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Petitioner: Messrs ALI PIPE INDUSTRIES, FAISALABAD VS Respondent: THE UNIVERSAL INSURANCE JUDGMENT
Court Name: Lahore High Court Judge(s): Khalil-Ur-Rehman Khan, Abdul Shakurul Salam, Abaid Ullah Khan Title:Messrs ALI PIPE INDUSTRIES, FAISALABAD vs THE UNIVERSAL INSURANCE
JUDGMENT
Reported As: PLD 1989 Lahore 390 Result: Reference answered Judgment JUDGMENT ' ABDUL SHAKURUL SALAM, C.J.--I have gone through the judgments proposed to be delivered by my learned brothers Mr. Justice Abaidullah Khan and Mr. Justice Khalilur Rehman Khan. Precedents and statutory provisions have been dealt with extensively. The learning, labour of love and analysis of principles have been so elaborate and incisive that I need only to say: I agree that clauses A in fire or lightning insurance policies which provide for forfeiture or non-liability after specified period are not void under Section 28 of the Contract Act, 1872. ' ABAID ULLAH KHAN, J.--The question for determination before the Full Bench, referred to by a Division Bench is whether or not the conditions of contract of insurance incorporated in the policy of insurance against the risk of fire or lightning providing for "(a) forfeiture of all benefits under the policy if no action or suit is commenced within three months of the rejection of the claim (if made) or (in case of an arbitration taking place) after the arbitrator or arbitrators or umpire shall have made their award" ' and stipulating that "(b) in no case whatever is the insurance company to be liable for any loss or damage after the expiration of twelve months from the happening of the loss or damage unless the claim is subject of pending action or arbitration" are void under section 28 of the Contract Act, 1872. 2. It may be pertinent to glance over the relevant facts in brief of Regular First Appeal No, 101 of 1983, Messrs Ali Pipe Industries, Faisalabad v. The Universal Insurance Companty Limited, Lahore, and others and Civil Revision Petition No, 1026 of 1987, Messrs Central Insurance Company Limited,
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Lahore v. Mallick Canvas Industries, Lahore and others, wherein the point in issue has been raised. In the appeal case, Messrs Ali Pipe Industries, the appellant, against the mortgage of its factory, obtained loan of Rs,60,000 from the Allied Bank of Pakistan Limited, Faisalabad, respondent 3. The mortgaged property was insured against any loss due to fire or lightning to the extent of Rs,22,00,000 with the Universal Insurance Company Limited, Lahore, respondent 1. Respondent '2 is the branch office of respondent 1 at Faisalabad through which the insurance policy is said to have been procured by the appellant. As alleged by the appellant there was wind storm with lightning and thunder during the night between the 25th and 26th May, 1979, and the lightning struck the factory resulting in complete demolition of the building and destruction of machinery installed therein. The appellant informed respondent 1 about what had happened and the surveyors sent by the latter inspected the spot on the 2nd June, 1979. The claim made by the appellant was repudiated and rejected by respondents 1 and 2, as they say, by their letter dated the 18th July, 1979. The appellant instituted suit on the 6th December, 1980, to recover Rs,22,00,000 from respondents 1 and 2. Apart from refuting the legitimacy of the claim, respondents 1 and 2 pleaded the bar of limitation on the ground that the suit having not been commenced within three months of the rejection of the claim as also within twelve months from the happening of the loss or damage, all benefits under the policy stood forfeited under conditions Nos.13 and 19 of the policy. They averred that even, the claim had not been made within the stipulated time. 3. The learned Civil Judge, Faisalabad, seized with the trial of the suit, formed the view that the appellant could have brought suit within twelve months of the date of loss or damage as envisaged by condition No, 19 of the insurance policy and since the suit had been instituted after the expiry of twelve months of the happening of the loss it was time-barred and consequently dismissed it on the 7th February, 1983. 4. In Civil Revision Petition No,1026 of 1987, respondents 1 to 3 Got their stock of canvas, tarpaulin, tents, etc., lying in their factory and godowns, situate on Shalimar Link Road, Lahore, insured with the petitioner, Messrs Central'Insurance Company Limited, Lahore, against fire through three different policies covering the risk to the tune of Rs,62,00,000. By another policy they got the building and machinery of their factory insured against risk of fire for Rs,11,00,000 with the petitioner. As narrated by respondents 1 to 3 a fire broke out in the factory and godowns at about mid-night between the 10th and 11th April, 1985. Though the fire is stated to have been put out by the fire brigade of the Lahore Municipal Corporation yet respondents 1 to 3 claim to have suffered a loss of more than Rs,52,50,000. Respondents 1 to 3 preferred their claim to the petitioner which ultimately rejected it on the 1st August, 1985. Respondents 1 to 3 filed suit on the 9th April, 1986, 'to recover Rs,97,50,000 on account of damage due to fire as well as for loss of business, reputation and interest. The petitioner disputed the genuineness of the claim and came out with the plea that by initiating suit after the expiry of three months of the date of rejection of their claim, respondents 1 to 3 had forfeited all benefits under the policies according to the terms and conditions thereof. 5. In view of the commercial nature of the case it was represented on behalf of the petitioner to the learned trial Civil Judge to settle and decide preliminary issues but the learned Civil Judge framed all the issues on the 7th June, 1987. Again the petitioner moved an application for setting down the issue relating to limitation for preliminary hearing. The petitioner's prayer did not receive favourable consideration at the hands of the learned Civil Judge who rejected the application and directed the plaintiff to produce evidence on all the issues. The petitioner impugned the -validity of the order of the learned Civil Judge before this Court in revisional jurisdiction. 6. The question touching the validity of the portion of the contract of insurance against damage by fire or lightning providing for forfeiture of all benefits under the policy if no action or suit is commenced within three months of the rejection of the claim and curtailing the period during which the liability of the insurance company is sustainable has been repeatedly argued before
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various superior Courts of Pakistan and India for over seven decades. Many a vain attempt has been made on behalf of the concerned parties ti have the contract declared void under section 28 of the Contract 'Act, 1872 (IX of 1872). Though the Courts have several times examined the issue at length, for example, among others in the cases reported as Girdharilal Honuman Bux v. Eagle Star and British Dominions Insurance Company Limited AIR 1924 Calcutta 186, G.Rainey v. Burma Fire and Marine Insurance Company Limited AIR 1926 Rangoon 3, A.N.Ghose v. Reliance Insurance Company AIR 1934 Rangoon 15, Rubi General Insurance Company v. Bharat Bank AIR 1950 (East) Punjab 352, Pearl Insurance Company v. Atam Ram 1960 Punjab 236 (FB), The Vulcan Insurance Company Limited v. Maharaj Singh AIR 1976 Supreme Court 287 and Sargodha Central Co- Operative Bank Limited v. New Hampshire Insurance Company PLD 1982 Karachi 627, they have accepted the view formed and law laid down by the Bombay High Court (Division Bench comprising of Scott, C.J., and Batchelor, J.) in Baroda Spinning and Weaving Company Limited v. Satyanarayan Marine and Fire Insurance Company. Limited AIR 1914 Bombay 225(2) declaring such an agreement to be valid. The usual clause of the contract of insurance relating to forfeiture of benefits under the fire insurance policy in case of failure of commencement of suit or action within three months of rejection of claim is couched in the language of clause 13 of the contract of insurance in the case .In hand and runs as under,-- "If the claim be in any respect fraudulent, or if any false declaration be made or used in Support thereof, or if any fraudulent means or devices are used by the insured or any one acting on his behalf to obtain any benefit under this policy; or, if the loss or damage be occasioned by the wilful act, or with the connivance of the insured; or, if the claim be made and rejected and an action or suit be not commenced within three months after such rejection, or (in case of an arbitration taking place in pursuance of the 18th condition of this policy) within three months after the arbitrator or arbitrators or umpire shall have made their award, all benefits under this policy shall be forfeited." ' Condition No 18 of the policy is reproduced as follows,-- "If any difference arises as to the amount of any loss or damage such difference shall independently of all other questions be referred to the decision of an arbitrator, to be appointed in writing by the parties in difference, or if they cannot agree upon a single arbitrator, to the decision of two disinterested persons as arbitrators, of whom one shall be appointed in writing by each of the parties within two calendar months after having been required so to do in writing by the other party. In case either party shall refuse or fail to appoint an arbitrator within two calendar months after receipt of notice in writing requiring an appointment, the other party shall be at liberty to appoint a sole arbitrator; and in case of disagreement between the arbitrators, the difference shall be referred to, the decision of an umpire who shall have been appointed by them in writing before entering on the reference and who shall sit with the arbitrators and preside at their meetings. The death of any party shall not revoke or affect the authority or powers of the arbitrator, arbitrators or umpire respectively; and in the event of the death of an arbitrator or umpire, another shall in each case be appointed in his stead by the party or arbitrator (as the case may be) by whom the arbitrator or umpire so dying was appointed. The cost of the reference and of the award shall be in the discretion of the arbitrator or arbitrators or umpire making the award. And it is hereby expressly stipulated and declared that it shall be a condition precedent to any right of action or suit upon this policy that the award by such arbitrator, arbitrators or umpire of the amount of the loss or damage if disputed shall be first obtained." ' Condition No,19 restricting the period of liability of the company is to the following effect-- ' In no case whatever shall the Company be liable for any loss or damage after the expiration of twelve months from the happening of the loss or damage unless the claim is the subject of pending action or arbitration."
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' The contention of the learned counsel representing the interests of the insured is that the learned Courts, while upholding the validity of the above referred to two clauses (Nos.13 and 19) of contract of insurance, went alongwith the reasoning, without subjecting it to critical examination, employed in Baroda Spinning and Weaving Company's case. The learned counsel maintains that under the law prevailing in this country, as also in India, it is not within the competence of the Court or of the parties to ignore, override or waive the statute of limitation and that the time of limitation within which the rights may be enforced being fixed by the statute is not open to alteration by agreement between the parties. He submits that any contract stipulating period of limitation for initiation of legal action' less than the one prescribed by the Limitation Act, 1908, would be against public policy and void to that extent. His argument is that the effect of the above referred to clauses of the insurance contract is not different from placing limit on time within which the plaintiff can enforce his rights by means of bringing a suit and this restraint is clearly forbidden under section 28 of the Contract Act and as such is void. He points out that in all matters barring insurance the superior Courts have consistently held that any contract laying down period of limitation shorter than the statutory one is void. 7. The learned counsel appearing on behalf of the insurance companies rested their case on the above-quoted precedents and invoking the aid of the doctrine of stare decisis canvassed for following the rule which has been established by a long course of decisions and which has been followed and acted upon by persons in the formation of contracts and conduct of affairs for a considerable length of time. 8. In order to appreciate the arguments of the learned counsel it appears appropriate to notice in some detail the process of development of the view formulated by the Bombay High Court and also to go over the cases referred to in the judgment and banked upon by the Court in reaching decision. The pertinent condition in the policy of fire insurance sued on by the plaintiffs was "if the claim be made and rejected, and an action or suit be not commenced within three months after such rejection, all benefits under this policy shall be forfeited." The plaintiff-appellant's claim was rejected by the insurance company on the 20th April, 1911, but the suit was not commenced till the 14th August, 1911. The suit was no doubt instituted within the period allowed by the law of limitation as contained in Article 86 of the first schedule of the Limitation Act, 1908 (IX of 1908). The suit was dismissed for its having been brought beyond three months of the rejection of claim. The appellant's counsel conceded before the Court that such a condition was not unreasonable or opposed to public policy and the learned Court found support for the concession from the remarks of the Judicial Committee of the Privy Council made in Home Insurance Company of New York v. Victoria-Montreal Fire Insurance Company (1907) A.C.59. However, the learned counsel argued that the condition was void as an agreement of the nature described in section 28 of the Contract Ad, 1872, since it limited the time within which a party to the contract might enforce his rights under the contract by the usual legal proceedings and as such could not be pleaded in bar to the suit. The relevant part of section 28 declaring agreement in restraint of legal proceedings to be void is phrased in the following words,- "28. Every agreement, by which any party thereto is restricted absolutely from enforcing his rights tinder or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent." ' The argument of the appellant's counsel before the Court was that the forfeiture clause was equivalent to an agreement that no Court should entertain any suit on the policy unless commenced within three months of the rejection of the claim. According to the learned counsel section 3 of the Limitation Act, 1908, indicated that the law of Limitation in India (and also in Pakistan) could not be modified by agreement of the parties as it could be done in England, there was no, distinction under that Act between the rights and remedies and a conditional agreement
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to forfeit rights after the lapse of the period within which the remedy was not barred by the law of Limitation was a void agreement. As is apparent from his judgment, Scott, C.J., was not prepared to accept the proposition that there was no distinction in India between rights and remedies. He observed that section 28 of the Limitation Act, 1908, showed the cases in which the loss of the remedy would destroy the right, though it did not cover a suit for money such as was before the Court, but on the other hand the loss of the right always involved the disappearance of the remedy which was a very material consideration in the case of a conditional forfeiture of all benefits under a policy. He opined that section 28 of the Contract Act was aimed only at covenants not to sue at any time and covenants not to sue for a limited time which had given rise to difficulty in England. In this connection he referred to the judgments in the cases of Ford v. Beech (1848) 116 E.R.689, Beach v. Ford (1848) 68 E.R.85, Gibbons v. Vouillon (1849) 137 E.R.596, Newington v. Levy (1870) L.R.6 C.P.180, Slater v. Jones and Capes v. Ball (1873) L.R.8 EX.186 and mentioning the state of English Law said that a conditional release or forfeiture was a very different thing from a covenant not to sue, although in order to avoid circuity of action a covenant not to sue was sometimes held to be equivalent in effect to a conditional release. He did not consider the condition of forfeiture appearing in the agreement of insurance before him to be within the scope of section 28 of the Contract Act. 9. As the perusal of the judgment of Batchelor, J., indicates the learned counsel for the appellants canvassed for the desirability of looking rather to the substantial effect intended by section 28 than to the precise from of words which the legislature had used. His argument was that however valid and important in law be the distinction between the barring of a remedy and the extinguishment of a right, yet to the man of business it was much the same thing whether his right be gone or the remedy for enforcing that right be barred. He urged that in substance and effect there was no appreciable distinction between saying "I agree that upon the expiry of three months after the rejection of my claim, my rights shall be forfeited", as was said in the contract of insurance, and saying "as to the time within which I may enforce my right, I agree to limit it to the period of three months after the rejection of my claim." However, in the opinion of the learned Judge the distinction existed and wet; vital in the construction of the section. As he understood the matter, what the plaintiff was forbidden to do under section 28 was to limit the time within which he was to enforce his rights, but what he had done under the contract was to limit the time within which he was to have any rights to enforce and that appeared to him to be a very different thing. He pointed out that this view had been tacitly accepted by the Calcutta High Court in the South British Fire and Marine Insurance Company v. Brojo Nath Shaha (1909) ILR 36 Calcutta 516 though he admitted that the decision Was of no direct assistance since the question of the effect of section 28 of the Contract Act on such agreements had not been expressly considered. 10. Assuming the validity of such an agreement in England he thought that it could not be contended that insurance companies in India had less need than such companies in England of the protection afforded by an agreement for the acceleration of legal proceedings to be brought against them and that being so there was thaless reason to suppose that the legislature intended section 28 to have the far-reaching effect for which the plaintiffs-appellants had contended before him. 11. Being conscious of the note of caution sounded by the House of Lords in the Bank of England v. Vagliano Brothers (1891) A.C.107 for having recourse to the pre-existing state of law for the purpose of interpreting a provision of a codifying statute, section 28 in the instant case, the learned Judge, taking a cue from the speech of Lord Herschell that 'if a provision be of doubtful import, such resort would be perfectly legitimate' and thinking that law as to the validity of a covenant not to sue was much complex, proceeded to examine and take note of the state of law existing in England prior to 1872, when the Indian legislature, undertook the codification of the law of contract and enacted the
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(Indian) Contract Act. The following portion of his judgment reflects the process of reasoning adopted by him, to support the conclusion reached by him,-- "Reference to the authorities will, I think, disclose that there was much complexity in the law as to the validity of a covenant not to suer see Baron Parke's judgment in Ford v. Beech (116 E.R.689). It was there held that a covenant not to sue at any time, though not in terms releasing the debtor, yet operated as a release upon the principle of avoiding circuity of action. But a covenant not to sue for a limited time operated only as a covenant, and could not be pleaded as a reason: Thimbleby v. Barrow (1838) 7 L.J.Ex.128; while a covenant not to sue for a limited time, with a condition suspending the right of action during that time, was construed as an additional release and could be pleaded in bar of a suit brought within the time: Walker v. Nevill (1864) 34 L.J. Ex.128. ' There were also, as the decisions show, other incidental matters of much difficulty in this branch of the law, and I am inclined to think that the genesis of S.28 is to be found in the Indian legislature's desire to sweep away the refinements of the then English law and to enact for India a simpler and more suitable rule. The two prohibitions in the section certainly seem to follow the distinction made in the English cases, and, if that is so, the prohibition of the limitation of time within which a party may enforce his rights follows the English doctrine that a covenant not to sue for a limited time does not amount to a release. And if S.28 be read as a whole, and compared with the effect of such decisions as I have noticed, it seems a probable inference that the Indian legislature considered it would be simple, and therefore, more convenient, to brush away the somewhat fine distinctions of the English law by laying down the broad general rule that all agreements should void which either absolutely restrict a contracting party's right to resort to the Courts or merely limit the time within - which the rights should be enforced; in that case the phrase as to limiting the time would necessarily bear the same meaning which it has in the English Courts' judgments, the meaning namely, that it is not open to a party to covenant that, while-his rights subsist, he will diminish the period within which he shall be at liberty to sue. These considerations therefore appear to me to afford an additional reason for the conclusion that the language of S.28 has been carefully chosen so as to convey the narrower' meaning to which, alone the words are apt and appropriate.". 12. Though Scott, C.J. , doubted the correctness of the decision of the Bombay High Court in Hira Bhai v. Manufacturers Life Insurance Company (1912) 16' Indian Cases 1001), Batchelor, J., considered the case to have been rightly decided. In that case the clause of contract of life insurance required to be construed was as follow,- "No suit shall be brought against the company in connection with the said policy later than one year after the time when the cause of action accrues." ' The suit was instituted after a year, but within three years as provided by Article 86 of the First Schedule of the Limitation Act, of the death of the deceased. In answer to the plea of bar of limitation raised by the company it was argued for the plaintiff-appellant that the deceased who had insured his life could not contract himself out of his right to resort to a Court of justice and agree to lessen the period prescribed for a suit by the legislature in the Limitation Act, 1908. It was urged that the condition curtailing the period of limitation was void under section 28 of the Contract Act. The Court observed that if the words in the clause were to be interpreted literally there might be considerable force in the argument addressed to it. It accepted the proposition that where there was a right the party could not enter into a contract and agree that he would resort to a Court of justice within a period other than that provided by the Limitation Act. However, it was of the view that the terms used in an insurance contract must be inerpreted with reference to the object and exigencies of insurance. It held that the condition was valid for the parties had agreed in substance that if no suit were to be brought within a year, neither party should be regarded as having any right as against the other; in other words, the condition contained in the clause meant
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that there was to be a waiver of the rights of the respective parties if no suit was brought within a year. 13. In South British Fire and Marine Insurance Company v. Brojo Nath Shaha (1909) I.L.R.36 Calcutta 516 no question regarding validity of the condition shortening the period of limitation within which the suit could be brought was raised or decided. Therefore, decision of this case does not furnish any persuasive force for accepting the validity of the condition. 14. In Home Insurance Company of New York…
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