KARACHI ELECTRIC SUPPLY CORPORATION LTD Versus AMERICAN EXPORT ISBRANDTSER LINES INC KARACHI

The plaintiffs, Karachi Electric Supply Corporation, have brought this suit against the foreign shipping lines and their agents in Karachi to recover Rs: 2,25,740.13 on account of imported cost and bonus voucher charges in respect of six reels of copper wire short-landed at Karachi Port out of a total consignment of 88 reels.

2. The plaintiffs had placed an order for 500 M C M 19 Strand Copper Conductor Electrical Grade Cable with M/s. International Compo?nents Corporation Limited, New York. The said American Exporters shipped 151.1254 tons equivalent to 3,38,521 lbs. of the cable wound up equally on 88 reels. These goods were despatched on board the vessel "s. s. Flying Clipper" belonging to defendant No. I at New York for carriage by sea to Karachi under Bill of Lading No. 106, dated 27-9-1968. The said "s. s. Flying Clipper" arrived at Karachi on 12-11-1968 and landed only 82 reels instead of the aforesaid 88 reels. The Karachi Port Trust issued a short-?landing certificate in respect of the six reels. The imported cost of these six reels C. I. F. came to Rs. 82,633.67. The plaintiffs had to purchase bonus vouchers for the import of the short-landed goods of the value of Rs. 1,43,106.46, at the then prevailing rate of Rs. 190.50. Therefore, the total, loss suffered by the plaintiffs for the six reels came to Rs. 2,25,740.13. The plaintiffs accordingly filed this suit for the above amount against the foreign shipping company and their agents in Karachi.

3. The defendants in their written statements took various legal pleas to avoid the claim, such as the jurisdiction clause in the Bill of Lading, non?-liability for short delivery, the value of the six reels etc. Their main defence,, however, was that in terms of clause 17 of the Bill of Lading the liability of the defendants was limited to the maximum of 500 per package or per shipping unit. Accordingly the defendants asked the plaintiffs to submit their revised claim bill on that basis.

4. On the aforesaid pleadings six consent issues were framed. Pending, the suit the plaintiffs were in correspondence with Pakistan Insurance Corporation who were the insurers of these goods. They paid $ 15617 direct to the suppliers and forwarded an additional consignment of the six short landed reels of the cable to the plaintiffs. The plaintiffs, however, have continued the action for the benefit of the Pakistan Insurance Corporation and. they have undertaken to refund the amount so realised to the said Insurance Corporation. .

5. The learned counsel on behalf of the defendants did not lead any evidence on the aforesaid issues and at the time of the arguments both the counsel for the parties have confined themselves to the following questions only;

(i) Whether the short-landed consignment consisted of six packages or six units for which under the Bill of Lading the liability of the defendants was limited to $ 500 per package or unit irrespective of the actual cost of the short-landed goods?

(ii) Whether the said amount of compensation of $500 per package was to be paid at the rate of exchange prevailing on the date of the breach, of the agreement or that prevailing on the date of judgment ?

(iii) Whether in view of the fact that the plaintiffs have already realised the ?cost of short-landed goods from their insurers the Pakistan Insurance Corporation, they can still maintain the suit for realisation of the same claim as against the defendants also?

6. It has been argued by the learned counsel on behalf of the plaintiffs that the liability of the defendants/carriers is not limited to $500 per package or reel but they are liable to pay the actual loss suffered by the plaintiffs; that a reel is neither a package nor a freight unit, the goods having been consigned by bulk according to the weight in the Bill of Lading.

7. What is a package or a unit is a question which has given rise to a. lot of controversy and conflicting decisions. The goods were consigned under a Bill of Lading issued in the United States. This Bill of Lading was subject to the provisions of the United States Carriage of Goods by Sea Act, 1936. Under section 4, clause (v) of that Act "neither the carrier nor the ship was in any event to be or become liable for any loss or damage to or in connection ?with the transportation of goods in an amount exceeding $500 per package, lawful money of the United States, or in case of goods not shipped in packages, per customary freight unit or the equivalent of that sum in other currency, unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the Bill of Lading. This declara?tion if embodied in the Bill of Lading shall be prima facie evidence but shall not be conclusive on the carrier." Thus under the United States Carriage of Goods by Sea Act the liability of the carrier is limited to $500 per package or per customary freight unit. By agreement between the carrier and the shipper another maximum amount could be fixed provided that such amount shall not be less than the figure above named. The Bill of Lading clause (17), printed on the back provides that, "in case of any loss or damage to or in connection with goods exceeding in actual value the equivalent of $500, lawful money of the United States, per package, or in case of goods not shipped in packages, per shipping unit, the value of the goods shall be deemed to be $500 per package or per shipping unit. The word "shipping unit" shall mean each physical unit or piece of cargo not shipped in a package, including articles or things of any description whatsoever, except goods shipped in bulk, and irrespective of the weight or measurement unit employed in calculating freight charges".

8. A package is ordinarily an article or a thing put in a container so as to cover it up to facilitate its movement and to prevent its leakage or breakage due to rough handling. A package is defined in Webster's Dictionary as a wrap or a box, a parcel, a case in which goods are packed. '"Shorter Oxford English Dictionary defines package to be a case or a box in which goods are packed. In Aiyer's Manual of Law Terms & Phrases 7th Edition, 1972 the term package is explained as under :---

"There should be not only one article but two articles and one should play the role of a container to the other."

Stroud's Judicial Dictionary (4th Edition), Vol. IV explains the term in the following words;

"The word package must indicate something packed and in a Bill of Lading the package cannot include cars put on board a ship without boxes or crates or coverings."

The term 'package' has been explained in Scurtton on Charter Party (18th Edition), page 442. According to this commentary, mere size will not prevent a thing from being a package. A rod of steel weighing 32 ? tons fully enclosed in wooden case, a container, a refrigerated trailer, a crated machine and a pallet loaded with goods have all been held to be packages. The fact that the contents are not fully enclosed is no obstacle to an article being considered a package. But in the United States the problem of semi-packed goods has given rise to some fine distinctions: thus machinery mounted on skids but otherwise uncovered has been held to constitute a package, but a caterpillar tractor partially wrapped and cased but with the number unprotect?ed and a yacht in a cradle are not packages. The distinction appears to be between the coveriag which makes possible the handling and transportation of the goods, which makes the package, and a covering which is solely for protection, which does not. Now a reel over which copper cable has been wound comes direct from the factory in this shape and it is neither put in any covering nor a cradle to facilitate its handling or transportation. It is not an article kept inside another article. It cannot, therefore, be regarded as al package.

9. In Island Yachts Inc. v. Federal Pacific Lakes Line ((1972) 1 Lloyd's L R 426), the plaintiff's 42-ft. cruiser, mounted in a cradle, shipped from Hong Kong and damaged on delivery was held to be a package and the defendant was entitled to limit the liability to $500. A shipping cradle was considered to be a package for transportation facility handling. In Standard Electrics; S. A. v. Hamburg Sudamerikanische ((1967) 2 L R 193), there was a shipment of pallets consisting of cartons of goods. Question arose whether pallets or each carton could be regarded as a package under the U. S. Carriage of Goods by Sea Act, 1936 : (section 4(5)). It was held that it was the shipper and not the carriers who chose to make cartons up into a pallet and the number of units was that which was considered for the purposes of Bill of Lading. The pallet of six cartons was, therefore, held to constitute a single package. Circuit Judge Feineberg, however, gave a dissenting judgment mentioning that a package would normally completely enclose goods and that pallet of six cartons was not a package since pallet was not also enclosed on the sides. There is, however, a decision of Patna High Court in a similar case under the Railways Act where the meaning of term 'parcel' or 'package' was involved. In this decision reported in A I R 1957 Pat. 231 it was explained that in order to form a parcel or package there should not only be one article but two articles and one should play the role of a container to the other.

10. However, considering a reel not to be a package does not conclude this discussion. As pointed out above, the United States Carriage of Goods by Sea Act includes the alternative term "freight unit" i.e. the unit of measurement applied to calculate the freight. The Bill of Lading, however, includes a 'shipping unit' irrespective of the weight or measurement unit employed in calculating freight charges. This concept of 'shipping unit' unlike the freight unit' does not appear to be appropriate as otherwise there would have been no need to mentioning an alternative to the term 'package'. In this case the Bill of Lading does not show that each reel was considered for the purpose of freight by its measurement. On the other hand for 88 reels the gross weight in pounds has been mentioned. There is, however, no clear indication whether the 88 reels' freight was charged according to the balk weight or according to the measurement of each unit. Possibly the freight was calculated on the basis of each unit. In that case the liability of the carrier would be limited to $500 per shipping unit. It would have been better if the nature and value of the goods had been inserted in the Bill of Lading and declared if the carrier's liability was to be extended to the actual value of the goods. Under the circumstances the carrier's liability cannot exceed $500 per reel.

11. In fact the only important question that arises for decision in this case is whether the damages at the rate of $500 per reel payable by the foreign shipping company would be according to the rate of exchange prevailing at the time of the breach of contract of affreightment or at the rate prevailing at the time of this judgment since the decree would have to provide for payment of the amount in Pakistani rupees and not in foreign currency.

12. There has been an amount of controversy with regard to this section which has been resolved in the English Courts on consideration of the general principles enunciated in Dicey's Conflict of Laws and Private International Law by Dr. Cheshire. The principles with regard to foreign currency obligations have been enunciated in rule 160 and rule 165 (at p. 718 anti 744 respectively of Diecy's Conflict of Laws, 6th Edition). Rule 160 reads as under :---

"160.---A debt expressed in the currency of any country involves an obligation to pay the nominal amount of the debt in whatever is legal tender at the time of payment according to the law of the country in the currency of which the debt is expressed (lax monetae), irrespec?tive of any fluctuations of the value of that currency in terms of sterling or any other currency, of gold, or of any commodities which may have occurred between the time when the debt was incurred and the time of payment (Principle of Nominalism).

If damages are to be assessed in terms of a given currency, any fluctua?tions in the value of that currency which may have occurred after the event giving rise to the claim for damages (breach of contract, tori) must be disregarded."

The nominalistic principle forms part of the legal system of all civilised countries. As a principle, nominalism applies to claims for un-liquidate damages not less than two debts. Thus if damages are claimed for breach o a contract to deliver goods in a foreign country, they have to be assessed in the currency of that country and any change in the value of the goods or in the exchange value of the currency after the date of the breach must be disregarded. If, therefore, X undertakes to carry goods for A from England to Italy and to deliver them there on a given day and fails to perform this under?taking, A can claim as damages the value in lira of those goods on that date. A subsequent fall in the purchasing power of the lira in terms of gold or commodities or another currency, say United States dollars, does not confer, as such, any additional right upon A, nor would a rise in the exchange value or purchasing power of the Italian currency subsequent to the day of breach permit X to make any 4eduction from the nominal amount of the damages assessed in lira. A similar rule applies to damages in the law of tort, which have to be assessed in foreign currency, e.g., if a ship-owner claims compensa?tion for loss of hire incurred in foreign currency or for money spent on repairs in foreign currency as a result of a collision with another vessel.

The foregoing remarks must, however, be read in the light of an impor?tant principle of the English law of procedure, according to which an English Court cannot make an order for the payment of a sum money expressed in foreign currency, and claims for the payment of debts or of damages have to be translated into sterling for the purpose of proceedings in an English Court. The rate of conversion which has to be used is in the case of damages for breach of contract, that prevailing on the day when the breach occurred, in the case of damages for tort in rate of exchange prevailing when the loss or expenditure was incurred for which the plaintiff claims compensa?tion. In the case of liquidated debts, the rate of exchange of the day when the debt was payable has been applied, but there are conflicting decision on this point, and the matter is not yet settled. In rejecting the 'judgment day rate' rule and in accepting the 'breach day rule' the Courts have, for practical purposes, grafted an exception upon the nominalistic principle.

12. Rule 165 provides: (1) "An English Court cannot give judgment for the payment of an amount in foreign currency. A debt which is expressed and damages which are calculated in a foreign currency must therefore be converted into sterling for the purposes of litigation in England, irrespective of the law governing the substance of the obligation. (2) For the purpose of litigation in England damages for breach of contract must be converted into sterling with reference to the rate of exchange prevailing on the day when the contract was broken, and damages for tort with reference to the rate of exchange prevailing on the day when the loss was incurred for which com?pensation is claimed." That damages for tort must be converted into sterling with reference to the rate of exchange prevailing on the day when the loss was incurred and not with reference to the rate of exchange on the day when judgment was rendered was laid down in House of Lords in s. s. Celia v. s. s. Volturno ((1921) 2 A C 545).

13. The general trend of English decisions, therefore, is that payment cannot be allowed by English Courts in a foreign currency and any debt payable in England must be converted into British currency with reference to the day when it was payable. Therefore, however, judicial decisions to the contrary also. But the 'gold clause rule' being absent in the United States Carriage of Goods by Sea Act, the only safeguards in cases arising out of these contracts would be with regard to the payment in the currency of the country where the payment becomes due, according to the rate of exchange of the foreign currency prevalent on the day the cause of action arose. This is subject to any special rule embodied in the law applicable to a particular contract-for instance the judgment date rule has been embodied in the Carriage by Air Act, 1932 (section 1 (5), and in the Foreign Judgments. (Reciprocal Enforcement) Act, 1933, section 2 (3).

14. The doubts, if any, have been set at rest by Dr. Cheshire in his book on Private International Law (IVth Edition, page 663) as under :-----

"There was formerly a controversy whether the rate of exchange prevailing, at the date of the wrong or at the date of the judgment must be followed in making this conversion from foreign to English currency. The date chosen may be of great importance to the parties in view of the violent fluctuations in the rate of exchange that not infrequently occur in the modern world. It is now settled that the relevant date is the date of the wrong. The extent of the loss for which the plaintiff is entitled to compensation falls to be determined at the date, when it was suffered, not at the date when the judgment happens to be7 delivered."

15. The view of Dr. Cheshire has been followed in the case of Re: Russian Commercial & Industrial Bank ((1955) All E L R 75 ). In the Privy Council case of Tonkinson and another ((1961) A C 1007) it was accepted as a correct statement of law, the proposition laid down by Dicey in his Conflict of Laws, that (i) an English Court gives judgment for the payment of an amount in foreign currency ; (ii) for the purpose of litigation in England a debt expressed in a foreign currency must be converted into sterling with reference to the rate of exchange prevailing on the date when the debt was payable. This proposition appears to be based in the principle of its being reasonable and workable in practice. A plaintiff cannot sue in England for payment of dollars and he cannot get specific performance of a contract to pay dollars. Therefore, for conversion of the dollars into sterling the two alternatives would be either the date of action or the date of judgment, in case the date of breach is not considered to be ?the correct date for calculating the amount in foreign currency. But even between the date of action and the date of judgment and subsequently between the date of judgment and date of actual payment there might be wide fluctuations in the rate of exchange causing lot of injustice to some of the parties. Therefore, the safest and simple rule in such cases should be the date of the breach of the contract and the foreign currency payable on the date of breach, should be converted into the currency of the country, where the debt became payable or where the cause of action arose.

16. In Pakistan the above principle appears to have been accepted, as laid down in Central Bank of India Limited v. Muhammad Aslam Khan (PLD1962SC251 ). It was held in that case that if damages are to be assessed in terms of a given currency, any fluctuations in the value of that currency which may have occurred after the event, giving rise to the claim for damages (breach of contract, tort) must be disregarded, that the rate of conversion which has to be used is, in the case of damages for breach of contract that prevailing on the day when the breach occurred. The rule with regard to the currency of payment has been laid down relying on the general principle that the debt may normally be discharged in the currency of the place of payment. It was accordingly remarked in that judgment that the position under the English or international rules does not appear to be different from that which would obtain on a consideration of the Pakistan law.

17. Same view was taken in the case of S. M. Hanif Ltd. v. Central Bank of India Ltd. (PLD1962SC376). It was observed in that case also that there was no reason why the ordinary rule of liability, namely, that the date of conversion of the currency should be the date on which the payment fell due, should not be applied.

18. These principles have been considered and adopted in our own Court also. In the case of Mst. Khurshid Jamal v. Muhammad Asghar Qureshi (P L D 1956 Sind 47), a wife brought a suit for Rs. 10,000 against her husband who had married her in U. P. (India) before Partition in February 1944. The dower amount had been fixed at Rs. 10,000 Indian rupees. It was held that the rate of exchange applicable was that prevailing on the date when the debt became due, that is, at the time of divorce pronounced on 22-2-19.18 and not the rate prevailing on the date of judgment. In a recent Division Bench decision of our own Court in Henry Stainley Ramsden and others v. S. M. Fazil & Co. (P L D 1964 Kar. 290) it was observed by Faruqui, J. (as he then was) as under:----

"We, therefore, find that the plaintiffs have established their total claim of damages amounting to ?433-6-8d. This converted into Pakistani rupee at the exchange rate prevailing on the date of the breach i.e., 31st March 1950, would amount to Rs. 40,039-6-4. This is in fact what was claimed by the plaintiffs themselves in their first plaint. Their claim in the amended plaint at the higher rate of exchange cannot be sustained because these have to be determined with reference to the rate prevailing on the date of the breach. This point in fact was conceded by Mr. Fazlur Rahman, the learned counsel for the appellant."

Thus the Courts in Pakistan while enforcing the contracts of affreightment contained in the Bill of Lading issued in the United States for loss of goods', landed in Pakistan, can only direct payment of the liability in Pakistani rupees, calculated at the rate of exchange prevalent at the time the cause of action arose for the loss actually occurred, unless there is any law to the; contrary adopted by Pakistan on the principles of reciprocity. No such convention or practice has been pointed out by Mr. Mansoorul Arfin appearing on behalf of the plaintiffs.

19. The only point that now remains is whether the plaintiffs having substantially realised the claim from the Pakistan Insurance Corporation, could still maintain this suit on a similar cause of action against the carriers. The learned counsel on behalf of the plaintiffs has relied upon section 135-A of the Transfer of Property Act, and the doctrine of subrogation. He has maintained that where the insurer pays for a partial loss he is thereupon subrogated to all rights and remedies of the insured person as from the time indemnified by such payment for the loss. In M. Ismail & Sons v. Trans ?Oceanic Steamship Co. Ltd. (P L D 1966 Dacca 296), it was observed as under :-----

"In the present case from Exh. 2, it appears that there has bean subrogation and the plaintiff retained right to sue on behalf and for the insurer and as such it cannot be said in view of the provision of section 135-A, the suit at the instance of the plaintiff is not maintainable. Furthermore, according to our view though tile introduction of section 135-A of the Act only has given right to the insurer after subrogation to sue on his own behalf but that has not taken away the right of the insured to file a suit for and on behalf of the insurer after getting compensation from the insurer. We accordingly find no substance in the contention of Mr. Ruhul Islam."

The plaintiff in his evidence stated in re-examination that on receipt of the amount of the claim in this case it will be refunded to the Pakistan Insurance Corporation; that they are suing on behalf of the Pakistan Insurance Cor?poration, who have asked them to continue the suit. Under the circumstances, the contention of the learned Advocate on behalf of the defendants regarding maintainability of the suit, appears to be without substance and the suit can be continued for the benefit of the insurers.

20. In the result the suit is decreed for $500 per reel for six reels, that is for $3000 payable in Pak. rupees at the rate of exchange prevalent on the date when the cause of action arose, i.e., 12-11-1968, in favour of the plaintiff and against the defendants, jointly and severally together with interest at 6% per annum from the date of the suit till payment and proportionate costs of the suit.

S. Q, ? ???????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? Suit decreed.