Latchman v Prasad [1960] FJLawRp 18; [1960-1961] 7 FLR 90 (23 December 1960)

[1960-61] 7 FLR 90

FIJI COURT OF APPEAL
AT SUVA

Civil Appeal No. 8 of 1960

LATCHMAN

v

AJUDHYA PRASAD

Sir Francis Adams, Acting President,
Trainor and Knox-Mawer, JJ/A

23rd December 1960
(Appeal from H.M. Supreme Court of Fiji—Lowe, C. J.)

Illegality — not pleaded or argued by parties—court taking cognisance of, suo moto — dismissal of claim and counterclaim.

In this action the trial Judge had dismissed the claim and counterclaim, holding that both parties were in pari delicto to an agreement the object of which was illegal. Upon appeal it was contended inter alia that inasmuch as the parties did not raise the question of illegality at the trial, the defendant was deprived of the opportunity of calling evidence to rebut any suggestion of illegality, and of addressing the court on matters pertaining thereto, and consequently there had been a miscarriage of justice.

Held.—The illegality was clearly revealed on the evidence before the court, and there was no reason to suppose that the relevant facts were not fully before the court. In such circumstances the court will not allow its process to be abused. The passage cited from North-Western Salt Company Limited v Electrolytic Alkali Company Limited has no application where the evidence unequivocally establishes the illegality.

Appeal dismissed.

Case cited. North-Western Salt Company Limited v Electrolytic Alkali Company Limited [1914] UKLawRpAC 9; 1914 AC 461.

S. M. Koya for the Appellant.

R. G. Kermode for the Respondent.

KNOX-MAWER, J.A.—

On 6th March, 1953, the respondent (the plaintiff in the Court below) entered into the following agreement with one Abdul Shakur:

An Agreement made this 6th day of March, 1953 between Abdul Shakur (father's name Niyamat) of Lautoka in the Colony of Fiji Lorry Owner (Hereinafter called "the Vendor") of the one part and Ajudhya Prasad (father's name Pandit Gokal Chand) of Lautoka Farmer (hereinafter called "the Purchaser") of the other part.

Whereby it is agreed as follows:-

1. The Vendor will sell and the Purchaser will buy at the price of three thousand nine hundred and twenty-four pounds (£3,924 0s. 0d.) the chattels and interest described in the schedule hereto.
2. The said price shall be paid as follows: the sum of eight hundred pounds (£800) upon the execution hereof and the balance of three thousand one hundred and twenty-four pounds (23,124 0s. 0d.) by monthly instalments of eighty pounds £80 0s. 0d.) each the first of such instalments being payable on the 31st day of March, 1953 and subsequently thereafter on the last day of each and every month up to the 31st day of March, 1955.
3. The Purchaser shall pay interest on all moneys remaining owing here-under at the rate of twelve pounds (£12) per centum per annum. Such interest shall be calculated and paid monthly.
4. Such instalments of £80 0s. 0d. paid each month shall be applied first to the payment of interest and the balance thereof to deduction in the principal sum owing each month.
5. Possession of the vehicles mentioned in the schedule hereto shall be given and taken from the date of the execution hereof.
6. The Purchaser shall be entitled to all the earnings of the vehicles referred to in the schedule hereto and shall be responsible for all expenditure of whatsoever nature in connection with the running, maintenance, repairs, etc„ of the said vehicles.
7. The Purchaser shall during the continuance of these presents keep the said vehicles in good repair appearance and serviceable condition and the Vendor shall be at liberty at all reasonable times to inspect the same.
8. The Purchaser shall keep the said vehicles insured to the satisfaction of the Vendor during the continuance of these presents.
9. The Purchaser shall be responsible for the engaging dismissal and conduct of the drivers of the said vehicles.
10. The Vendor hereby expressly agrees that he will not at any time whilst the Purchaser is operating a passenger service vehicle on the Ba-Lautoka route operate a passenger service without the consent in writing of the Purchaser and the Purchaser shall be bound to give his consent if the Purchaser's interest is not affected as to time-tables.
11. The remaining purchase price and interest shall be paid in full on the 30th day of April, 1955.
12. In case the Purchaser shall make default in the payment of the instalments and interest as herein provided for a period of fifteen days or in the observance of any of the demand the payment of the full amount of the balance purchase price and interest forthwith and if the amount is not so paid the Vendor shall be entitled to resume absolute possession of the chattels hereby sold and all amount already paid for such sale shall be forfeited to the Vendor.
13. The Vendor shall at his own expense and effort have the International Lorry Number 5204 completed to the satisfaction of the Transport Control Board as a public service vehicle and deliver same to the Purchaser within 31 days from the date hereof.
14. Upon payment of the full purchase price the Vendor shall transfer the said vehicles to the Purchaser and shall give him every assistance in securing a public service vehicle licence for that route.

The Schedule hereinbefore referred to

One 30 passenger "International" Service Bus Registered Number 5204; One 23 passenger "Bedford" Service Bus Registered Number 3550 together with the Vendor's interest in the Passenger Service Road Licence attaching to such vehicles."

Abdul Shakur died in April, 1954, and the appellant (the defendant in the Court below) became trustee of his estate. There was paid by or on behalf of the respondent on account of the purchase price recited in the above agreement a total sum of £2,400 to Abdul Shakur or his estate.

On 16th June, 1956, the respondent and the appellant executed a Bill of Sale in which the respondent acknowledged his indebtedness to Abdul Shakur's estate for the sum of £1,919 11s. 8d. in respect of the purchase price of the lorries 5204 and 3550. This principal sum was to become payable on 9th April, 1957, and interest was to run at 6 per cent per annum. No public service licence was ever given to the respondent. Early in 1957 the appellant seized vehicle 5204, whereupon the respondent instituted this action against him. In his statement of claim the respondent claimed, inter alia, £2,000 as the value of the licence which he had not obtained on the grounds of breach of contract or partial failure of consideration, £300 for breach of contract in respect of the alleged failure to transfer or deliver possession of vehicle 3550, and an injunction restraining the seizure and sale of vehicle 5204 and/or vehicle 3550. The appellant counter-claimed for the sum of £1,919 11s. 8d. plus interest due under the Bill of Sale.

The learned trial Judge concluded that the object of the agreement of 6th March, 1953, was illegal, being contrary to public policy. This object, he found, was to allow one Shiupal Singh, an undischarged bankrupt, secretly to operate the public transport business for his own benefit and without the knowledge of the Official Receiver or his creditors. He found that the respondent and Abdul Shakur were in pari delicto in this respect, and dismissed both the claim and counter-claim.

The appellant, having lodged an appeal in this Court, the respondent applied for a case to be stated by the learned trial Judge. The respondent has now intimated, by his Counsel, that if the appellant's appeal is dismissed, he does not wish to be heard upon the case stated.

Six grounds of appeal are set out in the appellant's petition, of which grounds 4 and 5 have been abandoned.

The first ground of appeal is as follows:—

"That the learned trial Judge erred in law in refusing to enter Judgement for the defendant on the counter-claim for the sum of £1,919 11s. 8d. and interest under Bill of Sale No. 56/1247 given by the plaintiff in favour of the defendant."

The answer to this ground of appeal depends upon an affirmative answer to one or other of the remaining grounds of appeal. The second ground of appeal reads:—

"That the learned Judge was wrong in law and in fact in holding that the transaction entered into between the plaintiff and the deceased Abdul Shakur with regard to the Sale and Purchase of a Road Service Licence for Lautoka-Ba Service and two (2) Motor Vehicles was an illegal transaction."

I am not prepared to hold that the agreement of 6th March, 1953, was necessarily illegal on the face of it. The learned trial Judge did not so regard it. He stated in his judgment:—

"The agreement itself is not an "illegal" contract on its face, using that word in the sense referred in Cheshire and Fifoot, 4th Edition, 272, but its object was "illegal"."

In my view, the evidence of the respondent himself revealed that he was certainly a party to such an illegal object and thus destroyed his own case at the outset. When the agreement of 6th March, 1953, is examined in the light of the respondent's evidence, its otherwise somewhat curious form becomes more readily understandable, namely, as a camouflage of the real position vis-a-vis Shiupal Singh. Similarly, the omission to notify the licensing authority under section 19 of the Traffic Ordinance 1946 is consistent with a desire to conceal from the authorities the true position, and thus to assist the illegal object. The second ground of appeal, therefore, cannot succeed.

The third ground of appeal is:

"That assuming that the said transaction was entered into by the plaintiff for and on behalf of the bankrupt Shin Pal Singh and that the transaction was illegal for that reason or any other reason the learned trial Judge was wrong in law and in fact in holding that the said Abdul Shakur was in pari delicto with the plaintiff."

In order to answer the third ground of appeal it has been necessary to re-examine the evidence to see whether it is sufficient to warrant the conclusion that Abdul Shakur must also have been a party to the illegal object. I am satisfied that such a conclusion is necessarily to be inferred from the evidence. In the first place, the learned Judge was entitled to declare that Shin Pal's bankruptcy must have been made public by announcement in the Gazette. Furthermore, the respondent said in evidence:—

"I was friendly with Shiupal Singh who was then a bankrupt. Shiupal wanted to buy the service from Abdul in his wife's name. Abdul said there must be a reliable man to whom he would agree to sell the licence and vehicles. Shiupal then saw me and I being his friend wanted to help him."

The reference to a "reliable man" by Abdul Shakur is consistent with a knowledge upon his part of Shiu Pal's position. "Abdul Shakur" the respondent further stated "had arranged with Shin Pal and he brought me in and I had paid money on the security of the licence". The witness Jaswant Singh claimed that " in 1953 Abdul sold his service to Shin Pal ". Certainly Abdul Shakur received payments from Shiu Pal who must obviously have been running the business on his own account because the respondent said he did not ever bother to find out how much the lorries were earning. Moreover, when Jaswant Singh's firm negotiated the purchase of lorry 3550, they did so, according to Jaswant Singh, with Abdul Shakur and Shiu Pal. There can in my opinion be no doubt but that Abdul Shakur was involved in the scheme to allow Shiu Pal secretly to operate this business. This ground of appeal also fails.

The sixth ground of appeal reads:—

"That inasmuch as the parties did not raise any question of illegality at the trial, the defendant was deprived of the opportunity of calling evidence to rebut any suggestion of illegality and of addressing the Court on matters pertaining thereto and consequently there has been a miscarriage of justice."

Learned Counsel for the appellant has cited in support of his argument on this ground of appeal the following passage from the judgment of Viscount Haldane in North-Western Salt Company Limited v Electrolytic Alkali Company Limited [1914] UKLawRpAC 9; 1914 AC, 461, at p. 469:—

"My Lords, it is no doubt true that where on the plaintiff's case it appear to the Court that the claim is illegal, and that it would be contrary to public policy to entertain it, the Court may and ought to refuse to do so But this must only be when either the agreement sued on is on the face of it illegal, or where, if facts relating to such an agreement are relied on, the plaintiff's case has been completely presented. If the point has not been raised on the pleadings so as to warn the plaintiff to produce evidence which he may be able to bring forward rebutting any presumption of illegality which might be based on some isolated fact, then, the Court ought not to take a course which may easily lead to a miscarriage of justice. On the other hand, if the action really rests on a contract which on the face of it ought not to be enforced, then, as I have already said, the Court ought to dismiss the claim, irrespective of whether the pleadings of the defendant raise the question of illegality."

In the present case, although, as I have stated, the agreement of 6th March, 1953, may not be, on the face, of it, necessarily illegal, nevertheless the respondent at the very begining of his examination-in-chief revealed facts relating to this agreement which immediately disclosed an illegal object in which both he and Abdul Shakur were seemingly involved. This not only destroyed the respondent's own case, but gave the appellant ample warning of the difficulty which he must face in regard to his counterclaim. He had the opportunity to call evidence, if any was available, to rebut the clear inference thus raised, early in the first day of the trial, that both parties were parties to an illegal object, and the Court was certainly entitled to take note of this illegality irrespective of whether it had been pleaded or not. The sixth ground of appeal accordingly fails.

In the outcome this appeal is dismissed. The answer to the question stated is thus in the affirmative, namely that upon the facts the learned trial Judge came to a correct decision in point of law.

There will be no order as to costs.

TRAINOR, J.A. — I concur.

ADAMS, J.A., (President)

I am in general agreement with the reasoning of the judgment of Knox-Mawer, J.A., and concur with him in holding that the appeal must be dismissed. I shall state brefly the main reasons for my concurrence.

I am not convinced that it is necessarily illegal to assist an undischarged bankrupt to carry on a business, but think it is certainly unlawful to do so in a manner designed and intended to ensure secrecy for the purpose of preventing the profits accruing to the bankrupt from reaching the hands of the Official Receiver. I am inclined to think that both parties to this contract entered into it with that intention, and proceeded to perform it in a way they hoped might secure the intended result.

I have no doubt, however, that there was breach of the Traffic Ordinance in carrying on the business without a subsisting licence authorizing it to be carried on by the person or persons who in fact did so, and am clearly of the opinion that both parties to the contract intended, when the contract was entered into, that it should be performed in a manner constituting a breach of the Ordinance, and that, from the start, both Prasad and Abdul Shakur, while he lived, were involved in the illegal performance. There are, I think, suspicious elements in the agreement itself; but the illegal intention is enough, at any rate where the parties in fact proceed to perpetrate the illegality. Where illegal performance is intended, it does not matter that the formal agreement may be innocent on its face. I think also that a persistent course of illegal performance might be enough to put both parties out of court even though there may have been no illegal intention in the inception of the transaction. In the present case, I consider that the illegal intention was present when the contract was entered into, and was forthwith put into operation in the performance of the contract, and remained in operation at all relevant times.

As to the duty of the court to take notice of such illegality though the parties have not chosen to plead or argue it, the practice in that respect is well established, and in my opinion was applicable here. The illegality was quite clearly revealed on the evidence before the court, and there was no reason to suppose that the relevant facts were not fully before the court. In such circumstances, the court will not allow its processes to be used, and the classical passage cited from North-Western Salt Co. Ltd. v Electric Alkali Co. Ltd. [1914] UKLawRpAC 9; 1914 AC 461, 469 has no application where the evidence unequivocally establishes the illegality. A court which has such evidence before it has, as the law now stands, no option but to refuse its assistance.

Learned counsel quite rightly conceded that, if the main Contract were infected by the alleged illegalities, the Bill of Sale could not stand.