Legal Services and Laws of Sri Lanka


SLR-1984 Vol.2-P253

SLR - 1984 Vol.2, Page No - 253

COLLETTES LIMITED
v.
BANK OF CEYLON

SUPREME COURT,
SHARVANANDA, J., ABDUL CADER, J. AND RODRIGO, J.
S.C No. 48/83 - C. A. No. 325/74 (F) - D. C. COLOMBO 73754/M.
JUNE 18 TO 20, 25 TO 27, 29, 1984.
JULY 2 TO 5, 9 TO 11, 13, 16 TO 19, 23 TO 27, 30, 31, 1984.
AUGUST 1 TO 3, 6, 7, 9, 27, 1984.

Jurisdiction of Supreme Court to review concurrent findings of fact arrived at by the lower Courts - Articles 127 and 128of
the Constitution - Assessment of demeanour of witnesses by trial Judge -Non-productionofRegister-Presumptionunder
section

114 of the Evidence Ordinance - Obligation to send bank statements by post - Acquiescence - Imputation ofagent'sknowledge
to principal -Estoppel by acquiescence - Scope of servant's authority - Effect of prohibition to determine whether an actof
fraud and negligence by an employee was done in the course of and withinthescopeofhisemployment-Negligenceand
remotenees of damages - Novus actus interveniens - Onus of proof - Effect of fraud committed byofficersandDirectorsof
the Company who are not its directing mind and will and not in control of the operation of the company - Duress -Commercial
pressure duress - Estoppel by convention.

The plaintiff was a company dealing in motor vehicles, repairs and spare parts, and had an overdraft facility ofRs.31/2
million on its account No. 22200 with the defendant bank. In August 1968, Harasgama,ManagingDirectorofthePlaintiff-
company made an application to the defendant-bank to have the overdraft facility increased to Rs. 5 million stating thatthe
overdraft amount then drawn was Rs. 2 million. When this application was processed it was foundthattheamountoverdrawn
was much more. This was discovered on 28.11.1968. A check revealed that a large number of items ofchequesandcashwhich
according to the Bank statements and deposit counterfoils in the possession of the plaintiff amountingtoRs.1,275,883.66
had not been credited to the plaintiff's account and further a sum of Rs. 49,546.16 had been debitedasinterest.Moreover
fictitiously inflated stock statements which did not correspond with those inthepossessionoftheplaintiffhadbeen
tendered month after month to the Bank to enhancetheoverdraftfacilityandsoenableasmuchasRs.3,431,409.99
inclusive of interest, expenses and charges to be overdrawn. The fraud had gone on for 12 years and involved overamillion
rupees. The Bank Statements were found to be fabricated and so were the counterfoils.

On 05.12.1968 the defendant-bank sent the plaintiff a certificate of balance showing the overdraft asat28.11.1968tobe
Rs. 3,403,099.92 and this was accepted by the plaintiff without protest. On 30.12.1968 the plaintiff-company, havingearlier
on21.12.1968 executed a primary mortgage in favour of the bankhypothecating premises No. 101, D. S.SenanayakeMawatha,
Colombo against its indebtedess, signed a document admitting that as at close of business on 14.12.1968 the amountoverdrawn
by it on its account was Rs. 3,381,497.28.

The plaintiff-company instituted this action on 22.11.1970 against the defendant-bankprayingforadeclarationthat
cheques and cash to the value of Rs. 1,276,883.03 were deposited by the plaintiff to the credit of itscurrentaccountNo.
22200 with the defendant-bank and the said account was wrongfully debited with a sum ofRs. 49,546.16 alleged to bedueas
interest and that the plaintiff's said account was overdrawn on 18.11.1968 only in a sum of Rs. 2,268,381 .34

For a first alternative cause of action the plaintiff pleaded that ifthesaidchequesandcashtothevalueofRs.
1,275,883.03 had not in fact been deposited then such non-deposit and/or misappropriationwasduetothefraudand/or
negligent acts or omissions of the defendant and /or its servants and agents acting in the courseoftheiremploymentand
within the scope of their authority. The defendant-bank had acted fraudulently and/or negligently in thatithadpermitted
unauthorised persons to have access to and control of blank forms of statements of account, forms usedtocertifybalances
and/or other security documents and issued or caused or permitted tobeadorfacilitatedtheissueoffabricatedor
incorrect receipts and monthly and weekly statementsofaccountsandcertificatesofbalancestotheplaintiff.The
plaintiff thus suffered a loss of Rs. 1,275,883.66 together with debited interest in a sum of 49,546.16.

For a second alternative cause of action, if the cheques and cash to the value ofRs. 1,275,883.66 had not beenbroughtto
deposit, the defendant and/or its servants had jointly with one Ingram who was the SalesManageroftheplaintiffanda
Director of Collettes Finance Ltd. a subsidiary of the plaintiff-company misappropriated them and plaintiff wasentitledto
recover the said sum as loss and damage suffered.

The defendant-bank took up the position that the cheques and cash referredtohadnotinfactbeendepositedandthe
receipts in respect of such alleged deposits were faked and disclaimed liability for the fraudulent actions andconcealments
of Ingram whowasplaintiff'sSalesManagerandalsoaDirectorofoneofitssubsidiaries.Onthefraudulent
representations made monthly by the plaintiff to the defendant in regard to the value of its Stocks, the plaintiffwasable
to overdraw on its current account more than it would otherwise would have been entitled to overdraw and the damagesifany
suffered by the plaintiff was due to its own fraud. Thedefendanthadsenttheplaintiffstatementsofaccounts,and
certificates of balances relating to the current account of the plaintiff and so alsohadtheauditorssentconfirmation
slips of the state of its current account but the plaintiff had not questioned them nor had it at any timematerialtothe
action imputed fraud to the defendant's employees. The plaintiff hadacceptedthecertificateofbalanceof05.12.1968
without protest and signed the document of 30.12.1968 acknowledging it had overdrawn a sum of Rs. 3,381,497.28.Inaddition
the plaintiff had executed a primary mortgage in respect of premises No. 101 D. S. Senanayake Mawatha. On the faiththatno
allegations of fraud were being made against it the defendant extended further credit facilities to the plaintiff.Therefore
the plaintiff was estopped from now denying the sumdueorassertingfraudandnegligenceandclaimingdamages.The
plaintiff company then filed a further pleading on 10.12.1971 averring that it, through two of its Directors, was inducedto
sign the mortgage dated 1.12.1968 and document dated 30.12.1968 by the deliberate misrepresentations, Suppressions offacts,
duress, undue influence and threats of harm to the Company by the defendant'sGeneralManager,C.Loganathan,andbya
breach of the fiduciary duty the defendant owed the plaintiff-company and its Managing Director Harasgama.

At the conclusion of the trial Counsel for the plaintiff-company conceded he had failed to prove hismaincauseofaction
viz. the alleged deposit of cash and cheques to the value of Rs. 1,275,883.66 and the District Judgefoundaccordinglybut
he (Counsel for plaintiff) reliedonthetwoalternativecausesofactionbaseduponfraudandnegligenceand/or
misappropriation on the part of the Bank's agents and employees acting in thecourseofandwithinthescopeoftheir
duties.

The bank employee mainly involved was Abeywickrema. He worked in the Foreign Department of thedefendant-bankasaledger
clerk from 1955-1957 and in the Loan Department from 1957-1962 and from 1962 to June 1966 again in the Foreign Departmentas
clerk-in-charge of checking export documents. From 15.06.1966 the worked in the York Street. Branch onLedgerNo.8where
plaintiff s account was until September 1966. He later worked on Ledger No. 9 from 11.06.1968 to 23.08.1968 andduringthis
period plaintiff's account was in this Ledger. Amerasinghe was also workingwithAbeywickrema from12.081965.atthe
defendant-bank and he succeeded Abeywickrama as Ledger clerk-in-charge ofplaintiff's accounton23.08.1968rightupto
28.11.1968 when Ingram's fraud was discovered. The Plaintiff's case was that Abeywickrema wentoutofhiswaytopilfer
plaintiff's statements of accounts when he was not in charge of plaintiff's account and later when he was inchargeofits
account between June to September 1966 and June to August 1968 and fraudulently handed them over to Ingram.FromAugustto
November 1968 Amerasinghe handed over the statements to Abeywickrema to be delivered to Ingram.

On the first alternative cause of action, the trial Judge found that the defendant-bank had been negligent in thematterof
storing its blank forms and keeping them away from the reach of unauthorised persons. It had failed to follow itsownRules
and instructions set out in the Bank of Ceylon Manual of Operations with regardtothedeliveryofbankstatementsand
certificates of balances. Its employee Abeywicrema helped later by another employee Amerasinghe hadinthecourseofhis
employment intercepted the genuine bank statements and certificates thus preventing them from going by postandsubstituted
them with fabricated statements and certificates on pilfered obsolete and discarded blank forms availableintheBankand
handed them to Ingram for delivery to the plaintiff-company and also introduced into the bank fabricatedstockcertificates
received from Ingram who was his brother-in-law. These acts and omissions the trial Judgeheldestablishednegligenceand
complicity on the part of Bank in the fraud committed by its employees mainly Abywickrema. ThetrialJudgethereforeheld
with the plaintiff on the first alternative cause of action and entered judgment for plaintiff in a sum ofRs.1,169,240.93
as representing the loss and damage sustained by the plaintiff.

On the second alternative cause of action the trial Judge held that no misappropriationbythedefendant'semployeeshad
been proved and that it was Ingram the plaintiff's Sales Manager who had misappropriated the cash and cheques.

Held-
(1) The appellate jurisdiction of the Supreme Court is all embracing and unfettered. On leave to appeal beinggrantedunder
Articles 127 and 128 of the Constitution the Supreme Court is vested with Power asafinalCourtofCivilandCriminal
appellate jurisdiction to consider the correctness of the decision appealed against on any groundwhetheronquestionsof
fact or law and to affirm, reverse or vary any judgment or decree of the Court of appeal oranyCourtofFirstInstance,
tribunal or other institution. It has jurisdiction to revise concurrent findings offactreachedbythelowercourtin
appropriate cases. However, ordinarily it will not interfere with findings of fact based uponrelevantevidenceexceptin
special circumstances as for instance where the judgment of the lower Court shows that the relevantevidencebearingona
fact has not been considered or irrelevant matter have been given undue importance or that theconclusionrestsmainlyon
erroneous considerations or is not supported by sufficient evidence. In the instant case the DistrictJudgehadgrievously
gone wrong in his opinion. The judgment by its manifest errors of law and fact would result in a miscarriageofjusticeif
the Court of Appeal had affirmed it.

(2) An appellate Court can interfere, although it will do so rarely, with the trialJudge'sassessmentofdemeanour.The
demeanour of a witness ought not to be adopted by a trial Judge withouttesting it against the whole of the evidence ofthe
witness Harasgama Managing Director of the plaintiff- bank that he failed to take intoaccount thatHiragana'sprincipal
claim was false and untenable to his own knowledge, that his evidence on the non-receipt of theBank'sstatementsbypost
when the other subsidiaries of the Group had received theirs by post was open toquestion,thathehademployedprivate
detectives to steal documents from the defendant and that he had not taken timely steps to prevent Ingram's flightfromSri
Lanka.

(3) For the defendant-bank to be liable fortheactsofAbeywickremaandAmerasinghetheymusthavebeencommitted
fraudulently or negligently in the course of and within the scope of their employment as Ledger Clerks underthedefendant.
In order to determine whether the proved act of negligence of fraud on the part of a servant is within or withoutthescope
or course of his employment, it is not enough to decide whether or not what was done was prohibited conduct. Theprohibition
may either limit the scope of his employment or merely regulate his conduct within thesphereofhisemployment.Ifthe
latter the employer from liability if the act was merely a mode or method of doing what the servant was employed todo.The
distinction is between an order which limits the scope of the employment and an order which limits the methodinwhichthe
duties of the servant may be performed.

(4) According to the Bank rules the Ledger Clerk is prohibited from having anything to do with the sending out ofthebank
statement which is handled by an independent officer called the Adjuster who in this area of duty was an "outsider"andhis
actions did not bind the Bank. The Ledger Clerk permitted to hand over weekly statement to a customer inabookmaintained
by the Ledger Clerk the entries wherein are initialled onidentificationbythechequebookclerk.Inpracticethese
statements are handed over by the Ledger Clerk to the person who comes to deposit the Company's monies.

The rules of the Bank's Manual of Operations are merely counsels of perfection and they afford valuable criteria of therisk
against which the bank has to guard. They do not constitute a legal measure of the liabilityoftheBankandfailureto
comply strictly with them cannot render the Bank negligent. The trial Judge erred in thinking otherwise. The Bank'sadmitted
obligation to send the statement of accounts to the plaintiff could be fulfilled by sending them bypostorbydelivering
them to plaintiff's representatives.

(5) In any event the plaintiff-company's employees paul Fernando the Accountant and Lionel Fernando the Assistant Accountant
and their predecessors before them and the Accounts Section were aware of and acquiesced in the handing over ofthemonthly
statements (from 1958 to 1962) and weekly statement (from 1962 to November 1968) to Ingram (their Sales Manager andDirector
of one of their subsidiaries) and their knowledge is in law the knowledge oftheCompanyeveniftheManagingDirector
Harasgama was, though this is unlikely, unaware of it. The knowledge of an agent will generally be imputed tohisprincipal
where the agent received theagentinformation in connection with a transaction in which he isactingforhisprincipal
and where it is his
An acquiescence is not a question of fact but of legal inference from factsfound.Itmustbeintentionalconductwith
knowledge. Plaintiff is now estopped by twelve years (1956 to 1968) of acquiescence from complainingthatthedeliveryof
the bank statements to Ingram is wrongful : it is bound by such performance. Although theepleaofestoppelarisingfrom
acquiescence was neither pleaded nor raised in theissues,yetthetrialJudgedealtwiththeissueofplaintiff's
acquiescence and found against the defendant on it. Hence this matter can be dealt with in appeal.

(6) By acquiescing in Ingram's acts of collecting the bank statements the plaintiff held him out to the defendantashaving
authority to collect the monthly and weekly statements and thereby dispensed with the necessity of sending them by post.The
plaintiff by its conduct ratified and adopted the delivery of the statements to Ingram onits behalf and theobligationof
the defendant to send them to the plaintiff was thereby discharged. There was here estoppel by acquiescence.

(7) When Abeywickrema handed over the bank statements to Ingram when he was not functioning asLedgerClerkinchargeof
plaintiff's accounts, he did something so remote from his duties astobealtogetheroutsideandunconnectedwithhis
employment. There was no evidence that the plaintiff or Ingram relied on any ostensibleauthority ofAbeywickrematohand
over the statements or changed positions upon the faith of it nor isthereevidenceofanyrepresentationmadebythe
defendant bank. the essence of ostensible authority is that the employer by his words or conduct represents to thirdparties
that his servant has his authority to perform certain types ofacts and once the third party has acted on the faith ofthat
ostensible authoritythe master is not entitled to deny that the servant in truth had such authority. Aprohibitioncannot
effect a servant's ostensible authority unless it is known to the other party. The liabilityof theemployerwillnotbe
affected by an order which limits the method or mode by which the duties of the servant may be performed.

During the two spells June to September 1966 and 11th June to 23rd August 1968 when Abeywickrema wasfunctioningasLedger
Clerk working on plaintiff's accounts he had authority according to theBankRulestohandoverthestatementtothe
plaintiff-company or its accredited representative and if he had negligently, fraudulently or otherwise wrongly assumedthat
Ingram was an authorised representative of theplaintiff-company and delivered to him the bank statements the bankwillbe
liable.

Abeywickrema and Amerasinghe acted in the transaction to help Ingram. The issuing of the statements to Ingram wasacquiesced
in by the plaintiff-company. Hence the plaintiff-company cannotclaimagainstthedefendant-bankonthebasisofthe
negligent or fraudulent acts committed by defendant's agents or servants.

(8) The trial Judge's finding that Abeywickrema prepared the false bank statements relating to plaintiff's account cannotbe
sustained and must be set aside.

(9) The evidence in any event does not conclusively establish that during all the 12 year period 1956 to1968noneofthe
Bank statements and certificates came to the plaintiff by post. Except for the 75 weekly statements admitted byAbeywickrema
to have been delivered by him to Ingram the plaintiff must be held not to have provedthattheothermonthlyandweekly
statements from August 1956 to the end of November 1968 had not been received by post by the plaintiff-company because :
(a)Ingram couldhave,onthebasisofthearrangementsforhandlingplaintiff'smailatitsown office,
appropriated. the genuine bank statements and certificates at the plaintiff'sownofficeontheirarrivalbypostand
substituted them with faked ones.

(b)One Ledger Clerk at least of Bank namely Bunny during the period he handledplaintiff'saccounthadnot handed
over the bank statements to Abeywickrema and these statements would have gone by post.

(c)The Bank Statements of the other companies of the Collettes group were admittedly coming by post.

(d)The plaintiff had called for weekly statements from the Bank obviously in itsanxietytomonitoritsfinances
more closely and would want to scrutinize the Bank statements regularly and if these were not coming by postitwouldhave
been known to the Accounts Section and Directorate of the plaintiff.

(e)The burden of proof of the non-receipt by post of the Bank Statements was on the plaintiffbuttheInwardMail
Registers of the plaintiff which would have shown the non-receipt of the Bank Statementsbypostthoughlistedwerenot
produced raising an adverse inference on the basis of section 114 of the Evidence Ordinance.

(10)It would have been impossible for the bank to ensure against its Ledger Clerk pilfering bankstatementforms.In
any event the bank cannot be liable for forgeries committed by a third party on discarded formsstolenfromthebank.It
would be far- fetched to say the bank facilitated the forgeries. It is a clear case ofnovusactusinterveniens.Assuming
there was negligence, the damage complained of could not have been contemplated as a reasonablyforeseeableconsequenceof
such negligence. The damages claimed are too remote.

(11)The onus of proof is on the plaintiff to show that a particular item of damage is not remote before he canrecover
it. Plaintiff has not discharged this burden.

(12)A company is liable in torts for all thewrongfulactsofthepersonswhocontrolthe managementofits
undertaking when they are acting as such. Those persons may be the Directors collectively, or some of theDirectorswhoin
fact manage the Company's businesses or the governing body may be a single Managing Director or even a Manager who isnota
Director at all. These will be in the "brain area" of the company and be its directing will andmind,itsalterego.But
Ingram was not the directing mind and will of the Company. He was not in the "brain area" or in the topmanagementareaof
the Company and did not hold any position of control nor share in the management. The role he Playedintheadministration
of the company was a subservient role, the role of a trusted employee or servant or agent. Norcantheco-perpetratorsof
the fraud from theCompany'sDirectorate-Samuel(FinanceDirector),WickremasingheandClassen(Directors)-be
individually or collectively identified with the Company as representing its directingmindandwill.Theywerenotin
control of the operation of the Company cannot be identified with the company. Hence the plaintiff's actioncannotfailon
the Principle that a wrong-doer is out of court. The maxim of public policy ex turpi causanon oritur actio does not apply.
(13)The allegations of duress, influence and threats in connection with the admission of theamountofthe overdraft
and mortgage bond made for the first time in the plaintiff's further pleadings of 10.12.71areanafterthoughtandnot
borne out by the previous correspondence and the concession that Rs. 1,273,883.60incashandchequeswasnotinfact
deposited. Further the bond and the document admitting thequantum of the overdraft were voluntarily approved bytheBoard
of Directors of theplaintiff-company. There was not that coercion that will vitiate consent. Harasgamahadnogroundto
doubt the correctness of the bank's accounts and the Bank's demandforacertificateacceptingthecorrectnessofthe
accounts even though supported by a certain measure of economic pressure was lawful. The plaintiffwasstillfreenotto
succumb to such pressure. It had the benefit of independent advice andit raised no protest untilthreeyearslater.The
demand of the defendant-bank was neither unjust norunconscionable.Thereforethecommercialpressureunderwhichthe
plaintiff acted did not amount to duress. The District Judge's finding on duress is wrong.

(14)When the parties made the basis of their transaction an agreed statement of facts the truth of which isassumed by
the convention of the parties, each will be estopped as against the other from questioning the truth of the statement ofthe
facts so assumed. This is the principle of estoppel by convention. Itwasonthecertificateadmittingthequantumof
liability and the Mortgage bond that the defendant continued to extend overdraft facilities to the plaintiff.Theplaintiff
having obtained this advantage to which it. became entitled on the basis of acceptance of the certificate andtheexecution
of the Mortgage bond cannot now resile from them and say they are void. The plea of estoppel byconventionisentitledto
succeed.
Cases referred to :

(1)Srimati Bibhabati Devi v. Kumar Ramendra Narayan Roy [ 1946] AC 508, 521.

(2)Silva v. Swaris (1904) 1 Bal 6 1.
(3)Nawadun Korale Co-operative Stores Union Ltd. v. Premaratne (1954) 55 NLR 505
(4)Sri Lanka Ports Authority v. Peiris [ 1981] 1 Sri LR 101.

(5)Flower v. Ebbw Vale Steel, Iron and Coal Company Limited [ 1936] AC 206, 220, 221.

(6)Powell v. Streatham Manor Nursing Home [ 1935] AC 243.

(7)Yuill v Yuill [1945] All ER 183, 188, 189.

(8)Raghavamma v. Chenchamma AIR 1964 SC 136.

(9)Mt. Bilas Kunwar v. Desraj Ranjit Singh AIR 19 15 PC 96 37 Allahabad 557, 30 IC 299

(10)Thirumalai 1yengar v. Subba Raja AIR 1962 Madras 219

(11)Karwadi v. Shambharkar AIR 1958 Bombay 296.

(12)Ramanathan Chettiar v. Viswanathan Chettiar AIR 194 1 PC 43.

(13)Chandra Narayan Dec v. Ramachandra Serawgi AIR 1946 Patna 66

(14)John Henshal (Ouarries) Ltd v. Harvey [1965] 1 All ER 725, 729.

(15)H, L. Bolton (Engineering) Co. Ltd. v. T J. Graham & Sons Ltd. [ 1956]13 All ER 624,630.

(16)Applebee v. Percy [ 1874] L. R. 9C. P. 64 7, 656.

(17)Stiles v Cardiff Steam Navigation Co. [1864] 33 L.J. O.B, 310.

(18)Penhallow v. Mersey Docks and Harbour Board (1861) 30 L.J. Ex. 329, 331.

(19)Sunlife Assurance Co. of Canada v. W. H. Smith & Son Ltd. (1934) 150 Law Time 2 11, 2 15.

(20)Dodwell & Co. Ltd. v. John (1918) 20 NLR 206.

(21)De Bussche v. Alt [ 1878] 8 Ch. D. 286, 314.

(22)Cairncross v. Lorimer (1860) 3 Macq. (H. L.) 829.

(23)Sarat Chunder Dey v. Gopal Chunder Laha [ 1892] L. R. 19 A. C. 1A 203.

(24)Plumb v. Cobden Flor Mills Co. Ltd. [1914] A.C 62,67

(25)Limpus v. Londen General Omnibus Co. [1862] 1H & C 526.

(26)Canadian Pacific Railway v. Lockhart [ 1942] 2 All ER 464, 468(1942) A. C. 591.

(27)Twine v. Bean,s Express Ltd. [1946] 1 All ER 202 175 L.T 131.

(28)Lloyd v. Grace, Smith & Co. [1912] AC 716, 737.

(29)Uxbridge Permanent Benefit Building Society v. Pickard [1939] 2 K.B. 248(1939) 2 All ER 344.

(30)Metropolitan Police Commissioner v. Charles [1976] 3 All 112, 114

(31)Freeman & Lockyer (a firm) v. Buckhurst Park Properties (Mangal) Ltd. [1964] 1 All ER 630, 641, 646 1964 2 Q.B.
480

(32)Kooragang Investments Pty Ltd. v. Richardson & Wrench Ltd. [1981] 3 All ER 65.

(33)United Africa Co. v. Saka Owoade [1957] 3 All ER 216 1955 A.C 130.

(34)London County Council v. Cattermoles (Garages) Ltd. [1953] 2All ER 582 1953 1 WLR 997.

(35)Goh Choon Seng v. Lee Kim Soo [1925] AC 550.

(36)Biggar v. Rock Life Assurance Co. [1902] 1 KB 516.

(37)Munday v. London County Council [1916] 2 K.B. 331, 334.

(38)East Suffolk Rivers Catchment Board v. Kent [1940] 4 All ER 527, 532 : [1941] A.C 74 (H.L.).

(39)Overseas Tankship (U.K.) v. Morts, Docks & Engineering Co.The Wagon Mound (No. 1) [1961] 1All ER 404 [1961]
A.C. 388 [1961] 2 WLR 126 (P.C).

(40)Hughes v. Lord Advocate [1963] 1 All ER 705 [1963] 2 WLR 779 [1963] A.C. 837 (H.L.)

(41)McLean v. Bell (1932) 147 L.T. 262 48 TLR 467.

(42)Re Polemis and Furnss, Whithy & Co. Ltd. 1921 3 KB 560

(43)S. S. Singleton Abbey v. S. S. Paludina [ 192 7] A. C. 16, 25-26 (H. L).

(44)The Paludina [1925] P 40, 43, 48, 49, 50 (C.A.)

(45)The Oropesa 1942 P. 140, 144.

(46)The qropesa [ 1943] 1 All ER 211 1943 P 32, 37 (C. A.).

(47)Canadian Pacific Railway Company v. Kelvin Shipping Company Limited (1927) 138 Law Times 369 (H. L.).

(48)The Guildford [ 1958] 3 All ER 915, 919.

(49)McWilliams v. William Arrol & Co. [ 1962] 1 All ER 623, 626, 628 (H.L).

(50)McLoughlin v. O' Brian [ 19831 AC 410, 426.

(51)Woods v. Duncan [1946] AC 401, 442.

(52)Weld-Blundell v. Stephens [1920] AC 956: 986.

(53)McKew v. Holland & Hannen & Cubitts (Scotland) [ 1969] 3 All ER 1621, 1623.

(54)Home Office v. Dorset Yacht Co. [ 1970] 2 All ER 294, 298.

(55)Petrovitch v. Callinghams [ 196912 Lloyds Reports 386.

(56)Stansbie v. Troman [ 1948] 1 All ER 599 1984 2 KB 48.

(57)Lamb v. London Borough of Camden [ 1981] 2 All ER 408.

(58)Henderson v. Williams [ 1895] 1 QB 521, 529 [1902] AC 325, 331-332.

(59)Bank of Ireland v. Evans Trustees [ 1955] 5 HL 380.

(60)Lloyds Bank Ltd., v. E.B. Savory & Co. [1933] AC 201 , [1932] All ER 105, 109.

(61)Motor Traders Guarantee Corporation Ltd. v. Midland Bank Ltd. [1937] 4All ER90,94.

(62)Orbit Mining & Trading Co. v. Westminster Bank Ltd. [1962] 3 All ER 565, 580.

(63)Lennard's Carrying Co., Ltd. v. Asiatic Petroleum Co., Ltd. [1915] AC 705

(64)Fanton v. Denville [1932] 2 K. B. 309.

(65)Rudd v. Elder Dempster & Co. [1933] 1 K. B. 566, 576.

(66)H. M. S. Truculent, The Admiralty v. The Divina (Owners) [1951] 2 All ER 968.

(67)The Lady Gwendolen 1965 2 All ER 283.

(68)Tesco Supermarkets Ltd. v. Nattrass [ 1971] 2 All ER 127 (HL).

(69)Smith v. Jenkins (1969) 119 CLR 39 7 (1970) 44 A. L. J. R. 78.

(70)Barton v. Armstrong [1976] AC 104.

(71)Pao On v. Lau Yiu Long [ 1980] AC 614.

(72)Maskell v. Horner [1915] 3 KB 106.

(73)Occidental Worldwide Investment Corp. V. Skibs A/S Avanti The "Sibeon" and the "Sibotre" [1976], 1 Lloyds 283.

(74)North Ocean Shipping Co. Ltd. v. Hyundai Construction Co. Ltd. [1978] 3 All ER 1170

(75)Universe Tankships Inc. of Monrovia v. International Transport Worker's Federation [ 1982]2 All ER 67.

(76)Thom v. Motor Trade Association [1937] 3 All ER 157, 160.

(77)The Amalgamated Investment and Property Co. Ltd., v. Texas Commerce International Bank [ 1981] 3 All ER 5 77, 584.

(78)Keen v. Holland 1984] 1 All ER 75.

(79)Grundt v. Great Boulder Proprietary Gold Mines Ltd. (1938) 59 CLR 641, 657.

(80)Verschures Creamenes v. Hull & Netherland Steamship Co. Ltd. [1921] 2 KB 608,612.

(81)Foster v. Essex Bank 17 Massachussets Reports 478.

(82)Giblin v. McMullen [1868] LR 2 PC 317.

(83)Foley v. Hill [1848] 2 HL Cas. 28.

(84)De Zilva v. Cassim (1903) 7 NLR 230, 233.

(85)Gray v. Barr [ 1971] 2 All ER 949.

(86)Colburn v. Patmore 1834 1 CR. M. & R 73 3 L. J. Ex. 317.

(87)Hardy v. Motor Insurers Bureau [ 1964] 2 All ER 742.

(88)Derry v. Peek [1889] 14 App. Cas. 33 7.

(89)Le Lievre v. Gould[1893] 1 QB 491, 503.

APPEAL from the Court of Appeal.

P Navaratnarajah, Q. C. with H. L. de Silva, P. C., K. Kanag Iswaran, S. Mahenthiran, K. Neelakandan,MissU.Weerasinghe,
Miss. R. Kandasamy and A. A. M. Illiyas for Plaintiff-appellant.

H. W. Jayewardene, Q.C. with J. W. Subasinghe, P.C., K. N.Choksy,P.C.,L.C.SeneviratneandLakshmanPererafor
defendant-respondent.

October 10, 1984.
SHARVANANDA, J.

This appeal has come up before this court, with leave granted bytheCourtofAppealonthegroundthatitinvolves
substantial questions of law and also with leave granted by this court, under article 128(2) on the ground thatthiswasa
fit case for review by this court. When sogranting leave this court granted permission to both plaintiff-appellant andthe
defendant-respondent to make submissions on the entire case, both on facts and on the law involved in this case.

Concurrent findings of facts

At the hearing before us when Counsel for the defendant-respondent canvassed the correctnessofcertainfindingsoffact
made by the trial Judge which were confirmed by the Court of Appeal, counsel fortheplaintiff-appellantobjectedtothe
reviewing by us of the concurrent findings of fact arrived at by the lower courtsandurgedthatthiscourtshouldnot
disturb the concurrent findings of fact. Counsel for the appellant invited this court to adopt the practice of the Judicial
Committee of the Privy Council, of declining to review the evidence for the third time when thereareconcurrentjudgments
of two courts on clear questions of facts and referred us to certain propositions enunciated by the Privy Council inSrimati
Bibhabati Devi v. Kumar Ramendra Narayan Roy (1). With reference to that practice the Privy Council said at page 521 :

"In order to obviate the practice, there must be some miscarriage of justiceorviolationofsomeprincipleoflawor
procedure. That miscarriage of justice means such a departure from the rules which permeatealljudicialprocedureasto
make that which happened not in the proper sense of the word judicial procedure at all".

I have observed that the practice of non-interference in a. case of concurrent findings of facts "isnotacast-ironone,
and ...... there may occur cases of such an unusual nature as will constrain the Board to depart from the practice."

Article 127 of our Constitution spells out the appellate jurisdiction of this court. It providesthatthiscourt(Supreme
Court) is a final court of civil and criminal appellate jurisdiction for the correction of allerrorsinfactorinlaw
which shall be committed by the Court of Appeal or any court of first instance, tribunal or other institution andthatthis
court may, in the exercise of its appellate jurisdiction, affirm, or reverse or vary any judgment or decree of theCourtof
Appeal. It will thus be seen that the appellate jurisdiction of this court is all embracing and unfettered.Onleavebeing
granted underArticle 128 to appeal to this court, this court is vested with the power,asafinalCourtofAppealto
consider the correctness of the decision appealed against on any ground, whether on questions offactorlaw.Thisisa
court of re-hearing. Silva v. Swaris (2), Sansoni, J. in Nawadun Korale Co-operative Stores Union Ltd. v Premaratne (3) the
leave granted under Article 128, though it is a precondition for the maintainability ofanappealtothiscourt,cannot
circumscribe the scope of the appeal SriLankaPortsAuthorityv.Pieris(4).Thusthiscourtundoubtedlyhasthe
jurisdiction to revise the concurrent findings of fact reached by the lower court in appropriate cases.However,ordinarily
it will not interfere with findings of fact based upon relevant evidenceexceptinspecialcircumstances,suchas,for
instance, where the judgment of the lower court shows that the relevant evidence bearing on a fact hasnotbeenconsidered
or irrelevant matters have been given undue importance or that the conclusion rests mainly on erroneous considerations oris
not supported by sufficient evidence. When the judgment of the lower court exhibits such shortcomings, thiscourtnotonly
may but is under a duty to examine the supporting evidence and reverse the findings

Counsel for the defendant-respondent has persuasively argued before us that this court being the finalappellatecourtfor
and within the Republic of Sri Lanka, is the counterpart of the House of Lords which is the Supreme Court of Appeal inGreat
Britain, and it would be more appropriate that this court should follow the practice of th House of Lords in the exerciseof
its appellate jurisdiction on questions of fact, rather than that of the Judicial Committee of the PrivyCouncil,Whichis
the final court of appeal of the British Commonwealth and British colonies.InthenatureofthingsthePrivyCouncil
labours under certain handicaps in embarking on a freshexaminationoffactsforthepurposeofreviewingconcurrent
findings by lower courts. The court from which an appeal is taken whether from a colony or some Dominion is naturallybetter
adapted to appreciate local customs, conditions, habits and ways of the witnesses. The localcourtisbetterequippedto
assess evidence involving questions of relationships and -conduct peculiar to the localityfromwhichthecasecameand
whose significance is specially within the knowledge of the courts of that country.ThePrivyCouncilsuffersinevitably
from its alienage, though it is the apex of the hierarchy of courts. I would therefore prefer to adopt thepracticeofthe
House of Lords in the matter of consideration of questions of facts since that court, like the Supreme CourtofSriLanka,
suffers no such limitations as the Privy Council in the matter of findings of fact by an alien trial court.

Halsbury Laws of England, 4th Edition, Vol. 10, para 744 at page 340 and 341 states the jurisdictional practice of theHouse
of Lords as follows :

" Except in cases when the findings of fact by the tribunal appealed from are made final by statute, questionsoffactare
as much open to review by the House of Lords as are questions of law. The House is, however, reluctant to disturbconcurrent
findings of facts of the courts below, but will revise the findings if it considers them erroneous or iffreshevidenceis
available. Moreover the House will hesitate to interfere with the findings of the judge who sawand heardthewitnesses,
unless it is a question not of credibility of the witnesses, but of sufficiency of theevidence.However,theHousewill
more readily form an independent opinion where the finding of fact is reallyaninferencedrawnfromfactsspecifically
found by the judge and where there is no question of the credibility of the witnesses. "

In this connection the observations of Lord Wright in Flower v. Ebbw Vale Steel, Iron & Coal Company Limited (5) at 220,221
are relevant to the consideration of the judgment under appeal : fact. I his House will alwaysinPropercasesreconsider
the evidence notwithstanding that there are concurrent findings offact,andthisisacaseinmyopinioninwhich
reconsideration is justified."

Circumstances in which an appellate court will interfere and ought to interfere with thejudgmentofthetrialJudgeon
questions of fact largely founded on opinion of witnesses' demeanour are set out vividly by LordGreeneM.R.inYuillv.
Yuill (7)as follows :

"We are reminded of certain well known observationsin the House of Lords dealing with the position ofanappellatecourt
when the Judgment of the trial Judge has been based in whole or in part upon his opinion of the demeanour ofthewitnesses.
It can, of course, only be on the rarest occasions, and in circumstances wheretheappellatecourtisconvincedbythe
plainest considerations that it would be justified in finding that the trial Judgehas formed a wrong opinion. But whenthe
court is so convinced it is, in my opinion, entitled and indeedfound to give effect to its conviction. Ithasneverbeen
laid down by the House of Lords that an appellate court has no power to take this course. Puisne judgeswouldbethelast
persons to lay claim to infallibility, even in assessing the demeanour of a witness. The most experienced Judgemay,albeit
rarely, be deceived by a clever liar or led to from an form an unfavourable opinion of an honest witness and may expresshis
view that his demeanour was excellent or bad, as the case ay be. Most experienced counsel can, I havenodoubt,recallat
least e case where this has happened to their knowledge. I may further point out that an impression as to the demeanour ofa
witness ought not to be adopted by a trial judge. Without testing it against the whole of theevidenceofthewitnessin
question."

In my view the opinion of the trial judge on vital questions of fact is flawed by the kindofshortcomingreferredtoby
Lord Greene M.R. The trial judge has overlooked relevant considerations intheassessmentoftheevidence.Hehadnot
directed his mind to relevant questionsand had failed to apply correct principles of law to the facts. The deficienciesin
the judgement are such that I am convinced that an appeal court will be failingin its primary duty ifitinhibitsitself
by regarding the findings of fact arrived at by the District Judge as un reviewable and finaljustbecausecredibilityof
witnesses is involved. It was significant that Counsel for the plaintiff whenaskedtosubstantiatecertainfindingsof
fact, could fall back only on the mere fact of the Judge's finding in his favour and not on any other supporting material.I
have no doubt, in fact I am convinced, that the District Judge has grievously gone wrong in his opinion.Itisajudgment
which by its manifest errors of law and fact would have resulted in miscarriage of justice had the Court ofAppealaffirmed
it. The trial judge seems to have been carried away by the demeanour and manner in which Harasgama, the Managing Directorof
the Plaintiff-company and the chief witness in the case, gave his evidenceand withstood thecross-examinationofcounsel
for the defendant bank. He had not tested his testimony by the intrinsic merit and nature of the evidence in the case. Itis
unfortunate that the trial Judge haslost his priorities in the matter of testing the credibilityofwitnesses.Whenone
goes by the record, certainly, Harasgama's testimony does notbearexamination.Thefavourableimpressionthathehad
created on the District Judge by his demeanour in court has outweighed or displacedallotherrelevantconsiderationsin
determining the veracity of the witness. The trial Judge had, in assessing Harasgama's evidence, failed to take intoaccount
the fact that plaintiff's principal claim to the sum of Rs. 1,273,883.66 that was alleged to havebeendepositedwiththe
defendant bank was a false claim, false to theknowledge of Harasgama who gave instructionsforthepreferringof that
claim. Counsel for the plaintiff at the end of the trial, in his finalsubmission, was obliged to abandon that claim asthe
evidence militated against the claim. Plaintiff's auditors had prior to the institution of the action reported toHarasgama,
that the claim was count was untenable. The effort made by Harasgama, in the course of his evidence to distanceIngramfrom
him, his reluctance to report Ingram's fraud to the Police and have the fraud investigatedandhisemploymentofprivate
detectives, not to uncover the fraud inside his company buttostealdefendant'sdocuments,alldisclosedadesigning
nature, not disposed to candidness. These matter should have made the trial Judge wary of accepting Harasgama'sevidenceon
vital issues. Certainly, on the crucial question whether the plaintiff was receiving the Bank's weeklystatementsbypost,
during the time Harasgama was Managing Director, 1962-68, his evidence that he was not aware that theplaintiff-companywas
not receiving them by post cannot accepted with confidence and was not sufficient to dischargetheonusthatlayonthe
plaintiff to establish non-receipt of them by post. The trial Judge erred in basing his acceptance ofhisevidenceonhis
demeanour in the witness box, without submitting his testimony to a critical examination as towhyforsixyearshehad
failed to notice such an irregularity if it in fact existed. When the company was receiving the monthlystatementsrelating
to No. 2 account of the
company and of the company's subsidiaries regularly by post, but was for some mysterious reason notreceivingbypostthe
weekly statements relating to No. 1 overdraft account,itisunbelievablethatabusinessmanlikeHarasgamawasnot
interested, if such was the fact, in ascertaining Why the bank was not sending by post the weekly statements. Thiscriticism
of the trial judge's assessment of Harasgama applies also to his assessment of Lionel Fernando.

I have had the advantage of reading the judgment of Abdul Cader, J. He has dealt with the salient facts of the caseandthe
errors committed by the trial Judge. I agree with his analysis of the errors. In my view the Court ofAppealwasjustified
in reversing the judgment of the District Court. Since Abdul Cader, J., has dealtwiththefactsandIagreewithhis
conclusions, I shall deal mainly with the issues of law involved in the appeal.

The plaintiff-company instituted this action on 22.11.70, against the defendant bank praying for a declarationthatcheques
and cash to the value of Rs 1,275,883.03 were deposited by the plaintiff to the credit of thecurrentaccountbearingNo.
22200 with the defendant bank and that the said account was wrongfully debited with a sum of Rs. 49,546.16 alleged tobe
due as interest and theplaintiff's said accounts was overdrawn on 18.11.1968 only in a sum ofRs. 2,268,381.34.

For a first alternative cause of action the Plaintiff pleaded that if the said chequescash had not in fact beendeposited,
then such non-deposit and/or misappropriation thereof was due to the fraudulent and/or negligent actions or omissions ofthe
defendant and/or its servants and agents, acting in the course of their employment and within the scope oftheirauthority,
for whose actions and omissions the defendant is in law liable and responsible the defendant-bank hadfraudulentlyand/or
negligently issued or caused or permitted to be issued or fabricated or facilitated theissueof fabricatedorincorrect
receipts and weekly statements of accounts to the plaintiff, particularly in that :

(a) The defendant bank, being aware that incorrect weekly statements and receipts were being issued to andreceivedbythe
plaintiff company, failed and neglected to inform theplaintiffand/ortostopsuchissueand/ortotakereasonable
precautions

(b) The defendent-bank failed and neglected to exercise proper care and control in respect ofthe,custodyandissueof
blank forms of statements of accounts.

(c) The defendent-bank had failed and neglected to exercise proper care and control in respect of the issue anddeliveryof
receipts and weekly statements of accounts and certificates of balances to the plaintiff.

(d) The defendant permitted unauthorised persons to have access to and control of bank forms of statements of account,forms
used for certifying balances and/or other security documents.

The plaintiff stated that the above were the causes of such non-deposits and/or misappropriation thereof and thatbyreason
thereof the plaintiff had suffered loss and damage in the said sum of Rs. 1,275,883.66 together with afurthersumofRs.
49,546.16 being interest debited.

For a second alternative cause of action theplaintiffaverredthatiftheaforesaidcashandchequestotallingRs
1,275,883.66 had not infact been deposited, the defendant and/or its servants had jointly with oneW.L.Ingram(whowas
both the Sales Manager of the, plaintiff-company and aDirectorofCollettesFinanceLtd.,asubsidiaryofCollettes
Company) misappropriated such cash and cheques and that the plaintiff was entitled torecoverthesaidsumaslossand
damage suffered by the plaintiff from the defendant bank.
The position taken up by the defendant-bank, in the amended answer is briefly : that the chequesandcashallegedbythe
plaintiff to have been deposited with the defendant-bank have not in fact been so deposited that thedocumentspurporting
to be receipts of the defendant-bank in respect of such deposits are all fake documentsthatthedefendant-bankisnot
liable for any of the fraudulent actions or concealments attributed to Ingram who was the Plaintiff's SalesManagerbythe
plaintiff that, by reason of fraudulent representation made by theplaintiff-companytothedefendant-bankmonthlyin
regard to the value of the stocks held by the plaintiff-company, the plaintiff was able from time to time to overdrawmonies
on theplaintiff-company's aforesaid current account in excess of the amount which the plaintiff was entitled to overdraw
that the damages, If any, suffered by theplaintiff-companyareduetothefraudwhichwasentirelyengineeredand
accomplished by the plaintiff-company that the defendant-bank had sent the plaintiff-company from time totimestatements
of accounts and also certificates of balances relating to the aforesaid current account of the plaintiff companythatthe
auditors of the defendant-bank also sent, in the usual course of business,confirmation-slipsshowingthestate,ofthe
plaintiffcompany'ssaidcurrentaccount thattheplaintiff-companyneverquestionedthecorrectness of the
aforementioned, bank statements, certificates of balance and/or the confirmation slips, and acceptedthemwithoutdemur
that all times material to this action, the plaintiff-company made no allegation of fraud on the partoftheemployeesof
the defendant-bank that, at the express request of the defendant-bank, the plaintiff-company gaveaprimarymortgageof
the premises bearing No. 101, D. S. Senanayake Mawatha, Colombo. in respect of the monies found tohavebeenoverdrawnby
the plaintiff-company as on the 28th November 1968 that on 30.12.68theplaintiff-companyexpresslyadmittedthatthe
plaintiff-company had overdrawn the amount which the defendant-bank stated had been so overdrawn as on 14.12.68andfurther
admitted that the said sum was still due and owing to the defendant-bank as on 30.12.68thatthedefendant-bankhaving,
been intentionally made to believe that the plaintiff-company was making no allegation of fraudagainstthedefendant-bank
in regard to the loss sustained by the plaintiff-company, thedefendant-bankextendedfurthercreditfacilitiestothe
plaintiff-company and refrained from stopping or curtailing in any way the existing facilitiestheplaintiff-companywas
now estopped from denying the genuineness and, the receipt of theaforementionedstatementsandthecorrectnessofthe
amountoverdrawn by the plaintiff and was precluded from assertingthatthedefendant-bankhasbeenguiltyoffraud-
negligence, and claimingdamages on such basis.

After the defendant-bank filed its amended answer, the Plaintiff-company filed furtherpleadingsbyWhichtheplaintiff-
company averred that the plaintiff-company, through two of its directors, was induced to sign thedocument,dated30.12.68
(and referred to in the amended answer) acknowledging the amount stated by the defendant-bank as having, by14.121968,been
overdrawn by the plaintiff-company, not only by the deliberate misrepresentations andsuppressionsoffactsmadebythe
defendant-bank's General Manager, C. Loganathan, but also by the exercise of duress, undue influence and threats ofharmto
theplaintiff-company's business by the said Loganathan, and also by a breach by the defendant-bank ofthefiduciaryduty
it owed towards the plaintiff-company.

The case proceeded to trial on 30 issues. Counsel for the plaintiff frankly conceded in his writtensubmissions,afterthe
trial was concluded, that the plaintiff-company had failed to prove that the plaintiff-company had depositedtothecredit
of its account with the defendant-bank the various amounts in cash and by cheque set out in the schedule "B" totheplaint,
that therefore issues 1 and 2 which were based upon the main cause ofactionbeansweredagainsttheplaintiff-company.
Accordingly the said issues were answered in the negative. The plaintiff's main cause of action assetoutintheplaint
having failed, the plaintiff then relied on the two alternative causes of action set out in the plaint, based upon thefraud
and negligence of and the misappropriation by the defendant-bank's agents andservants, acting within the scope andinthe
course of their duties.

In regard to the second alternative cause of action the trial Judge held that no misappropriation of any moneybelongingto
the plaintiff-company by the employees of the defendant-bank had been proved and that it wasIngram"plaintiff'semployee"
who would have misappropriated the said cash and cheques belonging to the plaintiff-company anddismissedthatclaim.The
plaintiff makes no complaint against this finding.

The trial Judge however held that the first alternative cause of action had been established against thedefendant-bankand
had entered judgment in favour of the plaintiff in a sum of Rs. 1,169,240.93 as representing the lossanddamagesustained
by the plaintiff by reason of the negligence of the defendant and/or its servants.

In regard to the first alternative cause of action the trial Judge found that the defendant-bank -

(a)was negligent in that

(i) Abeywickrema, the Ledger Clerk of thedefendant-bankhadduringtheperiodJune1966to19.8.1968violatedthe
instructions relating to the delivery of statements

(ii) In respect of the period before and after the period during which Abeywickrema was the Ledger Clerk,theemployeesof
the defendant-bank had failed to follow instructions with regard to the delivery of bank statements

(iii) That the defendant-bank had failed to, carry out periodical checks of the stocks, of the plaintiff-company

(iv) The defendant-bank had failed to have proper care and custody of its blank Bank Statement Forms

(b) Was guilty of fraud in that Abeywickrema had during the period, he was Ledger Clerk from June 1966 to 19.8.1968,inthe
course of his duties prepared false bank statements in respect of the plaintiff-company's accounts.

The trial Judge has held that negligence and complicity in the fraud on the part of bank employees, mainlyAbeywickremaand
Amerasinghe, have been established and that in order to consider the legal implications of Abeywickrema's complicityinthe
fraud, it had to be viewed in this way -

(1)He extracted genuine bank statements and handed them to Ingram.

(2)He introduced into the bank fabricated stock certificates having received them from Ingram,knowingthemtobe
so.

(3)He probably pilferred obsolete blank statement forms.

The District Judge has held that neither the extraction of genuine statementsnortheintroductionoffabricatedstock,
certificates was an act done in the course of Abeywickrema's duties and the introduction of stockcertificatesbycarrying
and handing them over to the bank's relevant officer, was also not done in the course of hisduties,andthatthesewere
clearly done for his and Ingram's purposes. He further held that Abeywickrema prevented genuine statementsfromgoinginto
Collettes by post he also held that the forms were obtained by Abeywickrema or obtained aided by him, But that this actof
pilfering was not done in the course of performance of his duties. That it was also outside the scope of his dutiesandthe
bank was not liable because Abeywickrema stole the forms and gave them to Ingram.Heheldthatthebankwasguiltyof
negligence, in that it did not take proper care of its obsolete forms and that the free availability of the formsenableda
fraud to be perpetrated.

Concluding this analysis of the evidence the trial Judge has held follows :
"With regard to the extraction of statements, as in pilfering blank forms, it was not done in the course oftheperformance
of Abeywickrema's duties as assigned to him by the bank, but wasdoneforhisownpurpose.From1.7.56-May1966
Abeywickrema had not been in the York Street Branch. HehadbeentherefromJune1966to19.8.1968.Thereaftertill
28.11.68. itwas Amerasinghe. During Abeywickrema's period at the ledger, could the preparation of false statementsbyhim
make the bank liable ? At this time he was perpetrating the fraud in the course of' his duties, no matterthatthose were
not the instructions given to him by the bank. The instructions of the banktohimweretopreparestatements,buthe
prepared false statements in the course ofperforming the dutieshewasassigned,andpreparationof statementswas
incidental to the carrying put of the bank's orders. He could also be said to be negligent in that instructions fordelivery
of statements had been observed in the breach. So was Amerasinghe and others.

As far as the periods before and after Abeywickrema's service at the- ledgerdepartmentgothenegligenceofthebank,
arises from the failure of officials to follow the important instructions with regard to the delivery of statements.

Thus it would be seen that the acts of commission and omission by various servants of the defendant amount tonegligenceas
contemplated by law."

The issues that were framed in connection with the first alternative cause of action andtheDistrictJudge'sanswersto
same are-

8.Was the defendant under a duty arising from agreement,practice and/or course of dealing tosendcorrectreceipts
and correct weekly statements of accounts to the plaintiff ?

Ans : Yes - also admitted after the issue was suggested

9.Had the defendant by its servants or agents acting in the course of their employment and within thescopeoftheir
authority and/or for whose acts and omissions the defendant is in law liable and responsible, fraudulently issued, causedor
permitted, to be issued incorrect receipts and weekly statements of account to the plaintiff ?

Ans : Yes, only weekly statements not receipts.

10. Did the defendant by its servants or agents acting in the course of their employment and within the scopeof their
authority and/or for whose acts and omissions the-defendant is liable and responsible fabricate or cause orpermittobe
fabricated the said incorrect receipts and weekly statements of accounts?

Ans : Yes, only weekly statements not counterfoil receipts.

11(i) Did the defendant fail and neglect to -exercise proper control over and in respect of the-

(a)custody and issue of blank forms of statements of account and forms used for certificatesofbalancesand other
security documents ?

(b)issue and delivery of receipts, weekly statements of account and certificates of balances to the plaintiff ?

Ans : 11 (i) (a)Yes.
(b)Yes, of weekly statements of account only.

11 (ii)Did the defendant by its servants or agents -

(a) acting in the course of their employment and within the scope of their authority and/or

(b) for whose acts or omissions the defendant is in lawliableandresponsiblefacilitatetheissueorfabricatethe
incorrect receipts or weekly statements of account?

Ans (ii) (a) Yes - weekly statements only.
(b)Yes - weekly statements only.

12.Did the defendant by its servants or agents acting in the course oftheiremploymentandwithinthescopeoftheir
authority and/or for whose acts or omissions the defendant is in law liable and responsiblefraudulentlyconcealfromthe
plaintiff that the said receipts and weekly statements of account were incorrect ?

Ans :Yes - weekly statements of account only.

13.Even if the sum of Rs. 1,275,883.66 had not been deposited to the credit of the plaintiff's account, but if issues8and
9 to 12 or any of them are answered in favour of the plaintiff, has the plaintiff suffered lossanddamageinasumRs.
1,325,425.82 ?

Ans:Yes.

Counsel for the defendant at the outset admitted the Bank's duty referred to in issue 8aboveandstatedthattheissue
could be answered in the affirmative. The case for the plaintiff in the trial court was thatAbeywickremahadhandedover
regularly fabricated bank statements to Ingram. But, perhaps in view of the fact that genuine bank statements could nothave
been altered to fall in line with the accounts maintained in the plaintiff-company'sofficeasitwouldhavebeenvery
necessary for Abeywickrema to have knowledge' of the entries appearing in the books of the company and there was noevidence
that he had any such knowledge, counsel for plaintiff modified his caseinargumentbeforeusandstatedtousthat,
presently, his case was that Abeywickrema had handed over genuine bank statementswhichcontainedthetrueandaccurate
position of the plaintiff company's current account with the defendant-bank as set outin the booksofthedefendant-bank
and that Ingram had fraudulently substituted altered statements and that the statements that were in thepossessionofthe
plaintiff-company were statements fabricated by Ingram. It was only after the genuine statements had got intothehandsof
Ingram that fabrication could have taken place. The partplayedbyAbeywickremawastopilferthegenuinestatements
prepared by the bank before they were posted and to deliver them to Ingram.Thusontheconcessionofcounselforthe
plaintiff, it has to be held that what Abeywickrema handed over to Ingram were genuine bankstatementsandnotthefalse
statements that were substituted for same by Ingram and that neither the Bank nor its servants took part inthefabrication
of the statements that ultimately reached the plaintiff. On the basis of thisconcession,thedistrictJudge'saforesaid
finding that the defendant-bank is guilty of fraud, in that Abeywickrema had during the period that he was theLedgerClerk
From June 1966 to August 1968, in the course of his duties prepared false bank statementsrelatingtoplaintiff'saccount
cannot be sustained and has to be set aside. The answers to aforesaid issues 9 and 10 by the trial Judge toocorrespondingly
get vitiated as the defendant-bank was not involved by itself or through its agents in the issue or fabrication of thefalse
weekly statements in the Possession of the plaintiff. The weekly statementsreferredtoinissues9and10arethe
fabricated statements. Assuming that the plaintiff has established that Abeywickremahadstolenallgenuineweeklybank
statements and had irregularly delivered the same in person to Ingram, that fact by itself does notimplicatethebankin
respect of the weekly statements fabricated by Ingram. The delivery ofthegenuinebankstatementstoIngram,although
irregular, in that they had not been sent by post cannot in any sense be said to conclude to thefabricationofthefalse
weekly statements it only enabled Ingram to thwart the genuine statements reachingtheplaintiff.Thefalsestatements
could have been prepared from the knowledge that Ingram had of what monies and cheques were deposited with the bank andwhat
were not. I shall later deal with the finding of the District Judge that Abeywickrema gavethestatementstoIngramwith
full knowledge that Ingram obtained the statements for a fraudulent purpose and. that Ingram wantedthegenuinestatements
before they went by post to the plaintiff and that the perpetration of the fraud was made possible by such deliveryandhow
far that finding affected the defendent-bank.

Issue 12 refers to fraudulent concealment from the plaintiff "that the -said weekly statements ofaccountswereincorrect"
There is no evidence that the bank by itself or through statements. The submission of the substitution ofthefalseweekly
The submission of counsel that Abeywickrema gave the genuine bank statement to Ingram, with knowledgethatIngramobtained
the statements for fraudulent purposes did not extend to suggest that the bankbyitsservantswasconcealingfromthe
plaintiff the fact that the false weekly statements in the possession of plaintiff were incorrect.

The trial Judge has come to a finding that from 1956 to November, .1968, Abeywickrema delivered the bank statements(monthly
from 1956 to 1962 andweekly statements from 1962-1968) to Ingram and that the said statements were not sent by post tothe
plaintiff as claimed by the defendant-bank. The Court of Appeal has not disagreed withthisfinding.Ithasassumedthe
correctness of this finding without analysing the evidence in support of such a finding. I agree with AbdulCader,J.,for
the reasons stated by him, that this crucial finding is not Supported by the evidence andprobabilitiesofthecase.The
District Judge has failed to consider the question of burden of proof that was on the plaintiff to establishthatthebank
statements were not sent by post by the bank, a fact in issue for theestablishmentoftheplaintiff'scase.Sincethe
relevant period extends from 1956-1 968 and there was no witness who could speak for the whole period of 12 years.Theonly
reliable documentary evidence that was available to the plaintiff to establish the non-receipt ofthebankstatementswas
the inwards Registers which it regularly kept in the course of its business, and which were available for productionatthe
trial as they have included in the plaintiff's listofdocuments.Theseregisterswouldhavereflectedwhetherthese
statements came by post and were the best evidence to prove the fact that they did not come by post.

For the reasons given by Abdul Cader, J., one cannot with confidence, accept and act on the oral evidence ofwitnesseslike
Lionel Fernando or Samuel or Harasgama himself.
Presumption under Section 114 of the Evidence Ordinance
The plaintiff could have supported its evidence with the registers, which were regularly and contemporaneously kept,showing
the incoming mail They undisputedly afforded relevant and substantive evidence But . for somereasonbestknown to the
plaintiff, these registers, which would have been conclusive, have not been put inevidencebytheplaintiff.Sincethe
relevant documents, namely the Inwards Mail Registers which were admittedly in existence have notbeenplacedbeforethis
court, an adverse inference has therefore to be drawn against the plaintiff that these registerswould,ifproduced,have
belied plaintiff's assertion. Since the plaintiff has withheld these documents which are in itspossessionthe Courtmay
properly draw a presumption under section 114 of the Evidence Ordinance that these documents, if producedwouldrefutethe
plaintiff and show that the bank statements were in fact being received bypostbytheplaintiff-company,andthatthe
plaintiff's witnesses were not speaking the truth when they testified that these statements were notcomingbypost."All
the relevant documents admitted to have been in existence have not been placed before theCourtandanadverseinference
has, therefore, to be drawn against the appellant." Raghavamma v. Chenchamma (8). Counsel for the plaintiffinhiswritten
submissions has referred to certain Indian cases in support of his contention that" It is anestablishedprincipleoflaw
that it is for the suitor to decide which would be the best evidence to prove his case and for failure to produceonepiece
of evidence, an adverse inference should not be drawn against a party who has chosen not to file itunlesstheotherside
has called for that evidence." I cannot accept the correctness ofthispropositionoflaw.Ihaveexaminedthecases
referred to by the Plaintiff, namely Mt. Bilas Kunwar v. Desraj Ranjit Singh (9).ThirumalaiIyengerv.SubbaRaja(10)
Karwadi v. Shambharkar (11)Ramanathan Chettiar v. Viswanathan Chettiar (12) none of these cases supportTheplaintiff's
proposition that no adverse inferences should be drawn against a party who had chosen nottoproducearelevantdocument
unless the other side has called for that evidence. The Sheet-anchor for his contention is followingstatementofFarwell,
J., in the case of Mt. Bilas Kunwar v. Desraj Ranjit Singh (9).

"The High Court Judges 'attach great significance' to the non-production of the books showing theaccountsofthegeneral
estate, and appear to draw an inference therefrom adverse to theplaintiff'sclaim:anysuchinferenceis,intheir
Lordships' opinion, unwarranted. These books do not necessarily from any part of theplaintiff'scaseitis,ofcourse,
possible that some entries might have appeared therein relating to the bungalow. But it is opentoalitiganttorefrain
from producing any documents that he considers irrelevant if the other litigant is dissatisfied, it isforhimtoapply
for an affidavit of documents, and he can obtain inspection and production of all that appear to him in such affidavit tobe
relevant and proper. If he fails so to do, neither he nor the court at his suggestion is entitled to drawanyinferenceas
to the contents ofany such documents. There is no ground for any inference such as is madeintheHighCourtthatthe
books, if produced, would have shown rent credited to Jagmag or set off against some claim against her.Theyrelatedtoa
different property, and the possibility of entries relating to the bungalow therein is very remote, but even if ithadbeen
greater, the Court was not entitled to draw any suchinferences. It is for the litigant who desires to rely on thecontents
of the documents to put them in evidence in the usual and proper way if he fails to do so no inference inhisfavourcan
be drawn as to the contents thereof."

This statement of law by Farwell, J., has to be appreciated in the context of the factsinwhichitwasstatedandnot
isolated from the context. In that case, the plaintiff's case was that the purchase of thebungalow in suit by thedeceased
Taluqdar in the name of his Mohammadan mistress Jagmag Bibi was a benami transaction in that, the purchase money was paidby
Taluqdar. Was given to thepossession and management of the bungalow was given to the plaintiffwhowasoneofthetwo
widows of the deceased and she had managed the property in questionfromthetimeofthedeathofthedeceased.The
defendant resisted the plaintiff's claim to the bungalow on the ground that Jagmag the Mohammadan mistressofthedeceased
was the absolute owner of the bungalow and that she had paid the purchase money and had collected the rents of thebungalow.
The Privy Council accepted the finding of the trial Judge that the evidence given by Jagmag was quite untrustworthy andalso
accepted the evidence of the plaintiff that all rates, rents and taxes and repairs ground rent of the bungalow had beenpaid
by the plaintiff, and that she had let out to various tenants from 1891 down to the commencement of the actionthepremises
in suit. It was in this context that the Privy Council stated that the High Court of Allahabad which set asidethejudgment
of the trial court had erred in attaching significance to the non-production of the books of the deceased's estatewhichit
was the contention of the defendant, if produced would show that rent had been credited to Jagmag.Itistobenotedin
this case that the plaintiff was not relying on any entry in the books in support of her case. On the other hand, it wasthe
defendant who pleaded that there were entries in the plaintiff's books which supported her. It is in thiscontextthatthe
Privy Council stated that nothing adverse could be drawn against the plaintiff's non-production of the books whichaccording
to her were not relevant. On the other hand since the defendant was relying on certain alleged entries inthebookitwas
for him to have taken proper steps to have summoned the plaintiff to produce the books and intheeventoftheplaintiff
failing to produce the books after the summons then an inference could have been drawn against theplaintiffthathadthe
books been produced it would have supported the defendant's case. The JudgmentofthePrivyCouncildoesnotlendany
support to the proposition that if plaintiff fails to produce documents in his possession which are relevant tosupporthis
case, he should have been summoned by the defendant to produce them before the presumption under section 114 of theEvidence
Ordinance could be drawn. He is not bound to produce documents which prove defendant's caseunlesshehasbeensummoned,
according to law, to produce same by defendant. The Patna High Court had in Chandra Narayan Deo v. RamachandraSerawgi(13)
misunderstood or misapplied the judgment of the privy Council in the above case by taking one portion of the judgment outof
its context and relying on the isolated statement as the ratio decidendi of that judgment. The High Court had failed tonote
that the books referred to in the Privy Council judgment, did not form part of the plaintiff'scaseandthatitwasthe
defendant who was relying on them.

In those circumstances the Privy Council rightly held that the presumption under section 114 of the Evidence Ordinancecould
not be drawn against the plaintiff.

On the other hand in the instant case, it is to be noted that the burden was on the plaintiff toprovethenon-receiptof
the bank statements and in that connection the Inward Registers referred to byplaintiff'switnessesassupportingtheir
oral evidence were highly relevant. It was not necessary for the defendant-bank to have summonedtheplaintifftoproduce
the Inward Register as no burden lay on the defendant to establish the non-receipt and the defendant was not relying onthem
in support of its case. The plaintiff was relying on the Inward Registers to support its case thatitdidnotreceiveby
post the bank statements and no explanation has been given for their non-production.

In the other cases Ramanathan Chettiar v. Viswanathan Chettiar (12) and Karwadiv.Shambharkar(11),reliedonby,the
plaintiff, the evidence was that the relevant accounts or register were not available or had been lost andthatexplanation
had been accepted by the Judge and hence there was no question of withholding the evidence from court. Hence the courtquite
properly said that no adverse inference can be drawn for non-production of the saiddocumentsthoughtheywererelevant.
Woodroffe and Ameer Ali in their Law of evidence, 12th Ed. vol. 3 at page 2153 have stated the correct position in law-

"A distinction should be made between documents relevant to one's case and those which are not so relevant. If a partytoa
case does not produce the document which is the best evidence in support of his contention an inference canbedrawnthat,
if produced, it would be against his contention. But if the document is not relevant to his case no adverse inference canbe
drawn from his non-production unless he was asked to produce the document and he fails to do so."

Had the trial Judge had the above relevant consideration in mind it is highly improbable that he wouldhaveheldthatthe
plaintiff had proved that it did not receive any of the bank statements from 1956 rightuptoNovember1968.TheInward
Letters Registers were relevant also for the purpose of showing that theplaintiffdidnotreceive,notonlythebank
statements but also the certificates of balancesentannuallybythedefendant-bank,theconfirmation-slipssentout
annually by the auditors of the defendant-bank, the overdraft limit advice setting out the limit of theover-draft,alleged
to have been sent out monthly by the defendant to plaintiff setting outthelimitoftheoverdraftfromJanuary1966.
According to the plaintiff, though the defendant-bank had regularly sent overdraft limit advices from1962totheendof
December 1965, apparently for no good reason the defendant-bank had stopped sending such advices from January1966andthe
plaintiff never questioned the defendant-bank about this alleged non delivery of overdraft limitadvicesthoughtheywere
necessary to the plaintiff to ascertain the limit of the overdraft available to it.

I agree with Abdul Cader, J., that except for the 75 weekly statements admitted by Abeywickrema tohavebeendeliveredby
him to Ingram, the plaintiff has not proved that the other monthly and weekly statements fromAugust1956totheendof
November 1968 had not been received by the plaintiff-company. Itwasadmittedbyplaintiffthatifanyoneofthese
statements did reach the plaintiff-company unaltered and un tampered, the plaintiff-company could have becomeawareofthe
fraud committed by Ingram and this alternative cause of action could not have been maintained by him.

Let me now assume, for the purpose of argument, that the district Judge was correct in finding that none of themonthlyand
weekly statements were sent by post by the defendant-bank to the plaintiff but were delivered personally byAbeywickremato
Ingram:what is the legal consequence of such failure? It is in evidencethatPaulFernando,ChiefAccountantandhis
Assistant Lionel Fernando were aware and their predecessors in office should also have been aware of the fact thatthebank
statements were not coming by post but were delivered by Abeywickrema to Ingram, who in turn brought them to the company.It
is highly significant that throughout the period of 12 years from 1956 to 1968 there was no protest by theplaintiff-company
against this personal delivery of bank statements to Ingram. In its plaint the plaintiff stated that thedefendant-bankwas
under a duty arising from agreement, practice and/or course of dealing to send correct weekly statements of accountstothe
plaintiff. The plaint does not specify how the weekly statements of accounts were to be sent to plaintiff whether by postor
through a representative of the company. The defendant-bank's position was that it normally sent its statements by post.

Acquiescence
In answer to issue 8 the defendant-bank has admitted its obligation to send weekly statements of accounttotheplaintiff.
Now the question arises whether the only way that the bank could have discharged its obligation of sending weeklystatements
was by post or whether delivery of the bank statements to a representative ofthecompanywithoutanyprotestfromthe
company was a substituted mode of performing that obligation of sendingthemonthlystatementsandwassufficient.The
reference to "practice and/or course of dealing by the plaintiff and the defendant" referred to in the plaintandissue8,
is significant. The fact that the plaintiff never objected to the substituted mode of performance bydefendant-bankofits
obligation tends to show that the plaintiff was satisfied that the defendant-bank should perform itsobligationofsending
the weekly statements by delivering the same to Ingram on behalf of the company and had waived the defendant's obligationto
send by post and that the plaintiff accepted the personal delivery by hand of the monthlystatementstoIngramasproper
delivery to itself, perhaps because of the special status accorded to Ingram inthecompanyinconnexionwithitsbank
matters. The defendant-bank was in the circumstances entitled to assume that thecompanyhadacquiescedinthebank/its
servants treating Ingram as its accredited representative to receive, on its behalf, the statementsfromthebank.Itis
relevant to note that the shows that in its dealings with the bank, theplaintiffemployedIngramtoexclusivelyhandle
them. In these circumstances it should be held that by its conduct the plaintiff company acquiesced in the bankdeliveryof
its statements to Ingram as regular by it and thattherebythebankdischargeditsobligationofsendingtheweekly
statements to it. As the plaintiff-company had approbated the handing over of the monthly statements toIngramfromAugust
1956 it would not be open now for the plaintiff-company after 12 years to disown the delivery of themonthlystatementsto
Ingram as improper and allege want of due performance by the defendant of its obligation of sending the weekly statementsof
accounts to it.

A waiver or acquiescence must be an intentional conduct with knowledge.

But it was contended that Harasgama, the Managing Director oftheplaintiff-companywasblissfullynotawarethatthe
company received the bank statement through Ingram and that since the ManagingDirectoroftheplaintiff-companyhadno
knowledge of the receipt by Ingram of the bank statements on behalf of the company,thecompanycannotbecreditedwith
knowledge of that mode of delivery of the bank statements, However, the evidence in thecaseisthatPaulFernando,the
Chief Accountant and Lionel Fernando, the Assistant Accountant were aware of the receipt by Ingram of the monthlystatements
and presumably their predecessors in office in the accounts section of the company must have also been awareofthatfact.
That Ingram was himself bringing the bank statements to the plaintiff-company seems to have been not only well knowninthe
plaintiff-company but was accepted as the regular thing by those in the plaintiff-company whose business itwastoreceive
and scrutinise such documents. Lionel Fernando, an Assistant Accountant of the plaintiff-company towhomIngramadmittedly
handed over the alleged bank statements stated that when there was a delayinthereceiptofthebankstatementsPaul
Fernando did not get in touch with the defendant-bank, but used to request him to find out fromIngramaboutsuchdelays.
Assuming that Harasgama was speaking the truth, when he testified that he was not aware of the fact of the receipt byIngram
of the bank statements, though it is difficult to believe his evidence on this point, particularly, for thereasonthathe
did not, for such a long period of time, inquire as to how the bank statements of the plaintiff-company which thedefendant-
bank had been specially requested to send weekly from 1962 and not monthly,werenotbeingreceivedbypostwhilethe
subsidiary companies of Collettes and the company's other account No. 22201 were receiving their statements by post fromthe
defendant-bank, yet in my view the knowledge of the relevant officers orservantsoftheplaintiff-companywho,inthe
company's organisation, were in charge of the company'saccounts,namelyPaulFernandoandLionelFernandoandtheir
predecessors in office must be attributed to their employer and be deemed in lawtobetheknowledgeoftheplaintiff-
company their employer.
Knowledge of servant, when imputed to employer
It is well settled that the knowledge of an agent will generally be imputed tohisprincipaliftheagentreceivedthe
information in question in connection with a transaction in which he is acting for hisprincipalanditishisdutyto
communicate that information to his principal

Cont..

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