2012 PLP 1014 (CLD)

UMAR ATA BANDIAL, J.

Through this single order we intend to dispose of E.F.A. No.53 of 2011, E.F.A. No.47 of 2011, E.F.A. No.48 of 2011, F.A.O. No.173 of 2011, F.A.O. No.174 of 2011 and F.A.O. No.175 of 2011 as common questions of fact and law are involved in all these appeals.

2. This appeal challenges the order dated 7-1-2011 passed by the learned Executing Court on a decree dated 18-3-2009, whereunder an obligation of the appellant judgment-debtor has been declared as follows:-- "In view of my issue-wise findings, the petition is decreed to the effect that petitioner is entitled to recover policy proceeds/death claim from the respondents amounting to Rs.10 lac with liquidated damages at the rate of 5%, higher than the prevailing base rate from 20-3-1998 up to the date of realization. File be consigned to record room after due completion".

3. The point in dispute is the decreed interest rate or rates at which liquidated damages ("LDs") are to be calculated and the date/event with reference to which these become payable by the appellant judgment-debtor to the respondent decree-holder. On this point, Section 118 of the Insurance Ordinance, 2000 ("Ordinance") is the relevant provision of law that explains the nature and scope of liquidated damages ordered by the said decree. That provision is reproduced below:-- "

118. Payment of liquidated damages on late settlement of claims.

(1) It shall be an implied term of every contract of insurance that where payment on a policy issued by an insurer becomes due and the person entitled thereto has complied with all the requirements, including the filing of complete papers, for claiming the payment, the insurer shall, if he fails to make the payment within a period of ninety days from the date on which the payment becomes due or the date on which the claimant complies with the requirements, whichever is later, pay as liquidated damages a sum calculated in the manner as specified in subsection (2) on the amount so payable unless he proves that such failure was due to circumstances beyond his control. Explanation. For the purposes of this subsection, failure or delay by any person in making payment (including without limitation payment under a contract of reinsurance) to an insurer shall not constitute circumstances beyond the control of the insurer. (2) The liquidated damages payable under subsection (1) shall be payable for the period during which the failure continues and shall be calculated at monthly rests at the rate five per cent higher than the prevailing base rate". Subsections (1) and (2) of section 118 ibid are both relevant for the purposes of our present inquiry concerning the rate of interest at which the decreed LDs are to be awarded. In the present case, the deceased/insured person died on 20-3-1998. Payment of the policy proceeds was delayed and therefore in addition to the sum assured, payment of a further amount as liquidated damages is visualized in section 118(1) of the Ordinance. The said liability is admitted by the appellant, however, the quantum thereof is disputed between the parties. If the calculations made by the decree-holder/claimant are to be accepted then an amount of Rs.6.035 million remains to be paid by the appellant judgment-debtor Corporation in addition to the sum of Rs.5.047 million that has already been paid by it as LDs to the claimant decree-holder in alleged discharge of a claim based on a policy of life insurance of Rs.1 million.

4. Subsection (2) of section 118 ibid sheds further light on the applicable rate of interest for calculating LDs. According to the learned counsel for the decree-holder/ claimant, the meaning of the expression "prevailing base rate" in that provision is the State Bank of Pakistan ("SBP") repurchase rate which was announced at the time of the decree or at the time of filing of the execution petition. He contends that the said rate is then to be applied uniformly for the period of delay from the date when the payment became due to the date when payment due is actually made. According to the claimant decree-holder, under section 118(1) ibid the date when payment becomes due is the date of death of the insured. On the basis of a static base rate on a given date, the decree-holder/claimant is demanding further payment of Rs.6.00 million.

5. On the other hand, learned counsel for the appellant/judgment-debtor contends that according to section 118(2) ibid LDs are to be calculated with monthly rests (at a rate of 5% higher than the prevailing base rate). His view is that the word "prevailing" applies to each monthly rest. Therefore, the SBP repurchase rate prevailing at each monthly rest becomes the applicable rate for calculating the amount of LDs for the corresponding period. On that basis it is claimed by the appellant that a sum of Rs.4.047 million was due for payment as liquidated damages to the decree-holder/claimant which amount has already been discharged.

6. There is no judgment by a superior court on the point in issue namely, the meaning of the expression "prevailing base rate" used in section 118 ibid. It is therefore one of first impression to which we have given our due consideration. It is clear that LDs are to be calculated at monthly rests for the period that an insurer has failed to make payment due under a policy. Therefore, the entitlement of the decree-holder is to be determined with reference to each month that payment is delayed. Some guidance in the matter may be obtained from the definition of the expression "base rate" given in section 2(8) of the Insurance Ordinance, 2000; this is reproduced below:-- "base rate" means the effective annual rate implied by the most recent repurchase rate that is published from time to time in a circular issued by the Securities Department of the State Bank of Pakistan for six months Pakistan Treasury Bills, or, if such rate is not available, the most recent repurchase rate for six months Short Term Federal Bonds, or, if neither of such rates is available, the most recent repurchase rate for any other short term paper issued by the Federal Government of an approximately similar tenor, whether in addition to or in substitution for any of the foregoing".

7. The SBP announces its base rate periodically, sometimes on a six monthly basis and at other times on quarterly or monthly basis. Accordingly, for each monthly rest, the most recent base rate announced by the SBP is easily ascertainable. Accordingly, the expression "prevailing base rate" used in section 118(2) ibid refers to the six monthly SBP repurchase rate that is announced most recently before the monthly rest under consideration for calculating the LDs accruing during such period. As a result, we hold that the expression "prevailing base rate" is dynamic in meaning as it varies from time to time depending on the six monthly repurchase rate announced by the SBP that is most recent in relation to the relevant monthly rest that is under consideration. To peg the base rate to a particular event as contended by learned counsel for the respondent/decree-holder would burden one party, the insurer or the claimant, with the chance effect of a high or a low base rate as the case may be, without apportioning the benefit and/or burden of the impact of a dynamic rate.

8. The question in issue is answered as stated above. It also follows from the reasoning given above that the resort to a weighted base rate in order to simplify the calculations is not justified. Consequently, a base rate must be calculated for each monthly rest separately and applied accordingly in the calculations in order to determine the accumulated LDs.

9. With regard to the date from which the calculation of the LDs have to be made in this case, that point stands answered by the fact that the appellant/judgment-debtor corporation has made payment of the policy proceeds and LDs with reference to the date of death of the insured. Consequently, that issue stands settled by the conduct of the appellant.

10. As a result of the foregoing discussion the claim made by the respondent decree-holder on the basis of a fixed prevailing base rate is not maintainable. Therefore, this appeal is partly allowed. The judgment-debtor Corporation shall re-work the calculation of LDs based on the foregoing findings and shall be obligated to pay the same till realization. The calculation shall be submitted by the appellant to the learned executing Court within two weeks from the date of receipt of a certified copy of this judgment. No order as to costs. K.M.Z./S-59/L Appeal partly allowed.