# Pannalal Jankida! v. Mohanlal and Another

- **Citation:** [1950] 1 S.C.R. 979
- **Court:** Supreme Court of India
- **Decided:** 1950
- **Case number:** Civil Appeal No. 71 of 1949
- **Bench:** SHRr'HARILAL KANIA C.J, Patanjali Sastri, DAs
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/pannalal-jankida-v-mohanlal-and-another-166
- **Pages:** 30

## Headnote

Contract-Damages-Remoteness of damage-Agent neglecting
ta inwre goads against fire-Goads destroyed by explosian-Liabi·
lity al agent-Bombay Explosion (Compensation) Ordinance, 1944,
ss. 14, 18-0rdinance granting compensation for damage by explosion-Loss by explosioii not covered by policy-Loss of compensation
undu Ordinance by failure to insttre-Whetlwr direct or remote
damage-Claim by principal against agent, whet/wr barred by Ordin·
ance-Indian Contract Aot, 1872, s. 212.
The plaintiffs who were commission agents purchased piecegoods according to defendant's instructions and storsd a portion
of the goods in a godown in Bombay pending receipt of a permit
from the Government authorities for consigning the same to the
defendants. Before the goods could be despatched,a big explosion
occurred in the Bombay Harbour and the goods stored were destroyed either by the fire or the explosion.
A few months later the
Governor-General promulgated the Born bay Explosion (Compensa·
tion) Ordinance, 1944, which provided, inter alia, (i) that the Government shall pay a compensation of 50 per cent. of the damage caused
in respeet of uninsured goods, and the entire damage in reepect
of insured goods; and (ii) that no person 8hall have or be deemed
ever to have bad, otherwise than under the Ordinance any right
whether in contract or in tort or otherwise to any compensation
for damage to or loss of property arising out of the explosion and
no suit or other legal proceeding for any such compensation or
damage shall be maintaiDable in any civil court. The plaintiffs
received GO per cent. of the value of the destroyed goods as \hey
!950
Etttcutors of
the Estaf4 of
J. K. Dubt:uh
••
Commissioner of
Income-ta:t,
Bombay City.
Patanjali
Saatri J.
1950
Dae. 21.
,
•
1960
Pannalal
Jankida!
v
Mohanlal and
Another.
'
980
SUPREME COURT REPORTS
[1950]
were not insured, and, alleging that as agents they bad the right
to be indemnifiod by the defendants, sued the latter 1or recovery
of the remaining 50 per cent. of the value of the goods. The
defendants pleaded, and it was found as a fact, that they bad instructed the plaintiffs, and the latter bad agreed, to insure the
goods but had omitted to do so, and they claimed that inasmuch
as they would have been entitled to receive the full value of the
goods as compensation under the Ordinance if the plaintiffs bad
insured, they were entitled to set off or counter claim the value
of the goods as damages caused to them by the neglect or breach
of duty of the plaintiffs.
Held per KANIA C.J. and
DAS J. (PATANJALI SASTRI J.
dissenting).-(i) As full compensation under the Ordinance was
payable on proof of the existence of a fire insurance policy irrespective of the terms of the policy, and the non-recovery of half
the value of the goods from the Government under the Ordinance
was due to the absence of a fire insurance policy, the loss to the
defendants arose directly from the neglect or breach of duty of
the plaintiffs to insure the goods as they had been instructed and
agreed to do; intervention of the Ordinance did npt break the
chain of causation or make the loss remote 6r indirect; the Ordin·
ance did not create any new liability but only quantified the
damages; and the fact that it did not exist at the time of the explosion and could not have been in the contemplation of the
parties was irrelevant for deciding the question of liaibility;
{ii) the plea of the defendants was not barred by the Ordinna.nce inasmuch a.a their cause of action against the plaintiffs
was misconduct of the lg,tter in the business of their agency, and
this cause of action was completed by the averment that there
was a duty or a.greement to insure, that there was failure to per·
form that duty and that the failure bad caused damage to the
defendants, and the quantum of the damages was not a part of
the ca.use of action.
Per PATANJALI SAoTR( J.-(i: The defendants' inability to
recover the full value of the goods from the Government under
the Ordin

## Text

_Characters 0–39,983 of 66,946. This is a partial read: ask again with offset=39983 for what follows._

' -
:t'
S.C.R.
SUPREME COURT REPORTS
979
say that an apportionment under section 26 (2) would
be meaningless, though, if the testator's estate was
sufficiently solvent,
it would have
no practical
significance.
DAS J.-I agree with the Chief Justice.
Appeal dismissed.
Agent for the appellant: R. S. Narula.
Agent for the respondent: P. A.Mehta.
PANNALAL JANKIDAS
v.
MOHANLAL AND ANOTHER.
(SHRr'HARILAL KANIA C.J ., PATANJALI SASTRI
and DAs JJ.]
Contract-Damages-Remoteness of damage-Agent neglecting
ta inwre goads against fire-Goads destroyed by explosian-Liabi·
lity al agent-Bombay Explosion (Compensation) Ordinance, 1944,
ss. 14, 18-0rdinance granting compensation for damage by explosion-Loss by explosioii not covered by policy-Loss of compensation
undu Ordinance by failure to insttre-Whetlwr direct or remote
damage-Claim by principal against agent, whet/wr barred by Ordin·
ance-Indian Contract Aot, 1872, s. 212.
The plaintiffs who were commission agents purchased piecegoods according to defendant's instructions and storsd a portion
of the goods in a godown in Bombay pending receipt of a permit
from the Government authorities for consigning the same to the
defendants. Before the goods could be despatched,a big explosion
occurred in the Bombay Harbour and the goods stored were destroyed either by the fire or the explosion.
A few months later the
Governor-General promulgated the Born bay Explosion (Compensa·
tion) Ordinance, 1944, which provided, inter alia, (i) that the Government shall pay a compensation of 50 per cent. of the damage caused
in respeet of uninsured goods, and the entire damage in reepect
of insured goods; and (ii) that no person 8hall have or be deemed
ever to have bad, otherwise than under the Ordinance any right
whether in contract or in tort or otherwise to any compensation
for damage to or loss of property arising out of the explosion and
no suit or other legal proceeding for any such compensation or
damage shall be maintaiDable in any civil court. The plaintiffs
received GO per cent. of the value of the destroyed goods as \hey
!950
Etttcutors of
the Estaf4 of
J. K. Dubt:uh
••
Commissioner of
Income-ta:t,
Bombay City.
Patanjali
Saatri J.
1950
Dae. 21.
,
•
1960
Pannalal
Jankida!
v
Mohanlal and
Another.
'
980
SUPREME COURT REPORTS
[1950]
were not insured, and, alleging that as agents they bad the right
to be indemnifiod by the defendants, sued the latter 1or recovery
of the remaining 50 per cent. of the value of the goods. The
defendants pleaded, and it was found as a fact, that they bad instructed the plaintiffs, and the latter bad agreed, to insure the
goods but had omitted to do so, and they claimed that inasmuch
as they would have been entitled to receive the full value of the
goods as compensation under the Ordinance if the plaintiffs bad
insured, they were entitled to set off or counter claim the value
of the goods as damages caused to them by the neglect or breach
of duty of the plaintiffs.
Held per KANIA C.J. and
DAS J. (PATANJALI SASTRI J.
dissenting).-(i) As full compensation under the Ordinance was
payable on proof of the existence of a fire insurance policy irrespective of the terms of the policy, and the non-recovery of half
the value of the goods from the Government under the Ordinance
was due to the absence of a fire insurance policy, the loss to the
defendants arose directly from the neglect or breach of duty of
the plaintiffs to insure the goods as they had been instructed and
agreed to do; intervention of the Ordinance did npt break the
chain of causation or make the loss remote 6r indirect; the Ordin·
ance did not create any new liability but only quantified the
damages; and the fact that it did not exist at the time of the explosion and could not have been in the contemplation of the
parties was irrelevant for deciding the question of liaibility;
{ii) the plea of the defendants was not barred by the Ordinna.nce inasmuch a.a their cause of action against the plaintiffs
was misconduct of the lg,tter in the business of their agency, and
this cause of action was completed by the averment that there
was a duty or a.greement to insure, that there was failure to per·
form that duty and that the failure bad caused damage to the
defendants, and the quantum of the damages was not a part of
the ca.use of action.
Per PATANJALI SAoTR( J.-(i: The defendants' inability to
recover the full value of the goods from the Government under
the Ordinance did not arise directly and naturally in the usual
course of things from the plaintiffs' failure to insure, but from
indepenaent and disconnected events, namely1 the Government's
scheme for compensation, embodied in the Ordinance, the agree.
went with the insurance companies regarding contribution and
the consequent discrimination made by the Government between
insured and uninsured good's.
The Ordinance did not. displace
the ordinary rules of law as to remoteness of damage or amend
or abrogate any terms in the fire insurance policies and it was
further difficult to see bow by virtue of an Ordinance passed
some months after the explosion, the right to damages could become enlarged.
The broad principle of restitutio in integrum upon
which the assessment of the quantum. of damages is based cannot be carried to its utmost logical results but must be qualified
by the rule of remoteness.
•
,
-
S.C.R.
SUPREME COURT REPORTS
981
(ii) The bar under the Ordin1'nce was not based upon the
1950
nature of the cause of action but upon the damage or Joss being
1
' due to or in any way arising out of " the explosion and the
Pan.natal
claim of the defendants was clearly barred. In any event the
lankidaa
defendants cannot be allowed to claim that the loss of the goods
v.
was explosion damage so as to bring the case under g. 14 and at Mohanlal and
the same time contend that the loss was not due to or did not in
Another.
any way arise out of the explosion in order to avoid the bar
under s. 18.
In re an Arbitration between Polemis and Another an~ Furness
Withy d! Co. Ltd. [1921] 3 K.B. 560, Weld-Blundell v. Stephen•
[1920] A.O. 983, Monarch Steamship Co- Ltd. v. Karlshamns
Oljefabriker [1949] A.O. 196. Hadley v. Baxendale (9 Ex. 341),
Livingstone y. Rawyards Coal Co. (1880) 5 App. Oas. 25, British
Westinyhouse Electric and Manufacturing Co. Ltd· v. Underwood
Electric Railways Co., London [1912] A.Q. 673, Liesbosch (owners)
v. Edison (owners) [1933] A.O. 449, Smith Hogg ct Co. Ltd. v.
Black Sea and Baltic General Insurance Co, Ltd. [1940] A.O. 997,
Standard Oil Co. of New York y. Olan Line Steamers Ltd. [1924]
A.O. 100 referred to.
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 a pp ell an ts.
M. C. Setalvad (Ram Ditta Mal and B. Sen, with
him) 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)
Kania C. J.
1950
Pannalal
Jankidas
v.
Mohanlal and
Another.
- Kan.ia 0. J.
982
SUPREME COURT REPORTS
[1950]
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
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 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 properties 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 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
.• z;.
S.C.R.
SUPREME COURT REPORTS
983
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;lt 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 th us to remain insured till despatched
according to their instructions.
In paragraph 21 of
their written statement, they contended that if their
plea that the plaintiffs \\'.ere 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 con·
tended 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 10 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,
ex~ept when they we:e co.rroborated by documentary
evidence. He also drsbeheved 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 (liven by Mohanlal to insure the goods and that
1950
Pannalal
Jankida3
v.
Mohanlal and
Another.
Kania C J. •
•
1950
Pannalal
Jankidas
v.
Mohanlal a1ul
Another.
Kania C. J,
984
SUPREME COURT REPORTS
[1950)
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 o bser.
vations about the witness. They however found that on
the doeuments the view of the learned trial judge was
not correct. In doing so, they principally relied on state.
ments 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, wliich 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
haltingly urged before us, the learned counsel for the
plaintiffs did not very properly 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 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 express! y 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
-•
·~ •
S.C.R.
SUPREME COURT REPORTS
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
principal, 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 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 the 14th April, 1944, to
restrict
litigation in connection 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
msurance 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;-
.126
1950
Pannalal
Jank1das
v.
Mohanlal and
Another.
Kania C J.
1950
Pannalal
Jankidas
v.
lllohanlal and
Another.
Kania 0. J.
986
SUPREME COURT REPORTS
[1950]
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 lJO!icy of
marine insurance) covering fire risk, or damage cause<;]
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
87 l 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 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 (VIII
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
..
S.C.R.
SUPREME COURT l{EPORTS
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 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.
(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 any.
thing 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
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.
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 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
be?alf that the interventi~n 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
1950
Pannalal
Jankida8
v,
Mohanlal and
Another,
Katiif'l 0, J,
1950
Paanalal
Jankidaa
v.
Mohanlal and
Another.
Kania C. J.
988
SUPREME COURT REPORTS
[1950]
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 principal.
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. Lascetles(1), it was held that if an agent
was instructed to insure goods and neglected to do so
he was liabie to the principal for their value in the
event of their being lost.
Section 2 J 2 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 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."
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.
Two positions can be visualized as ans1ng from the
appellants' neglect in this case. The appellants could
be treated either as insurers themselves or can be con.
sidered as having agreed to cause the goods insured by
a recognised insurance company on the usual fire
insurance policy terms. In Ticket v. Short('), 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 Vei. Sen. 289.
-
·-
•.
S.C.R.
SUPREME COURT REPORTS
989
is sent by a principal to a factor to make an insurance;
1950
and he charges his principal, as if it was made; if he
Pannalal
never in fact has made that insurance, he is considered
Jankidas
as the insurer himself." If therefore, as in the present
v.
case, the appellants were given instructions to insure Mohanlal and
the goods and they charged the respondents as if they
Another.
had insured the goods, the law would throw upon
Kania o. J,
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 Jirect
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 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 & 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 observations of Lord Sumner in Weld-Blundell v.
Ill [1921) 3 K.B. 560.
/
/
1950
Pannalal
Jankidas
v.
Mohanlal. and
Another.
Kania C. J.
990
SUPREME COURT REPORTS
[1950]
Stephens (1), 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
· negligence, that is, of want of due care according to
the circumstances, This however goes to culpability,
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 anticipatie>n 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 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
decision of the Honse of Lords in Monarch Steamship
Co. Ltd. v. Karlshamns Oljefabriker(').
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
(11 [\920] A.O. 98.3-981.
12) fl 949] A.O. 196,
S.C.R.
SUPREME COURT l{EPOl{TS
991
under orders of the British Admiralty, was directed
not to proceed to the Swedish port but ordered to discharge the cargo at Gla>gow. The assignees of the bills
of lading from the shippers had to forward th~ goods in
neutral ships chartered for the purpose to the Swedish
·port. A war risks clause in the charte1'party 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 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 (')
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 \Vright 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,
i~I (1880) 5 App. O•a. 25, 39,
!950
P(J.nttalal
Jankidas
v.
Mohanlal and
Another.
Kania 0. J.
1950
Paiinalal
Ja1kidas
v.
Mokattlal and
Another.
Kania 0. J.
992
SUPREME COURT REPORTS
[1950)
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 co~rect ; 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 The British Westinghouse Electric &
Manufacturing Co. Ltd. v. The Underground Ele~ic
Railways Co. of London ('),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) (') has stated at page 463 that it is im.
possible to lay down any universal formula.
The
dominant rule of law is the principle of restitutio in
inte~runi and subsidiary rules can only be justified if
\1) [1912] A,C. 678, 689.
(21 (1933] A.O. H9,
•
S.C.R.
SUPREME COURT REPORTS
993
they give effect to that rule.
(The italics are mine). In
Smith, Hogg & Co. Ltd. v. Black Sea & Baltic General
Insurance Co. Ltd. (1), 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
page 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
co.operating cause. A negligent act is as much a
co.operating cause if it is a cause at all, as an act which
is not negligent." . \Vhat 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 unseaworthiness.
In that case it was
held that the unseaworthiness created in the vessel
instability which, combined with negligence of the
master, caused the Joss. No new law was laid down in
that case.
Similarly in The Standard Oil Co. of New
York v. Clan Line Steamers Ltd.('), 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
\l! \.\940) A,C. 907,
(2) (192!11 A.O. !CO.
127
19~0
Panna.lal
Jankidas
v.
Mo1ranlal and
Another.
Kania c. J.
19!0
P,inn1lal
Jank'idas
••
Mohanlal an:l
AKothe,..
Kania O. I.
994
SUPREME COURT REPORTS
(1950)
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 obsrrvations 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
Company(').
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 tbemselves liable to ray damages.
The measure of damages was the loss suffered by the
respondents on account of the goods not being insur,:d.
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 p'.)licy of insurance against insurance crim.
panies, 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
ill 118801 5 App. Cas. 25.
S.C.R.
SUPREME COURT REPORTS
995
substitutes a new basis for assessing compensation for
19~0
the ordinary basis for assessing unliquidated damages.
Pannaltil
The compensation under the Ordinance is payable on
lankida•
proof of the existence of a fire insurance policy irrev.
spective of the terms of the policy. The non recovery Mohan/al a•d
of half the amount of the respondents' claim from the
Another.
Government under the Ordinance because of the absence
of a fire insurance policy, thus directly arises from the
Kania 0 · J.
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.
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
company would have paid the Joss cannot be assumed
to be necessarily and unquestionably sound and in
view of tbe terms of the Ordinance not capable of
being determined. There appears no reason under the
circumstances to proceed as if an ad verse 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 princi.
pal 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
19~0
Pa.11.ti-ilal
Jankidas
v.
;\foha>ilal and
An.other,
Kania 0. J.
996
SUPREME COURT REPORTS
(1950)
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 explo5ion 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.
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.