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PUBLIC RECORD OFFICE

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PUBLIC RECORD OFFICE, LONDON

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5. This, however, will not dispose of the matter. The liability will not be extinguished by that declaration, and there is nothing in the ordinance to preclude an enemy firm, if it subsequently re-establishes itself in the country, from bringing any action in respect of any claim which has not been dealt with in the liquidation. A clause was originally included in the Bill (by the Secretary of State's instruc- tions) which would have had this effect, but it was removed in pursuance of a subsequent direction. If, therefore, Messrs. Freudenberg & Company were subse quently to re-establish themselves in Ceylon, the position would be that Philip de Silva, or, more correctly, his mother. Mary de Silva. would be under a perpetual obligation to supply this alien firm with plumbago, which is an important material for munition making, at a price considerably below the market rate. It would thus be possible for this alien firm to accumulate a very considerable quantity of this Such a material for the purpose of any future war on very advantageous terms. contract would clearly be injurious to the public interest, and it was with a view to action being taken for the purpose of terminating this contract that section 13 of the Enemy Firms Liquidation (Amendment) Ordinance, No. 4 of 1917, was enacted.

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6. There is, however, a difficulty about taking action under this section. It will be seen on reference to the agreement of the 28th February, 1914, that the term "lenders," as used in the agreement, includes the successors and assigns of the lenders, and that consequently the benefit of the obligation undertaken by clause 7 is assignable. But for this interpretation of the word "lenders could be no question of the assignability of the obligation under clause 7 (see the case of Kemp v. Baerselman (1906), 2 K.B. 604). These words of interpretation, It would appear, therefore, that the bowever, put the assignability beyond doubt. benefit of this obligation is an asset in the liquidation which the liquidators would be entitled to dispose of for the benefit of the firm. The question, therefore, arises whether this course should be taken.

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7. It would, in my opinion, be most inequitable to take this course. can be no question whatever that when Philip be Silva entered into the agreement He had, as a he never contemplated that this obligation would be assignable. matter of fact, no independent legal advice, and the fact that the word "lenders" in the clause included the assigns of the lenders could not have been before his mind. If an attempt were made to sell the obligation as an asset in the liquidation, he would probably, if he were well advised, give public notice of objection to any proposed purchaser and would sue the liquidators, claiming a rectification of the contract. The basis of this extraordinary stipulation was personal confidence. I have had an interview with him, and his account of the matter is that when the deed was being drawn up the Freudenbergs pointed out to him that other people to whom they had made advances, after the advances had been cleared, have been ungrateful enough to cease their connexion with the firm and do business elsewhere. They pressed him to give them the assurance that he would never leave them, and would continue to do business with them on the favourable terms provided for in the deed. There is no reason to doubt this account of the matter. The fact that this personal relationship is the essence of the transaction differentiates the case in my opinion from the case of Tolhurst v. The Associated Cement Manufacturers (1902), 2 K.B. 660, and brings it under the case cited in paragraph 6, and the fact that by the terms of the instrument the benefit of the obligation was made assign- able was not, in my opinion, in accordance with the intention of the parties.

8. As a matter of fact, it may be questioned whether the benefit of the obliga- tion has very much pecuniary value, as Mrs. de Silva, in whose name the contract is signed, is an old lady of 70 years of age, and although the obligation extends to her executors, it would only extend for the purpose of the administration of the estate. This point appears to have been foreseen by Freudenbergs, as shortly before the War (so Philip de Silva informs me) they put before him a draft will, which he was to get signed by his mother, appointing a Mr. Wagner and a member of the Freudenberg firm as joint executors to Mrs. de Silva's estate with Philip de Silva, but he declined to get this document executed.

9. It may perhaps be well that I should explain a little more fully the position as regards Philip de Silva and his mother. Philip de Silva is of a very peculiar character. He was convicted some years ago for fraud, and came out of prison with considerable debts and no assets in the year 1905. In 1907 the Freudenbergs, realizing that he was a person with practical knowledge of the plumbago trade and was able to manage the men in the pits, began to finance him by making advances,

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but in view of his debts they arranged that he was to run the business in his mother's name. These advances in a few years ran up to between three and four lakhs. They then persuaded him to take over a further obligation of four lakhs from various persons whom he had introduced to the Freudenbergs, but who had done nothing to reduce the advances made to them. According to his account they told him that an expert was expected from Germany, and that a syndicate would be formed in which he would have an interest. This was in February, 1914. Any plans which may have been entertained were apparently nullified by the War. Since then Philip de Silva has succeeded in entirely redeeming his commercial reputation, having paid all his business and private creditors in full except one debt, which he disputes on personal grounds, and is in fact doing business on a large scale with the firm whom he originally defrauded.

10. Under the circumstances, my recommendation is that as soon as the debt of the Freudenbergs is liquidated steps be taken to terminate the contract under section 13 of Ordinance No. 4 of 1917.

11. The question then arises on what terms this contract should be terminated, and on this matter, as well as on the recommendation I have just made, I think reference should be made to the Secretary of State. I am not acquainted with the principles on which similar contracts have been terminated in England under the corresponding enactment.

12. It would seem unreasonable that it should be a condition of the termina- tion that Philip de Silva should be called upon to pay any further sum in the liquidation. He probably would prefer to take his chance of any attempt being subsequently made to enforce the obligation. Nor is it reasonable that any com- pensation should be paid by the Government. The object of the liquidation is presumably to put an end to the existence of this enemy firm in the Colony, and it would not be logical that the obligation should be terminated on a condition which implies the continued existence of the firm. Assuming that the firm is not re-established after the War the asset is one without any commercial value, and in view of the age of Mrs. Mary de Silva, any speculative value it might otherwise have must be almost negligible.

13. If nothing were done in the matter, and if in fact the Freudenbergs re- established themselves in the Colony, I have very little doubt, in view of the peculiar temperament of Philip de Silva and the great personal influence they previously exercised over him, they would persuade him to treat the obligation, though in his mother's name, as a personal obligation, and to give them some formal recognition of this fact, and would start business relations with him again on this footing. It seems to me most desirable that this peculiar transaction and this very undesirable relationship between enemy subjects and a British subject should be completely terminated.

The Honourable

The Colonial Secretary.

I am, &c.,

ANTON BERTRAM,

Attorney-General.

AN agreement made this twenty-eighth day of February one thousand nine hundred and fourteen between Mary de Silva Thanapathy of Benholme Arbuthnot- street Borella Colombo in the island of Ceylon (hereinafter called the "borrower " which expression where the context so admits shall include her heirs executors administrators and assigns) of the one part and Reinhart Freudenberg Winifred Freudenberg and Siegmund Freudenberg trading under the style or firm of Freudenberg & Company of Colombo aforesaid (hereinafter called the "lenders" which expression where the context so admits shall include their successors and assigns) on the other part.

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Whereas the borrower is indebted to the lenders in the sum seven hundred and forty-seven thousand and fifty-three rupees and forty-five cents. and has executed promissory notes for the said sum together with interest at the rate of eight per cent. (8%) per annum. And whereas the parties whose names are set out in the schedule hereto are also indebted to the lenders to the extent of the