The Gazette 1986

GAZETTE

MARCH 1986

Contracts that Contravene Exchange Control

Michael Forde

Barrister

he purpose of exchange control is to strengthen a

country's currency; and that objective is achieved by

prohibiting the export of currency, regulating major

payments to persons abroad, and obliging residents to

provide information to the authorities about their

holdings of foreign financial assets. In some countries

the exchange control system is much more rigorous than

in others: the system operated by the

Banque de France

is notoriously strict. Britain, by contrast, dismantled its

exchange controls in 1980.

Exchange control in Ireland is governed by the

Exchange Control Act, 1954, as amended. The 1954 Act

sets down obligations concerning restrictions on dealings

in gold and foreign currency, on payments to persons

abroad, on dealings in securities where there is some

foreign element, and on the import and export of

financial assets. "Authorised dealers" are the principal

banks in the country;

and they are permitted by the

1954 Act to engage in most of the forbidden transactions,

subject to such directions as may be given by the Minister

for Finance. Most of the 1954 Act's restrictions can be

waived or relaxed by the Minister; for instance, the pro-

hibition on dealings in gold and in foreign currency

applies "except with the permission of the Minister".

Provision is also made for the Minister to issue regu-

lations regarding exemptions f r om the Act's

requirements.

The grant of any permission under the

Act is declared to be "discretionary". Any or all of the

Minister's powers under the Act may be delegated;

and

in 1965 those powers were delegated to the Central Bank.

The detailed rules governing exchange control in this

country are contained in directives issued by the Central

Bank, which are called Exchange Control Notices, and

which are collected in the Exchange Control Manual

published by the Bank. The various regulations in the

present manual are set out under headings such as deal-

ings in foreign currency; imports, exports, trade financing

and dealings in gold; Irish quoted securities; foreign

currency securities; accounts of non residents, etc. Con-

tracts are frequently entered into that in fact contravene

these regulations. Neither the Act nor the regulations

expressly provide for the civil law consequences of

making and of performing prohibited contracts; there is

no express provision that such contracts are unenforcible,

wholly void, or whatever. Accordingly, legal advisors

are frequently confronted with the question of what is

the precise legal position of such contracts: can the

client enforce them, or recover payment made under

them, or refuse to perform obligations under them, etc?

Since there is no major ruling by the Irish Courts on

these matters, it is useful to examine the somewhat

complex law surrounding contracts that contravene

exchange control. As is shown below, Article 8(2) of the

Bretton Woods Agreement that established the Inter-

national Monetary Fund is central to many disputes in

this area. However, it may well be that exchange control

as it affects the movement of funds between E.E.C.

States contravenes E.E.C. Law.

•at-Law

1. Illegal Contracts

According to Section 20 (1) and (5) of the Exchange

Control Act, 1954,

"Every person who contravenes . . . any provision

of, or any restriction or requirement imposed by or

under, this Act shall be guilty of an offence"; and

"Every person who, being ordinarily resident in the

State, commits, whether within or without the State,

an offence under this section and every person who,

not being ordinarily resident in the State, commits

within the State an offence shall [be punished]."

Thus, breach of exchange control regulations in the

circumstances just described is a criminal offence. Many

of these regulations forbid not merely the performance

of certain acts but also the making of any agreement to

perform such acts. For instance, under Section 5 it is an

offence for a person to "make, or commit himself to

make ," any payment to someone resident abroad

without the Minister's consent. It is important to

ascertain whether the breach of the regulation in question

was entering into a contract or performing or omitting to

do some act because, as was pointed out in the

St. John

Shipping Corp.

case,

it can be crucial to the legal

outcome whether the legislature only intended to penal-

ise conduct or also to prohibit contracts.

Persons

frequently contravene exchange control regulations

without realising that they have done so; and they would

be advised to seek the Central Bank's approval for what

they have done.

Breach of exchange control was the subject of several

recent English cases; but it is of some relevance that,

with the dismantling of exchange control there, the

English judiciary may take a less severe view of earlier

violations than would judges in countries where exchange

control remains pervasive. In

Swiss Bank Corporation

-v-

Lloyds Bank Limited*

Buckley L. J., speaking for a

unanimous Court of Appeal in February, 1980, said;

" an act done in contravention of a statute is not

necessarily a nullity. Whether it is so or not must

depend upon the terms and effect of the statute, and

may depend upon the policy of the statute and the

nature of the act itself . . .

"offences under the [Exchange Control] Act are

clearly

mala prohibita,

not

mala in se:

they are not

acts the validity of which the law refuses to counten-

ance for any purpose. As such they are not devoid of

any effect; they merely expose the culprits to the

penalties prescribed by the Ac t. . . "

Ordinarily, therefore, a Court will refuse to enforce a

contract the making of which is proscribed by exchange

control. For instance, in the leading case,

Boissevain

-v-

Weil

the

defendant was a British subject who had

been involuntarily resident in France during the last

War. She borrowed currency from a Dutch subject who

also resided there, agreeing to repay an equivalent sum

in sterling when the war ended. It was held that this

agreement contravened U.K. exchange control and,