The principles of English common Law applicable to the enemy in time of war: Madras HC explained

Total War with its incidence of massacre of innocent men, women and children and large-scale destruction of property by perverting the knowledge of science for devising ways and means of destruction in a brutal manner is the product of modern civilisation, if civilisation it can be called. The principles regulating intercourse between residents of belligerent states are not part of international law but are part of the municipal law of every country.



( Before : Satyanarayana Rao, J; Raghava Rao, J )




Appeal No. 344 of 1947 and C.M.P. No. 7477 of 1948

Decided on : 03-04-1951

Defence of India Rules, 1939 – Rule 2(2), Rule 97, Rule 98, Rule 98(2)

Cases Referred

Balammal Vs. Palandi Naidu and Others, AIR 1938 Mad 164 : (1937) 46 LW 932 : (1938) 2 MLJ 340
PL. TL. Thenappa Chettiar by agent M.S. Ganesa Iyer Vs. The Indian Overseas Bank, Ltd., AIR 1943 Mad 743 : (1943) 2 MLJ 201

Counsel for Appearing Parties

D. Ramaswami Iyengar and P.S. Srinivasa Desikan, for the Appellant; R. Rangaswami Iyengar, for the Respondent


1. This appeal by the defendants raises an interesting and difficult question of law, and we have taken time to consider our judgment. The case was ably and elaborately argued by both sides and we are indebted to counsel for the assistance rendered by them.

2. The plaintiff instituted the suit to recover Rs. 4900 the balance of principal and Rs. 990-7-6 interest calculated according to the vaddi chit-tai making a total of Rs. 5890-7-6 as balance due under a promissory note, Ex. P. 1 dated 19th October 1939 executed by one Meyyappa Chettiar in favour of V. T. Veerappa Chettiar for Rs. 17,696-8-6. This Meyyappa Chettiar, the executant of the note, is the husband of the first defendant, undivided father of defendants 2 and 3. He carried on money-lending business at Dedaya in Burma under the style of S. M. A. M. S. The plaintiff, the payee under the note, carried on also money-lending business at Rangoon under the style of V. T. Firm. In respect of transactions between the two firms in Burma, Meyyappa Chettiar became indebted to the plaintiff in a sum of Rs. 34,500 as per settlement of account dated 30th July 1934.

On 7-4-1935 the defendants’ agent at Dedaya executed a promissory note to the plaintiff, and under this promissory note there were payments made in 1935 and 1936. The promissory note was lost and on 17th March 1937 for the balance due under the lost promissory note Meyyappa Chettiar executed a promissory note in favour of the plaintiff and also gave a varthamanam.’ letter of even date. The promissory note was for a sura of Rs. 26,579-8-1 which was executed in British India at Pallathur. Under this note also, payments were made in 1939, and for the balance due under that promissory note, on 19-10-1939 the suit promissory note Ex. P. 1 was executed by Meyyappa Chettiar in favour of the plaintiff at Pallathur. There were subsequent payments admittedly made towards this promissory note.

The plaintiff filed the suit in 1945 ignoring a further payment of Rs. 5786-5-6 made in Burma by the agent of the defendants to plaintiff’s agent Viswanathan Chettiar (P. W. 2) for which a voucher, Ex. D. 1 dated 5-10-1944 was given by the plaintiff’s agent to the defendants agent. A payment of Rs. 100 was made at Pallathur to save the promissory note from iimitation and according to the defendants the understanding was that if the note was already discharged by payment in Burma this amount should be refunded.

3. The dispute between the parties is with reference to the payment by the defendants’ agent to the plaintiff’s agent at Burma. In the suit the plaintiff denied the receipt of this amount & also disputed the validity of the payment made to the pltf’s agent on the ground that after the invasion of Burma by Japan on 7-3-1942 the agency of Viswanathan Chet-tiar, the plaintiff’s agent, came to an end, and that he had no right to give a valid discharge. It was also pleaded that as the payment was in Japanese currency there was no valid payment. It has now been found by the trial court that the plaintiff’s case that no payment was made in Burma is false and that, in fact the plaintiff’s agent received the amount and credited the same in the account of the plaintiff, Ex. D. 2, maintained by Viswanathan Chet-tiar, P. W. 2 at Burma.

It is also further found that this amount Was utilised by the agent to discharge the V. T. firm’s liability due to Moulmein C. T. M. N. R. M. N. N. This finding is not now seriously challenged by the respondent-plaintiff, and indeed could not be in view of the unimpeachable evidence on which the case of the defendants rests. The plaintiff therefore undoubtedly received the amount and had the full benefit of it, but for reasons best known to himself he has chosen to take up the attitude of calling upon the defendants to pay the amount twice over. The learned Subordinate Judge who tried the suit came to the conclusion that at the material time Burma was not an enemy territory, but as the payment was made in Japanese currency it was not a valid payment. In the result he decreed the plaintiff’s suit as prayed for and disallowed the claim of the defendants for a refund of the sum of Rs. 100 based on an agreement to refund the same. This question, however, is not now in appeal and need not be considered.

4. The questions raised in the appeal are:

“1. Whether Burma was an enemy territory at the time of the payment?

2. If Burma was an enemy territory whether the plaintiff’s agent who admittedly le’ sided in Burma during the occupation of that territory by Japanese had authority to give a valid discharge?

3. Whether the payment in Japanese currency is valid?

The last question does not present any difficulty, as it has now been brought to our notice by the learned advocate for the appellants that after Burma was restored to British Government an Act entitled the Japanese Currency (Evaluation) Act, 1947, (Burma Act No. XXXVI ‘(36) of 1947) was passed which validated payments made in Japanese currency during the occupation of Burma by the Japanese. Copies of this and other Acts were filed in this court as additional evidence with a petition to admit them in appeal. As these Acts have a material bearing, we think that this petition to admit these Acts as additional evidence should be granted. Section 4 of this Act says:

“Notwithstanding anything contained in any other law for the time bing in force, where any debt or obligation, whether contracted or incurred before or during the Japanese occupation of Burma, had been paid or discharged wholly or partially in Japanese currency notes during the Japanese occupation of the area where the payment was made and the payment had been accepted such payment shall be deemed to be payment in legal currency notes of the same face value, as if the Japanese currency notes were legal currency notes at the time, the payment was made.”

It therefore follows that if otherwise the payment is to a person having authority to receive payment on behalf of the plaintiff, it cannot be treated as invalid on the ground that it was paid in Japanese currency. The real question therefore is whether P. W. 2 had authority to receive payment on behalf of the plaintiff and to give a valid discharge. The contention urged on behalf of the respondent-plaintiff is that by reason of the Japanese occupation of Burma at that time it became an “enemy territory”, that P.W. 2, the plaintiff’s agent who lived in Burma at that time became an “enemy” and therefore under law the agency of P. W. 2 terminated.

5. The following dates are material in considering the question whether Burma became an enemy territory, and these dates were agreed to by both parties as correct. On 8-12-1941 war was declared against Japan by Britain and America. On 7th March 1942, Japan occupied Rangoon. On 4-5-1945, the British Army retook Rangoon., On 6th August 1945 and 8th August 1945, Hiroshima and Nagasaki were destroyed by atom bombs by the Americans. On 14-8-1945, the war in the East terminated.

6. The most important question is whether the agent of the plaintiff, P. W. 2, at the time-he received payments from the agent of the defendant on 5-10-1944 had authority to give a valid discharge on behalf of the plaintiff. That P. W. 2 was the duly constituted agent of the plaintiff to carry on money-lending business at Rangoon on behalf of the plaintiff at the time War broke out and that he had continued to act on behalf of the plaintiff by collecting debts and doing other acts on behalf of the plaintiff as his agent during the period Burma was in the occupation of Japanese cannot now be seriously doubted.

The evidence of P. W. 2, the agent, is clear end unambiguous to establish that he was collecting rents and paying taxes in respect of the property of the plaintiff during the period of War. He was also liquidating the debts of the business. Notwithstanding ‘this evidence however, an attempt was made by the learned advocate for the respondent to reopen the question and repudiate the agency in fact, but that attempt has failed in view of the evidence of P. W. 2. It is significant that the plaintiff himself did not go into the witness box to repudiate the agency and even the power of attorney, if any, under which P. W. 2 acted was not produced.

The evidence of D. Ws. 1 and 2 to a large extent supports the case of the defence and the account maintained by P. W. 2 during the period, produced by the plaintiff but exhibited on the side of the defendants as Ex. D- 2, puts the matter beyond any doubt. The plaintiff made no serious attempt in the trial court to deny the agency and the case, therefore, must proceed on the basis that P. W. 2 was an agent in fact. Whether that agency continued in law notwithstanding the fact that War broke out between England and Japan and Burma was occupied by Japan is the only question that remains to be determined.

7. The argument that the agency of the agent terminated by reason of the occupation of the territory by Japan is founded on the common law doctrine of England which, it was contended applies to British India at least by way of justice, equity and good conscience. Reliance was also placed upon the Defence of India Rules made by the Government of India prohibiting trading with the enemy by virtue of the power vested in the Government under the Defence of India Act, 1939.

8. For a proper appreciation of the contentions urged on either side it is necessary to have a correct perspective of the English common law doctrine relevant for the purpose of the case.

9. The English common Saw was recently subjected to a critical and, if one may say so with respect, to a careful examination by the House of Lords in ‘Sovfracht (V/O) CASE’, (1943) A. C. 203, and the masterly exposition of the subject, particularly in the classic speeches of Lord Wright and Lord Porter, has lightened, -to a large extent, our task. It is unnecessary therefore to traverse the same field once again by subjecting the authorities on the subject to a detailed examination.

10. Total War with its incidence of massacre of innocent men, women and children and large-scale destruction of property by perverting the knowledge of science for devising ways and means of destruction in a brutal manner is the product of modern civilisation, if civilisation it can be called. The principles regulating intercourse between residents of belligerent states are not part of international law but are part of the municipal law of every country. They are to a large extent supplemented and modified very often by Trading with the Enemy Acts and the rules, regulations and proclamations promulgated under the power conferred under such Acts.

11. There are two fundamental principles of English common Law which are made applicable to enemy subjects in time of war. These principles though separate are closely connected as the basis on which they are founded is common. As stated by Lord Wright in ‘Sovfracht (V/O) CASE’, (1943) A. C. 203 , these principles are:

“One is that he (enemy subject) is denied access to the English courts, the other is that British subjects are prohibited from trading with him and from all intercourse or communication across the line of war. Both principles depend on rules of English municipal law, and both have their foundation in the ancient common law.”

In their origin these principles seem to have been; founded on public policy and they have now obtained such an absolute character that it is not now open to reject their application by a scrutiny of public policy. The rule against trading with an enemy is considered as a belligerent weapon of self-protection and is aimed at crippling the resources of the enemy. In Openheim’s International Law, Vol. II, at pages 258 and 262 these rules are summarised as follows :

“Formerly the rule prevailed everywhere that an enemy subject had no ‘persona standi in judicio’ and was, therefore, ‘ipso facto’ by the outbreak of war prevented from taking or defending proceedings, in the courts. This rule dated from the time when war was considered such a condition between belligerents as justified hostilities by all the subjects of one belligerent against all the subjects of the other, the killing of all enemy subjects irrespective of sex and age, and, at any rate, the confiscation of all private enemy property. War in those limes used to put enemy subjects entirely ‘ ex-lege’, and it was only a logical consequence from this principle that enemy subjects could not sustain ‘persona stand in judicio’. Since the rule that enemy subjects are entirely ‘ ex-lege’ has everywhere vanished, the rule that they might not take or defend proceedings in the courts had in many countries, such as Austria-Hungary, Germany, Holland and Italy, likewise vanished before the World War. But in Great Britain and the United States of America the general rule that enemy subjects are prevented from taking legal proceedings still survives, though qualified, as we shall see, by many exceptions.” (The exceptions are omitted as not being relevant) “Before the World War, following Bynkershock, most British and American writers and cases, and also some French and German writers, asserted the existence of a rule of International law that all intercourse, and especially trading, was ‘ipso facto’ by the outbreak of war prohibited between the subjects of the belligerents, unless it was permitted under the custom of war (as, for instance, ransom hills) or was allowed under special licences, and that all contracts concluded between the subjects of the belligerents before the outbreak of War became extinct or suspended. On the other hand, most German, French, and Italian wrriters denied the existence of such a rule, but asserted the existence of another, according to which belligerents were empowered to prohibit by special orders all trade between their own and enemy subjects. These assertions were remnants of the time when the distinction between International and Municipal law was not, or was not clearly, drawn. International law, being a law for the conduct of states only and exclusively, has nothing to do directly with the conduct of private individuals, and both assertions are, therefore, now-a-days untenable. Their place must be taken by the statement that. States being sovereign, and the outbreak of war bringing the peaceful relations between belligerents to an end, it is within the competence of every State to enact by its Municipal Law such rules as it pleases concerning intercourse, and especially trading, between its own and enemy subjects.”

12. It would be seen on an analysis of these principles that the very foundation or the basis for them is that, if there is war between belligerents, a person is an “enemy subject” which implies that he is in some way connected with the enemy territory or enemy occupied territory.

13. What is War? Hall in his International Law defines “War” at page 60 as fallows:

“When differences between States reach a point 3t which both parties resort to force, or one of them does acts of violence which the other chooses to look upon, as a breach of the peace, the relation of War is set up, in which the combatants may use regulated violence against each other until one of the two has been brought to accept such terms as his enemy is willing to grant.”

This definition has judicial approval in ‘DRIE-FONTEIN CONSOLIDATED GOLD MINES LTD. v. JONSON’, (1900) 2 Q. B. 339. War, therefore, is a

“contest between two or more states through their armed forces with the ultimate object of each contestant or each contestant group vanquishing the other or others and imposing his own conditions’ of peace.”

14. Who is an Enemy? It is important to consider the test which determines the enemy character of a psrson. Under the law in England the test of enemy character is not nationality ‘-hut residence or even living in enemy territory for whatever purpose it may be. It is not necessary that the person, even if he is a British subject, should have a domicile in the sense of the civil law, viz,,- the place of a man’s permanent house, or even of an indefinite residence. If a person, whether a neutral or a British subject, lives in enemy territory even for purposes of business, he is treated in law as an “enemy subject.” Of course what applies to enemy territory applies equally to enemy occupied territory. The test of enemy character has nowhere been so clearly laid down as by Lord Lindley in ‘JONSON v. DRIEFONTE1N CONSOLIDATED MINES LTD.’, (1902) A. C. 484 where the learned Lord summarised the tests in these words: “When considering questions arising with an alien enemy, it is not the nationality of a person, but his place of business during war that is important. An Englishman carrying on business in an enemy’s country is treated as alien enemy in considering the validity or Invalidity of his commercial contracts: ‘Mc CONNELL v. HECTOR’, (1802) 3 B & P 133: 6 R. R. 724. Again, the subject of a State at war with this country, but who is carrying on business here or in a foreign neutral country, is not treated as an alien enemy; the validity of his contracts does not depend on his nationality nor even on what is his real domicile, but on the place or places in which he carries on his business or businesses; ‘WELLS v. WILLIAMS’, 9 W. 3 1 Id.

Raym. 282. As observed by Sir William Scott in ‘THE YONGE KLASSINA’, (1804) 5 Ch. Rob. 302 a man may have mercantile concerns in two countries, and if he acts as merchant of both he must be liable to be considered as a subject of both with regard to the transactions originating, respectively in those countries. That he has no fixed counting house in the enemy’s country will not be decisive. See also The Portland’ (1800) 3 Ch. Rob. 41.” From this passage it is evident that the term “domicile” is used in a twofold sense; one is in relation to the person without reference to his commercial intercourse and the second is in regard to the place of business which is styled by Dicey as a “commercial domicile” of a person. In particular cases the two domiciles of persons may be the same, or may be different, “but it is impossible to ignore the distinction. The subject is more elaborately discussed by Professor Mcnair on Legal Effects of War in Chapter II. In Halsbury’s Laws of England, 2nd Edn. (Lord Hailsham), at page 447 it is stated that “An alien enemy is one whose Sovereign or State is at war with the Sovereign of England, or one who is voluntarily resident or who carries on business in an enemy’s country even though a natural-born British subject or a naturalised British subject.” In the case of a company incorporated in the United Kingdom as stated in Volume I of Hals-bury’s Laws of England, at page 447: “It does not become an alien enemy merely because its shares are held by alien enemies, but becomes an alien enemy if its agents or the persons in ‘de facto’ control are alien enemies or it it carries on business in an enemy country. ‘Daimler Co. Ltd. v. Continental Tyre and Rubber Co. Ltd.’, (1916) 2 A.C. 307. The same applies to a company incorporated in an allied state, A company incorporated in an enemy country is an alien enemy regardless of how its shares are held.” In ‘Sovfracht (V/O) case’, (1943) A.C. 203 Viscount Simon L. C. defined a subject of a state at War with England as “a person of whatever nationality, who is carrying on business in, or is voluntarily resident in, the enemy’s country” and he pointed out at page 211:

“1. The test of ‘enemy character’ is fundamentally the same whether the question arises over a claim to sue in our courts, or over issues raised in a court of prize, or over a charge of trading with the enemy at common law.

2. The test is an objective test, turning on the relation of the enemy power to the territory where the individual voluntarily resides or the company is commercially domiciled or controlled. It is not a question of nationality or of patriotic sentiment.”

15. In the same case Lord Wright at p. 219 stated:

“Before examining the relevant authorities I should explain that the test which has been taken of enemy character in English law is not nationality, but domicile in the sense of settled residence or in the case of traders commercial domicile. Domicile in the strict legal sense is not necessarily relevant. Some of these cases were decided in the Prize Court, others in courts of common law. However the right to sue or prosecute an action in Court, the right to claim to be exempt from seizure and condemnation in prize, the liability to punishment for the offence of trading with the enemy, all depend alike on whether the person has enemy character in what has been called the technical or territorial sense, The test is objective and depends on facts, not on the person’s prejudices or passions, his patriotism, or his determination to free his country whenever he can,”

It follows from these authorities that the enemy character of a person under English common law attaches to a person, irrespective of his nationality or his domicile, if he is living or residing in enemy territory or enemy occupied territory and the test is an obiective test depending upon facts. The domicile of a person may be in the civil law sense or a commercial domicile, but is used in both cases in technical or territorial sense and not necessarily in the Sense in which it is understood under Civil law.

Webber in his book on the Effect of War on Contracts, 1946, Edn discusses this topic in Chapter III at page 89.

16. It becomes now necessary to consider the more difficult question of the nature of occupation required for purposes of these tules to change the national character of a State to constitute an enemy-occupied territory. There is no difficulty in determining an “enemy territory”. It is the area under the sovereignty of a power at war and of which it is the owner of the soil. What is the quality of occupation required to make a territory occupied by an enemy “an enemy-occupied territory” for the purpose of the common law?

The Trading with the Enemy Act, 1939 and its counterpart in India, Sub-rule (2) of Rule 2 of the Defence of India Rules, substantially agree and include within the definition the area “in the occupation of a power with whom His Majesty is at War”. The occupation required to constitute a territory an enemy-occupied territory has been the subject-matter of judicial decisions, English and American, ard the opinions of Sir William Scott, who was later Lord Stowell, and of Marshall C. J. of the United States, as well as of Lord Kingsdown in the well-known ‘Gerasimos Case (Remiqi v. Powell’), (1857) 11 Moore P.C. 88 have been subjected to a critical examination by Lord Wright and Lord Porter in the ‘Sov-Fracht (V/O) Case’, 1943 A.C. 203 and the House of Lords in a way differed from the view of Lord Kingsdown in ‘Gerasjmo’s Case’, (1857) 11 Moore. P. C. 88.

17. An occupation of a territory by the enemy may be an occupation for military or strategic purpose and the territory may be subjugated by the hostile force which occupies it so as to subject it to such control as it may think fit to exercise, or it may, having occupied it by cession or conquest or some other means permanently or temporarily have incorporated it with the territory ever which the enemy has undisputed sovereignty. There may yet be an intermediate position where the enemy without actual and formal annexation of the territory may hold the dominion and control over the territory for a sufficiently long period and the occupation may be of such relatively permanent character as to indicate an intention to hold it. The belligerent State may in such a case assume some kind of administration over it.

An occupation of this character is something more than mere occupation for military par-poses and falls short of complete annexation or incorporation with its own territory- Of these three possibilities Mr. Lushington a Judge of the Admiralty Court, who decided the case in ‘GERASIMO’, (1857) 11 Moore. P. C. 83 in the the first instance accepted the first position. He said,

“So long as any territory is in possession of the enemy, I apprehend that the law declares that all the inhabitants thereof, and all the persons resident therein and carrying on trade are to be considered as enemies in respect of that trade.”

This view has been regarded by all the authorities as erroneous and an occuoation of such a nature has not the effect of altering the” national character of the territory. The second view was held by the Right Hon. T. Pemberton Leigh, afterwards Lord Kingsdown, in the ‘Gerasimo’s Case’, (1857) 11 Moore P.C. 88.

The intermediate view has been established by the decision of the House of Lords in ‘Sov-Fracht (V/O) CASE’ (1943) A.C. 203. Wheaton on International Law, Vol. II, 6th Edn, at page 780 points out the distinction between”occupation” and “conquest” in these words:. “Further, just as invasion must be accompanied by certain essential conditions in order, that it may be transformed into occupation,, so must military occupation be accompanied, by certain necessary conditions in order- that it may ripen into conquest. Formerly, we have pointed out above, the invader assumed the larger rights of an occupant, and the: occupant assumed the still larger rights of a conqueror. But now there is a line, of demarcation between these stages. Conquest or complete subjugation implies the permanent subjection of the occupied country to the sovereign of the occupying forces, with the intention that this territory shall be annexed to the dominions of the new sovereigns and shall henceforth be considered as a constituent portion thereof; that is, conquest depends on “firm possession” together with- the intention and the capacity to hold the terri–tory so acquired.

The rights under occupation, then, cannot be co-extensive with those of sovereignty, The rights acquired are due to the military exigencies of the invader, and consequently are only provisional. The local inhabitants do not owe the occupant even temporary allegiance; and the national character of the locality is not legally changed.

This view has long been adopted by British Courts. Thus in the ‘Gerasimo’s Case, 11 Moore P. C. 88 the Privy Council pointed out that in order to convert a friendly or neutral territory into an enemy territory, it was not sufficient that the territory in question should be under hostile occupation and subjected to the control of a hostile power; some additional element was necessary, e.g. cession or conquest, whereby the territory was incorporated with and made part of the dominions of the invader. This principle was adopted not only by the British Prize Courts, but also, in the Courts of common law. Lord Stowell emphasised the distinction between a hostile occupation and possession clothed with a legal right by cession or conquest, or confirmed by lapse of time.” In the 7th Edn. of Wheaton’s International law, Vol. II, pages 233 and 234, the same definition of conquest is retained. The point for consider ration, therefore is, is there a substantial difference between the view of Lord Kingsdown ire ‘Gerasimo’s Case’, (1857) 11 Moore P.C. 88 as to what is required to be established to change the national character of the territory and the view expressed by the House of Lords in ‘Sov-Fracht (V/O) CASE’, (1943) A.C. 203.

18. In the ‘Gerasimo’s case 1, (1857) II Moore P. C. 88 a cargo of corn owned by certain residents of Galatz in Moldavia was shipped by a ship carrying Wallachian colours and when the ship was coming out of the mouth of the Danube was seized by the British for a breach of the Black Sea blockade and one of the questions was whether the seizure was justified. In the Court of Admiralty, Right Hon. Dr. Lushington held that Moldavia was in the possession of the Russians who were then enemies and as trade by the enemies was prohibited the seizure was justified. On appeal to the Privy Council this decision was reversed by Lord Kingsdown.

The Russian Minister made a declaration that the occupation of Moldavia and Wallachia by Russia was only for a military purpose connected with strategical considerations and disclaimed an intention on the part of; Russia either to_ prolong indefinitely the occupation or to establish herself there in a permanent manner or to incorporate the principalities with her own dominions or throwing the sovereignty of the Ottoman Government. On these facts the Privy Council had to consider whether by reason of such occupation the national character of the territory was altered so as to constitute it an “enemy-occupied” territory. In arriving at a contrary conclusion, differing from that of Dr. Lushington, Lord Kingsdown relied upon the law as stated by Lord Stowell in some of the decisions. In ‘Gerasimo’s case’, (1857) 11 Moore P. C. 88 it is observed:

“Upon the general principles of law applicable to this subject there can be no dispute. The national character of a trader is to be decided for the purposes of the trade, by the national character of the place in which it is carried on. If a war breaks out, a foreign merchant carrying on trade in a belligerent country has a reasonable time allowed him’ for transferring himself and his property to another country. If he does not avail himself ot the opportunity, he is to be treated, for the purposes of the trade, as a subject of the power under whose dominion he carries it on and, of course, as an enemy of those with whom that power is at War. Nothing can be more just than this principle; but the whole foundation of it is, that the country in which the merchant trades is enemy’s country.”

“Now the question is, what are the circumstances necessary to convert friendly or neutral territory into enemy’s territory? For this purpose, is it sufficient that the territory in question should be occupied by a hostile force, and subjected, during its occupation, to the control of the hostile power, so far as such Power may think fit to exercise control; or is it necessary that, either by cession or conquest, or some other means, it should, either permanently or temporarily, be incorporated with, and form part of, the dominions of the invader at the time when the question of national character arises?

It appears to their Lordships that the first proposition cannot be maintained. It is impossible for any Judge, however able and learned, to have always present to his mind all the nice distinctions by which general rules are restricted; and their Lordships are inclined to think that, if the authorities which were cited and so ably commented upon at this Bar had been laid before the Judge of the Court below, he would, perhaps, have qualified in some degree the doctrine attributed to him in the judgment to which we have referred-“

In order to establish the meaning of the term “dominions of the enemy” the Privy Council relied upon the opinion of. Lord Stowell in the case of The “Fama” 5 Rob. 115 thus:

“In order to complete the right of property there must be both right to the thing and possession of it; both ‘jus ad rem’ and ‘Jus in re’. “This”, he observes “is the general law of property, and applies, I conceive, no less to the right of territory than to other rights. Even in newly discovered countries, when a title is meant to be established, for the first time, some act of possession is usually done and proclaimed as a notification of the fact. In transfer, surely, when the former rights of others are to be superseded and extinguished, it cannot be less necessary that such a change should be indicated by some public acts, that all who are deeply interested in the event, as the inhabitants of such settlements may be informed under whose dominion and under what laws they are to live.”

It was pointed out later in the course of the judgment that the national character of a place is not changed by the mere circumstance that it is in the possession and under the control of a hostile force and that this principle was acted upon by the Lords of Appeal in the ‘ST. DOMINGO CASES’, of the “Dart” and “Happy Couple” where the rule operated with extreme hardship. The same is the opinion of Lord Stowell in the “Manilla”, (1808) Edw. 1, where it was held on the facts of that particular case that there was no declaration of any sort by the British to constitute the Island of St. Domingo an enemy territory.

In order to further reinforce this conclusion the Judicial Committee relied on ‘DONALDSON v. THOMPSON’, (1808) 1 Camp 429, and the opinion of Lord Stowell in the case of The “Bolletta”, 0809) 1 Edw. 171. At page 100 it is pointed out that Lord Stowell recognised in The “Bolletta” (1809) 1 Edw. 171 the distinction between hostile occupation and possession clothed with a legal right by cession or conquest, or confirmed by length of time. As the occupation by the Russians in the case before the Privy Council was only a military occupation for strategical considerations, it was held that Moldavia was not an enemy territory. No doubt the Judicial Committee in that case did not refer to the other cases decided by Lord Stowell, particularly The ‘HOOP’, (1799) 1 C. Rob. 196 and the other decisions adverted to in the judgment of Lord Wright in the ‘Sov-fracht (V/O) case’, (1943) A.C. 203. In the Sovfkacht (V/O) case’, (1943) A. C. 203 Lord Wright summarised the opinion of .Lord Stowell affer an examination of the decisions in these words:

“It is, I think, clear that in these :and other like cases Lord Stowell’s opinion was that a territory changed its national character and acquired that of the conqueror if there were effective subjugation and firm possession with the intention of keeping the conquest, even though in the event the dominion of the conqueror was temporary and even though there was not either formal annexation or cession. What had to be considered was the nature of the occupation. A mere occupation in the course of and for purposes of military operations did not change the national character. These were cases in prize in which the issue, was enemy or net enemy, but the, same test was applied in a different connexion in The ‘Foltina’, (1814) 1 Dod. 450.”

Marshall C. J. in ‘BENTZON v. BOYLE’, 9 Cranch 191 known as ‘Thirty Hogsheads of Sugar Case’ stated the principle thus:

“Although acquisitions made during war are not considered as permanent until confirmed by treaty, yet to every commercial and belligerent purpose, they are considered as a part of the domain of the conqueror, so long as he retains the possession and government of them. The island of Santa Cruz, after its capitulation, remained a British Island until it was restored to Denmark”.

To the,same effect was the opinion of Story J. also of’the Supreme Court of the United States, in the case of ‘UNITED States v. rice’, (1819) 4 Wheat 246. Lord Wright and the other law-Lords, _ particularly Lord Porter, disagreed with the view of Lord Kingsdown. The extreme view of Lord Lushington was rejected as stating the law too widely without any qualification. Lord Wright pointed out that Lord Kings-down did not consider the view of Lord Sto-well in The ‘Hoop’ (1799) 1 C. Rob. 196 and Marshall C. J. in ‘Thirty Hogsheads of Sugar’, 9 Cranch 191. He however did not dissent from the ultimate conclusion of Lord Kingsdown on the facts of the case as the occupation in question by the Russians of Moldavia was purely of a temporary nature and for strategical purpose. After quoting the statement of law by Lord Kingsdown in ‘Gera-Simon’s case’, (1857) 11 Moore P. C. 38 which is already extracted in this judgment, the learned Lord in his speech observed:

“The former sentence may be taken to describe what has been called belligerent occupation, which Would not generally be regarded as changing the national character of the territory, but one reading of the alternative contained in the second sentence would seem to exclude cases like the occupation by the British of Heligoland and the captures in the West Indian Islands in the French War or the subjugation of European countries by the Germans in the present War. A conquest during war may in a sense be temporary, as was that of Demerar by the French, and may be reversed either by reconquest or by surrender, but if while it lasts there is what is called firm possession for a sufficient period with the intention of keeping it unless it is reconquered or surrendered the national character of the place will generally, at least tor the time, be changed.

Perhaps Lord Kingsdown’s language means no more than that when he speaks of a territory being temporarily incorporated with & forming part of the dominions of the invader at the material time. If it is so construed it is in harmony with the earlier decisions and is unexceptionable. It is clear, on the facts that the Russian occupation of Moldavia was no more than a temporary military and strategical occupation. But if Lord Kingsdown makes the change in national character depend on formal acts or declarations it would not, in my opinion, be consistent with recognised authorities. The issue depends on fact, not on form.”

The test laid down by Lord Wright in this speech practically amounts to what is described toy Wheaton as the essence of “conquest”. Lord Kingsdown by himself did not insist upon any particular form or a formal act of declaration in order to bring about a change in the character of the territory. It was Lord Stowell in The “Fama” 5 Rob. 115 case who stated that there should be some public act in order to bring about the transfer the object being to give due publicity to the inhabitants of such settlements who are certainly interested in knowing under whose dominion and under which laws they were to live. What is insisted on by Lord Wright is not mere occupation, but subjugation:

“This would show” to quote Lord Wright again, “that a mere temporary occupation, for instance, by a military’ force in the conduct of belligerent operations, is not enough. If the territory is to be deemed enemy territory, it must be subjugated, not merely occupied. It ‘must be held under the dominion and control of the enemy for a period sufficient to give the occupation a settled and relatively permanent character and to show the intention to keep it.

I do not think that the cases require that there should be formal acts, such as a cession by treaty or a public declaration of annexation. The matter must be decided as a question of fact with due regard to the character, purpose and intention of the occupation and the degree of dominion exercised. All acquisitions in war may be temporary. They may be abandoned on peace being declared, or surrendered or retaken under the pressure of superior force, but there is a sharp distinction between an occupation of territory by armed forces for strategical and temporary purposes and an occupation of territory as being a settled acquisition.”

On the facts of the case before the House of Lords there was no difficulty in coming to the conclusion that Holland was an enemy-occupied territory as no evidence was given as to the actual status of Holland at that time, and the case proceeded up to the stage of the House of Lords on the footing that Holland was occupied and was under the dominion bf the Germans. No doubt, as in the case of Burma whose Governor shifted to Simla, the Dutch Government was established in and recognised by Great Britain, and, in fact continued its ‘de jure’ existence in Great Britain. It was also found that the Germans did not intend to relinquish their possession of Holland unless forced to do so. The subjects of Holland, therefore, were forced to submit to the German yoke much against their will and had to wait for their day of deliverance. Lord Porter in dealing with the question opined that it was difficult to give a definite answer to the question so as to cover all cases:

“The solution” according to Mm “depends on the quality of the occupation, to be judged by the time it endures, the amount of control exercised, and the extent to which the former Government is superseded. These considerations are ‘in his opinion the solution of the apparent conflict between the cases in which the inhabitants of occupied territory have been held to be alien enemies and those in which the opposite view has been taken.”

After quoting the passage from the judgment of Lord Kingsdown in the ‘Gerasimo’s case’, (1857) 11 Moore P. C. 88 Lord Porter expressed his disagreement with the statement to the law contained in that judgment in the following words,:

“In terms this statement would seem to require a formal cession or conquest followed by a permanent or temporary incorporation of the occupied territory with the enemy state to make the inhabitants of the occupied territory enemy aliens as regards a country at war with the occupying power, and would seem to assert that to bring about this result it is not enough that the territory is occupied and controlled by the enemy, however complete the occupation and unlimited the control. If this “be the meaning of Lord Kings-down’s words, I should not agree with them, but he was speaking with reference to the facts of the case under consideration in which it could not be said that there was even an attempt at civil control of the occupied provinces.

It is enough, in my view, if it appears from the known circumstances, that the civil and military jurisdiction of the country is being exercised by the enemy to the exclusion of the former civilian rulers. Indeed, I can imagine a case where, though lip service was paid to the legal government of a country- yet in practice control was so exercised by an occupying power that in substance the territory formed part of the dominion of the enemy. At the present time when in international affairs formal acts have been largely dispensed with either as a preliminary to or during the course of a war, when declarations of war have ceased to be made and invasion follows immediately on declarations of friendship or neutrality, it is, in my view, essential to regard substance & not form.”

Viscount Simon L. C. expressed his view on this question in proposition 4 in ‘SOVFRACHT (V/0) CASE’, (1943) A.C. 203 thus:

“But this is not always or absolutely so. It depends qn the nature of the occupation, and on the facts of each case. If, as a result of the occupation, the enemy is provisionally in effective control of an area at the material time, and is exercising some kind of Government or administration over it, the area acquires “enemy character”. Local residents cannot sue in our courts and goods shipped from such an area have enemy origin; see Marshall C.J. in the “THIRTY HOGSHEADS OF SUGAR’, BENTLON V. BOYLE’, 9 Cranch 191.

If, on the other hand, the occupation is of a slighter character–for instance, if it is incidental to military operations and does not result in effective control the case is di.’Eer-ent, as in ‘CREMIDI v. POWEEL’, (1857) 11 Moore P. C. 88. I would adopt the observations of my noble and learned friend Lord Wright on this decision, for I agree that, while, Dr. Lushington’s statement of the law went too far in one direction, Lord Kings-down (then the Right Hon. Thomas Pember-ton Leigh) in delivering the Judgment of the Privy Council reversing the decision of the Prize Court, in one passage went unnecessarily far in the other. In the present case, the occupation of Holland by Germany is plainly, as things stand, of the more absolute kind.”

19. From the foregoing discussion, it would follow that the only difference between the House of Lords and Lord Kingsdown is this, that a formal declaration of a conquest, cession or annexation is not needed to change the national character of the territory according to the House of Lords. Lord Kingsdown in terms does not himself express and insist on such formality though Lord Stowell laid down that requirement in the case of The “Fama” 5 Rob. 115.

The essence, however, of the two views is that the occupation must be an effective occupation with the intention to hold it as if by conquest. It must be total subjugation. The civil and military administration over the country must be exercised by the enemy to the exclusion of the former government. The occupation should not be of the slightest character for military or strategical reasons, but of the more comprehensive nature. The enemy must have effective control though provisional and must treat it as a settled acquisition. If the occupation is in a fluid state, swinging backwards and forwards, as in the case of Korea at present, the national character of the territory would not be altered. This approximates to the test laid down by Wheaton in defining what constitutes conquest.

20. The question of change of the character of the territory, therefore, must be determined, on the facts of each case and inferred from the evidence available in the case. The decision, in ‘Sovfracht (V/O) case,’ (1943) A.C. 203 proceeded practically on the assumption that the control by Germany of Holland was effective. The intention to kaep the territory as an acquisition and the character of occupation must be inferred from the facts as satisfied- by evidence as pointed out by Lord Gresne M. R. in the later decision in ‘Anglo International Bank Ltd., in re’, (1943) Ch. 233. He states at page 241

“Such an intention was, Lord Wright says (in ‘Sovfracht (V/O) case1, (1943) A. .03 one of the matters which before the House were treated as of “common notoriety”. On what facts or information this treatment was based does not appear, but, if an intention of this character is a necessary element we are not sure to what extent the court is entitled in a case like the present where there is no opposition to treat as notorious matters on which it has no information except what may be gathered from official publications and the public press. Thus, we dp not see how we can assume that the enemy intends to “keep” France, or Belgium, or Greece, or the channel Isles, in the sense of incorporating them permanently in his possession.

We cannot, however, think that the expression “keep” was intended by Lord Wright to be used in this sense. One object of the common law rule is to prevent advantage to the enemy. Such an advantage may accrue if the occupation is of a character which enables the enemy to deal with the inhabitants of the occupied country and their civil rights in such a way as to secure profit to himself, whatever his ultimate intentions as to the future of the occupied country may be. It is for this reason that a mere military occupation is insufficient to brand the inhabitants as alien enemies since such an occupation does not affect the civil rights of the inhabitants beyond what may be necessary for the purpose of conducting military operations. That we are right in construing the word “keep” as used by Lord Wright in a restricted sense is, we think, shown by a consideration of the opinions of the other members of the house.”

Then he quotes the opinions of Lord Atkin, Lord Thankerton, and Lord Porter and then concludes:

“In view of these expressions of opinion we hope that we are justified in reading the language of Lord Wright in a way which will bring it into conformity with that used by the other members of the House who, while agreeing with his opinion, expressed their own views in different languag?. But even so, apart from the special case of Monaco, we have no evidence of the nature of the occupation.”

In view of the fuller exposition of the law on the subject by the House of Lords in ‘sov-fracht (V/O) case’, (1943) A.C. 203 it is unnecessary to refer to the decisions in The ‘Gutenfels’ (1916) 2 A.C. 112, ‘Societe Anonyme Belge Des Mines d’ aljustrel v. Anglo belgian Agency Ltd.’, (1915) 2 ch. 409 and ‘the leonora’, (1919) A.C.74. McNair discusses the topic of what amounts to belligerent occupation of a territory by the enemy at pages 322 to 329.

21. The common law of England has established the doctrine of non-intercourse between residents in belligerent states during a state of war. In America, however, the prohibition against intercourse is confined to commercial intercourse, though the decisions cannot be said to be altogether uniform. In The ‘Rapid’ 8 Cranch 155, and The ‘Emules’, (1813) 1 all 563 there are dicta to the effect that all intercourse is prohibited between citizens of belligerent States. Gray J. however in ‘kershaw v. Kelsey, 100 Mass 561 the leading case on the subject, which has been since followed, restricted the intercourse of their citizens with their enemy to commercial intercourse. After reviewing the principal English and American authorities, the learned Judge stated the law in these terms;

“The law of nations as judicially declared, prohibits all intercourse between subjects of the two belligerents which is inconsistent with the state of war, between their countries. This includes any act of voluntary submission to the enemy, or receiving his protection as well as any act or contract which tends to increase his resources, and every kind of trading or commercial dealing or intercourse, whether by transmission of money or goods, or orders for the delivery of either between the two countries, directly or indirectly, or through the intervention of third persons or partnerships or by contracts in any form looking to, or involving such transmission, or by insurances upon trade by or with the enemy.” “Beyond the principle of these cases the prohibition has not been carried by judicial decisions. At this- stage of the world when all the tendencies of the law of nations are to screen individuals and private contracts from injury or restraint in consequence of war between their governments we are not disposed to declare such contracts unlawful as not having been heretofore judged to be inconsistent with a state of war.”

22. It has been authoritatively decided, however, by the Court of Appeal in England in ‘ROBSON v. PREMIER OIL AND PIPE LINE CO. LTD.’, (1915) 2 h. 124 that the prohibition of common law of intercourse with an alien enemy is not limited to commercial intercourse and the view of Gray J. in ‘Kershaw v. Kel-sy’, 100 Mass 561 was dissented from. The opinion of Lord Stowell in The ‘Hoop’, (1799) Ch. Rob. 196 and ‘The cosmopolite’, 4 Ch. Rob. 8 and that of the President of the Probate Division in The ‘Panariellos’, (1915) 84 L. J. P. 140 have been taken in England as establishing the wider prohibition of intercourse and the basis of the prohibition is stated by Pickford L. J. in unambiguous terms thus: “The prohibition of intercourse with alien enemies rests upon public policy, and we can see no ground either on principle or authority for holding that a transaction between an alien enemy and a British subject which might result in detriment to this country or advantage to the enemy is permissible be-, cause it cannot be brought within the definition of a commercial transaction.” All kind of intercourse, therefore, according to the English common law, whether commercial or otherwise is inconsistent with a state of war-between two belligerent countries and is therefore absolutely forbidden. It need not be established, that in fact there was intercourse with the enemy. It is enough if there is a possibility of intercourse. This decision was approved by the House of Lords in ‘Ertel Bieber and co.v. Rio Tinto co., (1918) A.C. 260.

23. It follows as a corollary of the principle of prohibition of intercourse that an executory contract which either involves intercourse or whose continued existence must in some, way operate against public policy is abrogated-as a result of war. Of course, it is not permissible during a state of war to residents of bsllige-rent states to enter into contracts. Such contracts are prohibited by law. The law interferes with executory contracts by dissolving them. Lord Dunedin in ‘Ertel Biebar and-Co. v. Rio Tinto co.’, (1918) A.C. 260 enunciated the principles relating to this matter thus:

“The proposition of law” says the learned Lord “on which the judgment of the Courts is based is that a state of war between this kingdom and another country abrogates and puts an end to all executory contracts which for their further performance require, as it is often phrased, commercial intercourse between the one contracting party, subject of the King, and the other contracting party, art alien enemy, or any one voluntarily residing in the enemy country. I use the expression “often phrased commercial intercourse” because I think the word “intercourse” is sufficient without the epithet “commercial”.

The learned Lord agreed with the judgment of the Court of Appeal in ‘Robson v. Premier Oil and pipe line Co.’, (1915) 2 Ch. 124 and quoted the passage already cited from that judgment, and, examined and considered in detail the case in The ‘HOOP’ (1799) 1 Ch. Rob. 196, ‘Furtado v. Rogers’, (1802) 3 B & P 191, the judgment of the Queen’s Bench in 1857 in ‘Esposito v. Bowden’, (1857) 7 El and Bl 763 and the opinion of Lord Reading C. J. in the case of ‘Porter v. Freudenrerg, (1915) 1 K.B. 857 , dealing with the effect on contracts he says that war does not avoid all contracts between subjects and enemies and that accrued rights are not affected though the right to sue in respect thereof is suspended.

Another exception recognised is in the case of contracts which are really concomitants of rights of property,, which even if executory are not abrogated. The executory contract which is abrogated must involve intercourse or its continued existence must in some way be against public policy. To the same effect are the observations in the speeches of the other Lords. A learned discussion of this subject is to be found in Chapter IV of Professor McNair’s Book and in Chapter V of Webber on Effect of War on Contracts.

24. We are only concerned in this case with the restricted narrow question of the effect of War on a contract of agency. It is therefore necessary to consider its effect on other contracts and the rights and the liabilities of the contracting parties thereunder. As pointed out by Lord Wright in ‘Sovfracht (V/O) case’, (1943) A.C. 203 persons residing in enemy territory, so long as the enemy occupation lasts, are on the wrong side of the line of war and therefore they are shut off from communication & intercourse and from commercial dealing in the same manner and to the same extent as if they were original enemies such as the nationals or residents in the enemy territory. The learned Lord says at page 230 in ‘Sovfracht (V/O) case’, (1943) A.C. 203 that:

“This rule is only concerned with relations across the line of war; so far as concerns the internal commerce and ordinary activities of those in the occupied territory, such as those activities which the Master of the Rolls enumerates, the rule has no application, even though these activities go to promote the advantage of the German state and strengthen its war effort.”

Both Lord Wright and Lord Porter agree that the agency of the solicitor in that case to act on behalf of his client who is an enemy subject terminated with the enemy occupation of the territory. Lord Porter at page 254 states the rule to be

“Ordinarily, when the principal becomes an enemy the authority of the agent ceases on the ground that it is not permissible to have intercourse with an enemy alien, and the existence of the relationship of principal and agent necessitates such intercourse.”

and relies for this view upon the decision of the House of Lords in ‘Hugh Stevenson and sons v. Attiengesellschaft Fijr Car-tonnagen Industrie’, (1918) A.C. 239 which related to a case of partnership. But the learned Lords differ from the view taken in ‘Tingley v. Muller’, (1917) 2Ch. 144 and express their concurrence with the dissenting speech in that case and the view of Lord Sum-Tier in ‘Rodriguez v. Speyer Brother’, (1919) A.C. 59 . Viscount Simon L. C. agrees with the view expressed by Lord Porter. It may, therefore, be taken that so far as the English common law is concerned the principle of abrogation of agency when either the principal or the agent becomes an alien is firmly established notwithstanding the view expressed in the earlier decision.

The decision in ‘TINGLEY v. MULLER’, (1917) 2Ch. 144 might perhaps be justified on the peculiar facts of that case as the power of attorney empowered the agent in England to sell the property of the principal who left for Germany and that practically amounted to a sale or a conveyance ot the equitable interest and no further intercourse was contemplated or was necessary.

‘Hugh Stevenson and sons v. Aktiengesellschaft Fur carton-nagen Industrie’, (1918) A.C. 239 related to a case of partnership between two companies one a German and the other an English trading in England and carrying on business there. By reason of the declaration of war in 1914 the partnership was dissolved and the English partner continued the business and made use of the property of the partnership, including the interests of the German partner in the business. The question that had to be considered was whether after the termination of war the German company was entitled to a share of the profits made by the English company with the help of the German company’s assets.

The answer given by the House- of Lords was naturally in favour of the German company. Though the declaration of war had the effect of abrogating or dissolving an executory contract it did not forfeit private property of the enemy partner in England. The law of England does not recognise the principle that as a result of the war the property of an enemy subject in England is confiscated. The property has to be restored to the person entitled to it after restoration of peace.

The question, therefore, in that case did not relate to a contractual right but related entirely to right to property. The preservation for the benefit of an alien enemy of property situated in England together with its profits until the war terminated for the purpose of being restored to him, it was held, did not constitute trading with the enemy. Nor is it within the purview of the prohibition against doing anything for the benefit of the enemy during the continuance of war. What is prohibited under this last principle is doing something for the benefit of the enemy at a time when he continued to be an enemy and not an advantage to be restored to him after the establishment of peace.

25. The intercourse prohibited is across. the line of war, and, as pointed out by Lord Wright in the passage already cited, the common law of England, which of course cannot apply to the enemy country, does not and cannot prohibit intercourse or internal commerce and ordinary activities of these in the enemy occupied territory inter se so long as they are on the same side of the line of war, even if such activities and such trade have the effect of conferring an advantage upon the enemy and strengthening his war effort.

To this class of cases I should think, belongs the decision in ‘Ottaman bank v. Jebara (1928) A.C. 269. The facts of that case were somewhat peculiar. A British subject residing in Manchester, was in the habit of consigning goods to customers in Beyrout in Syria. The course of trade followed by him was that he drew the- bills on correspondents and handed them to the Ottoman Bank in Manchester together with the bills of lading of the goods which were shipped. On presenting the bills, the bank made an advance to the Manchester Merchant about 80 per cent, on the amount of the bill.

The bills and the bills of lading were thereafter transmitted to Bey rout. On arrival at Beyrout of the goods, the person on whom the bill was drawn paid the bill and received the bill of lading if the goods had not already been cleared from the ship. If the goods were removed from the ship, however, he used to receive the goods on the advice of the Beyrout branch of the Ottoman Bank after paying the price. The amount so realised was credited by the bank at Beyrout to the Manchester merchant who was the respondent before the House of Lords.

War was declared between England and Turkey on 5-11-1914 by which date several consignments of goods arrived at Beyrout, but thedocuments of title and the bills were still in the hands of the branch of the Ottoman Bank of Beyrout. The customers to whom the goods were destined, paid the bills and obtained the goods. Though the bills were in sterling the customers paid actually in Turkish currency at the rate of exchange obtaining on that date at London. It was at that time impossible for the Beyrout Branch to remit the amount to the Ottoman Bank at London.

The respondent brought the action for the realisation of the amount due as’ per the bills. The appellant, the Ottoman Bank, refused to pay the amount but was willing to pay the number of Turkish piastres actually received calculated at the exchange rate on that date. There was also an alternative claim in the action for damages for wrongful conversion. Row-latt J. who tried the action gave judgment for the respondent as the Bank was bound to pay in sterling as they had been paid in sterling.

This judgment was reversed in appeal on the ground that at the moment the Beyrout Bank dealt with the goods they had no authority, the agency having terminated, and. in handing the goods to the Syrian merchant they acted without authority and therefore they were liable for conversion. The respondent was willing to accept payment as directed by the judgment of Rowlatt J. and was not anxious to press for damages for wrongful conversion though it would have been to his advantage. On appeal Viscount Dunedin held that the Bank in Beyrout accepted the payment in lawful money from the Syrian merchant when he handed over the goods and therefore was a debtor for this sterling amount as indicated in the bill. He also pointed out that war did not abrogate every contract.

“It is only a contract which is still executory and which for its execution requires intercourse between the English subject and the enemy. Now this contract had been partially carried out, the bills had been indorsed, and the bank had been handed them and the indorsed bills of lading. From that a subsidiary contract arose, i.e., the contract that on payment of the bills the shipping documents should be handed over. Now to execute that no intercourse between an English subject and the enemy was necessary. The bank was a Turkish subject and the Syrian merchant was a Turkish subject. The Bank therefore was in my view perfectly entitled to do what it did; nay more it might have been forced to do it by the Syrian merchant on producing proof that he was the real consignee of the goods and profiteering payment of the bill. That, in my view, shuts out any idea of conversion.”

To the same effect are the observations of Lord Shaw of Dunfermline at page 280:

“It is to be observed that there was no bar whatsoever to the acceptance in sterling or in the full market equivalent of the day of cheque upon London from another Turkish subject…..namely, the customer in Beyrout. Both bank and customer were Turkish subjects there; and the legitimacy of the payment to the bank in Beyrout is, therefore, beyond question, there being no international equality about that part of the transaction.”

Again lower down:

“Prohibitions against doing business with English or other enemy nationals cannot apply to a case of a payment made between two Turkish nationals and goods delivered on the head of a payment, documents and goods passing from one Turkish national in Beyrout to another.”

There were similar observations in the speeches of the other Lords. The decision in ‘ANTOINE v. MORSHEAD’, (1815) 6 Taunt 237: 16 RR 610 is not of much assistance as the remarks of the learned Judge were expressly restricted to the facts of that case and the learned Judge did not intend to lay down a general rule of law. That an executory contract for the sale of goods becomes void after the outbreak of war was also held in ‘Arnhold Karberg & Co. v. Blythe, Green, Jourdain and Co.’, (1915) 2 K.B. 379. That a contract involving intercourse with and conferring benefit on the enemy would be dissolved after the outbreak of war is illustrated by a decision in ‘Schering ltd. v. Stockholms Enskilde Bank’, (1943) 1 All ER 418 on somewhat peculiar facts. The American law takes a more liberal view regarding the effect of war on the relationship between a principal and agent, particularly with reference to the collection of debts. In ‘Ker-shaw v. Kelsey’, 100 Mass 561 Gray J. of the Supreme Judicial Court of Massachusetts said:

“When a creditor, although a subject of the enemy remains in the country of the debtor or has a known agent there authorised to receive the amount of debt throughout the war, payment there to such creditor or his agent can in no respect be construed into a violation of the duties imposed by a state of war upon the debtor; it is not made to an enemy, in contemplation of international or municipal law; and it is no objection that the agent may possibly remit the money to the principal in the enemy’s country; if he should do so the offence would be attributable to him and not to the person paying him money.”

In ‘WARD v. SMITH’, (1869) 19 USSC Law Ed 207 it is stated:

“When an agent appointed to receive the money resides within the same jurisdiction with the debtor, the latter cannot justify his refusal to pay the demand, and, of course, the interest which it bears. It does not follow that the agent, if he receives the money, will violate the law by remitting it to his alien principal. The rule, says Mr. Justice Washington in ‘CONN v. PENN’, 1 Pet (CC) 496 can never apply in cases where the creditor, although a subject of the enemy, remains in the country of the debtor or has a known agent there authorised to receive the debt, because the payment to such creditor or his agent could in no respsct be construed into a violation of the duties imposed by a state of war upon the debtor. The payment in such cases is not made to an enemy, and it is no objection that the agent may possibly remit the money to his principal. If he should do so, the offence is imputable to him, and not to the person paying him the money. Nor can the rule apply when one of several joint debtors resides within the same country with the creditor, or with the known agent, of the creditor. It was so held in ‘PAUL v. CHRISTIE’, 4 Harr & Me H 161.”

In ‘UNITED STATES v. HENRY GROSS-MAYER’, (1870) 9 Wall 72: 19 US SC Law Ed 627, Davis “J. who delivered the opinion of the Court observed:

“A prohibition of intercourse with an enemy during the war affects debtors and creditors on either side, equally with those who do not bear that relation to each other. We are not disposed to deny the doctrine that a resident in the territory of one of the belligerents may have, in time of war, an agent residing in the territory of ihe other, to whom his debtor could pay his debt in money, or deliver to him property in discharge of it, but in such a case the agency must have been created before the war began, for there is no power to appoint an agent for any purpose after hostilities have actually commenced, and to this effect are all the authorities. The reason why this cannot be done is obvious, for while the war lasts nothing which depends on commercial intercourse is permitted.”

These authorities of the American courts establish undoubtedly that if the creditor has an agent in the enemy territory payment to such an agent by the debtor also living in the same enemy territory is good. The views of the American courts are criticised by Professor Mc-Nair on page 208 of his book on the ground that many of the decisions arose from the Civil War and that they are not reliable guides when international war is in question. Trotter in the Law of Contract during and after War, 3rd Edn. p. 96 cites ‘Ward v. Smith’, (1869) 19 U.S.S.C. Law Ed. 207 and ‘United States v. Gross-mayer’, (1870) 9 Wall 72 : 19 U.S.S.C. Law Ed. 627 with approval and does not question the correctness of the views expressed in those decisions.

26. Bowstead on Agency, at page 275, 10th Edn states on the basis of the view of Lord Porter in ‘Sovfracht (V/O) Case’, (1943) A.C. 203 that,

“Where the continuance of the agency may require intercourse with the enemy during a war, the agency is determined by the outbreak of war; so that the retainer of a solicitor ceases when his client becomes an enemy alien.”

In ‘Eichengruen v. Mond’, (1940) 1 Ch. 785 it has been held that so long as the solicitor remains on record service upon him is sufficient although his client had become an enemy agent. We do not think that the decision in ‘Eichengruen v. Mono’, (1940) 1 Ch. 785 is good law after ‘Sovfracht (V/O) case’, (1943) A.C. 203 because the solicitor could no longer have any authority to represent the principal resident in enemy territory.

27. Of the two fundamental principles of the common law of England which have been under consideration till now in India the procedural incapacity of an alien enemy to sue, i.e., to sustain a ‘persona standi in judicio is enacted in S. 83 of the CPC and had received statutory recognition. For the limitations therefore for the application of that principle, one has to look to the provisions of S. 83 of the Civil Procedure Code. It seems to have been adopted and applied to India even under the Code earlier to the Code of 1882. This section itself has been Judicially interpreted after the second World War in this court in three decisions, to two of which Chandrasekhara Aiyar J. was party i.e., PL. TL. Thenappa Chettiar by agent M.S. Ganesa Iyer Vs. The Indian Overseas Bank, Ltd., and ‘Manasseh film Co. v. Gemini Picture Circuit’, ILR (1944) Mad. 124.

The view of Chandrasekhara Aiyar J. has been accepted and followed by Leach C. J. and Lakshmana Rao J. in ‘CHEM ABBHEONG v. PACKIR1 MAHOMED ROWTHER’, ILR (1946) Mad. 768. We are not concerned in this case with the right of the plaintiff to institute the present suit as he is not an alien enemy but a person residing in British India and the suit itself was instituted after the termination of the war. It is therefore unnecessary to examine the decisions in detail and consider some of the criticisms levelled against them. In the course of this judgment, we shall have occasion to consider some aspects of the questions dealt with in these cases.

28. The other branch of the English common law regarding prohibition against intercourse between residents in belligerent States and its effect on contracts has not been applied to India by any Statute. It can only apply to India by way of justice, equity and good conscience in the absence of any rule applicable to the situation and enacted by any Statute.

29. How far and to what extent the English common law generally applies to India, both in the Presidency towns of Madras, Bombay, or Calcutta, and in the moffussil, has been subject-matter of judicial decisions. The net result of these decisions is that the English common law does not apply when there is statutory law covering the point, and even when there is no rule of statute, the common law of England is applied ‘sub modo’ having regard to the conditions of the society and the customs and manners of the people of India. Where how-, ever, the principles of common law in England are themselves in a state of uncertainty there is nothing to preclude a Judge in adopting that rule of English common law which is in accordance with justice and equity.

It is unnecessary, in our opinion, to consider in detail all the decisions as the ground is covered by Gopal Naidu v. King Emperor’, 46 Mad 605, Balammal Vs. Palandi Naidu and Others, . The principle of adopting other rules when there is no law covering the point was made possible by giving liberty to a Judge to act according to Justice, equity and good conscience. That was for the first time recognised in this Presidency by Regulation II (2) of 1802, Section 17. Section 16 of the Regulating Act, 1873 also directs that in cases enumerated in the section where there is no specific rule the court is at liberty to act according to justice, equity and good conscience. It is on this basis that the common law of England relating to torts has been applied to this country even though there is no statutory law of torts in British India. The other authorities relied on in the course of the arguments before us are: ‘The Advocate General of Bengal v. Ranee Surnomoye Dos-see’, 9 Moo Ind App 387, ‘Parvathi v. Mannar’, 8 Mad. 175, ‘Narayana sah v. Kannamma BAP, 55 Mad. 727 and the opinion of Ilbert in ‘Government of India’, 1916 Edn., at page 360, where it is stated:

“In matters for which neither the authority of Hindu or Mohamedan text books or advisers nor the regulations and other enactments of the Government supplied sufficient guidance, the Judges of the civil courts were usually directed to act in accordance with ‘justice, equity and good conscience’. An English man would naturally interpret these words as meaning such rules and principles of English law as he happened to know and considered applicable to the case; and thus, under the influence of English Judges, native law and usage were, without express legislation, largely supplemented, modified and superseded by English law.”

In two decisions of this Court the English common law, which prohibits intercourse between hostile subjects, has been considered. Of these, the most important decision which considered the authorities as they then existed, is the decision of Srinivasa Aiyangar J. in ‘VUTH-RIK v. DAVID’, 31 Mad. L. J. 860. In that case an agent of the Easel Mission who was a German-leased certain lands in British India to the plaintiff. After the outbreak of war between Great Britain and Germany, that is the first World War, a suit by the succeeding secular agent of the Mission was instituted for the recovery of the rent under the lease. The lease in question was granted after the outbreak of “War and the contention was that the lease was void.

Following the opinion of Gray J. in ‘Ker-shaw v. Kelsy’, 100 Mass 501 Srinivasa Aiyangar J. sitting as a single Judge held that the prohibition as regards intercourse was confined only to commercial intercourse and did not render illegal all contracts whatever be their nature. He also referred to the opinion Of Lord Davey in ‘Jonson v. Driefontein Consolidated Mines Ltd.’, (1902) A. C. 484 and of Lord Stowell in The ‘Hoop’, (1799) 1 C Rob 196. The opinion of Story J. in ‘The Julia’, 8 Cranch 181 in which a wider prohibition was accepted was considered as purely obiter by the learned Judge. As the lease could not be considered a commercial transaction it was held that the suit for recovery of rent on the basis of the lease was sustainable and was decreed. No dispute was raised in that case that the common law of England should not be applied in India.

The other decision is the judgment of Abdur Rahim O. C. J. and Burn J. in ‘Soorthingje Sakalchand v. Mahomed Nasuruddin’. 32 Mad. L.J. 146 which related to a contract of sale of goods. The action was for the recovery of certain quantity of glass bangles from the defendants. The first defendant was the agent of an Austrian firm and in that capacity entered into a contract in April-May 1914 to supply glass bangles of a particular quantity. The plaintiff accepted two drafts representing the price of the goods on 22-7-1914. War was declared with Austria on 12-8-1914. The goods were shipped by the steamer “Steinturm” which arrived in Ceylon on 15-8-1914, that is three days after the war was declared. The bills of lading were kept in the possession of the National Bank of India in Madras who were agents for the collection of the drafts and for handing over the documents of title relating to the Austrian firm. The bills were payable on the 22nd August, but the goods were not delivered to the plaintiff and the drafts were not paid.

Bakewell J. who tried the action in the first instance on the Original Side held that the contract became wholly void on account of the outbreak of War and by virtue of Royal Proclamation of 5-8-1914, and 12-9-1914 it became unlawful to trade with the enemy and that therefore the plaintiff’s action for recovery of the value of the goods was not sustainable. Apart from the question of common law, a proclamation made it unlawful for the plaintiff to pay money and obtain the delivery of the goods. The_ property in the goods did not pass to the plaintiff as the ‘jus disponendi’ i.e., power of dealing with the goods was retained by the defendant. It was held that the contract could not be enforced.

The Calcutta High Court also considered the principles after the First World War in ‘G. C. Sett v. Madhoram Hurdeodass’, 33 Ind. Cas. 540 (Cal). At that time, it must be observed, there was some doubt whether such contracts for the sale of goods, which were executory in nature were merely suspended during the war or became abrogated and dissolved altogether. Chaudhury J. of the Calcutta High Court was of opinion that the rights under the contract were only suspended during the war but that the contract was not avoided or dissolved. This view may not be correct under the present law.

There are two decisions of the Bombay High Court reported in ‘Wilfred R. Padgett v. Jamshetjr, 18 Bom. L. R. 190 and ‘Valli mahomed v. Berthold reif, 44 Bom. 1 in both of which the question raised was whether the interest on a debt was not suspended during the war. In ‘Valli Mahomed v. Bert-hold Reif’, 44 Bom 1 the view of the Supreme Court of the United States that where the debtor resides in the same country as the creditor or his duly authorised agent provided such agent was appointed before the War, interest on a debt was not suspended by the War as laid down in ‘United States v. Henry Grossmayer’, (1870) 9 Wall 72: 19 U.S.S.C. Law Ed. 627, ‘Ward v. Smith’, (1869) 19 U.S. S.C. Law Ed. 207 was followed. In that case, the branch firm of the plaintiffs to whose representative the defendant paid interest was established long before the war. In ‘Wilfred R. Padgett v. Jamshetjp, 18 Bom. L. R. 190 Macleod J. held that:

“The accrual of interest is suspended, even when the alien enemy creditor remains in the country of the debtor, until the debtor has actual notice that the principal debt can safely be paid without the possibility of its enuring for the benefit of the enemy during the continuance of hostilities.”

30. There is no ground therefore to uphokf*the contention that the English common law should not be applied to this country to any extent. The House of Lords in ‘Sovfracht (V/O) case’, (1943) A.C. 203, differed from the opinion of Lord Kingsdown in ‘Gerasimo’s Case’, (1857) 11 Moore P. C. 88, a Privy Council case, on the question of the test to be applied to determine the change of the nationality of territory. While Lord Kingsdown took the view that it was necessary that for the territory, either by conquest, cession or annexation of a permanent or temporary nature to become part of the territory of the enemy there should be a formal declaration changing the national character of the territory, the House of Lords thought that effective control with a view to hold the territory in question by an establishment of civil and military administration would be sufficient to bring about a change of nationality of the territory.

There is also a difference between the English common law and the law of the United States on the nature of the intercourse prohibited during the war. The English view is that all intercourse is prohibited while in America the prohibition is restricted to commercial intercourse. Further, the House of Lords expressed a different opinion that the relationship of principal and agent is terminated by war for all purposes. While in America if the creditor or his agent and the debtor reside on the same side of the line of War, that is in the enemy territory, there is no objection to payments of the debts to the creditor or his agent and the interest on the debt is not also suspended.

The American view has been accepted in this court in ‘Vuthrik v. David’, 31 M. L. J. 860 and regarding the debts by the Bombay High Court in the two Bombay decisions already referred to. As it is open to this court to accept the English common law only to the extent to which it accords with justice, equity and good conscience, and, as the decisions of the Judicial Committee were considered till the Constitution came into force as binding on this court in preference to the House of Lords,  we have to choose between the tests laid down by Lord Kingsdown and the House of Lords, we would prefer the former to the latter.

The test laid down by Lord Kingsdown is definite and precise and as Lord Sto-well pointed out in The “FAMA” 5 Rob. 115 the subject residing in enemy occupied territory is entitled to know to which state he should look to for protection, and, it is therefore incumbent upon the enemy State occupying the territory to hold it and treat it as part of the territory of which he is the sovereign.

The test laid down by the House of Lords requires an investigation into the facts of each case in order to determine the “nature and extent of occupation, and, it is not always easy to decide whether the occupation was effective or not. It may be in a fluid condition and the occupation might change hands from time to time. To embark into an enquiry in each case, whether the occupation in a given period was effective or not, would be difficult and leave the person residing in such territory in an uncertain state regarding his business and his occupation and his dealings with the residents in friendly territory. The law should not be left in our opinion, in such an uncertain and nebulous state, and, should be, as far as possible, definite and precise.

For these reasons we would prefer with great respect the test laid down by Lord Kings-down, though, we must say that the opinion of the House of Lords is entitled to the highest respect. In our view, the rigorous test of absolute prohibition of intercourse adopted in England is too severe a punishment for the person who has the misfortune of residing in an enemy-occupied territory. As pointed out by Wheaton, this principle itself is not followed in other countries than the Anglo-American countries. The object of prohibition being to prevent trade between residents of two belligerent States, it is unnecessary in our opinion, to extend the prohibition beyond the necessary requirement. This court has already adopted the opinion of Gray J. in the decision in ‘VUTHRIK v. DAVID’, 31 Mad. L. J. 860.

The view of the Supreme Court of the United States, in our opinion, is more in accordance with justice, equity and good conscience. Both on principle and on authority, it seems to us that when a creditor and his agent and the debtor are not across the line of war but in the same belligerent State and on the same side of the line of war there is no reason prohibiting the payment of the debt by the debtor and a receipt by the creditor. In tact, as has been referred to already, the decision of the House’ of Lords in ‘Ottoman Bank v. Jebara’, (1928) A.C. 269 seems to be consistent with the principle recognised by the American Courts and adopted by the Bombay High Court in this country.

31. It remains now to consider in the first place whether Burma was an enemy-occupied territory. So far as this case, it is of no consequence whether we adopt the test in the ‘Gerasimo’s case1, (1857) 11 Moore P. C. 88 or the test in ‘Sovfracht (V/O) case’, (1943) A.C. 203 as in our opinion the evidence adduced in the case does not necessarily support the inference that Japan acquired effective control over the territory and established civil administration with a view to hold possession of the territory in de facto sovereignty. Proclamation or even a declaration to hold the territory in its own right was never made. The British Government the ‘de jure sovereign of the State, did not abandon their sovereignty and cede the territory to Japan.

It can be seen by a reference to the decision of the Privy Council in’ ‘Chidambaram v. Emperor’ AIR 1947 P.C. 85 that the Governor of Burma shifted to Simla and was carrying on the ‘de jure’ Government of Burma from that place. He declared a state of emergency under the Government of Burma Act, 1935, assumed to himself legislative and executive functions and promulgated certain Ordinances constituting special courts for the trial of criminal offences.

The evidence in this case is very meagre regarding the nature of the occupation by Japan. P. W. 2 the agent of the plaintiff, says that there was Japanese Government and also Burma Government and that there were British and Japanese currencies then prevalent in the country. The Japanese currency that was introduced was not backed up either by silver or gold. The currency notes, actually issued, were not signed by any authority on behalf of the Japanese Government and a Rs. 10 note issued by the Japanese Government was produced before us; and all that appears on the face of the note is “Japanese Government. Ten Rupees”.

There is no promise to pay; there is no signature of any person authorised to issue the currency, and, what is more significant, it is not the Japanese Yen that was mentioned in the Note; but the British rupee. It is a misnomer to call such notes currency notes, though there is evidence that people were forced to accept these notes on pain of punishment by the military authorities.

D. W. 1, an agent of another Nattukottai Chet-tiar, who then resided in Burma stated that from 1942 after the Japanese occupation and till the re-occupation by the British regular administration of the Government was going on. Courts were functioning, the magisterial officers wens functioning and the revenue officers were functioning. The head of the Government was Ba Ma. a Burman. Administration was being carried on by Burmans under Japanese control. We do not know from this evidence what the nature of this control was, and what the relationship between Ba Ma and the Japanese Government was.

It must be remembered that it was the policy of Japan when it entered war to establish what was then styled a co-prosperity Sphere of Asians and it promised independence to Burma. The Ba Ma Government, as it is called, may have been, an independent Government by Bur-mans; we do not know the details. This witness D. W. 1 describes the nature of the paper notes that were issued by Japan and he adds that no coins were issued in the territory though a branch of their Yokohama Bank was established. The Ba Ma Government was running all the departments of the administration. D. W. 2 also gives evidence on the same lines and he deposes that if any one refused Japanese currency he would be arrested by the Burma Government under the Japanese control.

It is therefore difficult to conclude on this meagre evidence that the Government of Japan had’ established anything like a civil administration under its control and authority besides the military occupation which could effectively exercise dominion and control over the territory. As pointed out by Lord Greens M. R. in ‘Anglo international bank ltd. In re’, (1943) Ch. 233 without evidence and proof of facts establishing the change of national character of the territory It cannot be assumed. Of this proof there is none in this case. Applying therefore either of the tests the plaintiff, in our opinion, has failed to establish that at the time the payment was made by the defendants’ agent to the plaintiff’s agent, Burma was an ‘occupied enemy-territory”. This conclusion is sufficient to dispose of the case.

32. But even otherwise the payments in our opinion, will be good and valid as the defendants’ agent and the plaintiffs’ agent were both living in the same enemy-occupied territory and as the creditor had an admitted agent in Burma and the debtor had also an agent in Burma who made the payment and both being enemies, there is no ground for treating the payment as invalid. Applying the principle of the American decisions, there is nothing to indicate that there, was any possibility of intercourse or any intercourse between the plaintiff and his agent. The plaintiff himself did not venture to go into the witness-box and speak to the facts. P. W. 2 does not say that at that time there was any possibility of any intercourse between him and his principal,

There is no question therefore of his remitting the money to the plaintilf but there is no objection to his remitting the funds to India as-it is not an enemy territory. The reverse of course is not permissible. If there is an attempt to remit funds from British India to-Burma it would be prohibited both under the Common law, and, as it would be seen later, under the Defence of India Rules. The question, therefore, viewed from the point of the common law must be answered in favour of the defendants and against the plaintiff and the payment must be upheld.

33. It remains to consider the position under the Defence of India Rules. The Defence of India Rules were made by virtue of the power conferred upon the Central Government u/s 2 of the Defence of India Act, 1939. Part XV of the Rules relating to control of trading with the enemy and the definition of “enemy” and “enemy territory” are framed on the same lines as the corresponding provisions in the English Trading with the Enemy Act, 1939 (2 and 3 Geo. VI Chap, 89). As pointed out by Lord Wright in ‘SOVFRACHT (V/O) CASE’, (1943) A.C.. 203 , these statutory definitions dealing with trading with the enemy and the custody of enemy property are limited to the purposes of the Act and regulations and do not impinge on the common law in regard to the separate question of an enemy’s-competence to sue.

On the whole, however, we think that these-definitions at least in the latest form, do substantially agree with the definitions of “enemy” and “enemy-occupied territory” reached by the common law in the authorities. The purpose of these rules, therefore, is to provide the limitations under which trading with the enemy is, permitted and the object is to control such a trade. Section 15 (1) of the English Act contains the definition of “enemy territory.”

” ‘Enemy territory’ means any area which is-, under the sovereignty of, or in the occupation of, a Power with whom His Majesty is at War. not being an area in the occupation of His Majesty or of a Power allied with His Majesty.”

Sub-section (2) of Section 2 of the Defence of India Rules defines “enemy territory” in the same terms. According to this rule:

“”Enemy territory” means:

“(a) any area which is under the sovereignty of, or administered by, or lor the time being, in the occupation of, a State at war with His Majesty, not being an area in the occupation of His Majesty, or of a State allied with His Majesty.”

The only variation in this definition is the inclusion of “Area administered by a State at war with His Majesty” and also the addition-of the words “for the time being” before the words “in the occupation of”. The expression “not being an area in the occupation of His-Majesty or of a State allied with His Majesty” is common to both the definitions and this was not modified or omitted in England by any subsequent amendment. This is made clear by a perusal of the Defence (Trading with the Enemy) Regulations, 1940. issued by the Order in Council dated 26-1-1940 made under the Emergency Powers (Defence) Act 1939 and 1940 (S. R. and O. 1940 No. 1092) by which certain amendments in the main Act of 1939 were introduced.

This definition as contained in the English .Act is also to be found printed at page 329 of McNair’s book published in 1944, and, therein also the latest clause of the definition “not being an area in the occupation of His Majesty or of a power allied with His Majesty” is not omitted. This definition is also found printed in ‘Sovfracht (V/O) case’, (1943) A. C. 203, at page 205 of, the report as a footnote but there the last clause is omitted. Lord Wright refers to this definition at page 218 but there also the last clause is omitted, and, in both places after the words “a Power with whom His Majesty is at War” a full stop is to be found.

This, I think has misled Leach C. J, who delivered the judgment of the Court in ‘Chem abbheong v. Packiri Mahomed Row-‘ther’, ILR (1946) Mad. 768 to infer that the rule under the Defence of India Rules is different in material respects from the corresponding provisions in the English law as the latter does not include in the definition of “Enemy territory” the words “not being an area in the occupation of His Majesty or of a State allied with His Majesty.” He therefore thought this omission justified his conclusion that the English law in ‘Sovfracht (V/O) case’, (1943) A.C. 203 should not be followed as the English law was different. But of course the learned Judge does not rest his decision solely on that ground, for he pointed out at page 775 that the facts of that case were different from the facts of the case which he was called upon to decide. It is unfortunate that this mistake should have crept into the judgment of the learned Judge.

34. The meaning of the expression “not being an area in the occupation of His Majesty or of a State allied with His Majesty” is by no means clear and is difficult to construe. In a recent judgment of Viswanatha Sastri J. in S. A. No. 37 of 1948 of the Pudukottah State, in construing the definition of “enemy territory” in the Defence of India Rules he differed from the interpretation placed upon it by this Court by the learned Chief Justice in ‘CHEM Abbheong v. Packiri Mahomed Rowther’, I.L.R (1946) Mad. 768 and by Chandrasekhara Aiyar J. in PL. TL. Thenappa Chettiar by agent M.S. Ganesa Iyer Vs. The Indian Overseas Bank, Ltd., and ‘Manasseh Film CO. v. Gemini picture Circuit;. ILR (1944) Mad. 124.

All the three decisions of course related to the interpretation of S. 83 of the CPC and the interpretation of the Defence of India Rules did not directly arise for decision. Viswanatha Sastri J. sitting as a Special Judge of the Pudukottah Court, of course, was not bound by the decisions of this Court and was at liberty to place an interpretation of his own unfettered by any precedent.

35. The definition of “enemy territory” in the Rules relates to three different areas, (1) an area which is under the sovereignty of a State at war with His Majesty, (2) an area which is administered by a State at war with His Majesty (such as the mandated territories) and (3) any area for the time being in the occupation of a State at war with His Majesty. The words “for the time being” are significant and are important in deciding the nature of occupation at the material point of time. The last expression “not being an area in the occupation of His Majesty or of a State allied with His Majesty” takes out of the definition an area in the occupation of His Majesty or even an area in the occupation of a State allied with His Majesty.

The application of this part of the definition in the first two cases above instanced presents no difficulty. In the first case even if the State at war with His Majesty is the undisputed sovereign of an area at the time if such an area at the material time is however occupied by His Majesty or by a State allied with His Majesty it is no longer an enemy territory though the Sovereign of that State is at war with His Majesty. The reason is undoubtedly that His Majesty is in effective occupation of a territory belonging to a sovereign who is at war with himself. The same remarks would apply also to an area in respect of which the State at war is not the sovereign, but was under its administration and control.

The difficulty is to apply this part of the definition to the third case where the area is “for the time being in the occupation’of the State at war with His Majesty.” It is pertinent to ask how can an area be in the occupation of a State at war and at the same time be in the occupation of His Majesty or of a State allied with His Majesty. The expression “for the time being” undoubtedly indicates that the occupation concerned is the present occupation though it may in the context include also territory previously in the occupation of His Majesty or of a State allied with His Majesty.

In other words, it would have been better if the definition contained in the last part (?) of the words which was after the expression “not being an area”. With that amendment the last part would read as follows: “not being an area which was in the occupation of His Majesty or of a State allied with His Majesty.” This part undoubtedly qualifies the words “any area” in the beginning of the definition and it is intended to apply to the three classes of cases contemplated by the definition and not merely to the first two classes.”

In ‘Chem Abbheong v. Packiri Mahomed Rowther. ILR (3946) Mad. 768 Leach C. J. put upon the clause a similar interpretation and the mistake into which the learned Chief Justice fell about the supposed difference in language between the English and Indian definitions of enemy territory does not vitiate or in any way affect the construction put by him on the definition. At page 773, the learned Chief Justice says:

“The question then is, what is the meaning to be attached to the words “not being an area in the occupation of His Majesty or of a State allied with His Majesty” to be found in the Indian Rule? In our Judgment they can only be read as meaning ‘not being an area which was in the occupation of His Majesty or of a State allied with His Majesty’. The words “not being an area” must have reference to the words “any area” with which the rule opens. Under the rule there are three categories of enemy territory, namely, (i) territory which is under the sovereignty of a State at war with His Majesty, (ii) territory which is being administered by a State at war with His Majesty and (iii)” territory which for the time being is in the occupation of a State at war with His Majesty. If the words ‘not being an area in the occupation of His Majesty’ are not to be read in the way we read them, the provision with regard to the territory occupied by the enemy would be meaningless because an area cannot be in the occupation of both at the same time.”

He, therefore, held that Penang in the Federated Malay States was not an enemy territory reversing the decision of Byers J. to the contrary reported in ‘Packiri Mahomed Rowther v. Chow An Choqng’, (1944) 2 Mad. L. J. 293.

36. We are not in this case concerned with the criticisms of Viswanatha Sastri J. levelled by him against the decisions of this Court in interpreting S. 83 of the CPC and we think it is unnecessary therefore to deal with that aspect of the judgment of the learned Judge. The learned Judge however in the judgment in the second appeal of Pudukot-tah points out the anomaly of describing territories like Burma and Federated .Malay States under the sovereignty of His Majesty as territories in the occupation of His Majesty so as to exclude them from the definition of “enemy territory.”

No doubt, these territories were undoubtedly under the sovereignty of His Majesty and were not merely territories occupied by His Majesty. lut the object of the definition is to exclude cram the definition by adopting the comprelensive test of previous occupation by His Majesty as the sole and guiding factor even in respect of territories hold by His Majesty as sovereign even though they happen to be in he occupation of the enemy for the time being.

37. During war under the English common law the essential assumption and basic test to determine the national character of the territory and to decide whether it is enemy territory or not, is occupation, and effective occupation, as laid down in the decisions already referred to. It does not matter even if the sovereignty is held by one stale if that state at the material time was not in effective occupation of the territory. Even territories in respect of which His Majesty is undoubtedly the sovereign may pass into the occupation of the enemy State, but the object of the definition is to exclude from it States over which His Majesty has undoubted sovereignty or were under His Majesty’s administration though they are occupied by the enemy. If previously they were in the occupation of His Majesty (whether held as Sovereign or administered by His Majesty) they should not be treated as enemy territory. The object seems to be not to cut off trade relations in such a case as His Majesty may have possibly intended to recoyer back in a short time possession of those territories from the enemy who occupied it or, perhaps it was thought it was inequitable for the residents in that territory to be “under disability to have commercial intercourse with residents in a territory which was all along a friendly or neutral state. It was perhaps thought that trading in such circumstances need not be prohibited.

The learned Judge in our view did not attach sufficient importance to the expression “for the time being” in the definition which can only be contrasted with a previous occupation of His Majesty. There is no necessity to have deliberately introduced the expression “for the time being” jn the Indian definition which was not present in the English Act.

The interpretation adopted by the learned Judge would apply only to the first two classes of cases and would not apply to the third thereby omitting to give full significance to the intention of the Legislature in introducing the clause qualifying expression “any area” occurring in the opening part of the definition. The accepted canon of interpretation of all Statutes is, as far as possible the construction which gives effect to all the parts of a clause must be adopted and a restricted construction which makes a part of it otiose shall not be adopted unless it becomes impossible to reconcile all the parts of a clause. In our view, therefore, it is difficult to accept the narrow interpretation placed by the learned Judge upon the clause, and, with groat respect we differ from his view. .In our opinion the interpretation placed by Leach C. J. and Lakshmana Rao J. in ‘CHEM ABBHEONG v. PACKIRI MAHOMED ROWTHER’, ILR (1946) Mad. 768 is correct.

38. Applying this interpretation of the definition to the present case Burma is not an enemy territory as it was in the previous occupation of His Majesty.

39. We now turn to the definition of “enemy” in Rule 97 of the Defence of India Rules. Under Clause (b) “any individual resident in enemy territory” and under Clause (f) “as respects any business carried on in enemy territory, any individual or body of persons (whether incorporated or not) carrying on that business” are enemies. By reason of residence in Burma the plaintiff’s agent P. W. 2 and the defendants agent would be enemies. As the plaintiff and the defendant are carrying on business in Burma in respect of that business the plaintiff and the defendants, are also enemies. They may not have been within the purview of the prohibition in Rule 98 as there is no proof that they carried on any commercial, financial or other intercourse or dealings with or for the benefit of an enemy. Under Sub-clause (2) of Rule 98

“any reference in this rule to an enemy shall be construed as including a reference to a person acting on behalf of an enemy.”

Therefore, the agent of the plaintiff is an enemy for the purpose of this Rule 98. The receipt of payment of the money by an enemy, that is the plaintiffs’ agent, residing in Burma was not by a subject who is not an enemy but by an enemy either resident or carrying on business in an enemy territory. None of the disabilities therefore contemplated by Rule 98 would apply as the transaction was between enemies inter se and not between a British Indian subject on the one hand and an enemy on the other. It follows therefore that even if Burma is treated as an enemy territory within the meaning of the Defence of India Rules the payment in Burma by the debtor to the creditor is not hit at by any of the rules made under the Defence of India Act.

40. We have already found that in view of the subsequent legislation the payment in Japanese currency is valid.

41. It follows that the decision of the learn ed Judge in the Court below decreeing the plaintiff’s suit is erroneous and must be reversed. The appeal is accordingly allowed and the decree of the lower court is set aside and the plaintiff’s suit is dismissed with costs throughout.

(1952) AIR(Madras) 736 : (1952) ILR(Madras) 361 : (1952) 65 LW 384 : (1952) 1 MLJ 709 : (1952) 65 MLW 384