WEERASURIYA v. FUARD

• Jurisdiction: Sri Lanka
• Date: 27 May 1952
• Type of Document: New Law Report

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1952 Present : Gratiaen J. and Gunasekara J.

WEERASURIYA, Appellant, and FUARD, Respondent

S. C. 387-D. C. Colombo, 18,596

Proctor and client-Fiduciary relationship-Conflict between interest and duty- Allegation of fraud-Breach of professional duty established-Duty of Court to give relief to client.

A Proctor, who was employed by a client as legal adviser for the purpose of making an investment of a certain sum of money, caused the money to be lent on security which to his knowledge was precarious, and, by such investment, benefited financially three of his close relatives who had already interests as primary or secondary mortgagees in the same security. The investment, as any reasonable person should have foreseen, proved disastrous.

Held, that the Proctor's conduct in the transaction fell short of the high standard of conscientious duty exacted by well defined principles of the common law and that the client, who lost his money on the investment, was entitled to claim an indemnity from the Proctor for the loss which he had sustained.

A Court of Law, " exercising jurisdiction as a Court of conscience ", must always demand a very high standard of conscientiousness from legal advisers to whose contractual obligations there are superadded certain " duties of particular obligation " arising from a fiduciary relationship of a special nature- such as, for instance, where a Proctor is invited to act professionally for a client in a transaction from which either the Proctor or his close relatives stand to benefit materially.

It was the duty of the Proctor to have informed the client not only of the existence of the subsisting mortgages on the security but also of the identity of the mortgagees whose claims were to be settled out of the money invested. He should have insisted that the client should obtain legal advice from an independent and disinterested lawyer.

Held further, that in such a case it does not necessarily follow that, if sufficient facts have been proved entitling him to succeed in his claim to be indemnified, the client should be denied justice merely because his pleader over-stated his case by unsuccessfully raising against the Proctor an issue of express fraud as distinct from dereliction of duty arising from his position of fiduciary relationship.

APPEAL from a judgment of the District Court, Colombo.

N. E. Weerasooria, Q.C., with D. S. Jayawickreme and G. T. Samarawickreme, for the plaintiff appellant.

J. R. V. Ferdinands, with M. H. A. Azeez, for the defendant respondent.

cur. adv. vult.

May 27, 1952. GRATIAEN J.-

This appeal relates to a claim against a Proctor of this Court consequential on an alleged breach of professional duty to his client.

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The appellant, on his retirement from Government service in 1941, had drawn a commuted pension which, together with a sum lying to his credit with his Benevolent Association, amounted to Rs. 9,158. He had in addition accumulated some modest savings which brought up the total of his capital to Rs. 13,000. He desired to invest this sum in order to supplement his income which was now represented by a monthly Government pension of Rs. 149 and, with this object in view, he obtained an introduction to the respondent who was a Proctor and Notary Public with a good reputation practising his profession in Colombo for over 25 years.

The appellant first invested a part of his capital through the respondent in a mortgage executed in his favour by a borrower named Visvanam. This loan was duly repaid in 1942, and the appellant was once again on the look out for a suitable investment. Apparently, he had at one stage conceived the idea of purchasing a small residential bungalow for himself and his family, but he had not succeeded in finding a property which he could afford to buy. In the result, his capital lay idle for some months, and he was, to the respondent's knowledge, anxious to re-invest his money. " He used to come practically daily ", the respondent said, " and talk to the brokers who come to my office to invest his money ".

It is convenient at this stage to refer to two other persons who played a prominent part in the subsequent transaction which forms the subject-matter of this litigation. They are the respondent's brother Samsudeen (alias " Shams ") and a man named Samaratunge who had on many previous occasions borrowed money invested by clients of the respondent.

Samsudeen has been described as an " unlicensed broker". He shared the respondent's office for the purposes of his business, and was also given access to the respondent's office stationery. Samsudeen made full use of these facilities (whether with or without the respondent's express authority) so as to induce prospective customers to believe that business recommended by him was also recommended by the respondent. By these means, his activities enjoyed the cachet of his brother's professional reputation. The letters marked P48, P49 and P50, with Samsudeen's name significantly typed above the printed name of the respondent on the respondent's note paper, furnish sinister evidence of Samsudeen's technique in attracting business. " He was trying to bait a fish ", said the respondent, " by using my name ". I shall have occasion to examine these letters more particularly at a later stage of my judgment, but in the present context it is sufficient to state that they contain many gross misrepresentations of fact which were designed to tempt the appellant into making an imprudent investment. " These are things ", said the respondent, " which brokers generally write to their clients ". Even if this sweeping exaggeration be construed as giving expression only to his estimate of the business methods of his own brother, it is quite deplorable that, in any view of the matter, the respondent should have acquiesced in a procedure which facilitated such improprieties in regard to business which was ultimately transacted professionally by himself.

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Samsudeen was called as a witness by the appellant in order to establish the fact that P48, P49 and P50 were written by him from the respondent's office and with at least his apparent authority. But I cannot accept the artificial proposition that, merely because Samsudeen was in a sense the appellant's witness, the appellant is necessarily bound by every false statement which Samsudeen took the opportunity of making in the witness box. In the first place, Samsudeen is, on his brother's own assessment, a person whose word should not be accepted by a Court of Law without most careful scrutiny. Moreover, his evidence betrays a desire to assist his brother's defence whenever possible-indeed, in some instances to the point of demonstrable absurdity. I mention by way of illustration his suggestion that the description in P48 of the proposed borrower as " a long standing client of ours during the last 10 years " was intended to convey that Samaratunge had during that period been a " client " of the appellant and not of the respondent.

I now pass on to the person Samaratunge who had in truth been a long standing client of the respondent and Samsudeen in the sense that he had on many previous occasions borrowed money from persons introduced by them.

At the time when the appellant was looking for a suitable re-investment of his modest capital-i.e., towards the latter part of 1942-Samaratunge was, or claimed to be, the owner of two properties (or, to be more accurate, various allotments of land comprising two properties) to which I shall for convenience refer as " the Panwila Property " and " Fincham's Land " respectively. It is necessary to examine in respect of each property Samaratunge's more recent transactions during the relevant period- all of which transactions the respondent had been instrumental in negotiating in his professional capacity.

The Panwila property consisted of 6 separate lands, some of which are described as " undivided " allotments of larger lands. Samaratunge claimed to have inherited his property from his father Bilinda, but he apparently had no " paper title " to support this claim. On December 20, 1940, he executed in his own favour a somewhat unusual document D3, attested by the respondent as notary and Samsudeen as witness, declaring himself to be its lawful owner " for the better manifestation of his title thereto ". The value of the entire property was stated in the deed to be Rs. 2,000. The respondent admits, both in his evidence and in certain letters written by him before the action commenced, that this property was not such as he would recommend as attractive security to a prudent investor.

On August 20, 1941, Samaratunge borrowed Rs. 3,750 from Naina Marikar on a primary mortgage of the Panwila property (P41). Naina Marikar was the first cousin of the respondent and Samsudeen, and they were on this occasion as well the attesting notary and witness respectively. The chief security for the loan, however, was contained in a contemporaneous " indenture of lease ", so called, which was primarily intended to enable the lender to liquidate the debt by securing for himself the tea coupons issued in respect of the land-a device which, as is well known, was frequently resorted to during the period when " coupons " were negotiable and marketable documents issued in respect

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of properties registered under the scheme whereby the export of tea from Ceylon was controlled by Government machinery. " Upon that promise ", says the respondent, " the money was lent ". Samaratunge did not, however, honour the arrangement by which his debt was to be liquidated. " One day ", continues the respondent, " he came to my office with about 6,000 to 7,000 pounds of tea coupons and told me that he was going to deliver those coupons to Naina Marikar ". This was a false promise. The coupons were not delivered, and accordingly on February 20, 1942, the respondent, acting on behalf of his cousin Naina Marikar,...