The Gazette 1986

GAZETTE

APRIL 1986

Article and not enforce the contract. 14 Speaking broadly, what Article 8 (2)(b) requires is that any contract involving the currency of any I.M.F. Member State that contravenes that State's exchange control regulations will not be enforced in the courts of any l.M.F. Member State, including the Irish courts. Thus, any agreement involving, say, French francs, that contravenes French exchange control will not be enforced by any Irish court. A considerable corpus of case law and literature exists on the meaning of this Article. 20 Courts in different countries are not entirely at one about the Article's precise scope, and notably about what is an "exchange contract". Provision is made in the Bretton Woods Agreement for the Fund itself to give interpre- tations of that Agreement's provisions; 21 but the Fund has not pronounced on Article 8 (2)(b). There are three reported English Court of Appeal decisions on the Bretton Woods clause; and it remains to be seen whether or not the Irish courts will follow the British interpretations of the clause. Because of the close financial and legal links between Ireland and Britain, there is much to be said for following British interpretations, and especially where the contract in question is governed by English or Scots law. Neverthe- less, the clause is part of an International Treaty, and the Belgian, French, German, Italian, U.S., etc., view of its true meaning is as relevant as how it is seen by the British courts. 22 In Sharif A zad 2 - both the plaintiff and the defend- ant were Pakistani nationals who lived in England. A friend was coming from Pakistan to visit the plaintiff; and the defendant was a travel agent and used to deal in Pakistani currency. The plaintiff agreed with the def- endant to accommodate the friend by paying him £300 in exchange for the friend's cheque of 6,000 rupees drawn on a Pakistani bank with the payee's name left blank. This a r r angement contravened Pakistani exchange control. The 6,000 rupee cheque was eventually paid, although into a blocked account in Pakistan. But the defendant's £300 cheque was dishonoured. In an action on the cheque, it was contended that the agree- ment to pay £300 could not be enforced because of Article 8 (2)(b). It was held that the entire arrangement "was a flagrant breach o f " Pakistani exchange control; it involved U.K. and Pakistani currency; and there was an "exchange contract". According to Lord Denning, M.R.: "The words 'exchange contracts' are not defined, but I think they mean any contracts which in any way affect the country's exchange resources. The con- tracts with which we are concerned here are all clearly exchange contracts. They affect the exchange res- ources of Pakistan and England. If they offend against the currency regulations of Pakistan or Eng- land, they are unenforceable." 24 Wilson, Smithett and Cope Ltd. -v- Terruzzi- 16 involved a large sum of money and was the subject of extensive legal argument about what is an "exchange contract". The plaintiffs were members of the London Metal Exchange (L.M.E.) and carried on business as dealers and brokers in metals. Terruzzi, the defendant, was a dealer in metals who resided in Italy. The parties entered into a series of contracts, including those which were the subject of the action, and which provided for the delivery 54

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of specified volumes of copper and zinc three months after the date of each contract. All dealings were in sterling. Under the contracts, Terruzzi was a " b e a r" selling specified amounts of metal for future delivery to the plaintiffs, in the expectation that the price would fall before delivery. He was not selling metals that he owned, but was intending to gain a profit by receiving from the plaintiffs the difference after 3 months between the higher price at which he purported to sell to them and the lower price at which he was entitled to buy from the plaintiffs before the delivery date the amounts to be delivered. The plaintiffs were bound by their contracts in the L.M.E. form under English Law to buy and sell metals, even though Terruzzi was speculating. Contrary to his expectations, prices rose substantially before the delivery date. The plaintiff demanded "ma r g i n" in accordance with the contracts, but Terruzzi refused to pay anything. The plaintiffs, exercising contractual rights, closed out the contracts and sold the metals back to Terruzzi. As a result, Terruzzi owed the plaintiff a substantial amount in sterling, for which they sued. Ter- ruzzi defended on the grounds that, because the con- tracts were "exchange contracts" and contrary to the exchange control regulations in Italy, the contracts were unenforcible under the provisions of English Law that give legal effect to Article 8 (2)(b) in England. Upholding Kerr J.'s judgment, a unanimous Court of Appeal ruled that the agreements were not "exchange contracts" and, therefore, even though they contravened Italian exchange control, they were not rendered unenforceable by Article 8 (2)(b). Because it was "logical