MATERIAL FACTS FOR THE PREPARATION OF STATEMENT OF DEFENCE

On 16th November 1998 the Lanka National Bank entered into a Lease Agreement bearing
No. 2609/007/119 (C1) with Gold Entertainments, a partnership, and the signatories who
signed for the firm ‘Gold Entertainments’ were Mr. Linus Udurawana and Ms. Preethika
Viswakula. Gold Entertainments required the subject matter of the lease, namely a set of
Apogee Speaker System to conduct musical shows which was the main business of this
partnership.

However, the said partnership was converted into a sole proprietorship on or about 19 th
August 1999, and Mr. Linus Udurawana became the sole proprietor. Neither of the
partners had agreed to the purported amendment to Article 14 of the Lease Agreement
contained in the document marked CIA.

Mr. Linus Udurawana made several payments of the lease rentals in terms of the Lease
Agreement (CI) out of his personal funds both before and after the establishment of the
sole proprietorship. He made approximately 33 payments in respect of the lease rentals
falling due under the Lease Agreement.

It is admitted that Mr. Linus Udurawana received the purported letter of termination
dated 2nd June 2001 (C2), but it is his position that the purported termination as contained
in the aforesaid letter is wrongful and illegal as he was not in arrears of rentals. In terms
of Article 17 of C1, the Agreement can only be terminated if the lessee is in default, and
that too after giving an opportunity to pay up the arrears by demanding the amounts due
under Article 17 (2). None of these steps had been taken by the Claimant Lanka National
Bank. Futhermore, the Claimant has not acted on the basis that the lease has been
terminated and in particular, the Claimant has continued to accept monies from Mr. Linus
Udurawana notwithstanding the aforesaid purported termination.

According to Ms. Jeevani Rankikili, who functions as a Supervisor at the Colombo

Engineering Enterprises which is also owned by Mr. Linus Udurawana, on 4 th July 2001
she was informed by the Managing Director, Mr. Udurawana, that several musical
instruments including the set of Apogee Speaker System should be sent for a musical
show to be held at Mahaveli Reach Hotel in Kandy, on 5 th July 2001 in the lorry bearing
No. 47-1370. On 5th July 2001 around 8 a.m. in the morning when the lorry was passing
Peradeniya, with the musical instrument, she saw a smoke with fire coming from the front.
The driver, cleaner and she quickly got down and tried to quench the fire. The driver and
cleaner tried to pull out some wires from the engine to stop the fire spreading. However,
they failed as the fire was spreading very fast. They desperately tried to save the Apogee
Speaker System and other musical instruments in the lorry, but failed to drag them out of
the lorry as these were very heavy and connected to each other by wires. Since the fire was
spreading fast and it totally covered the lorry, they were able to save only one sound
mixer and had to run away to save their lives from the fire. The rest of the goods were
totally destroyed in the fire. Meanwhile they informed Mr. Udurawana about the incident.
Immediately they went to the Peradeniya Police Station and made a report of the incident.
The police came to the particular place where this happened and inquired about the
accident and recorded their statements.
As the lorry was insured with Janarakshana Insurance Company, Mr. Udurawana made a
claim for the value of the lorry, the Apogee Speaker System and the musical instruments
that were destroyed in the fire. After long delay, and after arbitration in terms of the
Policy, Janarakshana paid him only the value of the lorry being Rs. 985,462/- in terms of
the award dated 3rd March 2007.

In terms of Article 14 of the Lease Agreement, the Claimant Lanka National Bank should
have insured the Apogee Speaker System leased by them. As the claimant had failed to do
so Mr. Udurawana made an effort to claim the value of this item under the Insurance
Policy relating to the lorry. He failed in this as the award made by the arbitrator under the
Policy covered only the value of the lorry. Had the Claimant insured the item as provided
in Article 14 of the Lease Agreement and processed the Claim, Mr. Udurawana would not
have suffered the loss amounting to Rs. 3,199,972.10 which is the present value of this
item.

It is the position of Mr. Udurawana that there had been no termination in law or in fact of
the Lease Agreement at the time the musical instruments were destroyed in the fire that
took place on 5th July 2001 at Peradeniya. Even at that time, the aforesaid Lease
Agreement was in force, and with the fire the Agreement became frustrated. In the
circumstances, it is the position of Mr. Udurawana that the Claimant Bank is not entitled
to claim and he is not obliged to pay the Claimant the monies claimed in this arbitration.

It is also Mr. Udurawana’s position that in terms of the Lease Agreement, the Claimant
Bank was obliged in law to insure the property leased as provided in Article 14 of the
Lease Agreement. The purported amendment to Article 14 contained in C1A is an after
thought and has not been agreed to by him or the other partner. As he has suffered loss
and damage in a sum of Rs. 3,199,972.10 as a result of the Claimant’s failure to insure the
Apogee Speaker System, Mr. Udurwana wishes to make a Cliam in Reconvention for this
sum as the benefit that would have accrued to him had the Claimant entered into an
Insurance Policy as required by Article 14 of the Lease Agreement and the Bank had
properly made a claim thereon. The Claimant Bank has refused and / or neglected to pay
the said sum to him though demanded.