The Gazette 1986

GAZETTE

APRIL 1986

Article and not enforce the contract.

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.

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;

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.

Sharif

A zad

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."

Wilson, Smithett and Cope Ltd.

-v-

Terruzzi-

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

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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