P L D 2004 Karachi 407 (PLP)

Bags - 24403.900 5M/T 49841 Bags: - 1901553 M/Tribunal 3379.19 Bags -26305.4 53M/T Excess -3049 Short Weight 2 M/T The consignment accounts are in course of preparation and will be sent within a week's times. Kindly file a final claim on the insurance Corporation for the above loss of 430.062 Metric tons. The surveyors of the plaintiffs through their Survey Report dated 23rd April, 1990 (Exh.P-5/55) certified the vessel-wise position, which report in verbatim reads as follows: "This addendum is issued to the Survey Report No.512/TCP -6/89 dated 24th September, 1989 regarding the loss of sugar consigned to Trading Corporation of Pakistan at Rashid Textile Godown SITE Karachi on 17th & 18th July, 1988. While in the Annexure ' B' attached to the above report a quantity of 636.700 M Tons was classified by us as 'damaged with contents partially lost' and 88.750 M. Tons of sugar was estimated as washed away due to flood and rain, we now certify and reproduce below the exact quantity of sugar lost after completion of all the deliveries to the successful tenderers: S No. Name of Vessel Value at Risk No. of Bags M.Tons (Book Balance) Net Delivery M .Tons Net Shortage M.Tons. 1 M.V. "Silver Athens" 136.349 6.817.450 6.608.920 208.530 2 M.V. "Subicevak" 257.000 12.850.000 12.641.837. 208.163 3 M.V. "Belie" 32.000 1,600.000 1,589.131 10.869 4 M.V. "Bahia DF cienfuegos" 5.600 280.000 277.500 2.500 430.949 21.547.450 21.117.388 430.062. Total cargo in the Godown at the time of flood as per book balance. 21,547.450 M.Tons Cargo delivered as sound between 19th July, 1988 & 23rd September, 1989. 19,263.335. M.Tons Cargo delivered as salvage after 24th September, 1989. 1,854.053.M. Tons Net shortage due to flood and Rain. 430.062. M.Tons Volume of loss admitted by NIC on 31st August, 1989 vide Policy No. NIC/KF/01-0223-2/88 under , perils Atmospheric Disturbance, flood (Copy attached) As Annexure 'A". 90.000 M. Tons Volume of loss apparently caused due to rain for which no compensation has yet been considered by NIC vide above policy. 340.062 M.Tons The above information represents our findings at the times of inspection only in accordance with the relevant data available at the time of survey and is Issued Without Prejudice to the rights of whomsoever concerned. The said report of the Surveyors was never questioned of challenged by the plaintiffs. Such reports confirmed the stance taken by the defendant No.1 that the level of the floor, of Godown was lower than the roadside. The rainwater entered through broken ventilator and joints of ceiling for which the defendant No.1 cannot be held responsible. As neither the defendants hired the godown nor, they were responsible to carry out the repairs. The water that forced into the Rashid Godown as was situated below the road level as pointed out by the Surveyors of the plaintiffs themselves. Under the circumstances, there are compelling reasons to decide the Issue No.4 in negative. The defendant No.1 was successful in establishing the reason for the loss as narrated in para.4 of his written statement and as confirmed by the Surveyors Reports. Issues No.5: This issue relates to the loss that occasioned in four godowns of Dost Muhammad and. Usman Textile. The alleged loss only reflects to be 2.2 % of the total quantity of the sugar stored therein. Case of the defendant as regard such loss is contained in para. 3 of the written statement as 2.138 M.T. The reason for "such negligible loss" was attributed to frequent handling and bursting and re-stitching of bags with the resultant spillage and loss of contents. It was claimed that such negligible loss is wholly unavoidable and is accepted as such by trade usage. Said facts were reiterated in Paragraphs 24 and 25 of the Affidavit-in-Evidence. Such assertion on oath made by the defendant's witness was not challenged by the plaintiffs in cross-examination and had gone unrebutted. Learned counsel for the defendant No.1 in support of his contention that, such loss in handling contracts is usual and inherent. Mr. Hamza has placed reliance on the principle enshrined to freinte de route i.e., a normal minor loss during the voyage. He has referred to Marine Cargo Claims by William Tetley, Second Edition at page

119. In order to decide the issue examining the evidence that has come on record would be beneficial. It has come on record through various stock reports i.e., Exh.Nos. P-5/6, Exh. P-5/7, Exh. P-5/8 and Exh. P-5/9, relating to sugar arrived through (i) M.V. Belle and (ii) M.V. Bahia De Cienfuegos, and stored in Usman Godown Hall No. 1. &

2. Dost Muhammad Godown Hall No.1 &

2. Usman Godown No.2 and Dost Mohammad Godown, respectively. Summery in seriatum in above Exhibits is as follows: Quantity Stored Quantity delivered Difference between A&B Remarks 103106 Bags - 5152.650 M/Tons 103995 Bags - 5152.230 M/Tons Bags 889 delivered in excess, Weight 0.420 shifting. M/Tribunal out turned short. Residual stock of consignment were subject to double 39600 Bags - 1980.000. M/Tons 39640 Bags- 1978.930 M/Tons Bags - 40 delivered in excess Weight- 1.070 M/Tribunal out turned short Residual stock consignment was to double shifting 53000 Bags- 2650.000 M/Tons 53110 Bags - 2649.352 M/Tons Bags - 110 delivered in excess Weight 0.648 M/T. in short

56800 Bags - 2840.000 M/T. 57020 Bags- 2840.000 M/T Bags - 220 delivered in excess Weight - Nil;

Total loss on such head of account is also reflected in respect of Dost Muhammad and Usman Textile Godown in letter of the defendant, addressed to the plaintiff Exh.P-5/12 dated 6-2-1990 which reads as follows:- "We hope prompt action has been taken in this regard at your end. The detailed position of portion of this consignment stored elsewhere and not affected by flood is as under: S. No. Name of Godown Qty. Stored Qty. delivered Ex Godown, Difference between A & B (1) Dost Muhammad 39600 Bags = 1980.000 M/T 39640 Bags = 1978.930 M/T Bags = + 40 E Weight=- 1.071 (2) Usman Textile 103106 Bags =5152.650 M/Tribunal 103995 Bags = 5152,230 M/T Bags = + 889 Weight = - 0.42 The weight difference under serial No (i) and (ii) above are minimal occurred owing to piecemeal handling of the consignment and falls within the permissible limit of tolerance allowed by T.C.P." The plaintiffs never challenged such stock reports or the claim of the plaintiffs as has come on record. Therefore, I am of the view that in handling contract for (1980 M.T + 5152.65 M.T=) 7132.65 M.T loss of 1.490 Metric. He has referred to Marine Cargo Claims by William Tetley, Second edition at page 119 it reads as follows: "Minor Inevitable loss or damage Wine in bulk always has a minor inevitable loss or freinte de route but Courts at first were reluctant to entertain the proposition. One of the earliest decisions was by the Cour d' Appel de Montpellier. Wine in bottles, on the other hand, has no such loss and no freinte de route is allowed. Flour suffers a minor loss. in bulk with time and travel, as does cement. Certain commodities packed in cartons and bags will usually suffer a small amount of damage through normal handling. In the Canadian trade, approximately half of one per cent. of the bags of a shipment of cement will be expected to be torn, although this will not result in a loss of half of one per cent. of the total shipment, because the cement can be re-bagged. In France, where the packing would appear to be different, and not five or seven-ply bags, the freinte de route for cement has been higher, even up to 4 % and 5 % of the bags carried. Coffee in bags has a certain freinte de route. Where inferior packing is used, a higher freinte de route is to be expected. Thus where inferior plastic bags were used for a cargo of engrais (chemical feed) and the shipper attached 600 empty bags to a shipment of 60,000, a frainte de route of 0.25 % was not considered excessive. The Court D'Appel de Paris observed that rice packed in single thickness jute bags will escape and that the carrier is not responsible for the loss in virtue of 4(2)(m) of the Hague Rules: `Wastage in bulk or weight or any other loss or damage arising from inherent defect, quality or vice of the goods.' In the same tradition Mc. Nair, J. held that a cargo of potatoes: " .. ... Will inevitably suffer some minor damage by way of condensation, staining or wasting of a few bags .... " and consequently the carrier was not responsible." The U.S. Court of Appeals noted that fully mature garlic is perishable in nature and as-such its shipment is likely to involve a degree of deterioration. Unpacked automobiles suffer minor scratches and carrier is not responsible for these. The leading case for years has been The Southern Cross, where it was held that carriers are responsible for all but "slight dents and scratches". A number of French Courts have held carriers responsible for damage to unboxed automobiles, but not for minor inevitable damage. Carriers must use the most modern methods to load, stow carry and discharge unboxed automobiles, nevertheless, a certain allowance is made for minor damage. A Canadian case, however, allowed nothing for minor damages to unpacked automobiles on the ground that careful handling and stowage could have prevented even minor dents and scratches. Tallow seems to have a normal one quarter of one per cent loss because of tallow sticking to tanks, pipes, etc." This Court had occasion to examine the loss on account of Mercantile Usage in respect of Cargo Handling Contract in the case of Rice Export Corporation v. A.H. Corporation 2002 CLC

609. In said case shortfall to the extent of 1.6% that occurred in rice handling contract was held to be within the permissible limits and inherent in grain handling contract. In order to determine whether the loss was minimal, nominal and that it was inherent or otherwise. Nature and terms and conditions of bailment, handling, or warehousing contract, nature of goods, quantity of goods, duration of the contract, storage conditions, peril or vices inherent in the goods subject-matter of contract are some of the relevant and pertinent considerations. Terms and conditions of Custodian Ship Agreement are recorded in Letter of appointment as Custodian Exh.P-5/17 read with Exh.P-5/2 relevant clauses 4 and 5 reads as: 4. to store damaged bags and sweeping in the Godown separately free from sound stocks after proper weighment etc. To be done in presence of the TCP's surveyor.

5. To make arrangement for re-stitching and refilling of, torn/damaged sugar bags in Godown in presence of TCP's surveyor and to, keep proper account thereto. In terms of above conditions, it is apparent that the contract envisaged spillage of sugar from torn and damaged bags, sweeping and collection of spilled sugar, filling and stitching of torn and re-filled bags. In carrying out all such exercise certain degree of loss is but inevitable and inherent. Rain and floodwater caused the damage. The goods warehoused was sugar. By nature sugar is dissoluble. Terms of contract envisaged, spillage, tearing of bags, re-stuffing or re-filling, shifting from one Godown to another are the factors that contribute to loss and destruction in quality and quantity to certain degree. Looking at total quantity, the loss that occasioned and complained of in respect of Godown of Dost Muhammad and Usman, appears to be but nominal and inherent in such nature of contract and the defendants cannot be called upon to account for the same. Issue No.6. Issue No.6, it is in respect of the responsibilities of the plaintiffs as a bailor. Though in Chapter IX of the Contract Act dealing with bailment responsibilities and obligations of bailee are outlined in detail but it does not in so many words defines the obligations duties of the bailor. Such obligations could be inferred. From Chapter VI of the Contract Act, which deals with consequence in case of breach of contract. Where a person claims some compensation or damages on account of breach of contract then it is incumbent on such person to take such appropriate measures and do all what is within its power to do in order to lessen, avert or mitigate such damages or loss. (See PLD 1990 Karachi 395, 1999 CLC 483 and 1993 SCMR 441). In case in hands in para. 6 of the written statement, the defendant had asserted that, the loss/damage had occurred on account of rain. It was next asserted that; the goods were insured against the rain and floodwater therefore the plaintiffs should have recovered the entire amount from the Insurance Company for the loss and not for merely a part of loss. In the instant case, it has come on record that subject goods were duly insured. Mr. Mamnoon Hassan, learned counsel for the plaintiffs asserted that, the loss recovered from the Insurance Company only related to the loss that had occasional on account of depreciation in quality and not on account of the quality. In order, to appreciate the contention raised by Mr. Mamnoon, it will be proper to examine the insurance policies. Such Policies have been produced alongwith the covering letter Exhibit No.P-5/63. Originally it appears that that the Policy No.01.0099- 3/88 was for the fire. Risk covered was No.(i) FIRE, (ii) FLOOD, RAIN. The policy was of Rs.10,80,00,000 in respect of the goods stored in the godowns. The policy was subject to Flood Endorsement as per clause -attached hereto. The Endorsement attached to the policy reads as follows:-- (A) Hail, Snow, Wind, Hurricane, Cyclone, Tornado or Typhoon; and/or, (B) Rain, provided the building(s) in respect of which the claim made or containing the property in respect of which the claim is made is so damaged by any of the perils specified in a supra as to admit rain water to the interior of the said building(s); and/or (C) Flood, which shall mean: (1) the overflowing or deviation from their normal channels of either natural or artificial water courses. And (2) Any flow or accumulation of water on the grounds except when such flow or accumulation be of water emitted from any water supply main tap, pipe, value or the like. All the insurance policies provided similar coverage i.e. against rain, hail flood, fire, burglary and theft. Therefore, it cannot be asserted that, such policies were only confined to the loss that occasioned on account of the loss in quality of the sugar that occurred on account of rain and floodwater as suggested by Mr. Mamnoon Hassan. It may be observed that, in all the Surveyors Reports the loss had been attributed on account of rain and flood water. National insurance Corporation ("NIC") even requested the plaintiffs to segregate the rain affected sugar with that of flood affected sugar in order to ascertain the loss on each account but the plaintiffs declined to incur the expenses to segregate such bags that were effected. Reference may be made to letter of NIC dated 18-5-1989 (Exh.No.P-5/31) and reply of plaintiffs dated 4-6-1989 (Exh.No.P-5/32). Even the Surveyors of the plaintiffs recommended that "if NIC still insist that their surveyors" conditions be fulfilled, then we have no choice but to arrange and segregate the damaged bags to their entire satisfaction. There is nothing on record to show that, the plaintiffs took any measures to meet the demand of the Insurance Company. Though the report dated 24 September, 1989 of surveyor (Exh.No.P-5/38) show that, NIC agreed to compensate the plaintiffs to the tune of about Rs.900,000.00 covering a loss of about 90.00 M. Tons of cargo due to flood. However, they were of the opinion coat the damage caused due to rain was not covered in the policy hence no compensation was considered on those bags damaged due to rain water. Such opinion of the surveyor in view of the coverage provided by the Insurance policy as reproduced above was not in consonance of the policy. From bare perusal of the Insurance Policies as reproduced above, it is apparent that; damage on account of rain was also covered. The defendant No.1 since from the beginning when the demand was raised insisted that the shortage, which occurred on account of damage to the tune 430.06, should be claimed from the Insurance. Reference can be made to the letter dated 17-1-1990 (Exh.No.P-5/40). It appears that, the plaintiffs have failed to take and invoke the insurance policies in respect of the loss that has occasioned on account of rain anti flood in terms of the surveyor report. Even the plaintiffs have not deducted the amount of Rs.900,000 out of the, total loss attributable to the defendant No.1 nor they have shown or disclosed the amount they have recovered by disposing off salvaged sugar. The witness of the plaintiffs admitted "that insurance claim and salvage are deducted from the total amount but in this case he is not aware why such adjustment has not been given". Therefore, in view of the foregoing, the plaintiffs have failed to discharge its duties to mitigate the loss as was required from a person of ordinary prudence firstly, the plaintiff failed to carry out the repairs as notified by the defendant No. 1 (Exh.P-5/16). Secondly, they failed to claim loss on account of rain and flood water in terms of Insurance Policies (Produced alongwith Exh.P/63) pursuant to notice of the defendant under Order XII, Rule 8, C.P.C. issue is accordingly answered in affirmative. Issue No.7: Learned counsel for the defendants does not press this issue. No finding is recorded in this regard. Issue No. 8: This issue relates to the encashment of the Bank Guarantee by the plaintiffs. It was contended by the learned counsel for the defendants that no Bank guarantees were furnished to the plaintiffs in respect of contract of Bailment. It was urged that the Bank Guarantees were only in respect of an agreement (Exh.No.P-5/1) in relation to the Clearing Agent. Since the defendant No.1 was not awarded Contract of clearance of the consignment in issue, therefore, such Guarantees could not have been enchased in respect of the alleged breach of custodian Agreement (Exh.No.P-5/2). Mr. Mamnoon Hassan, learned counsel for the plaintiff, countered that, the Guarantees were furnished in terms of the agreement dated 13-7-1987 (Exh.P-5/1) appointing the plaintiffs both as a Clearing Agent as well as Custodian. While deciding issues Nos. 1 and 2 above, it was held that, the plaintiffs appointed the. defendant as custodian for the subject sugar under letters dated 20-1-1988 and 4-7-1988 (Exh.P-2/5 and Exh.P-5/17 respectively) which were an independent Contract. Therefore, it is to be examined whether under the terms of the Contract (Exh.No.P-5/2) Defendant had furnished any Bank Guarantee. Copies of the Bank Guarantees are produced as Exhs.Nos.P-5/13 and P-5/14 respectively. From the reading of Bank Guarantee, it will clarify as to for what purpose and under what Contract such Guarantees were furnished. The opening recital of the Guarantee reads as follows: "Whereas Messrs Murshid Enterprises have entered into an agreement with you and hereby you have hired their services as your Cleaning Agent on condition that we guarantee to pay in the sum of Rs.100,000 only". Admittedly, the plaintiffs secured the clearance of subject sugar from the other Clearing Agents. Defendants' services were hired as a Custodian through letter dated 20-1-1988 and 4-7-1989. First Guarantee was issued on 25-1-1987 and the-other on 30-5-1987. Expiry of both the Guarantees were on 31-12-1987. The custodian agreement was entered into on 20-1-1988, therefore, it cannot be said that the Bank Guarantees could have been issued earlier than the date of appointment as a Custodian. Prima facie, under the Agreement for a Clearing Agent dated 13-7-1987, Clause (10) reads as follows:-- "the clearing agent shall be liable to indemnify the TCP against all damages/shortages/losses occurring in his Godown for any reason whatsoever. The amount of such damage/shortages/loss shall be determined by TCP at its sole discretion and recovered from the Clearing Agent's Bank Guarantee, pending or current bills and or any other assets owned by the clearing agents, without prejudice to the exercise of other rights or legal action." The defendant No.1 was not held responsible for the loss. Secondly as already held while deciding issue No.1 that the services of the defendant No.1 was not hired as Clearing Agent and last the Godowns were not hired by the defendant No.1 as the liability, even for the loss if any under Exh.P-5/1 was in respect of his Godown. Rights and obligations contained in one agreement, that was never acted upon cannot be invoked, unless such terms and conditions by necessary implication made part of other agreement that was acted upon. As held above, agreement Exh.P-5/ I was never acted. upon nor its terms and conditions were made part and parcel of export 5/2 and Exh.P-5/7. `Relationship between the parties was regulated under terms as setout in Exh.P-5/2 and Exh.P-5/17 and no Bank guarantees were furnished thereunder. Therefore the plaintiffs were wholly unjustified to encash the Bank guarantee furnished under a different agreement i.e. Exh.P-5/1. Accordingly in my opinion, the plaintiffs unlawfully encashed the Bank guarantees of Rs.100,000 each. The issue is answered in affirmative. Issue No.9: There is no dispute on the issue. It was a6initted by Mr. Mamnoon Hassan, learned counsel for the plaintiffs that, custodial charges were not paid. According to him, plaintiffs were justified to adjust such charges against the loss suffered by the plaintiff for the fault of the defendant No.1. In terms of Agreement P-5/1 plaintiffs are entitled to set off such claim. While deciding other issues, it was held that the relationship between the plaintiffs and the defendant No.1 was not governed under Exh.P-5/1. Therefore, the plaintiff cannot be allowed to invoke clause 10 of the agreement (export 5/1) to set of the losses. Even otherwise the defendants were not held liable for the loss. In view of the foregoing discussion, this issue is answered in affirmative. It is held that the plaintiffs have failed to pay the custodial charges for the months of January, February and March, 1990 in the sum of Rs.25,000 per month: Issue No.10. While deciding Issues Nos. 4, 5 and 6, it was held that the loss to the sugar was not caused on account of failure of the defendant to take care of the subject goods bailed to him, as a man of ordinary prudence would have taken care of his goods. Such loss occasioned on account of rain and flood. Defendant No. 1, it was held had taken care of goods as a man of ordinary prudence would have taken of his goods under similar circumstances. Therefore, in my opinion, plaintiffs to recover any amount from the defendants for the loss caused to the sugar under bailment with the defendant on account of rain and floodwater. Issue No. 11: As held, while deciding Issue No.8 that the Bank guarantees in the sum of Rs.100,000 were unlawfully encashed by the plaintiffs against a Contract (Exh.P-5/1) which was never, awarded to the defendant No.1 plaintiffs are liable to refund the amount Rs.200,000 (i.e. Rs.100,000 for each guarantee) of the two Bank guarantees so encashed. As regards Custodian Charges, while deciding Issue No.9, it was held that the plaintiffs have not paid the same for three (3) months, at the rate of Rs.25,000 per month. Accordingly, the defendants are entitled for recovery of said amount from the plaintiffs as well. Issue No.

12. Resultantly, in view of the foregoing discussion, the suit of the plaintiffs is dismissed with cost. Whereas, counter-claim of the defendant is decreed as prayed. The suit and counter-claim through this common Judgment stand disposed of in terms above. S.A.K./T-3/K Suit dismissed.