WASC 239 Tomkinson v First Pennsylvania Banking and Trust Co

May 5, 1960. Viscount Simonps. My Lords, I propose to state
in summary form the facts of this long and complicated case.
They are fully stated in the opinion of my noble and learned friend,
Lord Morris of Borth-y-Gest, which I have had the privilege of
reading. It was necessary to do so in order to determine the
question what is the law determining the liability of the appellants
to the respondent in respect of certain agreements to which I shall
briefly refer. I could add nothing to his exposition of the facts
and I am wholly in agreement with his conclusions of law upon
this question. I proceed upon the footing that the relevant law
is that of the Commonwealth of Pennsylvania and shall examine
the questions, which then arise, what is the sum in dollars owed
by the appellants to the respondent, and at what rate that sum
must be converted into sterling.

The appellants are the liquidators in the voluntary winding up
of an English company called the United Railways of the Havana
and Regla Warehouses Ltd., which I will call '' the company.''
The company for many years carried on a railway undertaking in
the Island of Cuba. Before or during the year 1921 the company
had purchased or contracted to purchase in the United States of
America rolling stock and other railway equipment to an aggregate
amount of over $14,000,000, and for the purpose of financing part
of this amount decided to raise the sum of $6,000,000 in the
United States of America.

The finance was arranged in what appears to be a somewhat
elaborate way. It no doubt had its own purpose. In February,
1921, the company caused to be incorporated in the State of
Delaware a subsidiary company, the Cuban Rolling Stock Com-
pany, which has generally been referred to as '' the car company,"'
and to this company sold all the rolling stock and equipment
already delivered and assigned the contracts for future delivery
of the balance. Notwithstanding this sale, the company continued
to use the rolling stock as part of its railway undertaking as it had
before the sale. In April, 1921, the car company leased to the
company the rolling stock and equipment already delivered, and

69 16 Ves. 461. 702 B. & Ad. 78.

1035

Wet. Ibe (@2e)
1960

UNITED
RAILWAYS
oF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

1036

El, a)
1960

UNITED
RAILWAYS
oF HAVANA
AND REGLA

W AREHOUSES
Lrp., In re.

Viscount
Simonds.

HOUSE OF LORDS [1961 |

agreed to lease the remainder when delivered for a period of 15
years expiring on February 14, 1936. The company agreed to
pay as rental for the rolling stock and equipment (all of which
I will call '' the rolling stock '') first, half-yearly on February 14
and August 14 in each year, the first payment to be made on
August 14, 1921, (a) a sum equal to 3} per cent. of the par
value of certain certificates therein mentioned outstanding and
unpaid on the same dates in each year during the term of the lease
together with certain other sums which need not be particularised,
and (b) a sum equal to the expenses incurred by the car company
or its assigns in enforcing the covenants and terms of the lease
and performance of the trust under which the said certificates
were issued, and (c) a sum equal to certain taxes, duties and other
charges therein mentioned: secondly, half-yearly on the same
dates in each year beginning with August 14, 1921, a sum of
$206,000 for the first 20 payments and of $205,000 for the last
10 payments. There were provisos for payment of these semi-
annual sums in trust certificates as therein mentioned, and also
for the retirement of such certificates, but they are not relevant
to the question that I am considering. The lease also contained
covenants by the company for maintenance, replacement and
insurance of the rolling stock, and that there should be no assign-
ment, transfer, or underletting of the rolling stock without the
consent of the car company or its assigns. Further, there was
provision in the event of default by the company in payment of
rental or performance of its other obligations for the car company
or its assigns to declare the lease terminated, and to enter upon
the company's railroad and retake the rolling stock. Finally, the
lease provided that the car company might forthwith assign to
the Commercial Trust Company of Philadelphia as trustee all its
right, title and interest in the rolling stock, and all its claims,
demands and remedies accruing or to accrue under the lease.

Your Lordships will have observed that the lease refers to trust
certificates and to an intended assignment to a trustee. These
references require a brief explanation, if only because much of the
confusion that has arisen in this case is due to them.

The transfer contemplated by the last provision of the lease to
which I have referred was in fact effected by a so-called trust
agreement of the same date, the parties to which were the car
company and the Commercial Trust Company of Philadelphia as
trustee, whose successors in title are the respondents to this
appeal. The car company thereby assigned to the trustee as

A.C. AND PRIVY COUNCIL.

trustee for the certificate holders thereinafter mentioned the lease
and all its interest in the rolling stock and all rentals reserved
under the lease. I venture to repeat and emphasise that the lease
did not, nor did the trust agreement impose any contractual
liability to the certificate holders upon the company. I therefore
think it sufficient to say that the certificates were 6,000 '' equip-
""ment trust certificates '' of $1,000 each, and that it was to
secure the repayment of them by 1936 together with certain
premiums, interest and other sums that the company entered
into the lease containing the several covenants that I have
already described.

The next step was that by an agreement dated April 27, 1922,
the car company resold the rolling stock to the company subject
to and with the benefit of the lease and of the trust agreement.
Shortly afterwards the car company was dissolved.

In due course 3,800 certificates were retired in accordance
with provisions in the trust agreement and were cancelled. The
company did not pay the last instalment of $206,000 which
became due under the lease on February 14, 1931, or any of the
10 instalments of $205,000 which subsequently became due. The
total of these unpaid instalments is $2,256,000. The company
kept up the other payments which were included in the "'rentals''
payable under the lease down to and including those due on
February 14, 1935, but made no further payment. A large sum
was due under these heads.

In 1937 proceedings were instituted by the respondents against
the company in the State of Maine. They were compromised on
the terms (inter alia) of an offer by the company to purchase
outstanding certificates at a price of $147.50 per certificate. This
offer was accepted by holders of 1,869 certificates which,
accordingly, came into the possession of the company. The certi-
ficates have not been cancelled. Thus, there were only 331
certificates left in the hands of the public. The number is some-
times given as 333 but the difference is immaterial.

I need not refer to the subsequent Cuban legislation which
would be relevant only if Cuban law governed the contract. It is
sufficient to say that in consequence of it the company on Decem-
ber 1, 1953, sold the whole of its undertaking to the Cuban State
which, on the same day, resold it to a Cuban company formed for
the purpose called the Ferrocariles Occidentales de Cuba S.A. As
a term of such sale to the Cuban State the purchase price was to
be received by the company free from all responsibility with

A.C. 1961. 68

1037

H. L. (£.)
1960

NITED
RaILWays
oF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Viscount
Simonds.

1038

H. L. (&.)
1960

UNITED
RaIuways
oF HAVANA
AND. REGLA

WAREHOUSES
Lrp., In re.

Viscount
Simonds.

HOUSE OF LORDS [1961]

respect to liabilities outstanding in Cuba represented by debts,
obligations and responsibilities arising out of the operation of the
properties acquired by the Cuban State. Under a further term
the company delivered to the Cuban State the 1,869 certificates
which, as already stated, it had purchased.

This was the state of affairs when on March 4, 1954, the
company passed a special resolution for winding up and appointed
the appellants as liquidators. I am conscious that, though I have
been able to omit much that is relevant only to the question of the
proper law of the contract, yet I have troubled your Lordships
by a recital of many facts which can have no bearing upon the
only question which is before the court in the winding up of

' the company, viz., what is the debt owed by the company to the

respondents under the lease. I have done so only because not
otherwise is the form of proof put in by the respondents explicable.
That does not mean that it is in any way justifiable. Upon the
question that now arises I come to a different conclusion from that
reached by Wynn-Parry J., and the majority of the Court of
Appeal.

On June 18, 1954, the respondents lodged their proof of debt in
the winding up.

In order to simplify the issue I will in the first place deal solely
with the claim which is based on the failure of the company to
fulfill its contractual obligations under the lease and reserve for
later consideration certain alternative claims. I will also ignore
for the present two heads of claim relating to certain expenses
incurred by the respondents which the company have contracted
to pay, and will confine my attention to two claims which appear
to relate to the failure of the company to pay to the respondents
11 instalments of principal, the first of $206,000 and the others
of $205,000, and certain premiums and interest. I say '' appear
'to relate '' for, though I never before saw so confused and
confusing a document as this proof, it is clear from its fourth
paragraph that the liability of the company in the sums claimed
in paragraph 2 is assigned in the first place to its covenants under
the lease. I can only do justice to these claims by setting them
out verbatim. They are as follows:

"2 (a) The sum of £264,076 Os. 1d. being the sterling
"equivalent on the said date [viz., the commencement of the
"winding up], calculated at the rate of $2.80 to the &, of
'739,412.81 United States dollars due and payable to the

A.C. AND PRIVY COUNCIL.

"claimant in respect of $333,000 in face value of United Rail-
"ways of Havana 15-year 74 per cent. equipment trust certifi-
"cates then outstanding in the hands of members of the public

""as follows, namely, a sum equal to
"" Face value $333,000.00
"* Premium of 24 per cent. on the said face
"* value $8,325.00

"" Interest at the rate of 74 per cent. per
""annum on the said face value from
"* August 15, 1934, to February 14, 1936 $37,462.50
Interest at the rate of 6 per cent. per
'"annum on the said face value from
"February 15, 1936, to March 4, 1954 $360,625.31

ce

$789,412.81

'""(d) In addition thereto (subject as hereinafter mentioned)
"" £1,480,470 5s. 7d., being the sterling equivalent on March 4,
"1954 (calculated at the rate of $2.80 to the £) of United States
"" $4,145,506.78 due and payable to the claimant in respect of
'"* $1,867,000 in face value of United Railways of Havana 15-year
'""7% per cent. equipment trust certificates which had been pur-
'" chased by the company as follows, namely, a sum equal to

"Face value $1,867,000.00
'* Premium of 23 per cent. on the said face
"" value $46,675.00

"" Interest at the rate of 74 per cent. per

'"annum on the said face value from

'"« August 15, 1934, to February 14,1986 $210,037.50
'' Interest at the rate of 6 per cent. per

'"annum on the said face value from

'* February 15, 1936, to March 4, 1954 $2,021,884.28

$4,145,596.78 "'

Your Lordships will observe that ex facie these claims are
quantified not by the amount by which the company has fallen
short of its obligations under the lease, but by the amount which
the respondents allege to be necessary to satisfy the certificate
holders whose certificates have not been cancelled. But, since
the certificate holders do not stand in any contractual relation
to the company, it is at once clear that the form of proof is wrong
and misleading, and I think that the proper course would have
been to reject it in toto with liberty to the respondents to recast

1039

H. L. (E.)
1960

UNITED
RAILWAys
oF HAVANA
AND REGLA

WAREHOUSES
urp:, In re:

Viscount
Simonds.

1040

186, diy (03)
1960

UNITED
RAILWAYS
oF HAVANA
AND REGLA

WAREHOUSES
lurp., In re.

Viscount
Simonds.

HOUSE OF LORDS [1961]

it if they thought fit. It is too late to do that now. All that we
can do is to take these two claims amounting together to
$4,885,009.59, to assume that they are referable, as appears
from paragraph 4 of the proof, to the company's failure to fulfil
its obligations under the lease, and ask, first, at what rate of
exchange the dollars are convertible into sterling, and, secondly,
what is the result of the order made by Roxburgh J. on Decem-
ber 4, 1956, to which I will refer later. I emphasise that at this
stage the two sums must be aggregated, for the liability of the
company to the respondents, though divided in the proof, arises
from a single source, namely, its breach of its obligations to them.

Upon this footing I entertain no doubt that the proper rate of
exchange is that which prevailed at the date when the several
sums owing by the company to the respondents fell due and were
not paid. The sum of $739,412.81 being thus converted would
(after a slight adjustment of the figures which has been agreed)
represent £180,724 5s. 1d., and this is the sum which the
appellants say is due to the respondents. It is, as they rightly
contend, wholly irrelevant that the respondents might, if they
had to satisfy the dollar claims of the certificate holders, have to
convert into sterling at the rate of $2.80 to the $. That is not
a question which arises in the liquidation and is no concern of
the company. What is true of the sum claimed under 2 (a) is
equally true of that claimed under 2 (d), but for the reason that
I shall presently state this need not be further considered. Here,
then, are two sums the result of an artificial division, for which
the respondents alone are responsible, both of them stemming
from the company's liability to the respondents, both of them con-
vertible into sterling not at $2.80 to the £, but at the several rates
prevailing when the several sums fell due and were not paid.

Two sums there were and, if there had continued to be two
sums, a situation would have arisen of which I cannot guess the
solution. It may be that if the respondents had persisted in their
claim for the whole $4,885,009 the Cuban State or their successors
as holders of the 1,867 or 1,869 certificates would have had
something to say about the distribution of the fund in the hands
of the respondents. I should by no means assume that they
would assent to a course which would benefit the 331 (833) certi-
ficate holders. I will not make that or any other assumption. For
the event did not happen. What did happen was, in my view,
fatal to the respondents' contention.

The respondents' claim having been duly presented in the
winding up was rejected by the liquidators on November 19, 1954.

A.C. AND PRIVY COUNCIL.

On April 25, 1955, they took out a summons asking that the
liquidators' decision rejecting their proof for (inter alia) the several
sums of £264,076 Os. ld. and £1,480,570 5s. 7d. might be
reversed, and that the proof might be ordered to be admitted in
full. At an earlier date, namely, on November 14, 1955, the liqui-
dators had themselves taken out a summons asking that they might
be at liberty to apply certain sums in making a first interim return
of capital to the holders of the Consolidated Stock of the com-
pany and towards redemption of its Second Income Loan Stock.
These summonses appear to have come before Roxburgh J. on the
same day, and that learned judge made two orders on December 4,
1956. By the first of them, which related to the rejection of
proof, it was recited that it appeared that the holders in due course
of 1,867 certificates whereof the denoting numbers were set forth
in the schedules to the order had renounced any claim to partici-
pate in the assets available for distribution in the winding up, and
that such renunciation alone was a sufficient ground for the
rejection of that part of the respondents' proof of debt (namely,
the claim in respect of the sum £1,480,570 5s. 7d. claimed in
subparagraph (d) of paragraph 2 of the proof, which was based
upon or measured by reference to the said 1,867 certificates) and
the court did not think fit to reverse or vary the decision of the
liquidators rejecting the said proof so far as it related to the said
sum of £1,480,570 5s. 7d. and made no order on that part of the
summons. The remainder of the summons was ordered to stand
over, the costs so far incurred being reserved. The respondents
applied for leave to appeal from this order: it was refused and
they carried the matter no further. The second order made on
the same day has no immediate relevance to the matter now under
appeal, but it may be noted that the learned judge in fact
authorised the liquidators to distribute out of the assets of the
company a sum of £496,066 and a sum not exceeding £1,371,889
for the purposes mentioned in their summons. The respondents
asked for leave to appeal from this order also: it was refused and
the respondents carried the matter no further.

I return to the first order. How is it possible, my Lords, to
regard it as anything but a final and now irrevocable rejection of
the proof to the extent of £1,480,570? It may be that the reason
for rejection was wrong. I think it was. But it was due to
nothing else than the manner in which the proof was framed.
For that the respondents alone were responsible. It is possible
that too late they saw the folly of it, but they did not appeal.
In the result all that remains is the claim under 2 (a). That is a

1041

ish, IbR (Ade):
1960
UNITED

RAILWAYS
OF HAVANA

. AND REGLA

WAREHOUSES
Lrp., In re.

Viscount
Simonds.

1042

Hale dE)
1960

UNITED
RAILWAYS
oF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Viscount
Simonds

HOUSE OF LORDS [1961 |

sum of dollars which is not now challenged except that the appel-
lants contend that it has been converted into sterling at the wrong
rate of exchange. When the respondents receive this sum, they
must deal with it as the terms of their trust demand. With that
the court has no concern in the winding up of the company. It
may be the failure to realise this fact that led Wynn-Parry J.
and the majority of the Court of Appeal to a conclusion for which
I see no justification. All that remains of the proof is the sum
originally claimed less that part which has been rejected.

So far I have dealt with the case upon the footing that the
proof of debt is based upon the failure by the company to perform
its obligations under the lease. That accords with paragraph 4 of
the proof. But counsel for the respondents has urged that if this
claim fails in the respect that I have mentioned, they have an
alternative claim for damages for conversion by the company of
the equipment, which cannot suffer the same fate, inasmuch
as the conversion took place in 1953 and at that date the rate
of exchange was already $2.80 to the £. I find it impossible to
accept this contention. I will assume, though there are probably
many difficulties in the way, that the claim in damages for
conversion is valid, and further, that such damages can, as
Wynn-Parry J. held, be quantified at such a sum in sterling as
when converted into dollars at the rate of exchange obtaining
on December 1, 1953, that is, $2.80 to the £, would produce
$2,000,000. It is to be remembered that this claim is strictly
alternative to the claim with which I have already dealt. But
though the ground of claim, the cause of action, is different, no
other particulars are given than those in paragraph 2 (a), (c) and
(d). They are, of course, irreconcilable with the new claim. But
the claims new and old are subject to the order of December 4,
1956. The proof of debt is rejected to the extent of £1,480,570.
It is plain that nothing is left if a claim in damages for conversion
is substituted for the original claim. It is not, in my opinion,
possible to construe the order as a rejection pro tanto of the proof
of debt if, and only if, it is founded on one of the causes of action
indicated in paragraph 4, and that it is to be disregarded if
another cause of action is substituted.

I have so far deliberately ignored the claims under para-
graph 2 (b) and (c). These are claims which appear to be well
founded subject to such inquiry as to quantum as may be neces-
sary. Moreover, I do not think that the rate of exchange of $2.80
to the £ can be successfully challenged, for the rate must be
determined not at the date when the respondents incurred the

A.C. AND PRIVY COUNCIL.

several expenses which constitute the claim, but at the date when
demand was made upon the company for payment. There was no
evidence that demand was made before the 2.80 rate obtained.

Once more, then, I return to the claim under paragraph 2 (a),
and the single question that remains is whether the $739,412 there-
in mentioned should be converted, as the respondents contend,
at the 2.80 rate or, as the appellants contend, at the rates pre-
vailing when the several sums payable by the company in respect
of principal, premium and interest, fell due and were not paid.
This was said to be an important question of principle upon which
this House has not hitherto pronounced. The question, summarily
stated, is what sum in sterling is recoverable by a plaintiff suing
in the courts of this country, for a sum of money payable in
foreign currency in a foreign country under an instrument of
which the proper law is a foreign law. Admittedly, the claim
must be for a sterling sum and the judgment must be in sterling.
It is established by authority binding on this House that a claim
for damages for breach of contract or for tort in terms of a foreign
currency must be converted into sterling at the rate prevailing at
the date of breach or tortious act: see, for example, ss. Celia
v. ss. Volturno.t But, it was said, doubts had been expressed
whether the same rule applied where the claim arose from a failure
to pay a debt expressed in terms of foreign currency, and it was
urged that on principle the plaintiff should recover sterling at the
rate prevailing at the date of judgment or, alternatively, at the
date of the writ or other initiating step of the proceedings. To
this it was answered that without undue refinement the two cases,
damages and foreign debt (as I will call a debt in foreign
currency) could not be distinguished, that an action to recover a
foreign debt was upon a sound analysis nothing else than an action
for recovery of damages for breach of a contract to deliver foreign
currency, that there was ample authority, ancient and modern,
for this proposition, and that in any case convenience demanded
that the same rule should obtain.

My Lords, I have no doubt what your Lordships' decision on
this point should be. In the course of the argument it occurred
to me to ask learned counsel what in old days was the form of
action where the claim was for a foreign debt. The answer was
found after some research. It was extremely enlightening if not
decisive. In the case of Ward v. Kidswin,? decided as long ago

1 [1921] 2 A.C. 544; 37 T.L.R. 969. 2 (1626) Latch 77.

1045

fate th, (ave)
1960

UNITED
RaItways
oF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Viscount
Simonds.

1044

Hol. (E))
1960

UNITED

» RAILways
oF HAVANA
AND REGLA
WAREHOUSES
Lrp., In re.

Viscount
Simonds.

HOUSE OF LORDS [1961 |

as the second year of the reign of King Charles I, the exact point
appears to have been decided. In that case (which is reported in
Norman-French) the plaintiff brought an action in detinet against
the defendant declaring that on such and such a day the defen-
dant in London bound himself to the plaintiff by bond that he
would repay ''such and such a sum of Hamburg money which
'is such and such English money.'' Among other exceptions it
was excepted that '' the debt for Hamburg money was in detinet
'' alone whereas money ought to be in debet and detinet.'' Upon
this point it was held: '' There is express authority in 34 H.6.12
'' where the action brought in detinet is held to be good,'' and
the report goes on: '' And it was agreed by all (the judges)
'that in the case of foreign coin, such as Flemish, one must
'"' declare the value in English. Note that one can be charged
''for money as a receiver and bailee for goods or for Hamburg
'"money, provided it is not current here: and the action is quite
''the same as for a box or a horse, etc. And in such case the
'""action will be in detinet only unless it is for money made
'"' English coin . . . Justice Jones (held) that the action is properly
'brought in detinet alone for Hamburg money which is of no
'value and as if the action were brought for a piece of plate.
The money was in this case apparently contracted to be paid in
London, and the bond was an instrument governed by English
law. The result could not have been different if it had been
payable in Hamburg under a Hamburg bond.

2»)

I have spoken of authority ancient and modern, and have given
your Lordships an example of ancient authority. Let me pass
over more than 300 years and come at once to a case decided in
1943. In Syndic in Bankruptcy of Salim Nasrallah Khoury v.
Khayat* the material question was at what rate according to the
law of Palestine, which was conceded for this purpose to be the
same as English law, should a sum of 2,000 gold Turkish pounds,
payable at Haifa be converted into local (that is, Palestine)
currency. I venture to quote extensively from a judgment of the
Judicial Committee of the Privy Council which was delivered by
Lord Wright. '' At what dates,'' he asked, '' must the rate of
"exchange be calculated? There can, their Lordships appre-
""hend, be now no doubt as to the English law on this point. It
"is true that different views have been taken at different times
"and by different systems of law. Indeed, there are at least four

3 [1948] A.C. 507; [1948] 2 All 4 [1943] A.C. 507, 512
E.R. 406.

A.C. AND PRIVY COUNCIL.

'' different rules which might be adopted. The rate of exchange
"might be determined as at the date at which payment was due,
"or at the date of actual payment, or at the date of the com-
"mencement of proceedings to enforce payment, or at the date
'of judgment. English law has adopted the first rule, not only
'in regard to obligations to pay a sum certain at a particular
"date, but also in regard to obligations the breach of which
"sounds in damages, as for an ordinary breach of contract, and
"also in regard to the satisfaction of damages, for a wrongful act
"or tort.'' Then, after citing the following words of Lord Sumner
from the Celia®: '' The agreed numbers of lire are only part of
'the foreign language in which the court is informed of the
"damage sustained, and, like the rest of the foreign evidence,
'' must be translated into English. Being a part of the description
"and definition of the damage, this evidence as to lire must be
"" understood with reference to the time when the damage accrues,
"" which it is used to describe,'' the judgment proceeds *: '' This
""can be applied directly to a case where the damage claimed
"arises from failure to pay a sum in foreign currency, like the
"Turkish gold pounds here. It is true that Lord Sumner does not
'* deal specifically with, and seems to reserve the question of what
""is the rule where there is a contractual obligation for the payment
'' of fixed or calculable sums in a foreign place and [their Lord-
'"" ships would prefer ' or '] in a local currency. He does, however,
'' observe that: ' waiting to convert the currency till the date of
'** Judgment only adds the uncertainty of exchange to the uncer-
'"'* tainty of the law's delays.'' Lord Buckmaster rejects sum-
'' marily the idea that the date of the writ or of the commence-
'"ment of the action is the proper date.* His view, in their Lord-
'' ships' opinion, is summed up by his statement that in regard
'"to damages which have been 'assessed in a foreign currency
'** the judgment here, which must be expressed in sterling, must
'""* be based on the amount required to convert this currency into
'** sterling at the date when the measure was properly made,
'"*and the subsequent fluctuation of exchange, one way or the
'"'* other, ought not to be taken into account.'''*® Then, after a
felicitous reference to section 72 (4) of the Bills of Exchange Act,
1882, which enacts that in the case of bills of exchange the
amount of the foreign currency is to be translated into the United
Kingdom currency according to the rate of exchange for sight

'
'

«

5 [1921] 2 A.C. 544, 555. 8 Ibid. 548.
6 [1943] A.C. 507, 518. 9 Ibid. 549.
7 [1921] 2 A.C. 544, 558.

1045

Hk, (23
1960

UNITED
RAILways
oF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Viscount
Simonds.

1046 HOUSE OF LORDS [1961 |

H. L. (H.) drafts at the place of payment on the day the bill is payable, their
1960 Lordships adopted that date as the proper date for the exchange
rate of the Turkish gold pounds. In this case, which, if not
Bence strictly binding on this House, is of the highest persuasive
or Havana authority, two lines of thought which end in the same conclusion
Se cae appear to be blended, the first that the breach of an obligation to
Lop., In re. pay a sum in foreign currency sounds in damages, and therefore
Viscount the rule of the Celia 1° applies, the second that as an independent
Simonds. rule of law the proper rate of exchange for failure to pay a debt
in foreign currency is that obtaining on the date when payment
should have been made. Both propositions find ample support.
I do not propose to detain your Lordships by the citation of a
large number of authorities. I am content to accept as a correct
statement of law, whichever way the conclusion is reached, the
propositions in rule 177 at p. 914 of the seventh edition of Dicey's
Conflict of Laws as follows: '' (1) An English court cannot give
'' judgment for the payment of an amount in foreign currency...
'* (2) For the purpose of litigation in England (a) a debt expressed
'""in a foreign currency must be converted into sterling with
"reference to the rate of exchange prevailing on the day when

"the debt was payable.''

There are, however, certain landmarks in the case law on this
subject which I cannot ignore.

First, I must mention Scott v. Bevan," and I do so largely
because it has from time to time been suggested, and was
strenuously urged by counsel, that it does not decide a point which
it obviously does. There an action was brought in the King's
Bench to recover the value of a given sum of Jamaican currency
upon a judgment obtained in that island. The facts are somewhat
complicated. But it clearly emerges that it was argued on the
one side that a conventional rate of exchange should be taken,
on the other that the rate should be that actually prevailing at
the date of the judgment in Jamaica, that at the trial Lord
Tenterden directed the jury to find in favour of the former view,
that a rule nisi for a new trial was obtained upon the ground that
only that sum was recoverable in sterling which would equal the
value of the sum payable under the Jamaican judgment in
Jamaican currency at the rate of exchange prevailing at the date
of that judgment, and that the rule was made absolute. It is true
that Lord Tenterden himself continued to express some doubt,

10 [1921] 2 A.C. 544. 11 (1881) 2 B. & Ad. 78.

A.C. AND PRIVY COUNCIL.

but this may be forgotten in the judgment of a court consisting
besides himself of Littledale, Parke, Taunton and Patteson JJ.

Next I would refer to Manners v. Pearson & Son,!2 a case fre-
quently cited for the judgment of Vaughan Williams L.J., though I
doubt whether on the question now in issue a different view was
taken by Lindley M.R. and Rigby L.J. The question was as to the
proper mode of taking an account ordered in an action brought
in this country by a creditor to have an account taken of moneys
payable abroad by the defendant in a foreign currency, that is,
whether it should be taken on the relative values of the English
and foreign currencies as of the date of taking the account, or as
of the dates when the debts became payable, or as of some other
and what date or dates. Ignoring at first the particular form of
action, that is, an action for an account, Vaughan Williams L.J.
said #*: '' It seems clear that, in an action in whatever form in
"the English courts for the recovery of a debt payable in foreign
"" currency, the amount of the English judgment or order must be
"expressed in English currency, and that, unless the relative
"" values of the respective currencies are fixed by statute or some
"authority binding the English courts or by the agreement of
'* the litigants, the amount of the English judgment or order must
'"be based on the quantity of English sterling which one would
'have to pay here to obtain in the market the amount of the
"* debt payable in foreign currency delivered at the appointed place
'of payment—i.e., the amount payable according to the rate of
'"exchange.'' The learned Lord Justice goes on to explain that
the rule is based upon what I may call the commodity theory of a
debt in foreign currency, echoing the judges in Ward v. Kidswin™
300 years ago. He then stated that he saw no reason why the rule
should not apply in an action for an account—the only point, I
think, upon which he differed from his brethren. His judgment,
and in particular the passage that I have cited, has been
frequently approved, particularly in Di Ferdinando v. Simon,
Smits & Co. Ltd.1® which was itself approved in The Celia.'®

I should not pass over Madeleine Vionnet et Cie v. Wills,%*
for in that case Clauson L.J. states the law in words upon which

I cannot improve #8: ''If this be the position,'' he says, '* the
12 [1898] 1 Ch. 581; 14 T.L.R. 312, 16 [1921] 2 A.C. 544.

C.A. 17 [1940] 1 K.B. 72; 56 T.L.R. 15,
13 [1898] 1 Ch. 581, 592. C.A.
14 Latch 77. 18 [1940] 1 K.B. 72, 78, C.A.

15 [1920] 3 K.B. 409; 36 T.L.R.
197, C:AY

1047

j2 a a A)
1960

UNITED
Rarways
oF Havana
AND REGLA

WAREHOUSES
Lirps, In re:

Viscount
Simonds.

1048 HOUSE OF LORDS [1961]

H. L. (E.) '' only question open in this court would seem to be whether any
1960 '« distinction can in principle be drawn between the case of a
'claim in respect of breach of contract which results in relief by
Siena '' way of damages, and a like claim which results in relief by way
or HavANA ''of a judgment for a fixed sum. We can find no logical
Lene '' ground for such a distinction either in reason or in any principle
Lrp., In re. '' which can be deduced from the decided cases; indeed counsel
Viscount '' supporting the judgment below was not able to formulate any
Slmonas.

''such principle, still less to point to any decided cases from
''which any such principle could be deduced.'' I may without
disrespect say that learned counsel for the respondents on the
present appeal, greatly though he assisted the House, suffered in
this respect from the same infirmity.

I could refer to many other cases, particularly to a group which
arose in the liquidation of the British American Continental Bank
in 1922 and 1923,!° in which it was held that a claim in debt is
on the same footing for the purpose of determining the rate of
exchange as a claim for damages for breach of contract. But I do
not think that any useful purpose would be served by doing so.
I am satisfied that nothing is to be found in them which could
lead one to a different judgment. Reliance was also placed on the
judgment of the Supreme Court of the United States in Deutsche
Bank v. Humphrey.?® Any judgment of that court will be
regarded with respect in this House, nor will anyone doubt that
the conclusion to which the majority of the court, including
Holmes J., came can be supported by weighty argument. It was
that the date when the suit is brought, not the date when the debt
is payable nor the date of judgment, is the date at which the rate
of exchange must be fixed. But I do not find in the judgment
persuasive authority which would justify your Lordships in
adopting a rule which has so long been rejected in the courts of
this country. This leads me to some final observations in this
too long opinion.

We are engaged in settling the law upon a question in which
any rule is artificial and to some extent arbitrary. In other
systems of law different rules have been adopted, and there is no
doubt that one system may benefit one creditor and another
another. No rule can do perfect justice in every case. In this
country the rule is settled so as to bind all courts that where the

19 Goldzieher and Penso's Claim Lisser and Rosenkranz's Claim [1928]
[1922] 2 Ch. 575; 88 T.L.R. 465, 785, 1 Ch. 276.
C.A.; Crédit Générale Liégeois' Claim 20 (1926) 272 U.S. 517.
[1922] 2 Ch. 589; 88 T.L.R. 464;

A.C. AND PRIVY COUNCIL.

claim is in damages for breach of contract, or for a tortious act,
the date of conversion is the date of that breach or that act. It
would, in my opinion, introduce the sort of refinement into the
law, against which I have striven and shall ever strive, if a
different rule were adopted in the case of a foreign debt. In the

1049

H. L. (E.)
1960

UNITED
RaILways
oF HAVANA
AND REGLA

one case a contract for delivery of goods, in another for delivery of Warsnouszs
foreign currency, in another for payment of a foreign debt, in all [., In re.

alike precisely the same damage suffered by a plaintiff who sues
on the failure of the defendant to fulfil his obligation. It would
be little credit to our law if a different measure of relief was meted
out in these several cases.

I come to the conclusion that the claim in paragraph 2 (a) of
the proof can be admitted for no more than £180,724 5s. 6d., being
the sterling equivalent for the dollar sums therein mentioned
at the rate of exchange prevailing when they severally fell due.
I have already intimated that the claims in 2 (b) and (c) must
subject to inquiry as to quantum be admitted, and the claim under
2 (d) must be rejected.

To sum up, the appeal, in my opinion, fails upon the major
question what is the proper law of the contract, but succeeds in
so far as it seeks to reduce the proof of debt under paragraph 2 (a)
of the proof to £180,724 5s. 1d. It fails in the attempt which was
not seriously pressed to reduce the claim under 2 (b). The claim
under 2 (c) has not been challenged and the claim under 2 (d) is
rejected.

The question of costs remains. The appellants have so far
been ordered in the Winding-up Court and the Court of Appeal to
pay substantially all the costs of the respondents. Taking this
into account, and the fact that they have succeeded in a consider-
able degree in this House and should have succeeded similarly in
the courts below, their Lordships propose not to vary the orders
already made in regard to costs, but to make no order as to the
costs of the present appeal, except that the costs of the appellants
be their costs in the winding up.

Lorp Rew. My Lords, the United Railways of the Havana
and Regla Warehouses is an English company which went into
voluntary liquidation on March 4, 1954. The appellants are the
liquidators and this case arises out of a proof of debt lodged on
behalf of the respondents. The only debt owed by the company
to the respondents is the unpaid part of the rentals due under a
lease of rolling stock in Cuba to which I shall have to refer later.
The appellants seek to avoid liability for that debt by maintaining

Viscount
Simonds.

1050

Tats, We (Gs\,)
1960

UNITED
RAILWAYS
oF HAVANA
AND REGLA

WAREHOUSES
larp.3) mene.

Lord Reid.

HOUSE OF LORDS [1961]

first that the proper law of the contract of lease is the law of Cuba,
and secondly, that the law of Cuba discharges them in whole or in
part of that liability. In my opinion the proper law of the
contract is not the law of Cuba: it is the law of the Common-
wealth of Pennsylvania. I have had an opportunity of reading
the speeches about to be delivered by my noble and learned
friends, Lord Denning and Lord Morris of Borth-y-Gest, and i
agree with the reasons which they give for this. Accordingly, the
only remaining question is the amount for which the respondents
are entitled to prove.

The company's debt is in United States dollars, and this must
be converted into sterling. The question is, at what rate or rates
of exchange must this conversion be made. The sums due by
the company ought to have been paid half-yearly between 1931
and 1986. At that time the rate of exchange was over $4 to the
£, at the date of liquidation it was only $2.80 to the £. The
appellants say that the date for conversion should be the dates of
the breaches, that is, the dates at which the debtor ought to have
paid his debt. The respondents say that the date should be at the
earliest the date of liquidation, and we were informed that if
the earlier dates are taken the appellants would have to pay about
£80,000 less than if the later date is taken.

For many years it has been generally accepted that conversion
should be made at the rate of exchange current at the date when
the debtor broke his contract by failing to make due payment.
But I do not think that this House is bound by authority in this
matter, although the weight of authority in favour of taking the
date of breach is very great. So I think it more satisfactory to
re-examine the whole matter.

I take first a contract of which the proper law is the law of
England, under which one party is bound to deliver to the other in
England either goods or a sum in a foreign currency. If I buy
a cow (to take Lord Wrenbury's illustration in ss. Celia v. ss.
Volturno +) and the seller fails to deliver it at the stipulated date,
I must, if I still want a cow, go into the market and buy one at
the market price at the date of breach. I ought then to recover
as damages for that breach of contract the cost of that cow, and
it is well settled that the proper measure of damages is the market
price of the goods at the date when the seller broke his contract.
In the same way, if a party fails to pay or deliver a sum of dollars
or franes at the stipulated date, I must if I still want that

21 [1921] 2 A.C. 544.

A.C. AND PRIVY COUNCIL.

currency go into the market and acquire it at the rate of exchange
current at the date of breach, and I can see no reason why the
measure of damages should not again be the market price of that
currency at the date of breach. If in either case I do not choose
to go and buy elsewhere the cow or the foreign currency which the
seller failed to deliver that cannot alter the measure of damages.
I know at the date of breach what sum I shall ultimately be
entitled to recover as damages, and a subsequent alteration of the
market price of cows or francs will not affect my rights. I do not
have to take the risk of the price falling, and I ought not to gain
if the price rises. I do have to take the risk that the pound
sterling may be of less value when the damages are ultimately
paid than at the date of the breach, for that is a general risk
against which the law cannot protect any of us. And if the
person who contracted to deliver the cow or the foreign currency
is a foreigner, that is no reason why the measure of damages
should be different. If a foreigner chooses to enter into an English
contract he cannot expect special treatment.

But in theory it might seem that the rule should be different if
the contract is a foreign contract. If a person in Pennsylvania
buys a cow or buys francs for a price in dollars by a contract of
which the proper law is the law of Pennsylvania, and the seller
fails to deliver, the buyer will, if he sues in the United States,
and assuming that the law there is the same as it is here, recover
damages in dollars based on the market price in dollars of the cow
or the foreign currency at the date of breach. But he may have
to sue in England: in that case, why should he not recover in
England sufficient sterling to give him as many dollars as he would
have got if he had sued at home?

The case against the existing rule may seem even stronger
where the action is for repayment of money lent. If in America
one person lends dollars to another and the loan is not duly repaid,
the creditor simply sues there for the money and no question can
arise about the date at which damages are to be assessed, though
interest may be due from the date of breach. But, if the creditor
has to come to England to sue, the dollars will be converted into
sterling as at the date of breach, although at that time neither
party had any connection with England. The original reason for
the rule has no application in such a case. When dealing with an
English contract it may be right to treat foreign currency as a
commodity, but dollars lent in America are not a commodity, and
if they are not repaid at the due date there can be no question
of an American going into the market and buying dollars to

1051

ERE a (Hi)
1960

UNITED
RaILways
OF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Lord Reid.

1052

ELE)
1960

UNITED
RAILWAYS
oF HAVANA
AND REGLA

WAREHOUSES
jarp.;, Inne.

Lord Reid.

HOUSE OF LORDS [1961 |

replace those which the debtor failed to deliver. Why, then, should
the American creditor, if he has to come to England to sue, have
his debt converted into sterling as at the date of the original
breach? That seems the more anomalous because, if the creditor
had been able to obtain judgment in America for his debt, and had
brought the judgment here to enforce it, the debt would have been
converted to sterling as at the date of the American judgment.
The reason for the existing rule is, I think, primarily proce-
dural. <A plaintiff cannot sue in England for payment of dollars,
and he cannot get specific performance of a contract to pay
dollars—it would not be right that he should. So at best he could
only have the dollars converted to sterling at the date of judgment.
Owing to appeals or difficulties of enforcement a long time may
elapse between judgment and getting his money, and the rate of
exchange may have altered substantially during that time. Indeed,
fluctuations in the rate of exchange might result in the rate of
exchange at the date of payment being nearer to the rate at the
date of breach than to the rate at the date of judgment, though,
no doubt, the probability is the other way. And there are practical
difficulties in taking the date of judgment. The rate of exchange
for United States dollars might perhaps be held to be common
knowledge, but that is not so with regard to all foreign currencies.
Evidence would have to be led and the conversion would really
have to take place as at the date when evidence was led. And
there are other practical difficulties which I need not specify.
Really the only practicable choice would seem to be between
converting at the date of breach and converting at the date of
raising the action in England. The latter alternative might
perhaps be preferable, and it was in fact adopted by the United
States Supreme Court in 1926 in Deutsche Bank v. Humphrey.??
But the rate at the date of raising the action might be very
different from the rate at the date of payment. Indeed, the
objections to taking it are not very much less than the objections
to taking the rate at the date of breach. Moreover, I doubt
whether, in view of the great intricacy of some commercial trans-
actions, it would be practicable to have two possible dates for
conversion according to the nature of the contract. It would, I
think, be wrong to take the date of raising the action in every case :
to my mind, the date of breach is much better in the simple case
of an English contract where the parties are in England and one
fails to deliver foreign currency which he has contracted to deliver.

SARA aU Solids

A.C. AND PRIVY COUNCIL.

105

So even if this were still an open question, I would have to come UH. L. (E.)

to the conclusion that in every case where a plaintiff sues for a
debt due in a foreign currency, that debt should be converted into
sterling at the rate of exchange current when the debt fell due.
That rule may in some cases be artificial, it may even be unjust,
but it has been accepted for a long time, it is clear and certain

1960

UNITED
Ralnways
oF HAVANA
AND REGLA

«),
Y

» WAREHOUSES

and no other rule could be relied on to produce a more just result: Lrp., In re.

indeed, no other rule is really practicable. So the judgment which
the respondents hold could not be supported on general principles.

But the respondents maintain that, accepting the general rule,
there are special reasons in this case why they are entitled to take
the rate of exchange at the date of liquidation. Those reasons
arise from unusual features in this litigation, and largely turn on
the proper interpretation of their proof of debt. To understand
them one must have in mind the nature of the transactions which
give rise to the debt, and I shall state as briefly as I can the
essential facts. In or before 1921 the company purchased rolling
stock for their railway and they sought to raise $6,000,000 in the
United States. Apparently it was desired to give the lenders
security over the rolling stock, and with this object an elaborate
scheme was adopted. The company set up a subsidiary (the car
company) and purported to sell the rolling stock to them and then
to take it back on lease. The rentals under this lease were the
sums necessary to pay interest and redemption of the $6,000,000.
Then the car company's rights as owner of the rolling stock, includ-
ing the right to receive the rentals, were assigned to predecessors
of the respondents as trustees for the lenders of the $6,000,000
which was divided into 6,000 certificates each for $1,000. The
trustees were bound to pay to the certificate holders the interest
and redemption money out of the money which they received from
the company under the lease, but there was no direct obligation
of the company to the certificate holders.

All went well from 1921 to 1930, but the company failed to pay
to the trustees the sums due in 1931 and subsequent years. No
attempt was made to enforce the security over the rolling stock,
perhaps because under the law of Cuba that was difficult or
impossible, and matters were at a standstill until in 1953 the
company sold their railway system, including the rolling stock, to
the Cuban Government for $13,000,000. By that time 3,800 of
the certificates had been redeemed, and of the remaining 2,200
the company had acquired 1,869 which passed into the hands
of the Cuban Government as part of the sale of the undertaking.
The other 331 certificates remained in the hands of members of

A.C. 1961. 69

Lord Reid.

1054

Tels 1a {(is)
1960

UNITED
RalLways
OF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Lord Reid.

HOUSE OF LORDS [1961 |

the public. After the company went into liquidation the Cuban
Government intimated that they did not desire to claim in respect
of their certificates. They were in any case bound to indemnify
the company, so it would seem that they would have had to pay
back to the company any sums which the respondents might
pay to them out of money which the respondents received in the
liquidation. But the 1,869 certificates were still in existence,
and this seems to have put the respondents in some difficulty in
framing their proof of debt.

In their proof of debt the respondents ought to have given
particulars of the company's debt to them, that is, the unpaid
rentals under the lease, but they did not do so. Instead they gave
particulars of their debt to the certificate holders. But no objec-
tion was taken on this ground. So we must do the best we can
with the proof as it stands. In fact, the sums claimed under para-
graph 2 (a) and (d) are together almost exactly the same as the
sums which ought to have been claimed, that is, the rentals due by
the company with interest. (There is a discrepancy of the order
of $1,000 but that can be regarded as negligible.) And, of course,
the sums due by the company to the respondents were only pay-
able for the purpose of enabling the respondents to pay to the
certificate holders the sums set out in paragraph 2. So I think we
can properly regard paragraph 2 as setting out, substantially
correctly but in wrong form, particulars of the company's debt
to the respondents. Unless we can so regard it, there are no
particulars at all and the proof would be bad for that reason.

But the respondents seek to put quite a different interpretation
on paragraph 2. I find their argument difficult to appreciate, and
I hope that I do it justice. As I understand it, they say that para-
graph 2 has nothing to do with particulars of the company's debt
to them: it is a statement of how they will use any money which
is paid to them. That means that the proof contains no particu-
lars at all of money owed by the company to the respondents
beyond the reference in paragraph 4 to covenants in the lease. But
the respondents say that no further particulars were necessary, or
at least, that it is too late now to object to their absence.

I am unable to accept this interpretation. Paragraph 2 begins
by stating that the company was at the commencement of the
winding up "' and still is justly and truly indebted to the claimant
''in the following sums '' which include heads (a) and (d). So I
do not see how the respondents can now say that heads (a) and
(d) are intended to be something other than particulars of the
company's debt to them. Paragraph 2 (a) is a claim for a sum

A.C. AND PRIVY COUNCIL.

""due and payable to the claimant in respect of $333,000 [it
"should be $331,000] in face value of . . . certificates then out-
"standing in the hands of members of the public.'' And para-
graph 2 (d) is a claim for a sum ''due and payable to the
"claimant in respect of $1,867,000 [it should be $1,869,000] in
'face value of . . . certificates which had been purchased by the
"company.'' Again the emphasis is properly on what was '' due
"and payable to the claimant,'' and, strictly speaking, what was
due and payable to the claimant was not due in respect of out-
standing certificates, it was due under the lease. But in a sense
it was due in respect of the certificates because the respondents
could only use any money they received to pay the certificate
holders—any surplus would have been repayable to the company.
In view of the probability that the Cuban Government would make
no claim it may well have seemed convenient to divide the respon-
dents' claim against the company in this way. The respondents
could, I suppose, have drafted their proof of debt in the form of,
first, a claim for the money due to them with particulars, and then
a statement of why they required the money or what they were
going to do with it. But I cannot spell that out of the proof of
' debt which is before us. So I think that paragraph 2 must be
interpreted as meaning that the respondents divided into two parts
their claim to the money due to them: in paragraph 2 (a) they
claimed 333/2,200 parts of that money, and in paragraph 2 (d)
they claimed the remaining 1,867/2,200 parts of that money.

I can now come to the crucial point in this branch of the case.
The appellants as liquidators had rejected the whole of the respon-
dents' proof of debt and the respondents appealed. In 1956,
before this appeal was heard, the appellants sought to make an
interim distribution to the stockholders of the company of cash in
their hands. Their summons came before Roxburgh J. and he was
satisfied that the Cuban Government as holders in due course of
the 1,867 certificates had renounced any claim to participate in the
assets available for distribution in the winding up. To put
matters in order it was then agreed by the parties to treat the
appeal of the respondents against the rejection of their proof as
being before Roxburgh J., and on December 4, 1956, he made an
order in which the court, being satisfied that that renunciation
was a sufficient ground for the rejection of that part of the proof
of debt (paragraph 2 (d) ) '' which is based upon or measured by
'' reference to the said 1,867 equipment trust certificates, doth
''not think fit to reverse or vary the decision of [the present
'' appellants] as such liquidators rejecting the said proof of debt

1055

H..L. (EB)
1960

UNITED
RaILWways
oF HAVANA
AND REGLA

W AREHOUSES
Lrp., In re.

Lord Reid.

1056

He. ()
1960

UNITED
Ralnways
oF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Lord Reid.

HOUSE OF LORDS [1961 }

'

'so far as the same relates to the said sum'' claimed in
paragraph 2 (d). The question is what is the effect of that order,
against which there has been no appeal.

The appellants say that order discharges the respondents'
claim against them to the extent of 1,867/2,200 parts of the
sums which were due to the respondents. The respondents deny
that. They say, as I understand it, that their claim to the whole
of the unpaid rentals still survives intact, that the order of Rox-
burgh J. did not touch that claim, but that it merely recognised
that the Cuban Government's claim against the respondents had
been abandoned. The respondents are therefore entitled to take
as much out of the sums ultimately payable to them in the liquida-
tion as is necessary to meet in full the claims of the holders of
the other 331 certificates, and, as those claims are in dollars,
they can take as much sterling as is now necessary to produce the
necessary sum in dollars, or at least as much as wotld have been
necessary at the date of liquidation. They could not, of course,
take more than that because if they did they would simply have to
pay it back again. That would mean, in effect, that the certificate
holders' claims must now be converted into sterling as at the
date of liquidation and not as at the dates when they ought to
have been paid. The complicated order against which this
appeal is taken appears to give effect to these contentions of the
respondents.

It appears to me that this order can only be supported on the
view that paragraph 2 (d) is not a claim to any part of the debt
due by the company, the claim being found elsewhere, and that,
therefore, its rejection by Roxburgh J. did not touch or in any
way cut down the respondents' claim. I have already given my
reasons for rejecting this view of the meaning and effect of the
proof of debt, and so, in my judgment, the result of the order of
Roxburgh J. is that the respondents are now only entitled to claim
333 /2,200 parts of the debt due to them.

Finally, the respondents relied on their claim in tort. Para-
graph 4 of the proof of debt states that '' The liability of the com-
"pany to the claimant which is the subject-matter of this proof
"arises under or by virtue of a covenant [in the lease] . . .
'' Alternatively the said liability arises by way of damages for
"breach of a covenant .. . or by way of damages for the conver-
"sion by the company of the said railway equipment.'' Accepting
the view that the sale of the company's undertaking to the Cuban
Government involved the tort of conversion as regards the rolling
stock, that the damages amounted to $2,000,000, and that such

A.C. AND PRIVY COUNCIL.

damages must be converted into sterling at the date of the tort
when the rate of exchange was $2.80, I do not think that this
helps the respondents. Again, it is necessary to consider the
effect of the order of Roxburgh J. Either that order affects the
claim in tort or it does not. If it does not we would have to deal
with this part of the case as if the order had never been made.
But that has never been argued. The resvondents seek to use the
order as excluding the Cuban Government from any right to
participate in the distribution of the damages which they receive,
but to deny that the order is effective to cut down their right to
receive the whole of the damages. If the order is effective to cut
down their right to damages in the same way as it cuts down
their right to the rentals, then the claim in tort is of no value
to the respondents because 833/2,200 parts of the $2,000,000
damages is much less than 333/2,200 parts of the unpaid rentals
even allowing for the fact that they would have a more favourable
rate of exchange for the damages. And, of course, the respondents
cannot get both.

Their argument is that they are entitled to receive the whole
$2,000,000 damages, that by reason of the order of Roxburgh J.
the Cuban Government's right to participate in that sum is gone,
and that therefore they can apply it to meeting in full the claims
in paragraph 2 (a), (b) and (c). It is amply sufficient to meet
those claims and so the respondents can use the same argument
as before for taking $2.80 as the rate of exchange for the dollars
necessary to meet the claims set out in paragraph 2 (a).

But it appears to me that that argument is inconsistent with
what I have held to be the proper construction of paragraph 2 of
the proof of debt. I could understand an argument that para-
graph 2 has nothing to do with the claim in tort—though I might
not agree with it. But that would mean that the order of Rox-
burgh J. has nothing to do with this claim. And, as I have said,
that has not been argued and it would not suit the respondents
so to argue. So it is admitted that paragraph 2 affects this claim.
But if so, it must have the same meaning as it had before, and

1057

H. L. (E.)
1960

UNITED
RaILways
oF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Lord Reid.

I have stated my opinion that its meaning is that it divides the |

respondents' claim into two parts, and one of those parts has been
finally rejected. I am, therefore, unable to agree that the respon-
dents are still entitled, notwithstanding the order of Roxburgh J.,
to claim the whole of the damages of $2,000,000.

Accordingly, I would allow the appeal in part. The respon-
dents are entitled to claim the sums in dollars set out in

1058 HOUSE OF LORDS [1961]

H. L. (E.) paragraph 2 (a), but each item must be converted to sterling at

1960 the rate of exchange current when it became due.
eae a Lorp Rapcurre. My Lords, I had the privilege of being able

or Havana to study the opinions of my colleagues before I came to prepare
AND REGLA : : .
Warrnousss My own. I am so much in agreement with the conclusions come
Lrp., In re. to, except on one minor point, not itself of any general importance,
mi and the reasons given for those conclusions, that I do not wish
to contribute anything myself except one or two comments on the
issues that have been debated before us.

The first and major question, no doubt, is that relating to the
proper law of the contract to pay interest on the $6,000,000 loan
and to repay the principal with the stipulated premium. As to
this, I agree that in the end one is bound to accept the law of the
Commonwealth of Pennsylvania as the governing law for this
purpose. I share the view of Wynn-Parry J. and the Court of
Appeal that, although the obligations take the form of promises
to pay '' rent '' in the '' lease "' of the rolling stock, the transaction
must be looked at as a whole for the purpose of determining its
proper law.. So regarded, this is a case where a company whose
head office is in London but whose business is that of running a
public utility in Cuba comes to the New York capital market to
borrow money to further its business operations. Once the money
is raised the creditors have done their part. The complex of
transactions which make up or are attendant upon the trust
agreement and the lease is directed entirely to seeing that the
money loaned is secured and in due course returned. When this
is done by the company promising payment of interest and repay-
ment of principal and premium in United States dollars, in New
York and Philadelphia, and the watch-dog chosen for the protec-
tion of the lenders is a Pennsylvanian trust company, I have no
doubt myself that the general inference from such a pattern ought
to be that the proper law of the obligation is not that of the United
Kingdom, where the debtor has his head office, nor that of Cuba,
where the business is conducted and the rolling stock would be
found, but either that of New York or of Pennsylvania. f I do not
think that the tests for determining the proper law of a contract
can ever be comprehended under a single phrase, so various are
the situations and considerations that have to be taken account
of but this is a case in which, in my opinion, the law of the place
of performance ought to be regarded as of preponderating import-
ance, and of those two possible places Pennsylvania which is

A.C. AND PRIVY COUNCIL.

both the home of the trustee and the place where the capital is to
be repaid seems to me clearly the natural choice.

I should arrive at a different conclusion if I thought that the
parties had by their own choice subjected the obligation to the
rules of the law of Cuba. /I am satisfied, however, after reading
the opinion prepared by my noble and learned friend, Lord Morris
of Borth-y-Gest, that the clauses in the lease which are relied
upon in support of such a conclusion cannot be read as having that
effect.

There are several points of argument which arise out of the
proof itself. The one which is of general importance is the
question at what date or dates should the dollars due under the
unfulfilled covenants in the lease be converted into sterling for
the purposes of the respondents' claim. On this point I agree
with the reasoning adopted in the opinion of my noble and learned
friend, Viscount Simonds, and I am satisfied by his citation of
the previous authorities that the course of English decisions (and,
I should add, English legislation—see Bills of Exchange Act,
1882, section 72 (4)) has led us fairly directly to the conclusion
that conversion should be made at the rate of exchange ruling at
the date when each covenanted payment fell due to be, but was
not, made.

One of the difficulties of discussing this particular question is
that English law has not got a well-settled nomenclature for its
terms. I take it myself that any contract to settle a debt in the
currency of the country in which the settlement is to be made is a
contract for the payment of money in the eyes of our law, and
this notwithstanding the fact that, if action is taken in England
for breach of the contract, the remedy sought must be damages,
not debt, and those damages expressed in sterling for the purposes
of judgment. To speak of such contracts as being in English
law contracts for delivery of a commodity seems to me merely to
confuse the issue, and needlessly to suggest that for some reason
best known to itself our law regards a contract for the payment
of debt in foreign money as if it were of a nature different from
that which it obviously possessed. Also, again, I think, need-
lessly, such a description suggests that we admit of no distinction
between a contract to pay money abroad in satisfaction of a debt
on the one hand and a contract to deliver foreign currency in this
country or abroad or a true exchange contract, which is a contract
to exchange the currency of one country for the currency of
another, on the other. Each of these transactions has some
difference from the other and may for some purposes have

1059

Li. RD
1960

UNITED
RaAmways
oF HAVANA
AND REGLA

WAREHOUSES
Lrtp., In re.

Lord Radcliffe.

1060

13, 16p (800)
1960

UNITED
RAILWAYS
or HAVANA
AND REGLA

WAREHOUSES
Lav., In re.

Lord Radcliffe.

HOUSE OF LORDS [1961 |

different consequences: but the important point for the present
purpose is that each of them has the common characteristic that,
if sued upon in England, it must be sued for in damages expressed
in sterling as upon a breach of contract. The damages, I should
say, are for failure to tender or deliver, as may be, objects of value
which at the date of failure had a sterling equivalent in inter-
national exchange. :

If, then, we already have a settled rule that damages for tort
and for breach of contract other than for payment of a foreign debt
must be converted into sterling at the date of breach, I agree that
there is no sufficient peculiarity in the obligation to pay money as
distinct from other forms of contract that could justify the adop-
tion of a different rule for the calculation of damages arising from
its breach. Nor do I see how in this connection it would be
possible to base any distinction upon the test whether the proper
law of the contract is English or foreign, for there is no necessary
correlation between the proper law that governs an obligation and
the country or the currency in which the obligation is to be
discharged.

I share the theoretical objection to applying this rule to debts
due in foreign currency. The effect of it is to express the creditor's
rights in terms of sterling at a date earlier than that at which,
assuming default, he has any means of obtaining the sterling
and reconverting it into the currency which was due. If we treat
currencies as inherently variable inter se—it exaggerates the
difficulty to call them fluctuating—he may suffer in the process
of obtaining his rights. It is true that this possibility of risk from
currency variation is not confined to contracts stipulating for pay-
ments of money: but it probably strikes one with greater force
when money itself is the subject of the obligation. One looks for a
rule by which the creditor takes what risk there is, at any rate as
long as possible, in terms of the currency for which he has stipu-
lated by his contract. This argues for a date of conversion later
than the date of breach. But neither the date of execution nor
the date of judgment offers itself as a practical proposition in
litigation, and the only real alternative to the date of breach is
the date at which legal proceedings are begun in this country.
The acceptance of this date has a certain attractiveness because
it is the date which marks the creditor's decision to convert his
claim in foreign money into a sterling judgment.

I do not, however, think that this consideration takes one
nearly far enough to justify maintaining a separate rule for money
payments. Even if one chose the date of suit as the date of

A.C. AND PRIVY COUNCIL.

conversion, that in its turn might fail to give a creditor what he
ought to have had if the exchange value of the stipulated currency
was reduced in the meantime. As I see it, there is no infallible
system which can eliminate the fact that a debtor has by the
nature of the contract an option at the expense of his creditor.
He can pay on the due date, if he thinks it suits him, or delay
payment if he thinks that owing to the anticipated movement of
the exchanges that will suit him better. The creditor has no
corresponding option: he cannot secure the money at the due
date, if the debtor does not pay, and then he can only get what
is due to him through the time process of legal proceedings. It
would, I think, be some protection to him and would be a work-
able arrangement to give a creditor an option, if he sues his debtor
here, to take either the date of breach or the date of the com-
mencement of legal proceedings, as he chooses. But the fact
is that there is no general reason why there should be any
significant interval between breach and suit; and in any event
the difficulties, though real enough in this case, are mainly
theoretical. Under the procedure of most countries, I imagine,
it would be possible to sue the debtor in the country of payment,
obtain judgment there for the currency stipulated, and convert
the judgment sum into sterling only when it is registered here for
execution.

So far, therefore, as the respondents' proof claims under
paragraph 2 (a) for $331,000 with attendant interest and premium
converted into sterling at the rate of $2.80 to the £, I think that
the wrong rate of exchange has been taken for the conversion, and
that the rate or rates ruling at the dates of breach must be
substituted. This provides the figure of £180,724 5s. 2d. which,
as I understand, commends itself to the majority of your Lord-
ships as the correct figure for head (a) of this paragraph of the
proof.

But the respondents' right to prove did not depend only on the
covenants in the lease: it was founded alternatively, as para-
graph 4 made at any rate sufficiently clear, upon the wrongful
conversion of their property involved in the December, 1953, sale
of the rolling stock to the Government of Cuba. The damages for
this wrong were assessed by Wynn-Parry J. at $2,000,000:
applying, as one must, the $2.80 rate of exchange ruling at that
date, there is therefore a sum due to the respondents which
exceeds the sums for which they claim to prove under paragraph 2
(a) of the proof, even if the dollars mentioned in that item are
converted at that rate and not at the earlier rates which have to

1061

15) 1B, (03,)}
1960

UNITED
RaILways
oF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Lord Radcliffe.

1062

Hy L.
1960

UNITED
RAILWAYS
or HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Lord Radcliffe.

HOUSE OF LORDS [1961 |

be taken when the basis of proof is breach of covenant. What I
have not been able to see is what has happened in the course of
these tangled proceedings which prevents the respondents' proof
being good for this amount.

I do not want to take up much time on this, since the majority
of your Lordships are satisfied, though perhaps by rather different
processes of reasoning, that even in respect of a claim in conver-
sion paragraph 2 (a) cannot stand at a higher sterling figure than
£180,724. The proof does raise great difficulties of interpretation
by the form in which it was cast, and there are further difficulties
caused by the order made in the proceedings before Roxburgh J.;
and no doubt it is possible to put varying constructions upon the
outcome of what had to be done before everything could finally
be brought to the judgment of the court. On the other hand, the
respondents' position when they came to make their proof was an
unusual one in two respects: they did not know, and could not
find out, what responsibilities they were supposed to have towards
the holders of 1,867 (or 1,869) of their certificates, and they also
knew that any surplus of their security over what their bene-
ficiaries could require from them would be due to the debtor itself.
I do not feel it right, therefore, to read their proof more strictly
against them than I am bound to, or to deduce more from the
order of Roxburgh J. than it actually says. So approached, the
order does no more than confirm the elimination from the proof of
paragraph 2 (d) and so that part of the total claim that related to
$1,869,000, interest and premium: it left untouched paragraph 2
(a) consisting of the claim for $331,000 and the attendant interest
and premium. If the latter claim arises in respect of a wrong for
which the damages are convertible at the rate of $2.80 to the £, I
should have thought that it was a valid claim for the purposes of
proof, and I have not found it possible to see how its quantum
can be in some way reduced by the rejection of paragraph 2 (d)
or, as one of your Lordships holds, excluded because the claim
in conversion has become barred by the course of proceedings.

Lorp Dennina. My Lords, I have tried to cut a way through
the jungle of facts in this case. If we leave out subsidiary com-
panies, successor companies, and the like, it can be reduced to two
separate transactions.

First, there was the transaction whereby the railway company
in 1921 raised $6,000,000 from the trust company. This was, in
effect, a hire-purchase transaction. The railway company was
rather like a man who wants to buy a motor-car but has not the

A.C. AND PRIVY COUNCIL.

means to pay for it. Just as he raises the necessary money from
a finance company, so the railway company raised this $6,000,000
from the trust company. It assigned the rolling stock to the trust
company for $6,000,000 (who paid it to the suppliers) and the
trust company then let the rolling stock on a lease to the railway
company for 15 years. The rentals were so fixed that the whole
$6,000,000 would be repaid within 15 years together with interest
at 7} per cent. per annum. When all the instalments were fully
paid, the railway company was to become the owner of the
rolling stock.

Secondly, there was the transaction whereby the trust com-
pany in 1921 raised the $6,000,000 from the public. It issued
6,000 equipment trust certificates of $1,000 each. These were
repayable over a period of 15 years together with interest at 74
per cent. per annum. But they were repayable '' only from and
"out of the rentals when paid as provided in the lease.'' The
trust company was to hold the rentals '' for the benefit of the
"' certificate holders'': in short, on trust for the certificate
holders. If the railway company made default in paying the
rentals, the trust company were entitled to retake possession of
the rolling stock and sell it; and in that event the proceeds were
to be used to pay off the certificate holders, and the "' surplus,
"if any,'' was to go back to the railway company.

The important thing to notice is that the rentals payable under
the lease coincided with the sums payable to the certificate
holders. The rentals were so fixed as to enable the trust company
to meet the following outgoings, no more and no less, over the
15-year term: (1) To pay the dividends to the certificate holders
at the rate of 74 per cent. (2) To pay the expenses of the trust
company. (8) To redeem the 6,000 certificates at the rate of 400 a
year.

During the first 94 years all went according to plan. The
rentals were duly paid to the trust company, who duly paid the
certificate holders their dividends and also redeemed 3,800 certifi-
cates, leaving 2,200 outstanding. During the next three years
the railway company could not pay the rentals in full. It paid
enough to cover the dividends on the certificates but nothing more.
Thereafter the railway company paid nothing at all. The result
was that when the 15-year term expired in 1936, the railway
company owed the trust company rentals made up as follows:
(1) A sum equal to the dividends unpaid on the outstanding 2,200
certificates. This came to $247,500. (2) The expenses of the
trust company. (3) A sum equal to the amount necessary to

1063

Jal. UB, (0d)
1960

UNITED
RaItways
OF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Lord Denning.

1064

Te Teles)
1960

UNITED
RarILways
oF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Lord Denning.

HOUSE OF LORDS [1961]

redeem the outstanding 2,200 certificates, that is, $1,000 apiece
plus the appropriate premiums. This came to $2,256,000.

It might be thought that, when the railway company made
default, the trust company would take steps to enforce payment
of the rentals, by taking possession, but it was unable to do so
because the Cuban State declared a moratorium. But the default
in payment naturally struck down the value of the certificates.
One of the significant facts in the case is that the railway company
itself bought 1,869 certificates at $147.50 a certificate and held on
to them, leaving only 331 in the hands of the public.

So things remained for many years, with the railway company
running the railway and paying nothing on the certificates.
Ultimately in 1953 the Cuban State bought the whole of the rail-
way undertaking (including the 1,869 certificates) for $13,000,000.
The Cuban State then transferred the railway undertaking, certi-
ficates and all, to a new nationalised company. The railway
company received the price of $13,000,000 in United States
Treasury Bills and brought it back to England, converting it to
sterling at the rate of $2.80 to the £ sterling. On March 4, 1954,
the railway company went into voluntary liquidation. The trust
company now seeks to prove in the liquidation.

Much discussion has taken place on the form of the proof, but
once the facts are properly understood its meaning becomes clear.
The principal ground of the claim, as I read it, was because the
railway company had not paid the rentals due under the lease.
The trust company claimed to be entitled to recover these rentals
together with interest at 6 per cent. from the dates they became
due. The complication in the claim arose because the trust com-
pany was a trustee for the certificate holders. The rentals, once
received, had to be applied (1) in paying the certificate holders
the sums due on their certificates, and (2) in paying the reasonable
expenses of the trust company. The rentals receivable were equal
to the sums payable to the certificate holders, plus expenses. But
as a trustee, the trust company was in this difficulty: It knew
there were 2,200 certificates outstanding, but 1,869 of these had
been bought in by the railway company itself: and the trust
company did not know whether these 1,869 certificates were
effective or not. So, in order to cover itself in case they were effec-
tive, the trust company divided its proof into four parts, which
can be summarised as follows:

2. (a) The proportion of rentals payable in respect of 331
certificates, plus interest at 6 per cent. from the dates the rentals
became due.

A.C. AND PRIVY COUNCIL.

(b) Expenses already incurred by the trust company.

(c) Expenses to be incurred by the trust company.

(d) The proportion of rentals payable in respect of 1,869 certi-
ficates, plus interest at 6 per cent. from the dates the rentals
became due.

Although the proof of debt was divided into those four parts,
nevertheless the liability of the railway company was clearly stated
to arise "' under or by virtue of a covenant '' in the lease: and
this was, no doubt, the covenant to pay rentals. Claims 2 (b) and
2 (c) were maintainable only under the covenant to pay rentals,
and under no other head whatsoever. Indeed, the wording of
item 2 (b) followed the very wording of the covenant in the lease,
namely, "' reasonable expenses incurred . . . in the performance
"of the trust under which the said certificates were issued."'

Alternatively, the liability of the railway company was also
stated to arise under other heads, none of which needs special
mention except the claim in conversion. The trust company
alleged that "' the said liability arises . . . by way of damages for
"" the conversion by the company of the said railway equipment."'
This claim was necessarily made in the alternative. If the trust
company succeeded in its claim for rentals, it could not possibly
claim damages for conversion: for, as soon as the claim for rentals
was satisfied, the railway company would be entitled to the rail-
way equipment because it would then have paid for it. But I go
further. The claim for rentals proceeded on the footing that the
property in the railway equipment had passed to the railway
company: whereas the claim for conversion proceeded on the
footing that the property had never passed to the railway com-
pany. These were inconsistent rights; and once the trust company
committed itself unequivocally to the one, it could not afterwards
resort to the other: see Hvans v. Davis ** and United Australia
Ltd. v. Barclays Bank Ltd.?* by Lord Atkin.

In the events that happened, I think that the trust company
did commit itself unequivocally to the claim for rentals. It did
it by the form of its proof. Items 2 (a), (b), (c) and (d) were
consistent, and consistent only, with a claim for rentals, and not
with a claim for conversion. I can see that the railway company
would be liable for those items as rentals; but I do not see
how it can be said there was any liability for them in conversion.
How could the amounts due under the trust certificates ever come

23 (1878) 10 Ch.D. 747, 762, 763. 24 [1941] A.C. 1, 30; 57 T.L.R.
13; [1940] 4 All E.R. 20, H.L.

1065

Eee (Ey)
1960

UNITED
Ratnways
OF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Lord Denning.

1066

BH. L: (BE)
1960

UNITED
RAILWAYS
oF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Lord Denning.

HOUSE OF LORDS [1961 }

into the calculation of damages for conversion? And how could
the trust company ever claim its expenses under that head? The
only possible damages in conversion would be for the value of
the railway equipment, or rather of the trust company's interest
in it, at the time of conversion. But no such sum was claimed
in the proof at all.

Likewise the order made by Roxburgh J., which your Lord-
ships have described, is applicable, and applicable only, to the
claim for rentals and not to the claim for conversion. There is no
difficulty in applying that order to the claim for rentals. The
trust company claimed rentals divided into four items: 2 (a), (b),
(c) and (d). All that the order did was to strike out item 2 (d) and
to leave items 2 (a), (b) and (c) intact. But there is great
difficulty in applying the order to the claim for damages for
conversion. On the one hand, if that claim is confined (as I think
it must be confined) to the sums claimed in 2 (a), (b), (¢) and (d)
of the proof, the claim is unintelligible, because there can be no
possible claim in conversion on those heads, as I have already
pointed out. On the other hand, if the trust company had put in
its claim differently, as, for instance, if it had claimed $2,000,000
as being the value of the goods at the time of the conversion,
Roxburgh J. might well have made a different order. He would,
indeed, have had to do so: for such a claim could not be divided
into items 2 (a), (b), (ce) and (d) as the claim for rentals was.
No part of it could be said to be '' based upon or measured by
"* reference to the '' 1,869 certificates.

In the result, I think it is impossible now to allow the trust
company to claim in conversion for the value of the goods. It
has committed itself to a claim divided into four specific items 2
(a), (b), (c) and (d). Those items are intelligible in regard to a
claim for rentals but not in regard to a claim for conversion. It
was on the faith of that itemised division that Roxburgh J. made
his order. The trust company cannot now go back and resort to a
lump sum claim for conversion divorced from any such items.
It would need an amendment of the proof which it is much too
late to permit. I am far from saying that the trust company did
wrong in framing the proof as it did. It was a trustee for the
certificate holders; and the certificates were in terms payable
'only from and out of the rentals.'' They were not payable out
of any damages for conversion. So it was the duty of the trust
company to claim the rentals and recover them, if it could, rather
than seek damages for conversion. And that is what I hold the
trust company has done.

A.C. AND PRIVY COUNCIL.

Likewise with the alternative claim for damages for breach of
covenant not to assign. It must be rejected just as the claim in
conversion.

But if these alternative claims are to be considered as still
available, then some attempt must be made to apply the order of
Roxburgh J. to them; and the only way of doing it that I can see
is to reduce them in the same proportions as the claim for rentals.
Thus, taking the total damages of conversion at $2,000,000, the
effect of Roxburgh J.'s order would be to reduce them to $302,727.
That sum is so small that it would not suit the trust company at
all to claim it.

I propose, therefore, to confine my remarks to the claim for
rentals under the lease. The railway company has no answer to
this claim except to say that under the laws of Cuba this liability
has been transferred from the railway company to the new
nationalised company which has taken over the railway: and that
by Cuban legislation the railway company has been discharged
from liability. But this answer is of no avail to the railway com-
pany unless it can show that the lease itself is governed by the
law of Cuba, It is a well settled rule of private international law
that the validity of a discharge by legislation depends on what
is the proper law of the contract; and this is the case, no matter
whether the debt has already accrued due at the time of the
legislation or is still a future debt. A discharge in accordance with
the proper law is valid; but a discharge which is not in accordance
with the proper law is invalid.

What, then, is the proper law of the contract here? It is agreed
on all hands that it is either the law of the Commonwealth of
Pennsylvania or the law of the Republic of Cuba; but it is said
that Pennsylvania must stand on its ground without any help from
the State of New York. I do not think this is the correct
approach. The real choice is, I think, between the law of one of
the United States of America and the law of the Republic of Cuba.
The reason is because for all practical purposes there is no
material distinction between the laws of the several states of the
United States as between themselves, whereas there is a great
distinction between the law of Cuba and of the states. So
approaching the problem, it seems to me clear that the lease here
was part and parcel of a composite transaction of which the
primary aim was the raising of money in the United States on
the security of railway equipment in Cuba. The contract was
made in the United States, the money was raised there and was
paid out there; and it was to be repaid there both as to principal

1067

HeLa G5
1960

UNITED
RaILways
oF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Lord Denning.

1068

135i MBs (099)
1960

UNITED
Rallways
oF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Lord Denning.

HOUSE OF LORDS [1961 |

and interest. The security alone was in Cuba. On these facts,
as in the case of a mortgage, it can fairly be said that the debt
'"ig considered to be the principal, and the securities are con-
sidered as adjuncts, depending, for their existence, on the
'' existence of the debt'': see British South Africa Co. v. De
Beers Consolidated Mines Ltd.25 So considered, it seems to me
that, in the absence of any express clause determining the proper
law, the transaction should be governed by the law of the country
of the lender. A borrower who comes from a foreign country
seeking a loan must expect to conform to the laws of the
country to which he comes: for otherwise he is unlikely to get
the loan. The fact that the security is situate abroad is only
material as necessitating the observance of the foreign law in the
pledging and enforcement of the security.

I do not regard clauses 11 and 12 of the lease as clauses which
determine the proper law. They are concerned only with special
incidents relating to the security. Clause 11 deals with the
formalities of registration and the like such as may be necessary
to protect the trustee's title. Clause 12 means that if there is
occasion to resort to the courts in Cuba (as, for instance, to
enforce the security), the parties must go to the tribunals of the
City of Havana rather than those in any other part of the island.
The parties do not by this clause, or any other clause, agree that
the lease itself is to be governed by the laws of Cuba; and in the
absence of an express clause to this effect, the test is simply with

-what country has the transaction the closest and most real con-

nection: see Bonython v. Commonwealth of Australia.2® Apply-
ing this test, I think the proper law of the transaction, including
the lease, is the law of one of the United States, and out of those
states the choice should fall on the Commonwealth of Pennsyl-
vania because it has on balance the closest connection with the
transaction.

This being so, it is plain that the legislation in Cuba could not
take away the right of the trust company to receive payment in
the United States of the rentals due under the lease; and the
railway company was at all material times under an obligation to
pay the rentals to the trust company in full in dollars in the United
States of America, together with interest at 6 per cent. from the
time they became due.

Now the trust company comes to the courts in England to
recover the sums in arrear and unpaid. And if there is one thing

25 [1910] 2 Ch. 502, 516. 26 [1951] A.C. 201, 219,

A.C. AND PRIVY COUNCIL.

clear in our law, it is that the claim must be made in sterling and
the judgment given in sterling. We do not give judgments in
dollars any more than the United States courts give judgments in
sterling. But the question is, at what date is the rate of exchange
to be taken? Is it to be the date when the rentals fell due, or the
date of the winding up?

If the trust company had sought to recover judgment in the
United States, it would, I presume, have been able to sue there
for a debt in dollars. But it cannot sue here in debt. There is
no sterling debt. Its claim must be in damages. It must claim
damages for breach of contract because of the non-payment of
dollars in the United States. As such, the claim is indistinguish-
able in principle from any claim for breach of contract. The rate
of exchange is to be taken at the time when the breach took place.
This is, I think, a rule of positive law established by decisions of
this House and of the Judicial Committee of the Privy Council;
but as it has been subject to some criticism, I would like to
attempt some explanation of it.

The origin of the rule, as I understand it, lies in the fact that
for long years sterling was regarded as a stable currency '' of
"" whose true-fixed and resting quality there is no fellow in the
"* firmament.'' Sterling is the constant unit of value by which, in
the eye of the law, everything else is measured. So long as
sterling is regarded as stable whilst other currencies go up and
down, it would seem that justice is best done by taking the rate
of exchange at the date of the breach. The creditor is entitled
to be put into as good a position as if the debtor had done his
duty and paid the debt on the due date; and he is only truly put
into such a position if the debt is converted into sterling at that
date; rather than at a later date when the foreign currency has
depreciated or appreciated.

The question is whether the rule is still to apply when sterling
loses the value which it once had. We have seen in recent years
how it has depreciated. It has departed from the gold standard:
the pound has been devalued; and there has been much inflation.
It may be said that in these conditions the rule is apt to produce
an injustice to a creditor in the United States who is owed money
in dollars: because, if he comes to our courts after devaluation,
he does not recover sufficient sterling to compensate him for his
loss. But I am afraid that, if he chooses to sue in our courts
instead of his own, he must put up with the consequences. Our
courts here must still treat sterling as if it were of the same value

A.C. 1961. 70

1069

H. L. (E.)
1960

UNITED
RaAILways
oF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Lord Denning.

1070

H. L. (E.)
1960

UNITED
RaILways
oF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Lord Denning.

HOUSE OF LORDS [1961]

as before: for it is the basis on which all our monetary trans-
actions are founded. Thus, within this country itself, a man who
stipulates for a pound must take a pound when payment is
made, whatever the pound is worth at that time. Just as an
English creditor in this country suffers from the depreciation of
the pound, so also does a foreign creditor who comes to this
country seeking payment in sterling. He must take it that in
England we have always looked upon a pound as a pound what-
ever its value in other countries: and if we award him damages
calculated in sterling at the time of the breach, we are awarding
him what in the eye of the law is full compensation for the breach.

It is worth noticing that, as we look upon sterling, so also do
the courts of the State of New York look upon the dollar. They
have, I believe, the rule that a claim for debt or damages in
foreign money must be converted into dollars at the rate of
exchange prevailing at the date of the breach. In this respect the
New York courts follow their own course rather than the decision
of the Supreme Court of the United States of America, and I
think we should do likewise. It is better suited to a commercial
community. Any other rule would mean that the sum payable
would depend on the delays of parties or of courts. That cannot
be right. And I would point out that it is often open to creditor
or debtor to safeguard himself from any adverse consequences of
the rule. Take the case where sterling depreciates. For
instance, a debt is payable in dollars in the United States, it is
unpaid, and afterwards sterling depreciates. The creditor can,
after devaluation, bring an action in the United States and recover
judgment in dollars. He can then sue in England on that United
States judgment and the rate of exchange will be taken not at the
date of the original contract debt, but at the date of the United
States judgment: see Scott v. Bevan,' and section 2 (3) of
Foreign Judgments (Reciprocal Enforcement) Act, 1933.

Take next the case where the foreign currency depreciates:
for instance, when a debt is payable in francs in France, it is
unpaid, and afterwards francs depreciate. The creditor may bring
an action in England but the debtor can forestall it by paying the
debt in France in depreciated francs; and then, when the debtor
is sued in England, he can claim that he has discharged the debt
by the proper law of the contract: see Société des Hétels Le
Touquet Paris-Plage v. Cummings.?8

27 (1831) 2 B. & Ad. 78. 280.022) ele se) CO eee ieLe
221, C.A.

A.C. AND PRIVY COUNCIL.

In this case the trust company did not take any steps in Cuba
or the United States to get judgment for rentals in dollars. I take
it there were good reasons for this: so that this is the only
country in which it can get redress. But coming here, it must
accept the rule of our law that we can only give judgment in
sterling, and at sterling calculated at the rate of exchange when
the rentals should have been paid. If the proof had remained
intact for the full rentals payable in respect of the 2,200 certifi-
cates, that would clearly be true. It is no less true when the
proportion payable in respect of 1,869 is struck out, leaving only
the proportion in respect of 331 payable. The rates of exchange
for this proportion must be the rates ruling when the rentals
accrued due. When the trust company receives the amount so
calculated, it will have received a sum which in the eye of our
law is full satisfaction of the claim for rentals and interest; and it
should receive no more, no matter how the claim is framed. It is
true that, when the trust company wishes to turn the sum back
into dollars, it may find that it has not enough dollars to pay the
certificate holders in full: but that cannot be helped. There are
always risks incident to foreign investment. One of the risks is
that the lender may have to go to another country to recover his
money; and when he does so he must recover in the currency of
that country, and not in that of his own. It is for risks such as
these that he stipulates for a high rate of interest; and his dis-
appointment at the rate of ex will, I hope, be mitigated by
the substantial interest which Ee

I would allow the appeal on the question of quantum but
dismiss it on the question of liability.

Lorp Morris or Bortu-y-Gest. My Lords, in the voluntary
liquidation of United Railways of the Havana and Regla Ware-
houses Ltd., which may conveniently be referred to as '' the
''company,'' a proof of debt was lodged on June 18, 1954, by
the respondent. The proof was rejected by the liquidators. The
resultant litigation, embracing many issues of law, has been con-
cerned with two main questions: first, whether any proof of debt
ought to be admitted, and secondly, if so, for what amount.

The company, which was incorporated in England in 1898,
operated for many years a railway undertaking in the Island of
Cuba. For the purposes of its operations the company, in and
prior to the year 1921, purchased rolling stock and equipment in
the United States of America. The purchases were of an amount
which in total exceeded $14,000,000. For the purpose of financing

1071

Ts i abn (002)
1960

UNITED
RaILways
oF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Lord Denning.

1072 HOUSE OF LORDS [1961 |

H. L. (£.) part of this amount the company desired to raise $6,000,000 in
1960 the United States.
<a aac Certain elaborate arrangements were made which were said to

aR follow in the main the pattern of what was described as "' the
or Havana '' Philadelphia Plan.'' There was an issue of certificates which
A at ae were called '' United Railways of the Havana 15-year 74 per cent.
Lrp., In re. '* equipment trust certificates.'' The respondent is the present

Lord Morris of trustee of such issue. The certificates were of $1,000 each. Six
Borth-y-Gest- thousand certificates were issued.

By a certain agreement dated February 15, 1921, the nature
of which calls for careful examination, and which I will later call
'the lease,'' the company contracted to make money payments
which were calculated in amounts so that the sums borrowed and
represented by the certificates would be repaid by the year 1936,
and so that there should be provision for interest payments. The
benefit of that agreement became vested in the original trustee for
the certificate holders. There came a time when the company
defaulted, and in regard to capital instalments there was owing
by the company the sum of $2,256,000. At a much later date
(that is, on December 1, 1953) the company sold the whole of the
railway undertaking, including all the rolling stock, to the Cuban
State for the sum of $(U.S.)13,000,000. That amount was paid
to the company in United States Treasury Bills. There was a
provision in the deed of sale that the price was received by the
vendors free of all responsibility as regards liabilities existing in
Cuba represented by debts, obligations and responsibilities arising
out of the operation of the properties which the Cuban State had
bought. It was following upon the sale to the Cuban State that
the company, on March 4, 1954, went into voluntary liquidation.
The proof of debt to which I have referred was then lodged. The
proof was lodged by the trustee for certificate holders and included
sums representing the face value of outstanding certificates,
together with sums said to be due by way of interest and sums
representing the trustee's expenses. One way in which the
liability of the company was said to arise was under and by virtue
of a covenant contained in the agreement of February 15, 1921.
Among the reasons assigned by the liquidators for the rejection
of the proof was that the agreement of February 15, 1921, was
governed by Cuban law, and that under Cuban law a novation had
taken place, as a result of which the company's liability to the
trustee was discharged or was transferred to the Cuban State. It
was alternatively contended that the effect of Cuban law, as the

A.C. AND PRIVY COUNCIL.

proper law of the contract, was to reduce the liability of the com-
pany to the respondent by reason of the effect of Cuban mora-
torium laws. In the courts below it was also contended by the
liquidators that the agreement of February 15, 1921, was governed
by Cuban law because the situs of the debt was in Cuba. That
contention was not advanced in your Lordships' House. If,
however, the proper law of the agreement was the law of Cuba,
then it was submitted that the effect of the deed of sale of
December 1, 1953, was to bring about a novation, with the result
that the trustee could not thereafter look to the company but
would be obliged to look only to the Cuban State. On the other
hand, if the proper law of the agreement was not the law of Cuba,
then on the undisputed facts there could be no doubt that the
company was to some extent indebted to the trustee at the
commencement of the winding up. On that footing there are
important questions as to the extent of the indebtedness, and as
to the amounts for which the trustee can properly prove.

It therefore becomes necessary to decide whether the law of
Cuba was the proper law of the agreement of February 15, 1921.
If it was, then questions arise as to the resultant effect of the
application of Cuban law.

My Lords, the agreement of February 15, 1921, was one of the
agreements into which the company entered as part of the arrange-
ments for raising money. The company needed to raise money for
the purpose of financing the extensive purchases that they were
making. The money was not raised in Cuba but in the United
States of America. It followed that provision had to be made
so that the American lenders should receive interest and, in due
course, the return of their money. The procedure which was
adopted was of no little complication. In the first instance the
company brought into being a subsidiary company, which for con-
venience may be called '' the car company.'' It was incorporated
in the State of Delaware. Then on March 25, 1921, the company
sold its rolling stock and railway equipment to the car company.
Prior to the sale most of the rolling stock and equipment which
the company was purchasing from manufacturers in the United
States of America had been delivered, but there were contracts
outstanding for the future delivery of further rolling stock and
railway equipment, and these contracts were assigned and trans-
ferred to the car company. By way of confirming the sale and
carrying the same into effect the two companies executed what
was called a bill of sale before a notary public in New York on
April 11, 1921. There then followed two agreements which were

1078

H. L. (8)
1960

UNITED
RaILways
oF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Lord Morris of
Borth-y-Gest.

1074

Hal.)
1960

UNITED
RaIbways
or HAVANA
AND REGLA

WAREHOUSES
Lip., I" re.

Lord Morris of
Borth-y-Gest.

HOUSE OF LORDS [1961 |

actually executed on April 18, 1921, but which were made to bear
date February 15, 1921. They were executed in New York before
the same notary public. One agreement was between the car
company and the company. This was the agreement which may,
for convenience, be called '' the lease.'' The other agreement was
between the car company and the Commercial Trust Company of
Philadelphia, then the trustee for the certificate holders. That
agreement may conveniently be called '' the trust agreement."

By the lease the company leased from the car company the
rolling stock and railway equipment which it had sold to the car
company. The car company agreed to lease to the company the
further new rolling stock and railway equipment which were to
be delivered by United States manufacturers under contracts
assigned by the company to the car company. The lease was for
a period of 15 years expiring on February 14, 1936. By way of
rentals the company agreed to pay various sums which, in fact,
represented the interest payments and capital instalments in
respect of the equipment trust certificates.

By the trust agreement the car company assigned to the
trustee, as trustee for the certificate holders, all the right, title
and interest of the car company in and to the railroad equipment
and rolling stock, and assigned the indenture of lease and all the
rentals reserved under it, and all the rights and remedies of the
car company. It was provided that the trustee would deliver
trust certificates to the car company or upon its order in par value
of $6,000,000.

The certificates were then issued through underwriters. The
car company agreed that the proceeds resulting from the sales of
them would be utilised in payment of indebtedness incurred in
connection with the purchase of the equipment covered by the
sale by the company to the car company, and the subsequent lease
from the car company to the company.

There was a later agreement, dated April 27, 1922, made
between the car company and the company, a resale agreement,
under which the car company resold the rolling stock and railway
equipment to the company: the resale was subject to and with the
benefit of the lease and the trust agreement. In 1924 the car
company was dissolved.

The result of these rather elaborate arrangements was that
6,000 certificates were issued and the company became obliged to
make stipulated payments to the trustee. Furthermore, the lease,
which recited that the car company proposed to assign its interests

A.C. AND PRIVY COUNCIL.

to the trustee, contained provisions designed to give security for
the benefit of certificate holders.

The rights of the certificate holders were recorded in the
certificates. They recorded that each bearer or registered holder
was entitled to one share of $1,000 par value in United Railways
of Havana 15-year 74 per cent. equipment trust in accordance
with the provisions of the trust agreement. The certificates also
recorded the terms upon which, at particular dates, the certifi-
cates were subject to retirement. The certificates then provided
as follows:

"Unless retired as above, this certificate will be retired by
"" payment of the par value hereof and a premium of 23 per cent.
"hereon on the Fifteenth day of February, A.D. 1936, upon the
"surrender hereof at the office of Commercial Trust Company,
'in the City of Philadelphia, and in the meantime dividends
"" hereon will be payable at the office of Central Union Trust Com-
"" pany of New York, in the City of New York upon surrender of
'"the dividend warrants attached hereto. Par value, premium
""and dividends are payable in gold coin of the United States of
"" America of the 1921 standard of weight and fineness, but only
""from and out of the rentals when paid as provided for in the
"" Lease of certain railroad equipment and/or rolling stock made
'"by Cuban Rolling Stock Company to United Railways of the
'* Havana and Regla Warehouses, Ltd., bearing date the Fifteenth
""day of February, 1921, and assigned by Cuban Rolling Stock
'Company by assignment bearing date the Fifteenth day of
'' February, 1921, to the Trustee; which rentals are payable to
''the Trustee for the benefit of the holders of this and other
'* certificates amounting at par to Six million Dollars ($6,000,000);
''to which Agreement and Lease reference is hereby made for a
'* statement of the rights of the holders of such certificates and
'the terms and conditions of the issue thereof.''

It will be seen that the provisions of the lease were all-
important to certificate holders and that the trustee's obligations
to pay were '' only from and out of the rentals when paid."'

Before February 14, 1931, 3,800 certificates out of the 6,000
were redeemed in accordance with provisions contained in the trust
agreement. There remained at that date 2,200 certificates out-
standing. Ata later date, that is, in 1937, the trustee brought pro-
ceedings against the company in the State of Maine. As a result
of terms of agreement which were made by way of settlement of
those proceedings the company later acquired by purchase out-
standing certificates to the number of 1,869. Those certificates

'

1075

H. L. (B.)
1960

UNITED
RAILWAYS
oF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Lord Morris of
Borth-y-Gest.

1076

Bre. (Bs)
1960

UNITED
RAILWAYS
oF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Lord Morris of
Borth-y-Gest.

HOUSE OF LORDS [1961 |

were not delivered to the trustee for cancellation. They remained
with the company, and when the company sold its whole under-
taking to the Cuban State in 1958 those certificates were
delivered to the Cuban State. The remaining outstanding certifi-
cates were 331 in number.

My Lords, it will have been seen that the company had no
direct liability towards the certificate holders. The company had
liabilities under the lease and these enured for the benefit of the
trustee as the assignee of all the rights of the car company.
Unless extinguished or reduced by the operation of Cuban law the
liabilities of the company to the trustee which existed at the
commencement of the winding up could be ascertained by
reference to the lease.

The inquiry as to whether the law of Cuba was the proper law
of the lease makes it necessary to examine the provisions of the
lease in some detail. The first clause provided for the payments
which the company had to make, and it is of importance to observe
that payments had primarily to be made in Philadelphia though
interest payments had to be made in New York. The opening
wording was as follows:

' The lessee shall and will pay to the lessor or its assigns at the
'' office of Commercial Trust Company, hereinafter called the
'"" trustee, in the City of Philadelphia, Pennsylvania, or at the
'* office of Central Union Trust Company of New York, in the City
'"of New York when payment in New York is hereinafter specific-
"ally required, as rental for the said railroad equipment and/or
'' yolling stock without deduction for any taxes, duties, charges or
'"" assessments, which the Lessee may be required to pay or with-
"hold under the laws of the United States of America or of any
'"' other country:

"J. Half-yearly on the Fourteenth day of February, and on the
'"" Fourteenth day of August in each year, the first payment to be
'"made on August 14, 1921,

""(a) A sum payable in New York equal to 32 per cent. of the
'"" par value of certain certificates not exceeding $6,000,000 issued
"under agreement bearing even date herewith between Cuban
"Rolling Stock Company, and Commercial Trust Company,
" trustee, and outstanding and unpaid on the fourteenth day of
' February and the fourteenth day of August, respectively in each
"year, during the term of this lease, and an amount equal to the
"accrued dividends on the certificates purchased by the trustee
'' during the preceding six months under the provisions of the said
'agreement; less such sums derived from investments by the

A.C. AND PRIVY COUNCIL.

"trustee of undistributed rentals in its hands, as reported from
" time to time by it to the lessee as applicable to the payment of
'' dividend warrants on the aforesaid certificates.''

There followed a sub-paragraph imposing an obligation to pay a
sum equal to all reasonable expenses incurred by the car company
or its assigns in enforcing the covenants and terms of the lease,
and in the performance of the trust under which the certificates
were issued. A further sub-paragraph imposed an obligation to
pay a sum equal to the taxes and duties upon the property leased
or upon any income therefrom or upon the rental payments.

The company further agreed to make half-yearly payments, on
February 14 and August 14 in each year. These were to begin
on August 14, 1921, and were to continue until February 14, 1936.
The first 20 payments were to be of $206,000 each and the last 10
were to be of $205,000 each. The payments were to be made in
gold coin of the United States of America of the 1921 standard of
weight and fineness. It was provided, however, that the company
could be allowed upon stated terms to make payment of any
instalment by delivery up of certificates. To do that the company
would have to make purchases of certificates.

The concluding words of the first clause were as follows:

"* Tn lieu and in satisfaction of all further rentals accruing here-
""under, the lessee may at its option on August 14, 1921, or on
'""any rental date thereafter, on not less than 40 days prior notice
"in writing of its intention so to do given to the Commercial
'"Trust Company, trustee, pay rental in such amount as the lessee
'* shall be advised in writing by the trustee shall enable the trustee
'"to call for retirement and to retire on the dividend date next
"ensuing all outstanding United Railways of Havana 15-year 7}
'* per cent. equipment trust certificates by the payment of the par
''value thereof and a premium of 10 per cent. thereon, and
'* accrued dividends thereon to the date of retirement.''

My Lords, a consideration of these various provisions relating
to the payments to be made by the company by way of rental for
the equipment and rolling stock shows clearly that though the
payments were called rentals they were related to and calculated
by reference to the amounts needed to pay the interest and the
principal due on the certificates.

The company was under obligation to keep the railroad equip-
ment and rolling stock insured in some approved American or
United Kingdom insurance company: the equipment and stock
were to be maintained in good order and to be marked so as to
show the name of the trustee. The company covenanted not to

H. L. (£.)
1960

UNITED
RaILWways
oF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Lord Morris of
Borth-y-Gest.

1078

th, AE)
1960

UNITED
RAILWAYS
or HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Lord Morris of
Borth-y-Gest.

HOUSE OF LORDS [1961 |

assign or underlet without the consent of the car company and its
assigns, and there was a provision that if the company made
default in payments the lease could be terminated, in which event
all instalments of rentals became due and payable and the car
company could take possession of the rolling stock.

Pursuant to one of the recitals there was a clause by which it
was agreed that the car company could forthwith assign, transfer
and set over to Commercial Trust Company of Philadelphia, as
trustee, all the car company's rights and interests in and to the
railway equipment and rolling stock and all the car company's
claims, demands and remedies. When the company should have
fully paid all the rents, then the equipment and stock were to be
reassigned to the car company.

There were two clauses the effect of which was much debated.
They were in the following terms:

'*" KLEVENTH.—It is the intention of the parties to this lease
'' to enter into and execute this lease in accordance with the pro-
'* visions of the laws of the Republic of Cuba to the end that this
'lease may be deposited or filed and/or registered thereunder,
'"" and the railway company agrees to so deposit and/or register or
"* file the same, and to record the same in such States or Terri-
'" tories of the United States as may be required by law, and to
'perform any other act required by law that may be necessary to
'* protect the trustee's title.

""In case it becomes necessary that this lease be translated
'into the Spanish language in order that it may be filed and/or
"registered in the proper offices in the Republic of Cuba, then and
"'in that event it is understood and agreed that the English text
"shall govern in case of any conflict between the English and
** Spanish texts.

""TWELFTH.—tThe parties hereto submit themselves to the
"" jurisdiction of the tribunals of the City of Havana, in the
'"" Republic of Cuba, for all notifications, summonses and other
"' judicial or extra judicial formalities to which this lease shall give
"rise, with express renunciation of their own jurisdiction if
"* different.''

My Lords, in approaching the question as to whether Cuban
law should be regarded as the proper law of the lease, it is of
relevance to have in mind the terms of the trust agreement which
was made between the car company and the trustee—the Com-
mercial Trust Company of Philadelphia. That agreement was
made in New York simultaneously with the lease, and though
executed on April 18, 1921, it also bore date February 15, 1921.

'

'

A.C. AND PRIVY COUNCIL.

In the execution of the financial plan which was adopted its terms
were complementary to those of the lease. One of the recitals
records the main purpose as follows:

"AND WHEREAS, the car company has purchased the said
"railroad equipment and/or rolling stock particularly mentioned
"in the lease and has agreed to apply in part payment therefor
"'the proceeds of six million dollars ($6,000,000) par value of
"" equipment trust certificates, to be issued under the terms of this
"" agreement, and known as certificates of the United Railways of
"" Havana 15-year 74 per cent. equipment trust, and the car com-
"pany has agreed to sell, assign, transfer and set over unto the
"Commercial Trust Company, of Philadelphia, as trustee for the
"holders of said certificates, the lease and all its right, title and
"interest in and to the said railroad equipment and/or rolling
"" stock upon certain conditions and considerations mentioned in
"said lease, and all its rights and remedies under contracts for
" the construction or acquisition of said railroad equipment and /or
"" rolling stock, with the manufacturers thereof, or otherwise, and
""all claims, demands and remedies of it, the car company,
"" accruing or to accrue under the lease, and all the rentals therein
"reserved; ...''

Pursuant to that recital the car company made assignment to
the trustee and the trustee agreed to execute and then to deliver
the trust certificates to the car company. There were provisions
recording the powers of the trustee which included powers of sale
if the trustee retook possession of the railroad equipment and
rolling stock. It was provided that—

''The trustee shall apply the proceeds of the lease, sale, or
'' other disposal of the said railroad equipment and/or rolling
"* stock, as well as the moneys derived from the sale of the said
'' United States of America government obligations, to the pay-
'"ment after deduction of the expenses of the trust and all taxes
'' which the trustee may by law be required to pay in respect of
'the trust property or the certificates or the dividends thereon:

'*(1) Of the dividend warrants then due, and accrued.

** (2) Of the par value of and aforesaid premium on all the
''then outstanding certificates in full, if such moneys and pro-
'* ceeds shall be sufficient, and if not, then pro rata; and shall
'' pay the surplus, if any, to the car company, its successors or
'' assigns."'

There was a provision in the seventh clause that if the railway
company made default, and if it were thought '* necessary or con-
'* venient for the purpose of enforcing and carrying out all the

1079

HeDA
1960

UNITED
Rarways
oF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Lord Morris of
Borth-y-Gest.

1080 HOUSE OF LORDS [1961 |

H. L. (E.) '' terms and stipulations of the lease and this agreement under

1960 'the laws and statutes of the Republic of Cuba'' then under

certain stipulated circumstances the trustee was to assign and to

payne hand over to a substituted trustee authorised to act or do business
or Havana in Cuba.

See ae The tenth clause was in these terms: '' Upon payment by

Lrp., In re. '' the railway company to the trustee of the last semi-annual

Lord Morris of || Payment of $205,000, on February 14, 1936, or upon payment

Borth-y-Gest. «« of rental sufficient to retire all outstanding certificates at par
''and a premium of 10 per cent. thereon and accrued dividends,
''and upon retirement of the certificates and payment of the
'' dividends thereon, the trustee shall pay or cause to be paid
'" to the order of the car company all moneys held by the trustee
'and remaining over and above the moneys required for
'" payment of the certificates issued hereunder or any dividends
'thereon and when it, the railway company, shall have fully
'' paid all the rents as provided in the lease, the said railroad
'"equipment and/or rolling stock shall be re-assigned by the
'" trustee to the car company."'

The eleventh clause corresponded with the eleventh clause
of the lease, save that the last few words of the clause in the
lease were not repeated in the trust agreement. In the trust
agreement there was no clause corresponding to the twelfth
clause of the lease.

The company failed to make payment of the rental instalment
due on February 14, 1931, and did not make payment of any
subsequent instalments. The unpaid instalments, which may
reasonably be regarded as instalments of capital, amounted in
total to $2,256,000. The company paid the interest instalments
due under the lease down to August 14, 1934. The trustee did
not exercise or seek to exercise any right to declare the lease
terminated or any right to retake the railroad equipment and
rolling stock.

Upon a consideration of the lease and its terms it was held
by Wynn-Parry J. that the proper law was the law of the
Commonwealth of Pennsylvania. He formed the same view in
regard to the trust agreement. In the Court of Appeal, Jenkins
and Romer L.JJ. held that while Cuban law was intended to
be applicable to certain aspects of the lease and of the trust
agreement nevertheless the proper law of both was that of
Pennsylvania. As an alternative they mentioned the law of
Philadelphia, but it does not appear why it was considered that
such alternative could exist, Willmer L.J. took a different view

A.C. AND PRIVY COUNCIL.

on this issue. He arrived at the conclusion that the law of Cuba
was the proper law of the lease.

On behalf of the appellants it was submitted that clause 12
of the lease should be regarded as providing for the general
exclusive jurisdiction of the Republic of Cuba and as pointing
conclusively to the view that the proper law of the contract was
the law of Cuba. Alternatively it was submitted that if clause 12
did not point conclusively to that view it remained a very
significant factor which tended to the acceptance of such view.
Further, it was said that clause 11 either denoted that the law
of Cuba was expressly chosen or was another significant factor
which supported the view that the law of Cuba was the proper
law. The lease, it was said, related to property in Cuba and
to courses of action to be adopted in Cuba, whereas the
Pennsylvanian elements were peculiarly lacking.

My Lords, these submissions and others closely linked with
them, though impressively developed, have not led me to any
different general conclusion from that reached by Wynn-Parry J.
and the majority in the Court of Appeal. Though the provisions
of clauses 11 and 12 call for special examination it is desirable
to survey the nature and purpose of what was being done. When
the transactions and agreements are examined in order to seek
their essential central elements, it is, I think, apparent that the
company was in effect borrowing money that it needed and was
agreeing to repay with interest and was reinforcing its contractual
monetary obligations by arrangements designed to ensure that
its property would be available as security. The money which
the company needed was raised in the United States of America.
Thereafter what was of prime consequence to certificate holders
was that they should receive their interest and in due course
the return of their capital. The most important obligations,
therefore, into which the company entered were their obligations
to pay money. The payments which in reality were instalment
repayments of capital and which in total were to amount to
$6,170,000 were to be made in the City of Philadelphia,
Pennsylvania, and were to be made at the office of the trustee.
Tf, then, the question is posed as to what is the law "' by reference
'" to which the contract was made or that with which the transac-
'' tion has its closest and most real connection '' (see the words
used by Viscount Simonds in Bonython v. Commonwealth of
Australia 2°) I would answer—the law of Pennsylvania. The

29 [1951] A.C. 201, 219.

1081

H. L. (E.)
1960

UNITED
RAILWAYS
oF Havana
AND REGLA

WAREHOUSES
Lrp., In re.

Lord Morris of
Borth-y-Gest.

1082 HOUSE OF LORDS [1961 |

H. L. (E.) lease was entered into between the company (an English
company) and the car company (a company incorporated in
Delaware) with the knowledge and intention that the latter
aoe company was to assign it to the trustee in Philadelphia so that
or Havana its provisions would avail for the benefit of numerous certificate
EE holders. It would not be in the nature of things that those
Lrp., In re. primarily concerned would have intended or would have wished
Lord Morris of 2a their rights should be determined by the law of Cuba. It
Borth-y-Gest. would seem to be unlikely that the parties to the lease would
without either express statement or positive election have
submitted themselves to a system of law outside the United

States of America.

No final view can, however, be formed until full consideration
has been given to the many elements which involve and suggest
links with the law of the Republic of Cuba. In particular it
must be decided whether clause 12 of the lease is so framed as
to place the contract exclusively under the law of Cuba. My
Lords, if that had been the aim and intention of the contracting
parties they would, I conceive, have employed different language.
They could have agreed to submit all disputes to the jurisdiction
of the Republic of Cuba. Clause 12 is a submission '' for all
'* notifications, summonses and other judicial or extra judicial
'formalities to which this lease shall give rise, with express
'"renunciation of their own jurisdiction if different.'' The
submission was to the tribunals of the City of Havana in the
Republic of Cuba. 'Though the words used are apt to cover legal
proceedings I cannot think that there would have been any bar
to suing the company in England for the amount of any money
instalment that remained unpaid. The company was in fact
sued in the State of Maine, United States of America, in 1937.
Clause 12 appears in the first place to effect that the tribunals
of the City of Havana, as opposed to other tribunals in Cuba,
are exclusively to have jurisdiction if there are proceedings in
Cuba. The evidence of Dr. Gorrin, the Cuban lawyer, supported
this view. It may be, in the second place, that the company
agreed to submit to the jurisdiction of the tribunals of the City
of Havana in the event of the company being sued in Cuba in
proceedings to which the lease might give rise. But that does
not involve that only in Cuba could there be proceedings between
the parties nor does it involve that they were making the law
of Cuba the proper law of the contract so that the whole
agreement was subjected to Cuban law. For the protection of
the interests of certificate holders it might in some circumstances

1960

A.C. AND PRIVY COUNCIL.

be necessary to invoke the assistance of the Cuban courts, but
the contemplation of such circumstances would not involve that
the agreement as a whole was to be governed by Cuban law.

The provisions of clause 11 are less helpful to the appellants.
The clause appears to proclaim its own purpose. The purpose is
to protect the title of the trustee. Accordingly the intention of
the parties was proclaimed to be to execute the lease in
accordance with Cuban law '' to the end that '' the lease could
be deposited or registered or filed according to the law of Cuba
where the property was. It was clearly desirable to provide that
all proper steps should be taken to ensure that the trustee (to
whom there was to be an assignment) should have security. But
the attainment of the expressed purpose of protecting the
trustee's title did not involve that the law of Cuba was to be the
proper law of the contract.

It would seem to be probable, though this would not
necessarily be the case, that the proper law of the lease and of
the trust agreement would be the same. The trust agreement
was an essential part of the mechanism that was being devised
for the operation of securing money for the company. Under
the trust agreement the car company assigned the lease, and
all rights in and to the railroad equipment and rolling stock,
and all its rights under contracts with manufacturers and rights
accruing under the lease and all the rentals, The assignment
was to the trustee "' as trustee for the holders of '' the certificates.
The trust agreement was made in New York between a corpora-
tion of the State of Delaware and a corporation of the Common-
wealth of Pennsylvania. It would seem unlikely that the parties
to the agreement would have contemplated that its proper law
would be the law of Cuba even though it would be necessary to
have an agreement that would be valid under Cuban law in
order to pass title in the equipment and rolling stock to the
trustee. But all the provisions as to the application by the
trustee of the payments that he was to receive would seem to
point to a close and real connection with Pennsylvania. The
cmission of a clause in the trust agreement in the terms of the
twelfth clause of the lease is explained by the absence of any
need for it. The seventh clause of the trust agreement provides
that in the event of default by the company and if it were
thought necessary or convenient for the purpose of enforcing and
carrying out all the terms and stipulations of the lease and of
the trust agreement under the laws and statutes of the Republic
of Cuba, then the trustee might, in his discretion, and upon

1083

HiyL.1 (29
1960

UNITED
Ramways
oF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Lord Morris of
Borth-y-Gest.

1084

H. L. (#.)
1960

UNITED
RAILWAYS
oF HAVANA
AND REGLA

WAREHOUSES
Litp., In re.

Lord Morris of
Borth-y-Gest.

HOUSE OF LORDS [1961]

request of the holders of a majority in amount of outstanding
certificates, should, assign to a substituted trustee '' authorised
'to act or doing business in the Republic of Cuba.'"' The
language of the clause does not seem to be the language
that would have been employed if the parties had selected
the law of Cuba as being the law of the agreement. Nor
does it follow that though the parties contemplated that there
might be occasion to go to the Cuban courts in whose jurisdiction
the rolling stock (the security for certificate holders) was
physically located they would have contemplated that the law
of Cuba was to be the proper law of their contract.

For the reasons which I have indicated, which accord with
those given by the majority in the Court of Appeal and
substantially with those given by Wynn-Parry J., I agree with
the view that though Cuban law was clearly intended to be
applicable to certain aspects of the lease and of the trust
agreement, the proper law of both those agreements was that of
the Commonwealth of Pennsylvania.

In the proof lodged by the trustee it was claimed in paragraph
2 that at the commencement of the winding up the company
was and continued to be justly and truly indebted to the trustee
in certain sums, The first sum was the sterling equivalent of
$739,412. That was a sum calculated in reference to 333
certificates. The sum included the face value of the certificates,
premium, interest at 74 per cent. on the face value from August
15, 1934, to February 14, 1936, and interest at the rate of 6 per
cent. on the face value from February 15, 1936, to the commence-
ment of the winding up. The number of certificates should be
corrected to 331, The next sum mentioned was the sterling
equivalent of $31,296, which was stated to be the aggregate
amount of the reasonable expenses incurred by the trustee in the
performance of the trust down to March 4, 1954. The next sum
mentioned was £20,000 as the sterling equivalent of the estimated
expenses which the trustee would incur in the performance of the
trusts between March 4, 1954, and the date when they would
have been fully performed. The last sum mentioned was the
sterling equivalent of $4,145,596.78 which was a sum calculated
in the same manner as the first sum but in reference to 1,867
certificates. The number can now be taken as 1,869. These
certificates were those to which I have earlier referred. They
were the certificates acquired by the company and passed on by
them to the Cuban State.

A.C. AND PRIVY COUNCIL.

The sterling equivalents were calculated at the rate of $2.80,
being the rate at the commencement of the winding up.

1085

H. L. (#.)
1960

My Lords, if the proof had not been amplified or explained —

by later paragraphs its basis would have been difficult to follow.
As has been seen, the company was not liable on the certificates
though its liability was for the most part measured by reference
to the certificates. The company was under obligation to pay the

UNITED
RAILWAYS
or Havana
AND REGLA

WAREHOUSES
Lrp., In re.

rental sums as set out in the lease. The trustee as assignee Lord Morris of

from the car company was entitled to receive those rental sums.
The only sums, therefore, in respect of which the trustee could
assert liability in the company were the rental sums which the
company had contracted to pay, which included sums to cover
the trustee's expenses. In the proof which the trustee lodged
it was stated in paragraph 4 that '' The liability of the company
'"" to the claimant which is the subject-matter of this proof arises
'" under or by virtue of a covenant by the company with Cuban
"Rolling Stock Company contained in an agreement dated
"February 15, 1921, but executed on April 18, 1921, between
'the said Cuban Rolling Stock Company of the one part and the
'"company of the other part the benefit whereof including the
'"ownership of the said railway equipment was by a trust
"agreement dated February 15, 1921, but executed on April 18,
** 1921, assigned by the said Cuban Rolling Stock Company to
"the said original trustee of whom the claimant is the successor
''in title.'' The claim was alternatively stated to arise by way
of damages for breach of a covenant not to assign which was
contained in the lease and by way of damages for conversion by
the company of the railway equipment.

My Lords, the position as between the company and the
trustee was clear. Both the company and the trustee knew what
was the extent of the failures by the company to make the rental
payments that the company should have paid. The company
knew that the obligation of the trustee to certificate holders
was to pay the latter from and out of the rentals when paid.
Both the company and the trustee knew that if the trustee
received from the company more than enough to pay all that
the certificate holders were entitled to receive, then any surplus
was to be paid to the car company or its assigns. For this
purpose the company were the assignees of the car company.
The result was that in any proof of debt the trustee could not
assert that he should receive from the company more than the
trustee needed to satisfy the certificate holders and to discharge

A.C. 1961. 71

Borth-y-Gest.

1086

Hel. (By)
1960

UNITED
RAILWAYS
or HAVANA
AND REGLA
RAILWAYS

Lip., In re.

Lord Morris of
Borth-y-Gest.

HOUSE OF LORDS. [1961]

the trustee's expenses. As the trustee had not been paid. the
sums which the company owed and as the liability of the trustee
to certificate holders only arose when he was paid, it seems to
me that it was correct for the trustee to take the rate of exchange
ruling at the commencement of the winding up for the purpose
of converting into sterling the dollar amounts that he wished
to receive. So converted, the trustee claimed to prove for
£264,076 plus £11,177 plus £20,000 plus £1,480,570. The first
and the last of these sums included interest at the rate of 6 per
cent. on the face value of certificates down to the commencement
of the winding up as from the date when the certificates should
have been repaid (February 15, 1936)—which was the date when
the final rental payment should have been paid by the company
to the trustee. The liquidators did not challenge the right of the
trustee to pay 6 per cent. interest to certificate holders as from
February, 1936, to the date of the winding up nor the right of the
trustee to prove for such interest at the rate of 6 per cent. even
though there was no contractual obligation in the company to
pay this interest to the trustee.

If these figures of claim had remained it would have been
necessary for the liquidators to see whether the total liabilities
of the company did in fact overtop the total of the amounts
that the trustee claimed. If the company was indebted to a
larger extent, then the excess over the trustee's claim would not
be the subject of proof. If the company's liabilities were less
than the total of the amounts that the trustee claimed, then
the proof could only be admitted to the extent of the company's
liabilities.

The dates of the various defaults by the company and the
amounts of the defaults have not been in dispute. Instalments
due on and after February 14, 1931, amounted in total to
$2,256,000. But in assessing the total liabilities of the company
dollar amounts must be converted to sterling. Should the
conversions be at the rate ruling at the date of the commence-
ment of the winding up or should they be made at the rates
ruling on the respective dates upon which the respective instal-
ment payments or interest payments ought to have been made?
I am clearly of the opinion that it should be the latter.

I have had the privilege of reading in advance the opinion
of my noble and learned friend on the Woolsack, and I am in
agreement with the reasoning therein contained by which this
ecnclusion is supported.

A.C. AND PRIVY COUNCIL.

Upon an acceptance of this basis the result, we are told,
would be that the indebtedness of the company as converted
into sterling would be considerably less than the total of the
four sterling amounts that I have mentioned. On this basis
the liquidators would, apart from the overriding main legal
contentions, have been obliged to admit the proof only to the
extent of the total sterling amount of the company's indebted-
ness. The trustee would then presumably have used the money
he received to discharge his expenses and to apply the remainder
pro rata amongst outstanding certificate holders.

Some figures prepared by the appellants showed that if the
various dollar obligations of the company were converted to
sterling at the rates ruling at the respective dates when the
separate payments had become due the amount owing by the
company would have been about £1,201,188. This sum includes
the 6 per cent. interest payments to which I have referred. There
would also have been an amount owing for expenses. It will be
seen, therefore, that there would not have been enough, leaving out
the trustee's expenses, to meet claims of certificate holders to the
extent of £264,076 plus £1,480,570. If, of course, in reference
to the various liabilities of the company, the rate of exchange
had been taken which was ruling at the date of the commence-
ment of the winding up, then instead of the figure of £1,201,188
there would have been a very considerably higher figure. But
that, in my judgment, would not have been correct.

But it is necessary to see how the position developed. The
trustee explained in his lodgment of proof that he believed that
the 1,867 certificates were retired in the books of account of the
company in or about the year 1948. He further explained that
as the certificates had not been physically surrendered by the
company to the trustee and so had not been cancelled in the
records the trustee had accordingly included in his proof an
amount which was related to these certificates. There was,
however, material from which it could be said that the Cuban
State as the holders of the 1,867 certificates had renounced any
claim. The liquidators of the company had considerable funds
in their hands and wished to make an interim return of capital.
They applied to Roxburgh J. for liberty to do so. In connection
with this application the trustee's originating summons for a
reversal of the rejection of his proof was by consent brought
on for hearing before Roxburgh J. The substance of the matter
was that if in fact the Cuban State was not going to assert any
claim in respect of the certificates which had come to their hands

1087

HyE, (2)
1960

UNITED
RaAILWwaAys
OF HAVANA
AND REGLA

WAREHOUSES
Lrp., In re.

Lord Morris of
Borth-y-Gest.

1088 HOUSE OF LORDS [1961 |

H. L. (B.) and if, therefore, from the trustee's proof there could be eliminated
1960 the item of £1,480,570, then, while making provision for the
oes possible allowance in full of the remainder of the proof, the
Rarrwavs liquidators would be justified in making an interim return of
or Havana gapital. Roxburgh J. was satisfied on the evidence that the
cee holders of the 1,867 certificates had renounced any claim to
Lrp., In re. participate in the assets available for distribution in the winding
Lord Morris op Up and that such renunciation alone was a sufficient ground
oe TOR rejecting that part of the trustee's proof of debt (that is, the
£1,480,570) which was based upon or measured by reference to
the 1,867 certificates. Roxburgh J. therefore made an order
affirming the rejection of the proof of debt so far as it related
to the sum of £1,480,570 and ordered that the remainder of the

summons should stand over.

My Lords, the effect of that was that when the matter came
before Wynn-Parry J. the trustee could not claim to prove for
more than £264,076 plus £11,177 plus £20,000. Once the ques-
tions relating to the 1,867 certificates were out of the way the
trustee did not wish to do so. But the issue as to the amount
that the trustee needed to receive in order to satisfy the out-
standing certificate holders left untouched the liabilities of the
company. The only result, in my view, of the order of Roxburgh
J. was that whereas previously a proof of debt as against the
company might have been admitted for the full amount of what
the company owed (it being immaterial that that amount might
not be enough to pay certificate holders in full), the position after
the order of Roxburgh J. was that the company would be relieved
of part of its liability because the trustee did not need to draw
upon the full amount of that liability in order to meet the claims
of outstanding certificate holders and to cover his expenses. The
6 per cent. interest payments would thereafter only be referable
to the remaining 331 certificates. But the money instalments
due under the lease were payable irrespective of the number of

certificates that might be outstanding. The same observation

applies to the payments due in respect of the trustee's expenses.
There was no relation between the claim of a certificate holder
as against the trustee and the amount of any instalment due
under the lease. The trustee was only liable to certificate holders
out of rentals when paid. It seems to me that the trustee is
entitled to point to the total indebtedness of the company (calcu-
lated in sterling by reference to rates of exchange ruling when
particular instalments were payable) and to claim either that

A.C. AND PRIVY COUNCIL. 1089

amount or such lesser amount as is sufficient to enable him to H. L. (B.)
pay the amount of his expenses and to satisfy certificate holders 1960
whose claims are outstanding and which fall to be honoured when —————

the trustee is paid. Rinne

On the view that I have formed, the order of Roxburgh J. oF Ae
never purported to relieve the company of its contractual obliga- Warrnovses
tions or to assess them or to deal with them. The order merely [7-» /" re.
provided that on the hearing of the summons of the trustee for Lord Morris of
a reversal of the liquidators' rejection of the proof the trustee bse
should be limited to asserting his claim to the item of £264,076
together with his two claims for expenses. My Lords, he seeks
to do no more. On the figures prepared by the appellants, and
taking the conversion rates referable to the dates when instal-
ments should have been paid and leaving out of account any
question of 6 per cent. interest on the face value of the 331
certificates, the sterling equivalent of the unsatisfied contractual
liabilities of the company would be very much more than the
sum claimed by the trustee.

My view of the matter makes it unnecessary to deal with the
alternative ways of showing liability in the company, that is, by
way of damages for conversion or of breach of covenant not to
assign.

For the reasons that I have given, I agree with the learned
judge and with the majority in the Court of Appeal, and I would
be in favour of dismissing this appeal to your Lordships' House.

Appeal allowed in part.