PRIVY COUNCIL

                  Karmali Abdulla Allarakia

                  Vs.

                  Karimji Jiwanji and others

                            P.C.A No. 71 of 1913
(Lords Dunedin CJ and Shaw, Sir John Edge and Mr. Ameer Ali. JJ)

                  18.11.1914

                  JUDGMENT

Lord Dunedin CJ.

1. This action arises out of transactions connected with a venture in brown sugar
entered into by the first and second respondents. The second respondent is now
bankrupt and the third respondent is his official assignee: and neither of them
defended the action or took part in the proceedings under appeal.

2. The first respondent, Karimji, and second respondent, Rashid, were both merchants
carrying on business in Mauritius and had for some time been rivals in the sugar trade.

3. Rashid had all along also had a Bombay Bouse, and Karim was in the act of setting
one up, but it was not at the date to be presently mentioned yet open.

4. The appellant, Karmali, is a merchant carrying on business in Bombay and
Hongkong.

5. Karim and Rashid resolved to have a joint speculation in brown sugar to be shipped
from Mauritius to Hongkong. The terms of the arrangement they made between
themselves were on 25th July, 1906, embodied in a stamped agreement. The document
is too long to quote, but maybe summarized thus - It begins with a preamble that the
parties "for the purpose of doing business in partnership in brown sugar from
Mauritius to Hongkong agree to act as follows." Then follow the terms. Purchases
were to be made "jointly" at Mauritius. These purchases were to be made by both
firms after consultation with each other, and after taking advice from the Bombay
houses. No limit as to purchase is imposed on either firm; but as soon as either firm
buys, that firm is to give a delivery order on the Dock warehouse for half the quantity
of the parcel to the other firm. When sufficient sugar to load a ship has been
purchased, then a ship is after consultation to be chartered, and loaded with the
purchased sugar and dispatched to Hongkong. Invoices of the sugar, made out
separately as half and half, were to be sent respectively to each of the Bombay firms.
At the same time Rashid was to draw bills to the value of the sugar on his Bombay
house, and Karim on his Bombay house when it came to be opened. But until that time
came he was to draw bills on Karmali. If the banks at Mauritius refused to discount
bills on the Rashid or Karim house the Bombay firms were to be informed by wire, in
which case it was said that Karmali would come to the rescue by interposing credit
according to arrangement made with him. On the ship arriving at Hongkong the
arrangements as to sale of the sugar were to be carried through by the Bombay houses.
Account of sales were to come from Hongkong made up separately half and half to
each. Then the invoices were to be added together and the surplus or deficit on the
entire transaction was to be divided equally. Chartering was to be done in either one or
both names; but all commissions were to be equally divided. In the event of the
Hongkong market being bad and there being an opportunity of a profit by reselling at
Mauritius, this was to be done after permission got from Bombay; and such profit on
all sales was to be equally divided. The agreement was to remain good for a year from
date of signing. There is then an addendum to the agreement written and signed by the
plaintiff, in which he binds himself to come to the assistance of the partners if the
Mauritius banks refuse to discount the bills drawn by the Mauritius firms of the two
defendants on their own Bombay firms respectively.

6. Following on this agreement a venture was commenced, and the terms of the
agreement were literally carried out, except in one particular. That is to say, sugar was
bought, about 36,000 bags by Karim, and about 4,000 by Rashid. Delivery orders
were then given by each to each for half of the sugar purchased by him, and the sugar
so divided on shipment was consigned to the Hongkong firm of the plaintiff. The one
particular in which the agreement was not literally complied with was that the bills
were not drawn by Rashid and Karim at Mauritius on Rashid and Karim in the first
instance and then, on refusal of the banks to discount, recourse had to the assistance of
the plaintiff; but they were at once drawn on and accepted by the plaintiff's firm at
Bombay. The bills were drawn by Rashid and Karim respectively for sums
approximately representing the value of the sugar shipped upon the separate invoices
of each, i.e., about half and half - an exact half being unattainable on account of the
packages in which the sugar was put up.
7. The sugar arrived at Hongkong, and was sold by the plaintiff to whom it was
consigned. The venture, however, turned out a failure instead of a success; the prices
realised not being sufficient to give a profit after payment of the price of the sugar, the
freight, and other expenses.

8. The plaintiff accordingly raised this action, which is truly an action of accounting
against both Rashid and Karim. Now, when the bills drawn by the two defendants had
become due, and were payable to the banks who held them, Karim had retired the bills
of which he was the drawer, but Rashid, who had by this time become insolvent, had
not retired the bills of which he was the drawer, with the result that the plaintiff, whose
name was on these bills as acceptor, had to retire them. This necessarily brought out a
considerable balance on the whole transaction as due to the plaintiff. The bankrupt
respondent Rashid and his Official Assignee did not oppose judgment being entered
against them; but the solvent partner Karim opposed judgment upon the ground that he
had paid all sums due on bills signed by himself, and that he was not liable in respect
of any monies raised on bills to which he was no party.

9. The case depended before Russel, J. in the High Court at Bombay, who after trial
found in favour of the plaintiff. The material ground of his judgment may be
effectively summarised by quoting two of his findings on the issues which he
incorporated with his judgment which were as follows:-

       "I find (1) There was a partnership between first and second defendants'
       firms.....(4) The plaintiff paid and advanced moneys on the hundies (bills) for
       and on account and for the credit of the said partnership."
10. The Court of Appeal reversed that judgment. The gist of their judgment may be
taken from the concluding paragraph thereof, which is as follows:-

       "Treating the question as purely a question of liability between the parties to the
       bills of exchange it is manifest that the plaintiff cannot succeed in charging the
       first defendant with liability on bills of the second defendant, and having regard
       to what appears to us to be the correct construction of the agreement between
       the parties, we cannot hold that there is any collateral agreement by which one
       shipper agreed to be liable for the default of the other in not taking up the bills
       of exchange drawn by him on the plaintiff".
11. Their Lordships are of opinion that it is erroneous to treat the question as purely a
question of liability on the bills. In other words, they think the issue proposed by the
learned Trial Judge to himself was right. The case of the In re Adansonia Fibre Co1
seems to have been much pressed on the Court by the learned pleader. But the very
first sentence of the judgment of James, L.J. shows that in that case the only question
was whether in a winding up proof could be made on the bills alone; and that all
questions of ultimate liability were left undecided.

12. No one doubts that there was here a partnership. It is stated to be a partnership in
the agreement, and it amply falls within the definition of a partnership given by the
Indian Contract Act, which rules parties in this case; it is however a partnership of a
limited character, and consequently liability to be enforced against one partner, when
there is no document of debt which on its face binds him, can only be justified if it
was shown that what he did was within the operations natural to the partnership and
for the partnership.

13. Their Lordships think that the law on these matters is accurately stated in the well-
known judgment of Lord Ellenbor-ough in Gouthwaite v. Duckworth2. In saying "the
law", it would perhaps be more accurate to say, a statement of the criterion which is to
be applied to the particular facts of each case in order to see whether the transaction is
or is not a partnership transaction. In that case it was sought to make Duckworth liable
for goods purchased by Brown and Powel, and Lord Ellenborough says this:

       "There seems also to have been some contrivance in this case to keep out of
       general view the interest which Duckworth had in the goods; the other two
       defendants were sent into the market to purchase the goods in which he was to
       have a moiety; and though they were not authorised, he says, to purchase on the
       joint account of the three, yet if all agree to share in goods to be purchased, and
       in consequence of that agreement one of them go into the market and make the
       purchase, it is the same for this purpose as if all the names had been announced
       to the seller, and therefore all are liable for the value of them,"
14. He distinguishes the case of Saville v. Robertson3 thus :-

       "The case of Saville v. Robertson does not indeed approach very near to this;
       but the distinction between the cases is, that there each party bought his
       separate parcel of goods, which were afterwards to be mixed in the common
       adventure on board the ship, and till that admixture the partnership in the goods
       did not arise".
15. and Bayley, J., after describing Saville v. Robertson in the same way says :-

       "But here as soon as the goods were purchased, the interest of the three attached
       in them at the same instant by virtue of the previous agreement."
16. Mr. George Joseph Bell, in his celebrated Commentaries on the Principles of
Mercantile Jurisprudence, after stating that the law of Scotland is the same as the law
of England in this matter, quotes the judgment of Lord Ellenborough as correctly
laying down the law, citing, inter alia, a case of Cunningham v. Kinnerar4, on the
same lines as Gouthwaite v. Duckworth, which was affirmed in the House of Lords in
1765, and the whole matter is comprehensively expressed in his Principles, Section
395, in words which their Lordships think accurately give the result of the cases both
old and modern.

       "Where goods are purchased or money raised for the joint adventure, and the
       dealing though ostensibly by an individual is truly and substantially a dealing of
       the joint adventure, the adventurers are liable as partners. But there is no such
       responsibility for goods, andc., purchased on the credit of an individual
       adventurer previously to the contract though afterwards brought into stock as his
       contribution.."
17. It may be and often is a difficult matter to say on which side of the line thus
indicated the facts of a particular case fall, and cases will be found illustrating both
results. To the cases already cited may be added the case of Heap v. Dobson5, while in
the Scottish Courts may be taken as on the lines of Gouthwaite's case , the case of
British Linen Co. v. Alexander6., (where the facts are strikingly similar to the present
case, and on the lines of Saville and Heap's cases , White v. McIntyre7.

18. Their Lordships are aware that Lord Lindley, in his capacity as an author but not
as a Judge, expressed some doubts as to whether the case of Gouthwaite v. Duckworth
(Supra), could be supported. They are of opinion that, whether that doubt is sound or
not, it is not a criticism on the criterion of law indicated by Lord Ellen-borough and
the other Judges; but is only an indication that a different view might have been taken
of the facts of that particular case.

19. Turning then to the present case, their Lordships have come to the conclusion that
the judgment of the trial Judge was correct. The considerations which lead them to
that result are as follows :

20. It is clear from the terms of the agreement that either of the two partners by the
mere fact of purchase (after consultation as to price) could subject any sugar
independently of the action of the other to becoming partnership sugar. A purchase of
sugar therefore becomes a purchase for the partnership, and any one who sold the
sugar, or advanced money by which the sugar was bought, was crediting the
partnership with goods or money. This is further accentuated by the provision as to
possible resale in Mauritius itself. If either party in the case bought sugar, and then
came to resell it in terms of that article, he could not refuse his co-adventurer a share
of the profit he made. These considerations make it impossible to say, as was said
effectively in Saville v. Robertson (Supra), or Heap v. Dobson (Supra), that the joint
adventure only began when the goods were shipped, as it is clear that the joint
adventure began as regards each parcel from the moment that parcel was bought. The
learned Judges of the Court of Appeal are impressed with the view that the agreement
is "elaborately drawn for the purpose of keeping the interests of the two shippers
distinct...except in so far as a combination between them was desirable for the purpose
of securing joint shipments and a sale of the sugar at Hongkong." Their Lordships
cannot take this view. It ignores the fact that notwithstanding the separate shipment
and consignation documents, the sugar was admittedly to be accounted for as
partnership sugar. Supposing that the particular parcels consigned by one had in some
way been deteriorated, either by perils of the sea, without insurance, or by the
development of some intrinsic fault, it is perfectly clear that the other party would
have had to bear his share of the loss resulting in the whole cargo. No doubt the
anxious arrangements for shipping and consignation in separate names were peculiar.
But the reason for them is amply explained by the fact that the parties desired secrecy,
being afraid at Mauritius of the hostile action in breaking prices of a rival whose
astuteness they deploringly acknowledged.

21. Moreover, it is clear not only that the facts as to the terms of a partnership in the
sugar shipped are as have been stated, but that the plaintiff knew the whole terms and
conditions of the agreement. He knew therefore he was helping by advance of credit
the partnership in its purchase of sugar. The learned Appeal Judges say that the
respondent Karim did not avail himself of the plaintiff's credit. That that credit was not
interposed in the precise way originally contemplated by the 4th article of the
agreement is true. But that they did not in fact avail themselves of the plaintiff's credit
is obviously an error. The bills speak for themselves. When a drawer discounts an
acceptance which acceptance is given at a time when the acceptor owes no money to
the drawer, it is idle to say that the drawer does not avail himself of the acceptor's
credit; and if anything more was wanted it is to be found in the evidence of Karim
himself, who admits in cross-examination, "For the purchase of all that sugar neither I
nor Rashid paid a rupee; it was all paid for by hundis accepted by the plaintiff."

22. Their Lordships will, therefore, humbly advise His Majesty that the appeal should
be allowed and the judgment of the Trial Judge restored : the defendant Karim paying
costs in the Courts below and before this Board.
Appeal allowed.

Cases Referred.
1. [1874] 9 Ch. 635 : 31 L.T.9 : 22 W.R.889 : 43 L.J.Ch.732
2. [1810] 12 East.421
3. [1792] 4 Turn.Rep.720
4. [1764] 2 Pat.App.Cas.114
5. [1863] 15 C.B.(N.S) 460 : 137 R.R.602.
6. [1858] 15 D.277
7. [1841] 3 D.334