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CONTRACTS, ILLEGALITY AND COMITY: RALLI BROS REVISITED

Published online by Cambridge University Press:  30 April 2020

William Day Open the ORCID record for William Day [Opens in a new window]
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Abstract

There has always been considerable uncertainty about the nature and scope of the rule by which contractual performance is excused if illegal in the place of performance, even though performance would not be illegal by the contract's governing law. This article revisits the so-called “Ralli Bros rule” and looks at how the scope of the rule has been developed and its nature misunderstood. It argues that the rule is neither a choice of law rule nor part of the rules discharging a contract for frustration but is instead a public policy rule favouring judicial abstention for reasons of comity. This has implications for how the rule interacts with the choice of law rules for contracts under the Rome Convention and the Rome I Regulation.

Keywords

choice of lawconflict of lawscontractsfrustrationillegalitypublic policy
Type
Articles
Information
The Cambridge Law Journal , Volume 79 , Issue 1 , March 2020 , pp. 64 - 90
Copyright
Copyright © Cambridge Law Journal and Contributors 2020

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Footnotes

*

Barrister, 3 Verulam Buildings, London and Morgan Fellow in Law, Downing College, Cambridge.

I am immensely grateful for comments on previous drafts by Richard Fentiman, Adam Kramer, Louise Merrett and Janet O'Sullivan. All errors are my own.

References

1 Ralli Bros v Compañia Naviera Sota y Aznar [1920] 1 K.B. 614 (KBD) and [1920] 2 K.B. 287 (CA). For ease of reference, the abbreviations Ralli Bros (KBD) and Ralli Bros (CA) are hereafter used.

2 Regulation (EC) No. 593/2008. Hereafter the Rome I Regulation.

3 Cantiere Navale Triestina v Russian Soviet Naphtha Export Agency [1925] 2 K.B. 172 (CA), 208, per Atkin L.J.

4 Sjoerds v Luscombe (1812) 104 E.R. 1065; Barker v Hodgson (1814) 105 E.R. 612.

5 Ford v Cotesworth (1869–70) L.R. 5 Q.B. 544; Cunningham v Ford (1878) 3 C.P.D. 443.

6 Ralli Bros (KBD), 635.

7 Ibid., at p. 635.

8 Ralli Bros (CA), 290–91, per Lord Sterndale M.R.; 293–94, per Warrington L.J.; 299, per Scrutton L.J.

9 Ibid., at pp. 291, per Lord Sterndale M.R.; 295, per Warrington L.J.; 300, per Scrutton L.J.

10 Ibid., at p. 300.

11 Ibid., at p. 291.

12 Ibid., at p. 296, per Warrington L.J.; see also pp. 300–01, 304, per Scrutton L.J.

13 See further Chitty on Contracts, 33rd ed. (London 2018), [23.010]–[23.011].

14 Ralli Bros (CA), 297, per Warrington L.J.; 300, 303, per Scrutton L.J.

15 Chitty on Contracts, 33rd ed., [23.027], [30.284]. Dicey, Morris & Collins on the Conflict of Laws, 15th ed. (London 2012), [32.100].

16 R. v International Trustee for the Protection of Bondholders Aktiengesellschaft [1937] A.C. 500 (CA), 519.

17 Vita Food Products Inc. v Unus Shipping Co. Ltd. [1939] A.C. 277 (PC), 291.

18 Adelaide Electric Supply Co. Ltd. v Prudential Assurance Co. Ltd. [1934] A.C. 122 (HL), 151.

19 F.A. Mann, “Proper Law and Illegality in Private International Law” (1937) 18 B.Y.I.L. 97, at 100.

20 Ibid., at p. 111.

21 Ibid., at pp. 110, 112.

22 Briggs, A., Private International Law in English Courts (Oxford 2014)Google Scholar, [7.251].

23 Cheshire, G.C., Private International Law, 2nd ed. (Oxford 1938), 277–79Google Scholar.

24 Cheshire, G.C., Private International Law, 3rd ed. (Oxford 1947), 348–49Google Scholar. See also Cheshire, C.G., International Contracts (Glasgow 1948), 70–74Google Scholar.

25 Much of which survives to the equivalent chapter in the present edition of Dicey, Morris & Collins, 15th ed.

26 Dicey's Conflict of Laws, 6th ed. (London 1949), 638–39.

27 Ibid., at p. 639, note 83. See also Falconbridge, J.D., Essays on the Conflict of Laws, 2nd ed. (Toronto 1954), 389–94Google Scholar; Rabel, E., The Conflict of Laws: A Comparative Study, vol. II (Chicago 1947), 535–39Google Scholar.

28 Morris, J.H.C., “The Eclipse of the Lex Loci Solutionis: A Fallacy Exploded” (1953) 6 V. and L.Rev. 505Google Scholar, at 509.

29 Ibid, at pp. 531–32.

30 Regazzoni v KC Sethia (1944) Ltd. [1958] A.C. 301 (HL).

31 Ibid., at p. 319.

32 Ibid., at p. 330.

33 Ibid., at p. 323.

34 Contracts (Applicable Law) Act 1990, s. 2(2)(a).

35 Isaphani v Bank Melli Iran [1998] Lloyd's Rep. Banking 113 (CA), 137, per Robert Walker L.J.; Tamil Nadu Electricity Board v ST-CMS Electric Company Private Ltd. [2007] EWHC 1713 (Comm), at [46], per Cooke J.

36 Rome I Regulation, Art. 28.

37 European Commission, “Green Paper on the Conversion of the Rome Convention of 1980 on the Law Applicable to Contractual Obligations into a Community Instrument and Its Modernization” (14 January 2003) COM(2002) 654, at [3.2.11]. UK Ministry of Justice, “Rome I – Should the UK Opt In?’ Consultation Paper” (2 April 2008) CP05/08, at [79]–[81].

38 Haugesund Kommune v Depfa ACS Bank [2010] EWCA Civ 579, [2012] Q.B. 549, at [99]; Dana Gas PJSC v Dana Gas Sukuk Ltd. [2017] EWHC 2928 (Comm), at [79], per Leggatt J. but cf. [2018] EWHC 278 (Comm), at [32], per Leggatt J.

39 Deutsche Bank AG v Unitech Global Ltd. [2013] EWHC 2793 (Comm), [2014] 2 All E.R. (Comm) 268, at [99], per Teare J.

40 Eurobank Ergasias S.A. v Kalliroi Navigation Company Ltd. [2015] EWHC 2377 (Comm), at [36]–[37], per H.H.J. Waksman Q.C. sitting as a Judge of the High Court.

41 Kleinwort, Sons & Co. v Ungarische Baumwolle Industrie AG [1939] 2 K.B. 678 (CA), 696, per Du Parcq L.J.

42 The bills of exchange stated “we hereby undertake to provide you with cover in pounds sterling in London”: ibid., at p. 680.

43 Ibid., at pp. 693–94, per Mackinnon L.J.; see also pp. 699, per du Parcq L.J.; 700, per Atkinson J.

44 Toprak Mahsulleri Ofisi v Finagrain Compagnie Commerciale Agricole et Financière S.A. [1979] 2 Lloyd's Rep. 98 (Comm Ct and CA).

45 Ibid., at p. 105.

46 Ibid., at p. 106, per Goff J; also p. 114, per Lord Denning M.R.

47 Ibid., at p. 106, per Goff J.

48 Libyan Arab Foreign Bank v Bankers Trust Co. [1989] Q.B. 728 (QBD).

49 Ibid., at p. 746.

50 Ibid., at pp. 750, 755, 761–62, 764.

51 Ibid., at p. 762.

52 Isaphani v Bank Melli Iran [1998] Lloyd's Rep. Banking 113 (CA), 137, per Robert Walker L.J.

53 Kleinwort, Sons & Co. v Ungarische Baumwolle Industrie AG [1939] 2 K.B. 678 (CA), 700, per Atkinson J.; see also pp. 694–95, per Mackinnon L.J.; see also Toprak Mahsulleri Ofisi v Finagrain Compagnie Agricole et Financiere S.A. [1979] 2 Lloyd's Rep. 98 (Comm Ct and CA), 105, 107–08, per Goff J.; 114, per Lord Denning M.R.

54 Libyan Arab Foreign Bank v Bankers Trust Co. [1989] Q.B. 728 (QBD) 745.

55 Blackburn Bobbin Co. v Allen & Sons [1918] 2 K.B. 467 (CA), 469.

56 For a recent unsuccessful attempt to expand the rule along these lines, see Deutsche Bank AG v. Unitech Global Ltd. [2013] EWHC 2793 (Comm), at [99]–[117], per Teare J.; [2016] EWCA Civ 119, [2016] 1 W.L.R. 3598, at [33]–[38].

57 Kahler v Midland Bank Ltd [1950] A.C. 24 (HL), 48.

58 Jacobs v Crédit Lyonnais (1884) 12 Q.B.D. 589 (CA) as explained in Ralli Bros (CA), pp. 292, per Lord Sterndale M.R.; 297, per Warrington L.J.; 301, per Scrutton L.J.

59 Steamship “Induna” Co. Ltd. v British Phosphate Commissioners [1949] 2 K.B. 430 (KBD), 438, per Sellers J.

60 Emeraldian Limited Partnership v Wellmix Shipping Ltd. [2010] EWHC 1411 (Comm), [2010] 1 C.L.C. 993.

61 Ibid., at [179].

62 Lemenda Trading Co. Ltd. v African Middle East Petroleum Co. Ltd. [1988] Q.B. 448 (QB).

63 The Rome I Regulation, Art. 9(2).

64 Cantiere Navale Triestina v Russian Soviet Naphtha Export Agency [1925] 2 K.B. 172 (CA).

65 Ibid., at pp. 209–10, per Atkin L.J.; 213, per Sargant L.J.

66 Compania Crystal de Vapores of Panama v Herman & Mohatta (India) Ltd. [1958] 2 Q.B. 196 (QBD).

67 See e.g. Zivnostenska Banka National Corporation v Frankman [1950] A.C. 57 (HL); Libyan Arab Foreign Bank v Bankers Trust Co. [1989] Q.B. 728 (QBD).

68 The Super Servant Two [1990] 1 Lloyd's Rep. 1 (CA), 8, 10, per Bingham L.J.

69 Canary Wharf (BP4) T1 Ltd. v European Medicines Agency [2019] EWHC 335 (Ch), at [206], per Marcus Smith J.

70 See further Benjamin's Sale of Goods, 10th ed. (London 2017), [18.371]–[18.382].

71 The Playa Larga and Marble Islands [1983] 2 Lloyd's Rep. 171 (CA).

72 Ibid., at p. 192.

73 Ibid., at p. 192.

74 Canary Wharf (BP4) T1 Ltd. v European Medicines Agency [2019] EWHC 335 (Ch), albeit not a Ralli Bros case since there was no illegality in the place of performance.

75 Regulation No. (EU) 2018/1718. See further W. Day, “Isn't Brexit Frustrating?” (2019) 78 C.L.J. 270.

76 Canary Wharf (BP4) T1 Ltd. v European Medicines Agency [2019] EWHC 335 (Ch), at [201]–[207].

77 Treaty on the European Union, Art. 64 and Regulation (EC) 726/2004, Art. 71.

78 In many cases, it is impossible to categorise cleanly the case as being one of subsisting or supervening illegality: a typical scenario is where there is a pre-existing law that performance is illegal unless a waiver is obtained and the obligor then fails to obtain the waiver: see further Benjamin's Sale of Goods, 10th ed., [18.388].

79 Foster v Driscoll [1929] 1 K.B. 470 (CA).

80 The dissenting judge was Scrutton L.J., who had also been on the bench for Ralli Bros itself. However, his dissent was based on the application of the law to the facts, not on the law itself: ibid., at pp. 497–98.

81 Foster v Driscoll [1929] 1 K.B. 470 (CA), 501–02.

82 Ibid, at p. 510.

83 Ibid, at p. 513.

84 Ibid, at p. 512; see also p. 514.

85 Ibid, at pp. 518, 520.

86 Ibid, at p. 496.

87 Ibid, at p. 514.

88 Ibid, at p. 521.

89 Regazzoni v KC Sethia (1944) Ltd. [1958] A.C. 301 (HL).

90 Ibid., at pp. 305–06, 307, 308, 314, 315, records the relevant parts of the argument.

91 Ibid., at pp. 324, per Lord Reid; 330, per Lord Somervell. This appears to have been an implied term: see p. 322, per Viscount Simonds.

92 Ibid., at pp. 322–23.

93 Ibid., at pp. 324–25.

94 Ibid., at pp. 326–31.

95 Ibid., at p. 326.

96 See e.g. Chitty on Contracts, 33rd ed., [16.059]–[16.060], [23.027], but cf. [30.289]; Dicey, Morris & Collins on the Conflict of Laws, 15th ed., [32.094]–[32.102], [32.191]–[32.193].

97 Toprak Mahsulleri Ofisi v Finagrain Compagnie Agricole et Financiere S.A. [1979] 2 Lloyd's Rep. 98 (Comm Ct and CA), 106–07.

98 Lemenda Trading Co. Ltd. v African Middle East Petroleum Co. Ltd. [1988] Q.B. 448 (QBD), 454, per Phillips J.

99 Libyan Arab Foreign Bank v Bankers Trust Co. [1989] Q.B. 728 (QBD), 745, per Staughton J.

100 Isaphani v Bank Melli Iran [1998] Lloyd's Rep. Banking 113 (CA).

101 Ibid., at pp. 139–40.

102 Adelaide Electric Supply Co. Ltd. v Prudential Assurance Co. Ltd. [1937] A.C. 500 (HL), 519, per Lord Wright; Zivnostenska Banka National Corporation v Frankman [1950] A.C. 57 (HL), 79, per Lord Reid; Mackender v Feldia AG [1967] 2 Q.B. 590 (CA), 601, per Diplock L.J.

103 Royal Boskalis Westminster NV v Mountain [1999] Q.B. 674 (CA).

104 See Phillips L.J.'s dissent: ibid., at p. 735.

105 Ibid., at p. 692.

106 Ibid., at p. 703.

107 See e.g. Chitty on Contracts, 33rd ed., [16.060], [30.284]; Dicey, Morris & Collins on the Conflict of Laws, 15th ed., [32.099]–[32.102]; F. Reynolds, “Illegality by the lex loci solutionis” (1992) 108 L.Q.R. 553, at 555.

108 Royal Boskalis Westminster NV v Mountain [1999] Q.B. 674 (CA), 734, per Phillips L.J.

109 Chitty on Contracts, 33rd ed., [23.010], [23.017]; see also Day, “Isn't Brexit Frustrating?”, pp. 271–72.

110 The Super Servant Two [1990] 1 Lloyd's Rep. 1 (CA), 8, per Bingham L.J.

111 A. Chong, “The Public Policy and Mandatory Rules of Third Countries in International Contracts” (2006) 2 J.P.I.L. 27, at 40.

112 Cf. A. Dickinson, “Third-Country Mandatory Rules in the Law Applicable to Contractual Obligations: So Long, Farewell, Auf Wiedersehen, Adieu?” (2007) 3 J.P.I.L. 53, at 82.

113 G. Treitel, Frustration and Force Majeure, 3rd ed. (London 2014), [8.002].

114 Hall v Hebert [1993] 2 SCR 159, 170–80, per McLachlin J. Integrity of the legal system was the policy upon which significant weight was put by all of the Supreme Court Justices in what is now the leading case, Patel v Mirza [2016] UKSC 42, [2017] A.C. 467.

115 Law Commission, The Illegality Defence: A Consultative Report (CP No. 189, 2009), [2.6]–[2.12].

116 Ibid., at [2.19]–[2.23].

117 See e.g. Ralli Bros (CA), 300, per Scrutton L.J.; Foster v Driscoll [1929] 1 K.B. 470 (CA), 510, per Lawrence L.J.; 519, per Sankey L.J.; 496, per Scrutton L.J.; R. v International Trustee for the Protection of Bondholders Aktiengesellschaft [1937] A.C. 500 (CA), 519, per Lord Wright M.R.; Regazzoni v KC Sethia (1944) Ltd. [1958] A.C. 301 (HL), 319, per Viscount Simonds; 323, per Lord Reid; 327, per Lord Keith; 330, per Lord Somervell; Toprak Mahsulleri Ofisi v Finagrain Compagnie Agricole et Financiere S.A. [1979] 2 Lloyd's Rep. 98 (Comm Ct and CA), 107, per Goff J.; Royal Boskalis Westminster NV v Mountain [1997] C.L.C. 816 (CA), 866, per Phillips L.J.; Society of Lloyd's v Fraser [1998] C.L.C. 1630 (CA), 1653, per Hobhouse L.J.; Isaphani v Bank Melli Iran [1998] Lloyd's Rep. Banking 113 (CA), 140, per Robert Walker L.J.

118 See e.g. P. Torremans et al., Cheshire, North & Fawcett: Private International Law, 15th ed. (Oxford 2017), 4.

119 Dicey, A.V., A Digest of the Law of England with reference to The Conflict of Laws, 1st ed. (London 1896), 10Google Scholar; cf. Collins, L., “Comity in Modern Private International Law” in Fawcett, J. (ed.), Reform and Development of Private International Law: Essays in Honour of Sir Peter North (Oxford 2002)Google Scholar; Fentiman, R., International Commercial Litigation, 2nd ed. (Oxford 2015)Google Scholar, [1.52]–[1.61].

120 U. Huber, “De Conflictu Legum Diversrum in Diversis Imperiis”, trans. Lorenzen, E.G., “Huber's De Conflictu Legum” (1919) 13 Illinois L.Rev. 199Google Scholar, at 227.

121 Hilton v Guyot (1895) 159 US 113, 163–64, per Gray A.J.

122 Cf. Briggs, A., “The Principle of Comity in Private International Law” (2012) 354 Recueil des Cours 87–93Google Scholar.

123 Airbus Industrie GIE v Patel [1999] 1 A.C. 119 (HL), 132–33, per Lord Goff.

124 The Abidin Daver [1984] AC 398 (HL), 411–12, per Lord Diplock. The position is different under the Brussels Recast Regulation (EU) 1215/2012.

125 Briggs, “The Principle of Comity”, pp. 149–50; Briggs, A., “Recognition of Foreign Judgment: A Matter of Obligation” (2013) 129 L.Q.R. 87, at 91–92Google Scholar.

126 See e.g. Airbus Industrie GIE [1999] 1 A.C. 119 (HL), 138–40, per Lord Goff; Deutsche Bank AG v Highland Crusader Offshore Partners LP [2009] EWCA Civ 725, [2010] 1 W.L.R. 1023, at [50], per Toulson L.J.; Star Reefers Pool Inc. v JFC Group Co. Ltd. [2012] EWCA Civ 14, [2012] 1 C.L.C. 294, at [2], [40], per Rix L.J.

127 Luther v Sagor [1920] 3 K.B. 532 (CA); see also Paley Olga v Weisz [1929] 1 K.B. 718 (CA); Iran v Barakat Galleries Ltd. [2007] EWCA Civ 1374, [2009] Q.B. 22.

128 In addition to a claim for a declaration as to title and an injunctive relief.

129 Luther v Sagor [1920] 3 K.B. 532 (CA), 548.

130 Ibid., at p. 555; see also p. 556.

131 As with damages as a substitute for title in a claim for conversion in a case such as Luther v Sagor [1920] 3 K.B. 532 (CA).

132 Mann, “Proper Law and Illegality”, p. 97; Falconbridge, Essays on the Conflict of Laws, p. 392.

133 Cheshire, International Contracts, pp. 7–44.

134 Morris, “The Eclipse of the Lex Loci Solutionis”, pp. 511–31; see also Mann, “Proper Law and Illegality”, p. 107.

135 Cheshire, International Contracts, p. 73.

136 Cantiere Navale Triestina v Russian Soviet Naphtha Export Agency [1925] 2 K.B. 172 (CA), 208, per Atkin L.J.

137 Hirji Mulji v Cheong Yue Steamship Co. Ltd. [1926] A.C. 497 (PC); cf. Chitty on Contracts, 33rd ed., [23.066]–[23.069].

138 Cheshire, International Contracts, p. 72.

139 Dicey's Conflict of Laws, 6th ed., pp. 638–39.

140 Mann, “Proper Law and Illegality”, 112.

141 Law Reform (Frustrated Contracts) Act 1943, s. 1(1).

142 Libyan Arab Foreign Bank v Bankers Trust Co. [1989] Q.B. 728 (QBD), 772.

143 Davis Contractors v Fareham Urban DC [1956] AC 696 (HL), 720–21, per Lord Reid; 729, per Lord Radcliffe.

144 Ibid., at p. 729, per Lord Radcliffe.

145 Canary Wharf (BP4) T1 Ltd. v European Medicines Agency [2019] EWHC 335 (Ch), at [189], quoting Goldman Sachs International v Novo Banco S.A. [2018] UKSC 34, [2018] 1 W.L.R. 3683, at [12], per Lord Sumption.

146 Foster v Driscoll [1929] 1 K.B. 470 (CA), 500, per Lawrence L.J.

147 Royal Boskalis Westminster NV v Mountain [1999] Q.B. 674 (CA).

148 Judgment of 17 October 2013, United Antwerp Maritime Agencies (Unamar) NV v Navigation Maritime Bulgare, C-184/12, EU:C:2013:663, at [47].

149 M. Giuliano and P. Lagarde, “Report on the Convention on the Law Applicable to Contractual Obligations” [1980] OJC 281/1.

150 Unfair Contract Terms Act 1977, s. 27; Consumer Rights Act 2015, ss. 32, 74.

151 Employment Rights Act 1996, s. 204(1).

152 Financial Services and Markets Act 2000, s. 30.

153 Carriage by Air Act 1961, s. 1(1); Carriage of Goods by Road Act 1965, s. 1; Carriage of Goods by Sea Act 1971, s. 1(2); Merchant Shipping Act 1995, s. 183(1).

154 C-184/12, United Antwerp Maritime Agencies (Unamar) NV.

155 Dicey, Morris & Collins, 15th ed., [32.086].

156 Art. 16 of the Rome Convention has insubstantial differences in the wording.

157 Dicey, Morris & Collins, 15th ed., [32.185].

158 Defined in Art. 9(1).

159 Opinion of 20 April 2016, Greece v Nikiforidis, C-135/15, EU:C:2016:281, [2016] ILPr 39, [AG72]–[AG73].

160 McParland, M., The Rome I Regulation on the Law Applicable to Contractual Obligations (Oxford 2015)Google Scholar, [15.95]; Hellner, M., “Third Country Overriding Mandatory Rules in the Rome I Regulation: Old Wine in New Bottles” (2009) 5(3) J.P.I.L. 447Google Scholar. In Judgment of 18 October 2016, Greece v Nikiforidis, C-135/15, EU:C:2016:774, [2016] ILPr 39, at [43]–[46], the European Court of Justice said that Art. 9(3) “must be interpreted strictly”, but the context in which this was said suggests that this should be understood to mean “restrictively”.

161 McParland, The Rome I Regulation, [15.115].