The Gazette 1986

GAZETTE

APRIL 1986

cannot give notice of changes that have occurred since the end of the year, but the volume which is readily available does reduce risks to a large extent. Second, Kerr J. objected, a party could overcome the risk of unforseeability only by insurance, but this would add substantially to the cost of international trade and would hamper it. This consequence is certainly unfortunate. It is heard often in these days of variable exchange rates, but it has not been demon- strated that international trade has been reduced by the necessity faced by parties engaged in it to protect themselves against exchange risks. Furthermore, enterpreneurs have responded to variable exchange rates by developing new instruments for the protect- ion of traders. Thirdly, the broad interpretation would produce such absurdities as encompassing the contracts entered into when one took a taxi, booked a hotel room, or sought the advice of a lawyer. These consequences would be absurdities if exchange controls were operated absurdly. The practice of authorising lump sums for tourists' allowances or for business expenses disposes of this objection, but it is irresponsible to think of the taxi driver reminded of Article 8, Section 2(b) when denied his fare by a passenger. The case would have to be cherished by A. P. Herbert. Fourthly, if the test of an exchange contract is that it affects a country's exchange resources, the conse- quence might be to prevent additions to them and not only reductions. The assumption upon which this objection is based is that additions are always favour- able, but of course they are not. They may have unwanted effects on the money supply or on the exchange rate." 28 It remains to be seen if the Irish courts will adopt the Terruzzi approach to Article 8 (2)(b). The judges in the Terruzzi case were careful not to pronounce on whether contracts relating to stocks, shares, and other securities were exchange contracts. 29 There is some French auth- ority that such contracts are exchange contracts; 30 and some of the reasoning of Lord Denning, M.R. and of Ormsrod L.J. in the Terruzzi case can be invoked in sup- port of this view. They emphasise that the policy of the I.M.F. is to control capital transfers as opposed to current payments for goods and services. Ormrod L.J. speaks of "ordinary international commercial dealings, as opposed to capital transfers", and concludes that exchange contracts are " t o be distinguished from cur- rent international transactions such as contracts for the sale of goods." 31 Are not most contracts to buy and sell shares and the like capital transfers? 32 If our courts opt for the extensive interpretation of exchange contract, it is conceivable that they would place one gloss on Article 8 (2)(b), viz. if the contract contravenes Irish exchange control but the parties are not in pari delicto, then the Article should not stand in the way of giving the innocent party a remedy. Such a gloss is consistent with the Article's objective, which is to ensure that the exchange control rules of one I.M.F. State is rendered effective in other Member States. An exchange contract in disguise was the subject matter of United City Merchants (Investments) Ltd. -v- Royal Bank of Canada An English company sold

Submission of Articles The Editorial Board welcomes the submission of articles for consideration with a view to publication. In general, the most acceptable length of articles for the Gazette is 3,000-4,000 words. However, shorter contri- butions will be welcomed and longer ones may be con- sidered for publication. MSS should be typewritten on one side of the paper only, double spaced with wide margins. Footnotes should be kept to a minimum and numbered consecutively throughout the text with super- script arabic numerals. Cases and statutes should be cited accurately and in the correct format. Contributions should be sent to: Executive Editor, Law Society Gazette, Blackball Place, DUBLIN 7. machinery to a Peruvian company for around $U.S.250,000 and at the same time they agreed to a scheme to double that price so that the Peruvian company could acquire foreign currency, an arrangement that contravened Peruvian exchange control. A letter of credit had been issued in London in connection with the transaction, for nearly $U.S. 800;000. The goods were shipped but the buyer's bank refused to accept the documents regarding them. The bank was then sued on the letter of credit. It was held by the Court of Appeal that the court should always look at the circumstances surrounding such con- tracts to ascertain if they really are exchange contracts in disguise; and that the sales contract here was indeed a disguised exchange contract because its objective and ultimate outcome was to bring about an exchange of soles for dollars. Although the claim was on the letter of credit and not on the contract for sale, the court would not enforce the credit to the extent that the parties sought to evade Peruvian exchange control. However, the court held that the plaintiff was entitled to damages representing the actual value of the rejected goods. In Stepehenson L.J.'s words, "the courts . . . should . . . do their best to prevent breaches of the Bretton Woods Agreement . . . [They] should do their best to promote both international comity and international trade. [In the circumstances], this court could best carry out this double duty in this case by enforcing the part of the sale agreement which does not offend against the law of Peru, and refusing to enforce the part of it which is a disguised monetary transaction by which currencies are to be exchanged in breach of that law". 34 The fact that the action here was on a letter of credit should not detract from the outcome because "once any payment is made by the defendants under the confirmed letter of credit, effect is, to some extent, being given to an exchange contract contrary to the exchange control regulations." 35 The letter of credit cannot be entirely isolated from the underlying transaction. On account of Section 30 of the Bills of Exchange Act, 1982, the outcome might be different if the action was on a

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