The well-established Ralli Bros principle is an exception to the general rule that the enforceability of a contract governed by English law is determined without reference to illegality under foreign law. Under this principle, a contract shall not be enforced if the performance of it is unlawful in the place of performance. In the recent judgment ofLitasco SA v Banque El Amana SA, the High Court of England clarified that 'unlawful' does not cover breaches of foreign court orders.
In the Litasco case, the Defendant issued a standby letter of credit as security for certain loan agreements. The Claimant claimed against the Defendant under the standby letter of credit, and applied for summary judgment, based on the Defendant's failure to pay.
The Defendant's case was that, in the two sets of relevant legal proceedings in Mauritania, the courts made orders prohibiting the Defendant under Mauritanian law from paying the sum due under the standby letter of credit. For this reason, the Defendant argued that it had a real prospect of success in defending the claim by relying on the Ralli Bros principle, hence summary judgment should not be granted.
Upon considering the authorities, the High Court of England refused to extend the Ralli Bros principle to acts unlawful by reason of breaches of foreign court orders, as opposed to acts unlawful by reason of legislation of the foreign jurisdiction in which acts of performance are supposed to be done. The High Court therefore ruled that the Defendant had no real prospect of success on this defence, especially as the payment fell due at least two years before the Mauritanian court orders were made.
Harneys does not advise on the law of England and Wales, but this judgment will be of interest to other common law jurisdictions such as the BVI, Cayman and Bermuda. For example, in the BVI High Court, the Ralli Bros principle was relied upon by the parties in Credorax Inc v Israeli VC Partners LP.
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