Official Assignee of Venidas Nemchand's Insolvency v Dinshaw and Brothers (Civ. App. No. 14/1937) [1938] EACA 29 (1 January 1938)

# COURT OF APPEAL FOR EASTERN AFRICA

## Before Sir JOSEPH SHERIDAN, C. J. (Kenya); Sir CHARLES LAW, C. J. (Zanzibar); and FRANCIS, Ag. C. J. (Uganda).

# OFFICIAL ASSIGNEE OF VENIDAS NEMCHAND'S INSOL-VENCY, Appellant (Original Respondent)

## COWASJEE DINSHAW & BROTHERS, Respondents (Original Appellants)

#### Civ. App. No. 14/1937

(Appeal from decision of H. M. Consul General's Court of Abyssinia at Addis Ababa).

Bankruptcy-Proof of debt-Contract-Foreign Bankruptcy or Insolvency—Lex loci contractus—Conflict of laws.

An insolvent, resident of Bombay carried on business at Bombay and in Ethiopia and French Somaliland.

Insolvency proceedings were instituted against him in the High Court of Bombay, in the British Consular Court at Addis Ababa where the proceedings were auxiliary to those in the Bombay High Court, and in the French Courts at Djibouti.

The respondents sought to claim against the insolvent's estate in the Consular Court on foot of a contract made and to be performed at Djibouti in French Somaliland.

The French Appellate Tribunal had held that under the law of French Somaliland the respondents' claim could not in the circumstances connected with the contract be enforced against the insolvent's estate in bankruptcy.

Held (24-2-38).—That the contract was governed by the law of French Somaliland and as the court of the country had discharged the insolvent's estate in bankruptcy from liability in respect of the respondent's claim it must also be discharged from liability in Ethiopia.

The following statement of facts is taken from the judgment of Sir Charles Law, C. J.:-

The insolvent, a resident of Bombay, carried on business at Bombay, Aden, Djibouti, Addis Ababa and Dire Dawa. Whatever may have been the relationship of those various branches between themselves, they all belong to the insolvent.

The insolvent was adjudicated by the High Court, Bombay, on the 21st October, 1931. Insolvency proceedings were also opened up against him in the Consular Court at Addis Ababa, that Court acting in an auxiliary capacity to the Bombay High Court. There were also insolvency proceedings against him in the French Courts at Djibouti.

It appears that the respondents had carried certain goods by sea which had been shipped by a Japanese firm and consigned to the insolvent at Djibouti to whom the respondents delivered the goods under letters of guarantee in lieu of the relevant Bills of Lading which he could not produce at the time. As he did not pay the Japanese

firm for the goods, that firm claimed the value thereof from the respondents who paid the amount. The insolvent's Djibouti branch in the meantime had forwarded the goods to his branches at Addis Ababa and Dire Dawa. The amount under the letters of guarantee was Rs. $92,164/3/0$ , as appears from the respondents' affidavit sworn at Bombay on the 26th October, 1932, and this claim respondents sought to prove before the Official Assignee at Addis Ababa.

The Official Assignee rejected the claim on the grounds that (1) the transactions did not concern the estate of the insolvent in Ethiopia and (2) even if the goods in question were in fact sent by the Djibouti branch to Addis Ababa and Dire Dawa those branches had paid the Djibouti branch for the same.

The learned Judge of the Consular Court, however, accepting that the goods had thus been paid for by way of accountancy between the branches concerned, expressed the view that the insolvent's firm as a whole was liable for the proven debts of all its branches, and consequently held that the respondents' claim was provable in the Ethiopian insolvency.

It would appear that all the facts were before the French Courts. at Djibouti where the respondents also endeavoured to prove their claim. By the judgment of the Upper Court of Appeal, Djibouti, it was held that the respondents' act of handing over the goods in question to the insolvent's Djibouti bronch, without receiving the relative Bills of Lading, was an act of gross fault which would injure and be unjust to the other creditors, as it would have the effect of decreasing their shares, if the claim were admitted. Consequently the respondents were made to suffer the consequences of that fault and their claim was rejected.

This appeal has been lodged against the Consular Court's decision.

Schwartze, for the appellant, referred to the judgment of Esher, M. R. in Gibbs and Sons v. Societe Industrielle et Commerciale des Metaux (25 Q. B. D. 399 at p. 405).

Phadke for the respondents.

Sir Joseph Sheridan, C. J.-Mr. Schwartze has put forward an argument in this appeal which has impressed me; it is based on a submission that the law applicable to the contract is French Law and a pronouncement of the French Appellate Tribunal that upon the bankruptcy of one of the contracting parties in French territory the respondent was not entitled to prove in the bankruptcy and rank for a dividend with the normal and regular creditors. It is not necessary for me—nor do I consider myself entitled—to consider the correctness or otherwise of that judgment. It seems to me that the inference he asks us to draw from the facts is correct, viz. that the contract was made in French territory so as to be a contract of that territory. The question then is whether in a bankruptcy in Ethiopia, the same party being the bankrupt, the respondent is entitled to prove his debt. The Official Assignee the present appellant rejected the proof of debt on grounds other than the one raised in Mr. Schwartze's argument. This decision was upset on appeal to the Court of the British Consul General. We have been reefrred to the case of Gibbs

and Sons v. Societe Industrielle et Commerciale des Metaux (25 Q. B. D. 399) and particularly to the judgment of Esher, M. R., at pp. 405 and 406. The relevant passage reads: $-$

"The general rule as to the law which governs a contract is that the law of the country, either where the contract is made, or where it is to be so performed that it must be considered to be a contract of that country, is the law which governs such contract; not merely with regard to its construction, but also with regard to all the conditions applicable to it as a contract. I say 'applicable to it as a contract' to exclude mere matters of procedure, which do not affect the contract as such, but relate merely to the procedure of the Court in which litigation may take place upon the contract. The parties are taken to have agreed that the law of such country shall be the law which is applicable to the contract. Therefore, if there be a bankruptcy law, or any other law of such country, by which a person who would otherwise be liable under the contract would be discharged, and the facts be such as to bring that law into operation such law would be a law affecting the contract, and would be applicable to it in the country where the action is brought. That, at any rate, is the law of England on the subject. So, where a contract is made or is to be performed in a foreign country, so as to be a contract of that country, and there is a bankruptcy law, or the equivalent of a bankruptcy law, of that country, by which, under the circumstances that have occurred, a party to the contract is discharged from liability he will be discharged from liability in this country. But it is only in virtue of the principle which I have mentioned that such a discharge from a contract takes place. It is now, however, suggested that, where by the law of the country in which the defendants are domiciled, the defendants would, under the circumstances which have arisen, be discharged from liability under a contract, although the contract was not made nor to be performed in such country, it ought to be held that they are discharged in this country. It seems to me obvious that such a proposition is not in accordance with the principle which I have stated."

This dictum appears to me to be authority for holding that the Official Assignee and the Consular Court at Addis Ababa must give effect to the judgment of the French Tribunal and reject the respondents' claim. We were asked by Mr. Phadke to regard the French judgment as so repugnant to natural justice that it should not be recognised. Having read the judgment I find that such a contention cannot be entertained. The point on which Mr. Schwartze has mainly rested his case was not taken before the Consul General's Court, but there is authority for saying that this does not debar him from taking it in his memorandum of appeal. He is entitled to argue within the four corners of his memorandum of appeal any good ground in support of the Official Assignee's rejection of the proof of debt. I would allow the appeal with costs and as regards the costs in the Consular Court order that each party should pay his own costs.

Sir Charles Law, C. J. after stating the facts proceeded to give judgment as under: —

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Two main points have been urged before us, namely, that there was no debt in fact provable in bankruptcy and no debt in law by reason of the judgment of the French Upper Court of Appeal. The first point has not been stressed. In my view the letters of guarantee constituted a good contract provable in bankruptcy. With regard to the second point, we have been referred to several decisions in the books. For the purposes of this judgment I consider it sufficient to refer to the following portion of the judgment of Lord Esher, M. R. in Gibbs and Sons v. Societe Industrielle et Commerciale des Metaux, $(25 \text{ O. B. D. } 399)$ at pp. 405 and 406:-

"The general rule as to the law which governs a contract is that the law of the country, either where the contract is made or where it is to be so performed that it must be considered to be a contract of that country, is the law which governs such contract; not merely with regard to its construction, but also with regard to all the conditions applicable to it as a contract. The parties are taken to have agreed that the law of such country shall be the law which is applicable to the contract. Therefore, if there be a bankruptcy law, or any other law of such country, by which a person who would otherwise be liable under the contract would be discharged, and the facts be such as to bring that law into operation, such law would be a law affecting the contract and would be applicable to it in the country where the action is brought... So where a contract is made or is to be performed in a foreign country, so as to be a contract of that country, and there is a bankruptcy law, or the equivalent of a bankruptcy law, of that country, by which, under the circumstances that have occurred, a party to the contract is discharged from liability, he will be discharged from liability in this country."

The letters of guarantee constituted a contract made in Djibouti. The French Courts discharged the insolvent's estate from liability in the circumstances connected with that contract. Consequently, he must, under the authority of Gibb's case, be discharged from liability in Ethiopia and the respondents' claim be rejected.

The point, regarding the decision of the French Courts, was taken in the Memorandum of Appeal to this Court though not before the Consular Court where the appellant was respondent. He was entitled, however, to take the point in that Court: In re Two Solicitors (1937 4 A. E. L. R. 451) at 454, to support the original rejection, and consequently there appears to be no reason why he should not be allowed to take it before this Court. Furthermore this is a point of jurisdiction which cannot be ignored by this Court.

Accordingly, I would allow this appeal with costs and uphold the appellant's rejection of the respondents' claim.

Francis, Ag. C. J.—Three questions are raised in this appeal, $viz :=$

- (1) Whether or not there was a debt due to the respondents $\frac{1}{2}$ provable in the bankruptcy of Venidas Nemchand at Addis Ababa? - (2) Whether or not there was a debt claimable in law by the respondents? and - (3) Whether or not the point at issue had already been adjudicated upon by a Court of competent jurisdiction?

In support of the first question Mr. Schwartze for the appellant argued that inasmuch as the goods in respect of which the alleged claim arose were never the property of Messrs. Cowasjee Dinshaw and Bros., who merely acted as carriers, therefore the claim as evidenced by their affidavit of 26th October, 1932—which was a claim for goods sold and delivered—was bad. If the respondents had any claim it was by way of damages in tort.

I am unable to agree with this proposition. Paragraph 2 of the affidavit referred to sets out that the claim was in respect of the "value of goods delivered to the Insolvent at Djibouti on their guarantee..." from which it is evident that respondents were claiming not for the value of goods sold and delivered but for an amount which Venichand Nemchand by their letters of guarantee had promised to pay by way of indemnification should the necessity arise. The necessity arose as soon as respondents paid the shippers the value of the goods which he had parted with without the customary bills of lading. I am of opinion therefore that the form of the claim objected to was in order and to that extent was provable in the bankruptcy proceedings.

It was argued by Mr. Phadke for the respondents that the second and third questions involve grounds which were not the basis of the original decision by the Official Assignee at Addis Ababa and which did not appear as ground of appeal to the Consul General against that decision and for that reason they should be disallowed by this Court.

In reply to this contention, however, we were referred by Mr. Schwartze to the case of re Two Solicitors (1937, 4 A. E. L. R. 451) in which it was held by the Court of Appeal that a respondent is entitled to support the decision of the Court below upon any sufficient ground whether or not it be the ground on which the Court below decided the matter. This seems to dispose of Mr. Phadke's objection.

The second and third questions referred to above appear to be interrelated one with the other and to be alternative to the first. It is therefore convenient to deal with them together.

It was urged by Mr. Schwartze that as respondents' claim arose out of the letters of guarantee which were made at Djibouti this claim was justifiable by the law of Djibouti and had in fact been adjudicated upon by the Court of that country. Consequently respondents were estopped from presenting their claim again in the bankruptcy proceedings in Addis Ababa.

The judgment of Lord Esher in Gibbs and Sons v. Societe Industrielle et Commerciale des Metaux (25 Q. B. D. 399) seems to me to be conclusive on this point.

I would accordingly allow the appeal with costs. As regards costs in the Consular Court each party to pay his own costs.