the Proctor an issue ofexpress fraud as distinct from dereliction of duty arising from his positionof fiduciary relationship.
x/
^Al.PPEAL from a judgment of the District Court, Colombo.
N. E. Weerasooria, Q.C., with D. S. Jayaurichreme and G. T. Samara-wichreme, for the plaintiff appellant.
J. R. V. Ferdinands, with M. H. A.respondent.
Azeez, for the defendantCur. adv. vuU.
May 27, 1952. Urattattut J.—
This appeal relates to a claim against a' Proctor of this Court conse-quential on an alleged breach of professional duty to his client.
3-4LTV.
2J. N. B 19618-1,492 C8/52)
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G^rtATIAEN J.—Weerasuriya v. Fuard
The appellant, on his retirement from Government service in 1941,had drawn a commuted pension which, together with a sum lying to hiscredit with his Benevolent Association, amounted to Rs. 9,158. Hehad in addition accumulated some modest savings which brought upthe total of his capital to Rs. 13,000. He desired to invest this sum inorder to supplement his income which was now represented by a monthlyGovernment pension of Rs. 149 and, with this object in view, he obtainedan introduction to the respondent who was a Proctor and Notary Publicwith a good reputation practising his profession in Colombo for over 25years.
The appellant first invested – a part of his capital through the re-spondent in a mortgage executed in his favour by a borrower namedVisvanam. This loan was duly repaid in 1942, and the appellant wasonce again on the look out for a suitable investment. Apparently,he had at one stage conceived the idea of purchasing a small residentialbungalow for himself and his family, but he had not succeeded in findinga property which he could afford to buy. In the result, his capital layidle for some months, and he was, -to the respondent’s knowledge,anxious to re-invest his money. “ He used to come practically daily ”,the respondent said, “ and talk to the brokers who come to my office toinvest his money ”.
It is convenient at this stage to refer to two other persons who playeda prominent part in the subsequent transaction which forms the subject-matter of this litigation. They are the respondent’s brother Samsudeen(alias “ Shams ”) and a man named Samaratunge who had on manyprevious occasions borrowed money invested by clients of the respondent.
Samsudeen has been described as an “ unlicensed broker ”. Heshared the respondent’s office for the purposes of his business, and wasalso given access to the respondent’s office stationery. Samsudeenmade full use of these facilities (whether with or without the respondent’sexpress authority) so as to induce prospective customers to believethat business recommended by him was also recommended by therespondent. By these means, his activities enjoyed the cachet of hisbrother’s professional reputation. The letters marked P48, P49 andP50, with Samsudeen’s name significantly typed above the printed nameof the respondent on the respondent’s note paper, furnish sinisterevidence of Samsudeen’s technique in attracting business. “ He wastrying to bait a fish ”, said the respondent, “ by using my name ”. Ishall have occasion to examine these letters more particularly at a laterstage of my judgment, but in the present context it is sufficient to statethat they contain many gross misrepresentations of fact which weredesigned to tempt the appellant into making an imprudent investment.“ These are things ”, said the respondent, “ which brokers generallywrite to their clients ”. Even if this sweeping exaggeration be construedas giving expression only to his estimate of the business methods of hisown brother, it is quite deplorable that, in any view of the matter, therespondent should have acquiesced in a procedure which facilitatedsuch improprieties in regard to business which was ultimately transactedprofessionally by himself.
GR.ATIAEN J.—Weerasuriya v. Fuard
51
Samsudeen was called as a witness by the appellant in order to establishthe fact that P48, P49 and P50 were written by him from the respondent’soffice and with at least his apparent authority. But I cannot accept theartificial proposition that, merely because Samsudeen was in a sensethe appellant’s witness, the appellant is necessarily bound by everyfalse statement which Samsudeen took the opportunity of making in thewitness box. In the first place, Samsudeen is, on his brother’s ownassessment, a person whose word should not be accepted by a Court ofLaw without most careful scrutiny. Moreover, his evidence betrays adesire to assist his brother’s defence whenever possible—indeed, in someinstances to the point of demonstrable absurdity. I "mention by way ofillustration his suggestion that the description in P48 of the proposedborrower as “ a long standing client of ours during the last 10 years ” wasintended to convey that Samaratunge had during that period been a“ client ” of the appellant and not of the respondent.
I now pass on to the person Samaratunge who had in truth been along standing client of the respondent and Samsudeen in the sensethat he had on many previous occasions borrowed money from personsintroduced by them.
At the time when the appellant was looking for a suitable re-investmentof his modest capital—i.e., towards the latter part of 1942—Samaratungewas, or claimed to be, the owner of two properties (or, to be more accurate,various allotments of land comprising two properties) to which I shall forconvenience refer as “ the Panwila Property ” and “ Fineham’s Band ”respectively. It is necessary to examine in respect of each propertySamaratunge’s more recent transactions during the relevant period—all of which transactions the respondent had been instrumental innegotiating in his professional capacity.
The Panwila property consisted of 6 separate lands, some of whichare described as “ undivided ” allotments of larger lands. Samaratungeclaimed to have inherited his property from his father Bilinda, but heapparently had no “ paper title ” to support this claim. On December20, 1940, he executed in his own favour a somewhat unusual documentD3, attested by the respondent as notary and Samsudeen as witness,declaring himself to be its lawful owner “ for the better manifestationof his title thereto ”. The value of the entire property was stated inthe deed to be Rs. 2,000. The respondent admits, both in his evidenceand in certain letters written by him before' the action commenced, thatthis property was not such as he would recommend as attractive securityto a prudent investor..
On August 20, 1941, Samaratunge borrowed Rs. 3,750 from NainaMarikar on a primary mortgage of the Panwila property (P41). NainaMarikar was the first cousin of the respondent and Samsudeen, andthey were on this occasion as well the attesting notary and witnessrespectively. The chief security for the loan, however, was containedin a contemporaneous “ indenture of lease ”, so called, which was primarilyintended to enable the lender to liquidate the debt by securing forhimself the tea coupons issued in respect of the land—a device which,as is well known, was frequently resorted to during the period when“ coupons ” were negotiable and marketable documents issued in respect
52
(GRATXAEN J.—Weerasuriya v. Fuard
of properties registered under the scheme whereby the export of tea fromCeylon was controlled by Government machinery. “ Upon thatpromise ”, says the respondent, “ the money was lent Samaratungedid not, however, honour the arrangement by which his debt was to beliquidated. “ One day ”, continues the respondent, “ he came to myoffice with about 6,000 to 7,000 potmdsoftea coupons and told me that hewas going to deliver those coupons to Naina Marikar ”. This was afalse promise. The coupons were not delivered, and accordingly onFebruary 20, 1942, the respondent, acting on behalf of his cousin NainaMarikar, instituted action No. 532 M.B. in the District Court of Colomboagainst Samaratunge for the recovery of the debt. “ I sued him ”,says the respondent, “ because he tricked me. He was not keeping tohis promises ”.
As one would expect, Samaratunge proved to be an elusive defendantin the mortgage action. Process was issued and reissued against himfrom time to time without success. Eventually, on August 17, 1942,he appeared in Court and consented to judgment. He was granted 6months time within which to pay the judgment debt. A formal hypothe-cary decree for Rs. 3,750, interest and costs was entered of record on thisbasis on September 12, 1942, and in the result the Panwila property, inwhose realisable value the respondent admittedly reposed little confidence,became liable, in default of payment before March 12, 1943, to be soldup for the recovery of the judgment debt. No doubt Naina Marikarand others interested in his welfare were in a state of some despondencyas to his prospects of recovering the money which he had lent onunreliable security to a debtor introduced to him by his two cousins. Itwould certainly have been to his advantage if he could be rescued fromhis predicament without the need for selling up the Panwila property.
I now refer to the other property known as “ Fincham’s Land ”.After certain preliminary negotiations had taken place, Samaratungeborrowed a sum of Rs. 35,000 from a man named Moolchand on a primarymortgage of this property under the Bond P36 dated June 2, 1941, alsoattested by the respondent. The truth is that at the time of the earliernegotiations Samaratunge had not yet become the owner of the propertyand that the entire sum borrowed from Moolchand was utilised bySamaratunge for the purpose of acquiring title to the property, con-temporaneously with the execution of P36, under a conveyance alsonotarially attested by the respondent, from the previous owner.
Fincham’s Land is stated to be 146 acres in extent, of which 85 acreswere planted in tea and 30 acres in cardamoms, the rest of the propertybeing jungle land. In 1941 its chief source of revenue seems to have beenthe market value of its tea coupons periodically issued under the tearestriction scheme, and for this reason, when P36 was executed, a so-called “ indenture of lease ”, similar to that created in the Panwilatransaction, was executed in favour of Moolchand.
Moolchand gave evidence at the trial, and he stated in evidence thatthe “ tea coupon scheme ” terminated in May, 1942. This circumstancepossibly explains why the extent of Samaratunge’s liability under P36had increased by January 15, 1943, according to an account stated(P37) between both parties, to Rs. 44,500.
GE.ATXAEN J.— Weerasurtya v. Fuard
53
Contemporaneously with the execution of P36, Samaratunge granteda secondary mortgage 1)2, also attested by the respondent, in favour ofSamsudeen and the respondent’s wife jointly. The bond stated that thesum due to Samsudeen was Rs. 2,500 and to the respondent’s wife wasRs. 3,500. The respondent states that the consideration for these two“ loans ” was paid in his presence in cash on the date of the bond. Thebond D2 was expressed, however, to carry no interest on either “ loanThe reason for this liberality on the part of the creditors concerned wasnot explained at the trial. At any rate, I am not disposed to probethe interesting theory that the sum covered by the bond represented intruth commission for services rendered by Samsudeen .and the respondentin negotiating P36.
It is not suggested that Samaratunge owned any property besides thePanwila property and “ Fincham’s Land ” at any time during therelevant period.
Samaratunge was called as a witness at the trial by the appellant’scounsel for reasons which are certainly obscure. He too, like Samsudeen,took the opportunity of making many statements, some of them patentlyfalse, unfavourable to the appellant’s case. Here again, I reject asartificial the argument that the appellant must necessarily be regardedas bound by the falsehoods to which Samaratunge gave utterance whilehe was in the witness box.
The scene now shifts to the latter part of November, 1942. Therelative financial positions of Samaratunge and the appellant at thepoint of time may be summarised as follows :—
As far as Samaratunge was concerned, his position had, to saythe least, become too precarious tq justify any hope which he mayhave entertained of obtaining further loans from any prudentinvestors :—
A hypothecary decree for Rs. 4,990, interest and costs in respect
of the Panwila property had already been entered againsthim in favour of the respondent’s first cousin Naina Marikar,and this property was liable to be sold in execution within afew months. No payment had been made in reduction ofthe judgment debt up to the end of November, 1942, and theprospect of making any future payment by honourable meansmust have been very remote ;
Pincham’s Land was subject to a primary bond in favour of
. .Moolehand to secure the payment of a debt which by this
time had increased to very nearly Rs. 44,500. It was alsostall subject to a secondary mortgage bond for Rs. 6,000 infavour of the respondent's brother and the respondent's toife.The loans secured, by this latter bond had been outstandingfor approximately 18 months without any right in -the jointcreditors to receive interests. There was no valid reason whySamsudeen or Mrs. Fuard or anyone protecting.their interestsshould regard the security as satisfactory;
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GRATIAEN J.—W eeraauriya v. Fuard.
An important source of income from both properties had, ifMoolehand’s uncontradicted evidence on the point be true,dried up ; when the tea coupons were available, Samaratungehad improperly contrived to divert them from his creditors,and he apparently now lacked the means (even if he had theinclination) to meet his financial engagements at the duedates in any other way. Shortly stated, he was a mostunsatisfactory debtor from every, point of view.
Turning now to the appellant’s financial position, he still had'capital in his hands to the extent of Rs. 13,000 which he was anxiousto invest in order to supplement his only other source of income,namely a monthly pension of Rs. 149 and a modest cost-of-livingallowance, for the maintenance of himself and his family.
These facts which I have set out had substantially come to the know-ledge of the respondent in the course of his professional employment bythe clients concerned.
On November 17, 1942, Samsudeen wrote the letter P48 to the appellantfrom the respondent’s office in the following terms :—
Telephone No. 5446.
“ Dear Mr. A. R. Weerasuriya,
After I met you at Main Street in Colombo, When I went to Officein the Noon I was surprise to find the client of ours whose business Icasually suggested you. This client is one Mr. K. R. Samaratunga along standing client of ours for the last nearly Ten years or so. And he willpay interest very regularly and do good business. Now he want Rs. 15,000on a primary Mortgage of his House Property with 3 acres of land and15 acres fully Planted Tea near his Home. This bungalow where he isreside now, it is a good one with water services, &c. These two pro-perties were situated at Medakotuwa, PanWila is only 13 miles fromKandy. Title is Grown. Further Mr. Fuard had suggested me to getanother Large Estate of 146 acres tea belonging to him, near about Kandyas Secondary Mortgage as an additional security, this Estate is worth over80,000 it has a primary Mortgage of 40,000 and interest have been paidup-to-date. Out of this 15,000 a sum of Rs. 5,000 will be repaid to you insix months time and the balance money will be paid back after ah year. Ashe returning the money early in instalment, he had agreed to pay you aninterest of 9 (nine) per cent. This is a good business, he will be very regular.in pa/ying yoii the interest should you accept this. If so please let me knowwhen you. can conveniently inspect, the land, I shall make all arrangement.This security does not appear as it sufficient enough, but if you will goto see you will realise. In the other hand the borrower is absolutelygood and you will be more than satisfied.”
“ A. M. ShamsC/o A. M. Fuard,Proctor and Notary.
130, Hultsdorf Street,Colombo, 17 November, 1942.
GRATXAEISr J.—Weerasuriya v. Fuard
55
[I have taken the liberty of italicizing the statements which werespecially calculated to interest the appellant in the investment proposedto him.] Five days later Samsudeen wrote another letter, P49, to theappellant as follows :—
“ A. M. Shams,
M. Fuard,
Proctor and Notary
Telephone No. 5446.
“ A. It. Weerasuriya, Esq.,-
Sirisevena,
AmbaJangoda.
Dear Mr. Weerasuriya,
I am in receipt of your letter dated the 18th instant and I immediatelycommunicated with my client having consulted Mr. Fuard. I have fixedup to inspect these properties of Mr. Samaratunge at Kandy on thisSunday the 29th inst. Please be in Colombo at the Kandy Dus Standat 5th Cross Street near the Municipal Latrine between 7 and 8 in themorning. We got to inspect this property definitely on this Sunday.From Colombo we have to go by Bus to Kandy and Mr. Samaratungewill be meeting us at the Bus Stand positively at Kandy and we willhave to take breakfast at Kandy and then proceed to the Estate by car.
Mr. Fuard highly recommends this loan.”
On 26 November, 1942, Samsudeen wrote P50 :—
" A. M. Shams
M. Ftiard,130, Hultsdorf Street,
Proctor and Notary.Colombo, 16 November, 1942.
Telephone No. 5446.
“ Dear Mr. Weerasuriya,
I received your letter dated the 24th inst. for which I thank you.
Me Interest. I have managed to fix up the rate of Interest at 10 per cent,through Mr. Fuard. Now it is O.K.
Hope to meet you on the 29th morning at the Bus Stand between7 and 8.”'
[The special recommendations contained in P49 and P50 have alsobeen italicized by me.]
On December 3, 1942, the plaintiff lent to Samaratunge a sum ofIts. 15,000 (representing his entire capital augmented by a sum ofBis. 2,000 made available to him by a relative) on the mortgage bondPi carrying interest at 10 per centum per annum. The bond wasattested by the respondent as notary and by the respondent’s brotherSamsudeen as witness. The security covered by the bond was (a) aprimary mortgage of the Panwila property, (6) a secondary mortgage ofFincham’s Land.
130, Hultsdorf Street,Colombo, 23 November, 1942.
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GRATIAEN J.—Weeraawriya v. Fuard
j At the time of the execution, of PI the appellant handed to the re-spondent, as attesting notary, two cheques for Rs. 375 and Its. 14,625respectively, Fhe cheque for Us. 375 was endorsed and returned to theappellant to cover 3 months interest in advance. The balance sum ofRs. 14,625 was distributed by the respondent as follows :—
(а)Rs. 375 was retained by the respondent on account of stamps
fees, &c.
(б)Rs. 4,500 was paid to the respondent's first cousin Naina Marikar,
the judgment-creditor in the pending mortgage action, inconsideration of which payment (and of a fresh mortgage forRs. 1,000 postponed to PI) satisfaction of the decree was dulyentered of record. In the result, Naina Marikar had the goodfortune to receive back in cash his capital investment, togetherwith a sum of Rs. 750 in substantial reduction of his claim,interest and costs.
Rs. 2,500 was paid to the respondent's brother Samswdeen in full
settlement of his claim on the bond D2.
Rs. 3,500 was paid to the respondent’s wife in full settlement of
her claim on the bond D2 ..
Rs. 3,750 was paid to Samaratunge personally. (There is noevidence as to whether any part of this sum was later paidby him to the respondent’s brother Samsudeen as remunerationfor negotiating this most opportune loan. On the other hand,there is no evidence which would justify the assumption thatthe services rendered by Samsudeen in the transaction hadbeen actuated solely by motives of liberality.)
In the result, at least Rs. 10,500 out of the capital invested by theappellant was directly utilised to the financial benefit of three closerelatives of the attesting notary. And in each case the relative sobenefited had been rescued from the situation of being the creditor of aperson who could have had no reasonable prospect of raising furthermoney from prudent investors and whom the notary concerned admit-tedly regarded at the time as “a difficult customer who would neverkeep to bis word ”. Prom the point of view of these persons, thecompletion of the transaction can certainly be regarded as entirelysatisfactory.
The investment, as any reasonable person should have foreseen,proved disastrous. No change occurred in either Samaratunge’sfinancial position or in his respect for the sanctity of bis contractualobligations. He defaulted in the payment of interest from the verystart, and the only sum which the appellant received on this accountwas the single payment of Rs. 375 which had been retained to cover 3months interest in advance. The position further deteriorated inSeptember, 1943, when Moolchand sued Samaratunge to enforce hisprimary bond in respect of Fineham’s Land, the appellant being joinedin the action as secondary mortgagee. Decree in Moolchand’s. favourwas entered for Rs. 51,620 together with further interest and costs.On April 19, 1944, the mortgaged property was sold in execution of thedecree and was bought by Moolchand for only Rs. 16,000. Moolchand
GRATTAEN J.—Weeraauriya v. Fuard
57
1 –
states that he succeeded shortly afterwards in reducing his own. loss tosome extent by selling Fincham’s Land to an outsider for Rs. 30,000.Whether the value of the property has more recently been enhanced byreason of the boom conditions of the post-war period is quite beside thepoint.
The result of the sale of Fincham’s Land in execution of Moolchand’sdecree was that the appellant’s interests as secondary mortgagee werewiped out. There remained only his security on the primary mortgageof the Panwila property. In June, 1944, the appellant sued Samaratungeon the bond and obtained a decree for Rs. 17,705-62. At a judicialsale conducted on the land in the presence of 20 or* 30 people on March9, 1946, it was purchased by an outsider for only Rs. 2,250. This sum,together with the sum of Rs. 375 originally retained as interest in advance,represents all that the appellant was able to recover out of the capitalinvestment of Rs. 15,000, to say nothing of the expenses incurred in themortgage action. In the result, the appellant has been almost completelyimpoverished, and he has since been reduced to the necessity of supple-menting his income as a pensioner by obtaining temporary employmenton a small monthly salary.
Up to this point in the narrative, the facts as I have substantiallyset them out are not in dispute, but there is much divergence betweenthe versions of the appellant and the respondent respectively as to thepart which the latter played in putting through this most disastrousinvestment.
The gist of the appellant’s complaint is that the respondent, actingas his legal adviser, had recommended the unprofitable investmentintroduced by Samsudeen, and that his conduct constituted a breach ofhis professional duty arising under the contract of employment; inparticular, that the respondent had acted fraudulently and with thedishonest intention of furthering the interests of his own relatives—information regarding which interests he had improperly withheld fromthe appellant at the time when the transaction took place. In thesecircumstances he claimed that the respondent should indemnify him forthe loss sustained by him which he assessed, at the time when the actioncommenced, at Rs. 20,000.
The respondent denied the allegations made against him. He admittedin his pleadings that the appellant had “ consulted him professionallyfrom time to time regarding his investments ”, and that he had“ rendered the (appellant) professional services from time to time ”.With regard to the particular investment of December 3,1942, however,he pleaded that he “ had at all times expressly told the (appellant) thathe must satisfy himself about the value and adequacy of the security ”and that “ the (appellant) satisfied himself accordingly ”. Finally,he pleaded that “ the security was adequate in fact, though the (re-spondent) did not recommend either the security or the borrower ”. Theanswer does not explicitly refer to the complaint that the adverseinterests of “ others ”, i.e., of the respondent’s relatives to whom I havereferred, were not previously known to the appellant or communicatedto him at the relevant time.
2*—-—T. X. B 19618 (8/52)
•58
G.RATIAE 1ST J,—Weeraswriya v. Fuurd
The case went to trial on as many as 12 issues. The learned DistrictJudge has answered in the affirmative the following issues :—
“ (1) Did the plaintiff employ the defendant as Ms legal adviser and toact for and on his behalf in connection with the investmentof Rs. 15,000 in or about November, 1942 ? ”
“ (2) In pursuance of such employment did the defendant invest thesaid sum of Rs. 15,000 with K. R. Samaratunge on BondNo. 2308 on 3. 12. 42 ?
On the other hand, the learned Judge has expressly held that the re-spondent had not “ fraudulently concealed material facts within hisknowledge with a view to inducing the (appellant) to make the invest-ment ”. In this view of the matter, he decided that the further issuewhether the respondent had “ committed a breach of his contract ofemployment with the (appellant) and/or an intentional derelictionof professional duty relative to the investment ” did not arise for(;onsideration.
Tor the reasons which I shall later indicate, it seems to me that thelearned District Judge has not paid sufficient regard to the very highstandard of conscientiousness which a Court of Law, exercising juris-diction as a Court of conscience ”, must always demand from legaladvisers to whose contractual obligations there are superadded certain“ duties of particular obligation ” arising from a fiduciary relationshipof a special nature—such as, for instance, where a proctor is invited toact professionally for a client in a transaction from which either theproctor or his close relatives stand to benefit materially. As I read thejudgment under appeal, the learned District Judge, in disposing ofissue 5, seems to take the view in this particular case that the respondenthad sufficiently complied with his duty by informing the appellant of theexistence only of the subsisting mortgages on Fincham’s Land and thePanwila property respectively (without disclosing the identity of themortgagees). Accordingly, he holds, “ it made no difference to the(appellant) whether the secondary mortgage was in favour of Samsudeenand the (respondent’s) wife or in favour of some other parties ”. Withgreat respect, I cannot subscribe to this view. “ A solicitor who acceptssuch a post puts himself in a false position ; if he acts for both (parties),he owes a duty to both, to do the best that he can for both ”, perFarwell J. in Powell v. Powelll. It was the plain duty of the respondent'to have made it very clear to the appellant that his wife, his brother andanother close relative, for all of whom he was also acting and in whosefinancial advantage he had a special concern, were particularly interestedin the proposed loan to Samaratunge going through. He should un-ambiguously have warned the appellant of the extent to which thesituation created a conflict between his interest and his duty in order that,being thus forewarned, the appellant might have the opportunity ofpreferring to consult an independent and disinterested lawyer beforemaking a final decision in the matter. Indeed, I take the view that heshould have insisted that the appellant should obtain his legal advicefrom someone else.
{1900) 1 Ch. 243 at p. 24G.
GRATIAEN J.—Weerasuriya v. Fuarw^69
Notwithstanding this infirmity in the learned Judge’s method ofapproach to the matter arising for his decision, I cannot lose sight of thecircumstance that there is a very strong finding of fact in favour of theappellant on the issue of deliberate fraud in the sense in which that termimplies a dishonest intention, by means of false misrepresentations, tosecure a benefit for his own relatives at the appellant’s expense.. As aJudge of appeal, lacking the advantage of having seen and heard thewitnesses, I cannot presume to substitute my own opinion on this graveissue for that of the learned Judge. On the other hand, the trial Judge’sanswer to issue 5, though it quite explicitly disposes of the allegation offraud, was clearly not intended to express the view that the respondenthad in fact disclosed every fact known to him which was relevant to theappellant’s decision whether or not to grant the proposed loan toSamaratunge.
Does the acquittal of the respondent on the issue of actual (as opposed-to constructive) fraud conclude the case against the appellant ? Thiscannot be so. In the present case, each party had placed his versionof the transaction very fully before the Court. The appellant’s cause ofaction, shortly stated, is that the respondent is liable to indemnify him forbis loss because the respondent had failed to perform his professionalduty in regard to the transaction. No doubt the appellant has failed tosatisfy the trial Judge that this alleged breach of duty can be equated tothe commission of an intentional and deliberate fraud. But it does notnecessarily follow, however, that, if sufficient facts have been 'provedentitling the appeUant to succeed in his claim to be indemnified, he must bedenied justice merely because “ bis pleader has chosen to over-state hisclient’s case and the Judge to frame an issue embodying that over-statement ”, per Lord Atkinson in Jayewickreme v. Amarasuriya L
If fraud be imputed unsuccessfully but unnecessarily as forming oneof the ingredients of a cause of action, justice requires that the Courtshould nevertheless grant relief to the injured party provided thatother matters were alleged and proved which wod give the Courtjurisdiction as the foundation of a decree. Archbold v. Commissioners ofCharitable Payments for Ireland2. It was by the application of thisprinciple that, in a case which is in many respects similar to the presentlitigation, the House of Lords granted an indemnity to a client againsthis solicitor against whom an allegation of fraud had failed but againstwhom dereliction of duty arising from his position of fiduciary relation-ship was nevertheless established. Nocton v. Lord Ashburton3. When thereal character of the litigation has been made plain, said Lord Haldane,one should not permit the issue between the parties to be clouded by
difficulties which are concerned with form and not with substance ’ ’.In my opinion the averments in the plaint justify the examination of theplaintiff’s claim on the basis of a cause of action founded in tort or incontract or in breach of duty or even in a combination of all these elements.
It is indeed unfortunate that, having satisfied himself that the re-spondent had not intentionally defrauded the appellant, the learned
1 (1918) 20 FT. L.R. 289 at p. 297.2 {1849) 2 H. L. C. 440.
3 (1914) A. G. 932.
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C^RATIAEN J.—Weerasuriya v. Fuard
Judge did not direct his mind to the further question whether upon thefacts the respondent had nevertheless “ violated, however innocently(because he had misconceived the extent of the obligation which a Courtof Equity imposes on him), an obligation which he must be taken by theCourt to have known ”. Norton’s case x. This Court is thereforedeprived of the advantage of having before it any clear adjudicationupon many material issues which are controversial. Normally, thesituation would have called for a retrial, but in the present case I amsatisfied that justice can be done without exposing the parties to theinconvenience and expense of a trial de novd regarding the circumstancesof a transaction which had taken place nearly 10 years ago.
I shall now enumerate the points which have particularly weighed,with me in reaching the conclusion that there is sufficient materialupon which the liability of the respondent has been established evenif one were to take a view that is least unfavourable to his professionalhonour.
The learned Judge has expressly held that the respondent actedas the appellant’s legal adviser in the transaction, and the respondentadmits that he did in fact tender certain professional advice to theappellant in that connection : in determining the sficiency of thisadvice, it is not improper, I think, to pay special regard to the versioncontained in his letters P61 of November 14, 1945 (in reply to P60),P63 of November 30, 1945 (in reply to P62), and P67 of October 17,1945 (in reply to P66). Certain statements made by him for the first-time in the course of cross-examination, and which the appellant hadnot been given the opportunity of denying when he was in the witnessbox, are to my mind far less reliable.
Notwithstanding the protestations of Samsudeen and Samara-
tunge, it is very clear from the documents P48, P49 and P50 that theloan and the proposed borrower Samaratunge were in the first instancerecommended to the appellant by Samsudeen. These letters notonly contain many false statements as to the nature of the securityand the integrity of the borrower, but they also expressly purportto associate the respondent with those statements. The appellant,who was not cross-examined on this point, has stated that these letterswere shown by him to the respondent, and this fact has not beendenied by the respondent. I regret that, in spite of my admitteddisadvantages as an appellate Judge, I do not believe the respondentcould have unambiguously removed the false impression which Samsu-deen had given as to Samaratunge’s personal unsuitability as a debtor.This point was not suggested to the appellant in cross-examination,nor did the respondent claim to have so acted in any of his earlierletters addressed to the appellant or the appellant’s proctor. It isinherently improbable that the appellant would havfe proceeded withthe business if he had been made to realise that Samsudeen’s writtenencomiums of Samaratunge, purporting to have been endorsed bythe respondent himself, were deliberately false ; in this respect alsothe respondent has failed in his professional duty.'
1 (1914) A. O. 932 at p. 954.
ARATTATSK J.—Weerasuriya v. Fuardt
61
There is a finding in favour of the respondent, and the appellantadmits, that the respondent had warned him that he must satisfyhimself as to the value of Tin chain’s Land, and that it was safer toregard this property as the substantial security for the proposedloan. But in the present case X do not regard this advice as evennearly approximating to the kind of professional advice which thesituation demanded. Before the action commenced, the respondentset out in writing the nature of the professional advice which he claimsto have given. “ I cautioned you ”, he said in his letter P61, “ thatyou should not lend unless you were satisfied that the big property(i.e., Fincham’s Land) is worth over Rs. 50,000. In fact, I remembervery well that I advised you not to place any value over his (Panwilaproperty) because it consisted of several small lots. Further, I toldyou that you should lend Rs. 50,000 only if (Fincham’s Land) is worthRs. 50,000.” This letter also confirms that the respondent had toldthe appellant that in his own opinion Fincham’s Land was in factworth “somewhere near Rs. 50,000”. It seems to me that even onthis hypothesis, the professional advice given by the respondent wasin all the circumstances quite inadequate. It is not pretended thatthe appellant was warned that the sum outstanding on the primarybond in Moolchand’s favour now exeeeded, or (in the absence ofprecise information) must be assumed to have exceeded, Rs. 40,000.The proper advice should have been that there was a real risk thatthe security of a secondary mortgage would, particularly in the eventof a forced sale, prove to be virtually negligible unless its realisablevalue left over an ample margin to meet that contingency. A layclient, inexpert in valuation and known to possess little previousexperience of investments, cannot reasonably be expected to advisehimself as to the sufficiency of the security offered unless he isforewarned of the special risks to be avoided.
As I have previously said, the respondent should have disclosedthe fact that his close relatives, for whom he was acting, were Samara-tunge’s creditors and stood to benefit if the transaction went through.The appellant consistently maintained that he was unaware of thiscircumstance until long afterwards. In his letter P60 dated March12, 1945 (i.e., nearly 5 years later) he wrote to the respondent “ Iunderstood that the money lent by your relations, also I believe onyour advice, has been paid by Mr. Samaratunge ”. The reply to thiscategorical allegation was “ In your letter you seem to imagine lotsof things to blame me. Still Mr. Samaratunge owes money to myrelatives .” This was certainly not a very frank statement in thecircumstances of the case, and I am perfectly satisfied that the re-spondent had not at any relevant period of time disclosed to theappellant the nature or the extent of the interests of his relations in thetransaction. Indeed, the respondent admits that he did not givethis vital information, his excuse being that the appellant had toldhim “ that he had heard that my wife had lent money and that mybrother had lent money on that land. I did not therefore tell (theappellant) that my wife had a mortgage ”. Indeed, it is implicit inthe findings of the trial Judge that this relevant information, which
62GRATIAJEN J.—Weeraauriya v. Fuard
the learned Judge erroneously regarded as immaterial, had not in factbeen disclosed to the appellant. I find myself unable to accept asvalid or as truthful this excuse for non-disclosure which was notsuggested to the appellant in cross-examination or given when thefirst opportunity arose to offer an'explanation.
When a proctor is engaged to advise a client in regard to a proposed,investment, “ his contract of employment imposes on him a duty toact skilfully and carefully …. and, superimposed on this-contractual duty, is the duty imposed by his fiduciary position to makea full and nob a misleading disclosure of facts known to him when advisinghis client ”. Nocton’s case (supra). As Lord Haldane states, “ whena solicitor has financial transactions with his client and has handledhis money to the extent of using it to pay off a mortgage made to himself,,the Court has jurisdiction to scrutinize the transaction ”. No less-vigilantly should his conduct be examined when the money is utilised tosettle not his own personal claims but those of his relatives. See alsoAbdul Coder v. Sittinisa1 where the same principles were applied by thieCourt in setting aside a transaction put through by a proctor for hiswife’s benefit.
Examined in this way, the respondent’s conduct in the transactionunder consideration fell far short of the duty imposed on him by contractand also of “ the duty of particular obligation ” imposed on him by his-special fiduciary relationship. Putting the case against him at the verylowest, he did not disclose to the appellant the extent to which his-relatives stood to gain if the transaction went through ; he did notsufficiently advise the appellant as to the safe margin which should be-insisted on if the main security for the loan was to be a secondary mortgage-of Unchain’s Land—having regard particularly to the appellant’s knowninability to purchase the property himself at a forced sale in order to-protect himself; Samaratunge was a debtor of proved unreliabilitywhose financial position had by the beginning of December, 1942, becomewell-nigh desperate ; and the respondent did not sufficiently, if at all,refute the recommendation of the borrower with which Samsudeen haddeliberately associated him in the letters P48, P49 and P50. In other-words, he refrained from communicating to his client many circumstances-within his knowledge which were material to his client’s decision. Itwas a breach of duty in the facts of the present case to -withhold anyinformation as to the special risks attending the proposed transaction.
In any view of the matter, the respondent’s conduct has fallen shortof the high standard of conscientious duty exacted by well definedprinciples of the common law. The appellant has lost his money inconsequence and is in my opinion entitled to claim an indemnity for the-loss which he has sustained.
It is not suggested that the sum of Rs. 20,000 claimed on this accountis in any way excessive. The appellant could not by any means withinhis power or within the realm of practicability have minimised his loss.I mention this point because the learned Judge has stated, presumably-by way of criticism, that the appellant “ does not appear to have taken1 (1951) 52 N. L. B. 536.
3STAGAX.TN"GAM S.P.J. —Jainudeen v. Mohideen^Thamby63
any steps to purchase (Fineham’s Uand) himself or pay off the moneydue to Moolchand. If he had paid the money due to Moolchand, then(the appellant’s) bond would have been a primary bond I reallydo not understand how a Government pensioner who had alreadyinvested his entire capital (and indeed, some borrowed money as well)in granting the loan to Samaratunge could have been expected to raisesufficient funds to settle the very substantial judgment-debt in favour ofMoolchand in order to protect his own hypothecary rights.
In my opinion the judgment under appeal should be set aside and adecree entered in favour of the appellant against the respondent asprayed for with costs both here and in the Court belpw.
Gttkasbkaba J.—I agree.
Appeal alloived.