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Petitioner: TERNI S.PA. VS Respondent: PECO (PAKISTAN ENGINEERING COMPANY) LTD.
Court Name: Supreme Court of Pakistan Judge(s): Abdul Shakurul Salam, Saad Saood Jan, Rustam S. Sidhwa Title: TERNI S.PA. vs PECO (PAKISTAN ENGINEERING COMPANY) LTD. Case No.: Civil Review Petition No,204-L of 1991 Date of Judgment:1992-08-30 Reported As: 1992 SCMR 2238 Result: Review petition accepted.
JUDGMENT
JUDGMENT RUSTAM S. SIDHWA, J.---This is a review petition filed by Terni S.P.A. Petitioner seeking review of the judgment of this Court, dated 24-11-1991 passed in civil appeal CA. No,154 of 1989, partly accepting the appeal of the petitioner and modifying the judgment of the Lahore High Court so as to enable the petitioner to recover interest at the rate of 12 per cent. Per annum on the decretal amount of Rs,740,828.45 from the date of institution of the suit till the date of recovery of the decretal amount, instead of at the rate of 6 per cent. Awarded by the High Court; the costs being also allowed to the petitioner-Company. 2. The brief facts of the case are that Batala Engineering Company (Pakistan) Limited, Lahore, the predecessor-in-interest of the present respondent, Pakistan Engineering Company Limited, Lahore, entered into an agreement with the petitioner Terni S.PA., an Italian company, on 12-12-1963, to work in collaboration with each other in the designing, fabrication and erection work for gates and gearing equipment for Quadarabad and Rasul Projects of WAPDA. Dispute touching payment on several counts arose between the parties. Correspondence was exchanged and negotiations Were held to settle the dispute, when, on 3-1-1972, the control, administration and management of the Batala Engineering Company Limited was taken over by the Government under the provisions of the Economic Reforms Order, 1972 (P.O. 1 of 1972). To manage the company the Government appointed its own officers in place of the original directors. Correspondence took place between the parties for settlement of accounts. It appears that due to lack of adequate information, the newly-appointed officers who managed the company could not properly handle the matter. Ultimately, a senior executive of the petitioner, Mr. Maimone, came all the way from Italy, held meetings. And discussions with the officers of the respondent and sorted out the matters to some
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extent. However, no final solution of the dispute could be evolved. The petitioner had therefore to institute suit on 18-10-1980, to recover what it considered to be certain dues from the respondent. The break-up of its claim was as follows:--- (1)Technical services US $ 34,558.10 (2)For acceleration of work US $ 105,882.31 (3)Replacement of damaged materials due to fire and employment of labour to carry out repairsUS $ 11,914.15 (4)Refund of guarantee deposit US $ 6,301.20 (5)Balance of first 20% payment US $ 914.88 (6)Interest at 15% p.a. from 18-10-1971 to 17-10-1980 on items (1) to (5) US $ 215,410.93 Total: US $ 374,976.47 Plus future interest on US $ 374,976.47 from date of suit till date of realisation. 3. The respondent denied the existence of the agreement with the petitioner. It also denied its liability to pay anything to the petitioner. However, when the correspondence, especially the letters sent by the respondent as well as by its predecessor, the Batala Engineering Company Limited, were placed on the record, it became clear from the very admissions of the respondent that quite a substantial amount was payable by the respondent to the petitioner. 4. The learned trial Court accepted the petitioner's claims in toto and decreed the suit with further interest at 12 per cent. Per annum from the date of institution of the suit till date of recovery of the decretal amount. 5. Being aggrieved by the above judgment, the respondent preferred a regularfirst appeal, which was allowed by a learned Division Bench of the Lahore High Court on 19-3-1989. The High Court only accepted the claims of the petitioner to the extent to which the respondent had admitted the same in its letters Exhs.P24 to P27 as follows:- (1)Technical services (US $ 30,561.8 Rs,1,45,532.25 (2)For acceleration of work(US $ 105,882.31)Rs,5,04,200.00 (3)Damage on account of fire.(US $11,914.15) Rs,56,733.95 (4)Refund of security (US $ 6,301.20) Rs,30,005.68 (5)Balance of 20% payment(US $ 914.88) Rs,4,356.57 Total: (US $ 155674.34 Rs,7,40.828.45 The High Court accepted the US dollars claim as above, but converted it into Pakistan Rupees at the exchange rate prevalent at the time when the amount became due and was payable by the respondent to the petitioner i.e, at the rate of US $1.00 equal to Pak Rs,4.719. The High Court did not allow interest from the date the debt became due to the date of suit, but allowed the same on the rupee claim decreed at 6 per cent. Per annum from the date of institution of the suit till the date of the recovery of the decretal amount. The petitioner was awarded the costs of the suit as well as of the appeal. 6. Being aggrieved by the above judgment, both the petitioner and the respondent preferred direct appeals to this Court. CA. No,125 of 1989 of the respondent was dismissed, but CA. No,154 of 1989 of the petitioner was allowed in terms stated in para. 1 above, by consolidated judgment of this Court, dated 24-11-1991. 7. Being aggrieved by the judgment passed in CA. 154 of 1989, the petitioner filed a petition seeking review thereof on the ground that there had been failure on the part of this Court to apply legal
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authorities which permitted a decree being passed in foreign currency and which also permitted recovery to be made in the said currency as on the date that the actual payment would be made by the judgment-debtor, and that past interest from date of payment of debt to date of suit had inadvertently been not allowed. 8. The review petition was admitted to reconsider these two grounds and we now have the case before us on these two matters. 9. On behalf of the petitioner it is submitted that there is no dispute between the parties that the payment under the contract had to be made by the respondent in US dollars and that the petitioner in paras. 6 and 8 to 12 of the plaint referred to its claims in US dollars. It is also submitted that in the heading of the suit it referred to its claim as one "for recovery of US $ 374,976.47 being equivalent to Pak. .Rs,3,749,764.00" and in the relief para. It prayed for the following relief:-- "a decree for recovery of US $ 374,976.47 equivalent to Pak Rupees amount of 3,749,764.00 at the present rate of exchange plus future interest at the rate of 15 per cent. Till the final payment is made." It is urged that the petitioner in para. 5 also referred to the fact that according to Contract No,308 the respondent company initially was liable to pay the plaintiff in US dollars at the exchange rate of Pak Rs,4.7619 equal to US $ 1.00 and that actually the predecessor of the defendant had been making payments before in US dollars at that rate. It is submitted that whilst the petitioner was making all attempts to recover its dollar debt in the rupee equivalent then prevailing at the time each negotiation was held, but the respondent kept on delaying the matter, with the result that the petitioner had to keep increasing the Pak rupee equivalent when asserting its claim from time to time. In this connection it is submitted that when the contract was signed, the exchange rate was Pak Rs,4.7619 equal to US $ 1.00, whereas at the time when the suit was lodged the rate was roughly Pak Rs,10.00 equal to US $ 1.00, on the basis of which the relief para. Was drafted, and now it is submitted that the rate of exchange is Pak Rs,25.07 equal to US $ 1.00. It is next contended that the old rule that where a debt was payable in a foreign currency, a Court was only bound to permit the said debt being paid in the currency of the country at the exchange rate prevalent at the time when the debt became due or was payable, was overruled by the Court of Appeal in Schorsch Meir GmbH v. Henin (1975, 1 All E.R. 152), which not only held that the Court could give a money judgment in a foreign currency when that currency was the currency of the contract, but that it could also say that the plaintiff could have the foreign currency converted to sterling at the exchange rate on the date the final payment was made, instead of at the rate when the debt was actually payable. It is submitted that this rule was followed by the Queen's Bench Division in Miliangos v. George Frank (Textiles) Limited ((1975), 1 All E.R. 1076), which decision was affirmed by the House of Lords in Miliangos v. George Frank (Textiles) Limited ((1975) 3 All ER. 801). It is therefore contended that the petitioner is entitled to the judgment and decree in US dollars payable in Pak rupees equivalent at the rate of exchange applicable on the date actual payment is made by the respondent. It is submitted that the present rate of exchange of US dollar is roughly Pak Rs,25.07. 10. As regards the petitioner's claim for past interest it is submitted that the petitioner had claimed past interest in the suit at 15 per cent. Per annum from 18-10-1971 to 17-10-1980 (which was the date of suit), which worked out to US $ 215,410.93, which was stated in para. 12 of the plaint, and which was added to its money claim, thus making a grand total of US $ 374,976.47. It is submitted that though the Civil Court decreed the total claim with further interest at 12 per cent. Per annum from the date of suit till final payment, the High Court accepted the petitioner's debt of US $ 155,574.34, which it decided to decree at the rate of US $ 1.00 equal to Pak Rs,4.719, the exchange rate prevailing on the date the debt became due, and did not allow past interest from the date the debt had fallen due to the date of suit, but only allowed interest at 6 per cent. Per annum on the debt claim from the date of suit till date of final realisation. It is contended that though this Court
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increased the interest from 6 per cent. To 12 per cent. Per annum on the petitioner's claim of US $ 155,574.34, but forgot to award past interest thereon at 12 per cent. Per annum from the date the debt became due till the date of final payment. It is lastly urged that the respondent having flagrantly driven the petitioner from pillar to post for over twenty years to secure its valid dues, this Court should have allowed interest from the date the debt became due to the -date the suit was instituted, as had been done by the learned Civil Judge, which claim was pressed in this Court, but inadvertently omitted in its judgment. 11. On behalf of the respondent it is submitted that where a debt is payable in foreign currency in Pakistan, on the basis of established practice extending over many years, based again on English precedents, rupee equivalent of the same as on the date the debt is payable can alone be ordered by the Court. It is further submitted that the recent change of law in England in this respect was due to the European Communities Act, 1972, and Article 106 of the Treaty of Rome, which provided that each member State had to undertake and authorise payments connected with the movements of goods in the currency of the member State in which the creditor or the beneficiary resided, and as there is no such treaty here in this respect, the rule laid down by the Privy Council in Syndic in Bankruptcy of Salim Nasrullah Khoury v. Khayat 1943 A.C. 507 or by the House of Lords in United Railways of the Havana and Regla Warehouses Ltd. (1960), 2 All E.R. 332 is still good law, which is applicable here. It is urged that the old rule as prevailing in England that a foreign currency debt was payable in pounds sterling at the exchange rate as was prevalent on the date the debt was payable, should be applied here. In this connection learned counsel refers to Fletcher and others v. Tayleur 17 C.B. 973, Madeleine Vionnet et Cie v. Wills (1939) 4 All E.R. 136, Syndic in Bankruptcy of Salim Nasrullah Khoury v. Khayat 1943 A.C. 507, Mehmut Dogan Bey v. G.G. Abdeni (1951) 2 All. E.R. 162, In re: Russian Commercial and Industrial Bank (1955) 1,Ch. D. 148 and United Railways of the Havana and Regla Warehouses Ltd. (1960) 2 All E.R. 332. 12. As regards the petitioner's claim for grant of decree in US dollars, it is submitted that at the time the contract was executed, the Court could not have granted the decree in US dollars, as it would have violated the provisions of the Foreign Exchange Regulation Act, 1947, and therefore, this Court should not grant any decree now in US dollars. 13. On the question of grant of interest from 1971 to the date of suit in 1980, it is submitted on behalf of the respondent that the High Court's decision and this Court's decision which did not grant the said interest, should be sustained, as discretion was exercised correctly by the learned Judges of this Court, which should not be disturbed in review. 14. We have heard the arguments of the learned counsel for the petitioner and the respondent and have given our anxious consideration to the same. We have also gone through the record. According to the West Pakistan Water and Power Development Authority Contract No,308, which was an invitation to tenderers for the construction of Rasool Barrage and connected works, which document was not exhibited, under para. 60(6) of the Conditions of Contract, the currency of account was stated to be Pakistan rupees. However, at page 111-3 in Appendix 'Ato the tender, the Estimate of Foreign Exchange Expenditures showed salaries and wages payable to non-Pakistani persons who had to come to Pakistan to complete the project, apart from payments for certain heavy and light plants, equipments, spare parts and materials required for the barrage, which had to be imported. Their separate components were given in US dollars, which WAPDA had to pay in the said foreign currency. Messrs Cogefar Astaldi, an Italian Corporation, tendered for the said Contract No,308 and was awarded the same by WAPDA. The said Corporation became the Contractor of WAPDA. The Batala Engineering Company and Terni S.P.A. Petitioner entered into an agreement to take up work as Subcontractors, with regard to construction and installation of gates and operating gear for the Rasool Barrage contract. Accordingly, the said two Subcontractors
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entered into an agreement with Cogefar Astaldi, the Contractor, with regard to the said matter, vide agreement dated 20-10-1965, which has been exhibited as Exh.P3. In accordance with para. 6(a) of the said agreement, Terni S.PA. Had to be paid directly by M/s. Cogefar Astaldi, the Contractor, for supply of the huge gates and operating gear, as fell to their share to import, fabricate and install; and under para. 6(b) all other payments to the Subcontractors were agreed to be made by M/s. Cogefar Astaldi, the Contractor, in accordance with the conditions of Contract No,308, also in US dollars. Both the learned Civil Judge and Judges of the High Court, on the basis of admissions contained in letters Exhs.P22 to P26, treated the petitioner's suit claim as payable in US dollars. The learned Civil Judge granted the decree in rupees at the rate of exchange payable on the date of institution of suit, whereas the learned Judges of the High Court granted the decree in rupees at the rate of exchange payable when the debt became payable, which this Court accepted. This Court also observed that the petitioner had also agreed to accept the claim in rupees in one of its letters. 15. The English Courts, in dealing with payments of debts and damages on contracts, use expressions, such as "currency of contract", "money of account or commodity" and "money of payment". Where the contract stipulates payment in pounds sterling, the English Courts refer to the currency of contract as legal currency, as that is the currency which is legal tender there. Where the said payment is in a foreign currency, the Courts refer to the same as "unit of account" or "unit of commodity". Thus, if payment under a contract executed in England is payable in US dollars, the same not being legal currency, the contract is treated as one payable in "unit of account" or "unit of commodity" -- the idea being that the contract provides for the supply and return in England of US dollars as a unit of a commodity or account, but not the legal currency of England. The Judicial Committee of the Privy Council in Aukland Corporation v. Alliance Insurance Co. 1937 A.C. 587 held: "Contracts are expressed in terms of unit of account, but the unit of account is only a denomination connoting the appropriate currency". The unit of account has to be applied to the appropriate currency which would vary from time to time. In Pyrmont Ltd. v. Schott 1939 A.C. 145 the Privy Council was dealing with the contract for the return of debt in Spanish pasetas which had to be made in Gibralter, a British colony, that being the place where the loan had been taken. The Privy Council held that the contract was for the supply and return in Gibralter of pasetas as commodity, not money; that the pasetas meant the unit of account in the currency of Spain and that the obligation was to pay in whatever at the date of repayment was legal tender and legal currency in Spain, the foreign country whose money was lent. The British Courts also distinguish between the "money of account" and the "money of payment". For instance, if under a contract, the goods are to be paid in Nigerian pounds and a request is made by the buyer that he be accommodated to pay it in pounds sterling, the Nigerian pounds would be treated as the money of account and the pounds sterling would be treated as the money of payment. Thus, if the value of pounds sterling depreciated, the seller could demand the payment in Nigerian pounds or its equivalent in pounds sterling. See Woodhouse AC Israel Cocoa Ltd. SA. v. Nigerian Produce Marketing Co. Ltd. (1971) 1 All E.R. 665. 16. Since the debt in the instant case was payable to the petitioner in US dollars, it could have been discharged by the purchase by the respondent of a draft or cash order in favour of the petitioner equal to that much number of US dollars as would have discharged the petitioner's debt, with the prior permission of the State Bank of Pakistan, as was the practice then in vogue, and by the delivery of the same to the petitioner, or the purchase of that much number of US dollars in the open market and delivery of the same to the petitioner, if the same was legally permissible, or the payment of its equivalent at the relevant rate of exchange in Pak rupees in Pakistan, as a last
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resort, that being the currency which was legal tender by which indebtedness in Pakistan could have been discharged. 17. The first question that arises is whether this Court, departing from the old practice, can order a decree to be passed in a foreign currency. In view of foreign exchange regulations prevailing in this country since its inception in 1947, which barred the public from openly dealing with or maintaining foreign currency accounts within the realm, it was clear and almost assumed that it could not be done. On the procedural plane, it was also assumed that a claim for recovery of a debt or damages on breach of contract in foreign currency could only be brought for a sum expressed in rupees. To compel return of foreign currency loans and repayment of interest thereon, figuratively in the same foreign currency, the Foreign Currency Loans (Rate of Exchange) Order, 1982 (P.O. 3 of 1982) was -enacted, which compelled debtors who had borrowed foreign loans for their projects from certain specific "financial institutions", as stated in the definition of that expression, to repay the said loans or any part thereof or interest in respect thereof, in rupees at the rate of exchange on the dates on which the loans, or part of the loans or interest were actually repaid or paid to the financial institutions. Notwithstanding the absence of such foreign exchange restrictions in England, it was also assumed in England till 1975 that procedural a decree in a foreign currency could not be passed. See the observations of the learned Law Lords in Miliangoscase (1975) 3 All E.R. 801. However, in several other countries, there are no such restrictions. In the Legal Aspects of Money, 3rd Edition, 1971, at page 351, Dr. FA. Mann gives a list of a number of countries, primarily European, in which payment of a sum of money in a foreign currency can be claimed and judgment given for it. 18. The assumption that judgments in money suits can only be given by Pakistani Courts in Pakistani currency is also due to procedural constraints. Form of Decree in Money Suits as provided in item 2 under Appendix D to the Code of Civil Procedure provides that the decree shall be as follows:-- "Claim for This suit coming on this day for final disposal before in presence of for the plainiff and of for the defendant, it is ordered that the do pay to the the sum of Rs, with interest thereon at the rate of per cent. Per annum from to the date of realization of the said sum and do also pay Rs, the costs of this suit, with interest thereon at the rate of per cent. Per annum from this date to the date of realization." Since "Rs," have been mentioned in the form of decree, the Courts have felt reluctant to substitute foreign currency, for fear that if it was so stated the Bailiff may not be able to execute it. It was therefore treated as axiomatic that the judgment should be for a sum of money in Pale rupees. Again, since restrictive foreign exchange regulations prevailing uptil 1991 precluded any form of dealing in foreign currency, the substitution of even words such as "US. Dollars, subject to permission of the State Bank of Pakistan", in the decree, was treated as something inevitably uncalled for. 19. A large part of the above reasons now do not exist. Amendments now made to Chapter VI headed "PRIVATE CURRENCY FOREIGN ACCOUNTS" of the Exchange Control Manual inter alia permit:- - (i) Pakistani nationals residing abroad including those having dual nationality; (ii) Foreign nationals residing abroad; (iii) Foreign firms and corporations other than banks incorporated and operating abroad provided they are owned by persons who are otherwise eligible to open foreign currency accounts; (iv) Foreign nationals residing in Pakistan and foreign firms and companies registered abroad and operating in Pakistan, provided that foreign exchange credited to such accounts does not represent their earnings abroad in respect of business conducted in Pakistan, or services rendered by such foreign nationals and firms/companies while in Pakistan;
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(v) Pakistani nationals residing in Pakistan, subject to restrictions contained in Foreign Exchange Circular No,32 dated 23-2-1991; and (vi) Charitable trusts, foundations, etc., which are exempt from payment of income-tax (see Foreign Exchange Circular No,64 dated 9-4-1991). to open foreign currency accounts. Under para. 1 (i), these accounts can be fed by remittances from abroad, travellers cheques, foreign currency notes and foreign exchange generated by encashment of Foreign Exchange Bearer Certificates in respect of which no questions can be asked by any authority in Pakistan about the source of acquisition of such foreign exchange. See Foreign Exchange Circular No,45, dated 14-3-1991. Under Federal Government Notification No,SRO- 219(I)/91, dated 16-3-1991 income derived from private foreign currency account held with an authorised bank in Pakistan is exempt from income-tax and the sums deposited in such an account are exempt from the tax net and under Notification No,SRO-220(I)/91 dated 16-3-1991 the sums deposited in such an account are exempt from payment of wealth tax. Under para. 1(ii) of Chapter VI of the Manual: "These accounts are free from all Exchange Control restrictions. In other words, account-holders have full freedom to operate on the account to the extent of the balance available in the accounts either for local payment in rupees or for remittance to any country and for any purpose or for drawal of foreign currency notes and travellers cheques." See Foreign Exchange Circular No,63 dated 6-4-1991). This provision enables a foreign currency account-holder to draw out foreign currency in the form of notes. Though there are still some restrictions in Chapter VI, which restrict foreign currency payments being made to certain persons regarding certain matters, but the general trend obtaining in the market shows that foreign currency is now openly sold by such foreign currency account-holders in the open market, which has now become standard business. 20. To remove all doubts, on 11-8-1991, the Pakistan Government gazetted the Protection of Economic Reforms Ordinance, XXVI of 1991, to inter alia release the country from all unnecessary…
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