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Colonial Cases

Commercial Assurance Co Ltd v Wai Ho Tong, 1929

[insurance - validity of edicts of a rebel (KTM) government]

Commercial Assurance Co Ltd v Wai Ho Tong, 1929

Selected, edited and transcribed by Douglas Clark, barrister, Hong Kong






The Commercial Assurance Co Ltd Appellant


Wai Ho Tong, Co Respondent

Coram:  Sir Henry Gollan, President, Sir Peter Grain, Judge, Mr Gilbert King, Assistant Judge

Date of Judgment:  17 January 1929

Mr M Reader Harris for the Appellant

Mr Ranald G McDonald for the Respondent

Original Report:  North China Herald, 19 January 1929, 115


Sir Henry Gollan, President

This is an appeal against a decision of Sir Peter Grain in which he gave judgment with costs, in favour of the respondent.  The claim was for Hankow Tls. 4,006, 16 the properly assessed amount due under a policy of fire insurance dated March, 6, 1927 in respect of a fire which practically destroyed the insured premises on June 30, 1927; and there is no dispute between the parties as to the validity of the policy, the occurrence and results of the fire and the figure and currency at or in which the loss suffered by the Plaintiff were assessed.

The main dispute arises between the parties on the question as to the currency in which the amount so found to be due to the Plaintiff is to be paid; and this difference arises because, though in the policy and according to the policy and the award of the assessors, the amount payable is expressed in Hankow taels, there is in fact no such coin in actual use as a Hankow tael which is merely a unit of account. In practice, commercial firms and banks keep their accounts in taels, though for the purposes of making local payments it is usual to keep a dollar account with banks as well, and as a result if payment in cash under a Contract expressed in terms of Hankow taels is to be made Hankow taels have to be turned into dollars at the market rate of exchange which, in normal times, is published daily.

Nationalist Government in Power

Subsequently to March 8, 1927, the date of the policy in question in this case, the Government then functioning In Hankow was, according to the case for the defendants, replaced by the Nationalist Government of China (hereinafter referred to as the Nationalist Government) and on April 18, 1927, Mr. T. V. Soong purported, as Minister of Finance under that government to issue certain regulations dealing amongst other things, with the rate of exchange between Hankow Taels and dollars. This rate was fixed at Tls 71 to $100.

The Plaintiff, in a letter dated April 17, 1928, written by his solicitors, in answer to a letter dated March 26, 1928, from the defendants' solicitors, admitted that on April 18, 1927, the regulations abovementioned were made by the Nationalist Government, but denied that on that date or on the date of the fire or upon material dates referred to in the defence the Nationalist Government was de facto in control in Hankow.

It, therefore, becomes necessary, in view of the opinion I have formed as to the law applicable to the facts of this case, to consider whether or not the Nationalist Government de facto in control in Hankow on the material dates in this case.

The Depreciated Currency

The plaintiff gave evidence and stated that he left Hankow in April, 1927, and that at that time, the Nationalist Government was in control (Judge's notes   p4); and that on his return to Hankow in July, 1927, this Government was then also in control. (Judge's notes pp2 and 4)  He stated further that he refused to accept a cheque for Tls 4,006.16 on a Chinese bank shown to him by a Mr. Chu, the compradore of the defendants, on the ground that under the regulations of April, 1927; he would only have received payment in the notes of the three banks mentioned in the Regulations; and that these were worth only 20 per cent of their face value (Judge's notes p.2)

The Plaintiff also admitted that if the policy had been issued by a Chinese firm he would have had to accept payment in depreciated notes; that Chinese made payments to the Government in these depreciated notes; and that some Chinese were actually executed because they had committed breaches of the Regulations (Judge's notes p. 6).

In the circumstances above set forth I think that there is evidence on which the Court should hold that, at all material dates the Nationalist Government were de facto in control in Hankow, that they had power to issue regulations dealing with the rate of exchange, and that insofar as financial transactions between Chinese were concerned, these regulations were binding.

Were the Regulations Binding?

But it was strongly argued on behalf of the plaintiff that the regulations were not binding as regards payments made by foreigners to Chinese and that, in fact, payments were made in silver by foreigners in respect of rates and taxes due to the Government and of debts to Chinese; and not so strongly that if a foreigner had sued a Chinese in a Chinese Court, and recovered judgment, payment would have had to be made according to the silver value, whatever that might be, of the tael and not in the depreciated notes.  On the other hand the defendants produced receipts showing that they paid their dues to the Government by cheques on Chinese banks; in other words in the depreciated notes.  Whatever maybe the truth as to payments made by foreigners to the Government or to their Chinese creditors I cannot believe that a judgment recovered by a foreigner against a Chinese in Chinese Court would have been satisfied by a silver payment.

The regulations of April, 1927, certainly do not, in terms, support this contention raised on behalf of the plaintiff; they are in general terms, fix the rate of exchange between the tael and dollar, and provide (reg. 3) that this rate should be Tls. 71 to $100.

A Contract of Indemnity

It is also to he observed that the policy was made in Hankow, that payment under it is to be made there, and that the amount is expressed in Hankow taels, which is a Chinese and not a European Measure of value. Unless, therefore, there is anything in the nature of a policy of fire insurance to require a different course to be followed, the rule laid down in Anderson v Equitable Assurance Society of the United States 84 L.T. p. 537, should, in my opinion, be followed; or, in other words, that the liability of the defendants appellant to pay to the Plaintiff Tls. 4,006.16 would be satisfied by the delivery by the defendants to him of that amount of taels translated into dollars of one or other of the three banks mentioned in the Regulations of April 1927, up the rate of Tls_ 71 to the_$,1Q0, viz $5,642.48.

The learned judge in the judgment appealed against, held that the principle laid down in Anderson v Equitable Assurance Society (supra) did not apply because a contract for insurance against fire is one of indemnity and not, as in the case of a life policy one for the payment of a named sum.  I agree with the learned judge that an assured under the fire policy cannot recover the full sum named in the policy but only so much of the damage he has suffered up to but not more than, the amount so named: and it is in that sense that a fire policy is said to be a contract of indemnity.

Payment in Depreciated Notes

The damages has been arrived at by the assessors as provided for in the policy at the sum of Tls 4,006.16 effect being given, in, arriving at that figure, to the provisions of Cl. 16 of the condition and stipulations endorsed on the policy which provides that if the value of the property insured is greater than the amount for which it is insured the assured must bear a ratable proportion of the loss; the assured has assented to this figure and the learned Judge has given judgment for Tls.4,006.16.  But the judgment says nothing about the rate at which this sum of units of account to use the expression of the learned judges in Anderson v. Equitable Assurance Society (supra), is to be translated into dollars for the purposes of payment. The defendants argue that this amount in Hankow taels should be converted into dollars at the rate of Tls 71 to $100 and allege that on August 16 1927, they tendered to the plaintiff the sum of $5,642.48 in the depreciated notes of the banks mentioned in the regulations of 1928 which at the above mentioned rate, correctly represents the sum of Tls 4,006.16 found to be due by the judgement appealed against.  This tender was made by cheque on a Chinese bank and it is admitted that the quality of the tender was not objected to.  The plaintiff refused to accept the cheque merely because the amount he would have received on cashing the cheque would only have been $5,642.48 in depreciated notes.

In my opinion the Regulations of April, 1927, regulated the rate of exchange at Hankow at the due date of payment between Hankow taels and dollars, the tender above referred to was valid in law as the plaintiff did not object to the form in which it was made but only to the amount, and therefore, the tender made by the defendants on August 16 1927, was a good one.

I think therefore, that the decision appealed against should be set aside and judgment entered for the defendants with costs.  The amount of $5,642.48 paid into Court by the defendants in connection with their plea in tender should be paid out to the plaintiff subject to the payment of the cost of the defendant in this Court and in the Court below.

I say nothing as to the hardship to the plaintiff created by the decision to which I have been driven by what I conceive to be the law applicable to the facts of this case, but I cannot refrain from expressing the hope that the appellants, their appetite for principle satisfied, will realize that there may be another view of the facts of this case besides one which only regards strict legal right as between the parties.

Assistant Judge King (concurring):

In this case certain facts are clear and there is no dispute as to them viz that a policy of fire insurance was issued on the March 8, 1927, by the appellants covering property of the respondent at Hankow, that a fire occurred on that property on June 30, 1927, that the loss was assessed and agreed to at Hankow taels, Tls 4,006.16 on July 21, 1927, and that on the August 16, 1927 a tender was made by a cheque drawn on the Chun Foo Bank for the amount of the assessed loss.  The respondent admits the tender of this cheque and states he refused to accept it as it would have to be paid in the Hankow notes of the three banks, Central Bank, Bank of China and the Bank of Communications which notes at that time had become very depreciated in value. I am of opinion also that two further facts must be accepted as proved on the evidence of the respondent himself, and that is that the Nationalist Government was the de facto Government at Hankow on the material dates which have to be considered in this appeal and that certain regulations were issued by Mr T. V. Soong the Minister of Finance of the Nationalist Government.   Nor was a tender on the October 15, 1927 of the notes of the above three banks by the appellant company to the solicitors of the respondent denied.

Local Currencies

Now bearing all the above facts in mind, the real question in issue between the parties is one of the currency in which the assessed loss has to be paid by the appellants to the respondent. That being so the is the first question to be considered is what is the currency of China?  No evidence was given to the court  but it was argued by counsel, and I think correctly, that the currency is a silver currency based on a tael weight, or to speak more accurately on a liang (a Chinese weight) of silver. This tael or liang is not in common parlance a coin, it is the standard on which silver dollars or notes are based.  It was not argued that the parties in this case ever contemplated the actual handing over, in case of a claim under the policy being sustained, of so many taels or liangs of silver. It is common knowledge due partly to the conditions prevalent for some years now, that the value of silver dollars and notes vary in different districts. I am driven to the conclusion that the currency may in fact be termed "local," each district or province or group of provinces having a currency which is at a discount or converse to in another district province or group of provinces.
Nationalist Government's Regulations

Assuming I am right in this conclusion, it is very material to bear in mind that the policy above referred to was issued at Hankow, the property insured was at that place, the insurable value was stated in Hankow taels, and the assessment arrived at in the same currency.

Now I have held as a fact that the Nationalist Government was de facto the Government in Hankow and that certain regulations were issued by its Minister of Finance regulating the currency in Hankow.  The next question to be considered is whether these regulations can affect a contract between a Chinese and a British subject. It is quite clear that no enactment or regulation of the Nationalist Government could affect a non-Chinese currency, e.g. a. contract for sale by a Chinese, of purchase by a British subject, purchase money designated in sterling; tender of purchase money against delivery of goods would be in sterling and on enactment of the Chinese Government would be looked to in a British Court in China.

The question, however, wears a different aspect when the currency in question is a Chinese currency, Hankow taels, as in this case. Whether a contract is between two Chinese or a Chinese and a foreigner, or even between two foreigners, it seems to me that the Nationalist Government could by proclamation or regulation determine the quality or nature of the currency of the contract assuming that currency were Chinese. It follows therefore that the regulations of the Nationalist Government in Hankow must he looked to in coming to a decision on this appeal. I should feel myself on firmer ground if the Nationalist Government de facto in Hankow could also be held to have been the Government de jure in that place; there is, however, no evidence before the Court to show that was the state of affairs in the summer of 1927 in Hankow, whatever may be said today.

Was the Tender Legal?

Those regulations laid down that only the notes of three banks at Hankow, the Central Bank, Bank of China and Bank of Communications, should be in circulation and further fixed the exchange between dollars and taels.  I have now come to the stage at which the question must be answered whether, the tender of August 16 or the subsequent tender was legal or not. The first tender was of a cheque for Hankow Taels 4,006.16 drawn on a Chinese bank and refused on the ground that the payment would be made in the notes of the three banks above mentioned.  The other tender was of dollar notes of these three banks calculated at the dollar tael rate fixed by the regulations.  With the opinion that the Nationalist Government in Hankow at that time had the right to regulate  Chinese currency it seems to be that each of the tenders was legal.   The reasons on which the Court of Appeal in Anderson v Equitable Life Insurance Co. 34 L.T.R. p557, based its decision, seems equally applicable to this case.

I am in entire agreement with the learned Judge that a policy of fire insurance is a contract of indemnity, but with the greatest deference his judgment does not deal with the question of the currency in which that indemnity is to be met which is the sole point in dispute between the parties. I concur therefore in the finding of the learned President of the Court that the appeal must be allowed with costs in this Court and the lower Court.

The Matter of Principle

It was stated by the counsel for the appellant company that this appeal was taken as a matter of principle.   In this connection I would like to refer to Mr. N. F. Meyers' evidence (p.13 of the Judge's notes) where he states that if the premium had been paid in the notes of the Hong Kong and Shanghai Bank a cheque for the loss sustained would have been drawn on the same bank. In the witness's mind at any rate at that time the principle contended for in this Court does not seem to have been present.  I am in entire agreement with the last paragraph of the Judgment of the learned President.  

Sir Peter Grain, Judge (dissenting):-

This is an appeal against a judgment given by myself in the trial of this action in August of this year.  My judgment was to the effect that there had been no legal tender of the sum of money due on the fire insurance in question because it had been tendered in the depreciated bank notes then in circulation under certain regulations issued in Hankow.  I am still of that opinion and am of opinion that the amount due on the insurance policy should be paid in the ordinary currency of the country and not in the depreciated bank notes.

The facts are as follows: A fire insurance policy was issued to the Chinese firm of Wai Ho Tong, Hankow, on March 8, 1926, and the amount of the policy is stated to be Hankow Taels 4,50O. The premises of Wei Ho Tong were wholly destroyed by fire on June 30, 1927.

The assessors of the insurance company on July 21, 1927, Messrs. Nielsen & Malcolm of Shanghai assessed the loss by the fire at Hankow Tls_ 4,006.16, undoubtedly assessing the loss suffered in the ordinary silver currency of the nation.

Mr. Soong's Regulations

On April 19, 1927, Mr. T. V. Soong, Minister, issued regulations in Hankow, which regulations state:

"In view of the necessity of consolidating Government finance and preventing possible profiteering by unscrupulous merchants and bankers resulting in dissipating of Government cash revenue and disturbances to the money market."

The Regulation continues:-

"1. Payment of Government taxes and circulation of cash in the market are to be made only in Hankow notes issued by the Central Bank, Hankow notes of Bank, of China and the Bank of Communications.

2. Notes of other banks now in circulation in the market may be Exchanged for the notes of the Central Bank or the Bank of China or in the Bank of Communications at the premises of these three Banks or for cash at the post office.

3.  Dollar notes are to be exchanged for seven mace and one canadreen in Sycee taels;  No arbitrary increase or decrease of the exchange rate is allowed."

The rate of dollar notes fixed by the regulation is about Tls_ 71 to $100.

According to the evidence of the plaintiff's witnesses the notes of the three Chinese banks become very much depreciated and were only worth about 20 per cent of their face value.  

Plaintiff's Refusal of Cheque

On August 16, 1927, the insurance tendered to the plaintiff the sum of $5,642.48 in the depreciated notes of the banks mentioned in the regulations.   The plaintiff refused to accept this cheque as the amount he would receive on account of the depreciation of these notes would be far below the amount assessed as the loss suffered by him in the fire.

On August 20, 1927, the insurance company tendered to the plaintiff in notes of the Bank of China, Hankow, and the Central Bank, Hankow, the sum of $5,642.48 which the plaintiff again refused to accept and subsequently the defendants paid these notes into Court.   It is urged by the insurance company that the faction who styled themselves the Nationalist Government of China were de facto the Government in control of Hankow.

In a letter dated April 17, 1928, the plaintiff in answer to a letter of the defendants dated March 26, 1928, asking for admission of particulars state:  "The Plaintiff denies that on that date (the issue of the Regulations) or on the date of the fire or upon any material dates referred to in the defence the Nationalist Government of China was then the Government de facto in control of Hankow."

At the Moment Rebels

The Republic of China as constituted on October 10, 1911, was still in existence and functioning at Peking, and all the Foreign Ministers were still accredited to that Government. The Nationalist Party had by force occupied Hankow and some territory in the neighbourhood by force at arms.

But their writ did not run beyond the places they were holding by force. They were in fact at that moment rebels, a rebel is an individual who rises against and rebels against the constituted authority of the nation. No doubt rebels do often in due course become the constituted authority, if successful in defeating the authority in being.  As for instance, Oliver Cromwell was a rebel and in rebellion against the King, the lawful authority of England at that date, until he entirely defeated the King's forces and established himself as Lord Protector of England in place of a king.

No Power to Alter Currency

The currency of China is a silver currency and I cannot see my way to find that a rebel faction (as that is what the Nationalists were at that time in law and fact) has power to alter the currency of the nation. The Nationalist Party had no legal power to make decrees or regulations for the Government of China at that time.

It was suggested in the course of the argument that the Nationalist Party did make a treaty with Great Britain called the O'Malley Treaty somewhere about March, 1927. But I cannot admit that and shall want much more evidence on the subject before I can hold it was a treaty. It was nothing more than a municipal agreement for the purpose of handing over to the Nationalist Party the government of the Municipality of the British Concession at Hankow which that party had seized by force.

Only Recently Recognized

There is no doubt that the Nationalist Party are now the Governing authority of China, but it was only very recently that they were acknowledged by the Foreign-Powers.  And it was not till December 20, 1928, that the British Minister formally on behalf of the British Government recognized the Nationalist Government and presented to them his credentials as British Minister to China. It must be remembered to follow the learned judgment of Lord Hobhouse in the Secretary of State for Foreign Affairs v. Charlesworth Pilling & Co L.R. (1901) A.C. 385 that a Judge sitting in an Extraterritorial Court in China is a Chinese Judge and bound to take judicial notice of Chinese law.   As Lord Hobhouse says in the Charlesworth case,

"But throughout the matter Zanzibar remains foreign territory and the Queen and her officers are acting as Zanzibar authorities by virtue of the power which she has acquired and which is within its limits as a Sovereign Power.

It results that a Judge acting within these limits is a Zanzibar Judge, and is bound to take judicial notice of the Zanzibar law, whatever it may be, applicable to the case before him."

By the law of China at the time in question the currency of the nation was a silver one and I must take judicial notice of that fact.  I have no doubt that in all the Chinese Courts of China (except those few in the power of the Nationalist Party) all judgments would have been expressed and carried out in the silver currency of the country and no notice taken of this bank note currency.   And have no right to consider a currency which is expressed in bank notes on three selected Chinese Banks instituted by a party who at the time had no authority and no power (except by force) to do so.  

Had the Reverse Happened

As it happens the Nationalist Party have become successful and taken the Capital of China from the former Government, dispersing that Government and setting up themselves as the lawful Government.  But it might well have been that the Nationalist Party might have been turned out of Hankow shortly after the regulations in question were promulgated; should I have then been asked to find that during their brief stay there those bank notes were legal tender?  I still consider that the various cases cited to me, such as Anderson v. Equitable Assurance Co. 34.L.T. 557 and the others which followed them, do not apply to the case now before me because in all these cases it was the de jure and de facto Government which altered or controlled the currency of the respective countries concerned and the currencies referred to were the lawful currencies of those countries.  

I am of opinion that those bank notes were not legal at the time the tender was made. The legal tender of China at that time was silver currency, not the banknotes of the three Chinese banks at Hankow. Therefore there has been no legal tender and the appeal should be dismissed and the amount of the assessed loss by fire should be paid in the legal silver currency of China.

Published by Centre for Comparative Law, History and Governance at Macquarie Law School