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1950 SCR 979 : AIR 1951 SC 144 : (1951) 21 Comp Cas 1

In the Supreme Court of India

(BEFORE HARILAL KANIA, C.J. AND M. PATANJALI SASTRI AND SUDHI RANJAN DAS, JJ.)

PANNALAL JANKIDAS … Appellant;

Versus
MOHANLAL AND ANOTHER … Respondents.
Civil Appeal No. 71 of 1949* , decided on December 21, 1950
Advocates who appeared in this case :
Rang Behari Lal (Rajeswar Nath Nigam, with him), for the Appellant;
M.C. Setalvad (Ram Ditta Mal and B. Sen, with him), for the Respondents.
The Judgment of the Court was delivered by
HARILAL KANIA, C.J.— This is an appeal from a judgment of the High Court at
Bombay. Although the record is heavy and many points were argued in the trial court
and in the court of appeal at Bombay, the important point argued before us is only
one.
2. The appellants (plaintiffs) are a firm of commission agents in Bombay. The
respondents (defendants) were their constituents. Accounts between the parties in
respect of their dealings were made up and settled up to the 30th of October, 1943.
Piecegoods and yarn continued to be purchased and consigned by the plaintiffs to the
defendants' joint family firm thereafter. One bale of piecegoods was purchased and
despatched in November 1943. In January 1944, restrictions were imposed against
the consignment of piecegoods and/or yarn outside Bombay by rail without obtaining
the necessary previous permit from the Textile Commissioner at Bombay. On or about
6th February, 1944, Mohanlal of the defendants' joint family firm came to Bombay and
the plaintiffs purchased on their behalf 278 bales of piecegoods. Ninety-four out of
those were despatched according to the defendants' instructions. The plaintiffs,
according to the defendants' instructions, applied for and obtained permit to consign
several more bales. On the permits being issued they were despatched on 14th
February, 1944, to destinations given by the defendants. On 10th April, 1944, the
plaintiffs, after obtaining the necessary permits, despatched more bales as directed by
the defendants. The dispute between the parties relates to the remaining 92 bales
which were stored in Godown No. 424, Baroda Street, Argyle Road, Bombay, pending
the receipt of permit for consigning the same.
3. On 14th April, 1944, there occurred a big explosion in the Bombay harbour which
destroyed several immovable properties and godowns with movable property covering
a large area near the port. Fires were caused by the explosion and they also caused
considerable destruction of movable and immovable properties. These 92 bales
purchased by the plaintiffs on account of the defendants were also destroyed either by
the fire or the explosion. The plaintiffs filed a suit to recover the price of these 92 bales
from the defendants on the ground of the agent's right to indemnity. The defendants
contended that the plaintiffs were their pucca adatiyas, that the property in the goods
did not pass to them and that they were not liable for the price till delivery of the
goods was given to them. In the alternative, in para 4 of their written statement, they
pleaded that when Mohanlal of the defendants' firm was in Bombay and the plaintiffs
stated that the goods could not be railed until permits were obtained, it was agreed
between the plaintiffs and the defendants that the defendants were to pay annas four
per bale per month to the plaintiffs for insurance charges and the goods were thus to
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remain insured till despatched according to their instructions. In para 21 of their

written statement, they contended that if their plea that the plaintiffs were pucca
adatiyas was not accepted and the plaintiffs were held to be their commission agents,
the plaintiffs were guilty of negligence and misconduct in the business of agency, as in
spite of specific instructions and agreement they had failed to insure the goods. They
contended that owing to this negligence and misconduct the plaintiffs were not
entitled to the indemnity claimed. In the alternative they contended that the plaintiffs
were liable to make good the loss caused to the defendants by their failure to insure
the said bales. They contended that they were entitled to set off this loss against the
claim for the price. They also counter-claimed the same amount if their set-off was not
allowed. On these pleadings the parties went to a hearing. Issue 10 covered the
defendants' plea about the plaintiffs' negligence and misconduct in not insuring the 92
bales and the counter, claim arising therefrom.
4. Numerous witnesses were called before the trial court and the learned Judge
after considering their demeanour and hearing their evidence came to the conclusion
that the plaintiffs' witnesses were unreliable, except when they were corroborated by
documentary evidence. He also disbelieved the defendants' evidence. He held that the
agreement to insure the goods was not proved and passed a decree in favour of the
plaintiffs. On appeal, differing from the view of the trial court, the appeal court held
that instructions were given by Mohanlal to insure the goods and that the agreement
was proved. In thus differing from the trial court's decision, they accepted the well-
recognised principle to give full weight to the trial Judge's observations about the
witness. They however found that on the documents the view of the learned trial
Judge was not correct. In doing so, they principally relied on statements of account
sent by the plaintiffs to the defendants in respect of bales purchased in February
1944, and despatched by them out of the lot of 278 bales previously and where the
plaintiffs had charged the defendants insurance premia at the rates mentioned in the
defendants' written statement. They rejected the plaintiffs' explanation, which was
accepted by the trial Judge, that these entries were foolishly made out of cupidity by
the plaintiffs.
5. After a brief discussion in which this point was haltingly urged before us, the
learned counsel for the plaintiffs did not very properiy dispute this conclusion of the
appeal court. In our opinion, the finding of the appeal court, having regard to the
documents, was correct.
6. That left for decision the important question of damages to which the
respondents were entitled. Before the appellate court in Bombay, it was conceded by
the respondents' counsel that the insurance which was to be effected by the
appellants under the agreement was on the usual terms of fire insurance policies
prevalent in Bombay. Clause 7 of that form of policy, inter alia, provided as follows:
“Unless otherwise expressly stated in the policy, this insurance does not cover.…
(h) any loss or damage occasioned by or through or in consequence of explosion
but loss or damage by explosion of gas used for illuminating or domestic purposes
in a building in which gas is not generated and which does not form part of any
gaswork will be deemed to be lost by fire within the meaning of this policy.”
7. The appellants urged that granting that they were in default and had committed
a breach of duty in not insuring the goods according to the instructions or the
agreement, the respondents could not recover anything from them due to damage
arising from the explosion, because the policy of fire insurance, if taken out, would not
have given to the respondents the money claimed by them. For this purpose they
relied on a statement in Mayne on Damages, (11th Edn.) at p. 592, as follows:
“Therefore if an agent is ordered to procure a policy of insurance for his principal
and neglects to do it, and yet the policy, if procured, would not have entitled the
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principal, in the events which have happened, to recover the loss or damage, the
agent may avail himself of that as a complete defence.”
8. In the present case, after the explosion considerable discussion about the
liability of the insurance companies under their policies of fire insurance and the
liability of Government for alleged negligence in unloading high explosives from a ship
on the docks appears to have taken place. On the 1st of July, 1944, the Governor-
General promulgated the Bombay Explosion (Compensation) (Ordinance, 1944. The
preamble to that Ordinance runs as follows:
“Whereas an emergency has arisen which makes it necessary to provide for and
regulate the payment of compensation for… damage to property due to, or arising
out of, the explosions and fires which occurred in the Bombay Docks on 14th April,
1944, to restrict litigation in connection with the said explosions and fires and to
make certain other provisions in connection therewith.”
9. The other relevant provisions may be also noticed at this stage. Uninsured
property was defined to mean property which was not covered whether wholly or
partially by any policy of fire, marine or miscellaneous insurance at the time of the
explosion. After providing for the procedure according to which compensation may be
claimed and dealt with by the Claims Committee to be set up under the Ordinance and
an appeal and review from their decision, Section 14 provided as follows:
14. Subject to the provisions of this Ordinance, there shall be paid by the Central
Government compensation for explosion damage to property being
(a) damage caused by fire to property insured whether wholly or partially at
the time of the explosion against fire under a policy (other than a policy of
marine insurance) covering fire risk, or damage caused by blast without fire
intervening to property insured whether wholly or partially at the time of the
explosion under a policy (other than a policy of marine insurance) covering fire
and explosion risks, of an amount equal to the proved loss, or
(b) damage caused by blast without fire intervening to property insured
whether wholly or partially at the time of the explosion against fire under a policy
(other than a policy of marine insurance) covering fire risk but not explosion risk,
of an amount equal to 87½ per centum of the proved loss, to the holder of the
policy of insurance covering the damaged property, or if he is deceased, to his
legal representatives.
10. Section 15 provided for contribution by the insurers towards the payment of
amount to be paid under the Ordinance. Section 18 of the Ordinance runs as follows:
“18. (1) Nothing in this Ordinance shall prevent the recovery of compensation for
death or personal injury under the Workmen's Compensation Act, 1923 (8 of 1923),
or under any policy of life insurance or against personal accident or under any other
contract or scheme providing for the payment of compensation for death or personal
injury, or for damage to property under any policy of marine or miscellaneous
insurance.
(2) Save as provided in sub-section (1), no person shall have, or be deemed ever
to have had, otherwise than under this Ordinance any right whether in contract or
in tort or otherwise to any compensation or damages for any death, personal injury
or damage to or loss of any property, rights or interests, due to or in any way
arising out of the explosion; and no suit or other legal proceedings for any such
compensation or damages shall, save as aforesaid, be maintainable in any Court
against the Crown or the Trustees of the Port of Bombay or the Municipal
Corporation of the City of Bombay or against any servants or agents of the Crown or
of the said Trustees or Municipal Corporation or against any other person
whomsoever; and no act or omission which caused or contributed to the explosion
shall be deemed to have been done or omitted to be done otherwise than lawfully.
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(3) No suit, prosecution or other legal proceeding whatsoever shall lie against
any person for anything in good faith done or ordered to be done in combating or
mitigating the effects of the explosion, or for anything in good faith done or
intended to be done in pursuance of this Ordinance or any rules or orders made
thereunder.”
11. It is common ground that in respect of uninsured merchandise fifty per cent
compensation was to be paid under the Ordinance. The appellants have recovered that
amount and have now agreed to give credit of the same to the respondents. The
dispute is in respect of the remaining fifty per cent. It is not disputed that if the goods
had been insured, under Section 14 of the Ordinance, full compensation would have
been recovered by the appellants and become payable to the respondents.
12. The appellants' contention is twofold. Firstly, that if they had insured the goods
the ordinary fire insurance policy would not have covered the risk and therefore
although they had committed a breach of the agreement or been negligent in their
duty as agents, they were not liable to pay anything more to the respondents. In the
alternative it was argued on their behalf that the intervention of Government in
passing this Ordinance could not increase or add to the liability of the appellants for
the breach of contract or breach of duty and therefore they were not liable to pay the
compensation which would have been receivable by the respondents if the goods had
been insured. The second contention is that the counterclaim of the respondents is
barred under Section 18(2) of the Ordinance. In the Indian Contract Act, Sections 211
and 212 provide for the consequences of an agent acting otherwise than according to
his duty towards the principle. Under Section 211 when an agent conducts the
business of the principal otherwise than according to the directions given by the
principal, if any loss be sustained he must make it good to his principal and if any
profit accrues he must account for it. In Smith v. Lascelles1 it was held that if an agent
was instructed to insure goods and neglected to do so he was liable to the principal for
their value in the event of their being lost. Section 212 of the Indian Contract Act
provides as follows:
“An agent is always bound to act with reasonable diligence and use such skill as
he possesses: to make compensation to his principal in respect of the direct
consequences of is own neglect, want of skill or misconduct, but not in respect of
loss or damage which are indirectly or remotely caused by such neglect, want of
skill or misconduct.”
13. These sections make it clear that in case of the agent's negligence he is liable
to make good the damage directly arising from his neglect but not indirectly or
remotely caused by such neglect or misconduct. The question therefore is whether in
the present case the claim of the respondents based on the neglect or misconduct can
be stated to be a direct consequence of such neglect or misconduct or is only indirectly
or remotely caused by such neglect.
14. Two positions can be visualized as arising from the appellants' neglect in this
case. The appellants could be treated either as insurers themselves or can be
considered as having agreed to cause the goods insured by a recognised insurance
company on the usual fire insurance policy terms. In Tickel v. Short2 the Lord
Chancellor shortly stated the proposition of law in these terms: “The rule of equity is,
that if an order is sent by a principal to a factor to make an insurance; and he charges
his principal, as if it was made; if he never in fact has made that insurance, he is
considered as the insurer himself”. If therefore, as in the present case, the appellants
were given instructions to insure the goods and they charged the respondents as if
they had insured the goods, the law would throw upon them the liability of an insurer
as if they stood in the position of insurers i.e. the Court will then be entitled in equity
to proceed on the footing as if an insurance had been effected by the appellants and
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the goods stood covered under a fire insurance policy. Whatever consequences follow
from that position must be accepted and enforced in a court of equity against the
appellants. Proceeding on that line of reasoning under Section 14 of the Ordinance the
only thing which is required to be considered is whether the goods were covered by a
fire insurance policy. The terms of the policy are immaterial. If, therefore, the
appellants are considered as having insured the goods and are precluded from saying
that the goods were not covered by a fire insurance policy, the loss arising from the
fact that the goods were not so covered is a direct consequence of their neglect and
they must make it good. That will make them liable to pay what was claimed by the
respondents.
15. If, however, it is considered that they were not themselves insurers but that
they had agreed only to keep the goods insured under a policy of insurance of a
recognised insurance company on the usual fire insurance policy terms, the question is
whether the damages claimed by the respondents directly flow from their neglect of
duty in not being able to produce such a fire insurance policy. Our attention has been
drawn to an instructive judgment which makes the distinction between direct and
remote damages clear. In In Re An Arbitration between Polemis v. Furness Withy &
Co. Ltd.3 there is a discussion on this point in the judgment of Banks, L.J. He drew
attention to the observations of Lord Summer in Weld-Blundell v. Stephens4 who
observed as follows: “What are natural, probable and necessary consequences?
Everything that happens, happens in the order of nature and is therefore natural.
Nothing that happens by the free choice of a thinking man is necessary except in the
sense of pre-destination. To speak of probable consequences is to throw everything
upon the jury. It is tautologous to speak of effective cause or to say that damages too
remote from the cause are irrecoverable, for an effective cause is simply that which
causes, and in law, what is ineffective or too remote is not a cause at all. I still venture
to think that direct cause is the best expression…. What a defendant ought to have
anticipated as a reasonable man is material when the question is whether or not he
was guilty of negligencee that is, of want of due care according to the circumstances.
This however goes to capability, not to compensation”. Banks, L.J., after noticing the
above observations, stated as follows: “Under these circumstances I consider that it is
immaterial that the causing of the spark by the falling of the plank could not have
been reasonably anticipated. The appellants' junior counsel sought to draw a
distinction between the anticipation of the extent of damage resulting from a negligent
act, and the anticipation of the type of damage resulting from such an act.… I do not
think that distinction can be admitted. Given the breach of duty which constitutes the
negligence, and given the damage as a direct result of that negligence, the
anticipations of the person whose negligent act has produced the damage appear to
me to be irrelevant.”
16. The question of what is remoteness of damages in a case of negligence has
been reviewed in detail in a recent decision of the House of Lords in Monarch
Steamship Co. Ltd. v. Karlshamns Oljefabriker5 . In that case the question arose in
respect of damages due to the late delivery of goods shipped for a port in Sweden, but
which ship, owing to its unseaworthiness, was delayed in its voyage and owing to the
outbreak of war under orders of the British Admiralty, was directed not to proceed to
the Swedish port but ordered to discharge the cargo at Glasgow. The assignees of the
Bills of Lading from the shippers had to forward the goods in neutral ships chartered
for the purpose to the Swedish port. A war risks clause in the charterparty exonerated
the owners of the vessel in the event of compliance with any orders given by the
Government of the nation under whose flag the ship sailed, as to destination delivery
or otherwise. The holders of the Bills of Lading claimed the retransport charges from
Glasgow to the Swedish port. It was contended that these damages were too remote.
The House of Lords rejected the contention. In the speech of Lord Wright most of the
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relevant authorities have been reviewed and the ratio decidendi has been set out. In
Hadley v. Baxendale6 Alder son B., giving the judgment of the Court, thought that the
proper rule in such a case consisted of two alternatives. He said: “Where two parties
have made a contract which one of them has broken the damages which the other
party ought to receive in respect of such breach of contract should be such as may
fairly and reasonably be considered either arising naturally i.e. according to the usual
course of things, from such breach of contract itself, or such as may reasonably be
supposed to have been in the contemplation of both parties at the time they made the
contract, as the probable result of the breach of it”. In B the opinion of Lord Wright
this in truth gives effect to the broad general rule of the law of damages that a party
injured by the other party's breach of contract “is entitled to such money
compensation as will put him in the position in which he would have been but for the
breach”. This rule was stated by Lord Blackburn in Livingstone v. Rawyards Coal Co.7
as follows: “Where any injury is to be compensated by damages, in settling the sum of
money to be given for reparation of damages you should as nearly as possible get at
that sum of money which will put the party who has been injured, or who has suffered,
in the same position as he would have been in if he had not sustained the wrong for
which he is now getting his compensation or reparation”. The rule stated by Alderson
B. has consistently been accepted as correct the only difficulty has been in applying it.
The distinction drawn is between damages arising naturally (which means in the
normal course of things) and cases where there were special and extraordinary
circumstances beyond the reasonable prevision of the parties. The distinction between
these types is usually described in English law as that between general and special
damages; the latter are such that if they are not communicated it would not be fair or
reasonable to hold the defendant responsible for losses which he could not be taken to
contemplate as likely to result from his breach of contract. Viscount Haldane, L.C. in
British Westinghouse Electric & Manufacturing Co. Ltd. v. Underground Electric
Railways Co. of London9 on the question of damages said: In some of the cases there
are expressions as to the principles governing the measure of general damages which
at first sight seem difficult to harmonize. The apparent discrepancies are, however,
mainly due to the varying nature of the particular questions submitted for decision.
The quantum of damage is a question of fact, and the only guidance the law can give
is to lay down general principles which afford at times but scanty assistance in dealing
with particular cases. The Judges who give guidance to juries in these cases have
necessarily to look at their special character, and to mould, for the purposes of
different kinds of claim, the expression of the general principles which apply to them
and this is apt to give rise to an appearance of ambiguity…. It was necessary to
balance loss and gain and no simple solution was possible. The House of Lords in
Liesbosch (Owners) v. Edison (Owners)8 has stated at p. 463 that it is impossible to
lay down any universal formula. The dominant rule of law is the principle of restitutio
in intergrum and subsidiary rules can only be justified if they give effect to that rule.
(The italics are mine). In Smith, Hogg & Co. Ltd. v. Black Sea & Baltic General
Insurance Co. Ltd.10 the loss of a vessel occurred through the negligence of the master
operating on conditions of unseaworthiness existing since the commencement of the
voyage. The loss was held to be caused by the breach of the warranty of seaworthiness
and recoverable accordingly. There was an exception of negligence. At p. 1005 in the
judgment of that case it is stated “no distinction could be drawn between cases where
the negligent conduct of the master is a cause and cases where any other cause, such
as perils of the sea, is a cooperating cause. A negligent act is as much a cooperating
cause if it is a cause at all, as an act which is not negligent”. What was then being
emphasized was that a voluntary act (negligent or not) of a human agent is not
generally an independent or new cause for this purpose which breaks the chain of
causation, as it is called, so as to exclude from consideration the causal effect of the
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unseaworthiness. In that case it was held that the unseaworthiness created in the
vessel instability which, combined with negligence of the master, caused the loss. No
new law was laid down in that case. Similarly in Standard Oil Co. of New York v. Clan
Line Steamers Ltd.11 the vessel capsized because the master not being instructed by
his owners as to the peculiarities of a turret ship, so handled her that she capsized.
That loss was immediately due to perils of the sea which overwhelmed her when she
capsized, liability for which was excepted, but the dominant cause was her
unseaworthiness in that her master, though otherwise efficient, was inefficient in not
being aware of the special danger. In general, all the authorities are in agreement in
this respect and embody the same rule. The shipowner, of course, under the familiar
general rule, is debarred by his breach of duty from relying on the specific exception.
Though he would not be liable for the consequences caused by the specific excepted
peril or the accident alone if he were not in default, though the unseaworthiness
existing at the commencement of the voyage might not be operative or known until
the time when the accident occurs, yet then the breach of the warranty operates
directly as a cause and, indeed, a dominant cause. Causation in law does not depend
on remoteness or immediacy in time. These observations meet the appellants'
contention about the Government Ordinance intervening to fix the damages. They
show that such intervention does not break the chain of causation, nor does it make
the loss, i.e. damages, remote. The statement of law in Mayne on Damages quoted
above, only reproduces the principle of law stated by Lord Blackburn in Livingstone v.
Rawyards Coal Company7 .
17. Bearing in mind this state of the law it appears clear that in the present case it
was the duty of the appellants to insure the goods, as they had agreed to do. Once
misconduct is admitted or proved, the fact that the Ordinance did not exist and could
not have been in the contemplation of the parties is irrelevant for deciding the
question of liability. The liability was incurred by reason of the breach of their duty and
the appellants made themselves liable to pay damages. The measure of damages was
the loss suffered by the respondents on account of the goods not being insured. The
next point to be decided is what difference the promulgation of the Ordinance makes
in the liability of the appellants. The relevant provisions are noted above. The scheme
of the Ordinance clearly is, as stated in the preamble, to provide for and regulate the
payment of compensation and to prevent litigation, amongst other things. It is thus a
comprehensive legislation which replaces the rights of parties either under the policy
of insurance against insurance companies, or on the ground of negligence against
Government by the owners of the goods, as also claims by insurance companies
against Government. The validity of this legislation is not challenged. Section 18 gives
it a retrospective effect. Therefore the Ordinance only substitutes a new basis for
assessing compensation for the ordinary basis for assessing unliquidated damages.
The compensation under the Ordinance is payable on proof of the existence of a fire
insurance policy irrespective of the terms of the policy. The non-recovery of half the
amount of the respondents' claim from the Government under the Ordinance because
of the absence of a fire insurance policy, thus directly arises from the neglect of the
appellants to insure the goods, as they had been instructed to do or agreed to do and
which in fact they represented that they had done. In our opinion, these are not
indirect or remote damages.
18. The contention that under the policy of insurance the assured could not have
recovered anything for loss caused by the fire due to explosion cannot be accepted.
Firstly, this contention of the assured's inability to receive any compensation because
of clause 7 of the form of common policy was not raised in the trial court. No issue was
raised in respect thereof and no arguments in support or against it were heard. It was
suggested for the first time, as appears from the judgment of Chagla, J., in the court
of appeal. The assumption that because of clause 7 of the policy no insurance
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company would have paid the loss cannot be assumed to be necessarily and
unquestionably sound and in view of the terms of the Ordinance not capable of being
determined. There appears no reason under the circumstances to proceed as if an
adverse decision on the interpretation of the policy had been given against the
respondents and to hold the appellants free from liability for not recovering half the
value of the goods which could have been recovered if the goods had been insured
(irrespective of the terms on which the policy stood) as agreed to be done by them. I
do not think when the relations between the parties are of a principal and an agent
and the agent is found to have committed a breach of his duty, it is correct to take a
narrow view of the situation. The agent chose to gamble in not insuring the goods and
desired to charge the agreed premia, on the footing that the goods were covered by
insurance. If so, he must take the consequences of his default. The argument that
their liability as an agent who had agreed to insure should be ascertained as on the
date of the explosion is no answer to the claim of the respondents. The position would
be this. Assuming that the appellants had insured the goods on the terms of the usual
fire insurance policy, the respondents could ask them either to assign the policy to the
respondents or to file a suit against the insurance company contending that the fire,
and not the explosion, was the cause of the loss and was covered by the policy of
insurance. Before the Court could decide the rights of the parties, the Ordinance
promulgated by the Governor-General prevented the decision of the dispute, but the
Government undertook to pay the loss on the footing that the policy covered the risk.
The misconduct gave rise to the liability to make good the damage and to put the
respondents in the same position in which they would have been if their goods had
beeen insured.
19. On behalf of the appellants it was urged that because of the Government
intervention in issuing the Ordinance they were sought to be made liable under a new
liability. Their liability has been and exists on the basis that a fire insurance policy
existed, as they were instructed to insure the goods and which they represented they
had done. The liability arises not because of the Ordinance but because of the breach
of their duty in failing to insure, which has taken place apart from the Ordinance and
which is not affected by the Ordinance. The utmost that they could urge is that the
extent of their liability arising from their misconduct was not anticipated by them
when they agreed to perform their duty. That however is no defence in law if the
damages directly flow from the breach of duty. The Ordinance only quantifies the
damages instead of leaving the unliquidated damages to be assessed in the usual
way. The Ordinance lays down the yardstick for fixing the damages under different
circumstances, which cover all alternative situations, and the liability for failure to
insure must now be measured by the new basis. It does not create any new liability.
The appellants' contention on this point therefore must be rejected.
20. The only other point urged before us was based on the construction of Section
18 of the Ordinance. It was argued on behalf of the appellants that apart from what
could be recovered under clause (1) of Section 18, the Ordinance extinguished all
right, whether in contract or tort or otherwise, to any compensation or damage for loss
of any property due to, or in any way arising out of, the explosion and provided that no
suit or other legal proceedings for any such compensation or damages shall, save as
aforesaid, be maintainable in any court against the Crown or against any other person
whatsoever. It was urged that in establishing their claim, the respondents must plead
the right to recover the amount due to explosion and that was barred under Section 18
(2). In our opinion, this contention is unsound. The appellants have filed this suit to
recover the price of the goods on the ground of indemnity. The respondents' answer is
that the appellants are not entitled to the indemnity because they are guilty of a
breach of duty in the business of the agency. They contend that they would be liable
to pay for the goods only if the appellants give them the goods or deliver the same
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according to their instructions. They counter-claim that if the appellants are unable to
give them the goods, they must pay them the value thereof. The appellants plead by
way of defence to the counter-claim that the goods were destroyed without any
neglect on their part by fire caused by the explosion and therefore they were not
liable. The respondents' rejoinder is that they had asked the appellants to insure the
goods and if the appellants had not failed in their duty they would have reimbursed
the respondents. The appellants then plead that even if they had insured the goods
the respondents could not have recovered anything from the insurance companies. It
is in reply to this contention that the respondents say that the appellants' liability to
recover money from the insurance company on the terms of the usual fire insurance
policy is irrelevant because they could have recovered the money if they had insured
in fact, irrespective of the terms of the policy, under the Ordinance. The respondents
are not thus claiming to recover money from the appellants otherwise than under
Section 18(1) of the Ordinance. Their cause of action is the misconduct of the agent in
the business of agency and is quite different. It is not for compensation arising from
explosion.
21. It was argued that damages formed part of the cause of action of the
respondents in framing the counterclaim and therefore Section 18(2) stood in the way
of the respondents. The contention is unsound because the cause of action is
completed by the averment that there was a duty or agreement to insure, that there
was a failure to perform that duty, that loss had occasioned to the respondents
because of the failure to perform the duty and the appellants were therefore liable for
the breach of the duty. The quantum of damages is not a part of the cause of action. It
is a matter to be ascertained by the court according to well laid down principles of law.
22. The result is that the appeal fails and is dismissed with costs.
M. PATANJALI SASTRI, J.— I regret I am unable to agree with the judgment just
delivered by my Lord which I have had an opportunity of reading. As the facts of the
case have been fully stated in that judgment it is unnecessary to restate them here.
24. The main question arising for determination is what damages are the appellants
liable to pay to the respondents for their failure to insure the respondents' goods
which were destroyed by fire caused by the big explosions which occurred in the
Bombay Docks on 14th April, 1944? The goods had been purchased by the appellants
in Bombay as the commission agents of the respondents and were left in their
godowns pending their despatch to the respondents' place of business. It was found
by the Appellate Bench of the Court below that the appellants had agreed to keep the
goods insured against fire while in their custody and had debited the respondents in
their books with the insurance charges. A suggestion was made in the course of the
arguments before us that the appellants agreed to be the insurers themselves, but the
findings of the Appellate Bench leave no room for doubt that all that the appellants
agreed to do was to procure a policy of fire insurance in the ordinary or common form
and subject to the conditions usually stipulated in that form of policy. This is also
made clear by the concession of the respondents' counsel in the court below that “he
was only relying on the agreement to the extent that the insurance was to be effected
against fire on an ordinary fire insurance policy”. It is common ground that one of the
general conditions in that form of policy is that “it does not cover” among others any
loss or damage occasioned by or through or in consequence of explosion. Relying on
that condition, it was contended for the appellants that even if they had effected an
insurance on the goods according to the agreement, the loss of the goods by fire
caused by the explosion would have been an excluded loss for which no damages
could have been claimed from the insurer and that, therefore, the respondents would
not be entitled to recover from the appellants anything more than nominal damages
for failure to insure. This contention must, in my opinion, prevail. As pointed out by Mr
Mayne in his Treatise on Damages (p. 591, 11th Edn.) “When the agent can show that
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under no circumstances could any benefit to the principal have followed from
obedience to his orders, and therefore that disobedience to them has produced no real
injury, the action will fail. Therefore, if an agent is ordered to procure a policy of
insurance for his principal, and neglects to do it, and yet the policy, if procured, would
not have entitled the principal, in the events which have happened, to recover the loss
or damage, the agent may avail himself of that as a complete defence.”
25. A complication, however, is introduced by an Ordinance promulgated by the
Governor-General known as the Bombay Explosion (Compensation) Ordinance (32 of
1944) which came into force on 1st July, 1944. The preamble states “Whereas an
emergency has arisen which makes it necessary to provide for and regulate the
payment of compensation for… damage to property due to, or arising out of, the
explosions and fires which occurred in the Bombay Docks on 14th April, 1944, to
restrict litigation in connection with the said explosions…”. By Section 2 “the
explosion” is defined as meaning “the explosions which occurred in the Bombay Docks
on 14th April, 1944, and the fires which ensued therefrom”. An “explosion damage” is
defined as “damage which occurred, whether accidentally or not, as the direct result of
the explosion.…” “Uninsured property” means “property which was not covered
whether wholly or partially by any policy of fire, marine or miscellaneous insurance at
the time of the explosion”. Section 14, so far as it is material here, provides that
“there shall be paid by the Central Government compensation for explosion damage to
property, being damage caused by fire to property insured whether wholly or partially
at the time of the explosion against fire under a policy covering fire risk … of an
amount equal to the proved loss”. Section 15 provides for contribution to Government
by insurance companies. Section 16 provides for compensation for such damage to
uninsured property on a certain scale mentioned in that section. Section 18(2) enacts,
subject to certain exceptions not material here, “no person shall have, or be deemed
ever to have had, otherwise than under this Ordinance any right, whether in contract
or in tort or otherwise to any compensation or damages for any … or damages to or
loss of any property, rights or interests, due to or in any way arising out of the
explosion; and no suit or other legal proceedings for any such compensation or
damages shall, save as aforesaid, be maintainable in any court against the Crown … or
against any servants or agents of the Crown … or against any other person
whomsoever; and no act or omission which caused or contributed to the explosion
shall be deemed to have been done or omitted to be done otherwise than lawfully”.
26. It is admitted that the appellants recovered from the Central Government under
Section 16 nearly one-half of the value of the goods destroyed by fire while in their
custody as compensation for the loss of the respondents' goods could have given
credit to the respondents in their accounts for the amount thus received. The dispute
now relates to the respondents' claim to the balance of the value of the goods as
damages for the appellants' failure to keep them insured according to the agreement
between the parties as the full value of the goods could have been obtained from the
Government under Section 14 without regard to any excepted risk if only they had
been insured against fire. The scheme of the Ordinance appears to be that the
Government, instead of having probably to fight out numerous law suits for
compensation for loss or damage to property based upon alleged negligence of their
officers in having allowed the explosion to take place, undertook to pay an amount
equal to the “proved loss” in cases of loss or damage to goods which had been insured
against fire, etc. and smaller amounts for loss or damage to uninsured goods, putting
an end, at the same time, to all rights to compensation or damages arising out of the
explosion, and barring all suits or legal proceedings for the same.
27. On the basis of these provisions it was contended on behalf of the respondents
that the appellants, by reason of their failure to keep the goods insured, were liable
under the law to place the respondents, who had suffered the loss, in the same
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position as if the appellants had performed their agreement or carried out the
instructions of the respondents. Learned counsel for the respondents based the claim
on the neglect of duty on the part of the appellants as commission agents in carrying
out the instructions of their principals, and relied on the provisions of Section 212 of
the Indian Contract Act, which provides, inter alia, that an agent is bound “to make
compensation to his principal in respect of the direct consequence of his own neglect,
want of skill or misconduct, but not in respect of loss or damage which are indirectly or
remotely caused by such neglect, want of skill or misconduct”. On the other hand, it
was urged on behalf of the appellants that the question had to be determined on the
basis of a breach of contract for the consequences of which provision is made in
Section 73 of the Indian Contract Act. That section says that “when a contract has
been broken, the party who suffers by such breach is entitled to receive, from the
party who has broken the contract, compensation for any loss or damage caused to
him thereby, which naturally arose in the usual course of things from such breach, or
which the parties knew, when they made the contract, to be likely to result from the
breach of it. Such compensation is not to be given for any remote or indirect loss or
damage sustained by reason of the breach”. I do not think that it makes much
difference, so far as the assessment of general damages is concerned, whether the
default of the appellants is treated as a breach of contract between two contracting
parties or a neglect of duty by agents in failing to carry out the instructions of their
principal. Although the Indian Contract Act makes separate provisions for the
consequences in each case, the rule laid down as to measure of damages is the same,
namely, the party in breach must make compensation in respect of the direct
consequences flowing from the breach and not in respect of loss or damage indirectly
or remotely caused, which is also the rule in English common law. The rule is based on
the broad principle of restitutio in integrum, that is to say, that the party who has
suffered the loss should be placed in the same position, as far as compensation in
money can do it, as if the party in breach had performed his contract or fulfilled his
duty. That principle was once carried to its utmost logical, if grotesque, result as in an
old English case to which Willes, J. referred in British Columbia Saw-Mill Co. v.
Nettleship12 : “Where a man going to be married to an heiress, his horse having cast a
shoe on the journey, employed a blacksmith who did the work so unskilfully that the
horse was lamed, and the rider not having arrived in time the lady married another;
and the blacksmith was held liable for the loss of the marriage”. And the learned
Judge warned “We should inevitably fall into a similar absurdity unless we applied the
rules of commonsense to restrict the extent of liability for the breach of a contract of
this sort”. The commonsense point of view was thus put by Lord Wright in Liesbosch,
Dredger v. Edison S.S. (Owners)13 : “The law cannot take account of everything that
follows a wrongful act; it regards some subsequent matters as outside the scope of its
selection because ‘it were infinite for the law to judge the cause of causes’, or
consequence of consequences. Thus the loss of a ship by collision due to the other
vessel's sole fault may force the shipowner into bankruptcy and that again may involve
his family in suffering, loss of education or opportunities in life, but no such loss could
be recovered from the wrongdoer. In the varied web of affairs the law must abstract
some consequences as relevant, not perhaps on grounds of pure logic but simply for
practical reasons”. These considerations have led the courts to evolve the qualifying
rules of remoteness subject to which alone the broad principle of restitutio in integrum
now finds its application.
28. Applying these principles to the facts of the present case, what is the position?
The respondents lost their goods by fires arising out of the explosion presumably due
to the negligent conduct of the Government's officers or servants at the docks. Even if
the appellants had taken out a fire insurance policy in ordinary form it would not have
covered the loss, for fire due to explosion would be an excepted peril. So, the
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appellants' failure keep the goods insured produced no direct consequence for which
damages could in law be claimed. It is true enough to say that if the appellants had
taken out a fire policy covering the goods, the respondents could have obtained the
full value of the goods from the Government. But did the respondents' inability to
recover such full value from the Government arise directly or naturally in the usual
course of things out of the appellants' failure to insure? I think not, since independent
and disconnected events had to occur to produce the result viz. the government's
scheme of compensation embodied in the Ordinance, the agreement with the
Insurance Companies regarding their contribution, and the consequent distinction
made between insured and uninsured property in providing compensation for their
loss. Suppose the fire was caused by an explosion due to the negligence of a private
individual. The respondents would have their remedy by suing him for damages. But if
he was insolvent, could the respondents' inability to recover damages from him be a
direct and natural consequence of the appellants' failure to insure? Surely not, for even
if the appellants had insured the goods according to their agreement with the
respondents, the latter would be in no better position. Here, the Government,
presumably being satisfied, or at any rate apprehending, that the explosion was due to
the negligence of their servants, got the Ordinance passed providing for payment of
compensation by the Government on the terms stated therein and at the same time
putting an end to all rights to recover compensation save as provided in the Ordinance
and barring all suits and other proceedings for that purpose. As any claim to
compensation against the Government must be based upon the negligence of their
servants, the Government took no note of excepted risks in insurance policies and
undertook liability to pay full compensation in case of all insured property, doubtless
because, under an arrangement with certain Insurance Companies the Government
obtained a proportionate contribution as provided for in Section 15, though on the
hypothesis of their servants' negligence their liability in law would be the same in
respect of insured and uninsured property. If the Ordinance had provided for partial
compensation in both cases, as it would probably have done if the Insurance
Companies had not agreed to come into the scheme with their contributions, the
respondents could have no claim to recover the balance from the appellants,
notwithstanding that the supposed direct causal connection between the appellants'
default and the respondents' loss would still be there. The truth is there was no such
connection and it was because of the provisions of the Ordinance which made a
distinction between insured and uninsured property in the matter of compensation for
explosion damage, and barred rights and remedies under the general law in relation
thereto, that the respondents were unable to recover the balance of the value of their
goods destroyed by fire. But such inability cannot be regarded as flowing naturally or
directly from the appellants' default.
29. It was suggested that the provisions of the Ordinance must be taken to have
displaced the ordinary rules of law as to remoteness of damage, as Section 18(2)
extinguished, retrospectively from the date of the explosion, all rights and remedies
under the general law for obtaining compensation for explosion damage and
substituted the rights therein provided. The substituted right to compensation, so far
as the Government and insured property were concerned, was not subject to any
restrictive conditions in the policies, and therefore, it was claimed, the measure of
damages in this case must be determined irrespectively of the existence of the clause
excluding “explosion” from the scope of the common form of policy. The argument is,
in my opinion, more ingenious than sound. The short answer to it is that the Ordinance
did not purport to displace or supersede any rule of law as to measure of damages or
to amend or abrogate any terms in insurance policies. There is nothing in the
Ordinance to indicate that the clause excepting explosion contained in the fire
insurance policies issued in Bombay should be deemed to be null and void. As already
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stated, the Government, having accepted liability for explosion damage, were not
really concerned with the restrictive conditions in the policies. Their liability did not
arise out of such policies. In view of certain Insurance Companies having agreed to
contribute a certain proportion, the Government undertook liability to pay full
compensation for loss of insured property regardless of the terms of insurance, which
had no relevance to the liability which they assumed. To suggest, in such
circumstances, that the clause excepting explosion risk in all fire policies issued in
common form in Bombay was legislatively abrogated is, in my opinion, extravagant
and far-fetched. The respondents' goods were destroyed when the explosion occurred
on 14th April, 1944, and on that date they could have recovered nothing except
perhaps nominal damages for the appellants' failure to insure the goods as they
agreed to do. It is difficult to see how by virtue of the Ordinance passed more than
two months later, their claim against the appellants, which the respondents
themselves are contending is not in any way affected by the provisons of the
Ordinance, could become enlarged.
30. The next contention raised on behalf of the appellants before us relates to the
maintainability of the respondents' counter-claim the contention is based upon Section
18(2) of the Ordinance which provides that “no suit or other legal proceedings for any
such compensation or damages” (i.e. compensation or damages for any damage to or
loss of any property, rights or interests due to or in any way arising out of the
explosion) “shall, save as aforesaid” (exceptions not material here) “be maintainable in
any court against the Crown … or against any other person whomsoever…”. The
learned Chief Justice in the Court below makes no reference in his judgment to this
contention, but Chagla, J. repelled it thus. “Now, in my opinion, the defendants' claim
does not arise out of the explosion nor is it in any way due to the explosion. The
plaintiffs have filed the suit as agents on an indemnity and the defendants' answer is
that they were entitled to set off against the amounts due to the plaintiffs, the loss
incurred by them by reason of the fact that the plaintiffs as the defendants' agents did
not carry out the defendants' instructions. If the plaintiffs' claim on the indemnity
does not arise out of the explosion equally so does the defendants' set-off not so arise.
The defendants' cause of action is failure by the plaintiffs to carry out their instructions
and that cause of action has nothing whatever to do with the explosion. With all
respect I find it difficult to follow this reasoning. The appellants' claim on the
indemnity does not certainly arise out of the explosion, for their case is that they
purchased the goods in question paying the price on the respondents' instructions,
and they claim to recover the price so paid notwithstanding the destruction of the
goods by fire for which they say they were in no way responsible. But the basis of the
respondents' counter-claim is quite different. They say that if the appellants had kept
the goods insured according to the agreement, they (the respondents) could have
recovered the full value of the goods from the Government under Section 14 of the
Ordinance, and the appellants, having failed to do so, are liable to pay by way of
damages the balance of the value of the goods. It is a little difficult to see how it could
be said that the respondents' claim “does not arise out of the explosion nor is it in any
way due to the explosion”. The bar under Section 18 is not based upon the nature of
the cause of action for the suit or proceeding barred, but upon the damage or loss of
property having been “due to or in any way arising out of” the explosion. Indeed, the
respondents appear to my mind to be in a dilemma in regard to this point. They must
necessarily say, in order to have been able to claim the full value of the goods from
the Government if they had been insured, that the damage to the goods was
“explosion damage to property, being damage caused by fire to property insured
whether wholly or partially at the time of the explosion against fire under a policy
covering fire risk”. For, unless they said that, no claim could be made against the
Government under Section 14, and so the very basis of their claim against the
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appellants that, but for the appellants' neglect of duty, the respondents could have
recovered the full value of the goods from the Government, would fail. But if they had
to say that the goods were lost by explosion damage within the meaning of Section
14, it seems to me, they would be bringing themselves under the bar of Section 18
(2). The respondents cannot therefore claim that the loss of the goods was explosion
damage within the meaning of the Ordinance so as to bring the case within Section 14
and at the same time contend that the loss was not “due to or did not in any way arise
out of the explosion” in order to avoid the bar under Section 18. Both Section 14 and
Section 18 have in view the physical cause for the loss or damage to property for
which compensation is claimed and not the cause of action in relation to the person
against whom relief is sought. The respondents cannot, in my opinion, be allowed to
take up inconsistent positions in order to bring themselves within the one and to get
out of the other.
31. I would therefore allow the appeal and dismiss the counter-claim.
SUDHI RANJAN DAS, J.— agreed with the Chief Justice.
———
*
Appeal from a Judgment and Decree of the High Court of Judicature at Bombay dated 11th April, 1947, (Sir
Leonard Stone C.J. and Chagla J.) in Appeal No. 39 of 1946, reversing the Judgment and decree of Bhagwati J.,
dated 27th March, 1946, in Civil Suit No. 1373 of 1944 of the said High Court in its Original Jurisdiction.)
1 (1788) 2 TR 187
2 2 Ves Sen 239
3
(1921) 3 KB 560
4 (1920) AC 983-984
5 (1949) AC 196
6
9 Ex 341
7 (1880) 5 App Cas 25, 39
8
(1933) AC 449
9
(1912) AC 678, 689
10 (1940) AC 997
11 (1924) AC 100
12
LR 3 CP 499, 508
13 (1933) AC 449
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