PRIVY COUNCIL

                     John and others

                     Vs.

           Dodwell and Company, Limited
(Viscount Haldane, CJ, Lord Shaw Of Dunfermline

         and Sir Walter Phillimore, Bart. JJ )

                     11.2.1918.

                     JUDGMENT

Viscount Haldane CJ

1.This is an appeal from a judgment of the Supreme Court of Ceylon. The question is
whether the respondents were entitled to recover from the appellants the whole or part
of a sum of Rs. 1,45,860, being the aggregate of the amount of four cheques, drawn by
one Williams as the respondents" manager, in favour of the appellants.

2. The facts of the case are shortly these: The appellants are partners in the firm of E.
John and Co., carrying on business as share and produce brokers in Colombo. The
respondents are a company incorporated and registered in England, and carrying on
business as import and export merchants at various places, including Colombo,
through branch offices. Williams had acted as their manager of that branch since 1905.
He held a power of attorney which enabled him to conduct the business of the
respondents at Colombo, and for that purpose conferred on him wide powers,
including the drawing of cheques on their bankers. The respondents had transacted
business with the appellants, relating in the main to the purchase and sale of produce.
The latter had in their books an account with the respondents, and they had also
opened a separate account with Williams, who employed them in the purchase and
sale of shares. With Williams the appellants thus came into business relations in two
capacities: in general business he dealt with them as the respondents" agent, but so far
as his dealings in shares were concerned, these were private transactions on his own
account as principal, and not as agent. He was reputed to have made a good deal of
money by dealings of this kind, and he owned shares on which the appellants were
able to procure advances for him when he needed them.

3. Williams had bought and sold shares largely in both of what were known as the
rubber booms of 1905 to 1906, and of 1909 to 1910. He had employed the appellants
and other brokers in these transactions. In the period of the second boom his dealings
through the appellants were large, and in the course of these dealings he paid to them
large sums for purchases and was credited with large sums for sales. Among the sums
he paid to them were the amounts of the cheques in question. These were drawn as
follows 15th June 1909, Rs. 11,51.750; 12th October 1909, Rs. 20,10,2.50; 3rd May
1910, Rs. 67,500; 5th May 1910, Rs. 46,740 - total Rs. 1,45,860. The cheques were
drawn by Williams under his power of attorney in the name of the respondents and on
their bankers, but they were in fact drawn, not in the conduct or for the purposes of the
business of the respondents, but in the private interests of Williams himself, to be used
in his own transactions. The employment of the funds of the respondents for this
object was plainly outside the general authority entrusted to Wiliams. In so using them
he was guilty of fraud and when the respondents, his principals, discovered what he
had done, they not only claimed against him and proved in his subsequent insolvency,
but took criminal proceedings against him which ended in a conviction.

4. At the trial before the District Judge of Colombo it was found that the appellants
were neither in fact dealing with Williams as the respondents" agent nor believed
themselves to be so. The District Judge held, however, equally clearly, that the
appellants were not personally aware that they had received among the items paid over
to them for the purchase-money of the shares which they bought for Williams as his
brokers, cheques fraudulently drawn on the respondents" funds and that they took the
cheques honestly without noticing the name of the drawers, and without thinking of
them as in a different position from the other cheques received in the course of the
transaction with him. But it is obvious that the appellants" clerks who brought the
cheques to the partners for endorsement must have seen that the name of the drawers
was that of the respondents. However little the clerks may have known of Williams
real transaction, and however innocently the cheques were brought and indorsed, the
knowledge of the names on the part of the clerks was the knowledge of the appellants.
That the cheques so tendered by Williams should have been accepted by the
appellants, and paid into their own account, to enable them to provide the prices due to
the sellers of the shares, is not strange, for Williams was reputed to be a rich man and
he occupied a position of trust under the respondents" whose representative he was in
Colombo. With Williams the appellants, like other brokers, had had many
transactions, and none of them had resulted in any difficulty. What he was doing
might have been loose practice, and not in the ordinary course of business. But it was
not uncommon for employers to allow considerable latitude as regards drawing
cheques to their confidential agents. However, it is nonethe-less clear that innocent of
fraud, as the appellants were found to be, they, by the action of their clerks, took an
unmistakable and gave risk in the transaction in question. On the face of these
Williams was, without showing authority to do so, drawing cheques for his own
purposes on the respondents" funds at their bankers. If it turned out that the
respondents had not allowed him to do so, and would not ratify his action, the notice
which the appellants had got through the agency of their clerks of what was prima
facie a breach of duty on his part would deprive them of all title to hold the cheques as
against the respondents, if the latter should challenge the transaction. For when an
agent is entrusted by his principal with property to be applied for the purposes of the
latter, and to be accounted for on that footing, he is, by virtue of doctrines which apply
under the law of Ceylon, as they do under the law of this and other countries, in a
fiduciary position, and any third person taking from the agent a transfer of the property
with knowledge of a breach of duty committed by him in making the transfer holds
what has been transferred to him under a transmitted fiduciary obligation to account
for it to the principal. That there is no privity of contract between him and the
principal does not make any difference, for the title does not rest on contract. The
property belongs to the latter in the contemplation of Courts which administer equity,
whether in the form in which the Court of Chancery in this country applied it to trusts,
or in the form which later developments of the Roman law have recognized.

5. It is therefore clear that, excepting in so far as the lapse of time or some other
special circumstance afforded them a defence, the appellants could not withhold the
money in question from the respondents if they chose to claim it.

6. The respondents did claim it, and commenced an action on 10th January, 1913, to
enforce their claim. The claim as formulated in their plaint was alternative. In the first
alternative they expressed it as for money had and received, in the second, as for a
conversion; in the third, as for cheques received with notice of Williams" fraud. In the
judgments in the Courts below it was the first and second of these alternative forms of
claim which received attention. Their Lordships are of opinion that the course so taken
was unnecessary. It would have been in their opinion, sufficient to have disposed of
the case on the footing that the money was, in the circumstances what may properly be
called trust money, consistently with principles of jurisprudence based in part, though
not wholly, on a foundation of Roman law. If the appellants received such money with
notice of trust affecting it, they would be bound to account for it to the respondents. It
is on this footing that their Lordships propose to deal with the question. The case was
not disposed of in this way in the judgments below, but the facts proved and the
pleadings admit of its being thus dealt with.

7. It may well be true that the principles of the English common law have been so far
recognised in the jurisprudence of Ceylon as to admit of the same question being
treated as one of a conversion having taken place. If so, undoubtedly there was a
conversion according to these principles. But in that view difficulties might arise as to
the time limited for bringing the action for conversion under the Prescription
Ordinance, to which reference will be made later on. If the case is regarded, on the
other hand as similarly it may be, from the point of view of money bad and received to
the respondents" use by the appellants, the difficulty is less, for the period of
limitation prescribed by the Ordinance is three years instead of two as in the
alternative of conversion, and this would have rendered the transaction still actionable
in the case of the two cheques latest in date. But a point would arise, if the claim were
treated, as it was in the argument at the Bar, as one for money had and received, which
is not unattended with difficulty. The cheques were paid by Williams to the appellants
with instructions to apply them in payment of the price of the shares. This the
appellants actually had done before receiving from the respondents notice not to do so
The action for money had and received is, according to the law of England, in its
nature one of assumpsit, founded on implied or imputed contract, and depends on a
waiver of any tort committed, and on the correlative affirmance of a contractual
relation. But what is the effect and extent of such affirmance? In a simple case, such
as that of a wrong-doer having taken property of the plaintiff and sold it at a price
beyond its ordinary market value, there is no difficulty. The question of affirmance
here concerns only the relation between two persons, the owner and the tort-feasor,
and by waiving the tort and treating the latter as his agent in selling, the owner secures
the advantage of the high price received. But what if between the owner and the tort-
feasor there has intervened an agent for whom alone the tort-feasor has acted, and
whose directions he has carried out, say by paying over the price to him before he
received notice from the true owner not to do so? Does the waiver of the tort ratify the
action of the agent in giving instructions to the person who would, apart from
ratification, have been a wrongdoer, so as to justify what would otherwise have been
the wrongful act of paying over the price in accordance with the directions given by
the agent ? Can the contractual relation be split up and only part of it be approbated
while the rest is reprobated, and can any obligation based on his contract be imputed
to the person whose tort is waived inconsistent with the actual contract which he, in
point of fact, made with the intermediary ? Can the agent"s intervention be eliminated
if ratification of a contract is implied when a claim for money had and received is
made ? Reference was made at the Bar, and also in the judgment of the learned Judge
who tried the case to the dictum of Sir Walter Phillimore at the end of his judgment
delivered by him when a Lord Justice of Appeal in Morison v. London County and
Westminster Bank1 to the effect that in an action for money had and received it is
assumed that there was no wrongful act in receiving the money, and that therefore the
plaintiff cannot complain if it is properly paid over, before a licence to do so is
revoked. It is, in the view their Lordships take, unnecessary to consider how far the
principle of this dictum would extend in circumstances such as those of the present
case, or what is the true view of the scope of the ratification which this action implies
by the English common law. For under principles which have always obtained in
Ceylon, law and equity have been administered by the same Courts as aspects of a
single system, and it could never have been difficult to treat an action analogous to
that for money had and received as maintainable in all cases "where the defendant has
received money which ex acquo et bono he ought to refund." If, as in Ceylon, there is
no necessity to find an actual contract or to impute the fiction of a contract, in as much
as every Court can treat the question as one not merely of contract, but of trust fund
where necessary, there is no difficulty in extending the remedy to all the cases covered
by the words just quoted. Lord Mansfield, who used them in his judgment in Moses v.
Macferlan2. went far, in this direction, so far as appearances are concerned. But, as
has been pointed out by Lord Sumner in his judgment in Sinclair v. Brougham3, it is
by no means clear to what extent he really can be taken to have intended to import
equitable principles into the jurisdiction of the Courts of common law in entertaining
this action. Undoubtedly it is one based on contract, for the common law could take no
notice of any trust, but the contract imputed may conceivably have become so much
the creature of legal fiction that it can be imputed without reference to all the
circumstances of the whole of the relations of the parties, and accordingly in such a
fashion as to exclude the effect of the directions of the intervening agent in a case like
the present. The learned Judge who tried the case did not adopt this view, but
apparently thought that the entirety of the actual contract must be treated as affirmed.
But the point is one which their Lordships are reluctant to deal with unnecessarily in
an appeal from a Court which was not confined to administering the common law of
England, and, as they are of opinion that the present appeal can be disposed of on the
other principle referred to, they abstain from expressing any view of the result of the
argument addressed to them about the scope of the alternative claim for money had
and received.
8. The next question to be dealt with is that which was raised under the Prescription
Ordinance (22 of 1871). Sect. 10 of this Ordinance, like Sections 8 and 11, contains
provision for limitation of the time within which the actions that fall within it may be
brought, and does not purport to extinguish the obligation as in the case of prescription
properly so called. It provides that no action is to be maintainable for any loss, injury,
or damage unless within two years from the time when the cause of action has arisen.
Their Lordships think that the words used are to be interpreted as covering a
conversion, and not as in their meaning restricted to personal loss, injury, or damage,
and that an action for a conversion would therefore be barred after two years from its
cause. Sect. 8 gives a three-year period for limitation of the actions falling under it. It
extends inter alia, to actions for the recovery of any movable property, or for money
received by a defendant for the use of a plaintiff, or for money due on an unwritten
promise or contract. As the claim in the present case is not merely for conversion, but
alternatively to recover what is in effect a trust fund, it falls within this section or else
within Section 11, which allows a three-year period in cases not expressly provided
for. The present action was therefore brought in time so far as concerns the two
cheques latest in date, but it was out of time as regards the two earlier cheques unless
a fresh cause of action arose later than the dates on which the appellants dealt with
them.

9. It was argued below that the fraud committed and concealed by Williams was such
a cause of action, and that where a Court is proceeding in accordance with equitable
principles the cause of action can be treated as not having arisen until the fraud was
discovered and the plaintiff was able to elect as to the course which he should adopt.
In such a case the concealment of the fraud would be itself a fraud, giving rise to a
new cause of action. This is true, unless there is some Statute of Limitation which
binds the Court of Equity to treat the cause of action as arising when the actual fraud
takes pace. If there is such a statute it must receive effect.

10. Under the law of England the Statute of Limitations did not apply to any
jurisdiction of Courts of Equity which was not strictly concurrent with the jurisdiction
of the Courts of common law over causes of action which were within it.

11. The statute did not apply to jurisdiction which was concurrent merely by analogy,
although equity in such cases followed the analogy of the statute, and even this second
analogy was not applied when the jurisdiction was really, exclusive. Courts of Equity
in this country ignored the analogy of the statute in cases of trust, to which it did not
apply. The Prescription Ordinance of Ceylon governs the whole of a jurisdiction which
is general, including law and equity in one system, and therefore the Ordinance is
operative in the present case to bar the claim to the extent of the two earlier cheques,
unless the cause of action can be shown to have arisen later than their dates because of
discovery for the first time of a concealed fraud. Now no doubt Williams himself
concealed a fraud. But the appellants were innocent, excepting in so far as they must
be taken to have had notice to the extent already referred to. Where the cause of action
is for concealed fraud, must the fraud be that of the defendant personally, or of some
person for whose action in doing so he is directly responsible? No authority from
Ceylon was cited at the Bar on this question, but their Lordships think that on
principle the answer must be in the affirmative. Mere notice of want of title is not
enough, unless there is such notice of actual fraud as extends to the defendant a
fiduciary obligation to disclose what it becomes fraudulent on his part to conceal. This
appears to have been the view held by the Roman lawyers, on whose system the law
of Ceylon is founded. In Book 44, title 4, of the Digest there are collected the opinions
of Ulpian and other jurists on the "exceptio doli mali." Among these opinions and the
illustrations which their authors offer are the following:- Sect. 2 (1):"......non in rem"si
in ea re nihil dolo malo factum est; sed sic, si in ea re nehil dolo, malo actori factum
est." Docere igitur debet is, qui obicit exceptioneum, dolo malo actoris factum, nec
sufficiet ei ostendere in re esse dolum......"Sect 4 (17): " In hac exceptione "et de dolo
servi vel alterius personae iuri nostro subiectae excipere possumus et de eorum dolo
quibus adquiritur. Sed de servorum et filiorum dolo, si quidem ex peculiari eorum
negotio actio intendatur, in infinitum exceptio obcienda est: si autem non ex peculiari
causa, tum de eo dumta xat excipi oportet, qui admissus sit in ipso negotio quod
geritur, non etiam si postea aliquis dolus in intervenisset; neque enim esse aequum
servi dolum amplius domino nocere, quam in quo opera eius esset usus."

12. Mr. Upjohn, in arguing the case of the respondents, with conspicuous fairness,
drew their Lordships" attention to these passages in the Digest. They think that they
illustrate a general principle, applicable in Ceylon or in England, that to enable the
defence of concealed fraud to be relied on as giving a new cause of action the fraud
must be shown to be the fraud either of the defendant himself or of some one for
whose action in the matter in question he has assumed responsibility. In the Roman
Law where the doctrine of agency was never fully developed, illustrations taken from
the relations of master and slave or father and son are often, as here, of much value as
illustrations of a principle which in later systems became widely applied. The passage
quoted shows that the doctrine of imputed fraud was closely confined in its application
by the Roman jurists to the defendant either actually guilty of or legally responsible
for the fraud. Their Lordships are therefore of opinion that, according to the law of
Ceylon the cause of action accrued, under the circumstances of this case, at the dates
when the cheques were received and dealt with by the appellants, and that the
respondents are accordingly entitled to succeed as regards the last two cheques, those
of 3rd and 5th May 1910, but not as regards the two earlier cheques dated in 1909.

13. The learned District Judge of Colombo, Mr. Garvin, in his very careful judgment,
held that Sections 14 and 15 of the Prescription Ordinance, which enact that if the
person entitled to sue is beyond the seas time is not to run until this disability is
removed in cases falling within Sections 6. 7, 8, 9 and 11 of the Ordinance, did not
apply to a corporation having its registered office outside Ceylon if it had a residence
and carried on business inside the island. With this view, which was also that adopted
in the Court of Appeal, their Lordships concur.

14. The learned District Judge held that the claim was in reality one for money had
and received and that on this footing the respondents had, by waiving their right to
proceed on the footing of tort, ratified the payments made to the sellers of the shares
by the appellants before they had notice not to make these payments. As the result he
held that the liability of the appellants was limited to Rs. 14,751, part of the amount of
the last cheque, which had not been paid over to the sellers, but had been applied in
liquidation of Williams" indebtedness to the appellants. But their Lordships have
already intimated the opinion that the liability extends to the entire amount of the two
latest cheques, and this liability can be diminished only by the amount which the
respondents have already received by proving in Williams" insolvency. With what the
learned Judge said in refusing to accept the argument for the appellants as to estoppel
by the proof of the respondents in the insolvency, and by their dilatoriness, their
Lordships are in agreement.

15. The Supreme Court varied the decision of the District Judge. By a majority they
held that the cause of action arose when Williams" frauds were discovered in October,
1911, that the Prescription Ordinance therefore did not bar the claim, and that the
respondents were entitled to the entire amount of the four cheques, a total of Rs.
1,45,860, with interest up to the date of the plaint and with further interest until
payment, less only the amount recovered by proof in the insolvency. They thought
that, in order to prevent the cause of action being held to have arisen when the
cheques were dealt with, it was sufficient to show that the appellants had obtained
them from a person who had committed a fraud and concealed it, although the
appellants themselves had not been guilty of fraud. They were influenced in coming to
this conclusion by decisions of the English Court of Chancery, such as that of Lord
Eldon in Huguenin v. Baseley4, who said, in his judgment, that he should

       "regret that any doubt could be entertained whether it is not competent to a
       Court of Equity to take away from third persons the benefits which they have
       derived from the fraud, imposition, or undue influence, of others."
16. But their Lordships have to point out that Lord Eldon was not there speaking of
any new cause of action arising from a concealed fraud. No such question had arisen.
He was simply illustrating the view taken by Courts of Equity in England when
ordering the restitution of what they treated as a trust fund, and so exercising a
jurisdiction which was exclusive, and to which no Statute of Limitation had any
application. In the present case there is a Statute of Limitation, and in order to escape
from its application it is necessary to show that there is a subsequent and independent
cause of action which arises from the concealment of the fraud. Such a separate cause
of action arises, as their Lordships have already said, only out of the conduct of a
person who is held to have been responsible for the fraud and has in breach of his duty
concealed it. Such cases are very different from what Lord Eldon was dealing with in
Huguenin v. Baseley where, in applying the exclusive jurisdiction of the Court of
Chancery to decree restitution of property affected by a fiduciary obligation, he quotes
with approval an expression of Wilmot, C.J., defining the only doctrine he was himself
affirming:

       "Let the hand receiving it be ever so chaste, yet, if it comes through a polluted
       channel, the obligation of restitution will follow it."
17. In the result their Lordships think that the respondents were not entitled to recover
from the appellants more than the amounts of the two later cheques with interest at the
usual rate until the date of the action, and from that date at the rate of 9 per cent until
2nd October, 1914 (the date of the decree of the District Court), and interest on the
aggregate sum at the rate of 9 per cent until payment less the sum of Rs. 3,804"15
being the dividend recovered by the respondents from Williams " estate in the
insolvency proceedings, as on the date when it was actually received by the
respondents. The District Judge made no order as to costs, and on this point his
judgment should be restored. The respondents succeeded rightly, to a limited extent, in
the Supreme Court, and the appellants have succeeded to a substantial extent in this
appeal. Their Lordships think that justice will be done if they leave the respondents
entitled to the costs of the appeal to the Supreme Court, which the judgment of that
Court gave them, but order them to pay the appellants" costs of the present appeal.
The costs of an application to postpone the hearing of the appeal, which were ordered
to be borne by the appellants in any event, will be set off against the latter costs.

18. They will humbly advise His Majesty in accordance with this opinion.

Appeal allowed.

Cases Referred.

   1. [1914] K. B. 356
   2. 2 Burr. 1005
   3. [1914] A.C.398
   4. [1807] 14. Ves. 273