[1955] EACA 299

## COURT OF APPEAL FOR EASTERN AFRICA

## Before Sir Barclay Nihill (President), Sir Newnham Worley (Vice-President) and PAGET BOURKE, Acting Justice of Appeal

## COLONIAL PRINTING WORKS, Appellants (Original Plaintiffs) $v$ .

MRS. R. A. MAIN, Respondent (Original Defendant No. 2)

Civil Appeal No. 3 of 1953

(Appeal from the decision of H. M. Supreme Court of Kenya, Rudd, J.)

Transfer of part of business-Liability of transferee where notice of transfer incomplete—Claim against two defendants—Form of judgment—Fraudulent Transfer of Businesses Ordinance, section 3.

Section 3, sub-sections 1, 2 and 5 of the Fraudulent Transfer of Businesses Ordinance provides: "(1) Whenever any business or any portion of any business is transferred... the transferee shall notwithstanding any agreement to the contrary, become liable for all the liabilities incurred in the business by the transferor, unless due notice in accordance with this section shall have been given and shall have become complete at the date of the transfer. (2) The liability of the transferee under sub-section (1) of this section shall cease immediately notice given in accordance with this section shall have become complete: provided nevertheless that should proceedings be instituted against the transferee before such liability has ceased the said notice shall ... be deemed incomplete.... (5) Nothing in this section contained shall have the effect of relieving the transferor from any liability to which he would otherwise be subject.

It was averred in the plaint, and admitted in the defence, that F (the original first defendant) as the sole proprietor of a firm of publishers had sold part of his business, namely a publication called $J$ ayne to the respondent.

$F$ had engaged the appellants to carry out the printing of some publications for him including the publication called Jayne and the order was completed, and before notice under the aforesaid Ordinance was complete, the appellants instituted the suit claiming their charges against F as the original debtor and against the respondent as transferee of the business.

The trial Judge entered judgment against $F$ for the amount claimed, but notwithstanding the admission in the defence before referred to, found that the $Jayne$ publication was a business separate from that of F's business, and entered judgment against the respondent for a lesser sum representing that part of the claim for the printing of Jayne.

It was argued for the respondent that the appellants could not validly sue and obtain judgment against both F and the respondent but must elect whether to proceed against $F$ as transferor or the respondent as transferee of portion of F's business.

*Held* (11-6-55).—(1) In view of the admission in the defence that the respondent had bought part of $F$ 's business, it was not open to the trial Judge to find that the publication of Jayne was a separate business.

(2) The liabilities of $F$ and the respondent being neither joint nor alternative but several, it was open to the appellants to sue either $F$ as transferor, or the respondent as transferee, or both, but the appellants could not recover more, in all, than the amount claimed excluding costs.

(3) The claim having been made against the two defendants, there should not have been separate judgments, but judgment should have been entered against both as prayed in the plaint.

## Appeal allowed.

Cases referred to: Scarf v. Jardine (1882) 7 A. C. 345; Morel Brothers & Co. Ltd. v.<br>Earl of Westmoreland (1904) A. C. 11; Rulia Ram v. Mohan Singh 17 E. A. C. A. 3; Dalip Chand and Sharma v. Feroz Din and Hansraj (1935) 16 K. L. R. 106; Morris Lid. v. Perrott & Bolton (1945) 1 A. E. 567.

Chanan Singh for appellants.

Lean for respondents.

PAGET BOURKE (Acting Justice of Appeal).—The appellant firm, the Colonial Printing Works, brought an action in the Supreme Court of Kenya claiming the amount of Sh. 5,178 against two defendants named R. P. Fitchen and Mrs. R. A. Main, who is the present respondent. Fitchen was the sole proprieor of a business known as Kingsway Free Publications and in May, 1951, he engaged the appellants to carry out the printing of certain publications including one that bore the title Jayne. The order was duly completed and an account was rendered in respect of the charges which amounted to Sh. 5,178. On or about 1st September, 1951, Fitchen sold and transferred that part of the business concerned with the production of Jayne to the respondent. A notice of this transfer was published in pursuance of the provisions of the Fraudulent Transfer of Businesses Ordinance (hereinafter referred to as "the Ordinance"). Before the notice became complete upon the expiration of two months, the appellants instituted the suit to recover their charges against Fitchen, the original debtor under the contract, and the respondent, Mrs. Main, as transferee of a portion of his business, who was alleged to have become liable in the absence of effective notice by virtue of the provisions of the Ordinance.

In the result judgment for the sum claimed of Sh. 5,178 was entered against the defendant Fitchen and for Sh. 2,141 against the respondent. As to the respondent, the court below came to the conclusion that she was liable only to the extent of Sh. 2,141, being the amount of the principal sum claimed that was incurred in the publication of Jayne in the month of May. The learned Judge reached this finding on the view that the evidence went to show that the *Jayne* publication was a separate business of Fitchen and accordingly the respondent, as his transferee of that business only, did not become liable for any other debts incurred by him in connexion with any other business.

With respect to the learned Judge, I do not think there was evidence to justify this conclusion. It is true that by letter of 28th September, 1951, to the respondent, the appellants' advocate only asked for payment of the sum of Sh. 2,141. That demand is now explained as springing from a lack of appreciation at the time of the respondent's full liability under the law. But quite apart from the evidence, it appears to have been overlooked that there was never any issue to be tried as to whether the respondent had acquired a business separate from Fitchen's general business known as the Kingsway Free Publications. It is clearly averred by paragraph 6 of the plaint that what was sold and transferred to the respondent was "the said publication Jayne, being a portion of the business carried on by him" (Fitchen), and by paragraph 4 of the respondent's defence the averments contained in paragraph 6 of the plaint were expressly admitted. There was no dispute about it. At no time did the respondent disclaim liability for such debts as were in fact incurred by the transferor in his business. Judgment had been entered against the respondent on her failure to enter an appearance. She then successfully applied to have the judgment by default set aside, it being put forward on her behalf that as the transferor had incurred no debt she could not be held liable. Leave to defend was granted and the sole ground of defence advanced on the pleading rested on the denial that Fitchen had contracted with the appellants and incurred the liability in his business as alleged. That defence did not avail the respondent because the trial Judge accepted the uncontradicted evidence of the appellants' witness as to the work done for Fitchen to his order and the charge therefore of Sh. 5,178. Since it was admitted as a fact that a portion of Fitchen's business had been transferred to the respondent, it follows, in my opinion, under the Ordinance, that the respondent became liable for the total debt incurred by the transferor in his business, that is, Sh. 5,178.

The prayer in the memorandum of appeal is that the finding as to restricted liability of the respondent be amended and judgment entered against her for Sh. 5,178 instead of Sh. 2,141. It strikes me as novel that in a claim such as this for an amount against two defendants, each defendant should be separately decreed in that amount. I would have thought that the proper form would be to have judgment signed for the sum claimed of Sh. 5,178 against the defendants (as prayed by the plaint), and not judgment against the defendant Fitchen for Sh. 5,178 and then judgment against the respondent for Sh. 5,178, which would be the result of the amendment as sought. But before coming to a decision as to the extent of the alteration to be made in the judgment, it is necessary to consider the point raised for the first time by Mr. Lean, for the respondent, by way of notice to vary the decision of the court below given under rule 30 of the Eastern African Court of Appeal Rules, 1925, which apply to these proceedings.

The argument, as I understand it, is that the appellants could not validly sue and obtain judgment against the two defendants: there must be an election in a case of this kind as to whether one proceeds to recover against the transferor or transferee of the business or portion of the business. Since there was judgment entered against the transferor Fitchen for the whole amount claimed, this was equivalent to an election to sue him and was a bar to the proceedings against the respondent. Accordingly the decision should be varied by setting aside the finding as to the respondent's liability and dismissing the claim as against her. It is contended that there was no joint obligation; the liability of one defendant arose out of contract and that of the other, the respondent, arose under a statutory provision. Reliance was placed upon the cases of Scarf v. Jardine, 7 A. C. (1882) 345 and Morel Brothers & Co. Ltd. v. Earl of Westmorland (1904), A. C. 11.

I do not think that either case avails the respondent. In Scarf v. Jardine there was no concurrent joint liability: the plaintiff was faced with an alternative—he could choose whether he would sue those who were liable by estoppel, or sue those who were liable upon the facts. As was said by Lord Selborne, L. C., (at p. $350$ ):—

"The two principles are not capable of being brought into play together: you cannot at once rely upon estoppel and set up the facts;<br>and if the estoppel makes A and B liable, and the facts make B and C liable, neither the estoppel nor the facts, nor any combination of the two can possibly make $A$ , $B$ and $C$ all liable jointly".

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In Morel Brothers & Co. Ltd., v. Earl of Westmorland it was a matter of suing a principal or agent, being husband and wife. The result was that the plaintiffs got judgment against the agent. It was held that they could not get judgment against the principal also. It was an alternative remedy that could not be made available against the two and the doctrine of election as established by Scarf $v$ . Jardine applied. $\overline{a}$

In the present case I cannot see that there is any alternative liability so that if judgment is entered against one defendant the plaintiff is unable to proceed against the other. The object of the Ordinance is plain enough, and it would (be a strange result if a plaintiff who had obtained judgment against his debtor in business dealings then discovered that the business had been transferred (there being no effective notice) and found that he was barred from proceeding against the transferee.

In Rulia Ram v. Mohan Singh 17 E. A. C. A. 3 and Dalip Chand and Sharma v. Feroz Din and Hansraj 16 K. L. R. (1935) 106, judgment was obtained against the transferor and this Court and the Supreme Court respectively saw no obstacle to an action being maintained against the transferee under the provisions of the Ordinance, though the question now arising for consideration does not appear to have been directly canvassed in either case. In my view it is incorrect to say that there are alternative liabilities as in the class of case relied upon by the respondent.

I find no substance in the submission that the doctrine of election applies and consider that the appellant was entitled to bring the action jointly against the two defendants and obtain judgment as prayed. It may be noted that it is expressly provided by section 3 $(5)$ that the attaching of liability to the transferee under the Ordinance shall not have the effect of relieving the transferor from any liability to which he would otherwise be subject.

I would allow the appeal with costs and vary the judgment of the lower court by entering judgment for the appellant firm in the sum claimed of Sh. $5,178$ against the two defendants.

SIR BARCLAY NIHILL (President)-I agree with the judgment prepared by my learned brother, and an order will be made in the terms he has proposed with the addition of the following words: $\mathcal{A}(\mathcal{A})$ $\mathcal{O}(\log n)$

"But so that the plaintiff shall not recover more than the sum of Sh. $5,178$ excluding costs."

SIR NEWNHAM WORLEY (Vice-President).—I concur and have only this to add. It was not open to the learned trial Judge on the pleadings to find that the publication Jayne was a separate business. In my view the liabilities of Fitchen and the respondent were neither joint nor alternative but several, and the two local cases referred to by my brother Bourke support the view that it is open to the creditor to sue either the transferor or the transferee or both. See also Morris Ltd. v. Perrott & Bolton, (1945), 1 All E. R. 567.

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