PRIVY COUNCIL

                 Arthur John Pate

                 Vs.

                         W.C. Pate and others
(Lord Sumner, CJ, Lord Wrenbury, and Sir Edmund Barton. JJ)

                 22.7.1915

                 JUDGMENT

Lord Sumner CJ.

1. From the beginning of 1898 Arthur John Pate, now appellant, Charles Henry Pate,
whose legal personal representatives are now respondents to this appeal, and George
William White and Charles McClay, both now dead and strangers to these
proceedings, traded together in a coaching business between Matale and Jaffna and
between Damboola and Trincomalee. They had no articles of partnership. There was
no agreement in writing or written memorandum of the bargain subsisting between
them. Their capital exceeded £100. Disputes presently arose, and there has been much
controversy about them. In one way or another their partnership-for such de facto it
was- had come to an end before December 1903, when Charles Henry Pate began the
present suit, making Arthur John Pate the principal defendant.

2. The plaint alleged that there was an agreement of partnership, carried out by
contributions of capital and by joint trading, and alleged also its ultimate dissolution.
It stated that no account had been taken or settled, and prayed a decree for partnership
accounts, with payment of such sums as might be found due and other suitable relief.

3. The answer took the objection in limine that the partnership agreement was not
proved by any writing in accordance with Ordinance VII of 1840, Section 21. The
action went to trial. It was held to be maintainable, and the ruling was sustained on
appeal. This was in July 1907. Inquiries were directed, and further proceedings and
appeals took place till, in December, 1911, the Supreme Court disposed of the last of
them, and judgment went against the now appellant for some Rs. 40,000.

4. The respondents' Counsel, drew their Lordships' attention to the fact that the
Supreme Court of Ceylon disposed of the objection based on Ordinance VII of 1840
as long ago as 1907, while leave to appeal to their Lordships' Board was only granted
in 1912. It was suggested that after such an interval of time their Lordships might well
decline to entertain what was called a mere technical objection. The point had been
argued when the Supreme Court granted leave to appeal, and the Court, following
prior decisions in Ceylon, held that the decree, which declared the existence of a
partnership, was not appealable till the taking of accounts had shown whether or not
an amount of Rs. 5,000 or more was involved, as provided in R. 1 (a) of the Rules
scheduled to Ordinance XXXI of 1909. The appellant's case did not raise this point;
and, as their Lordships are of opinion that it is not an objection of which their
Lordships would take notice motu proprio, no further observation need be made upon
it.

5. Ordinance XXII of 1866 enacted that English law is the law of partnership in
Ceylon, but this in no way enlarged or diminished the prior Ordinance VII of 1840.
When that Ordinance has been construed, no Court can proceed to modify its effect or
restrict its application.

6. It is described as an Ordinance to provide more effectually for the prevention of
fraud and perjuries. Its object is effected by requiring certain kinds of transactions to
be proved by writing, not by limiting the competency of persons, or by prohibiting or
penalizing their acts, or by avoiding certain classes of transactions. After a code of
formalities for the execution and attestation of wills and sundry deeds and other
instruments in twenty sections, it proceeds in section 21 to what is plainly and
evidentially provision with regard to certain legal proceedings. It enacts that "no....
agreement, unless it be in writing and signed by the party making the same,.... shall be
of force or avail in law for any of the following purposes." The first three purposes
are: first charging any one with another's debt or default, secondly pledging moveable
property without delivery, and thirdly sale of movables without either delivery or some
payment. The fourth is "for establishing a partnership where the capital exceeds one
hundred pounds."

7. To this there is a proviso:

       "Provided that this shall not be construed to prevent third parties from suing
       partners, or persons acting as such, and offering in evidence circumstances to
       prove a partnership existing between such persons, or to exclude parol
       testimony concerning transactions by or the settlement of any account between
       partners."
8. But for the use of the word "establishing" as to the purpose, and of the word "prove"
in the proviso, it could hardly be doubted that "establishing" means "establishing by
proof" qoram judice. The significance of a change of term as importing change of
substance, though, material, may easily be exaggerated. If at the end of the trial the
Judge had said to the plaintiff. "you cannot succeed unless you establish a partnership,
and on the evidence you have established none," the mere expression would have been
perfectly correct. In their Lordships' opinion the words "for establishing a partnership"
clearly apply to the present case, which was founded on the allegation of an
agreement, not expressed in any writing, of which parole evidence was adduced for
the purpose of establishing a partnership as the basis of the suit. This agreement, in
their opinion, was of no force, and did not avail in law unless it could be brought
within the proviso. They are unable to accept the somewhat unpractical contention that
"establishing" here specially refers to cases (if such there be) where the plaintiff seeks
to establish his disputed right to be a partner, and not to cases where the parties have
acted as if they were partners in fact and some dispute has arisen as to their
partnership rights or property interse. It is true that the Ordinance says "no....
agreement shall be of force," and not "no evidence of an agreement shall be of force,"
but this appears to be a mere verbal distinction. In what sense could an agreement be
of force for establishing a partnership, which would effectually distinguish the
agreement from the record or evidence of that agreement? It is said that a partnership
which exists in fact, and a fortiori a partnership which has existed in fact and has been
determined, needs no "establishing," a term only appropriate to that which exists
exclusively in promise and not in performance. Again, this is only a play upon words.
Partnership is essentially a relation resting in agreement. That agreement may be
proved or established (if there be no evidentiary law to the contrary) by proof of an
express agreement, written or unwritten, or by proof of such acting as raises the
inference of an implied agreement; but a partnership, whether in course of
performance or wholly spent, is still a matter of agreement, though of agreement
coupled with something more. If agreement once be negative, there is no partnership
at all. However the matter may stand where an existing or past partnership is admitted,
it is equally necessary to "establish" the agreement upon issue joined in that regard,
whether the partnership alleged to be agreed is, or was, or is to be. The requirement is
evidently a binding rule of evidence in Courts of law. As all parties to the suit had
been de facto partners, or were the legal personal representatives of such persons sued
as such, only the last line of the proviso need be considered. The question is whether
the present is a case of "parole testimony concerning transactions by" partners, or
concerning "the settlement of any account between partners."

9. Their Lordships think that the answer must be in the negative. Where the
transaction of which proof is tendered would be irrelevant if it were not that it is a
transaction by a partner, proof of it is testimony to establishing a partnership, and if
that be not established the proof of the transaction is immaterial. If parole testimony
can always be given concerning transactions by partners, it is not easy to see what the
cases are in which a writing signed by the party is requisite. Again, if the settlement of
any account between partners means simply a claim upon an account stated, it does
not matter whether the parties to it have been partners or have not. If there is to be any
relevancy in the words "between partners," it must be because claims for a partnership
account, where the partnership is neither admitted nor established, are not within the
proviso. Thus, just as a third party seeking to make A and B liable to him as partners
may give circumstantial proof of their partnership, so, as soon as a partnership
agreement has been duly established by writing, parole testimony of the partners'
transactions and settlements of account may be given without further documentary
evidence.

10. It may be that such an interpretation will restrict the application of the proviso to
cases which are limited in extent and of infrequent occurrence. Still, on the whole, if
the law requires certain classes of agreement to be recorded in or evidenced by writing
in order to prevent fraud and perjury, the smaller the area of an exceptive proviso, the
more emphatic is the safeguard against the commission of these offences. It is plain
that the words "for establishing a partnership," refer to proof of a partnership
generally, for otherwise the first branch of the proviso would not be an exceptive
proviso, at all, but a mere unnecessary warning. The, first branch of the proviso refers
to the case of strangers to a partnership who desire to prove its existence; the second
deals with certain matters arising in proceedings between established partners.

11. It was urged upon their Lordships that, in accordance with a current of authority in
Ceylon, now of considerable standing, a different interpretation should be placed on
the words of this section. In 1871, it was decided in an anonymous case (D. C. Kandy,
No. 52, 568 [1871] Vanderstraaten, 195 that when a partnership had been terminated,
and on balance of account one partner claimed a sum to be due to him from another,
he might prove his claim by parole evidence under this proviso, as "well with regard
to the fact that a partnership had existed as with regard to the balance due." The
reason for this decision is not clear. The Court distinguishes such a case from one in
which a partnership has to be "established," by describing the latter as a case "where a
man seeks to compel another to act as his partner"-a description which is very
obscure. This case has been followed in Ceylon ever since, often with expressed
reluctance, and latterly always on the grounds that the decision is binding. Thus in
Sawenna Chetty v. Kawenna Chetty1 Chief Justice Burnside expressed his doubts of it,
and in Bawa v. Mohamado Cassim2 Dias, J., supports the case on a supposed
distinction between executory contracts of partnership and contracts which have been
partly executed. Later decisions treat the point as ruled by the case in Vanderstraaten,
namely Mendis v. Peiris3, though Burnside, C.J. dissented; Silva v. Nelson4 and
Annamalai Chetty v. Shand5; Silva v. Silva6; Kanappa Chetty v. Walathappa Chetty7;
Singho Appu v. Amarasuriya8; and two later decisions, unreported, of which certified
shorthand notes of the judgments were produced to their Lordships.

12. With all respect to the learned Judges who so read the Ordinance in 1871, their
Lordships not only think that their decision was erroneous, but also that even after the
interval of forty-four years it ought to he overruled. The present is not one of those
cases in which inveterate error is left undisturbed because titles and transactions have
been founded on it which it would be unjust to disturb. There can be few partnerships
in Ceylon, still in operation or unliquidated, in which writing has been dispensed with
on the faith of these decisions. If parties choose to disregard so ordinary and so simple
a formality as the Ordinance requires, there is no hardship in leaving them to take the
consequences, nor is it in any case sound to misconstrue a statute for fear that in
particular instances some hardship may result. That is a matter for the Legislature, not
for the Courts. Whenever the law enacts that the truth shall be proved by one form of
testimony only, and not by all admissible and available forms, there is peril of doing
particular injustice for the sake of some general good, and even of enabling some
rogue to cloak his fraud by taking advantage of a statutory prescription the policy of
which was the prevention of fraud. This the Legislature must be taken to have
weighed before enacting the Ordinance. All that remains for judicial determination is
its true meaning.

13. This decision has made it unnecessary to pursue the issues of fact which were
investigated by the Courts below. Their Lordships will humbly advise His Majesty
that the appeal should be allowed with costs here and below, and that judgment should
be entered for the defendants in the action.

Appeal allowed.

Cases Referred.
1. [1884] 6 Sup. ct. circular, 119.
2. 1 Ceylon L. R. 53
3. 1 Ceylon L. R. 98
4. 1 Browne, 75
5. 1 Browne, 37
6. 6 New L.R. 92 : 3 Browne, 136
7. 7 New L.R. 339
8. 1 Weerekoon, 78