clr/1989/1989_1_135.pdf

(1989)tosection 5 of Cap. 197,the consideration wasexpressed in foreign currency; and second, whether the trial Judge could enter, without prior amendment of pleadings, the clause about the «equivalent in Cyprus money». Held, dismissing the appeal:

(1)The intention of the legislator as manifested bytheclearandunambiguouswordsofsection5isnotto render a contract such as the present illegal but to provide that a stipulation for the payment of any money «in the absence of any express agreement to the contrary» shall be held tobe made in the current and legal tender ofthe Republic. 5 10

(2)The Exchange Control Law, does not prohibit clauses in a contract for payment of theconsideration or damagesforbreach on the basis of foreign currency but restricts dealings with gold and foreign currency by dealers in gold and currency who are not authorized bythe Ministerof Finance. 15

(3)Though dealings in gold or gold coins without a permit by dealers in gold has been prohibited, «gold clauses», as commonly known,incontractswereneverheld illegal.Asocalled«goldclause» is the usual type of protective clause, in an attempt to avoid the nominalistic principle. 20 (4}Inthe recent years ina series of cases it has been established that the Courts may enforce contractsexpressed inforeign currency and givejudgmentinsuchforeign currencyandalsoawarddamages for breach of contract ortort in foreign currency. The effect of such judgments was not to force the parties to effect payment in the 2 5 foreign currency defined in the judgment but in the equivalent of such currency with the coins or notes of the country in which the judgment isdelivered.

(5)The fact that in thiscase the Judge added in hisjudgment the words«tobeconvertedintheequivalentinCypruspounds»doesnot 3 0 in any way render the judgment impeachable as such words were necessary in the judgment only for the purpose of aid in execution shouldsuchaidberequiredandparticularlyinviewoftheprovisions ofs.5 ofTheCurreny Law,Cap. 197. Appeal dismissed withcosts. 3 5 Casesreferred to: Treseder-Griffin v. Co-operative Insurance Society Ltd. (1956] 2 Q.B. 127;[1956]2AllE.R.33; Feistv.Societe Intercommunale Beige d'Bectrfcite [1934]A.C. 161; Ottoman Bank v. Dascalopoulos (No.l). 14C.L.R.100; 136 40 ]C.L.R. SefeconLtd.v.ElxanoLtd. Ottoman Bank v.Dascalopoulos(No.3), 14C.L.R. 176; Re United Railways of the Havana and Regla Warehouses Ltd., [196012AllE.R.332; Miliangos v.C. Frank (Textiles)Ltd. [1975]3AllE.R.801; 5 Jugoslavenska Oceanska Providba v. Castle Investment Co. Inc. [1973]3AllE.R.498; BarclaysBank v.Levin Bros. [1976]3AllE.R.900; Jean KrautAG. v,Albany Fabrics [1977]2AllE.R. 116; Ferderal Commerce v. TradaxExportS.A. [1977]2AllE.R. 41; . 10 77ie Despina R. [1977] 3 All E.R. 874 and on appeal [1979] 1All E.R. 421; TheFolias[1978]2AllE.R.764andonappeal [197911AllE.R.421; George VeilingsRederi A/S v. President of India[1978] 3 All E.R. 838and on appeal [1979] 1 AllE.R.380; 15 Kouloumbis and Othersv. TheShip 'MARIA»

(1984)1C.L.R.285; Papavasiliou and Tsangarides and Others v. EastMediterranean LineandAnother

(1974)1C.L.R. 183; Trade Development Bank v. The Ship *ARIADNI PA»

(1981)1 C.L.R. 653; " 20 Lamaignere v.Selene Shipping Agencies Ltd.

(1982)1C.L.R. 227. Appeal. Appeal by defendant against the judgment of the District Court of Nicosia (Laoutas, S.D.J.) dated the 3rd June, 1985 (Action No. 4425/83) whereby he was adjudged to pay to the plaintiff the sum 25 of U.S. $ 500 (to be converted into Cyprus pounds) damages for breach of an agreement. E. Lemonaris, for the appellant. Chr. Mitsides, for the respondent. Cur. adv. vult. 137 SefeconLtd.v.ElxanoLtd.

(1989)A. LOIZOU P.:Thejudgment of the Court willbe delivered by HisHonour Sawides, J. SAWIDES J.: Thisisan appeal from ajudgment of the District CourtofNicosiawherebytheappellantwasadjudged topaytothe respondent the sum of U.S. $500 (to be converted in the equivalent inCyprus pounds). 5 The appellant is a company of limited liability carrying on the business of imports and exports with the place of business in Nicosia. The respondent is also a company of limited liability and it 10 carriesonthebusinessofshampoomanufacturers,withtheirplace ofbusinessin Nicosia. The respondent Company brought action No. 4425/83 in the District Court of Nicosia claiming damages for breach of an agreement between the appellant and the respondent for the 15 manufacture and deliveryof500boxesofshampoosatthe agreed price of U.S. $3,000.- The said goods were ordered by the appellant for exportation to Kuwait and the currency of the agreementwasfixed atU.S.Dollars.Asaresultofthefailureofthe appellant to comply with the said agreement the respondent- 20 plaintiff intheaction claimedthevalueofthegoods manufactured byitand amountingtoU.S.$3,000.-Thisistheamountwhichwas claimed bythe respondents asdamagesfor breach of contract. The appellant raised an objection to the claim in that it was illegal being inviolation of the Currency Law and further alleged 25 that there was a breach of the agreement on the part of the respondent. The learned trial Judge rejected the contention of counsel for the appellant that the agreement was tainted with illegality and found that the counterclaim was untenable and awarded U.S.$500.-asdamagesforbreach ofcontractand atthe 30 same time dismissed the counterclaim of the appellant. We need not embark at more length on the facts of the case as thepartoftheappealdirectedagainstsuchawardwasabandoned in the course of the hearing. The questions raised and argued in thisappeal were the following: 1. That the trial Judge misdirected himself in holding that the agreementbetween thepartieswasnotillegalandvoidabinitioas being contrary tothe provisionsof s.5 of the Currency Law, Cap. 138 ^5 1C.L.R. SefeconLtd.v.ElxanoLtd. SavvidesJ. 197 and s.23 of the Contract Law, Cap. 149, by stipulating the consideration oftheagreement inaforeign currency; 2.ThatthetrialJudge misdirected himself inenteringjudgment for the plaintiff for the equivalent in Cyprus money of a foreign 5 currency without prioramendment of the pleadings. Inarguingthesaidgroundscounselfortheappellant contended that once the agreement entered intoprovided for payment in a foreign currency itwas illegalas contravening the Currency Law, Cap. 197,andtheContractLaw,Cap. 149,inviewofthefactthat 10 the consideration stipulated therein wasillegal.Hefurther argued that once inthe Statement ofClaimtherewasnoalternative claim forthe conversion ofthe U.S.DollarsintoCypruspoundsthetrial Court waswronginproviding initsjudgment forpayment for the equivalent of the 500 U.S. Dollars in Cyprus money without the 15 prioramendment ofthe pleadings. Counsel fortherespondents, onthe otherhand, submitted that therewasnothing illegalincontracting thatthepaymentwastobe calculated on the basis of U.S. Dollars or any other foreign currency asthisisnotamatterprohibitedbythe law.Itwaswithin 20 the contemplation of the parties that the goods were to be exported to Kuwait and this is manifested by the fact that the invoice issued bythe appellant tothe buyers was in U.S.Dollars. Also the labels fixed on the bottles were printed both in English andinArabicandwerepackedinsuchawayastocomplywiththe 25 order and inthe wish of the purchasers. Counsel for respondent made extensive reference to decided casesofthisCourt adopting inthisrespecttherecentEnglishCaseLawthatajudgmentmaybe given inforeign currencyand thatatthe sametime theCourt may makeprovision foritsequivalent inCyprus currency. 30 35 Section 5 ofTheCurrency Law,Cap.197onwhichcounsel for appellantsoughttorely,provides as follows: «Every contract, sale, payment; bill, note, instrument and security for money, and every transaction, dealing, matter, and thing whatever relating to money or involving the payment of, or the liability to pay, any money, shall, in the absence of express agreement to the contrary, be held to be made, executed, entered into, done and had inthe Republic accordingtothecoinsorcurrencynoteswhicharecurrent and legaltender inthe Republic byvirtue ofthisLaw.» 139 SavvidesJ. Sefecon Ltd. \ Elxano Ltd.

(1989)We find it unnecessary to embark at length on the question of whether illegality renders a contract void under s 23 of The ContractsLaw, Cap 149, itsuffices tosay thatifacontractisfound tobe forbidden by law then itbecomes void and unenforceable The language of s 5 of Cap 197 is clear and unambiguous A 5 reading of its provisions cannotlead toconstructionsuggested by counsel for the appellant that it renders illegal any contract embodying a provision for payment in foreign currency The intention of the legislator as manifested by the clear and unambiguous words of section 5 is notto render such a contract 10 illegal but to provide that a stipulation for the payment of any money «mthe absence of any express agreement tothe contrary» shall be held to be made in the current and legal tender of the Republic The inclusion of the words «absence of any agreement to the contrary» strengthens the inference thata contractmay be 15 concluded with a stipulation for payment in any foreign currency when there is «express agreement» for such payment otherwise it will be held that payment will be effected in the currency of the Republic The Currency Law, Cap 197 is not a law enacted for the 20 purpose of controlling dealings inforeign exchange The relevant legislation for such dealings is the Exchange Control Law, Cap. 199 as amended by Law 53 of 1972 The object however of the Exchange Control Law is nottoprohibit clauses in a contract for payment of the consideration or damages for breach on thebasis 25 of foreign currency but to restrict dealings with gold and foreign currency by dealers in gold and currency who are notauthonzed by theMinister of Finance Though dealings in gold or gold coins without a permit by dealers in gold has been prohibited «gold clauses»as commonly 30 known, in contracts were never held illegal. A so called «gold clause» istheusualtypeofprotectiveclause,inanattemptto avoid the nominalistic principle, thatis when payment is expressed ina foreign currency and has to be discharged in such currency, ard creditors have adopted such clause toprotectthemselves against 35 the nsk of depreciation of the currency The pnnciple of «nominalism» has been explained by Denning,LJ in TresederGnffinv Co-operative Insurance Society Ltd. [1956] 2 Q Β 127, 144 [1956] 2 All Ε R.33,36 asfollows. «A manwho stipulates for a pound musttake a pound when payment ismade,whatever the 40 pound is worth as thattime» 140 1C.L.R. SefeconLtd.v. ElxanoLtd. Savvides J. Other methods adopted against the risk of depreciation have been the adoption of clauses for payment in more stabilized currencies such as the Deutch mark or the Swiss Franc. The validity, meaningandeffect ofsuchclausesaredeterminedbythe 5 proper lawofthecontract.A«goldclause»oraclauseforpayment ina strong foreign currency does not impose anobligation topay gold or gold coins or foreign currency but isused to ascertain or measure the amount of the debt, so thatthe debtor isobliged to payinlegaltenderofthechosencurrencytheamountnecessaryat 10 the date of payment to purchase gold or gold coins or foreign currency to the nominal amount of the debt. The construction imports a special standard of measure of value which may be described sufficiently, though not with precise accuracy as being the value which the specified unit of account would have if the 15 currencywere on a goldbasis. The construction of a gold clause as a gold value clause is known as the Feist construction, following the decision of the House of Lords in Feist v. Societe Intercommunale Beige d' Electricite[1934]A.C. 161inwhichitwasheldthattheholderofa 20 bond for £100 repayable «in sterling gold coin of the United Kingdom of or equal to the standard of weight and fineness existing on the first day of September, 1928» was entitled to receive such sum in sterling (i.e. English legal tender) as should representthegoldvalueofthenominalamountofeach respective 25 payment. In Cheshire &North, Private International Law,Tenth Ed., on thetopic of Gold Clausesweread the following atpp. 245,246: 30 35 40 «In these days of monetary instability contracting parties sometimes protect themselves against a depreciation of currencybyadoptingwhatiscalleda 'goldclause'whichlinks the money payable to gold, allegedly the most stable of all commodities. If such a clause is explicitly contained in a contract, itmaytake either of two forms. (a)Agold-coin clause,whichisan agreement thata certain sum of money shallbe paid ingold coins.Thismaynotbe an effective protection tothecreditor, foritwillbeimpossible for himtodemandgoldifasystem ofinconvertible paper money hasbeen adopted inthe countrywhere performance isdue. (b)Agold-value clause.Thisisan agreement, nottopayin gold coin or to deliver gold in specie, but to pay at the due 141 SavvidesJ. Sefecon Ltd. v. ElxanoLtd.

(1989)date asum equal tothethen value ofthe gold coin specified. For instance, it fixes the value of a loan at, say,£10,000, but provides that this shall be redeemed by the delivery of a quantity of paper or othermoney whichwouldbe equivalent to 10,000 British gold coins of the standard weight and 5 fineness existing at some specified date. Under such a provision the nominal amount of the loan isconstant, but the amount of currency requiredforitsrepayment mayvary.The clause specifies not a mode of payment, but a measure of liability.» The statutes, however, of many foreign countries declare gold value clauses to be illegal. (Dicey and Morris «The Conflict of Laws»pp.887-888-891).Suchsituation however existsneitherin England nor in Cyprus (relevant in this respect are the cases of Ottoman Bank v. Dascalopoulos (No. 1), 14 C.L.R. 100 and 15 Ottoman Bank v.Dascalopoulos (No.3), 14C.L.R. p.176). Theconstruction ofs.5oftheCurrencyLaw,asabove,isfurther strengthened by the recent practice of the Courts in enforcing contractswhere payment isexpressed inforeign currencies. Intherecentyearsinaseriesofcasesithasbeenestablishedthat 20 the Courts may enforce contracts expressed in foreign currency and give judgment in such foreign currency and also award damages for breach of contract or tort in foreign currency. The effect of such judgments was not to force the parties to effect paymentintheforeign currencydefined inthejudgmentbutinthe 25 equivalent ofsuch currencywith the coinsornotesofthe country inwhich thejudgment isdelivered. In England the question as to whether a judgment could be giveninforeign currencyappeared assettledbythedecision in Re UnitedRailways ofthe Havanaand Regla Warehouse Ltd. [1960] 30 2 All E.R. 332 in which the House of Lords affirmed the proposition in r. 177 at p. 914 of the 7th Ed. Dicey's Conflict of Lawsthatan English Court cannotgivejudgment forthe payment of an amount in foreign currency and that a debt expressed in foreign currency must be converted into sterling. The situation, 35 however, as regards currency stability since 1960 has changed substantially. As Lord Wilberforce observed in the case of Miliangos v. G. Frank (Textiles)Ltd. [1975] 3 All E.R. 801 at p. 809: «Instead of the main world currenciesbeing fixed and fairly 40 142 10 1C.L.R. Sefecon Ltd. v. ElxanoLtd. SavvidesJ. stable in value, subject to the risk of periodic re- or de­ valuations, many of them are now 'floating', i.e.theyhave no fixed exchange value even from day to day.-This is true of sterling. This means that, instead of a situation in which 5 changes of relative value occurredbetween the'breach-date' and thedateof judgmentorpaymentbeing theexception, so that a rule which did not provide for this case could be generally fair, thissituationisnowtherule.Sothesearchfora formula to deal with it becomes urgent in the interest of 10 justice». This state of affairs becomes recognized in those commercial circles which are closely concerned with internationalcontracts and this appears particularly in the field of arbitration where in 1965 two of the most experienced arbitratitors in the city of 15 London made their awards expressed in terms of United States dollars.Thevalidity of such award cametobe testedintheCourts in the case of Jugoslavenska Oceanska Providha v. Castle Investment Co. Inc. [1973] 3 All E.R.498. Buttheradical change in the old practice was brought about by Miliangoscase (supra) 20 which did notfollow and departed from the previous decision of the House of Lords in the Havana Railways case (supra) and approved the Jugoslavenska case. The Miliangoscase has been followed ever sinceby theEnglish Courtsandapplied inthe cases of Barclays Bank v. Levin Bros [1976] 3 All E.R.900; Jean Kraut 25 A G v.Albany Fabrics [1977] 2 All E.R. 116; Federal Commerce v. TradaxExports.Α. [197η 2All E.R.41;TheDespinaR. [1977] 3 All E.R. 874 and on appeal [1979] 1 All E.R. 421; TheFolias [1978] 2 All E.R. 764 and on appeal [1979] 1 All E.R. 421 and George VeilingsReden A/S v.President of India[1978] 3All E.R. 30 838 and onappeal [1979] 1All E.R.380 inwhich Lord Denning, M.R., described the effect of Miliangos case on the law on this subject as having been revolutionalized. An extensive review of the English case law on the matter was made by me in the case of Kouhumbis and Others v. The Ship 35 «MARIA»

(1984)1C.L.R.285 inwhichtheprinciplethatjudgment may be given in a foreign currency or its equivalent in Cyprus poundswas followed. InCyprus priorto1974 ourCourts following therulelaid down in the Havana Railways case were reluctantto give judgment in 40 foreign currency. As a result judgments were given in Cyprus 143 SavvidesJ. SefeconLtd.v.ExlanoLtd.

(1989)Currency (Papavassiliou and Tsangarides and Othersv.East MediterraneanLineandAnother

(1974)1C.L.R.183).Eversince however, the decision inMiliangoscaseour Courtsadopted the newrulethatjudgmentsmaybegiveninforeign currency(Trade DevelopmentBank v. TheShip«ARIADNIPA»

(1981)1C.L.R. 5 653; Lamaignerev. Selene Shipping Agencies Ltd.

(1982)1 C.L.R.227;KouloumbisandOthersv.theShip«MARIA»(supra) . Inviewofourfindingsasaboveandtheexpositionofthelawwe findthattheobjection raisedbycounselfortheappellantsthatthe agreement between the partieswas illegal and void ab initio is 10 untenable. Wecome next to consider whether thejudgment iswrongby expressing the amount in foreign currency or its equivalent in CypruspoundswithoutaclaimforitsequivalentinCypruspounds appearinginthepleadings. 15 Aswe have already explained the Courts are entitled to give judgments in foreign currencies even without mentioning its equivalentinCypruspounds.Inthepresentcaseinthelightofthe pleadingstherespondentwasentitledtojudgmentfortheamount ofU.S.Dollars500.ThefactthattheJudgeaddedinhisjudgment 20 the words«tobe converted inthe equivalent inCypruspounds» does not in any way render thejudgment impeachable assuch wordswerenecessaryinthejudgmentonlyforthepurposeofaid inexecution shouldsuch aidberequired andparticularlyinview oftheprovisionsofs.5ofTheCurrencyLaw,Cap.197. 25 Therefore, thecontention thatthe insertion inthejudgmentof the said words renclersthejudgmentinvalid,in superfluous and cannotbeaccepted. Intheresulttheappealisherebydismissedwithcostsinfavour oftherespondent-plaintiff. Appealdismissedwithcosts. 144 30