[CHANCERY DIVISION]

REPUBLIC OF PERU v. PERUVIAN GUANO COMPANY.

[1886. P. 2318.]

Practice - Striking out Pleading - Rules of Supreme Court, 1883, Ord. xxv. r. 4 - Dismissal of Action - Sovereign Power - Acts of de facto Government - Attempted Repudiation by de jure Government.

The power given by Order xxv., r. 4, of ordering any pleading "to be struck out on the ground that it discloses no reasonable cause of action," will be exercised where, in the opinion of the Court, there is no reasonable prospect that the case raised by the pleading will succeed at the hearing of the action; secus, where the pleading, though it might under the former practice have been open to demurrer, presents a substantial case.

A statement of claim which sought relief on the footing that a compromise of certain disputes between a foreign de facto government (recognised by this country) and the Defendants was not binding upon Plaintiffs, the succeeding de jure government, was ordered to be struck out, on the grounds (1) that the acts of the de facto and recognised government by their duly authorized agents must be treated by the tribunals of this country as binding upon their de jure successors; and (2) that the de jure government after retaining with full knowledge of the facts the money paid to their predecessors as one of the terms of compromise could not afterwards repudiate the arrangement.

Applications under Order xxv., r. 4, must be tried upon the allegations contained in the pleading, and evidence in support of the applicant's case is not admissible.

MOTION by the Defendant company under Order xxv. r. 4, that the Plaintiffs' statement of claim might be struck out on the ground that it disclosed no reasonable cause of action, and was embarrassing; or in the alternative that paragraph 9 of the statement of claim and all the allegations consequent thereon might be struck out as unnecessary and tending to prejudice, embarrass, and delay the fair trial of the action.

The action was brought by the de jure government of the Republic of Peru against the Peruvian Guano Company, claiming to set aside an agreement of compromise of the 29th of May, 1885; to have an account taken of all dealings and transactions between the Plaintiffs and the Defendants under an agreement of June, 1876, and consequential relief.

The statement of claim contained in substance the following allegations:-

In conformity with a law of the Republic of Peru enacted in that behalf on the 11th of May, 1875, a contract was on the 7th of June, 1876, entered into between the Republic and the Defendant company that the Republic should consign to the company 1,900,000 English tons of guano, and that the company as consignees should, without prejudice to the existing contracts between the Republic and Messrs. Dreyfus Brothers, & Co., and others, have during the continuance of the contract the exclusive right and privilege of selling in European markets Peruvian guano. In April, 1879, the Republic of Chili declared war against Peru. On November 4, 1879, in consequence of the company's breaches of the contract, the Republic declined to further carry out and ceased to be bound by the contract. In November, 1879, Pierola assumed dictatorial power in Peru,and he, and subsequently Iglesias, on the resignation and flight of Pierola, acted as de facto rulers of the Republic; and between November, 1879, and June, 1886, no de jure government existed in Peru; but at the latter date a de jure government was duly constituted according to the laws and usage of Peru. Both Pierola and Iglesias purported to act as dictators so far as regarded internal acts of government in accordance with the laws and usage of the government of Peru, and the Plaintiffs submitted (par. 9) that so far as regarded all internal acts of government, and particularly so far as concerned the acts of the de factogovernment, as between them and the company, the de factorulers were bound by the then existing laws and usage of the Republic. In May, 1883, the Defendants went into voluntary liquidation, and Rodrick Mackay, as liquidator, was authorized, in conjunction with a consultative committee, to compromise all claims by or against the company. In January, 1884, Iglesiassent to London, as special financial commissioner, Senor Don G. Bogardus, to make inquiries and claim balances due from the company under the contract. Negotiations for a settlement of claims ensued, and Bogardus being replaced by Don J. R. de Izcue as financial agent, in May, 1885, an agreement of compromise was entered into between the Republic of Peru and the

company, being executed by De Izcue on behalf of the Republic of Peru. By the terms of this agreement De Izcue, on behalf of the Republic, acknowledged the receipt of £260,000 from Mr. Mackay as liquidator of the company, and released the company from all claims on behalf of the Republic, and agreed, on behalf of and in the name of the Republic, to uphold the company in litigations instituted against it by Messrs. Dreyfus and others in respect of claims to guano, and to cede to the company all the rights and interests of the Republic in respect to the subject-matters of such litigations; and it was further agreed that neither the payment of the £260,000 nor anything contained in the agreement was to be deemed to imply the inaccuracy or insufficiency of any accounts rendered by the Defendants or any right on the part of the Republic to further or better accounts, or any acknowledgment of indebtedness on the part of the company to the Republic, but was to be deemed in the first place "as the price of perpetual peace between the Republic and the company," and in the second place as the price of the rights and interests of the Republic in the subject-matters of the litigations against the company and of the engagement of the Republic to endeavour to induce the settlement of such litigations in favour of the company. In June, 1886, the de facto government of Iglesias came to an end, and a de jure government of the Republic, according to the laws and constitution of Peru, was instituted. Shortly before the constitution of such de jure government, investigations were made by the direction of a provisional government into the circumstances under which the agreement of compromise had been entered into, and the de jure government for the first time ascertained the facts stated and charged in the statement of claim. Upon making such discoveries Don Izcuewas removed from office, and Don Jose A. M. Quesada was appointed Financial Agent-General for Peru in Europe in his stead. In further consequence of the discoveries a resolution of the duly constituted Government of the Republic was passed in July, 1886, declaring, among other things, first, that the government did not accept the payment of the £260,000, except as part payment and on account of the moneys owing by the company to the government; and, secondly, that the Government accepted

the agreement of the compromise only in that sense; and that in the event of an attempt to give it the meaning of a final settlement, in full payment or final liquidation, the Government declared such agreement of compromise void and without any effect whatever according to the laws of Peru. On the 24th of October, 1886, an Act of Congress of the Republic of Peru was duly passed declaring all the internal acts of the said de factoGovernments of Pierola and Iglesias null and void.

The writ in this action by the Republic of Peru was issued on the 7th of October, 1886, and by the statement of claim the Plaintiffs charged (par. 3) that under and by virtue of the provisions of the contract of 1876 the company became and were agents and consignees of the Republic for the guano, and became and were in a fiduciary capacity as between them and the Plaintiffs; (par. 9) that so far as regarded all internal acts of government, and particularly so far as concerned the acts of the de factogovernment as between them and the Defendants, the de factorulers were bound by the then existing laws and usage of the Republic; (par. 13) that upon an examination of the accounts rendered by the company to Bogardus there appeared grave errors and inaccuracies, and fraudulent overcharges to the extent of nearly £2,000,000; (par. 22) that the agreement of compromise was to the knowledge of the company an improper and improvident one, and was, with the like knowledge, entered into by De Izcue negligently and in breach of his duty to the Republic; that the Defendants and Mackay, as liquidators of the company, in breach of their duty to the Plaintiffs, the company, did not furnish Bogardus, as agent for and on behalf of the Plaintiffs, or De Izcue, with information relative to the litigations, and the Republic's interest therein, although it was the company's duty so to do, and that De Izcue entered into the compromise upon insufficient materials and with inadequate information to the knowledge and with the connivance of the company and Mackay; (par. 27) that the agreement of com promise required confirmation by the Republic before the same acquired any binding effect, and that the same had not been duly confirmed or ratified by any de jure government of the Republic, and that although the £260,000, or the greater part

thereof, was paid to Iglesias, the de facto governor of Peru, and although a resolution of the council of the de facto government was passed on the 6th of August, 1885, approving the compromise, yet such resolution, even if valid and binding (which, however, was denied), was passed upon insufficient materials and without any knowledge or information as to the actual mode in which the compromise was arrived at, or of other material facts.

Sir H. Davey, Q.C., Rigby, Q.C., and Haldane, for the Defendants:-

The case falls within Order XXV., rule 4, which extends the inherent jurisdiction of the Court by providing an easy and summary mode of getting rid of an action which, on the face of it, is manifestly groundless: Metropolitan Bank v. Pooley (1). It is enough for a defendant to shew that there is no reasonable prospect of the plaintiffs succeeding.

The acts on which Plaintiffs found their claim for relief are acts which the Courts of this country must treat as the acts of Plaintiffs themselves. Either, as averred by the statement of claim, they are the acts of a de facto government subsequently quarrelled with by a subsequent de jure government, or the acts of duly constituted agents. If the former, then all that the Court will look at is whether the de facto government is a government recognised by this country: Emperor of Austria v. Day (2). And the Plaintiffs can only obtain relief upon the terms of adopting as their own act the compromise of May, 1885, entered into between the Republic of Peru and the defendant company through Bogardus and De Izcue: United States of America v. Prioleau (3); and as such compromise must be adopted as a whole and not rejected in part and accepted in part, the Plaintiffs' case fails. Then if the acts complained of were the acts of Plaintiffs' agents, the Defendants, in the absence of any case disclosed of conspiracy or fraud, are not affected with responsibility to the Plaintiffs.

The Defendants, on the hearing of the motion, tendered affidavits

(1) 10 App.Cas. 210.

(2) 2 D. F. & J. 217, 233.

(3) 2 H. & M. 559.

stating certain authoritative documents, by which Bogardusand De Izcue were appointed plenary agents for the settlement of all questions in dispute between the Republic and the Defendant company.

The Plaintiffs submitted that such evidence could not be received: applications under Order XXV., rule 4, must be tried upon the allegations contained in the pleadings, which for the purposes of the motion must be assumed to be true, and no evidence is admissible in support of the Defendants' case that the pleadings, which can alone be looked at, disclose no reasonable cause of action: Johnston v. Johnston (1); Willis v. Earl Beauchamp (2).

The Court refused to admit this evidence.

Romer, Q.C., and Bramwell Davis, for the Plaintiffs:-

Our case is that the agreement of compromise was effected without authority and was also unconfirmed and unratified. If the Court should be against us on this point, we still rely on the allegations of fiduciary relationship between Plaintiffs and Defendants. A plenipotentiary cannot, by mere virtue of his position, pledge the credit and affect the monetary position of his government. Any engagement which he shall enter into is of no force among sovereigns unless ratified by his principal: Kent's International Law(3). We say that De Izcue, as financial agent, had exceeded his authority to the knowledge of the Defendants. In the absence of express exemption to the contrary, the powers of a plenipotentiary are limited by the condition of subsequent ratification, which is an essential form, for the instrument, in point of legal efficacy, is imperfect without it: The Eliza Ann(4); and to ascertain what ratification is necessary the laws of the state appointing the plenipotentiary, which have not yet been put in evidence, must be looked at. We also allege there are outstanding claims beyond the accounts rendered to the financial agents and that the Defendants have not given the information which they were bound to give.

The object of Order XXV., rule 4, was not to abolish demurrers in name only, nor to give a defendant an opportunity of getting rid

(1) 33 W. R. 239.

(2) 11 P. D. 59, 60.

(3) Page 136 (Abdy's Ed.)

(4) 1 Dods. Adm. Rep. 244, 248.

of an action upon motion, but to put a summary end to cases which were manifestly frivolous and vexatious and did not admit of serious argument: Batthyany v. Walford (1); Parsons v. Burton (2); Burstall v. Beyfus (3); Dadswell v. Jacobs (4);  [1vShafto v. Bolckow Vaughan & Co. (5).

In looking at the pleadings as they stand to see whether there is or is not any reasonable ground of action, the Court is not to look upon them with the same strictness as it would have done on demurrer: Dadswell v. Jacobs (6).

Davey, in reply:-

The Plaintiffs must shew not only that they have alleged matter which on the pleadings discloses a possible cause of action, but they must also shew a reasonable or probable ground of action. Here not only no reasonable cause but no cause of action at all is disclosed. In the case of The Eliza Ann (7) Lord Stowell was speaking of a treaty of peace between two Governments, which can only be effected by the sovereign power, and not of the settlement of merely financial claims against a government. The case for the Plaintiffs rests solely upon the objection by the present government to the acts of their predecessors, the de factogovernment, and discloses mere shadowy allegations as a basis for interrogatories on which to build up a case.

Aug. 10. CHITTY, J.:-

This motion is made under the first branch of Order XXV., rule 4. There is some difficulty in affixing a precise meaning to the term "reasonable cause of action" used in Order XXV., rule 4. In point of law, and consequently in the view of a Court of justice, every cause of action is a reasonable cause. But obviously some meaning must be assigned to the term "reasonable." Demurrers are abolished, and it could not have been intended to abolish demurrers by the right hand and restore them by the left. So far as method of procedure was concerned, demurrers, certainly

(1) 32 W. R. 379.

(2) W. N. (1883), p. 215.

(3) 26 Ch. D. 35.

(4) 34 Ch. D. 278, 284.

(5) Ibid. 725.

(6) Ibid. 278, 281.

(7) 1 Dods. Adm. Rep. 244.

in the Court of Chancery, and in the Chancery Division at the time when these orders came into operation, were a cheap and expeditious mode of obtaining a decision; the mere substitution of a motion or summons for the demurrer would not be an adequate explanation of Order XXV. Having regard to the terms of rule 4, and to the decisions on it, I think that this rule is more favourable to the pleading objected to than the old procedure by demurrer. Under the new rule the pleading will not be struck out unless it is demurrable and something worse than demurrable. If, notwithstanding defects in the pleading, which would have been fatal on a demurrer, the Court sees that a substantial case is presented the Court should, I think, decline to strike out that pleading; but when the pleading discloses a case which the Court is satisfied will not succeed, then it should strike it out and put a summary end to the litigation.

What I have just stated is intended to be not an exhaustive explanation of the rule, but merely an indication in a general way of the limits of its meaning.

It was contended for the Plaintiffs that the rule applies only to plain and simple cases, and that it does not embrace cases which are susceptible of serious argument on points of law or otherwise; and reliance was placed on the length of time which was taken up by the statement and discussion of this case at the bar. But I decline to accede to this conclusion so far as it was founded on the length of time occupied: by far the greater portion of it was consumed in reading the Plaintiffs' statement of claim, which is a lengthy document occupying some sixteen pages of closely printed matter. The application of the rule cannot depend on the length of the pleading: to hold that it does would be to hold out an encouragement to lengthy pleadings and prolixity of statement.

With these preliminary observations I proceed to consider the Plaintiffs' case as disclosed by their pleading. The object of the action is to set aside the agreement of the 29th of May, 1885, which purports to be made on behalf of the Republic of Peru of the one part, and by the Defendants of the other part. It is an agreement of compromise of disputes which had arisen between the Republic and the Defendants, in reference to matters of

account under the contract of 1876 generally known as the Raphael contract. The first and one of the principal grounds relied on by the Plaintiffs is that the agreement of compromise was made on behalf of the de facto government of the Republic which was not the de jure government. But the Court is bound to take cognizance of the recognition of a de facto government by the government of this country, and it was admitted by Plaintiffs' counsel at the bar that the de facto government was duly recognised by the Queen. So soon as it is shewn that a de facto government of a foreign state has been recognised by the government of this country, no further inquiry is permitted in a Court of Justice here. The Court declines to investigate, and indeed has no proper means of investigating, the title of the actual government of a foreign state which has been thus recognised. This attempted distinction between the de facto and the de jure government which runs through the statement of claim is untenable.

The next point relied on by the Plaintiffs arises out of the circumstances under which the agreement was entered into. The substance of the allegations is that the Defendants were fiduciary agents, and were bound to give information with regard to the accounts. There were several points on the accounts known to the agent which were in dispute, and with reference to such points information was asked for and was refused on the part of the Defendants. It was said that this was contrary to their duty as agents in a fiduciary capacity, and that may be accepted. But the parties here were at arm's length, and this was one of the matters in dispute, and therefore was one of the matters covered by the compromise. No imputation of fraud is made against the Defendants in inducing the agent to enter into the agreement. No collusion is alleged between the Defendants and the agent. There are some other circumstances alleged which to my mind are wholly immaterial; for instance that the agreement was inequitable and was improvident: that the agent was ignorant of the English language, did not consult professional advisers, and that he acted negligently. It may be these would be grounds for the Republic taking some proceedings against their agent, but it would be no ground for setting aside the agreement if it was honestly and properly entered into. All these allegations,

and indeed others to the like effect, have no bearing on such a case as that which is presented by the statement of claim.

The next point is that De Izcue who entered into the compromise on behalf of the Republic exceeded his authority. On this point the Defendants tendered affidavits to shew what his authority was and that it had not been exceeded. But under rule 4 no affidavit is admissible. That is plain from the terms of the rule itself. In regard to the second branch of the rule relating to the stay of frivolous and vexatious actions, the inherent jurisdiction of the Court over these actions remains unaffected, and on an application to stay a frivolous or vexatious action affidavits are admissible, not by virtue of the rule, but of the general jurisdiction of the Court. With regard to the allegation that the agreement of compromise required confirmation by the Republic, that may mean either that confirmation was required by the terms of the instrument conferring the authority, or by the general law on the subject which, the Plaintiffs' counsel urged, required a ratification by the government itself. I must I think give the pleader the benefit of the first of these propositions, and consequently it is unnecessary for me to express any opinion on the second.

But the want of authority on the part of the agent and the necessity for ratification are immaterial if the contract was in fact ratified by the Republic. The Defendants say that on the facts stated there was such a ratification. The material facts stated on this head are to be found in pars. 27, 29, 30, 31 and 34 of the statement of claim. It appears that the sum of £260,000, the consideration paid by the Defendants for the compromise, was paid to the agent of the government on or about the date of the agreement, viz., the 29th of May, 1885, and that this sum or the greater part of it was paid to the agent of the government on or about the date of the agreement, viz., the 29th of May, 1885, and that this sum, or the greater part of it, was received by the government on or before the 6th of August of that year. On that day a resolution was passed in ignorance of the facts. Being bound to accept this allegation as true, I cannot hold that this resolution was a ratification.

The statement of claim proceeds to allege that the de facto

government came to an end in June, 1886, and that it was succeeded by a de jure government, and that the de jure government ascertained the true facts; and that in consequence of the discovery of the facts the government of the Republic on the 31st of July, 1886, passed the resolution which is stated in paragraph 30 of the statement of claim. The resolution is thus stated; "(1.) That the government did not accept, or admit as received, the said sum of £260,000 paid as aforesaid, except as part payment and on account of the moneys owing by the Defendants to the government; (2.) That the government accepted the said agreement of compromise only in that sense, and that in the event of an attempt to give to it the meaning of a final settlement in full payment or final liquidation, the government declared such agreement of compromise void and without any effect whatsoever according to the laws of Peru."

The effect of this resolution is plain. It is an attempt to affirm in part and disaffirm in part. A principal must act consistently; he cannot, as was stated by Lord Kenyon(1), blow hot and cold; or, to use Lord Cairns' expression, derived from the Scotch phraseology, he cannot approbate and reprobate at the same time: he must adopt entirely or repudiate entirely. It is scarcely necessary to cite any authority for these propositions. I may refer to Wilson v. Poulter (2), where the Court was clearly of opinion that the seizing of parts of certain bonds was an affirmance of the defendants' act in laying out the money, and that the plaintiff could not avow the act as to part and disavow it as to the rest. I refer also to Smith v. Hodson (3), where Lord Kenyon gave the judgment to which I have referred, and says(4): "Although the assignees may either affirm or disaffirm the contract of the bankrupt, yet if they do affirm it, they must act consistently throughout; they cannot, as has often been observed in cases of this kind, blow hot and cold; and as the assignees in this case treated this transaction as a contract of sale, it must be pursued through all its consequences." I refer also to Prince v. Clark (5), where Abbott, C.J., said it was the

(1) 4 T.R. 217.

(2) 1 Str. 859, 861.

(3) 4 T.R. 211.

(4) Ibid. 217.

(5) 1 B. & C. 186, 189.

duty of the principal to notify his objection to the goods within a reasonable time after he received intelligence of the purchase which had been made not in accordance with the authority he had from the agent. Now the resolution here is ambiguous, but the act of the Republic in retaining the £260,000 is plain and unambiguous. The resolution admits the receipt of the money by the government which passed it, although this is not of importance, because the previous government, which I am bound to accept as a de jure government, had already received it. The Republic, then, with full knowledge of the facts, deliberately insist on retaining the money paid as the consideration for the release. A merchant who instructs an agent to buy goods, when the goods are bought not in accordance with the authority, cannot retain the goods; he must return, or at all events offer to return them within a reasonable time; if he does not, he adopts the transaction. Here the £260,000 would not have been paid had it not been for the agreement: in the expressive and emphatic language of the agreement itself, it was paid "as the price of perpetual peace" - between the Republic and the Defendants. The Republic retained the price with knowledge of the facts, at least from the 31st of July, 1886, to the 7th of October following, when the writ was issued. By their statement of claim delivered on the 7th of February, 1887, they, having the money still in their treasury, or having spent it, do not even then offer to return it or even to bring it into Court. All they do is to offer to bring it into account. Quite apart from the question of ratification, by reason of their having retained, for what appears to me to be an unreasonable time, the price paid for the release contained in the compromise, they could not, it is plain, obtain any judgment except upon the terms of refunding, or paying into Court. Even on the argument of the case at the bar, the Republic did not offer by their counsel to bring the £260,000 or any part into Court. The result, in my opinion, is that they are within the meaning of rule 4. They do not shew any reasonable cause of action, and the statement of claim ought to be struck out.

Then comes the question whether the action should be dismissed. The notice of motion does not ask in terms for the

dismissal of the action, but it does ask for such other order as may be proper, and there seem to me to be two reasons why I should dismiss the action. First, the pleader has made the best of his case, I am satisfied that he could not state it better than he has stated it. Then the Plaintiffs are still deliberately retaining the money. It is a very different thing to offer to bring the money into account and keeping this large sum, as I have said, in their treasury, or, having spent it for the purpose of the Republic, and refunding it or bringing it into Court. There is no offer even now made as I understand it.

Romer, Q.C.:- No, my Lord.

It was not then by inadvertence that the offer was omitted. Not only is there no such offer, but the Plaintiffs now deliberately refuse to make it. The result, therefore, I think is that no good can come of this litigation, and that in accordance with the jurisdiction conferred upon me by the rule, I ought now summarily to put an end to the thing. I therefore strike out the claim and dismiss the action with costs, but of course allow no costs of the affidavit, which, as I have said, was not admissible.

Solicitors: Barnes & Bernard; C. & S. Harrison & Co.

F. G. A. W.