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1937 Supreme(SC) 76
Privy Council At Cyprus
Sir George Rankin, Lord Wright , Justice Lord Thankerton, JJ.
Ottoman Bank of Nicosia -Appellant
Versus
Ohanes Chakarian -Resopndent
Appeal No. 56 of 1936
Decided On : 16-11-1937
Gisborne and Co., Bischoff, Coxe and Co., Kenelm Preedy, Sir William Jowitt , I.W.G. Barry, Colin Pearson, Cyril Radcliffe, D.N. Pritt
A contract to pay a sum of money is a contract to pay in the legal tender of the time, not in gold, unless an express gold clause exists. The currency mentioned serves as a unit of account, not a specific commodity.
Headnote:(A) Contract Law - Currency and Units of Account - A debt is not incurred in terms of currency, but in terms of units of account. The unit of account is a denomination connoting the appropriate currency, which may vary from time to time. A contract to pay a certain amount of money is prima facie a contract to pay according to the currency of the country where payment is made, regardless of whether the currency was on a gold basis at the time of the contract.
(B) Gold Clauses - A gold clause is specifically designed to safeguard creditors against the risk of currency depreciation. Such a clause cannot be implied into a contract simply because the currency was gold-based at the time of the agreement or because payments were normally made in gold coins. In the absence of an express gold clause, the obligation is to pay in the legal tender of the time.
(C) Legal Tender and Territoriality - The currency of a country is determined by the law of that country. Once fixed by local law, it determines the legal tender of that country for purposes of transactions in any other country. There is no basis for the argument that paper currency is only legal tender within the territorial limits of the issuing jurisdiction.
Facts of the case:
An employee retired from a bank and claimed his pension, expressed in a specific foreign currency, should be paid based on the gold bullion value of that currency at the time of payment. The employment contract was governed by the laws of the country of the currency's origin. The employee argued that since the currency was gold-based when he was hired, a gold clause should be implied. The employer contended that the amount was a unit of account payable in the current legal tender, and that the practice of using conversion coefficients for salary payments was for administrative convenience and cost-of-living adjustments rather than to maintain gold parity.
Findings of Court:
The court found that under the applicable law, a contract to pay a sum in a specific currency is not a contract to pay in gold coins, but to pay in whatever is legal tender. The evidence showed that the conversion systems used by the employer did not represent a gold parity or an intention to pay the gold equivalent of the salary.
Issues: Whether a pension expressed in a currency that was gold-based at the time of the contract must be paid in gold bullion value or in the current legal tender, and whether a gold clause can be implied from the circumstances or the practice of the parties.
Ratio Decidendi: A unit of account is a denomination that refers to the appropriate legal tender, which may change over time. Without an express gold clause, there is no contractual obligation to pay the gold equivalent of a currency. The fact that a currency was gold-based at the inception of a contract does not create an implied gold clause, as this would render express gold clauses unnecessary.
Result: Appeal allowed.
Legal Category Hierarchy
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contract law
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interpretation
- gold clauses
- unit of account
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interpretation
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private international law
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conflict of laws
- choice of law
- legal tender and currency
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conflict of laws
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employment law
- pensions
Lord Wright:-
The question in this appeal is the amount of pension to which the respondent is entitled on his retirement from the service of the appellants. His claim is that he is entitled to be paid his pension in Turkish gold pounds, by which is meant the current value of the bullion content of the Turkish gold coin (or its equivalent in the currency of Cyprus) at the appropriate rates of exchange. He succeeded in the Courts below, though there were considerable differences of judicial opinion. In the first Court which was the District Court, two Judges were in his favour while the third dissented. In the Supreme Court of Cyprus, there was again a division of opinion, Strong C. J. delivered a judgment in favour of the appellants, while Thomas J. was of the opposite opinion. The Court being equally divided, the judgment of the lower Court stood.
The appellants, now called the Ottoman Bank, previously called the Imperial Ottoman Bank, were established in 1863 by a Turkish Imperial Firman. The head office is at Istanbul, where its affairs are, and have been, administered by a Direction Generale subject to instructions given by a committee which meets both in London and Paris. The appellants have a great many branches. These were before the war mainly in various places in the Ottoman Empire. Many of these branches are now, since the war, in countries, which no longer form part of that Empire. But it also had branches before the war in Greece, Cyprus, Syria and other countries. The respondent entered the service of the appellants in October 1910, as a probationer at Nazli in Turkey, and was placed on the permanent staff in October 1912. There was no written contract of employment, but he signed a declaration that he had taken knowledge of the regulations governing the pension and superannuation fund adopted by the Direction Generale and that he would adhere strictly to those regulations as forming an integral part of the conditions of his engagement. It is clear and is common ground that the contract of employment was governed by Turkish law and that his salary (what is described as his basic salary or his traitement fixe) was in Turkish pounds. He served in different parts of Turkey continuously (except for certain periods in 1916, 1917 and 1918, when he was absent on military service) until about October 1922. He was then for reasons connected with the war compelled to leave Smyrna and go to Athens. About the end of April 1923, he was transferred from Athens to Cyprus where he remained in the appellants' service until 1931 when he retired on the terms that he was entitled to a pension in accordance with the pension regulations at the rate of 48 per cent. of the fixed salary received by him on 31st December 1930. His basic salary as expressed in Turkish money was Ltq. 30 a month and his pension was accordingly Ltq.14.40 per month. The question in the appeal is how that monthly pension is payable. As already stated, the respondent's contention is that he is entitled to be paid a fluctuating sum of money in currency sufficient to purchase the quantity of gold bullion which would have been represented by these Turkish pounds on a gold basis. The pension regulations provide for the right of the employees to a pension on retirement subject to various conditions not here material, and the appellants bind themselves to maintain a pension fund to be fed from time to time by contributions from the employees of 4 per cent. of their fixed salary, together with half of any increments they receive in any year and by monthly contributions from the appellants of 6 per cent. of the salaries. In 1925, during the course of the respondent's service, the 4 per cent. was increased to 5 per cent. and the appellants' contribution was increased to 10 per cent. The articles of the regulations which are essentially material in this case are the following :
"Article 14 which provides that the amount of the pension is fixed on the basis of the salary which t
