dedol-hf/india-case-legal-rag huggingface dataset:
being  "due to or in any way arising out of"  the  explosion
and the claim of the defendands was clearly barred.  In  any
event  the  defendants cannot be allowed to claim  that  the
loss  of the goods was explosion damage so as to  bring  the
case under s. 14 and at the same time contend that the  loss
was not due to or did not in any way arise out of the explo-
sion in order to avoid the bar under s.
18.In  re  an Arbitration between Polemis  and  Another  and
Furness Withy & Co.   Ltd. [1921] 3 K.B. 560,  Weld-Blundell
v. Stephens [1920] A.C.   983,  Monarch Steamship  Co.  Ltd.
v.  Karlshamns  Oljefabriker   [1949] A.C.  196,  Hadley  v.
Baxendale  (9 Ex. Livingstone v. Rawyards Coal Co. (1880)  5
App. Cas. 25, British Westinghouse Electric and  Manufactur-
ing  Co.  Ltd. v. Underwood Electric  Railways  Co.,  London
[1919]  A.C.  673,  Liesbosch (owners)  v.  Edison  (owners)
[1933]  A.C.  449, Smith Hogg & Co. Ltd. v.  Black  Sea  and
Baltic General Insftrance Co. Ltd. [1940] A.C. 997, Standard
Oil  Co. of New York v. Clan Line Steamers Ltd. [1924]  A.G.
100 referred to.
JUDGMENT:
APPELLATE JURISDICTION: Civil Appeal No. 71 of
1949.
    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.
    Rang Behari Lal (Rajeswar Nath Nigam, with him) for  the
appellants.
    M.C. Setalvad (Ram Ditta Mal and B. Sen, with hirn)  for
the respondents.
    1950.  December  21.  The Court  delivered  judgment  as
follows :---
    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.
    The  appellants  (plaintiffs) are a firm  of  commission
agents in Bombay.  The respondents  (defendants)
982
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 the 8th February, 1944,
Mohanlal of the defendants' joint family firm came to Bombay
and  the plaintiffs purchased on their behalf 278  bales  of
piecegoods. Ninetyfour out of those were despatched  accord-
ing to the defendants' instructions. The plaintiffs, accord-
ing  to  the defendants' instructions, applied for  and  ob-
tained 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 the  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
On  the 14th April, 1944, there occurred a big explosion  in
the Bombay harbour which destroyed several immovable proper-
ties  and  godowns with moveable property covering  a  large
area  near the port. Fires were caused by the explosion  and
they  also caused considerable destruction of  moveable  and
immoveable  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 9'2 bales from  the  de-
fendants  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
     983
till delivery of the goods was given to them.  In the alter-
native, 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 remain  insured
till  despatched according to their instructions.  In  para-
graph 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  commis-
sion   agents, the  plaintiffs  were guilty   of  negligence
and  misconduct  in the business of agency, as in  spite  of
specific  instructions  and  agreement they  bad  failed  to
insure the goods.  They contended that owing to this  negli-
gence 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  counterclaimed
the same amount if their set-off was not allowed.  On  these
pleadings  the parties went to a hearing.  Issue to  covered
the  defendants' plea about the plaintiffs'  negligence  and
misconduct  in  not insuring the 92 bales and  the  counter-
claim arising therefrom.
    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 instruc-
tions were given by Mohanlal to insure the goods and that
984
the agreement was proved.  In thus differing from the  trial
court's decision, they accepted the well-recognised  princi-
ple  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  men-
tioned 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.
    After  a brief discussion in which this point was  halt-
ingly  urged before us, the learned counsel for  the  plain-
tiffs  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.
    That left for decision the important question of damages
to which the respondents  were  entitled. Before the  appel-
late  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-"
     The  appellants urged that granting that they  were  in
default and had committed a breach of duty in not
985
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 n Mayne on Damages, (11th
Ed.) at page 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 princi-
pal, in the events which have happened, to recover the  loss
or damage, the agent may avail himself of that as a complete
defence."
    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  pro-
mulgated  the  Bombay Explosion  (Compensation)  (Ordinance,
1944. The preamble to that Ordinance runs as follows:-
    " Whereas an emergency has arisen which makes it  neces-
sary 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
the  14th April, 1944, to restrict  litigation  in   connec-
tion   with   the   said explosions and fires  and  to  make
certain other provisions in connection therewith."
    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  Ordi-
nance and an appeal and review from their decision,  section
14 provided as follows :--
986
    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  insur-
ance) 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 pollcy (other
than a policy of marine insurance) covering fire and  explo-
sion 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 871/2 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.
    Section  15  provided for contribution by  the  insurers
towards  the payment of amounts to be paid under  the  Ordi-
nance.  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 (V/11  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 toproperry under any policy' of marine or miscel-
laneous 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 explo-
sion; and no suit or other
    987.
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 againt any other person  whomso-
ever; 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.
    (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."
    It is common ground that in respect of uninsured  merch-
andise  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  re-
spondents.  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  compensa-
tion would have been recovered by the appellants and  become
payable to the respondents.
    The appellants'  contention is two-fold.  Firstly,  that
if  they had insured the goods the ordinary fire insurance
policy  would  not have covered the risk and  therefore  al-
though 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  Govern-
ment 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
988
insured.  The second contention is that the counterclaim  of
the respondents is barred under section 18 (2) o[ the  Ordi-
nance.  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  principal.   Under
section  211  when  an agent conducts the  business  of  the
principal  otherwise than according to the directions  given
by  the principal, ii 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. Lascelles(1), 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  Con-
tract Act provides as follows :---
    "An  agent is always bound to act with reasonable  dili-
gence and use such skill as he possesses; to make  compensa-
tion 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."
    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  there-
fore  is  whether in the present case the claim of  the  re-
spondents  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.
    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. Short(2), the Lord Chancellor  shortly  stated
the  proposition  of  law in these terms :--"  The  rule  of
equity is, that if an order
(1) (1788) 2 T.R. 187.            (2) 2 Ves. Sen, 239.
989
is sent by a principal to a factor to make an insurance; and
he charges his principal, as i[ it was made; if he never  in
fact has made that insurance, he is considered as the insur-
er himself" If therefore, as in the present case, the appel-
lants  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
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.
If,  however, it is considered that they were not  them-
selves  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  respond-
ents  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 &  another  and  Furness
Withy  & Co. Ltd.(1) there is a discussion on this point  in
the judgment of Banks L.J.  He drew attention to the  obser-
vations of Lord Sumner in Weld-Blundell v.
[1921] 3 K.B. 560.
990
Stephens  (1), who observed as follows:--"What are  natural,
probable  and necessary consequences ? Everything that  hap-
pens, happens in the order of nature and is therefore  natu-
ral.  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 irrecover-
able,  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  the  distinction can be  admitted.   Given  the
breach  of duty which constitutes the negligence, and  given
the  duty 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,"
    The question of what is remoteness of damages in a  case
of negligence has been reviewed in detail in a recent  deci-
sion of the House of Lords in Monarch Steamship Co. Ltd.  v.
Karlshamns  Oljefabriker(2).   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
(1) [1920] A.C, 983-981          (2) [1949] A.c. 196,
991
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  hold-
ers  of  the bills of  lading  claimed   the    re-transport
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 relevant authorities have been  reviewed
and  the  ratio decidendi has been set out.   In  Hadley  v.
Baxendale  (1)   Alderson  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 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. (2) 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,
(1) 9 Ex. 341.              (2) (1880) 5 App. Cas. 25, 39.
992
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