The Gazette 1986

GAZETTE

MARCH 1986

Contracts that Contravene Exchange Control by Michael Forde Barrister

•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, 6 it can be crucial to the legal outcome whether the legislature only intended to penal- ise conduct or also to prohibit contracts. 7 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. . . " 9 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,

T 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; 1 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". 2 Provision is also made for the Minister to issue regu- lations regarding exemptions f r om the Act's requirements. 3 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; 4 and in 1965 those powers were delegated to the Central Bank. 5 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. 52