1. MAHMUD, J.-This is a Letters Patent Appeal from the impugned judgment and decree dated 5th February, 1968 of a learned Single Judge of the High Court on the Original Side in Suit No. 5/67, whereby the learned Judge dismissed the appellant's objections to the award and made it the rule of the Court.
2. Briefly, the facts are that the appellant, K. S. B. Pumps Company Ltd., entered into a contract with the respondent No. 2, Director-General, Department of Investment, Promotion & Supplies, Karachi, on 29-1-1960 for supply of pumping sets installed at the High Level Canal, Warsak Project, some of which were to be imported from West Germany. Under the contract, Letters of Credit were established in favour of the West German Suppliers of the appellant-Company for Sterling -- 45,325-16-0 and Sterling --. 80,098-15-0 respectively, 90 Y. Of which sum were to be paid to the suppliers against preliminary inspection (which was to be at the suppliers' factory) and against shipping documents and, out of the balance, 9 % was to be paid to the suppliers in Sterling -- and 1 % to the appellant in Pakistan Rupees after erection and final inspection. In their tender, the appellant had included a clause providing for possible fluctuation in the exchange rate, but on the department's objection to it, it was not included in the contract and the prices were stated to be firna and final. On the date of the contract, the rate of exchange was one: -- Sterling was equal to Deutsch Mark 11-70 (hereinafter referred to as "D M "). However, the Government of Federal Republic of West Germany revalued the D. M. On 8th March 1961, ass a result of which 1-- Sterling became equal to D. M. 11-20, which means that the value of D. M. Appreciated in relation to -- Sterling. In view of the revaluation of the German currency, the Suppliers received less amount of D. Ms. Therefore, the appellant demanded -- 6,749-3-3 as the amount of loss suffered by them due to the fluctuation in the convertible rate of exchange of the -- Sterling. As the respondents declined to pay, the dispute was referred to arbitration of the nominees of the parties under the contract. But, as they failed to make an award, the dispute was referred to Umpire Late Mr. Noor Elahi, President Income-tax Appellate Tribunal, Karachi, who gave his award on 16-12-1966 rejecting the claim of the appellant for reimbursement of the loss due to the revaluation of the German currency. After the award was filed in Court, the appellant filed objections to it, but they. Were rejected by the learned Single Judge by his impugned judgment dated 5-6-1968 on the ground that a specific question of law was referred and, therefore, the award could not be challenged. Accordingly, he accepted the award and made it the rule of the Court.
3. The submission of Mr. S. M. Bokhad, learned counsel for the appellant, is that the learned Single Judge erred in holding that a specific question of law was referred to arbitration and that, therefore, the award of the Umpire could not be challenged for error of law. Mr. Bokbari submitted that if this submission of his was accepted, then his second submission would be that the award is vitiated by an error of law on the face of the award.
4. On the first submission, Mr. Bokhari contended that it is borne out by the record that the whole case was referred to arbitration under the general arbitration clause, which covered both general questions of fact and law. In the first place, the letters exchanged between the parties constituting the agreement to refer, dated 6-2-1964 and 21-2-1964, also mentioned no specific question of law as a term of the reference. They stated that "the case" was to be taken to arbitration. In the second place, it was contended that the claim submitted to the arbitrator by the appellant and the written statement filed by the respondents, showed that certain facts were averred by the appellant which were denied by the respondents. Counsel also referred to the written arguments submitted on behalf of the appellant and pointed out that the main dispute referred for decision of the arbitrators was whether the respondents were liable to pay an additional amount of -- 6,749-3-3 for the loss suffered by the appellant's suppliers due to the revaluation of the D. M. The determination of that main question depended on findings on several questions of fact and law, such as, what was the proper law of the contract, what documents formed part of the contract, whether the fluctuation in rate of exchange of currencies was not an implied condition of the contract, whether the term "prices firm and final" also covered any future fluctuation of the rate of exchange of the currency, on what dates payments fell due, at what rate of exchange the money of account was to be converted into money of payment and other questions of fact and law. He further contended that no issue was agreed to by the parties, but the umpire himself considered it as the main issue. On the other hand, Mr. Nasim Faruqui, learned counsel for the respondents while supporting the judgment of the learned Single Judge, submitted that parties had argued only one question before the umpire on the basis of undisputed facts as appeared from the documents, pleadings and written arguments, namely what was the money of payment" and in this connection the recital in the award of the umpire must be accepted, in which the umpire stated : "The only issue on which the award is sought and as stressed before me is, what is the money of payment under this contract. The suppliers say, it is West Germany and the Department contends that is -- Sterling."
5. The main question, no doubt, was whether the respondents were liable to pay the loss suffered by the appellant due to the revaluation of the rate of exchange of the D. M. Giving rise to the main issue "what was the money of payment". But, even this issue is not a pure question of law it is, in our opinion, a mixed question of fact and law. A pure question of A law is one which the arbitrator is specifically asked to decide on the basis of agreed and undisputed facts. As observed in Hamdard Dawakhana v. K. B. Joseph & Co. Ltd. (PLD 1971 Kar. 279) merely because an arbitrator himself frames an issue, it does not mean that this was the question of law which was expressly referred to the arbitrator, for otherwise it would enable an arbitrator to exclude the scrutiny of the Courts by framing issues on legal questions. In Government of Kalantan v. Duff Development Co. Limited (1923 A C 395) Lord Cave observed that in determining whether the question of construction of a deed-a question of law had been specifically referred to the arbitrator or not, one has to examine the terms of the submission to arbitration as also the pleadings of the parties before the arbitrator. The terms of reference mentioned no specific question of law. And as for pleadings, Mr. Nasim Faruqui referred to Durga Prasad Chamria and another v. Sewkishendas Bhattar and others (PLD 1949 P C 187) in support of the view that pleadings before an arbitrator should be looked into to see what are the issues which may be said to be specifically referred. But, this case is distinguishable because in that case, the issues of law, which were referred to the arbitrator, were issues struck by the Court on the pleadings in the suit, before the parties had agreed to refer them to arbitration, which issues the arbitrator accepted without modification. It was, therefore, that the Privy Council held that those issues of law were specifically referred to him. As stated earlier, the terms of submission did not mention any specific question of law for decision by the arbitrator and the pleadings of the parties raised other questions of fact and law as well. The award of the umpire also shows that he discussed and gave findings on other issues of fact and law, such as, that the appellant had agreed to forego a clause in the contract covering possible fluctuation of the currencies and thereby the appellant had agreed to accept prices being "firm and final".
6. We are of the opinion that if the question under discussion was a question of law, it arose incidentally though materially for decision of the main question before the umpire. In that view of the matter, the award was not beyond review by the High Court and was liable to be set aside B for error of law on its face. It was not a specific question of law expressly referred for arbitration. We, therefore, accept the first submission of Mr. Bokhari that the learned Single Judge erred in so holding.
7. The next submission of Mr. Bokhari is that the award of the umpire is vitiated because of an error of law apparent on the face of the award. The error of law is said to be the conclusion of law reached by the Umpire that, according to the proper law of the contract, the money of account as also the money of payment was pounds sterling. Mr. Bokhari's contention is that as the moneys became due and payable in West Germany, the law of the place of performance was the proper law which governed the substance of the obligation and the mode of its discharge and, therefore, both the money of account as well as the money of payment was the currency of West Germany.
Elaborating his contention Mr. Bokhari submitted that the contract was partly to be performed in West Germany, for example, West Germany was the country of origin of the goods, the place of preliminary inspection, the negotiation of L/Cs. And the place of payment to the West Germany suppliers. It was contended that the contract bad its closest and most real connection with the law of the place of performance, lex loci solutionis and, therefore, the law of West Germany must be presumed to be the proper law of the contract to that extent, while for other matters, the Pakistan law applied as the proper law. That according to the principles of International Law which have been accepted and applied by our Courts, the proper law of the contract determines the substance of the obligation, that is, the measure or quantum of the currency of the debt or in other words, the money of account. Although the purchase price was expressed in pounds sterling-it was said only for the purpose of calculating the equivalent number of D. M. Which the suppliers were to receive-admittedly, it was to be paid in West Germany currency. Therefore, Mr. Bokhari's contention is that the respondents were liable to pay the same amount of D. Ms. After the revaluation as they had agreed to pay before the revaluation of the D. M. It followed, therefore, that the money of account under the contract, that is the currency in which the debt became due and payable, was to be measured in D. M.
8. In support of his contention that the law of the place of performance must be presumed to be proper law, Mr. Bokhari referred to rule 148, sub-rule (3) of Dicey's Conflict of Law, 7th Edn. This rule has been restated by the learned authors in the 8th ed. As rule 127 sub-rule (3) as follows;---- "(3) When the intention of the parties to a contract with regard to the law governing it is not expressed and cannot be inferred from the circumstances, the contract is governed by the system of law with which the transaction has its closest and most real connection .
Second presumption : If a contract is made in one country and is to be performed either wholly or partly in another, it may sometimes be presumed to have its closest and most real connection with the law of the country or of one of the countries where perfor--mance is to take place (lex loci solutionis). This presumption is strongest where all parties have to perform in one country."
9. Mr. Bokhari also referred to the observations of the Supreme Court in Central Bank of India Ltd. v.
Muhammad Islam Khan (PLD 1962 SC 251) approving the corresponding rule 153 of Dicey's Conflict of Law, 6th Edn., that the liability of an acceptor of a foreign bill drawn in London and payable in Pakistan, in the absence of a contract to the contrary, was governed by Pakistan law, the lex loci solutionis, which would be the proper law of the contract, as that law bad the closest connection with it having regard to its terms and all the surrounding circumstances, even apart from section 134 of the Negotiable Instruments Act, 1881, which provided that in the absence of a contract to the contrary, in the case of a foreign bill of exchange, the law of the place where such instrument is payable, shall determine the liability of the acceptor and the currency in which and the rate of exchange at which, the instrument is to be paid. Mr. Bokhari also referred to certain observa--tions of the Privy Council in John Layington Bonython and others v. Commonwealth of Australia (1951 A C 201) at page 219; "The substance of the obligation must be determined by the proper law of the contract, i.e. The system of law by reference to which the contract was made or that with which the transaction has its closest and most real connection. In the consideration of the latter question, what is proper law of contract, and therefore what is the substance of the obligations created by it, it is a factor, and sometimes a decisive one, that a particular place is chosen for performance."
Mr. Bokhari also cited the case of Adelaide Electric Supply Company Limited v. Prudential Assurance Company Limited (1934 A C 122) to the effect that where in an English contract governed prima facie by English law, there is a provision for performance in part in another country, the prima facie presumption is that, performance is to be in accordance with the local law and upon the true construction of the contract, the place of performance determined the substance of the obligations, i.e. The currency by which the obligation was to be measured.
10. We have considered these references cited by Mr. Bokhari, but, in our opinion, they are not applicable to the facts of the present case. The rule that the law of the place of performance determines the proper law of the contract is only a matter of presumption in case parties to the contract have not otherwise expressed their intention with regard to the law governing the contract. It is only in that case that the intention of the parties is to be ascertained in each case on a consideration of the terms of the contract, the situation of the parties and generally all the surrounding circumstances. In Mount Albert Borough Council v. Australasia Temperance & General Mutual Life Assurance Society Ltd. ((1937) 4 Ali E R 206) at p. 214 Lord Wright of the Privy Council stated as follows :_ "The proper law of the contract means that law which the English or other Court is to apply in determining the obligations under the contract. English law, in deciding these matters, has refused to treat as conclusive rigid or arbitrary criteria, such as lex loci contractus or lex loci solutionis, and has treated the matter as depending on the intention of the parties, to be ascertained in each case on a considera--tion of the terms of the contract, the situation of the parties, and generally on all the surrounding facts. It may be that the parties have in terms in their agreement expressed what law they intend to govern, and in that case prima facie their intention will be effectuated by the Court. But in most cases they do not do so. The parties may not have thought of the matter at all.
Then the Court has to impute an intention, or to determine for the parties what is the proper law which, as just and reasonable persons, they ought to or would have intended if they bad thought about the question when they made the contract. No doubt there are certain prima facie rules to which a Court, in deciding on any particular contract, may turn for-assistance, but they are not conclusive. In this branch of law, the particular rules can only be stated as prima facie presumptions. It is not necessary to cite authorities for these general principles."
But where the parties have expressed their intention as to the law governing the contract, that is the proper law of the contract. Mr. Nasim Faruqui, learned counsel for the respondents, rightly referred to clause 17(i) of the General conditions of the Contract (P. S. 35) which states that the contract shall be governed by the law of Pakistan for the time being in force. Dicey and Morris op. Cit. Rule 127 states that "the proper law of the contract means the system of law by which the parties intended the contract to be governed". Sub-rule (3) propounded by the authors reproduced above, is stated to be a presumption which may be used in a case where the parties have not expressed their intention with regard to the law governing the contract and, therefore, is not attracted in the present case. In the Supreme Court case of the Central Bank of India cited by Mr. Bokhari, their Lordships were dealing with the law governing the liability of an acceptor under section 134, Negotiable Instruments Act, which itself provided that it was to apply "in the absence of a contract to the contrary" and it was in that context that their Lordships observed that even under the International rule of conflict of law cited by Dicey, lex loci solutionis was the proper law of the contract. The Supreme Court case is, therefore, distinguishable. The John Lavington Bonython's case cited by Mr. Bokhari does not support him. In that case, there was no express reference to what was the proper law of the contract and, therefore, it became necessary to consider what was the proper law with regard to which the contract was made or with which the transaction had its closest or and most real connection as a matter of implication to be derived in the circumstances of the transaction. In that case, debentures issued by the Government of Queensland were for varying amounts in "pound sterling" and they were payable either in Brisbane, Sydney, Melbourne or London. The appellants were registered holders of consolidated stock of the commonwealth of Australia which took over the public debt of the Sate of Queensland. The stock was issued to the appellants on surrender of the debentures and carried the same right to payment. The appellants claimed that as London was chosen as the place of payment, the English law as the lex loci solutionis governed the contract and the measure of the obligation and that, therefore, they w6re entitled to receive on redemption of the stock to be paid in ,London, the nominal amount of the stock in English currency or alternatively, to be paid in Australia the equivalent in Australian currency of such amount of English currency. The claim of the appellants was rejected. It was held that in the absence of any express reference to the proper law of the contract, it had to be ascertained from a consideration of all the circumstances of the transaction and that it was the law of the State of Queensland which governed the substance of the obligation which determined the meaning of "pound sterling", whatever be the place of payment. Therefore, the obligation to pay would be satisfied by payment of whatever currency by the law of Queensland was valid tender for the discharge of the nominal amount of the debt. The Adelaide's case is also distinguishable, for in that case, as explained by Lord Wright in the Mount Albert Borough Council case above-referred to at page 215, the House of Lords was not concerned with any such general question or with questions of the substance of the obligation, which, in general, is fixed by the proper law of the contract under which the obligation is created. The House of Lords was concerned only with performance of the obligation in regard to the particular matter of the currency in which the payment was to be made.
11. In view of the express intention of the parties that the contract was to be governed by Pakistan law, it is not possible to accept Mr. Bokhari's submission that the law of the place of performance of the contract lex loci solutionis is to be deemed to be the proper law of the contract governing the substance of the obligation, i.e. The currency and the quantum of the money of account or measurement. In the absence of an agreement to thecontrary, the same law applies to all the obligations under the contract and ` the Courts will not readily split the contract. The contract expressly and unequivocally stipulated for payment of the price in pound sterling. That currency was, therefore, the money of account under the proper law of the contract, although the actual mode of payment was governed by another principle of International Law relating to foreign currency obligations called the Nominalistic principle, i.e. By the law of the place of payment.
12. The nominal amount of the debt was expressed in pounds sterling and, therefore, according to the Nominalistic principle, the respondents could have discharged their obligations by tender of the stated number of pounds sterling to the suppliers on the dates when payment became due.
But, as the pounds sterling is not legal tender according to the law of West Germany, the respondents had to pay the nominal amount of the debts in currency which was legal tender in that country, i.e., in D. M. At the convertible rate of exchange of the pound sterling to the D. M. At the time payment became due irrespective of the fluctuations which had occurred in the value of the D. M. This Nominalistic principle is stated in rule 149, Dicey & Morris op. Cit. At page 158 :- "Rule 149.-A debt expressed in the currency of any country involves an obligation to pay the nominal amount of the debt in whatever is legal tender at the time of payment according to the law of the country in the currency of which the debt is expressed (lex monetae), irrespective of any fluctuations which may have occurred in the value of that currency in terms of sterling or any other currency, of gold, or of any commodities between the time when the debt was incurred and the time of payment (Principle of Nominalism)."
This Nominalistic principle was applied by the Supreme Court in the Central Bank of India Ltd.'s case above-mentioned.
13. Therefore, the umpire was right in saying that the money of account being expressed in pounds sterling, the appellant suppliers were entitled to receive no more than the agreed pounds sterling converted into D. M. At the revalued rate of exchange on the due dates of payment. We, therefore, do not see that there is any error of law apparent on the face of the award.
14. In this view of the matter, we find no substance in this appeal which is accordingly dismissed with costs.