P L D 1962 Supreme Court 251 (PLP)

S. A. RAHMAN, J.‑

This is a defendant's appeal, arising out of a suit for recovery of money by way of refund, instituted by the respondent. The trial Court dismissed the suit with costs, but on appeal, the Dacca High Court reversed the 'decision and decreed the suit, in part, with costs against the appellant. An employee of the appellant had also been imp leaded as the second defendant in the suit, and, as against him, the suit was dismissed without costs. A certificate for appeal to this Court was granted by the High Court. The appellant carries on banking business at Chittagong. At the request of the respondent, the appellant opened a letter of credit for import of 100 bales of American Cotton Yarn, from Messrs Nicolene Limited, London. The respondent had to deposit Rs. 28,998 by way of margin and commission with the appellant, and as the respondent had an account with the Bank, that account was debited to the necessary extent by the appellant. The value of the goods to be imported amounted to 10,700 and this amount was to be recovered by drawing of Bills of Exchange at sight. A letter of guarantee was executed by the respondent in favour of the appellant‑Bank on the 7th February 1949 (Exh. App. 8 and 9 of Part II of the record). The respondent bound himself to pay, on presentation the bills drawn pursuant to the contract. Paragraph 4 of Exh. A is important and may be repro duced in extenso: "That it is at your sole option to claim payment of any Bill drawn pursuant hereto either at the rate of exchange ruling at its due date or at the rate ruling at the date of payment or, in the event of any legal proceedings being taken in respect of such Bill, at the rate ruling at the date of decree in such pro ceedings; and I am/we are bound to make payment of the said Bill at whichever of the above rates you may name." On that very date, the appellant‑Bank instructed Barclays Bank Limited, London, that the appellant was establishing a confirmed credit on account of Md. Islam Khan, respondent, to the extent in all, of 10,700 C. I. F. Chittagong, in favour of Messrs Nicolene Limited, 87 Regent Street, Piccadilly Circus, London, for the import of goods indented for. This letter is to be found at pp. 10 and 11 of Part II of the record. The last paragraph thereof reads thus:-- "To reimburse yourselves for payments made under this credit please debit our account with yourselves and all communications and Bills must be marked `Central Bank of India Limited, Chittagong, Credit No. 3 /39'. " Three Bills of Exchange, payable at sight, were received by the appellant‑Bank along with relevant invoices of goods, dated the 26th May 1949, Exhs. 1 (a), 1 (b) and

1. The first two bills were sighted by Muhammad Islam Khan on the 5th June 1949, and the third on the 11th of June 1949 by regular endorsements on the bills. It is common ground between the parties that demand was made for payment of these bills so that they had matured. The respondent then requested the appellant to hold the Bills till the ship arrived in Port with the goods and offered to pay interest on the bills up to the date of payment. This was agreed to by the appellant. The ship, by which the goods were transported, berthed at Chittagong on the 19th October 1949. In the meantime, on the 18th September 1949, the pound‑sterling was devalued by the British Government. The result was that the exchange rate for sterling in Pakistan came down from Rs. 13‑6‑0 per pound to Rs. 9‑4‑0 per pound. On the arrival of the ship in Port, the appellant demanded payment of the money due on the bills. The respondent thereupon advised the appellant per letter, dated the 6th October 1949 Exh. 3 (a), to negotiate for payment of the bills at the devalued rate from the National Bank of India Limited, Chittagong. The appellant‑Bank declined to do so and threaten ed to sell the goods at the respondent's risk, if the payment was not made at the pre‑devaluation rate. The respondent, in conse quence, paid under protest according to the previous rate of exchange, and it was averred that by this means, the appellant exacted Rs. 44,905‑8‑0 in excess of the amount due from the respondent. It was pleaded further that payment had been deferred till the arrival of the goods in Port, in accordance with a local mercantile custom and that there was no justification in law or equity for the appellant to have insisted on receiving payment at the old rate as the conversion of the specific sums mentioned in the Bills, into Pakistan currency, should have taken place with reference to the ruling rate of exchange on the date of payment. Along with this sum, the plaintiff‑respondent claimed interest, amounting to Rs. 190‑10‑10 for the period from the 5th October 1949 to the 26th October 1949, on the total price of the consignment of Rs. 1,16,000 on the ground that on the 6th October 1949, the respondent had offered the total price at the lower rate of exchange but the appellant bad illegally rejected the offer and had realised the money on the pre‑devaluation rate, on the 26th October 1949, with interest up to that date. Six per cent per annum interest was further claimed, amounting to Rs. 8,075‑8‑10, on the two sums of Rs. 44,905‑8‑0 and Rs. 190‑10‑

10. The suit was contested mainly on the ground that tae accom modation granted by the appellant to the respondent in respect of payment of the bills, did not prejudice the Bank's rights to the payment of the bills according to the rate of exchange prevailing on the date when they had matured and that the due date of pay ment was not altered thereby. It was added that the appellant Bank had given a concession to the plaintiff respondent by charging only 3 % interest on the sum due, for the accommoda tion period, although the normal rate of interest, chargeable by the Bank was 5% p.a. It was admitted that the payment had been agreed to be accepted on the arrival of the goods in Port but it was denied that this was in pursuance of any mercantile custom. It was further asserted that the appellant bad already paid the amount in question at the old rate of exchange, to their bankers, Messrs Barclays Bank Limited, London, and consequently, they were entitled to be reimbursed to that extent. The learned trial Judge held that the deferment of the pay ment of sums which had already become due according to the contract, did not affect the rate of exchange applicable and that the respondent was liable to pay at the old rate of exchange. It was found that Banks at Chittagong ordinarily did accommodate their clients by realising the value of sight bills with Interest, on the arrival of the goods in Port, but that this circumstance could not override the contract in writing between the parties or the legal obligations arising therefrom. Against the second defendant who was merely an employee of the Bank, no case was held to be made out. The finding was also given that the appellant‑Bank had paid the amount of the bills themselves before the devaluation of the pound‑sterling. In the High Court, it was apparently conceded before the learned Judges, on behalf of the appellant, that clause 4 of the letter of guarantee (Exh. A), which gave option to the appellant to adopt the ruling rate of exchange on any of the three dates men tioned therein, could not be pressed Into service by them, unless they could prove that they had made payment for the goods them selves, in English currency, before the devaluation of the pound sterling. In the view of the learned Judges, this concession was necessitated by the Foreign Exchange Regulation Act, 1947, though the relevant provisions of that Act were not cited. Being a concession on a question of law, it has been repudiated before us by learned counsel for the appellant. In the opinion of the High Court, the appellant‑Bank had failed to establish that pay ment was made to Barclays Bank Limited of London, prior to the devaluation and in this connection the documents on which the appellant relied, were held to be not proved in accordance with law, although they had been admitted into evidence, in the trial Court, without objection. These documents comprised duplicate copies of letters, exhibited as `F' and `F (1)' and a statement or account (Exh. G), said to have been received from Barclays Bank Limited by the appellant, by ordinary post, the originals having been sent by Air Mail. In this context, the learned Judges also commented adversely on the fact that the appellant had withheld Its own account books which could have shown the moneys debit ed or credited to them by Barclays Bank. The agreement inter partes, that the appellant would hold the bills until arrival of the ship in Port, was found to have been substituted for the original contract between them, embodied in Exh. A. Reliance in this connection was placed by the learned Judges on an unreported decision of a Division Bench of the Dacca High Court, In A. G. Trading Co. Ltd. v. The National Bank of India Ltd. (First Appeal No. 82 of 19521) decided on the 22nd December 1958. In that case, it had been held on similar facts that there was a custom prevailing in Chitta gong, for banks to receive payment after the actual arrival of the ship in Port and that such an agreement, subsequent to the sighting of the bills payable at sight, would make the bill payable on the subsequent date, when the goods arrived in Port. The learned Judges, at the same time expressed the view that the question whether there was a subsequent agreement to hold the bills, till the ship touched Port, was immaterial as ft was not established that actual payment had been made by the Bank in sterling in England, at the pre‑devaluation rate. The Inference was, there fore, drawn that the appellant‑Bank was In law entitled to realise the value of the bills, only at the rate of exchange prevailing on "the date of payment and it had, therefore, exacted Rs. 44,905‑8‑0, in excess of the due amount. The Interest at 3% p.a. claimed by the plaintiff‑respondent, from the 6th October 1949 to the 26th October 1949, on the entire amount, was held to be not recoverable. The learned Judges awarded to the plaintiff‑respon dent, interest on the excess realised by the Bank, at 4% p.a. The judgment and decree of the trial Court were set aside and the suit decreed in part against the appellant. Mr. Pal on behalf of the appellant, has raised three conten tions before us. He has urged firstly that the accommodation granted by the appellant to the respondent In respect of the payment of the amounts due on the bills, did not have the effect of postponing their due date of payment, as the liability had already accrued on the bills being sighted and the demand for payment being made, on the earlier date. Secondly, he assailed the finding of the High Court that the appellant had not paid to Barclays Bank Limited, the value of the goods in pound‑sterling, prior to the devaluation. Thirdly, It was submitted that the High Court was in error In holding that there existed any trade practice In Chittagong, making sight bills payable on the date of arrival of the goods in Port. According to the learned counsel, this would be inconsistent with the specific contract between the parties (Exh. A) and would also be contrary to the provisions of the Negotiable Instruments Act, 1881. Mr. Hamidul Huq Chowdhury, on behalf of the respondent, does not dispute that the bills in question became due for payment on being sighted by his clients and on demand being made for payment, before the date of devaluation of the pound‑sterling. The liability to pay, It is admitted, had been incurred on that date but it is suggested that this liability was in terms of pound‑sterl ing and not rupees. The argument is advanced that there was a novation of contract between the parties, deferring payment till the arrival of the goods in Port and that, therefore, the latter date was the relevant point of time at which the amount due had to be converted into rupees, at the rate of exchange then prevailing. Mr. Chowdhury also joined issue with Mr. Pal on the factum of payment having been made by the appellant, of the amount due, in sterling, prior to devaluation. In the instant case, we are dealing with foreign bills drawn in London and payable in this country. The liabilities of the acceptor, therefore, in the absence‑of a contract to the contrary, fall to be determined by the law of Pakistan, vide section 134 of the Negoti. able Instruments Act, 1881. With regard to the acceptor, the lex loci solutionis would be the proper law of the contract even under the International Rule of Conflict of Laws (Dicey's Conflict of Laws, Rule 153, Sixth Edition). The proper law of a contract is that law which has the closest connection with it, having regard to its terms and all its surrounding circumstances. The word "liabilities" occurring in section 134 of tote Act, would obviously include the determination of the measure of damages in case of non‑acceptance or refusal to pay on the part of the acceptor. There is no indication in the contract between the parties in the instant case that any law other than that of Pakistan was to govern the rights and liabilities of the acceptor. There was undoubtedly an unqualified acceptance of the Bills of Exchange in question, by the respondent, long before the devaluation. It is also common ground between the parties that a demand for payment was made at that time and that the liability on the bills had therefore matured and the amounts mentioned in the bills became a debt due from the acceptor. The crucial point to be determined in this case is, therefore, whether this debt existed in terms of pound‑sterling or rupees. It is difficult to accept the plea raised on behalf of the respondent in the Courts below that there was a novation of the contract between the parties or that the old contract was sub stituted by a new one, by the mere circumstance that time was given for payment of the sum which had already become due, after unqualified acceptance of the bills. By the mere extension of time for the performance of a contract, novation does not necessarily take place but the promisee gets certain rights under section 63 of the Contract Act. It is only when a new term is introduced in a contract that novation may be said to have resulted therefrom. For instance, by mere extension of the time for delivery of goods, there is no such alteration of the original contract as to operate as a rescission thereof, within the meaning of section 62 of the Contract Act. It is clear on the facts that in the present case there was no rescission of the previous contract by the substitution of an entirely new contract inter partes. All that happened was that in consideration of payment of interest at a certain rate, the appellant‑Bank agreed to forbear from demand ing payment till the date of the arrival of the goods in Port. The nature of the debt already incurred by the acceptor of the bills on their maturity, could not be altered by an agreement to postpone its payment. If there bad been a qualified acceptance of the bills, within the meaning of section 86 of the Negotiable Instruments Act, the argument of novation might have had substance. However, here the acceptance was unconditional and unqualified and the bills had matured by a regular demand being made for payment, before time was granted for making the actual payment at the debtor's request. If there was to be a variation of the original contract, it was necessary to indicate i in the endorsement of acceptance itself, on the face of the bills, in clear and unequivocal terms. It seems to us, therefore, that this was not a case of substitution of the old agreement by a new one, and the High Court view to the contrary is not sustainable. There is no doubt that the law requires Bills of Exchange to be paid in accordance with their tenor and that on the face of the bills in question, the amounts payable were expressed in English currency. The question, as to what should be regarded as the money of payment must be resolved with reference to the terms of the contract between the parties. Both parties were in Pakistan at the time they entered into the contract which falls to be con strued and are still in this country. The contract between them, embodied in Exh. A, clearly envisaged payment of the bills on the part of the respondent, in rupees. This is borne out by the fact that the margin money paid by the respondent for opening the letter of credit was in rupees and clause 4 of Exh. A also gave the option to the appellant to convert the amounts shown in the bills, at one of the three rates of exchange mentioned therein. This is an almost conclusive factor in determining the intention of the parties, apart from the question of the legality of the option vis‑a‑vis the provisions of the Foreign Exchange Regulation Act, 1947. Even when the respondent paid later, he paid in rupees. In effect the contract, Exh. A, says that the Bank was to arrange for the foreign currency required for the transaction, in considera tion of the payment of a commission and the respondent was to reimburse the Bank by paying its equivalent in rupees. To hold otherwise would rob the contract of its natural meaning. If the liability that had accrued on the date of maturity of the bills, after their acceptance, was in terms of Pakistan currency, as is apparently the case here, then the mere circumstance that payment was deferred by virtue of an agreement inter partes or in conse quence of a mercantile custom alleged to be established at Chittagong, would not alter that fact and the question of applica tion of the rate of exchange, prevailing on the date of payment would be irrelevant. This aspect of the matter does not appear to have received consideration in the High Court. On this view of the facts of the case, it is not necessary to decide whether actually the appellant‑Bank made the payment to Barclays Bank Limited in London, prior to the devaluation or not. From the circumstances of the case, however, it seems to us that the payment might have been made, though the Bank could have produced better evidence than it did to establish this fact. However, we need not express a definite opinion on this point as the question does not appear to be material for the decision of this appeal. Incidentally, it may be observed that on the above finding no question of the contravention of any provision of the Foreign Exchange Regulation Act 1947, arises. The above discussion appears to be conclusive of the case but learned counsel for the parties invited our attention to certain decisions from the English jurisdiction and some international rules bearing on the subject. We may, therefore briefly notice the position thereunder. In respect of Foreign Currency obliga tions, there are two principles of conflict of laws, which require con sideration. The first is designated as "The Nominalistic Principle" by Dicey in his Conflict of Laws, Sixth Edition and is embodied in Rule 160 of that book. This is in the following terms :‑ "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 (lex monetae), irrespective 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. 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." Under this general principle, the amounts shown in the Bills of Exchange in pounds‑sterling, if treated as debts, could have been paid in that currency on the due dates. The principle is exempli fied by cases such as S. S. Celia v. S. S. Volturno ((1921) A C 544), Pyrmont Ltd. v. Schott ((1939) A C 145 (P C)), Societe des Hotels Le Touquet Paris‑Plage v. Cummings ((1922) 1 K B 451 (C A)), Schnapper, Westminster Bank Ltd. v. Schnapper ((1936) All E R Ch. 322) and Marrache v. Ashton. ((1943) A C 311 (P C)). With regard to the last two cases, the Editor of Dicey has made the following comment in foot‑note No. 89 at p. 721 of the book:

"Both cases were concerned with Spanish peseta notes circula ting in Gibraltar, but the notes (without `guias') considered in the former case were not legal tender according to Spanish law, the note considered in the latter case were Spanish legal tender. Spanish law determined in both cases what was Spanish legal tender, but, as the latter case shows, Spanish law cannot determine the rate of exchange, as between its own currency and a (from the Spanish point of view) foreign currency for the purposes of a contract not governed by Spanish law and not to be performed in Spain. The province of lex monetae is clearly determined by the contrast between these two cases" Adapting these remarks in the context of the instant case, it would seem to follow that ‑although, by virtue of the "Nominalistic Principle", the bills in question could have been discharged by tendering the requisite number of pounds sterling on the relevant dates, but that course would appear to be inconsistent with the express terms of the contract inter partes. Indeed this principle is not an unqualified one, in its application, in England. On this principle, the English Courts have engrafted another one of procedure, according to which an English Court cannot order payment of a sum of money expressed in Foreign currency. Dicey's Book discusses this at p. 723 et seq. Claims for payment of debts or of damages have to be translated into sterling for the purpose of proceedings in an English Court, by virtue of this Rule, 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 breath occurred, and in the case of damages for tort, the rate of exchange prevailing when the loss or expenditure was incurred, for which the plaintiff' claims compensation. In the case of liquidated debts, the rate of exchange of the day when the debt was payable, would be applied. Dicey expresses the opinion that there are conflicting decisions on the latter point and that the matter is not yet settled. This, however, appears to be an erroneous view, although it further stands embodied in Dicey 's sub‑rule (3) of rule

165. Dicey apparently favours "the judgment day rate". His sub‑rule (3) of rule 165 has been criticised as open to exception in a recent English judgment, reported as Re Russian Commercial & Industrial Bank ((1955) 1 All E R 75). Cheshire in his Private International Law, Third Edition (pp. 857 & 858) states that "it is now well settled that the relevant date is the date of the wrong" and not the date of judgment and that this rule "applies not only to an action for tort, but also to an action for breach of contract, or for the recovery of a liquidated debt or for an account, or for the non‑payment of a promissory note or a bill of exchange". In any event, it is the lex fori which governs the situation. It is clear that if the Bank had to sue on the date of maturity of the bills, it could only do so in terms of Pakistan currency and that would be the relevant date for converting the foreign currency into the currency of payment. The general principle is that a debt may normally be discharged in the cur rency of the place of payment‑see Auckland Corporation v. Alliance Assurance Co. Ltd. ((1937) A C 587). In the absence of any indication to the contrary, the parties would be presumed to have intended to measure the obligation by the currency of the place where the debt is payable, vide Dicey, p.

737. This is also expressly stated by Dicey in rule 164 at p. 740, wherein it is added that the rate of exchange at which the money of account must be converted into the money of payment is determined by the proper law of the contract or other law governing the liability. In the Comments under this Rule, at p. 742, the following remarks occur :‑‑ "The rate of exchange would be that at which notes of the money of account can be obtained on the day of the maturity of the debt at the place of payment. There is, however, no authority on these points, and the solution here put forward is based on what are thought to be conclusions from general principles." It may be added that the terms of the contract under considera tion are in accord with this conclusion derived from general principles and it appears that the decision reported as Graumann v. Treitel ((1940) 2 All E R 188) affirms the principle. The position, therefore, under does not appear to be different from that which would obtain on a consideration of the Pakistan law. In view of the above discussion, we allow the appeal, set aside the judgment and decree passed by the High Court and restore that of the trial Judge. The appellant will have his costs here and in the Courts below. A.H. Appeal allowed.