[QUEEN'S BENCH DIVISION AND COURT OF APPEAL]

REGAZZONI v. K. C. SETHIA (1944) LTD.

[1954 R. No. 1639.]

Contract - Illegality - Foreign prohibition - Contract for sale of jute bags c.i.f. European port - Intention that contract goods be shipped from India for resale to South Africa - Prohibition by Indian Government of export of goods to South Africa - Recognition of prohibition by English courts - Such recognition not enforcement of foreign penal, revenue or political law - Contract not enforceable in English courts.

Conflict of Laws - Confiscatory or political legislation.

In September, 1948, the defendants agreed to sell and deliver to the plaintiff a large quantity of jute bags, September/October shipment, c.i.f. Genoa at 248 shillings per 100. At that time India was the largest and cheapest producer of jute bags and South Africa a large consuming country, but, by way of political protest and on account of a dispute which had arisen between India and South Africa about the treatment of Indian nationals in South Africa, the Indian Government had, by regulations made under powers conferred by the Sea Customs Act, 1878, prohibited the export of goods to South Africa direct and sought to avoid indirect shipments, infringement of the regulations making the goods liable to confiscation and the shipper, or person held responsible, to a penalty. Consequently, South Africa was restricted in its purchases of jute bags and was prepared to pay high prices for any made available. Both the plaintiff and the defendants were well aware of the prohibition and that it would be unlawful for a shipper to export either directly or indirectly to South Africa, but they sought to take advantage of the situation, and both parties contemplated and intended that the contract goods would be shipped from India and made available in Genoa for resale to the South African buying agency. In an action by the plaintiff claiming damages for non-delivery of the jute bags, Sellers J. gave judgment for the defendants. On appeal:-

Held, by the Court of Appeal, affirming the decision of Sellers J., that while the English courts will not enforce foreign revenue or penal laws, they will not entertain an action based on a transaction which is knowingly intended to involve a breach of such laws; accordingly, the appeal must fail even if the same rules applied to political as to revenue laws and this was such a law.

Foster v. Driscoll [1929] 1 K.B. 470; 45 T.L.R. 185 applied; Holman v. Johnson (1775) 1 Cowp. 341 distinguished, and dictum of Lord Mansfield C.J. at p. 343 disapproved.

Observations on the meaning of "political" laws.

Per Denning L.J. These courts will not enforce revenue or penal laws at the instance of a foreign country. It is quite another matter to say that we will take no notice of them. It seems to me that we should take notice of the laws of a friendly country, even

if they are revenue laws or penal laws or political laws ... at least to this extent, that if two people knowingly agree together to break the laws of a friendly country or to procure someone else to break them or to assist in the doing of it, then they cannot ask this court to give its aid to the enforcement of their agreement.

Per Birkett L.J. I am satisfied that none of the principles which apply to revenue, penal or confiscatory law apply in this case.

Per Parker L.J. Whether it can be classed as a penal, revenue or political law or not, this is not a case in which such a law is sought to be enforced either directly or indirectly. What is being done here is to ascertain whether the performance of the contract involves the breach of the law of a foreign and friendly State; and provided that the law does not offend on some ground as being contrary to public policy, such as laws concerning slavery or the like, I can see no reason in principle why the result should depend upon the nature of the law itself.

Decision of Sellers J. affirmed.

ACTION.

In September, 1948, the defendants, K. C. Sethia (1944) Ltd., agreed to sell and deliver to the plaintiff, Polisseno Regazzoni, 500,000 new B. twills (a recognized description for jute bags of standard quality) at 248 shillings per 100 B. twills, September/October shipment c.i.f. Genoa, payment to be made against shipping documents guaranteed by a Swiss banking firm. The agreement was reached through the agency of one T. Raydt, of Hamburg, on behalf of the defendants, and one Weil, of Basle, on behalf of the plaintiff. At the time of the making of the contract and at all material times India was the largest and cheapest producer of jute bags. South Africa, for the purpose of bagging the country's grain crops, was a large consuming country, and the South African Government had its own buying agency; but the Indian authorities, by way of political protest, did not allow the export of jute bags to South Africa direct, and sought to avoid indirect shipments; consequently South Africa was greatly restricted in its purchases of such bags and was prepared to pay high prices for, and to buy practically unlimited quantities of, any bags made available. Prior to the contract, before August, 1947 (when India became independent) a meeting took place in Zurich between B. L. Sethia, a director of the defendant company, and the respective agents of the plaintiff and the defendants; the meeting was for the purpose of finding a way to take advantage of the situation, and the defendants offered to supply jute bags c.i.f. a European port, but their director did not wish to know "officially" that the consignment would be directed to South Africa, and neither side wished to

invoke any unnecessary publicity or to have regard for any customary trading terms. Both parties to the contract, however, contemplated and intended that the contract goods would be shipped from India and be made available in Genoa so that the plaintiff might make a resale or fulfil a bargain of sale to the South African buying agency.

On September 7 the defendants informed the plaintiff that the B. twills must be delivered on German quota c.i.f. Hamburg, but the plaintiff insisted on shipment being made to Genoa and, in the result, the goods were not delivered.

The plaintiff, after unsuccessfully bringing proceedings in Germany against Raydt, sued the defendants for damages for non-delivery of the twills. The defendants denied liability; they contended, inter alia, that there was no complete or concluded contract, and, alternatively, that the contract, if any, was to the plaintiff's knowledge an illegal contract and/or was void and unenforceable in that it had for its purpose an object which was illegal and/or contrary to public policy, namely, the taking and shipment of jute goods from India when the ultimate destination was the Union of South Africa, in breach of regulations 2 (c) (6) 46 (1) and (2), made by the Government of India and the Indian Sea Customs Act, 1878.¹ They also contended

1 Sea Customs Act, 1878 (Act No. VIII of 1878), s. 19: "Power to prohibit or restrict importation or exportation of goods. The [Central Government] may from time to time, by notification in the [Official Gazette], prohibit or restrict the bringing or taking by sea or by land goods of any specified description into or out of British India. ..."

S. 134: "Power to prohibit transhipment. The [Central Government] may from time to time, by notification in the [Official Gazette], prohibit at ... all ports, the transhipment of any specified class of goods, generally or when destined for any specified ports. ..."

Reg. No. 2C (6)/46, dated July 17, 1946: "(1) In exercise of the powers conferred by section 19 of the Sea Customs Act, 1878 ... the Central Government is pleased - ... (b) to prohibit the taking by sea or by land out of British India of goods from whatever place arriving which are destined for any port or place in the Union of South Africa or in respect of which the Chief Customs Officer is satisfied that the goods although destined for a port or place outside the Union of South Africa are intended to be taken to the Union of South Africa. ..."

"(2) In exercise of the powers conferred by section 134 of the Sea Customs Act, 1878, the Central Government is pleased - (a) to prohibit the transhipment at any port in British India of goods when destined for any port in the Union of South Africa, and (b) to prohibit the transhipment at any port in British India of goods when destined for any port other than a port in the Union of South Africa, save with the permission of the Chief Customs Officer who shall not grant such permission unless he is satisfied that it is not intended that such goods shall be taken to the Union of South Africa."

before Sellers J. that since the plaintiff knew that they were the principals and that T. Raydt was their agent, he had, by his action in the German Civil Court, elected to pursue such remedies as he might have under the contract against T. Raydt and had thereby lost any right to maintain the present action. It was agreed that the proper law of the contract was English law.

Neil Lawson Q.C. and E. J. Cohn for the plaintiff. Assuming that the Indian law was considered a prohibition of export, the prohibition does not affect the rights of the parties under this contract because it has no extraterritorial effect and neither of the contracting parties were subject to Indian law. The court is entitled to see how Indian courts would regard the position; if performance had involved illegally under Indian law, and that had been the proper law of the contract, section 56 of the Indian Contract Act, 1872 (No. IX of 1872), would have given a right to damages; if the Indian law gives a remedy, the English courts can do no less.

In any case, performance of the contract would not of necessity have involved either party in a breach of Indian law: compare Central India Mining Co. Ltd. v. SociŽtŽ Coloniale Anversoisse² and Hindley & Co. Ltd. v. General Fibre Co. Ltd.³

The Indian prohibition on the export of jute to South Africa is a law of a political character such as the courts of this country will disregard; it is a discriminating law, directed by one member of the Commonwealth against another, restricting trade in the Commonwealth, and it would be contrary to public policy for an English court to enforce it. Furthermore, it is penal or confiscatory and as such is Unenforceable: see Le Couturier v. Reg⁴ and Dicey's Conflict of Laws, 6th ed. (1949), p. 152, rule 22.

A. A. Mocatta Q.C., Richard Vick and Peter Kenworthy Browne for the defendants. The object of the contract was to effect the export of jute from India to South Africa; it therefore involved a breach of the Indian prohibition and is unenforceable by English law: Foster v. Driscoll,⁵ Ralli Brothers v. Compania Naviera Sota y Aznar⁶ and Kleinwort, Sons &; Co. v. Ungarische Baumwolle Industrie Aktiengesellschaft.⁷ All the parties knew that the goods would come from Calcutta; it would be unreal to assume that they would be otherwise obtained, and the court

2 [1920] 1 K.B. 753.

3 [1940] 2 K.B. 517.

4 [1910] A.C. 262; 26 T.L.R. 368.

5 [1929] 1 K.B. 470; 45 T.L.R. 185.

6 [1920] 2 K.B. 287; 36 T.L.R. 456 (sub nom. Sota y Aznar v. Ralli Brothers).

7 [1939] 2 K.B. 678; 55 T.L.R. 814; [1939] 3 All E.R. 38.

must have regard to the realities of the situation: see per Lord Porter in Partabmull Rameshwar v. K. C. Sethia (1944) Ltd.⁸

It is a novel proposition that the prohibition is not enforceable in the English courts because Indian law gives a right to damages, but in any event section 56 of the Indian Contract Act, 1872, does not apply, for that section only applies where "the promisee did not know" of the illegality; in this case both parties did know and sought to take advantage of the situation.

The nature of the Indian law is not such that the English courts will disregard it. It is not a revenue law, for it will not raise revenue unless infringed. Nor is it a confiscatory law; such laws, in this context, arise in totally different circumstances. The adjective "political" does not assist the plaintiff. [Reference was also made to Government of India, Ministry of Finance (Revenue Division) v. Taylor⁹ and to Cheshire's Private International Law, 4th ed. (1952), p. 142.] There is no authority for the non-enforcement of a political law other than in cases concerning status or confiscation. Although considerations of public policy are relevant, it is doubtful whether the political character of a foreign law has ever formed the basis of the principles underlying non-enforcement on the ground of public policy: see the remarks of Scrutton L.J. in Ralli Brothers v. Compania Naviera Sota y Aznar.¹⁰ It is difficult to determine what rules of public policy will displace a foreign law, but it would certainly be contrary to public policy to enforce a contract intended to violate the law of a friendly power. In Cheshire on Private International Law, 4th ed. (1952), p. 225, the proposition that a contract illegal by the lex loci solutionis but not by the proper law is unenforceable in England is queried, and see the observations of Warrington L.J. in Ralli Brothers v. Compania Naviera Sota y Aznar¹¹ and also the judgment of Lord Wright in Rex v. International Trustee for the Protection of Bondholders Aktiengesellschaft.¹²

Neil Lawson Q.C. in reply. Whether or not the Indian prohibition has characteristics which are contrary to public policy, it is unenforceable on other grounds, namely, that under the Indian Sea Customs Act, 1878, it is penal in its consequences and, in that it exposes goods to the risk of confiscation, it is confiscatory: compare Frankfurther v. W. L. Exner Ltd.,¹³ where

8 [1951] 2 Lloyd's Rep. 89, 96.

9 [1955] A.C. 491; [1955] 1 All E.R. 292.

10 [1920] 2 K.B. 287, 304.

11 Ibid. 297.

12 [1937] A.C. 500, 519.

13 [1947] Ch. 629.

a foreign confiscatory decree, although not strictly penal, was regarded in this country in the same way as a foreign penal law.

The courts are reluctant to find illegality and the contract itself must be looked at to see whether illegality is in fact involved. The contract in this case is not necessarily illegal by Indian law; although both parties contemplated that the goods should originate in India, the contract itself does not require that they should be of Indian origin or that shipment should be from an Indian port, nor is there anything requiring re-shipment to South Africa. The remarks of Lord Porter in Partabmull Rameshwar v. K. C. Sethia (1944) Ltd.¹⁴ do not apply to this case; there the goods were clearly to be of Indian or Pakistan origin. Where a contract is silent as to the origin of the goods and their place of shipment the court cannot read into it a condition that they shall come from or be shipped in a particular place: In re Anglo-Russian Merchant Traders Ltd. and John Batt & Co. (London) Ltd.¹⁵; Twentsche Overseas Trading Co. Ltd. v. Uganda Sugar Factory Ltd.¹⁶

The English courts will not compel a party obliged to pay to break the law of the place of payment, but neither will they excuse a party who can legally pay according to the law of the place of performance merely because payment would break a foreign law to which such party is subject. There was no illegality in this contract so far as the law of the place of performance was concerned. In Ralli Brothers v. Compania Naviera Sota y Aznar¹⁷ the place of payment was Spain; that case was followed in De BeŽche v. South American Stores Ltd. and Chilean Stores Ltd.,¹⁸ but compare Kleinwort, Sons & Co. v. Ungarische Baumwolle Industrie Aktiengesellschaft,¹⁹ where the place of payment was England. Foster v. Driscoll²⁰ was a totally different type of case; there there was a "highwaymen's" partnership and an illegal venture. Scrutton L.J. dissented²¹; Lawrence L.J.²² dealt with the case on the basis that it was a partnership for an illegal purpose; Sankey L.J.²³ distinguished cases of the sale of goods where there was a flavour of illegality but where the contract was nevertheless valid, because (1) the American law was intended to prevent a malum in se rather than a malum

14 [1951] 2 Lloyd's Rep. 89, 96.

15 [1917] 2 K.B. 679.

16 (1944) 172 L.T. 163; [1945] W.N. 11.

17 [1920] 2 K.B. 287.

18 [1935] A.C. 148; 51 T.L.R. 189.

19 [1939] 2 K.B. 678.

20 [1929] 1 K.B. 470.

21 Ibid. 484.

22 Ibid. 500.

23 Ibid. 514, 518, 519.

prohibitum, and (2) all the parties concerned took an active part in the venture.

December 19. SELLERS J. read the following judgment, in which he stated the facts as set out above, referred to the Soponata case,¹ found that the contract sued on was sufficiently established, held that the plaintiff was a proper party to the contract, and continued: I do not find anything in the unsuccessful German proceedings which has precluded the plaintiff from suing the defendants. He had not abandoned his right to sue the principal. He had obtained no judgment, credit or benefit. He had before this action merely sued the Wrong person and not the party with whom he had in fact contracted.

The final defence raised at the trial was that the contract sued on was invalid and unenforceable by the proper law of the contract (which it was agreed was English law) as its performance invoked a breach of Indian law. Before considering the position in law it is desirable to ascertain from the evidence what prohibitions and restrictions were in force in India at the material time, the contract calling for shipment September/October, 1948.

The evidence of the Indian law was given by Mr. Joseph Nissim, a member of the English Bar who had held judicial and legal appointments in India and had been legal adviser to the Government of Bombay and to the Government of India. On account of a dispute which had arisen between India and South Africa about the treatment of Indians in South Africa, the India Government exercised powers under their Sen Customs Act, 1878, which enabled the Government, by notice in the Official Gazette, to prohibit or restrict the import or export by sea or land of goods of any specified description.

In exercise of those powers a regulation, 2C (6)/46 (1), dated July 17, 1946, prohibited "the taking by sea or by land out of British India of goods from whatever place arriving which are destined for any port or place in the Union of South Africa or in respect of which the Chief Customs Officer is satisfied that the goods, although destined for a port or place outside the Union of South Africa, are intended to be taken to the Union of South Africa."

Under the provisions of the Sea Customs Act, 1878, an infringement of the regulation would make the goods liable to

1 Sociedade Portuguesa de Navios Tanques Ltda. v. Hvalfangerselskapet Polaris A/S [1952] 1 T.L.R. 220; [1952] 1 Lloyd's Rep. 71.

confiscation and the shipper (or the person held responsible) liable to a penalty of three times the value of the goods. If the Customs Officer felt any suspicion that the regulation might be violated he could require a bond, under section 138 of the Act, as security that the goods would be duly shipped, exported or landed at the place for which they were entered outwards or would be otherwise accounted for to the officer's satisfaction. If a bond had been called for, its purpose would have been fulfilled by the bond giver producing a landing certificate for the goods, which apparently would have presented no difficulty.

On June 10, 1947, a notice was given from the Customs House, Calcutta, signed by the Deputy Jute Shipments Co-ordinator, that direct shipments only of jute and jute goods would be allowed to territories which had a seaboard of their own and which enjoyed direct shipping facilities. In cases where direct shipments were impracticable, necessitating shipment via an intermediary port such as Aden or Port Said, shipments would be permitted only on the condition that the shippers entered into a bond undertaking to produce within three months a certificate of landing from the government of the country of final destination to the effect that the consignments in question had reached the ultimate destination. Failure to produce such a certificate within the time stipulated would render the shipper concerned liable to penal action. This notice would appear to have been given in order to draw attention to the existing law and to indicate the manner of its enforcement. As it was obligatory for a shipper to ship direct to the ultimate port of destination (except where impracticable) the customs authority could enforce more readily the prohibition against shipments to South Africa. At all material times the export of jute goods to all destinations was subject to an export licence issued by the Indian Government, and it would seem that through the necessity for the export licence the provisions of this export control could be enforced.

Mr. Nissim said that in his view the Indian authorities in administering the prohibition for export to South Africa indirectly were in practice not acting on mere suspicion and were freely issuing licences to Genoa, not wishing to interfere too much with a vital export from India. That is hardly a matter of law, but he said also that mere knowledge or suspicion that the goods might go to South Africa would not affect the shipper. It would seem that the question would arise on the shipper's application for an export licence and whether he could faithfully state what

was the destination of the goods. So far as confiscation of the goods is concerned, the right would appear to depend on what in fact was the destination of the goods, whether the shipper knew of it or not.

Reference was made to section 56 of the Indian Contract Act, 1872 (Act No. IX of 1872), and that part of it which provides as follows: "where one person has promised to do something which he knew, or, with reasonable diligence, might have known, and which the promisee did not know, to be impossible or unlawful, such promisor must make compensation to such promisee for any loss which such promisee sustains through the non-performance of the promise."

In my view that provision would not have benefited either of the parties to this action in a suit in India against the Indian shipper, if such could be envisaged, as I am clearly of opinion that both of the parties were well aware of the restrictions and that it would have been unlawful for the shipper to export directly or indirectly to South Africa. It was not, however, unlawful for goods to be shipped to European ports, either Genoa or Hamburg, and there appear to have been legitimate quotas allocated to these countries and to some extent additional quotas to shippers who could obtain an export licence and lawfully ship. A shipment, however, to these ports would have been contrary to the regulations and therefore illegal if it had in fact the ultimate destination of South Africa.

There is no evidence that the proposed shippers, of whom little was said at the trial, knew of the intended ultimate destination of the goods in question. Since the defendants knew, they either told the shippers, which is perhaps unlikely, or concealed the destination from them, and in any case, if the contract had been fulfilled, there would have been released from India goods which, if the true facts had been known by or revealed to the authorities, would have been prohibited from export.

Both parties to this contract contemplated and intended that the contract goods would be shipped from India and be made available in Genoa so that the plaintiff might make a resale or fulfil a bargain of resale to the South African buying agency. That had been decided generally by the agents and Mr. B. L. Sethia at Zurich. Not only was India the source of supply discussed then, but that India was to be the source of supply was indicated by the high price, although that is not conclusive. It is also supported by evidence that, at the time of the contract, India would have been the only source of supply for a contract

of 500,000 bags for fairly prompt delivery and not spread over a very long time. On the other hand, the contract, no doubt for good reason, did not expressly state that the goods were to be of Indian origin and a delivery of the specified quantity of B. twills o.i.f. Genoa would have been a good delivery from whatever source they had come. It is in these circumstances that the question has to be considered as to whether the contract is to be treated as unenforceable in these courts.

I reject Mr. Lawson's submission that the prohibition regulations are to be regarded as either penal or revenue enactments (although infringement of the regulations might involve penalties and fines which would enhance the revenue) or to be regarded as confiscatory (as, for example, in Frankfurther v. W. L. Exner Ltd.² so that these courts would not give effect to them. Restrictions on trade, both ingoing and outgoing, have been imposed by many, if not all, countries on a variety of commodities and for varying reasons. For instance, in Ralli Brothers v. Compania Naviera Sota y Aznar³ Scrutton L.J. states that the Spanish decree which fixed the maximum freight on jute imported into Spain appeared to be part of a system for keeping down the price of goods essential for national welfare by, amongst other means, fixing the freight on goods coming into Spain. Penal consequences followed infractions of those laws. The court held the Spanish decree to be effective and as it made the payment of freight above 875 pesetas per ton illegal that part of the contract which required the payment of freight in excess of that amount was invalid and could not be enforced against the charterers.

It was submitted before me, however, that the Indian prohibition was a "political" law which our courts would disregard. Reference was made to Dicey's Conflict of Laws, Rule 22, 6th ed. (1949), p. 152, which states that the court has no jurisdiction at all to entertain an action for the enforcement, either directly or indirectly, of a penal, revenue or political law of a foreign State. On p. 155 there appears this statement: "There is a marked tendency, by no means confined to the courts of England, to construe foreign legislation of a political and confiscatory character as restrictively as possible, for example, by construing it as operating only within the territory of the sovereign."

2 [1947] Ch. 629.

3 [1920] 2 K.B. 287; sub nom. Sota y Aznar v. Ralli Brothers, 36 T.L.R. 456.

The prohibition here does only operate in India. Can it be disregarded as being "political"? If "political" is to be interpreted as comparable to "confiscatory," this Indian law was not that. It was argued that the motive behind the prohibition made it a "political" law which our courts would disregard, and especially so as India and South Africa are both within the British Commonwealth of Nations. I reject the argument. I would be most reluctant to enter upon a delicate and perhaps distasteful inquiry into another country's motives for its legislation within its own realm, unless there were the most compelling necessity.

In Loucks v. Standard Oil Company of New York,⁴ a New York case, cited in Cheshire, Private International Law, 4th ed. (1952), pp. 142, 143, Cardozo J. said: "We are not so provincial as to say that every solution of a problem is wrong because we deal with it otherwise at home. ... The courts are not free to refuse to enforce a foreign right at the pleasure of the judges, to suit the individual notion of expediency or fairness. They do not close their doors unless help would violate some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the common weal."

It may be recalled that Article XVI of the League of Nations Covenant, 1919, recognized internationally what have been called "economic sanctions." I see no reason to condemn the Indian Regulation as a "political" law which this country would disregard. In my judgment, this court ought to recognize that in September/October, 1948, it was illegal for an Indian shipper to export jute fabrics from India where the ultimate destination was the Union of South Africa.

The vital question for consideration is whether that fact makes the contract sued on unenforceable. The defendants' case was advanced on the basis of the majority decision and the statements of the law in Foster v. Driscoll.⁵ The three cases which were tried together in that action revealed a complicated set of facts relating to an attempt to load a cargo of whisky into a ship to be carried across the Atlantic and sold in the United States of America or on the high seas closely adjacent at some point from which it could easily be smuggled into the United States of America in violation of the laws of that country. Scrutton L.J. and Wright J., the trial judge, held that, as the whisky might have been sold in Canada or Nova Scotia or on

4 (1918) 224 N.Y. 99.

5 [1929] 1 K.B. 470; 45 T.L.R. 185.

the high seas without any breach by the parties of the law of the United States against the importation of alcohol, the agreement or the scheme of the parties was valid; but the majority of the Court of Appeal, Lawrence and Sankey L.JJ., held that the facts established an illegal joint adventure which our courts would not enforce.

Sankey L.J. (later Lord Chancellor) said⁶: "In my view, the present position of the law is that the mere fact that a vendor of goods knows that the purchaser proposes to run them into a country where they are prohibited by some revenue law is not sufficient to render the contract of sale illegal, but if beyond mere knowledge the vendor actively engages in an adventure to gct the goods into such country, the court will not assist the parties to the adventure by entertaining or settling any dispute between the parties arising out of the contract. Even if these principles as to revenue laws are to stand, I can see no ground for extending them, as it seems to me we must if we decide in favour of the present appellant or, indeed, for holding that they are applicable to the facts of the present case. Two facts differentiate the present case: (1) The American law which it was proposed to infringe in the present case was no mere revenue law; it was tended to prevent a malum in se rather than a malum prohibitum. (2) The parties concerned have taken an active part in the adventure, a distinction which the court dwelt upon in Pellecat v. Angell.⁷ I can find no case which compels this court to hold that it must or ought to entertain a dispute upon a contract made between parties to further an adventure to break the laws of a foreign State, which as above pointed out are not mere revenue laws. It is true that such a contract has not been made illegal by any English statute, nor does it subject persons making such a contract to the penalties provided, for example, in cases which come under the Foreign Enlistment Act, but none the less I think that the courts of this country are not bound to entertain such actions in view of the obligations of international comity, as now understood." Sankey L.J. said⁸: "To sum up, in my view an English contract should and will be held invalid on account of illegality if the real object and intention of the parties necessitates them joining in an endeavour to perform in a foreign and friendly country

6 [1929] 1 K.B. 470, 518.

7 (1835) 2 Cr.M. & R. 311.

8 [1929] 1 K.B. 470, 521.

some act which is illegal by the law of such country notwithstanding the fact that there may be, in a certain event, alternative modes or places of performing which permit the contract to be performed legally."

I now read an extract from the judgment of Scrutton L.J.⁹: "The main contract is for the sale of whisky in the British Isles between British subjects for a price to be paid by bills in England. There seems no doubt that this by itself is legal and that the fact that the seller knows the buyer intends to smuggle the goods into the United States does not make it illegal; see per Lord Mansfield in Holman v. Johnson,¹⁰ where the seller in Dunkirk knew that the buyer intended to smuggle the goods into England. In this case Lord Mansfield declined to give effect to the laws of his own country. It is different where the seller, besides knowing the purpose, assists in the purpose, as in Clugas v. Penaluna,¹¹ where the seller in Guernsey packed the goods in such a way as to assist smuggling into England, and Buller J. made this assistance, and Grose J. the collusion, the ground of their decision. I have no doubt that if seller and buyer agreed to ship the whisky into the United States contrary to the laws of that country the contract would not be enforced here: Ralli's case,¹² not because it was illegal here but as a matter of public policy based on international comity. On the other hand, if the adventure was to import into Canada and there sell to some person with the knowledge that he was going to import into the United States, I do not think, following Lord Mansfield's decision, that the courts would treat this as contrary to public policy."

Both sides claimed support from the later case of Kleinwort, Sons & Co. v. Ungarische Baumwolle Industrie Aktiengesellschaft,¹³ in which it was held that since the contract was to be performed in England it was enforceable in the English courts, even although its performance might involve a breach by the defendants of the law of Hungary. No question of any performance of the contract in Hungary arose. It was a contract to do something in England. Apart from robust emphasis that it is an elementary principle of English law that people should keep their contracts and carry them out, I do not think that the case has any bearing on the present controversy.

9 [1929] 1 K.B. 495.

10 (1775) 1 Cowp. 341.

11 (1791) 4 T.R. 466.

12 [1920] 2 K.B. 287.

13 [1939] 2 K.B. 678; 55 T.L.R. 814; [1939] 3 All E.R. 38.

For the plaintiff reliance was placed on Twentsche Overseas Trading Co. Ltd. v. Uganda Sugar Factory Ltd.,¹⁴ but that case was decided by the Judicial Committee of the Privy Council on the basis that the parties did not contract on the footing or common assumption that the goods sold would come only from Germany. If the correct view of the present case is that the parties did not contract on the footing or common assumption that the jute bags were to come from India, then the contract did not necessitate any violation of the law of India and no question arises. If, on the other hand, the contrary is the position, the Twentsche case¹⁴ is clearly distinguished

The meeting at Zurich in 1947 was important. The success of the business venture contemplated at that meeting depended on Mr. B. L. Sethia, through the defendant company (which he then appeared to control, or at least of which he was an active director), obtaining supplies of jute bags from Indian shippers so that they could be resold to South Africa. The fulfilment of the contract sued on by the plaintiff involved to the knowledge and intention of both the parties a violation of the law of India prohibiting their export. The correspondence reveals that the nature of the transaction was fully understood; it was not regarded as very creditable; its "difficulties" were fully recognized But the profits to be obtained were high. They were established by the very restriction which the parties were seeking to have broken by some shipper and were to be achieved only by the shipper's success in deluding the Indian Control.

In my opinion, this transaction falls into a similar category to that of the whisky running to the United States of America during the time of the prohibition there and in violation of the laws of the United States (Foster v. Driscoll¹⁵. There the venture was to get a prohibited commodity into the United States by finding someone, when the cargo was sufficiently close to the coast, to take or smuggle it into the country and so earn high profits. Here the venture was dependent on someone getting out of the country the prohibited commodity which would fulfil this contract and enable the plaintiff in his turn to steal a march on lawful traders and make his profit out of the urgent demand of South Africa for jute bags.

The trial judge, Wright J., and Scrutton L.J. in the whisky case thought that the whisky might have been lawfully sold to Canada and would have upheld the agreement as it could have

14 (1944) 172 L.T. 163.

15 [1929] 1 K.B. 470.

been lawfully performed. In the present case I find that there was, in effect, no chance of the contract being fulfilled unless the jute bags escaped the Indian Control, and no intention that it should be otherwise carried out.

It may be that to hold a contract unenforceable because it takes advantage of a situation such as this cannot be taken too far. It could be said that the plaintiff did not actively engage to get the goods out of India, that he left that to the defendants, and that he was a mere buyer with knowledge of the origin of the goods and of the prohibition which, having regard to their ultimate destination, attached to them. That view might be said to be supported by the passage in the judgment of Sankey L.J. in Foster's case,¹⁶ which I have cited above but, quite apart from its application only to revenue laws, the facts of this case, as I have found them, go, I think, beyond the circumstances contemplated in that passage, the whole transaction here emanating, as it did, from the original agreement in Zurich and being a fulfilment of it. Those discussions left it to the defendants to find a way of getting the goods out of India in face of the control, and to provide the plaintiff as buyer with the means of reaping the reward of their success. In my judgment, this contract to the knowledge of both parties at the time of contracting, could not in fact have been performed without the performance in a foreign and friendly country of an act which was illegal by the law of that country, and I must hold the contract to be invalid and unenforceable.

As I am finding in favour of the defendants, I do not propose to lengthen this judgment to any great extent by dealing in detail with the questions raised on the issue of damages. They were much discussed at the trial, and Dr. Mann, a German lawyer, gave evidence of German law. The submission made by the defendants was that the plaintiff should in any event have mitigated the damages arising from their refusal to deliver at Genoa by accepting their offer, on the next day, to deliver c.i.f. Hamburg, all other terms being the same. If I am right on the view I have taken of the Genoa contract, the same view would, of course, apply to the proposed shipment to Hamburg for transhipment to South Africa. But if I am wrong, then the question would arise whether the plaintiff should, acting reasonably, have accepted the substituted port. He refused it outright, and I am not disposed to find that the defendants would not have been ready and willing and able to ship if he had accepted. The

16 [1929] 1 K.B. 470, 518.

defendants, however, refused to guarantee reshipment at Hamburg, and, I think, not without good reason. There is evidence which indicates that reshipment might have been achieved, but on the whole I think that the difficulties and uncertainties were so great and the position so obscure that it was reasonable for the plaintiff not to accept the offer. A handsome profit awaited him, and if Hamburg had offered any reasonable prospect of success I think that he would have taken it rather than rely on a law suit to compensate him for his loss, although he appears to have been somewhat indignant that the performance of the contract was at once refused by the defandants and to have shown no desire to consider any alternative.

Difficulties arise also with regard to the figures of the claim having regard to the monetary currencies which would have been involved in the transaction and in regard to some of the items to be taken into consideration. I would not have dealt with those without further argument, and I make no findings in respect of them. There will be judgment for the defendants.

J. F. L.

The plaintiff appealed.

Neil Lawson Q.C. and E. J. Cohn for the plaintiff. (1) The defence of illegality can only succeed when the contract for its performance necessitates or requires a party to the contract to do an act in a foreign country which it is unlawful for him to do by the foreign local law. (2) In the case of joint ventures that defence can succeed where the object of the venture is to perform a wrongful act (e.g., the distinction made in Foster v. Driscoll¹ between mala in se and mala prohibita), and where therefore that object can only be attained by an unlawful act on the part of the joint venturers or one of them: Foster v. Driscoll¹ (on the assumption that that case was rightly decided, which is arguable). (3) The Indian law which is here concerned is a law of a character which the English courts will not recognize; it is a law which falls into the categorization of penal, revenue or political laws. It has certain of the characteristics of penalties and revenue law, for obviously the object of the Sea Customs Act, under which the regulation is made, is to provide revenue. But really it is political law that is in question.

1 [1929] 1 K.B. 470.

There is very little authority on the precise significance of the expression "political laws," although it is used in cases and in textbooks, apart from confiscatory legislation like the Nazi legislation of Germany and Austria. If it is permissible to use the word "political" in this connexion it means a law of this kind which is a purely political law.

[BIRKETT L.J. Surely all laws are political.]

What is meant is a case like Emperor of Austria v. Day and Kossuth.² This is a piece of legislation in India which is not relating to matters of property at all but to the behaviour of persons subject to the Indian legislation in their trade relationships with another country for political purposes. It is part of a blockade or an attempt to blockade South Africa so far as Indian goods are concerned. That is a political law, and the courts do not enforce political laws, not because they do not approve of them but because they say "This is something which strictly pertains to the political relationships between the State and its citizens and it has nothing to do with contracts such as this." The onus is on the defendants to establish their excuse for not performing their contract; there is a basic principle that parties should adhere to their bargains.

Reverting to the first proposition, that the performance of the contract requires the performance of an act by a party to the contract in a foreign country which is unlawful by local law, the cases start with Holman v. Johnson,³ which was concerned with a sale of tea in Dunkirk which the parties knew was to be smuggled into England; nevertheless Lord Mansfield C.J. held the contract to be enforceable; that case was referred to with approval by the House of Lords in Government of India v. Taylor.⁴ In Biggs v. Lawrence⁵ goods sold in Guernsey were packed in a particular way so as to facilitate smuggling into England; it was held that the seller could not recover; Clugas v. Penaluna⁶ was a similar case. Hodgson v. Temple⁷ shows that the mere knowledge of the seller that the buyer will make an illegal use of the goods does not disentitle him to recover; see also Pellecat v. Angell⁸ and Sharp v. Taylor.⁹ In Ex parte Chavasse¹⁰ it was held that a contract between neutrals involving blockade running during the

2 (1861) 3 De G.F. & J. 217.

3 (1775) 1 Cowp. 341.

4 [1955] A.C. 491; [1955] 1 All E.R. 292.

5 (1789) 3 Term Rep. 454.

6 (1791) 4 Term Rep. 466.

7 (1813) 5 Taunt. 181.

8 (1835) 2 Cr.M. & R. 311.

9 (1849) 2 Phillips 801.

10 (1865) 34 L.J.Bk. 17.

American Civil War was enforceable; see also The Helen¹¹ and Fracis, Times & Co. v. Sea Insurance Co.¹²

This legislation is an unfriendly act directed by one State against the trade of another State with which it is at peace; the courts will examine the motive behind legislation so as to see whether it is of a kind which they will not enforce: Frankfurther v. W. L. Exner Ltd.¹³

The contract in Ralli Brothers v. Compania Naviera Sota y Aznar¹⁴ involved the making in Spain by a party to the contract of a payment which was illegal by Spanish law, and it was held that the contract was unenforceable in so far as it was illegal; contrast Kleinwort Sons & Co. v. Ungarische Baumwolle A.-G.,¹⁵ where a contract to be performed in England was held to be enforceable, although its performance might involve a breach of Hungarian law. Those cases illustrate the difference in principle between acts to be carried out in the country where they are illegal and acts to be carried out elsewhere; the terms of the present contract do not require the defendants to do anything in India. [In re Claim by Helbert Wagg & Co. Ltd.¹⁶ was also referred to.]

The defendants relied on Foster v. Driscoll.¹⁷ In that case the parties, in the view of the majority of the court, agreed to do an act contrary to the laws of the United States, whereas in the present case the contract does not require any illegal act on the part of any party; gunnies may be bought elsewhere than in India and shipped to a place other than South Africa, and in any case it is not right to go outside the framework of the contract to inquire what may be done before or after its performance. In British Nylon Spinners Ltd. v. Imperial Chemical Industries Ltd.¹⁸ the principle in Foster v. Driscoll¹⁹ was not applied, as the plaintiffs had no concern with the contracts and legislation which formed the background of the case.

In the performance of the contract there was no obligation on the plaintiff to re-ship to South Africa, or, indeed, anywhere. He might have sold the goods in Italy, or shipped them to any suitable market. There was equally no obligation on the defendants to ship goods from India; they were not tied to any source of origin. The plaintiff must show that the defendants were

11 (1865) L.R. 1 A. & E. 1.

12 (1898) 3 Com.Cas. 229.

13 [1947] Ch. 629.

14 [1920] 2 K.B. 287.

15 [1939] 2 K.B. 678.

16 [1956] Ch. 323; [1956] 1 All E.R. 129.

17 [1929] 1 K.B. 470.

18 [1955] Ch. 37; [1954] 3 All E.R. 88.

19 [1929] 1 K.B. 470.

required to do an unlawful act. If any unlawful act was done it would be done by the shippers from India; there is no suggestion that they had any unlawful intention, and they were not the agents of the defendants. It is much the same as a case of contraband in time of war, when neutrals are not affected with illegality but lose their goods if they are seized by a belligerent. There was evidence that in certain cases indirect shipments were allowed if paid for in hard currencies; it would be accordingly wrong to assume that in every case the Chief Customs Officer would intervene. To make the prohibition apply to the acts of the parties themselves would be to give it extraterritorial effect, which, according to the evidence, the Indian Government does not claim. To satisfy the tests laid down by the authorities the defendants must establish that the terms of the contract absolutely require that one or other or both of the parties shall do something in India which is illegal by Indian law; that they have failed to do.

The plaintiff's second contention is that the law in question is not of a type to which the courts will pay regard. The principle is stated in Dicey's Conflict of Laws, 6th ed., at p. 152, where rule 22 indicates that the courts cannot entertain an action for the enforcement, either directly or indirectly, of a penal, revenue, or political law of a foreign State.

The authorities show that the foreign laws which will be enforced in our courts are those dealing with proprietary rights, in so far as they have intraterritorial effect. Political laws, in contrast, are those which affect the political relationships of a State and its subjects. The principles are illustrated by Emperor of Austria v. Day and Kossuth,²⁰ where the defendants were restrained from circulating spurious Hungarian notes, not because the Emperor's political prerogatives were infringed, but because his government was receiving financial damage.

[DENNING L.J. Every law is in some way a political law; the expression is too wide for anyone to define. It is not so with penal or revenue laws.]

The cases dealing with revenue and penal laws show that the courts disregard them because they do not purport to deal with proprietary rights but affect the relationship of the States concerned with their citizens inside their territories.

The Act and regulations in the present case have the characteristics of both penal and revenue legislation. They constitute an attempt by one State to impose a blockade on another. The

20 3 De G.F. & J. 217.

best parallel is afforded by the blockade cases. There is no reason to distinguish between an economic blockade and a belligerent blockade; in neither case are neutrals precluded from bringing actions against each other in neutral courts regarding matters arising out of blockade-running transactions. [Huntington v. Attrill²¹ and Government of India, Ministry of Finance (Revenue Division) v. Taylor²² were also referred to.]

A. A. Mocatta Q.C., Richard Vick and Peter Kenworthy-Brownefor the defendants. This is a contract which the English courts will not enforce, though what the parties have done is not illegal by English law. It was the intention of the parties and the true effect of the contract that an act should be done in India which was illegal by Indian law, and the contract is unenforceable here for the reasons laid down in Ralli Brothers v. Compania Naviera Sota y Aznar²³ and Foster v. Driscoll.²⁴

No question of penal or revenue or confiscatory law arises here under sections 19 and 134 and the regulations. On the true construction of the regulations both direct and indirect shipments are illegal except with the permission of the Chief Customs Officer, who is given no discretion in the matter. If he had known of the intentions of the parties in the present case he would certainly have stopped the shipment. There was no evidence that the Indian Government were in any way turning a blind eye on such shipments; the evidence was the other way, that they were becoming increasingly suspicious of shipments to ports such as Genoa. The regulation takes effect at the time of shipment, and there is illegality whether or not the actual shipper knows that the consignees are intending to re-ship to South Africa; the case, accordingly, falls within the principle in Foster v. Driscoll,²⁵ as the judge held.

That case should not be regarded as a decision based on the fact that there was a partnership. If there was an agreement to get the goods out of India and into South Africa for the benefit of both parties, all the elements which were present in that case in the view of the majority of the court are present also in the present case. [Waugh v. Morris²⁶ was referred to.]

A second ground of objection is that performance of the contract made it necessary for the defendants to do something unlawful by Indian law: see the Ralli²⁷ and Kleinwort²⁸ cases.

21 [1893] A.C. 150; 8 T.L.R. 341.

22 [1955] A.C. 491; [1955] 1 All E.R. 292.

23 [1920] 2 K.B. 287.

24 [1929] 1 K.B. 470.

25 Ibid.

26 (1873) L.R. 8 Q.B. 202.

27 [1920] 2 K.B. 287.

28 [1939] 2 K.B. 678.

If the facts are, as they were, that the goods were unprocurable except from India, this contract could not be performed without a violation of Indian law. A c.i.f. seller must procure the shipment of the goods if he is to fulfil his contract: see Johnson v. Taylor Bros. & Co. Ltd.²⁹ Accordingly, the defendants must do or procure to be done something which was illegal. It is true that in Ralli's case³⁰ the contract expressly provided for the commission of an illegal act, while this contract does not; but there can be no distinction if it is impossible to fulfil it otherwise. [In re Badische Co. Ltd.³¹ and Twentsche Overseas Trading Co. Ltd. v. Uganda Sugar Factory Ltd.³² were referred to.]

With regard to penal and revenue laws, the rule is that the courts will not enforce them in this country at the suit of a foreign government: Huntington v. Attrill.³³ That is not to say that the courts will ignore them when considering whether the parties to an action have involved themselves in something unlawful. The question has been extensively reviewed in the Irish case of Peter Buchanan Ltd. & Macharg v. McVey.³⁴ Lord Mansfield went too far when he said in Holman v. Johnson³⁵ that the courts would take no notice of foreign penal or revenue laws. In any case no penal or revenue law is involved in this case, but in applying the principle in Ralli's case³⁶ it does not matter what the nature of the law is, because the illegal act is to be performed in the country concerned. The expression "political law" is ambiguous; the only authority for its use cited in Dicey is Emperor of Austria v. Day and Kossuth,³⁷ which does not establish ally far-reaching principle at all. [Reference was also made to Bank voor Handel en Scheepvaart v. Slatford.³⁸]

Lawson Q.C. in reply. The basis of the decision in Foster v. Driscoll³⁹ was that there was an agreement for a partnership in which all parties were joint venturers in the execution of a purpose unlawful under foreign law. In the present case there is no joint venture; it cannot be suggested that the defendants had anything to do with a resale to South Africa or that the plaintiff had anything to do with the procuring of goods from India.

29 [1920] A.C. 144; 36 T.L.R. 62.

30 [1920] 2 K.B. 287.

31 [1921] 2 Ch. 331.

32 (1944) 172 L.T. 163; [1945] W.N. 11.

33 [1893] A.C. 150.

34 [1955] A.C. 516n.

35 1 Cowp. 341, 343.

36 [1920] 2 K.B. 287.

37 3 De G.F. & J. 217.

38 [1953] 1 Q.B. 248, 279; [1952] 2 T.L.R. 861; [1952] 2 All E.R. 956.

39 [1929] 1 K.B. 470.

The authorities establish in general that, where a contract is made subject to English law, the court generally disregards foreign law though it may have some effect on what the parties propose to do. [Kleinwort's case⁴⁰ and Trinidad Shipping and Trading Co. Ltd. v. G. R. Alston & Co.⁴¹ were referred to.] The exception is under the principle in Ralli's case,⁴² which applies where an actual party is required to do an act in a foreign country which is unlawful there. The present contract required nothing of the kind; the defendants were not required to ship themselves or through an agent; a c.i.f. seller may fulfil his obligations by buying goods afloat: see J. H. Vantol Ltd. v. Fairclough Dodd & Jones Ltd.⁴³

It is too narrow to confine the non-recognition of foreign penal and revenue laws to suits by the foreign State in question; Lord Mansfield's observations in Holman v. Johnson⁴⁴ have received approval from the House of Lords in Government of India v. Taylor,⁴⁵ a case which reinforces the idea of a "political" law.

[BIRKETT L.J. I would point out that the editors of the 6th edition of Dicey, in the preface at p. 14, disclaim that all the rules set out are well established and broad based; that applies with some force to the reference to "political" laws in rule 22.]

DENNING L.J. The Union of South Africa is a country with a tremendous problem - some say an insoluble problem - in regard to the races in her midst. Her attempts at a solution met with the disapproval of the Government of India. To mark its disapproval, the Government of India in 1946 put an embargo on the shipment of goods from India to South Africa. This embargo hit hard the trade in jute, particularly in jute sacks known in the trade as "B. twills." India was practically the only supplier of those sacks at that time; and South Africa was a large consumer of them and needed them for bagging her maize crop. In order to overcome the embargo, South Africa was prepared to pay very high prices for these sacks, and there were a number of middlemen ready to help her by one means or another, so long as the money reward was tempting enough. This case is a dispute between two of those middlemen.

Mr. Regazzoni, the plaintiff, is a Swiss citizen. From 1947 to 1951, he told the court, he had sold 10 to 12 million of these

40 [1939] 2 K.B. 678.

41 [1920] A.C. 888; 36 T.L.R. 654.

42 [1920] 2 K.B. 287.

43 [1955] 1 W.L.R. 642, 1302 (C.A.); [1955] 2 All E.R. 516; [1955] 3 All E.R. 750 (C.A.).

44 1 Cowp. 341, 343.

45 [1955] A.C. 491.

bags a year to the South African Government, all for dollars. They were not shipped direct from India to South Africa, for that would be too plain a breach of the Indian law. He got them sent to a European port, such as Genoa, as if they were to be used in Europe, and then would tranship them to South Africa. He made transactions, he said, for millions of sacks via Genoa.

The transaction with which we are concerned is one of those transactions via Genoa. It came about in this way: In 1948 Mr. Regazzoni's agent, a Mr. Weil, met an Indian gentleman, Mr. Sethia, in Zurich. Mr. Sethia was a director of an English company, K. C. Sethia (1944) Ltd., which had close connexions with an Indian company of a similar name. Mr. Weil and Mr. Sethia discussed the possibility of transactions in jute bags from India. Mr. Sethia told Mr. Weil that if he (Mr. Sethia) had any part in sending goods to South Africa from India, whether directly or indirectly, and the Indian Government knew of it, he would be in difficulty. So he said he did not want to know "officially" what happened to the goods after they reached the nearest European port. His scruples were respected. A contract was made in 1948 between Mr. Weil, Mr Regazzoni's agent, and a Mr. Raydt, who was the agent for K. C. Sethia (1944) Ltd., the English company, for the supply of half a million of these sacks, B. twills. It was made by telegram passing between Mr. Weil in Basle and Mr. Raydt in Hamburg, in the German language. Mr. Weil's telegram of September 4, 1948, read: "Accept" - that means "We will accept" - "500,000 new B. twills September October price 248 shillings c.i.f. Genoa consignee Gattoni Milan" - Gattoni was a servant or nominee of Mr. Regazzoni - "Bank guarantee payment against delivery of freight documents Dreyfus Bank Wire agreement." By telegram of September 6, Mr. Raydt replied: "B. twills in order." The judge has held that thereupon there was a concluded contract for delivery of half a million sacks at 248s. for every 100, c.i.f. Genoa.

K. C. Sethia (1944) Ltd., the suppliers, did not fulfil that contract. We do not know the actual reason. It may be that Genoa had become suspect in the eyes of the Indian authorities, or it may be that Sethia Ltd. could sell better elsewhere. Whatever the reason, Sethia Ltd. did not fulfil the contract, and Mr. Regazzoni now sues them for damages for breach of it. He made an excursion into the German courts, without success. There was trouble about parties, and he failed. In 1954, when

nearly six years had elapsed since the alleged breach, he brought this action in the English courts, claiming damages for failure to deliver the sacks in accordance with the contract. He claimed special damages because he said he had lost the profit which he would have made on the resale to South Africa, which was a resale in dollars. The judge has found that the price payable by Mr. Regazzoni to Sethia Ltd. was a high price, and the pleadings show that the profit on the resale to South Africa would be a high profit. The question is whether the contract will be enforced in these courts.

Both parties agree that the proper law of the contract is English law. It is said that the contract is unenforceable because there was an intention to break the Indian law in the matter. The Indian law was enacted on July 17, 1946, before India became independent. A regulation was made under the Sea Customs Act, 1878, by which the Government of India prohibited "the taking by sea or by land out of British India of goods from whatever place arriving which are destined for any port or place in the Union of South Africa or in respect of which the Chief Customs Officer is satisfied that the goods, although destined for a port or place outside the Union of South Africa, are intended to be taken to the Union of South Africa."

Upon the true construction of the regulation I think it prohibits shipments out of India, either directly to South Africa, or indirectly to South Africa, whenever South Africa is the ultimate destination of the goods. The second part enables the Chief Customs Officer to stop exports in cases where, although the ultimate destination may appear to be outside South Africa, nevertheless he is satisfied that they are intended to be taken to South Africa. Mr. Lawson asks us to hold that the Chief Customs Officer has an executive discretion, almost like a person who has a discretion whether to grant an export licence or not. I do not so read the regulation. I think there is an absolute prohibition against shipment direct or indirect from India to South Africa. Indeed, looking at the evidence and the correspondence in the case, there can be little doubt that the parties to this contract knew perfectly well that such shipment was illegal. When they spoke of "difficulties," the difficulties which they envisaged were getting over the prohibition of export from India. I need only read one illuminating paragraph in the letter of July 18, 1948, just before this contract was made, from Mr. Weil to Mr. Raydt: "As regards the B. twills business, I

know all the difficulties connected with this business. I believe, however, that Sethia, as an Indian firm, are the very firm to achieve something where other firms fail. When I was together with Sethia in Zurich, we discussed these transactions, and at that time he indicated that in this connexion he could do some things which it would be impossible for other firms to do. This was to be assumed from his price quotations. ... Let Mr. Sethia make use of his good connexions, and make an offer in these sacks on the terms as before."

It seems to me quite plain that these were middlemen attempting to overcome "difficulties," as they called them; but what they were in fact attempting to overcome was the prohibition by Indian law of shipment direct or indirect from India to South Africa.

Now, what is the law upon this matter? I quite agree that on looking at the terms of this contract by itself, there is nothing that necessitates or requires either party to do an act which is illegal by the law of any country. It is possible that the contract might lawfully have been fulfilled, for example, by Sethia Ltd. getting the goods from somewhere else other than India, or by buying them on board ship, or by Mr. Regazzoni not sending them to South Africa. All that is possible. I do not see, therefore, that this case can be brought within the case of Ralli Brothers v. Compania Naviera Sota y Aznar¹; because there is nothing in the stated terms of this contract which compels the performance of an act illegal in the country where it is to be performed. But that is not the sole ground on which these courts will refuse to enforce a contract. The cases starting from Biggs v. Lawrence² and finishing with Foster v. Driscoll,³ show that if two persons agree together on a transaction which to their knowledge is intended to be carried out by means of one or other of them breaking the laws of a friendly country, or procuring or assisting another person in the breach of such laws, then the courts of this country will not lend their aid to the enforcement of the transaction. The reason is because it would be a breach of the comity which should exist between countries, and especially between countries of the British Commonwealth. The courts of one country should not help to break the laws of another. The transaction may not on the

1 [1920] 2 K.B. 287; sub nom. Sota y Aznar v. Ralli Brothers, 36 T.L.R. 456.

2 (1789) 3 Term Rep. 454.

3 [1929] 1 K.B. 470; 45 T.L.R. 185.

face of it disclose any illegal intention. The parties will usually take steps not to let any illegality appear. They will execute a contract for the sale of goods, or for the purchase of a steamer, or such like, which does not actually necessitate the performance of an illegal act, hoping thereby to validate the transaction and make it enforceable. But the court is not to be hoodwinked by subterfuges of that kind. Once it appears that, in order to implement the transaction, one of the parties to the knowledge of the other, intends to break or to assist in breaking the laws of a friendly country or to get some one else to do it, then it will not be enforced.

Holman v. Johnson⁴ is quite distinguishable, because there the sale of the tea at Dunkirk was complete before anything illegal was done or intended to be done by anyone: but where the transaction is not complete, where both parties contemplate that, in order to complete it, one or other of them, or some one on their behalf, will do something to break or to assist in breaking the laws of a friendly country, then in my judgment these courts will not enforce it.

Mr. Lawson urged us to hold that this legislation by the Government of India was an act of retaliation directed against South Africa, an economic sanction imposed because of the racial policy of South Africa, a political law of which, he says, the courts should take no notice. He referred us to the observations of Lord Mansfield in Holman v. Johnson, where he says,⁵ "no country ever takes notice of the revenue laws of another." Mr. Lawson says that has been applied to penal laws, and should extend also to political laws. It seems to me that Lord Mansfield goes too far when he says that these courts will take no notice of such laws. It is perfectly true that the courts of this country will not enforce the revenue laws or the criminal laws of another country at the suit of that other country, either directly or indirectly. These courts do not sit to collect taxes for another country or to inflict punishments for it; and this is so even between countries of the Commonwealth, as the House of Lords held in the Government of India v. Taylor.⁶ These courts will not enforce such laws at the instance of the foreign country. It is quite another matter to say that we will take no notice of them. It seems to me that we should take notice of the laws of a friendly country, even if they are revenue laws or penal laws or political laws, however they may be

4 (1775) 1 Cowp. 341.

5 Ibid. 343.

6 [1955] A.C. 491; [1955] 2 W.L.R. 303; [1955] 1 All E.R. 292.

described, at least, to this extent, that if two people knowingly agree together to break the laws of a friendly country or to procure some one else to break them or to assist in the doing of it, then they cannot ask this court to give its aid to the enforcement of their agreement.

In Foster v. Driscoll⁷ people tried to smuggle whisky into the United States in breach of the prohibition laws. They were not allowed to come to these courts for assistance to settle their differences. So, too, these middlemen, who were engaged in trying to break the export laws of India, must settle their differences between themselves as best they may. They cannot come to our courts for assistance.

I would, therefore, dismiss the appeal.

BIRKETT L.J. I am of the same opinion. I have felt as the case has been proceeding that the real question for determination here can be simply stated: will an English court enforce a contract of the nature of this contract as disclosed in the evidence? I think we were fortunate in this, that the questions of fact have not really presented very much difficulty. I know that Mr. Lawson has most zealously contended for a certain view to be taken of the facts which have been disclosed, but for my own part I think that there can be no doubt whatever that the real view to be taken of the facts in this case was that taken by Sellers J. One cannot read the evidence of the witnesses or the correspondence without being driven inevitably to the conclusion that the genesis of this contract with which we are concerned was: how can we best overcome the prohibition or ban which has been laid upon the export of these bags from India to South Africa? I do not propose to go into it; my Lord has indicated in outline what it was.

There was, of course, the preliminary meeting in Zurich to which the judge in the court below paid great attention, and I think quite rightly and properly so - it is the foundation of the whole thing - where Mr. B. L. Sethia, who was unfortunately not able to give evidence at the trial, discussed there with Mr. Weil, the agent for the plaintiff in this case, in the presence of Mr. Wild, the interpreter, that simple question, how they were to get over these particular difficulties.

[His Lordship referred to certain evidence concerning the meeting at Zurich, and continued:] I think that it is absolutely plain that from the beginning it was clear to both parties to this

7 [1929] 1 K.B. 470.

contract that what the contract was to do was to take Indian jute bags and to get them from India to South Africa, that is to say, that it was known - first of all, it was most plainly and clearly known - that the ban operated against any direct shipment. Mr. Sethia himself said: "I cannot do it directly; there is a ban about that; with regard to my sending them to Genoa or other European port, I can do that; but, of course, if they are going to South Africa, you had better not tell me." It is quite plain that the whole discussion was as to how to get them to South Africa; and when the judge dealt with these matters, after discussing one of the points raised in the court below, whether there was a binding contract, he said this: "Having regard to the further issues which have to be determined, a meeting prior to this contract between Mr. B. L. Sethia, a director of the defendant company at the time, Mr. Weil and Mr. Raydt (with a Mr. Wild as an interpreter) is of importance. The precise date is uncertain, but the meeting was probably in 1948, before August of that year when India became independent." And then he said what the discussion was, and added this: "I feel no doubt that the meeting at Zurich was for the purpose of finding a way to take advantage of this situation" - namely, the ban upon Indian jute bags, the demand by South Africa for jute bags, and the consequent higher prices that could be obtained in that situation. "Mr. Sethia is an Indian and the defendant company were in touch with Indian shippers of the same name, Sethia, relations of the defendants' directors but I understand trading as a separate company." He added⁸: "I am clearly of opinion that both of the parties were well aware of the restrictions and that it would have been unlawful for the shipper to export directly or indirectly to South Africa." Later on⁹: "Both parties to this contract contemplated and intended that the contract goods would be shipped from India and be made available in Genoa so that the plaintiff might make a resale or fulfil a bargain of resale to the South African buying agency. That had been decided generally by the agents and Mr. B. L. Sethia at Zurich. Not only was India the source of supply discussed then, but that India was to be the source of supply was indicated by the high price, although that is not conclusive."

It is also supported by the evidence of Mr. Young that at the time of the contract India would have been the only source of

8 Ante 498.

9 Ibid.

supply for a contract of half a million bags for fairly prompt delivery and not spread over a very long time. Therefore, I think that we have been rather fortunate in this, that it has not been very difficult to come to a conclusion about what the nature of the contract was, despite the vigorous argument of Mr. Neil Lawson, and I am entirely of the same view as the judge in the court below, that from the beginning and all the way through the intent of this contract was to get round the prohibition, which was a prohibition against direct and indirect shipment.

That is all that I want to say about the facts. I would like to say a word about the regulation. I think that it is important to notice that it was a regulation made by the Department of Commerce in exercise of the powers given by section 19 of the Sea Customs Act, 1878, and therefore the Central Government made this decree. It is important to notice, first of all, that there is a prohibition against bringing into India, either by sea or land, goods which have been consigned from, or grown, produced or manufactured in the Union of South Africa; and then there are certain exceptions: if the goods have been processed in other countries, if the value of the processing reaches a certain mark, then the ban is not to apply, and so on. That is the first point; and then the matter with which we are concerned: "(b) to prohibit the taking by sea or by land out of British India of goods from whatever place arriving which are destined for any port or place in the Union of South Africa. ..."

Let me stop there, as though there were a semi-colon. The word "destined" there most plainly does not mean just consigned. I think it means, and I think the whole purport of (b) means, goods which are to have as their final destination South Africa; and it is, first of all, a prohibition: "You shall not ship goods to South Africa." There is nothing said there about transhipment, at that particular point. Then: "or in respect of which the Chief Customs Officer is satisfied that the goods although destined for a port or place outside the Union of South Africa are intended to be taken to the Union of South Africa." Of course, there "destined" cannot have quite the same meaning as in the first place, if "destined" has reference to ultimate place of destination. But I think that the sense is quite plain: "What we seek to prohibit is an export of goods to South Africa, and we want to do it both directly and indirectly. Directly, there is no problem; we merely say it cannot be done; but, of course, we recognize that there are all sorts of ways by which indirectly our purposes may be defeated: you

may send them to European ports"; and, therefore, there is a provision there that if goods, for example, are being sent to Genoa, but the real destination is a port in South Africa, then if the Chief Customs Officer is satisfied that that is the situation, the ban applies.

And then, when it comes to a question of transhipment: "(a) to prohibit the transhipment at any port in British India of goods when destined for any port in the Union of South Africa" - again dealing with the direct shipment - "and (b) to prohibit the transhipment at any port in British India of goods when destined for any port other than a port in the Union of South Africa, save with the permission of the Chief Customs Officer who shall not grant such permission unless he is satisfied that it is not intended that such goods shall be taken to the Union of South Africa."

I take the whole purpose of that legislation to be: "We want to prohibit and do prohibit the direct and the indirect export of Indian goods to South Africa."

This is, of course, a matter of inference, but I think it is a matter of reasonable inference: a year later, in June, 1947, the original legislation being in July, 1946, there is a fresh notice with regard to the shippers of jute and jute goods; they "are informed that in future direct shipments only will be allowed to all territories which have a seaboard of their own and enjoy direct shipping facilities. In cases in which direct shipments are impracticable necessitating shipment via an intermediate port, such as Aden and Port Said, shipments will be permitted only on the condition that shippers enter into a bond undertaking to produce within three months or such extended period as the Export Control authority may grant, a certificate of landing from the Government of the country of final destination to the effect that the consignments in question had reached the ultimate destination. Failure to produce such a certificate within the stipulated time will render the shipper concerned liable to penal action."

That is a year later, and the inference I draw from it is that the efforts to control the indirect shipment into South Africa had not been as successful as the Government of India hoped, and they, therefore, introduced this new legislation in order to tighten up those restrictions; but I am quite satisfied, for my own part, that the Indian legislation was to the effect that there was a ban on the sending of Indian goods directly or indirectly to South Africa, as the judge in fact found in this case.

I think that the present case is really governed by the principle laid down by the majority of this court in Foster v Driscoll,¹⁰ and the only other point on which I want to say one word is the submission that this was a political law, that the English courts therefore ought to take no notice of it, and so on. We have had cited to us the passage from Dicey upon it, and this argument has really turned, as I ventured to point out, on the words in the preface, which I think have some bearing on the matter, dealing with the way in which this rule 22,¹¹ with which we are dealing, should be considered, and I need not repeat them; they are in the preface to Dicey. But, for my own part, I find it very difficult to understand what is intended by the use of this word "political" with regard to legislation. The authorities that are cited in Dicey do not seem to carry the matter much further; certainly they have no application to this case. All legislation may properly be called "political legislation." Every Act which is passed by the House of Commons and by the Lords is in that sense "political legislation." One can understand "revenue legislation," "revenue law," "confiscatory law," "penal law." Those are all clearly defined; but the expression "political law" seems to me to be so vague that it is really very difficult to attach to it any special or particular meaning. For my own part, I am satisfied with regard to this particular legislation as to South Africa, however it is to be described, that none of the principles which apply to revenue, penal or confiscatory law apply in this case. I agree with what my Lord has said, that it is wrong to say that one shall take no notice of laws of this kind, as distinct from saying that one shall not enforce such laws. But the view that I take of the whole case here, particularly when I recall the facts upon which the contract was based, really turns upon the principle which was enunciated here by my Lord, that where there are two parties to the contract and the real basis of the making of the contract is that one party or both will break the law of a friendly country, then in that case the matter is one in which for convenience' sake the contract may be said to be an illegal contract, and this court will not enforce it. Particularly is that so when we are dealing with a friendly country within the British Commonwealth.

10 [1929] 1 K.B. 470.

11 Dicey's Conflict of Laws, 6th ed., p. 152: "The Court has no jurisdiction at common law to entertain an action (1) for the enforcement, either directly or indirectly, of a penal, revenue, or political law of a foreign State."

For these reasons I am of the opinion that the judge below came to a right conclusion; I agree with his judgment; I agree with the judgment of my Lord, and I think this appeal ought to be dismissed.

PARKER L.J. I also agree. I think that this case depends depends entirely, as indeed did Foster v. Driscoll,¹² on the true view of the facts. There are four relevant findings by the judge. First, he said: "In my judgment, this court ought to recognize that in September/October, 1948, it was illegal for an Indian shipper to export jute fabrics from India where the ultimate destination was the Union of South Africa." Secondly¹³: "I am clearly of opinion that both of the parties were well aware of the restrictions and that it would have been unlawful for the shipper to export directly or indirectly to South Africa." The third is the passage to which Birkett L.J. has referred¹⁴: "Both parties to this contract contemplated and intended that the contract goods would be shipped from India and be made available in Genoa so that the plaintiff might make a resale or fulfil a bargain of resale to the South African buying agency." And, lastly,¹⁵ that "India would have been the only source of supply for a contract of 500,000 bags for fairly prompt delivery and not spread over a very long time." To those findings I might add an admission made by Mr. Lawson in the course of the appeal to the effect that both parties knew that the goods were destined for South Africa.

Some of those findings were challenged by Mr. Lawson in this court. In particular, it was said that it had not been established that Indian law prohibited indirect shipments to South Africa. It was also said that on a true view of the evidence, the contract could have been performed in a way which was perfectly legal and would not offend against the Indian law. Without going through the evidence in detail, it seems to me that those findings of fact of the judge are amply justified, and I entirely agree with the conclusion at which he arrived, where he said¹⁶: "In my judgment, this contract to the knowledge of both parties at the time of contracting, could not in fact have been performed without the performance in a foreign and friendly country of an act which was illegal by the law of that country, and I must hold the contract to be invalid and unenforceable."

12 [1929] 1 K.B. 470.

13 Ante 498.

14 Ibid.

15 Ante 498-499.

16 Ante 504.

The only findings as to which I have had any doubt in the course of the case are, first, as to the true effect of Indian law; and, secondly, as to the knowledge of the parties as to the Indian law. That an evasion of Indian law was contemplated and intended is perfectly clear. The parties intended a shipment on the face of it to Genoa in order to prevent disclosure that South Africa was the ultimate destination; but it is said that that would involve not a breach of Indian law but merely an evasion of it. Whether it is a breach or not, of course, depends upon the true construction to be given to the Indian law. For myself, I think that on a proper construction of the Indian law shipment to Genoa with a view to transhipment to South Africa was a breach of that regulation. It was, I think, illegal under Indian law, whether or not the Customs Officer was suspicious or expressed satisfaction that, notwithstanding that it was apparently being sent to Genoa, the ultimate destination was South Africa. Further, I think that that was the knowledge of the parties at the meeting in Zurich in 1947, or, I think, as it was corrected later, in the summer of 1948. It is perfectly true that in regard to indirect shipments, as opposed to direct shipments, to South Africa, reference was made to "difficulties" as opposed to illegality; but I am perfectly satisfied, reading the evidence as a whole, and also reading the views of the parties as expressed in the correspondence, that they full well knew that a breach of Indian law would be involved.

Now, that being so, on those findings it seems to me perfectly clear that, although looking at the contract alone, it might have been performed in a perfectly legal way, yet there has been proved by these facts the "wicked intention" to which Blackburn J. referred in Waugh v. Morris¹⁷; he said: "We quite agree, that, where a contract is to do a thing which cannot be performed without a violation of the law it is void, whether the parties knew the law or not. But we think, that in order to void a contract which can be legally performed, on the ground that there was an intention to perform it in an illegal manner, it is necessary to show that there was the wicked intention to break the law; and, if this be so, the knowledge of what the law is becomes of great importance."

Now, once that "wicked intention" there referred to by Blackburn J. is proved, as I think it clearly was in this case, it seems to me that the case falls fairly and squarely within the principle enunciated in Foster v. Driscoll.¹⁸ Sankey L.J. said

17 (1873) L.R. 8 Q.B. 202, 208.

18 [1929] 1 K.B. 470.

this¹⁹: "To sum up, in my view an English contract should and will be held invalid on acount of illegality if the real object and intention of the parties necessitates them joining in an endeavour to perform in a foreign and friendly country some act which is illegal by the law of such country notwithstanding the fact that there may be, in a certain event, alternative modes or places of performing which permit the contract to be performed legally."

Lawrence L.J. said this²⁰: "The ground upon which I rest my judgment that such a partnership is illegal is that its recognition by our courts would furnish a just cause for complaint by the United States Government against our Government (of which the partners are subjects), and would be contrary to our obligation of international comity as now understood and recognized, and therefore would offend against our notions of public morality."

It is true that Scrutton L.J. dissented; it is perfectly clear that he dissented merely on his reading of the particular facts in that case. He quoted the passage from Blackburn J. to which I have already referred; and if he had taken the same view of the facts as the other members of the court, he would have found, I think, that the "wicked intention" had been proved and would have held as did Lawrence L.J. and Sankey L.J. Thus, at the very opening of his judgment, Scrutton L.J. said this²¹: "While I should like to arrive at the same result, I think that on legal principles, as the adventure could be carried out lawfully or unlawfully, and the parties have not agreed how to carry it out, the courts can deal with the legal results as if it were carried out lawfully." And again he said this²²: "The adventure, it appears to me, could be carried out in a legal way and could be carried out in an illegal way, and the adventurers had not bound themselves to either way." In other words, his reading of the facts was such that the "wicked intention" referred to by Blackburn J. had not been proved.

Taking that view of the matter, it is unnecessary for me to express any opinion upon the alternative way in which Mr. Mocatta put the case, based on Ralli's case.²³ It is sufficient to say that in my view if the appeal were to be upheld on that ground, it would involve an extension of the principle in Ralli's

19 [1929] 1 K.B. 470, 521.

20 Ibid. 510.

21 Ibid. 484.

22 Ibid. 497.

23 [1920] 2 K.B. 287.

case in that here, so far as the contract documents are concerned, the contract could be performed legally.

Finally, Mr. Lawson took the point that the Indian law was a revenue, penal or political law, to which the courts of this country will pay no attention. It is clearly in my view not a penal or a revenue law, and I share the difficulty to which my Lords have referred as to what in this connexion is meant by a political law. I have not discovered how the word "political" first crept into the rule referred to in Dicey, and it may be that it is merely dealing with the case of a foreign sovereign seeking to enforce some prerogative or sovereign right. Be that as it may, it seems to me that in this case, whether it can be classed as a penal, revenue or political law or not, this is not a case in which such a law is sought to be enforced either directly or indirectly. What is being done here, as it seems to me, is to ascertain whether performance of the contract involves the breach of the law of a foreign and friendly State; and, provided that the law does not offend on some ground as being contrary to public policy, such as laws concerning slavery or the like, I can see no reason in principle why the result should depend upon the nature of the law itself. English public policy being to do nothing which will cause complaint from a foreign sovereign State, it seems to me that it matters not whether the law is or is not a penal, revenue or political law.

It is true, as Denning L.J. has said, that Lord Mansfield in Holman v. Johnson²⁴ used very wide words indeed, and that his statement has been referred to with approval by the House of Lords in the recent case of Government of India v. Taylor²⁵; but it is equally clear that the wording of Lord Mansfield in certain respects, at any rate, is, taken literally, too wide. That was recognized in the House of Lords case and indeed was recognized by Lord Tomlin, then Tomlin J., in In re Visser, Queen of Holland v. Drukker,²⁶ and more recently in the Irish case, Peter Buchanan Ltd. & Macharg v. McVey.²⁷ There Kingsmill Moore J., having made an exhaustive analysis of the cases and referred to Foster v. Driscoll,²⁸ said this: "I doubt whether Lord Mansfield intended his remarks to preclude a court from informing itself as to the provisions of a foreign revenue law in order to determine the question whether a foreign

24 1 Cowp. 341, 343.

25 [1955] A.C. 491.

26 [1928] Ch. 877; 44 T.L.R. 692.

27 [1955] A.C. 516n., 523.

28 [1929] 1 K.B. 470.

transaction was or was not fraudulent and void according to the law of that country."

For my part, I do not see why in principle this court should not also inform itself of the provisions of a penal or revenue law in order to see whether or not the parties to an English contract had in effect agreed to break that law.

For these reasons I would dismiss the appeal.

[After an argument on costs, in which it was pointed out that Scrutton and Lawrence L.JJ. in Foster v. Driscoll²⁹ had expressed the view that in such a case no costs should be awarded.]

DENNING L.J. Whatever the position might have been in the court below if this point had been taken, in this court, as the appellant has unsuccessfully attempted to alter the judgment of the court below, we think that the appeal should be dismissed with costs.

Solicitors: Buckeridge & Braune; Stuart Hunt & Co.

F. R. D.

29 [1929] 1 K.B. 470.