HOTEL GALAXY (PVT) LTD. AND OTHERS v. MERCANTILE HOTELS MANAGEMENT LTD.

002-SLLR-SLLR-1987-1-HOTEL-GALAXY-PVT-LTD.-AND-OTHERS-v.-MERCANTILE-HOTELS-MANAGEMENT-LTD..pdf


HOTEL GALAXY (PVT) LTD. AND OTHERS
v.
MERCANTILE HOTELS MANAGEMENT LTD.
SUPREME COURT.
SHARVANANDA. C.J. ATUKORALE, J. AND H. A. G. DE SILVA. J.
S.C. APPEALS 26/85 AND 27/85.
C.A. 1379/84.
D C. COLOMBO 4806/Z.
JUNE 16, 17, 18, 19 AND 20 AND JULY 7, 8, 9 AND 10, 1986.
Arbitration-Arbitration agreements-Scott v. Avery clause-Arbitration Ordinancess. 4 and 7 – Discretionary power of court – Waiver – Contract of employment oragency – Specific performance – Possession – Injunction – Enjoining order – Section666 of C.P.C. – Ex parte order – Vacation of enjoining order – Interim order unders. 67 of the Primary Courts Procedure Act – Suppression of material facts.
The 1st defendant. Hotel Galaxy (Pvt) Ltd., owned premises No. 388, Union Place.Colombo 2, where it was in the process of completing the construction of a hotel. Byagreement P1 of 7.7.1983 the 1st defendant appointed the plaintiff. Mercantile HotelsManagement Limited, as Managing Agents of the hotel for six years to manage andoperate the hotel on its behalf engaging the necessary staff who too were to be in thesole employ of the 1 st defendant. The plaintiff would receive a percentage of the grossannual profits of the hotel. In pursuance of the agreement P1 the plaintiff commencedcommercial operations of the hotel about 24.8.1983. About 30.8.1984 the 2nd and3rd defendants who were the only Directors of the 1 st defendant with the aid of about30 thugs ejected the 1 st defendant's General Manager and took over the hotel. TheGeneral Manager complained to the Police who on 31.8.1983 instituted proceeding inthe Primary Court under section 66 of the Primary Courts Procedure Act. An applicationwas made on 31.8.1983 for an interim order (under s. 67 of the Act) but the courtdeferred consideration of the matter for later. Thereafter on 3.9.1982 the plaintiff fileda plaint in the District Court seeking inter alia specific performance of the agreement PIand restoration of possession of the hotel and an interim injunction restraining thedefendants from interfering with the plaintiff's management of the hotel. When theapplication for the interim injunction was supported the 1 st defendant was representedand objected to the jurisdiction of the court on the ground that the agreement P1stipulated arbitration as a condition precedent to any right of action but made norepresentations on the application for interim injunction. The court then issued anenjoining order but on representations being made by the defendants suspended itsoperation. The plaintiff then filed an application in the Court of Appeal to have ordersuspending the operation of the enjoining order revised and also an application for leaveto appeal. The Court of Appeal acting in revision set aside the order suspending theoperation of the enjoining order. The 1 st defendant and the 2nd and 3rd defendantsappealed to the Supreme Court.
Held-
Arbitration clauses in contracts are of two main kinds, namely
bare arbitration agreements where the provision for arbitration is a mere matterfor procedure and does not include right of action on the contract itself but herethe party against whom an action is brought can invoke the exercise of thediscretionary power of the court to stay proceedings until an arbitration is held.
agreements making an arbitrator's award a condition precedent to any right ofaction which will then be bound not on the original contract but on the arbitralaward. Such a provision known as a Scott v. A very clause bars the institution of asuit without prior recourse to arbitration culminating in an award. In Englandhowever the courts are vested with discretionary jurisdiction to override a Scottv. Avery clause in suitable cases and to treat it as a mere arbitration clause.
The arbitration clause is not displaced or abrogated by repudiatorv breaches of thecontract unless the contract itself or arbitration clause itself is invalid or not binding onthe parties or the parties have waived it or are estopped from relying upon it.
In the instant case clause 10 of the agreement PI is a Scott v. Avery clause makingarbitration a condition precedent and as there was no recourse to prior arbitration theDistrict Court had no jurisdiction to entertain the suit.
The relationship between the 1 st defendant and the plaintiff was that of principaland agent or master and servant. Hence the remedy which the plaintiff can have isdamages and not specific performance.
Possession can be immediate or direct or it can be mediate that is by an agent orservant or licencee. In all cases of mediate possession two persons are in possession ofthe same thing at the same time. In the instant case legal possession, construction itmay be, has been with 1 st defendant and never left it. The 1 st defendant possessed thehotel through the plaintiff who was its Managing Agent.
The defendant could not in law have been restrained or enjoined.
Per Sharvananda, C. J.
"As ex-parte enjoining orders and orders for interim injunctions may work gravehardship and injustice to parties who have not been heard, grave responsibility restson a judge to exercise the discretion vested on him, judicially having due regard to thelaw..
The operation of an enjoining order can be suspended.
A party seeking to canvass an order entered ex-parte against him must apply in thefirst instance to the court which made it. This is a rule of practice which has becomedeeply ingrained in our legal system.
It is settled law that the exercise of the revisonary powers of the appellate court isconfined to cases in which exceptional circumstances exist warranting its intervention.
The order of the Primary Court Judge was in the nature of a temporary refusal ofthe interim order and was a material fact which should have been disclosed by the plaintin his application for the interim injunction.
A Primary Court Judce has junsd:ct'on to make an interim order undsr s. 67 at anytime after proceedings a re instituted until conclusion of the inquiry and not only atcommencement of the inquiry.
Cases referred to:
Scott ir. Avery-11865) 5 H. L. Case 811.
Bristol Corporation v. John Aird & Co.-1913 A.C. 214. 259.
Heyman v. Darwing Ltd. – 1942- 1 All E.R. 337 & 347 & 349.
Freshwater v. Western Australia Assurance Co. Ltd.-1933. 1 K.B. 515. 523.
Dennehy v. Bellamy- 1938. 2 All E.R. 262, 264.
Soysav. Ranasinghe-(1917) 16N.L.R. 222.
Radford v. Hair-1971. 2 All E.R. 1089.
Toronto Rly. Co. v. National British and Irish Millers Insurance Co.. Ltd.-(1914)111 L.J. 553.
Hickman & Co. v. Roberts-1913 A.C. 229.
Englesham v. Macmaster-1920. 2 K.B. 169.
Jureidini v. National British & Irish Millers Insurance Co.. Ltd.-1915. A.C. 499,505.
Johnson v. Shrewbury Railway Co. -(1853) 3 De Gi G 914 at 926.
Stocker v. Brocklebank-3 Mac. & G. 250.
Francesv. Municipal Councillors of Kuala Lumpur-1962 3 W.L.R. 633. 637.
Vine v. National Dock Labour Board- 1957 A.C. 488, 500.
Jinadasa v. Weerasinghe-(1928) 30 N.L.R. 283.
Stasen Exports Ltd., v. Hebutulabhoy & Co. Ltd. – 1984 1 S.L.R. 129.
Gordon Frazer & Co. Ltd. v. Jean Marie Losio and Martin Wenzel- 1984 2 S.L.R.85.
Loku Menika v. Selenduhamy-(1947) 48 N.L.R. 353.
Habibu Lebbe v. PunchiEtana-(1894) 3 C.L.R. 85.
Caldera v. Santiagopulle-11920) 22 N.L.R. 155. 158.
Weeratne v. Secretary D.C.. Badulla-(1920) 2 C.L. Rec. 180.
Dingihamy v. Don Bastian-(1962) 65 N.L.R. 549.
Bank of Ceylon v. Liverpool Marine & General Insurance Co. Ltd.-(1962) 66N.L.R. 472.
Nagappan v. Lankabarana Estates Ltd.-(1971) 75 N.L.R. 488.
Bambarakelle Estates Tea Co. v. Goonewardena-2 Browne's Rep. 78.
Alphonso Appuhamyv. Hettiaratchi-(1973) 77 N.L.R. 131.
Moosajeei Ltd. v. Eksath Engineru Saba Samanaya Kamkaru Samithiya-(1976)79 (1) N.L.R. 285.
Muthukumarasamy v. Nannithamby-C.A. Re. Appln. 1551/52. C.A. Mins, of3.3.1983; 1983 1 SriKantha's Rep. 55.
Dr. Colvin R. de Silva, with Faiz Mustapha, G. G. Arulpragasam and D. Phillips for 1 stdefendant-appellant in S.C. Appeal No. 26/85.
Eric Amerasinghe, P.C. with Faiz Mustapha and Miss D. Guniyangoda for the 2nd and3rd defendant-appellants in S.C. Appeal No. 27/85.
Dr. H. W. Jayewardene, Q.C. with Chula de Silva. Miss Meevanapalana. Ravi Algamaand I. K. Sivaskantharajah for plaintiff-respondent in S.C. Appeal No. 26/85.
H. L. de Silva. P.C. with Chula de Silva, Miss Meevanapalana, Ravi Algama and I. K.Sivaskantharajah for the plaintiff-respondent in S.C. Appeal No. 27/85.
Cur. adv. vult
October 30, 1986.
SHARVANANDA, C.J.
I gratefully adopt in its entirety the reasoning in the judgment ofAtukorale, J., as leading to the conclusion that the two appeals shouldbe allowed. I only add in my own words additional grounds for allowingthe appeals.
The learned District Judge erred in issuing an enjoining ordr in thefirst instance. However, he later correctly vacated the enjoining order.
Arbitration clause 10 of P1 (the agreement between the parties)provides as follows:
"10. If during the continuance of this agreement or at any time afterthe termination thereof any difference or dispute shall arisebetween the parties hereto whether in regard to theinterpretation of any of the provisions herein contained or anymatter or thing in regard to this agreement such difference ordispute shall be forthwith referred to the final award of a singlearbitrator in case the parties can agree upon one andotherwise to two arbitrators one to be appointed by eachparty and in the event of disagreement between sucharbitrators thereto an umpire to be appointed by thearbitrators in writing. If either party shall refuse or neglect toappoint an arbitrator after the other party shall have appointedand shall have served or posted under registered cover writtennotice upon such refusing or neglecting party requiring suchparty to make such appointment or shall appoint an arbitratorwho shall refuse to act, then the arbitrator appointed as
aforesaid shal1 at the request of the party appointing himproceed to hear and determine the matter in difference ordispute as if he were an arbitrator appointed by both parties.The decision of the arbitrator or arbitrators or their umpire (asthe case may be) shall be binding upon each of the partieshereto and the cost of the reference and award shall be in thediscretion of the arbitrator/arbitrators or umpire who maydirect to and by whom and in what manner the same or anypart thereof shall be paid. The making of an award upon areference to arbitration shall be a conditionedent to any rightof action against any of the parties hereto in respect of any orall disputes or differences arising or pertaining to thisagreement."
Arbitration clauses in contracts are of two main kinds, namely:-
bare arbitration agreements, when the parties agree thatdisputes arising out of the contract shall be referred toarbitration, here; the provision for arbitration is a mere matter ofprocedure for ascertaining the rights of parties with nothing in itto exclude a right of action on the contract itself but leaving it tothe party against whom an actin may be brought to apply to thediscretionary power of the court to stay proceedings in theaction in order that the parties may resort to the procedure towhich they have agreed.
agreements making an arbitrator’s award a condition precedentto any right of action under the contract based not upon theoriginal contract but upon the award made under the arbitrationclause.
The parties to a contract may agree that any dispute arising out of it,including the question of liability as well as that of the amount ofdamages shall be referred to arbitration and that the obtaining of anaward shall be a condition precedent to the right to bring an action onthe contract. Where such an agreement has been made, no right ofact'on arises on the contract until the amount of the liability has beenascertained bv arbitration. In such a case, the cause of action is notcomplete until arbitration has taken place in accordance with theclause and an award has been made. Scott v. Avery (1).
Under the English Arbitration Act 1889, section 4, the court is givena discretionary power to stay an action brought in breach of a barearbitration clause Section 7 of our Arbitration Ordinance No. 15 of1866 (Cap. 98, v/ol. IV, L.E. at 134) similarly vests our courts withsimilar discretionary power to stay an action instituted in breach of abare arbitration clause. Such a clause, therefore, though absolute interms is qualified in the sense that it is subject to the overridingdiscretion of the court. It is prima facie the duty of the court to enforcethe agreement of the parties to resort to the tribunal that theythemselves have chosen. Accordingly, once the party applying for astay has shown that the dispute falls within a valid and subsistingclause, the onus of showing that a stay should be refused is on theother party. Bristol Corporation v. John Aird & Co. (2). A bareagreement to arbitrate cannot be pleaded in bar of an action on thecontract. But under an agreement with Scott v. Avery clause, the rightto bring an action depends upon the result of the arbitration;arbitration followed by an award is a condition precedent to an actionbeing instituted. Where a dispute is governed by such a condition anaction in respect of that dispute cannot succeed. On such anarbitration clause, arbitration is not a mere matter of procedure, butthe proceeding to arbitration is essential to a right of action in theplaintiff. But there is statutory provision in English Law vesting thecourt with discretion to override a Scott v. Avery clause.
Section 25(4) of the English Arbitration Act, 1950 re-enactingArbitration Act 1934, section 3(4) states that –
"Where it is provided…that an award under an arbitrationagreement shall be a condition precedent to the bringing of anaction with respect to any matter to which the agreement applies,the High Court may order that the provision making an award acondition precedent to the bringing of an action shall cease to haveeffect as regards that dispute."
Thus English Law gives the court a discretion in suitable cases, totreat the Scott v. Avery clause as a mere arbitration clause. But ourlaw has remained static with section 7 of the Arbitration Ordinance of1866. There is in our law non statutory provision vesting the court withany such discretion to treat the Scott v. Avery clause as a merearbitration clause; thus our courts are bound to give effect to theagreement of the parties that no cause of action should accrue untilliability under the contract is determined by an arbitral award. This
mandatory reference to arbitration is not a matter of procedure but aquestion of the liability to perform the promise which is contained inthe arbitration clause. The argument that the plaintiff could bring anaction without first resorting to arbitration may be quite effective if therelevant clause of the contract between the parties is a merearbitration clause but it is not effective in the case of a Scott v. Averyprovision by reason of the fact that the contract provides for oneliability for breach of the contract, viz. liability stemming from thearbitral award. The Scott v. Avery provision is a condition precedent tothe creation of liability rather than an exception to a liability which hasaccrued independently of the clause. It is not displaced by repudiatorybreaches of the contract. It survives for determining the mode ofsettlement of the claims arising out of the breaches. Where such anarbitration clause is provided for by the parties as a method of settlingdisputes between them. A repudiation of the contract does not vitiatesuch a clause. The arbitration clause remains in force to settle allclaims that fall within its ambit:
"What is commonly called repudiation or total breach of acontract.. .does not abrogate the contract, though it may relieve theinjured party of the duty of further fulfilling the obligation, which hehas, by the contract, undertaken to the repudiating party. Thecontract is not put out of existence. It survives for the purpose ofmeasuring the claims arising out of the breach and the arbitrationclause survives for determining the mode of their settlement." PerLord Macmillan Heyman v. Darwing Ltd. (3).
In its plaint dated 3.9.84, the plaintiff states inter alia, in paragraph6 as follows:
"On or about 7.7.83 the plaintiff and the 1st defendant enteredinto an agreement with respect to the said hotel under construction,a true copy of which is annexed herewith marked P1 and pleaded aspart and parcel of this plaint. The said agreement provided asfollows :-
The plaintiff was appointed as Managing Agents for a period of6 years from the date of commencement of commercialoperations or until the recovery of the profits or income accruingto the plaintiff which shall be paid by the 1st defendantwhichever is greater.
The plaintiff shall operate the said hotel at the expense of the1 st defendant and the 1 st defendant shall warrant the plaintiffthe uninterrupted control over the operations of the said hoteland the 1 st defendant shall not in any way interfere with the dayto day running of the said hotel.
The 1st defendant shall be entitled to terminate this agreementafter the commencement of commercial operations if the hotelfails to operate towards a profit margin necessary to meet therequired commitments in relation to the payment of presentlyexisting loan instalments and interest.
(c/) To recruit and train staff and other personnel.
(e) To arrange for the working capital to commence operations ofthe said Hotel."
Para 13- "On or about 30th August 1983 the 2nd and 3rddefendants abovenamed acting together and in concert and incollusion and the 1 st defendant acting through its directors the 2ndand 3rd defendants wrongfully and unlawfully brought into the saidhotel premises nearly 30 thugs disrupting the operations of the saidhotel and caused disorder therein. On learning of the aforesaid theGeneral Manager of the plaintiff, Mr. J. Y. Samarakoon, visited thesaid hotel and the said thugs acting on the instructions of the 2nddefendant forcibly ejected the aforesaid General Manager."
Para 16- "Since the said date the defendants acting togetherand in concert and in collusion are wrongfully and unlawfullyinterfering with the management and control of the said hotel by theplaintiff. The 2nd and 3rd defendants abovenamed and the 1stdefendant acting through its directors the 2nd and 3rd defendants,have placed in the said hotel hirelings/thugs for the aforesaidwrongful purposes."
The reliefs prayed for in the plaint are, inter alia
For a declaration that the plaintiff is entitled to operate andmanage the said hotel without interference by the defendantstheir servants and agents.
For an interim injunction restraining the defendants their
servants/agents:
from interfering with the plaintiff’s management and/orcontrol and/or operation and/or administration of the saidhotel ;
from interfering with any of the plaintiff’s rights in relationto or with respect to the said hotel ;
from interfering with plaintiff, plaintiff'semployees/representatives/agents in any mannerwhatsoever;
from obstructing the plaintiff, the plaintiff'semployees/representatives/agents and licencees in anymanner;
from preventing/obstructing the plaintiff'sservants/agents/representatives and licencees entering thesaid hotel or any part thereof or exercising or dischargingany functions or powers of management or control of thesaid hotel or any part thereof;
from using any force or show of force on any of theplaintiff's representatives/agents/employees/licencees.
For a permanent injunction restraining the defendants their
servants/agents:
from interfering with the plaintiff's management and/orcontrol and/or operation and/or administration of the saidhotel ;
from interfering with any of the plaintiff's rights in relationto or with respect to the said hotel ;
from interfering with plaintiff, plaintiff'semployees/representatives/agents in any mannerwhatsoever;
from obstructing the plaintiff, the plaintiff'sempoloyees/representatives/agents and licencees in anymanner;
from preventing/obstructing the plaintiff'sservants/agents/representatives and licencees entering thesaid hotel or any part thereof or exercising or dischargingany functions or powers of management or control of thesaid hotel or any part thereof;
from using any force or show of force on any of theplaintiff's representatives/agents/employees/licencees;
Though the plaintiff has not sued for damages for the allegedinterference with its management and control of the hotel, a Scott v.Avery clause is sufficient to bar, in the absence of an award, not onlythe right to sue for damages, but also any claim for ancillary relief,such as injunctions, interlocutory or permanent. According to theterms of the contract P1, the making of an award upon a reference toarbitration is a condition precedent to any right of action against any ofthe parties in respect of any dispute or difference arising under thecontract. A right of action can come into existence only after the saidcondition-precedent has been performed. That is not a matter ofpractice or procedure, but a question of the liability to perform thepromise which is contained in the arbitration clause. Since the effectof the condition precedent is to prevent any cause of action fromarising until an award has been obtained, there is no ouster of thejurisdiction of the court, since there is nothing to oust. "Such a clausepostpones but does not annihilate the right of access to the court."Per Lord Hanworth, M. R. in Preshwater v. Western AustralianAssurance Co., Ltd. (4). I agree with Dr. Colvin R. de Silva'ssubmission that, in view of the Scott v. Every clause 10 in P1, theplaintiff has no cause of action to sue, in respect of its claim on whichthe action is founded. Since the plaintiff had not had recourse toarbitration and thus had not fulfilled the precondition for recourse tocourt, the present action should fail in limine for want of a cause ofaction. The District Judge should, far from issuing an enjoining order inthe first instance, have refused to entertain the plaint as disclosing nocause of action. The present action cannot succeed and no purposewill be served by allowing it to continue-Dennehy v. Bellamy (5).
Senior Counsel for plaintiff-respondent relied on Soysa v.Ranasinghe (6), in support of his submission that where a seriouscharge of fraud or violence is made against the defendant, the court
will in general refuse to send the dispute to arbitration especially whereplaintiff prays for the grant of an injunction, as the prayer deals withmatters beyond the competence of arbitrators and can only besatisfactorily disposed of by the ordinary courts. That case dealt withan application, under section 7 of the Arbitration Ordinance No. 15 of1866 for a stay of proceedings and to compel a reference toarbitration in terms of the clause in the partnership agreement. Underthat section in question, the court has a discretion with regard tocompelling the parties to resort to arbitration-the court is not obligedto take this step if it is satisfied that there is sufficient reason why suchmatters should not be referred to arbitration. In the case referred to byCounsel, the partnership agreement does not appear to haveincorporated a 'Scott v. Avery' clause and hence there is nodiscussion of the impact of such a clause on an application for stay ofaction under section 7 of the Arbitration Ordinance.
In Radford v. Hair (7) (relied on by counsel for plaintiff) too, thearbitration clause in question was a bare arbitration and was not aScott v. Avery clause, and it was properly held that defendant'sallegations imputing to the plaintiff actual dishonesty and impugninghis professional reputation were akin to allegations of fraud andagainst such allegations a plaintiff was entitled to have his case triedby a judge in open court. As stated supra, our courts do not have anyjurisdiction to override a Scott v. Avery clause while courts in Englandhave been vested by section 25(4) of the Arbitration Act 1950,re-enacting section 3(4) of the Arbitration Act of 1934, with adiscretion in suitable cases to treat the Scott v. A very clause as a merearbitration clause. Thus courts in England have, unlike our courts,statutory power to annul the clause. The resulting position, is thatunder our law a party may rely on a Scott v. Avery clause as affording asubstantive defence, viz. no cause of action had accrued to theplaintiff and the court is obliged to give effect to such a clause and putthe plaintiff out of court when he institutes action for breach ofcontract, without prior reference to arbitration as contemplated by thecontract.
Queen's Counsel submitted that the defendants had by theirconduct waived the condition making arbitration followed by an awarda condition to any legal right of recovery on thp ;ontract and are now
disentitled from relying on clause 10 of the agreement P1. He soughtsupport .in the following statement of the law by Lord Wright inHeyman v. Darwing Ltd. (supra) (3) at paragraph F of page 349-
“The contract, either instead, or along with a clause submittingdifferences and disputes to arbitration, may provide that there is tobe no right of action save upon the award of an arbitrator. Theparties in such a case make arbitration followed by an award acondition to any legal right of recovery on the contract. This is acondition of the contract to which the court must give effect unlessthe condition has been ' waived’, i.e. unless the party seeking to setit up. has somehow disentitled himself to do so."
Case law show that a Scott v. Avery clause is not available as adefence:
Where the defendant lad waived reliance on the clause, forexample, by defending tne action without relying on the clause orby himself instituting proceedings, in breach of it- Toronto Rly.Co. v. National British and Irish Millers Insurance Co., Ltd. (8).
Where the defendant, by improper interference with thearbitrator in the discharge of his duties or hindering the progressof the reference, deprived the claimant of a proper opportunityto fulfil the condition precedent-Hickman & Co. v. Roberts (9);Englesham v. Macmaster (10); or by waiver by course ofconduct Toronto Railway Co. v. National British and Irish MillersInsurance Co.. Ltd. (supra) (8).
Where the dispute is as to whether the contract which containsthe clause has ever been entered into at all that issue cannot goto arbitration under the clause for the party who denies that hehas ever entered into the contract is thereby denying that, hehas gained in the submission. Similarly if one party to the allegedcontract is contending that it is void ab initio (because thecontract is illegal), the arbitration clause cannot operate, for ontfiis view, the arbitration clause which is part of the contract, isalso void. If the dispute is as to whether there has even been abinding contract between the parties such a dispute cannot becovered by an arbitration clause in the challenged contract. Ifthere has never been a contract at all, there has never been apart of an agreement to arbitrate-Vide Heyman v. Darwing Ltd.(supra) (3).
Conditions precedent may be waived by a course of conductinconsistent with their continued validity, even though the contractingparty does not intend his conduct to have that result.
"When by conduct or inaction, a party represents to the otherparty litigant his intention to adopt one of two alternatives andinconsistent proceedings or positions with the result that the latter isthereby encouraged to adopt or persevere in a line of conduct whichhe otherwise would have abandoned or modified, or as the casemay be to change tactics from which he would otherwise havenever deviated, the first party is estopped, as against his antagonistfrom resorting afterwards to the course or attitude which of his freechoice he has waived or discarded" Spencer Bower on Estoppel byRepresentation (2nd Ed.) at page 305.
There is nothing in the correspondence between the parties markedof record or in the affidavits filed by the plaintiff to suggest or to showthat the 1 st defendant has by his conduct or action waived its right toinsist on arbitration as a condition precedent. Far from waiving such aright, its counsel had insisted on such a right at the first availableopportunity, viz. when plaintiff moved ex parte for the issue of interiminjunction.
The record does not show that the defendants by their conductrepresented to the plaintiff that they had waived the 1 st defendant’sright to insist on arbitration as a condition precedent. There is nofactual basis for the plea of waiver or estoppel. From the allegedrepudiation of its obligations under the contract it does not necessarilyfollow that the 1 st defendant had waived its rights under thearbitration clause.
Counsel in his written submissions, referred to the followingobservation of Lord Haldane, L.C., in Jureldini v. National British &Irish Millers Insurance Co.. Ltd. (11):
"When there is a repudiation which goes to the substance of thewhole contract, I do not see how the person setting up therepudiation can be entitled to insist on a subordinate term of thecontract, (i.e. arbitration) still being enforced."
With reference to this observation. Lord Macmillan said inHeyman v. Darwing Ltd. (supra) (3) at 346 that:
"These dicta, in view of their high authority are entitled to themost careful consideration, but, with all respect. I do not think theyconstitute pronouncements in law by this Hjuse such as to bebinding upon Your Lordships."
The other Lordships also did not accept Lord Haldane's aforesaidenunciation as a general proposition of the law. Lord Haldane'sstatement cannot be accepted in the light of the subsequent decisionof the House of Lords in Heyman v. Darwing Ltd. (supra) (3) where itwas held that where there had been a total breach of a contract by oneparty so as to relieve the other of the obligations under it, anarbitration clause, if its terms are wide enough, still remain effective. Irespectfully adopt the later House of Lord's decision as setting out thecorrect legal position with respect to arbitration clauses surviving totalbreach of the contract.
Clause 1 of the recital in the agreement P1 states that the 1stdefendant is in the process of completing construction of a hotelcalled and known as Hotel Galaxy (Pvt) Limited on an allotment of landowned by it. Clause 2 states nat the 1st defendant will complete theconstruction and furnish and equip the hotel with all amenities andrequirements required of a luxury hotel. Clause 3 further states thatthe 1 st defendant has agreed to appoint the plaintiff as the ManagingAgents of Hotel Galaxy (Pvt) Limited for a period of six years for themangement, control and operations of the hotel on the terms andconditions of the agreement.
Clause 1 of the operative part of the agreement states that the 1stdefendant is hereby appointing the plaintiff as the Managing Agents ofits hotel for a period of six years. Clause 2 stipulates that the plaintiffas Managing Agents of the hotel shall undertake on behalf of HotelGalaxy the duties and responsibilities enumerated therein, oneobligation being to be responsible for the effective organisation andoperation of the hotel and the discipline of the staff. Clause 2(h)expressly provides that though the plaintiff was to recruit, pay thesalary of and train the staff and other personnel necessary for theproper and efficient conduct and operation of the hotel, plaintiff wouldin these matters be acting as 1st defendant's agent and all personnelso hired or employed shall be in the sole employment of the 1stdefendant and not in the employment of the plaintiff. Clause 3provides that the plaintiff shall operate the hotel at the expense of the1st defendant which shall warrant the plaintiff the uninterruptedcontrol over the operations of the hotel and the 1 st defendant shall notin any way interfere with the day to day running of the hotel. Clause 8states that the 1 st defendant shall indemnify the plaintiff against anyloss whatsoever or against any claim or liability of any nature asplaintiff may become liable to, in acting as agent of the 1 st defendant,in the normal course of business. In the face of these clauses, it ispreposterous for plaintiff to claim in its plaint that it established thehotel and that the servants working in the hotel are its employees. Theseveral clauses in the agreement P1 underscore the fact that the 1stdefendant is the proprietor of the hotel and that it has engaged theservices of the plaintiff to manage the hotel and that whatever theplaintiff did to the hotel was as agent or servant of the 1 st defendantfor and on behalf of the 1st defendant. It cannot be gainsaid that therelationship of the parties is basically that of master and servant orprincipal and agent. The plaintiff has not invested any capital on thehotel; its stake n the hotel is only the remuneration payable by the 1 stdefendant in the shape of a percentage of the gross annual profits ofthe hotel for the services provided by it. In the light of this identificationof the relationship of the parties the question arises whether reliefs ofspecific performance and injunctions are available to plaintiff in theevents complained by it in the plaint.
Under the common law the remedy of an employee who has beenwrongfully dismissed is an action for damages. The court will notdecree specific performance of a contract of employment. Similarly itwill not grant an injunction for the fulfilment of a contract ofemployment. In Halsbury's Laws of England (3rd Ed.) Vol. 31, at page268, paragraph 366, it is stated that:
"A judgment for specific performance is not pronounced either atthe suit of the employer or the employee in the case of a contract forpersonal work or service. The court does not seek to compelpersons against their will to maintain continuous personal andconfidential relations. This principle applies not merely to contractsof employment, but to all contracts which involve the rendering ofcontinuous services by one person to another as for instance, acontract to work a railway line. Contracts of agency came under thesame principle."
Fry on "Specific Performance" 6th Ed. Sec. 110 says:
"The relation established by contract of hiring and service is of sopersonal and confidential a character that it is evident that suchcontracts cannot be specifically enforced by the court against anunwilling party with any hope of ultimate and real success andaccordingly the court now refuses to entertain jurisdiction in regardto them."
"We are asked", said Knight Bruch, L.C., "to compel one person toemploy against his will another as his confidential servant, for dutieswith respect to the due performance of which the utmost confidenceis required. Let him be one of the best and one of the most competentpersons that ever lived, still if the two do not agree, and good peopledo not always agree, enormous mischief may be done"- Johnson v.Shrewsbury Railway Co. (12).
In Stocker v. Brocklebank (13) where an indenture was held toconstitute the relation of master and servant and not of partner. LordTruro dissolved an injunction, restraining the defendant from excludingthe plaintiff from management of the business. An employer could notbe forced to employ a servant in whom he has lost confidence.
Bowstead on Agency, 12th Ed. Art. 10 says-
"No action is maintainable at the suit of either principal or agent tocompel the specific performance of a contract of agency. It isinconsistent with the confidential nature of the relationship ofmaster and servant that it should continue contrary to the will of oneof the parties thereto. Therefore the court will not grant specificperformance of a contract of employment nor will it grant aninjunction for the fulfilment of a contract of employment."
The management agency constituted by P1 can work only so longas the parties have confidence in each other. The correspondencebetween the parties culminating in the letter dated 2nd August 1984(A 18) written by the Chairman of the plaintiff-company to the 1stdefendant stating "we must have positive evidence of the party who isempowered on behalf of Hotel Galaxy Ltd., (Pvt) and who cancontractually bind the company. Until this evidence is provided we arenot prepared to entertain any communication from your Company"was bound to induce apprehension in the m nds of the defendants thatthe plaintiff was not going to honour its obligations and that it was notsafe to continue to place confidence in it. In the consequent estrangedrelationship mutual confidence had ceased to exist. In such a situationthe parties should not be compelled to maintain the confidentialrelationship contemplated by the agreement P1.
In Frances v. Municipal Councillors of Kuala Lumpur (14) LordMorris, delivering the judgment of the Privy Council said:
"In their Lordships' view, when there has been a purportedtermination of a contract of service a declaration to the effect thatthe contract of service still subsists will rarely be made. This is aconsequence of the general principle of law that the courts will notgrant specific performance of contracts of service."
Further a contract of employment is said to be terminated by wrongfuldismissal even where the employee refuses to accept the dismissal asa termination of the contract. As Viscount Kilmuir, D.C., said in Vine v.National Dock Labour Board (15):
"If the master wrongfully dismisses the servant, either summarilyor by giving insufficient notice, the employment is effectivelyterminated, albeit in breach of contract."
Accordingly the servant cannot claim specific performance of thecontract of employment nor an injunction restraining the employerfrom dismissing him and from taking consequential steps. The remedyof an employee who has been wrongfully dismissed is an action fordamages. In the present case, the acts of misconduct on the part ofthe defendants, alleged by the plaintiff, manifest a repudiation of theagency agreement by the defendants: the plaintiff has been summarilydismissed. Whether the plaintiff accepts the repudiation or not theagency agreement P1 has thereby been terminated. The defendantshave resumed the management of their hotel and the agreement P1has come to an end: the plaintiff can no more claim to have accessto the hotel or to be entitled to the management of the defendant'shotel. If the plaintiff has been wrongfully dismissed, his remedy isdamages and not declaration or injunction or specific performance asdefendant's repudiation has determined the contract P1. On the factspleaded by the plaintiff, the plaintiff cannot sustain the reliefs ofdeclaration and injunction prayed for by him. Hence the enjoiningorder was misconceived.
In law, one person may possess a thing for and on account ofanother. In such a case the latter is in possession by the agency of himwho so holds the thing on his behalf. The possession thus held by oneman through another may be termed mediate, while that which is
acquired or retained directly or personally may be distinguished asimmediate or direct- Vide Salmond on Jurisprudence (10th Ed) atpage 282. In all cases of mediate possession two persons are inpossession of the same thing at the same time. Every mediatepossessor stands in relation to a direct possessor through whom heholds. In this case in terms of the agreement P1, the plaintiff is theManaging Agent of the 1 st defendant for the purpose of conductingthe hotel. The plaintiff possessed the hotel for the 1stdefendant-company of which the 2nd and 3rd defendants are theDirectors and the 1st defendant possessed the hotel through theplaintiff. Legal possession, constructive though it may be, has alwaysbeen with the 1 st defendant and never left it. The plaintiff could notclaim to possess the hotel on its own right as against the defendants.The plaintiff was put into occupation of the hotel by the defendants forthe purpose of managing their hotel business, and the defendantscould at any time resume management of their business andoccupation of the hotel. If in the process of resuming the managementof their business, the defendant committed a breach of the agreementP1, the remedy of the plaintiff was an action for damages only. Sincethe defendants were always in possession of the hotel through theplaintiff, they cannot be dispossessed by an injunction, as they are inpossession on their own right. Hence, the prayer for interim and/orpermanent injunction in the plaint is untenable. The prayer cannot bevalidly granted by court. Hence, the enjoining order in question cannotbe supported.
As Dr. Colvin R. de Silva submitted, the judgment of the Court ofAppeal setting aside the order of the District Judge vacating the earlierenjoining order results in upholding an enjoining order which shouldnever have been issued. It is regrettable that the District Judge did notaddress his mind to the legal question whether on the facts pleaded bythe plaintiff, the defendants could, in law, be restrained by aninjunction or enjoining order. As exparte enjoining orders and ordersfor interim injunctions may work grave hardship and injustice to partieswho have not been heard, grave responsibility rests on a Judge toexercise the discretion vested on him, judic ally, having due regard tothe law, before he grants an ex parte application for the issue of aninterim injunction or enjoins the defendant in terms of section 662 ofthe Civil Procedure Code. Such reliefs should be granted only afterbeing satisfied that both the facts averred by the plaintiff and the lawapplicable therto call urgently for them.
I set aside the judgment of the Court of Appeal and allow both theappeals and restore the order of the District Judge vacating theenjoining order which he had ex parte issued earlier. I direct theDistrict Court to take further steps according to law in the light of thejudgment of this court.
The plaintiff-respondent will pay the costs of thedefendants-appellants in the District Court, Court of Appeal and in thiscourt.
ATUKORALE, J.
There are two appeals before us, both arising out of the samejudgment of the Court of Appeal which, acting in revision, set asidethe order of the learned District Judge vacating an enjoining order. which he had issued until the hearing and decision of the plaintiff'sapplication for an interim injunction. The two appeals were byagreement of parties consolidated and heard together. In appeal No.26/85 the appellant is the 1 st defendant in the action. Hotel Galaxy(Pvt) Ltd., a company duly incorporated in Sri Lanka. In appeal No.27/85 the appellants are the 2nd and 3rd defendants in the action.They are two brothers and are respectively the Chairman and the onlyother Director of the 1 st defendant-company whose shares they ownand control. The contesting respondent in both appeals is the plaintiffin the action, Mercantile Hotel Managements Ltd., also a companyduly incorporated in Sri Lanka. This judgment is in respect of bothappeals. To avoid any confusion the respective parties will hereinafterbe referred to as the plaintiff, the 1st defendant, the 2nd defendantand the 3rd defendant as designated in the plaint.
The 1st defendant owned premises No. 388, Union Place,Colombo 2 and was in the process of completing the construction of ahotel thereon called and known as Hotel Galaxy (Pvt) Ltd. On7.7.1983 the plaintiff and the 1st defendant entered into agreementP1 whereby, inter alia, the 1st defendant appointed the plaintiff asManaging Agents of the hotel for the management, control andoperation of the hotel in accordance with the terms contained thereinfor the duration of a specified period of time. As Managing Agents ofthe hotel the plaintiff undertook on behalf of the 1st defendant toperform certain duties which were enumerated in PI. The operation ofthe hotel by the plaintiff was to be at the expense of the 1 st defendantwhich in turn warranted to the plaintiff the uninterrupted control overthe operation of the hotel and undertook not to interfere in any manner
with the day to day running of the hotel by the plaintiff. The agreementalso made provision for the remuneration of the services provided bythe plaintiff including the computation and the manner of payment ofsuch remuneration. The plaintiff was also entitled to reimbursementfrom the 1 st defendant of all costs, charges, disbursements and otherexpenses properly incurred by it in the discharge of its duties andfunctions under the agreement. Clause 9 of the agreement stipulatedthat if at any time during its operation the plaintiff was prevented frommanaging the hotel due to no fault on the part of the plaintiff but dueto any acts of commission or omission on the part of the 1 stdefendant, then the plaintiff will be entitled to terminate the operationof the hotel under the agreement and the 1st defendant would beliable to pay the plaintiff as damages a sum to be calculated asprovided for in that clause. Clause 10 is the arbitration clause therelevant portions of which, in so far as these proceedings areconcerned, read as follows .
“10. If during the continuance of this agreement or at any time afterthe termination thereof any difference or dispute shall arisebetween the parties hereto whether in regard to theinterpretation of any of the provisions herein contained or anymatter or thing in regard to this agreement such difference ordispute shall be forthwith referred to the final award of a singlearbitrator in case the parties can agree upon one andotherwise to two arbitrators one to be appointed by eachparty and in the event of disagreement between sucharbitrators thereto an umpire to be appointed by the
arbitrators in writingThe decision of the arbitrator or
arbitrators or their umpire (as the case may be) shall be
binding upon each of the parties heretoThe making of an
award upon a reference to arbitration shall be a conditionprecedent to any right of action against any of the partieshereto in respect of any or all disputes or differences arising orpertaining to this agreement."
In pursuance of the said agreement PI the plaintiff commencedcommercial operations of the hotel on or about 24.8.1983. About ayear after the commencement of such operations on 3.9.1984 theplaintiff instituted the present action in the District Court against thethree defendants. The cause of action set out in the plaint is that on orabout 30.8.1984 the 2nd and 3rd defendants acting jointly and inconcert and the 1st defendant acting through them wrongfully andunlawfully brought into the hotel premises nearly 30 thugs disrupting
the operation of the hotel and causing disorder therein; that whenSamarakoon. the General Manager of the plaintiff, went to the hotelthe thugs at the instance of the 2nd defendant forcibly ejected himfrom the hotel and that since then the defendants are wrongfully andunlawfully interfering with the plaintiff's management and control ofthe hotel for which purpose the defendants have placedhirelings/thugs at the hotel. The plaint further averred thatSamarakoon made a complaint to the Police (a copy of which wasannexed to the plaint) and the "Police have referred the matter to theFort Magistrate's Court and the matter is pending therein." The plaintwas accompanied by an affidavit of Samarakoon affirming to the factsset out therein. The plaintiff prayed for a declaration that it wasentitled to operate and manage the hotel without interference by thedefendants, their servants and agents; for a declaration that thedefendants, their servants and agents have wrongfully and unlawfullyinterfered with the operation and management and control of the hotelby the plaintiff on 30.8.1984 and thereafter; for an order prohibitingthe defendants from interfering with the rights of the plaintiff in respectof the hotel and for an order on the defendants directing them toremove from the hotel premises all persons who have no authorityfrom the plaintiff and for an order ejecting them forthwith. The plaintiffalso prayed in the plaint for an interim and a permanent injunctionrestraining the defendants, their servants and agents from interferingwith the plaintiff's rights, particularly the right of operation,management and control of the hotel and from obstructing theplaintiff, its employees and agents in the exercise or discharge ofpowers and functions of management and control of the hotel.
The application for an interim injunction was sought to be supportedin court by plaintiff's counsel without notice to any of the defendantson 4.9.1984. On that occasion counsel appeared on behalf of the 1stdefendant and submitted that the court had no jurisdiction to entertainthe said application inasmuch as the arbitration clause in agreementP1 was in the nature of a Scott v. Avery clause and that therefore thecourt lacked jurisdiction to entertain the action or the application for aninjunction in the first instance. The learned District Judge, however,directed that notice of the application for an interim injunction beserved on the defendants and issued an enjoining order restrainingthem from committing the acts the commission of which the plaintiff inthe plaint sought to restrain by way of an interim injunction. On12.9.1984 the defendants moved court by way of a petition andaffidavit to vacate the enjoining order on the ground, inter alia, that the
plaintiff had obtained the enjoining order by wilful suppression and/ornon-disclosure of a material fact. The suppression and/ornon-disclosure relied on by the defendants related to an order made inproceedings instituted in the Fort Primary Court by the Police underS.66 of the Primary Courts Procedure Act, No. 44 of 1 979, upon thecomplaint made by Samarakoon on 30.8.1984 referred to above. Theposition of the defendants was that in those proceedingsSamarakoon, the plaintiff's General Manager, on 31.8.1984 (prior tothe institution of the present action in the District Court) had movedthe Primary Court to obtain an interim order restoring to the plaintiffthe rights of management to the hotel; That the learned Primary CourtJudge had declined to make such an order and that this fact had beensuppressed from the District Court at the time the plaintiff obtainedthe enjoining order. This was one of the grounds upon which theapplication to vacate the enjoining order was made. The plaintiff filedobjections to this application. The matter was then fixed for inquiryand on 4.10.1984 the learned District Judge after hearing thesubmissions of parties made order vacating the enjoining order. Heheld that apart from a bare reference to the proceedings in the PrimaryCourt contained in the plaint and the accompanying affidavit ofSamarakoon, the plaintiff had failed to disclose to court the fact thatthe Primary Court Judge had refused to make an interim order askedfor by Samarakoon. This was a concealment of a material fact whichthe learned Judge held was sufficient to warrant the vacation of theenjoining order.
Against this order of the learned District Judge the plaintiff filed twoapplications simultaneously in the Court of Appeal-a revisionapplication (No. 1379/84) and an application for leave to appeal (No.118/84). After the filing of objections by the defendants andcounter-objections by the plaintiff, the revision application was heardand decided by the Court of Appeal. The court held that although itwas desirable that the plaintiff should have disclosed the fact that aninterim order had been refused by the Primary Court Judge, its failureto do so did not amount to a wilful suppression of a material factwarranting the vacation of the enjoining order. The Court also took theview that the affidavits and exhibits filed by the plaintiff disclosed avery high handed act on the part of the defendants in that the plaintiffwho was in possession of the hotel had been forcibly ejected by thedefendants who had taken the law into their own hands andconducted themselves in a manner causing grave prejudice to the
plaintiff. The court held that there was material placed by the plaintiffshowing exceptional circumstances warranting the court'sintervention in the exercise of its revisionary powers and set aside theorder of the learned District Judge vacating the enjoining order. Thepresent appeals have been preferred by the defendants from thisjudgment of the Court of Appeal.
At the hearing before us learned Queen's Counsel for the plaintiffsubmitted to us that the District Court was powerless to vacate anenjoining order and that it is not open for a party to invite the court tovacate the same. He contended that whilst there was expressprovision in the Civil Procedure Code enabling the court to discharge,vary or set aside an interim irjunction-vide s.666, there was nosimilar provision in the Code to /acate an enjoining order. In support ofhis contention he relied on the decision of the Supreme Court inJinadasa v. Weerasinghe (10) and the decisions of the Court ofAppeal in Stassen Exports Ltc. v. Hebtulabhoy & Co., Ltd. (17) andGordon Frazer & Co., Ltd. v. „ la i Marie Losio and Martin Wenzel (18)which followed the Supreme Court decision. In the first case citedabove an interim injunction granted in favour of the plaintiff wassuspended by court on an application made by the defendant by wayof petition and affidavit without resorting to summary procedure. TheSupreme Court held that since the procedure prescribed by s.666 ofthe Code had not been complied with by the defendant the order forsuspension must be set aside. In the second case the District Judgeissued ex parte an interim injunction against the defendants who thenmoved by way of petition and affidavit to have the same suspendedforthwith. The judge refused to do so and entered an order nisi interms of s.377(a) of the Code. This order of refusal was sought to bereviewed by the defendants in the Court of Appeal. On their behalf itwas contended that the District Court had an inherent power unders.839 of the Code to suspend an interim injunction. The court rejectedthis contention for the reason that no court can claim to have aninherent power which would override the express provisions of astatute. To hold that the District Court had such an inherent powerwould be contrary to the express provisions of s.666 of the Codewhich empowered the court only to discharge, vary or set aside butnot to suspend an interim injunction. In the last case cited above it washeld, following the decision in Stassen Exports Ltd. v. Hebtulabhoy &Co., Ltd. (supra) (17) that s.666 of the Code did not empower a courtto suspend the operation of an interim injunction. In each of the abovecases the order granting the interim injunction was made ex parte. Thedecisions hold that s.666 read with s.377 of the Code confers on acourt the power of and prescribes the procedure for discharging,varying or setting aside of such an injunction. It was urged before usby learned Queen's counsel for the plaintiff that in the absence ofsimilar provision in the Code in respect of enjoining orders a court waspowerless to set aside or vacate such orders.
In the instant case there is little doubt that the enjoining order wasone made ex parte by the learned District Judge. The learned Judgehimself assumed and proceeded on the basis that it was one made exparte. As rightly pointed out by the Court of Appeal the appearanceentered by counsel on behalf of the 1 st defendant on that day was notfor the purpose of objecting to the application for an interim injunctionbut for the purpose of inviting the attention of court to the fact thecourt lacked jurisdiction to entertain the plaint in view of the arbitrationclause contained in the agreement and referred to above. Nosubmission was made by counsel for the 1 st defendant at that stagein regard to the merits of the application for an interim injunctionand/or enjoining order. Under the circumstances I agree with theCourt of Appeal that the enjoining order was one made ex parte. Thequestion then arises whether a court, in the absence of any specificprovision in the Code, has the power to set aside its own ex parteorder on the application of the party against whom it is made. There isin my view ample authority to show that a court does have suchpower. In Loku Menika v. Selenduhamy (19) a hypothecary decreewas entered against the first respondent who had been appointedlegal representative in place of the deceased mortgagors. It latertranspired that the notices for the appointment of a legalrepresentative had not been served on any of the respondents andthat no summons in the mortgage action was served on the firstrespondent. On an application by the respondents to have all theproceedings in the case vacated the Commissioner of Requests heldthat all proceedings culminating in the hypothecary decree andthereafter were void and set them aside. In appeal Dias, J., followingseveral earlier decisions referred to by him in his Judgment, observedas follows:
"It is clear that the learned Commissioner of Requests held thisinquiry under a rule of practice which has become deeply ingrainedin our legal system-namely, that if an ex parte order has been madebehind the back of any party, that party should first move the Court
which made that ex parte order in order to have it vacated, beforemoving the Supreme Court or taking any other action in the matter.If authority is needed for this proposition it is to be found in thefollowing cases: In Habibu Lebbe v. Punchi Etana (20) Bonser, C.J.said
'I am informed by my learned brother that it has long been thepractice, and a practice which has been expressly approved by thiscourt, that in cases like the present one, application should bemade in the first instance to the court which pronounced thejudgment; and if the court which pronounced the judgmentrefuses to set it aside, then, and only then should there be anappeal from that refusal. . .Therefore, if the judgment was givenin the absence of one of the parties, I think that under the practicelaid down by this Court, it was competent for the District Judge todeal with the case, and that the plaintiff adopted the propercourse in applying first to the District Judge before coming to thiscourt.'
In Caldera v. Santiagopulle (21) Betram, C.J. followingWeeraratne v Secretary. D.C.. Badulla (22) said:
'The order was made ex parte behind the back of thedefendant, and in accordance with the authorities cited in a veryrecent case a person seeking to set aside such an order mustfirst apply t ; ;e court which made it, which is always competentto set asid' e ■ ,?/. parte order of this description.'"
In Dmgihamy v Don Bastian (23) the court without fixing a date for theanswer of the defendant fixed the case for ex parte trial on the basisthat the defendant was in default and entered decree nisi against her.She then made an application to court to have the decree nisi set asidewhich was refused On an appeal preferred by her Tambiah, J. said:
"The defendant quite properly made an application to the learnedCommissioner of Requests to rectify an order, made ex parte,without proper notice to her. Indeed, the ordinary principle is that,where parties are affected by an order of which they have had nonotice, and which had been made behind their back, they mustapply in the first instance to the court which made the ex parte orderto rescind the order, on the ground that it was improperly passedagainst them ”
In Bank of Ceylon v. Liverpool Marine & General Insurance Co., Ltd.(24) the District Court, acting ex mero motu, made order abating theaction under s.402 of the Civil Procedure Code. The plaintiff then filedpapers in court to set aside the order of abatement which was refusedby the District Judge. On an appeal filed by the plaintiff it wascontended on behalf of the defendant that the only course open to theplaintiff was to have made application under s. 403 to set aside theabatement order within a reasonable time. L.B. de Silva, J. (with H. N.G. Fernando agreeing) held that although the order of abatement wasentered by court ex mero motu, yet it was entered without any noticeto the plaintiff who had no opportunity to show cause against it andthat it was an ex parte order the validity of which the plaintiff couldchallenge in the same case at any time. In Nagappan v. LankabaranaEstates Ltd. (25) Samarawickrame, J. expressed his approval of theprinciple enunciated in Bank of Ceylon v. Liverpool Marine & GeneralInsurance Co., Ltd (supra) (24) and in Loku Menika v. Selenduhamy(supra) (19). These authorities therefore clearly establish the principlethat a court which makes an ex parte order without notice to the partywho is adversely affected by it is entitled to set it aside on theapplication of such party in the same case. This power is derived notfrom any express provision in the Code but, as stated above, from arule of practice which has become deeply ingrained in our legalsystem. I am therefore of the view that in the instant case it was legallycompetent for the learned District Judge to vacate the enjoining orderwhich was made by him ex parte.
The nexi matter that arises for consideration is whether the Court ofAppeal was justified in setting aside, by way of revision, the order ofthe learned District Judge vacating the enjoining order. This involvestwo questions. One is whether there were in this case exceptionalcircumstances warranting the exercise of the revisionary powers ofthe Court of Appeal. The other is whether, assuming the existence ofsuch exceptional circumstances, the material on record by way ofaffidavits and exhibits justified the setting aside by it of the DistrictJudge's order vacating the enjoining order. With regard to the firstquestion it is now settled law that the exercise of the revisionarypowers of the appellate court is confined to cases in which exceptionalcircumstances exist warranting its intervention. The view formed bythe Court of Appeal in the instant case is that the interests of justicedemanded its intervention by way of revision for the reason that theaffidavits and exhibits placed before it by the plaintiff revealed a very
high handed act on the part of the defendants who by taking the lawinto their own hands had forcibly ejected the plaintiff who was in lawfulpossession of the hotel. The tenability of this view of the Court ofAppeal has been the subject matter of much controversy before us.Upon a careful and close consideration of the salient facts andcircumstances of this case. I do not think the view expressed by theCourt of Appeal can be substantiated. The agreement P1, ex facie, is ahotel management agreement. By it the plaintiff was appointed by the1 st defendant the Managing Agents of the hotel for the purpose of themanagement, control and operation of the hotel in accordance withand subject to the terms and conditions therein. A perusal of the termsand conditions reveal that the plaintiff was, in the performance anddischarge of its functions, duties and obligations, acting in no capacityother than that of managing agents of the 1 st defendant. The staffand employees of the hotel were in the employ of the 1 st defendantand not of the plaintiff. The running of the hotel by the plaintiff was atthe expense of the 1 st defendant who was obliged to remunerate theplaintiff for its services. The 1 st defendant was also liable to indemnifythe plaintiff for any loss, claim or liability incurred in acting as managingagents of the hotel in the normal course of business. Thesestipulations in P1 seem to indicate that the true relationship betweenthe 1 st defendant and the plaintiff was one of principal and agent ormaster and servant respectively. They do not lend support to the viewtaken by the Court of Appeal that the plaintiff was in possession of thehotel. P1 establishes that the plaintiff's entry and occupation of thehotel was with the leave and licence of the 1st defendant for thepurpose of the management, control and operation of the hotel forand on behalf of the 1 st defendant. The position taken up by the 1 stdefendant is that it resumed the management of its hotel as from30.8.1984 as it lawfully might since the plaintiff by its conductrepudiated the agreement P1 in consequence of which it came to anend. The instant case is not one where possession of the hotelpremises has been handed over by the 1 st defendant to the plaintiff toenable the latter to run a hotel on its own behalf or on its own right.The position of the 1 st defendant that it always was and continued tobe, through its managing agents (the plaintiff), in possession of boththe hotel premises as well as the business and that thus no question ofthe ejectment of the plaintiff from either the premises or the businessarose seems to be in accord with the stipulations contained in PI. Theview of the Court of Appeal appears to have been based purely upon'the affidavits and exhibits filed by the plaintiff' and the 'material
placed by the plaintiff', to use the words of the judgment of the Courtof Appeal, and not on the proper construction of the agreement P1.There is no indication in the order of the Court of Appeal, which wasinvited to act in revision, that it gave any consideration to the positionurged on behalf of the 1st defendant. The approach of the Court ofAppeal to the vital issue as to whether there were or were notexceptional circumstances to warrant the exercise of its revisionarypowers is untenable. It has also failed to address its mind to theimportant question why the plaintiff, without pursuing the applicationfor an interim injunction then pending in the District Court, invoked therevisionary jurisdiction to vacate the order of the learned District Judgesetting aside the enjoining order. The failure of the Court of Appeal tomake an impartial assessment and evaluation of the facts and materialrelied upon by the defendants has resulted in its reaching theerroneous conclusion that the plaintiff was in possession of the hoteluntil its forcible ejectment by the defendants. The ground upon whichthe Court of Appeal founded its decision to exercise its revisionarypowers is thus unsustainable and has to be rejected.,
The other question that remains for consideration on this aspect ofthe judgment of the Court of Appeal is whether, assuming there wereexceptional circumstances, the court was justified in setting aside onthe merits the order of the learned District Judge. The learned DistrictJudge vacated the enjoining order for the sole reason that the plaintiffhad, at the time it applied for an interim injunction and obtained theenjoining order, suppressed and/or failed to disclose a material fact.This non-disclosure related to the order made by the Primary CourtJudge on 31.8.1984 upon the filing by the Police of an informationunder s.66 of the Primary Court Procedure Act, No. 44 of 1979, asset out above. The Court of Appeal took the view that in thecircumstances of the instant case the failure on the part of the plaintiffto disclose this particular fact did not amount to a wilful suppression ofa material fact warranting the vacation of the enjoining order by thelearned District Judge. In view of the conflicting views taken by theDistrict Court and the Court of Appeal on this point, it is necessary torefer in somewhat detail to what led to and actually transpired in theproceedings that were instituted in the Primary Court It is not indispute that the day before proceedings were commenced in thePrimary Court, the 2nd defendant and shortly thereafter Samarakoonmade statements to the Police-vide R20 and P3 respectively In theinformation furnished to court by the Police the names of five personswere mentioned of whom the 2nd and 3rd defendants were referredto as the first party and Samarakoon as the second party The
information mentioned, inter alia, that the first party had on30.8 1984 without any intimation to the second party forcibly takenthe management of the hotel which had been managed by the plaintifffrom 7 7.1983 up to that date. The report requests the Primary Courtto make an interim order in terms of s. 66 (1) (fa) of the Act The correctsection is s. 67 (3) On the very day that the report was filed(31.8.1984) in court, the 2nd defender and Samarakoon appearedpersonally and were represented by counsel The 3rd defendant wasabsent but was represented by counsel Learned President's Counselfor Samarakoon (Mr Daya Perera) tendered to court an affidavit fromSamarakoon together with a copy of the Agreement P1 and moved foran interim restraining order under s.67(3). According to this affidavitthe interim order sought was to restrain the three defendants(including the 1 st defendant) from interfering with and obstructing theexercise of the lawful rights of the plaintiff, Samarakoon and theiremployees and agents. The caption in Samarakoon's affidavit citedthe plaintiff as the 1 st respondent, himself as the 2nd respondent, the1st defendant as the 3rd respondent, the 2nd defendant as the 4threspondent and the 3rd defendant as the 5th respondent. Theapplication of Mr. Daya Perera, P.C. was resisted by counselappearing for the 2nd and 3rd defendants. After hearing thesubmissions of counsel the learned Primary Court Judge in his order,after referring to the fact that learned President's Counsel asked for aninterim restraining order, stated as follows:
"Whilst at this stage refusing the application for an interiminjuction under s.67(3) of the Primary Courts Procedure Act, Iinform Mr. Daya Perera, Senior Attorney, that this court willconsider the affidavit and the document 1 R 1 submittd to court byMr. Daya Perera, Senior Attorney. Further affix a notice on the landand report through Fiscal. Call case on 13.9.1984 for affidavitsfrom both parties."
This order was made by the Primary Court Judge on 31.8.1984(Friday) and on 3.9.1984 (the following Monday) the plaint in thepresent action was filed in the District Court.
At the hearing before the learned District Judge into the defendant'sapplication to vacate the enjoining order, a copy of the proceedings ofthe Primary Court held on 31.8.1984 were produced marked A20 onbehalf of the defendants. Vehement objection was taken to itsproduction by counsel for the plaintiff but was, in my view very rightly,overruled by the learned District Judge. This objection does notappear to have been pursued by the plaintiff in the Court of Appeal atthe hearing into the revision application. Be that as it may, it wassought to be resuscitated before us by learned Queen's Counsel forthe plaintiff. Upon a perusal of the written objections filed by thedefendants in the District Court on 12.9.1984 to the enjoining order,in which there is a reference to documents A1 to A19 and thereafterto R21 (which should read A21) but no reference to A20, the motiondated 1.10.1984 seeking to amend paragraph 16 of the petition ofobjections by inserting a reference to A20 (notice of which was sentto the plaintiff’s attorney-at-law by registered post), the observationsof the learned District Judge that he had read this document at anearlier stage of the proceedings and also the fact that it was a certifiedcopy of the Primary Court proceedings held on 31.8.1984 to whichthe plaintiff's General Manager, Samarakoon, and the defendantswere parties, I am of the view that it was rightly admitted by thelearned District Judge and that the objection raised on behalf of theplaintiff on 8.10.1984 that it has not been produced according to lawwas belated and without merit. A20 establishes:
that the Police requested court to make an interim order;
that Samarakoon in his affidavit stated that on 30.8.1984 the2nd and 3rd defendants with the object of gaining control of thehotel without notice caused a gang of about 30 thugs to enterthe hotel forcibly obstructing the mangement of the hotel andejected him and the security officers therefrom resulting inirreparable loss and damage to the plaintiff;
that Samarakoon in his affidavit asked, by way of interim relief,for an order ejecting the said thugs from the hotel andrestraining the 3 defendants from obstructing or interfering withthe lawful rights of the plaintiff, himself and their employees andagents,
that Mr. Daya Perera, P.C. stated to court that in view of thetourists already in the hotel and of more to arrive it becamenecessary to ask for an interim injunction ;
that the court in its order referred to the fact that Mr. DayaPerera, P.C. asked for an interim injunction in terms of s.67(3);
(0 and that the court refused at that stage the application for aninterim injunction but informed Mr. Daya Perera that he willconsider the affidavit (of Samarakoon) and the document 1 R1(the agreement) submitted by him to court.
It is also not in dispute that on 26.9 1984 the attorney-at-law forSamarakoon stated to the Primary Court Judge that he was notpursuing the application for an interim order in view of the fact that the
District Court had issued an enjoining order on 4.9.1984. As statedearlier the only reference to the Primary Court proceedings made bythe plaintiff at the time of institution of the present action in the DistrictCourt is contained in paragraph 14 of the plaint and paragraph 15 ofthe accompanying affidavit of Samarakoon which stated:
"I made complaint to the PoliceThe Police have referred the
matter to the Fort Magistrate's Court and the matter is pendingtherein."
The learned District Judge in his order vacating the enjoining orderheld that the failure of the plaintiff to disclose to court the fact that thePrimary Court Judge had refused to grant an interim injunctionconstituted a wilful suppression of a material fact. Without going intothe merits of the defendants application to vacate the enjoining order,he made order vacating the same.
Learned Queen's Counsel for the plaintiff in the first appealsubmitted to us that the learned District Judge had not fullyappreciated the effect of the order made by the Primary Court Judgeon Samarakoon's application for an interim order. He contended thatthe District Judge had failed to realise that the order of the PrimaryCourt Judge was in the nature of a temporary refusal of the interimorder and that the application was to be taken up later after affidavitswere filed and that it was therefore still pending before him. The sumand substance of the order made by him on 31.8.1984, learnedQueen's Counsel maintained, was that he put off the consideration ofSamarakoon's application for an interim order. He did not dismiss theapplication and no finality was reached till it was withdrawn by counselfor Samarakoon on 26.9.1984. Learned Queen's Counsel thuscontended that, if at all, there was in this respect nothing but a defectin the plaint and Samarakoon's accompanying affidavit which did notamount to a wilful suppression of a material fact. Learned President'sCounsel for the plaintiff in the second appeal urged that the PrimaryCourt Judge did not refuse the interim order asked for by Samarakoonon the merits but merely deferred the question of granting the same.He cited authority to show the tests that have been adopted by courtsin determining the issue of materiality of a fact. To justify thedissolution of an injunction the suppression or misrepresentation
should be of "such a character as to present to court a case whichwas likely to procure the injunction but which was in fact different fromthe case which really existed"-vide Halsbury's Laws of England, 4thEd., Vol. 24, p.612 and the decisions cited therein. Thus amisstatement of the true facts by the plaintiff which put an entirelydifferent complexion on the case as presented by him when theinjunction was applied for ex parte would amount to amisrepresentation or suppression of material facts warranting itsdissolution without going into the merits-vide Bambarakelle EstatesTea Co. v. Goonewardene (26), Alphonso Appuhamy v. Hettiarachchi(27) and Moosajees Ltd. v. Eksath Engineru Saha Samanya KamkaruSamithiya (28). Learned President's Counsel submitted that in theinstant case the failure of the plaintiff to disclose in the plaint or inSamarakoon's accompanying affidavit the fact that the application foran interim order (which was still pending in the Primary Court) wasrefused for the time being by the Primary Court Judge was of no or, ifat all, only of marginal relevance to the question as to whether an exparte interim injunction or enjoining order ought to issue. The PrimaryCourt Judge had made no pronouncement on the merits ofSamarakoon's application for an interim order but had only expresseda disinclination to make such an order at that stage. There wastherefore no rejection of Samarakoon's application as erroneouslyfound by the learned Distict Judge but only a deferment of itsconsideration until all affidavits were filed. Learned President'sCounsel submitted that this was in law the correct position since aPrimary Court Judge had, according to him, no jurisdiction to make aninterim order until the commencement of the inquiry. S.67(3) ofthe Primary Courts' Procedure Act, he contended, empowered theJudge to make such an order after the commencement and before theconclusion of the inquiry but not before its commencement. An inquirycommences only after the court fixes the case for inquiry unders.66(7) upon the failure of the parties to arrive at a settlement interms of s 66(6). Upon the basis of this construction learnedPresident's Counsel maintained that the Primary Court was right inrefusing to make an interim order at that preliminary stage. This legalsubmission too does not appear to have been raised at the hearing inthe Court of Appeal.
S 66(6) of the Primary Courts Proctdurt Act states that "the courtshall before fixing the case for inquiry' endeavour' ■ induce the partiesto arrive at a settlement of the dispute S. 66(7) enacts that where the
parties do not arrive at a settlement, 'the court shall fix the case forinquiry' on a date as specified therein S 6. 7. in so far as t is relevantfor a consideration of the legal submission of learned President sCounsel, stipulates as follows.
"67. (1) Every inquiry under this Part shall be concluded withinthree months of the commen ement of tne inquiry
(3) Pending the conclusion of the inquiry it shall be lawful forthe judge of the Primary Court to make an interim ordercontaining any provision which he is empowered to makeunder this Part at the conclusion of the inquiry "
It would therefore appear that the inquiry referred to in s 67 is theinquiry the date of which is fixed under s.66(7) after the filing ofaffidavits or counter affidavits. The contention of learned President'sCounsel is that the opening words in subsection (3) of s 67, namely,'pending the conclusion of the inquiry; must in their context beconstrued to mean after the commencement and before theconclusion of the inquiry. In other words the construction sought to beplaced by him to these opening words is that during the pendency ofthe inquiry an interim order may lawfully be made but not before itscommencement as was done by the learned Primary Court Judge inthe case in question. Such a construction, it was urged, wasconsistent with the plain and ordinary meaning of the language used ins.67 and also ensured that the principles of natural justice wereobserved in that all parties were heard by court before an interim orderwas made, the nature of which, except for its duration, is substantiallyno different from that of a final order made upon the conclusion of theinquiry. There is force in this legal submission of learned President'sCounsel but I am unable to uphold the same for the following reasons.Part VII of the Primary Courts' Procedure Act confers a specialjurisdiction on the Primary Court to inquire into and makedeterminations and orders in respect of disputes affecting land wherebreaches of the peace are threatened. The purpose of the confermentof this special jurisdiction on a Primary Court is to ensure the speedyand expeditious disposal, either by way of settlement or inquiry, ofsuch disputes with the sole object of preventing the occurrence of thebreach of peace that is threatened in the interests of the propermaintenance of law and order. The provisions contained in this Partstipulating prescribed time-limits for the filing of affidavits andcounter-affidavits and the holding and completion of inquiries are
designed to achieve this object. These disputes very often disclosesituations where threat to the peace are imminent unless immediatepreventive action is taken by court. If the object of this Part of the Actis to be achieved, such cases require the making of an interim orderforthwith by court. To wait until such time as the parties have filedtheir affidavits (for which purpose a maximum period of 3 weeks couldbe given by court) or until they have filed their counter-affidavits (forwhich purpose a further maximum period of 2 weeks could be given bycourt) or until the commencement of the inquiry on a date not laterthan another 2 weeks may well result in the actual occurrence of thebreach of the peace sought to be averted on the information beingfiled in court. To hold that in such situations, which are so veryfrequent, the court is powerless to make an interim order at theearliest stage when the information is filed in court would beconducive to the perpetration than the prevention of the imminentbreach of the peace and would set at nought the entire object of thisstatutory provision. It would therefore be more in accord with theobject and reasoning underlying this Part of the Act to construe thewords 'pending the conclusion of the inquiry' to mean until theconclusion of the inquiry and not. as maintained by learned President'sCounsel, during the pendency of the inquiry. Nor does the plainlanguage of the section (s. 67) warrant the restricted meaning soughtto be placed on it by him. The section does not purport to prescribethe period of time during which an interim order may be made by courtbut merely specifies the event until the occurrence of which it is opento the court to pass such an order. This view of the meaning of thesection would not give cause for a party to the dispute to complain ofa violation of the principles of natural justice prior to the making of aninterim order. S. 66 ensures the presence in court of the parties to thedispute on the date of the filing of the information by the Police or onthe date immediately succeeding thereto on which sittings of court areheld. The parties to this dispute thus get an opportunity of being heardbefore an interim order is made. The nature and purpose of an interimorder are such that it is purely a temporary order passed by court forthe purpose of preserving the status quo until such time a f.nal order ismade. Neither order affects or prejudices the evil rights of any of theparties to the land in dispue. All these matters go to show that noparty can seriously complain of a omach of ^a audi alteram partemrule by virtue of the making of an interim order prior to thecommencement of the inquiry. Our attention was also drawn to thefact that the Court of Appeal has over the years consistently taken the
view that an interim order could lawfully be made by a Primary CourtJudge even on the date of the filing of the informaton in court-videMuthukumarasamy v. Nanrvtha-vt, (C9) A consideration of the abovematters make me reject the legal submission of learned President'sCounsel.
This brings me to the next question that arises for our consideration,namely, whether the Court of Appeal was justified in the view it tookthat the non-disclosure by the plaintiff of the fact that the PrimaryCourt Juage had refused to make an interim oraer in favour of itsGeneral Manager, Samarakoon, did not, in the circumstances of thiscase amount to a wilful suppression of a material fact. What then arethese circumstances but for which the non-disclosure would,according to tne Court of Appeal, have disentitled the plaintiff to anenjoining order upon the basis of the wilful suppression of a materialfact I am unable to find any such circumstances The plaintiff soughtan ex parte interim 'njunctior, agamst the defendants upon the basis ofcertain facts as deposed to by Samarakoon in paragraphs 14, 17 and18 of his affidavit v.hicn was filed with the piaint. These facts aresubstantially the same as those set out in paragraphs 7, 8 and 9 of hisaffidavit filed in the Primary Court. The substantive relief claimed by thep'amtiP in the District Court upon the basis of thpse facts was, mom orless, the same as the interim relief datmed py Samarakoon in thePrimary Court, namely, for an order restraining the defendants fromcausing any interference or obstruction to the exercise and dischargeof the lawful rights of the plaintiff, Samarakoon and the plaintiff'srepresentaT'vas anj agents. The dispute that arose between theparties was cne v/'ich was justiciable by the Primary Court as wel1 asthe District Couri in the exeruse of their different jurisdictions. ThePrimary Court Judge was 'nvited by counsel for Samarakoon to issuean interim imunchon. by way of interim order, restraining thedefendants from committing the above acts. The learned judgerefused to issue the same at the stage he was invited to do so.Samarakoon who was present in court was undoubtedly aware thathis endeavour to obtain an interim injunction failed even though for thetime being Three days later the plaintiff upon the strength of anotheraffidavit from Samarakoon moved the District Court to obtain thesame order upon the same facts in respect of the same disputewithout disclosing one word that the Primary Court Judge had refused(even though temporarily) his application for a similar order. It is myview that these circumstance if at all, demanded that Samarakoonshould have in his second affidavit made a full and true disclosure of
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the refusal of the Primary Court Judge to make an order in his favour.This refusal, if disclosed to the District Judge may well have inducedhim. in the exercise of his discretion, to retrain from issuing anenjoining order It is very probable that this ret isal. if placed beforecourt, may have influenced it not to grant the enjom'ng order It thusbecame a very material fact which ougi t to have been disclosed bythe plaintiff at the time he applied for an ex parte injunction Theendeavours made by both counsel for the pontiff to piay down the fullforce and effect of the order of refusal by the Primary Court Judgecannot succeed. The refusal was effective as long as it stood and it isthis refusal which very probably drove the plaintiff to seek redress inthe District Court with such speed and promptitude I am therefore ofthe view that the Court of Appeal erred in holding that there was not.in the circumstances of this case, a wilful suppression of a materialfact by the plaintiff. On a close and careful consideration of the factsand circumstances upon which the Court of Appeal purported to baseits findings which were so forcefully canvassed before us by bothcounsel for the defendants, I am of the view that the Court of Appealmisdirected itself and that the conclusions arrived at by it areuntenable. Hence both appeals are allowed and the judgment of theCourt of Appeal is set aside.
After the preparation of my judgment I have had the opportunity andprivilege of perusing the judgment of my Lord the Chief Justice. I am,very respectfully, in entire agreement with the additional grounds setout by him in his judgment for allowing both appeals. I also agree, withrespect, to the orders made by his Lordship in the concludingparagraphs of his judgment, including the order for costs.
H. A. G. DE SILVA, J.
I have had the advantage of reading the judgments of my Lord theChief Justice and of my brother Atukorale, J. I am in completeagreement with them and I am of the view that for the reasons statedtherein the judgment of the Court of Appeal should be set aside andboth appeals allowed with costs as stated by my Lord the ChiefJustice. I also agree to the other orders and directions made by HisLordship in his judgment.
Appeals allowed.