[1958]	301
A.C.

[HOUSE OF LORDS.]

REGAZZONI

APPELLANT;

AND

K. C. SETHIA (1944) LTD.

RESPONDENT.

1957 July 8, 9, 10, 11, 15; Oct. 21.

VISCOUNT SIMONDS, LORD REID, LORD COHEN, LORD KEITH OF AVONHOLM and LORD SOMERVELL OF HARROW.

Contract - Illegality - Foreign prohibition - Contract for sale of jute 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 - Repudiation of contract - Not enforceable in English courts.

Conflict of Laws - Confiscatory or political legislation.

The respondents agreed to sell and deliver to the appellant jute bags, both parties contemplating that they should be shipped from India to Genoa for resale in South Africa. The parties were also aware that the export of jute from India to South Africa was prohibited by Indian law. English law was the proper law of the contract. The respondents repudiated the contract:-

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Held, that the contract was unenforceable since an English court will not enforce a contract, or award damages for its breach, if its performance would involve doing an act in a foreign and friendly State which violates the law of that State. This principle is based on public policy and international comity. It does not follow from the fact that today the court will not enforce a revenue or penal law at the suit of a foreign State that today it will enforce a contract which requires the doing of an act in a foreign country which violates such law, but, whether or not an exception must still be made in regard to the breach of a revenue law in deference to old authority, the present case could not fall within any such exception.

Foster v. Driscoll [1929] 1 K.B. 470; 45 T.L.R. 185 applied.

Holman v. Johnson (1775) 1 Cowp. 341 distinguished and dictum that "no country ever takes notice of the revenue laws of another" doubted.

Per Lord Somervell. In any event I myself think that the courts of this country should not today enforce a contract to smuggle goods into or out of a foreign and friendly State.

Per Lord Somervell and Lord Reid. A foreign law, the enforcement of which was against morals, might be one to which the English courts will not pay regard.

Decision of the Court of Appeal [1956] 2 Q.B. 490; [1956] 2 All E.R. 487 affirmed.

APPEAL from the Court of Appeal (Denning, Birkett and Parker L.JJ.).

This was an appeal by leave of the Appeals Committee of the House of Lords (Lord Morton of Henryton, Lord Keith of Avonholm and Lord Somervell of Harrow) granted on June 21, 1956, from a judgment of the Court of Appeal given on April 26, 1956, whereby the court unanimously dismissed the appeal of the appellant, Polisseno Regazzoni, from the judgment of Sellers J. given on December 19, 1955, dismissing an action by him against the respondents, K. C. Sethia (1944) Ltd., an English company, for damages for breach of a contract made in September, 1948, and ordered that the appellant pay the costs of the appeal.

The facts as stated by Viscount Simonds were as follows: The appellant, who resided in Switzerland, brought the action out of which this appeal arose against the respondents claiming damages for breach of contract. He alleged that the respondents had agreed to sell and deliver to him September/October, 1948, c.i.f. Genoa 500,000 jute bags of the quality and standard known in the trade as new B twills and that they had wrongfully repudiated the agreement. The respondents defended the action on numerous grounds, with only one of which the House of Lords were now concerned, namely, that "the said contract, if any,

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was to the [appellant'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 where the ultimate destination was the Union of South Africa, in breach of" a certain Act of the Indian Parliament and Regulations made thereunder.

The Act in question was the Sea Customs Act, 1878, which (as modified up to December 1, 1950) provided by section 19 that the Central Government might "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 [the States across any customs frontier as defined by the Central Government]," and by section 134 that the Central Government might from time to time by similar notification "prohibit at any specified port or at all ports, the transhipment of any specified class of goods, generally or when destined for any specified ports." By section 138 of the Act provision was made for security for the due shipment, export and landing of goods and by section 167 for the punishment of offences. The prescribed penalties were severe. It was provided that if any goods, the importation or exportation of which was prohibited or restricted by or under the Act, should be imported into or exported from India contrary to such prohibition or restriction, or if any attempt should be made so to import or export any such goods, the goods themselves should be liable to confiscation, and any person concerned in any such offence should be liable to a penalty not exceeding three times the value of the goods or not exceeding 1,000 rupees.

In exercise of the powers conferred by this Act on July 17, 1946, the Central Government of India duly made an order prohibiting 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."

The facts which appeared to Lord Reid to be material were (1) that both parties knew that it was impossible to obtain so large a quantity of B twills for early shipment from any source other than India; (2) that, to the knowledge of the respondents, the appellant intended to sell the goods for shipment to the Union

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of South Africa; (3) that both parties knew that the law of India prohibited the export from India of goods destined to South Africa directly or indirectly; and (4) that the respondents intended, and the appellant knew that they intended, to evade the Indian prohibition by finding a shipper in India who would not ask inconvenient questions about the destination of the goods and who would be able to get the goods out of India. It appeared that there was a great demand for B twills in South Africa and that large profits could be made by evading the Indian prohibition and finding means to get these goods from India to South Africa.

Neil Lawson Q.C., E. J. Cohn and L. J. Blom-Cooper for the appellant. The proper law of the contract was English law and neither of the parties resided or traded in India. The following questions arise: (1) Did the performance of the contract to the knowledge or in the intention of the appellant necessarily involve a breach of Indian law? (2) If so, then, having regard to the fact that the proper law of the contract was English law, was the contract unenforceable because Indian law would or might be violated by the performance? (3) Was Foster v. Driscoll¹rightly decided or is it distinguishable? (4) Should the English courts take notice of and give effect to the Indian law in question, having regard to its particular character in that (a) it was in the nature of a hostile act directed at another friendly Commonwealth State, and (b) it was part of Indian public law of a political or revenue or penal character?

As to the first question, performance did not necessarily involve a breach of Indian law. The expert evidence showed that a vital point in Indian law, ignored in the courts below, was that it distinguished between direct and indirect export. The law was not directed against persons outside the Indian jurisdiction. Further, mens rea was essential to a violation of the regulation. The appellant's part in the performance of the contract was not tainted by illegality. If an Indian shipper was unaware of the final destination of the goods, he would not be subject to a penalty and the transaction might have been carried through without either he or the Chief Customs Officer being aware of it.

But assuming that the appellant is wrong on the first question, then, on the second question, where English law is the proper law, the courts will only refuse to enforce a contract on the ground of foreign illegality where the contract for its performance

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

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requires a party to it to do an act in a foreign country which is illegal according to the place of performance: see Dicey's Conflict of Laws, 6th ed., pp. 604, 630, 637, 641, and Ralli Brothers v. Compañia Naviera Sota y Aznar.² Reliance is placed on Vita Food Products Inc. v. Unus Shipping Co. Ltd.³ and Kleinwort, Sons & Co. v. Ungarische Baumwolle Industrie Aktiengesellschaft.⁴

A violation of foreign law may be contemplated by the parties as incidental to the contract but not part of it. There is also a distinction between intention and active participation: see Holman v. Johnson⁵; Biggs v. Lawrence⁶; Hodgson v. Temple⁷; Pellecat v. Angell⁸ and Waugh v. Morris.⁹ Where there is mere incidental illegality involving the violation of foreign law the English courts will disregard the foreign law, always assuming that the foreign country in question is not the place of the performance of the contract. See also Boucher v. Lawson¹⁰; Planchè v. Fletcher¹¹; Lever v. Fletcher¹²and Sharp v. Taylor.¹³

Even assuming that the findings as to illegality by Indian law were right, the Court of Appeal were wrong in treating that as affecting the enforceability of the contract because: (1) Here the proper law of the contract was English law. (2) The contract did not necessitate or require one of the parties to do an act which was unlawful by Indian law in the performance of the contract. (3) If and so far as active participation in an illegality is an element in the unenforceability of the contract, there was no active participation so far as concerned the appellant or the respondents.

As to the third question relating to Foster v. Driscoll,¹⁴ that ease is either distinguishable, or, if it is not distinguishable, it was wrongly decided. In Carling Export Brewing and Malting Co. Ltd. v. Rex¹⁵ its correctness was left open. It is distinguishable because the real ground of the majority's decision was the active participation of all parties in the enterprise of breaking United States law. It could be put on the same basis as the

2 [1920] 2 K.B. 287, 291, 295, 300, 303; sub nom. Sota and Aznar v. Ralli Brothers, 36 T.L.R. 456.

3 [1939] A.C. 277; 55 T.L.R. 402; [1939] 1 All E.R. 513.

4 [1939] 2 K.B. 678; 55 T.L.R. 814; [1939] 3 All E.R. 38.

5 (1775) 1 Cowp. 341.

6 (1789) 3 Term Rep. 454.

7 (1813) 5 Taunt. 181.

8 (1835) 2 Cr.M. & R. 311, 312, 313.

9 (1873) L.R. 8 Q.B. 202.

10 (1734) Cas.t.Hard. 85.

11 (1779) 1 Doug.K.B. 251.

12 (1780) Park on Marine Insurance, 8th ed., vol. I, pp. 506-507.

13 (1848) 2 Ph. 801.

14 [1929] 1 K.B. 470.

15 [1931] A.C. 435, 439-440; 47 T.L.R. 319.

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Ralli Brothers' case.¹⁶ Lawrence L.J. based his decision on partnership.

As to this Indian regulation, no one would think that there was anything wrong in exporting jute or that it was malum in se. The distinction between malum in se and malum prohibitum may be difficult, but this clearly falls within the latter. It is also possible to draw a distinction on authority between foreign laws designed to regulate the internal economy of foreign countries and foreign laws intended to have effect outside the territory of the foreign country, a distinction between laws prohibiting imports and laws prohibiting exports. It is hard to enforce export control without claiming some extraterritorial validity for the law enacting it. But in the case of a prohibition of imports it is clear that the goods are to be dealt with in the foreign country, and such a law raises no difficulties about extraterritoriality.

If it is not distinguishable, Foster v. Driscoll¹⁷ is wrong as being contrary to Boucher v. Lawson¹⁸ and Sharp v. Taylor.¹⁹It stands on its own and is unsupported by any other authority. Even if it be treated as a case of malum prohibitum, the cases relating to foreign revenue laws still retain their pristine force: see Holman v. Johnson.²⁰ The courts cannot invent new heads of public policy to meet new situations. In Foster v. Driscoll²¹the court was wrong in relying on the principle of the comity of nations. Before one can apply the principle of public policy based on the comity of nations one must see what in fact other nations do in the matter: see Compania Naviera Vascongado v. S.S. Cristina.²² See also Westgate v. Harris²³ and Harwood & Cooper v. Wilkinson.²⁴ As to the attitude of foreign courts, see Wolff's Private International Law, 2nd ed., p. 175, para. (d). The courts of other European countries do not take the view indicated in Foster v. Driscoll.²⁵ There is no principle which requires the English courts to give effect to a foreign law beyond its proper field of application. The first guiding principle in contracts is that people must adhere to their contracts. If they contract in relation to a particular law, they must perform the contract in accordance with that law.

As to the fourth question, if the appellant is wrong on the others, the courts of England should still not give effect to

16 [1920] 2 K.B. 287.

17 [1929] 1 K.B. 470.

18 Cas.t.Hard. 85.

19 2 Ph. 801.

20 1 Cowp. 341.

21 [1929] 1 K.B. 470.

22 [1938] A.C. 485, 497; 54 T.L.R. 512; [1938] 1 All E.R. 719.

23 [1929] 4 D.L.R. 643.

24 [1930] 2 D.L.R. 199, 205.

25 [1929] 1 K.B. 470.

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this Indian law, having regard to its character. Its offensive characteristics are (1) that it is itself contrary to international law because it is a hostile act directed against a friendly State, and (2) that it falls within the category of those laws to which the English courts will not have regard, penal laws, revenue laws and political laws: see Dicey's Conflict of Laws, 2nd ed., pp. 152, 155, 156. As to exchange control legislation, the law is correctly summarized in Dicey's Conflict of Laws, p. 750, r. 166: see also Kahler v. Midland Bank Ltd.²⁶ and Zivnostenska Banka National Corporation v. Frankman.²⁷ There is justification for the use in Dicey's Conflict of Laws, p. 122, r. 22, of the word "political" in enumerating "penal, revenue or political laws." They all relate to public law and the English courts will not take notice of or pay regard to foreign laws of a public character, as distinct from laws regulating the private rights and obligations of an individual: see Emperor of Austria v. Day and Kossuth.²⁸ Though the plaintiff there succeeded, he disclaimed bringing the action to enforce a political right, and it was on that basis that the case was dealt with: see also Smith v. Marconnay.²⁹ Huntington v. Attrill³⁰ shows that references to penal and revenue laws are illustrations of the class of public laws. Government of India v. Taylor³¹ shows that laws which flow from sovereign authority are to be treated in a different way from laws regulating proprietary rights: see also In the Estate of Maldonado, decd.³² As to the principle of neutrality, see Ex parte Chavasse³³ and Janson v. Driefontein Consolidated Mines Ltd.³⁴ There is no reason to apply to a contract a law which the parties have not chosen to apply to it: see Kohn v. Schooner Renaissance.³⁵

In summary, the finding of the Court of Appeal that the appellant knew and intended that there would be a violation of Indian law is not justified as an inference to be drawn from the evidence. Indian law cannot affect someone who is not subject to the Indian jurisdiction. The question of an offence could not arise unless there was knowledge on the part of the Indian shipper of the destination of the goods. The case does not fall within that of Ralli Brothers.³⁶ Foster v. Driscoll³⁷ is

26 [1950] A.C. 24; 65 T.L.R. 663; [1949] 2 All E.R. 621.

27 [1950] A.C. 57; [1949] 2 All E.R. 671.

28 (1861) 3 De G.F. & J. 217, 232, 238, 241-242, 250, 251.

29 (1796) Peake Add.C. 81.

30 [1893] A.C. 150, 153, 157; 8 T.L.R. 341.

31 [1955] A.C. 491, 503, 510, 511, 513-514; [1955] 1 All E.R. 292.

32 [1954] P. 223, 239, 244-245; [1953] 2 All E.R. 1579

33 (1865) 4 De G.J. & S. 655.

34 [1902] A.C. 484; 18 T.L.R. 796.

35 (1850) 5 Louisiana Rep. 25.

36 [1920] 2 K.B. 287.

37 [1929] 1 K.B. 470.

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distinguishable or, alternatively, it was wrongly decided; it stands on its own. Since the proper law of the contract is English, the English courts should not pay regard to Indian law.

E. J. Cohn following. It is necessary to delimit the rule in Foster v. Driscoll.³⁷ There is no exact parallel to it. It stands alone. It is not a rule of conflict of laws but of English municipal law. This distinction is not an academic or a theoretical question.

The English law of conflict of laws defines the cases where English law steps into the background in favour of foreign law. In regard to international contracts three tests are relevant to decide when this occurs: (1) the intention of the parties, which governs the proper law of the contract; (2) the lex loci contractus, and (3) the lex loci solutionis.

Here Indian law is neither the lex loci contractus nor the lex loci solutionis, because no part of the contract is to be performed in India. No act of performance is necessarily required to be performed in India by either of the parties. Someone had to do something in India, but it was not one of the parties. Indian law is brought into this matter by way of the rule of English municipal law that the English courts will not enforce a contract which violates public policy: Dicey's Conflict of Laws, 6th ed. p. 607; Cheshire's Private International Law, 5th ed., pp. 150, 155, 237. Like every other case where public policy comes into play, the rule in Foster v. Driscoll³⁷ is an exception to two overriding principles of the English law of contract: (1) that the parties have freedom to contract within the limits of English law, and (2) that a word given by way of contract stands: pacta sunt servanda. That is the context in which one must work, though there may be exceptions in cases of statutory prohibitions or contracts contrary to current views of morality.

Public policy is an unruly horse. Its operations must be defined and interpreted with the greatest care. It is by way of public policy that Indian law comes to be considered in this case at all. Not every violation of foreign law will bring the conception of public policy into operation. Public policy has a selective character. It looks both at the nature of the foreign law and at the nature of its violation. Reliance is not here placed on the case of Ralli Brothers³⁸ and other similar cases where the question of foreign law came in by the front door of conflict of laws and not by the back door of public policy, which does not open with the same case. English public policy pays regard to

37 [1929] 1 K.B. 470.

38 [1920] 2 K.B. 287.

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English habit and is devised in the interests of the English. It cannot be transformed into an obligation to pay regard to the public policies of other nations in an unconditional respect for all foreign laws, e.g., a foreign law, in war or peace, directed as a hostile act against this country. Assume an agreement between two Swiss citizens during the last war submitted the contract to English law as its proper law; assume, further, that the contract could not have been performed without an infringement of the German trading with the enemy legislation (e.g., the delivery of an artillery observation instrument); it could not have been said that that contract could not be enforced by the English courts because it violated German law.

Or assume a foreign law directed, not openly against England, but against an English colony with a view to damaging England (e.g., a law boycotting Aden). No English court would hold that public policy made it incumbent to pay regard to that law. It is self-evident that the public policy of England does not require the application of a law directed to harm the interests of this country. But English public policy is not intended merely to safeguard English national interests; other interests have also had a part in shaping it.

Public policy operating, as it does, as an exception to the principles that pacta sunt servanda and that contracts are free, the court must carefully weigh whether a foreign law is of such a character as to justify not keeping a man to his word and restraining freedom of contract. But foreign laws intended to harm a foreign and friendly nation are not of that character, since it is not in accordance with English public policy that a foreign and friendly nation should be harmed.

The rule in Foster v. Driscoll³⁹ does not merely mean that the court will not act to enforce a particular contract; it means that the court will not act, although, by virtue of its own rules, it would act but for the foreign law. That is a positive act, i.e., closing doors which are usually open, and our courts are not required by English public policy so to act as to inflict harm on a foreign and friendly nation. There may be cases where our courts would have regard to a foreign law which inflicted such harm (e.g., where the contract sought to be enforced provided for forging documents in order to circumvent it), but that would not be because of the nature of the law but because of the nature of its violation.

39 [1929] 1 K.B. 470.

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Foreign laws which do not come within the purview of public policy in this connexion are (1) laws directed against English national interests; (2) laws directed against the interests of a colony or dominion; (3) laws of a wholly trivial character, and (4) laws instituted to set in motion acts against a foreign and friendly nation. Withdrawal of diplomatic agents and suspension of commercial intercourse are recognized as being "non-amicable": see Oppenheim's International Law, 7th ed., vol. II, p. 133, para. 28. See also pp. 813-814, para. 398, for authority on how a nation should act, during a war between two foreign and friendly nations, in the matter of freedom of commerce. There is no distinction between freedom of commerce and freedom of contract. It is lawful for neutrals to carry goods from one country to another although these are at war with each other: see The Helen.⁴⁰ Blockade means that imports into one foreign country are illegal by reason of the laws of another foreign country. Yet contracts to break a blockade are not illegal, not because of the extraterritorial character of the blockade law but on account of the overriding principle of freedom of contract and commerce. Further, strict impartiality must be observed as between warring nations. From the point of view of a neutral there is no essential difference between a dispute settled by "hot" war and one settled by "cold" war; he may trade in disregard of either. Blockade and trade prohibition both depend on the law of the country imposing them. Blockade is a rule of law as well as of force, as witness the legislation in England during the late war restricting exports and imports. As to neutral trade with warring nations, see The Rannveig.⁴¹

Where public policy is concerned lawyers are allowed to look behind the law at reality to see whether morality or national interest is at stake. As a rule the mere existence of a law is enough for the lawyers to respect it, but when public policy is in question they look at motives and consequences. The selective principle of public policy excludes a law which is not conformable to the usage of nations. English public policy requires nations to act in conformity with the usage of nations and not against it: see Wolff v. Oxholm.⁴² In the dispute between India and South Africa the decision was given against India by the United Nations: see Goodrich and Hambro's Charter of the United Nations, 2nd ed., pp. 159 et seq. India

40 (1865) L.R. 1 A. & E. 1.

41 [1922] 1 A.C. 97; 38 T.L.R. 120.

42 (1817) 6 M. & S. 92.

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had used the lawful means available to her under international law to obtain satisfaction for the treatment of Indians in South Africa, but had failed, and every step which she took subsequently was not justified in international law as not being in conformity with the law of nations. The Indian law in question was harmful to a foreign and friendly State. Freedom of commerce is still a fundamental principle of international law. Every deviation from it requires justification, and here there is no justification.

Passing to another aspect of the matter, public policy does not require a court in England to apply against an English contract a foreign law which is not applied by the courts of other trading countries. If an English court is to defeat an English contract on the ground of a foreign law which is not the lex loci contractus or the lex loci solutionis, it must be shown that foreign courts would do the same. English public policy will not subject English traders to restrictions to which other traders are not subject, save when morality or English public interest requires it: see Wolff's Private International Law, 2nd ed., p. 175. The respondents must show that the courts of other trading nations would have regard to the law here in question, because otherwise it would amount to discriminating against English traders in relation to the traders of other foreign nations. It might have been said, 50 or even 10 years ago, that the disregard of foreign law practised in the eighteenth century was no longer applicable because in the nineteenth and twentieth centuries there was more conformity to the usage of nations. But the last 10 years, and especially the last three years, have seen a fresh practice, and the same robust attitude exemplified in Boucher v. Lawson⁴³ should now be adopted towards export prohibitions by foreign countries. This case cannot be disregarded on the ground of the passing of 200 years. The situations then and today must be compared.

The comity of nations plays little part in the matter now being considered. It only operates as a key to the door of public policy. It is not a recognized branch of public international law. It is merely a general habit observed by our own courts and those of other nations. It is not a matter of law but of fact, and he who relies on facts must prove them: see Oppenheim's International Law, 8th ed., vol. I, pp. 33 et seq., para. 19c. There is, however, one similarity between the rules of comity of nations and international law: no less stringent proof is required of the

43 Cas.t.Hard. 85.

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existence of comity than of the content of international law: see West Rand Central Gold Mining Co. Ltd. v. Rex.⁴⁴ But here the courts below assumed the existence of a comity of nations requiring them to invoke public policy to defeat this claim. The English courts have often made rash assumptions about the usage of nations. For instance, they have assumed that, by the usage of nations, judgments of the courts are enforced reciprocally by other nations, but this makes very strange reading for anyone who has ever tried to enforce an English judgment abroad.

Not every breach of every foreign law taints a contract with turpitude. Turpitude might follow from the intended behaviour of the parties, for instance, possibly if the parties agreed to forge documents, even for the purpose of releasing a slave from foreign slavery.

In Foster v. Driscoll⁴⁵ the contract was to supply United States citizens with liquor which, in the view of their responsible government, would undermine their health. That was clearly a different case, because there can be no possible turpitude in supplying citizens of South Africa with bags to pack their goods. If the aim, purpose and goal of a contract is unobjectionable, one is entitled to adopt a more lenient view of it in considering whether it is tainted with turpitude. In Foster v. Driscoll⁴⁵the United States Government considered "rum-running" very grave and attached a heavy penalty to it. Here, though both parties knew that it was unlawful to export jute from India to South Africa, the courts found no more than that; they did not find that the parties agreed to make a false statement; in fact the parties were intending to rely on finding an Indian shipper who would not ask too many questions. For all the appellant knew, the Indians might already have released the goods, which might be on the high seas. To hold a contract unenforceable on the ground of public policy one must find moral turpitude in both the parties.

As to the correct view of Indian laws on the relevant point, the courts below failed to observe the rules as to proof of foreign law: see Buerger v. New York Life Assurance Co.⁴⁶ and A/S Tallinna Laevauhisus v. Estonian State Steamship Line.⁴⁷ Here the courts below were not entitled to deviate from the evidence on Indian law unless it was absurd or inconsistent. Law is a question of social, historical and economic background as well

44 [1905] 2 K.B. 391, 401, 406-407; 21 T.L.R. 562.

45 [1929] 1 K.B. 470.

46 (1927) 96 L.J.K.B. 930, 940-941; 43 T.L.R. 601.

47 (1947) 80 Ll.L.Rep. 90, 107.

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as legal doctrines. If the Indian shipper had intended the goods for South Africa, or if the Chief Customs Officer was satisfied that they were for South Africa, then the export would have been unlawful in Indian law, but not otherwise. The Indian legislation only made export unlawful if certain conditions were fulfilled. On the evidence, there was a loophole in the law, which was not as sweeping as the courts below thought. One is not entitled to ask whether or not the loophole was intended. The appellant so arranged his affairs that he did not come within the words of the legislation.

The judgment appealed from would have an adverse effect on English international trade. For instance, an English trader might buy goods from a French trader, knowing that they were from the United States and were ultimately for China. United States law prohibits export to China, but English law does not. The question would arise whether that prohibition would bar an action by the purchaser if the goods were not delivered.

[VISCOUNT SIMONDS said that the respondents case might be argued on the footing that both parties to the contract were aware that it necessarily involved a breach of Indian law.]

A. A. Mocatta Q.C., Richard Vick and Peter Kenworthy-Brownefor the respondent company. This case falls within Foster v. Driscoll⁴⁸ and therefore the contract is unenforceable in the English courts. The nature of the Indian law is irrelevant; it is its existence that matters. The Indian law here in question was not a penal law, a revenue law or a confiscatory law. As to political laws, the cases cited have no application to them unless they are of a penal, revenue or confiscatory nature. Foster v. Driscoll⁴⁸ cannot be distinguished. In that case Scrutton L.J. only dissented because he took a different view of the evidence.⁴⁹The reasoning of Lawrence and Sankey L.JJ. is soundFN50 and the judgment of the former cannot be distinguished on the ground that he based his decision on the law of partnership. See also De Wütz v. Hendricks.⁵¹ Foster v. Driscoll⁵² cannot be distinguished on the ground of any distinction between exports and imports. It was rightly decided. Carling Export Brewing and Malting Co. Ltd. v. Rex⁵³ was decided on a different point. No textbook has suggested that Foster v. Driscoll⁵⁴ was wrongly

48 [1929] 1 K.B. 470.

49 Ibid. 484, 496.

50 Ibid. 509-510, 510, 512-513, 514, 514-515.

51 (1824) 2 Bing. 314.

52 [1929] 1 K.B. 470.

53 [1931] A.C. 435.

54 [1929] 1 K.B. 470.

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decided; on the contrary, the textbooks cite it with approval: Dicey's Conflict of Laws, 6th ed., p. 607; Cheshire's Private International Law, 5th ed., pp. 155, 237, and Wolff's Private International Law, 2nd ed., pp. 175, 182. Holman v. Johnson⁵⁵ is distinguishable, because the present case is not one of a revenue law. Further, the contract was complete in that case before the commission of any illegality. Biggs v. Lawrence⁵⁶ does not help the appellant, because there the action failed. It was not inconsistent with Foster v. Driscoll.⁵⁷ Hodgson v. Temple⁵⁸was a very special case. Pellecat v. Angell⁵⁹ was a case like Holman v. Johnson.⁶⁰ It is not good law now to encourage the smuggling trade; if it were, it would be a blot on our jurisprudence. As to the scope of such cases as Smith v. Marconnay⁶¹and Boucher v. Lawson,⁶² see Wolff's Private International Law, 2nd ed., p. 258. If one had to choose between these cases and Foster v. Driscoll,⁶³ one should choose the latter. Planchè v. Fletcher⁶⁴ and Lever v. Fletcher⁶⁵ are distinguishable because this is not a case of a revenue law. In any event it is doubtful whether such cases would now be followed: see Arnould on Marine Insurance, 13th ed., vol. II, pp. 670-672, paras. 741-743, and Halsbury's Laws of England, 3rd ed., vol. VII, p. 80, para. 148. Sharp v. Taylor⁶⁶ is a case similar to Boucher v. Lawson.⁶⁷Vita Food Products Inc. v. Unus Shipping Co. Ltd.⁶⁸ is not much help on the present problem, since it was very different on its facts. Kleinwort, Sons & Co. v. Ungarische Baumwolle Industrie Aktiengesellschaft⁶⁹ was also very far removed from the present case. In that case Foster v. Driscoll⁷⁰ was not cited. The case of Ralli Brothers⁷¹ was cited, approved and distinguished. On this point see du Parcq L.J.⁷² Foster v. Driscoll⁷³ is not inconsistent with the earlier or the later authorities and should be approved. It can be based either on public policy or on the principle ex turpi causa non oritur actio. See also the Ralli Brothers case.⁷⁴

55 1 Cowp. 341.

56 3 Term Rep. 454.

57 [1929] 1 K.B. 470.

58 5 Taunt. 181.

59 2 Cr.M. & R. 311.

60 1 Cowp. 341.

61 Peake Add.C. 81.

62 Cas.t.Hard. 85.

63 [1929] 1 K.B. 470.

64 1 Doug.K.B. 251.

65 Park on Marine Insurance, 8th ed., vol. I, pp. 506-507.

66 2 Ph. 801.

67 Cas.t.Hard. 85.

68 [1939] A.C. 277.

69 [1939] 2 K.B. 678.

70 [1929] 1 K.B. 470.

71 [1920] 2 K.B. 287.

72 [1939] 2 K.B. 678, 699.

73 [1929] 1 K.B. 470.

74 [1920] 2 K.B. 287, 303-304.

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The position of English courts in regard to foreign laws is one of neutrality. They will not give damages for failure to perform a contract contrary to the law of India: see Law Quarterly Review (1957), vol. LXXIII, p. 35, and Aksionairnoye Obschestvo Dlia Mechanicheskoyi Obrabotky Diereva (1) A. M. Luther v. James Sagor & Co.⁷⁵ There is no authority for saying that the Indian law now in question is a breach of public international law by India.

Huntington v. Attrill⁷⁶ is helpful to the respondents. Coupled with Government of India v. Taylor,⁷⁷ it is enough to dispose of the appellant's argument based on Dicey's Conflict of Laws, 2nd ed., p. 152. In the Estate of Maldonado, decd.⁷⁸ is very little help here. Emperor of Austria v. Day and Kossuth⁷⁹ is distinguishable from the present case, as regards the dicta relied on by the appellant. In the result the plaintiff did succeed. Wolff v. Oxholm⁸⁰ does not help in this case. There is nothing to show that this Indian law was contrary to the usage of nations.

There has been no case where the failure for which damages was sought was a failure to do in a foreign country something which was illegal in that foreign country. Damages would not be given in such circumstances, even when the proper law of the contract was English. The correct view was stated in the Court of Appeal in the present case⁸¹ by Denning and Parker L.JJ. The court was right in applying Foster v. Driscoll.⁸²

Neil Lawson Q.C. in reply. In cases such as Ralli's case⁸³one must consider the validity of the contractual act at the time it is to be performed. Here one must consider the intention of the parties. In Foster v. Driscoll⁸⁴ the fundamental basis of the contract was the actual participation by the parties in acts illegal in the United States. But knowledge and intention are not the same as actual participation in an illegal act. The present case is distinguishable because active participation in acts illegal by Indian law is required of neither party to the contract. As to invalidity of contracts, see Dicey's Conflict of Laws, 6th ed., pp. 637, 641 et seq., and Schmitthoff's English Conflict of Laws. 3rd ed., p. 133.

75 [1921] 3 K.B. 532, 557-559; 37 T.L.R. 777.

76 [1893] A.C. 150, 157.

77 [1955] A.C. 491.

78 [1954] P. 223.

79 3 De G.F. & J. 217.

80 6 M. & S. 92.

81 [1956] 2 Q.B. 490, 515-516, 524.

82 [1929] 1 K.B. 470.

83 [1920] 2 K.B. 287.

84 [1929] 1 K.B. 470, 496-498, 501, 509, 510, 514, 518, 520.

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As to the comity of nations, see Foster v. Driscoll.⁸⁵ There is no authority or principle which requires English courts to give recognition to foreign laws in relation to transactions not governed in whole or in part by the foreign law. In such a case as this it is wrong to inquire whether the contract might give rise to complaint by a foreign State. If it were right to do so, that would bring in not only foreign law but also the hypothetical interests of the foreign State. The comity of nations is a vague and tenuous idea. As to the recognition of the laws of foreign States, see Kleinwort's case,⁸⁶ per du Parcq L.J. The only circumstances in which English courts will have regard to the law of a foreign State is where it is the proper law of the contract or where the place of performance is within the territory of that foreign country. If the comity of nations provided a successful defence here, it should have provided a successful defence in Trinidad Shipping and Trading Co. Ltd. v. G. E. Alston & Co.⁸⁷Reliance is placed on In re Claim by Helbert Wagg & Co. Ltd.⁸⁸The comity of nations does not require the English courts to refuse to enforce such a contract as this.

Foster v. Driscoll⁸⁹ can be properly supported on the application of Ralli's case,⁹⁰ but if it is sought to go beyond that and apply the principles of public policy and the comity of nations, it is contrary to authority. If questions of public policy are involved, the courts should look at the nature of the foreign law to which it is suggested regard must be paid. But the Indian law here relied on is a hostile act against a foreign and friendly State, and public policy does not lead the English courts to support the legislating country in such a case against the country which is the object of the discriminatory legislation. The old cases, Boucher v. Lawson,⁹¹ Sharp v. Taylor⁹² and Planchè v. Fletcher,⁹³ are still valid. When the proper law of the contract is English law, nothing but English public policy prevents the contract from being enforced.

Their Lordships took time for consideration.

October 21. VISCOUNT SIMONDS stated the claim and the defence and the Indian legislation and continued: My Lords,

85 [1929] 1 K.B. 470, 510, 518.

86 [1939] 2 K.B. 678, 699.

87 [1920] A.C. 888; 36 T.L.R. 654.

88 [1956] Ch. 323, 351-352; sub nom. Re Helbert Wagg & Co. Ltd. [1956] 1 All E.R. 129.

89 [1929] 1 K.B. 470.

90 [1920] 2 K.B. 287.

91 Cas.t.Hard. 85.

92 2 Ph. 801.

93 1 Doug.K.B. 251.

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I do not think it necessary to state at length the facts of the case. They have been found by Sellers J. and his findings were accepted by the Court of Appeal. No other conclusion was, in my opinion, possible than that (in the words of the learned judge)¹ "both parties ... 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." Nor is it to be doubted that both parties were well aware of the restrictions imposed by the order of July 17, 1946. A strenuous attempt was made to persuade your Lordships that the contract did not infringe Indian law, and this was vouched by a Mr. Nissim, whose qualification to give expert evidence was not challenged. But I must say, with all respect to him, that I find his testimony confused and unconvincing. It may well be that an Indian shipper would not be subject to any penalty if he could prove that he was unaware of the ultimate destination of the goods. But it is not possible for parties whose common intention it is to procure the shipment of goods from India directly or indirectly to the Union of South Africa to plead the innocence of the transaction on the ground that the Indian shipper may be deceived or even that the Chief Customs Officer may be satisfied (contrary to the fact) that the ultimate destination is not the Union of South Africa. On the contrary, it must be assumed that the Chief Customs Officer would not be so satisfied: if so, the shipment inevitably falls within the prohibition and could only be carried out in violation of Indian law.

The question then arises - and it is, as I say, the only question for your Lordships' consideration - whether the respondents were justified in repudiating the contract. They claim to be justified on the ground that I have already stated. Their broad proposition is that whether or not the proper law of the contract is English law, an English court will not enforce a contract, or award damages for its breach, if its performance will involve the doing of an act in a foreign and friendly State which violates the law of that State. For this they cite the authority of the well-known case of Foster v. Driscoll,² and much of the debate in this House has been whether that case was rightly decided, and if so, whether it is distinguishable from the present case. The appellant contends that it was not rightly decided, and further invokes a familiar principle which

1 [1956] 2 Q.B. 490, 498; [1956] 2 All E.R. 487.

2 [1929] 1 K.B. 470; 45 T.L.R. 185.

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he states in these wide but questionable terms, "An English court will not have regard to a foreign law of a penal, revenue, or political character," and claims that the Indian law here in question is of such a character.

My Lords, in the consideration of this matter I deem it of the utmost importance to bear in mind that we are not here concerned with a suit by a foreign State to enforce its laws. The recent case in this House of Government of India v. Taylor³shows beyond all doubt that an English court will not enforce the penal or revenue laws of another country at the suit of that country. That proposition was there exhaustively examined and nothing remains to be said about it except that there is still a question how far, if at all, the doctrine extends to laws which are described as having a "political" or "public" character. It is clear at least, as Denning L.J. said in this case, that⁴"these courts do not sit to collect taxes for another country or to inflict punishments for it." But, as I say, we are not concerned with such a case, but with a very different question, viz., whether in a suit between private persons the court will enforce a contract which involves the doing in a foreign country of an act which is illegal by, and violates, the law of that country. When I say "foreign country" I mean a foreign and friendly country and will not repeat the phrase. In the statement of the question I call particular attention to the words "the doing in a foreign country," for it may well be that different considerations will arise and a different conclusion will be reached if the law of the contract is English and the contract can be wholly performed in England, or at least in some other country than that whose law makes the act illegal (see Kleinwort, Sons & Co. v. Ungarische Baumwolle Industrie Aktiengesellschaft⁵. There are points at which the two questions appear to touch each other, and sometimes the one proposition has been treated as an exception on the other. But there is, I think, a fundamental difference. It can hardly be regarded as a matter of comity that the courts of this country will not entertain a suit by a foreign State to enforce its revenue laws. It is, on the other hand, nothing else than comity which has influenced our courts to refuse as a matter of public policy to enforce, or to award damages for the breach of, a contract which involves the violation of

3 [1955] A.C. 491; [1955] 1 All E.R. 292.

4 [1956] 2 Q.B. 490, 515; [1956] 2 All E.R. 487.

5 [1939] 2 K.B. 678; 55 T.L.R. 814; [1939] 3 All E.R. 38.

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foreign law on foreign soil, and it is the limits of this principle that we have to examine. If the principle is, as I think it clearly is, based on public policy, your Lordships will not hesitate, while disclaiming any intention to create any new head of public policy, to apply an old principle to new circumstances.

It will be observed that I have said that the appellant's contention is that the English courts will not pay regard to the penal, revenue, or political laws of a foreign State, not merely that they will not enforce such laws at the suit of a foreign State. If he is right, then Foster v. Driscoll⁶ was wrongly decided and nothing stands in the way of the success of this appeal except the counter argument that the Indian law with which we are concerned does not fall within this category.

But before examining the cases in which the question has been the enforcement of a contract involving the violation of a foreign law, it is perhaps desirable to refer to the analogous cases in which contracts involving the violation of English law have been considered. I say "analogous cases" because here, too, public policy is involved. Whether the illegality be robbery on Hounslow Heath or smuggling goods into England contrary to our law (see Biggs v. Lawrence⁷ or the hiring of a brougham to a prostitute for the purpose of her trade, a party cannot recover in a court of justice on a contract so tainted. Here the only question will be whether the party suing is to be regarded as a sharer in the transaction (see, for example, Hodgson v. Temple⁸, and refinements have been introduced into this branch of the law which may one day merit examination.

Just as public policy avoids contracts which offend against our own law, so it will avoid at least some contracts which violate the laws of a foreign State, and it will do so because public policy demands that deference to international comity. The question is what contracts? "It occurred to me at the trial that it was contrary to the law of nations," said Best C.J. in De Wütz v. Hendricks⁹ "... for persons in England to enter into engagements to raise money to support the subjects of a Government in amity with our own, in hostilities against their Government, and that no right of action could arise out of such a transaction." More than a hundred years later in De Beèche v. South American Stores (Gath & Chaves) Ltd.¹⁰ it was said in this House: "It cannot be controverted that the law of this

6 [1929] 1 K.B. 470.

7 (1789) 3 Term Rep. 454.

8 (1813) 5 Taunt. 181.

9 (1824) 2 Bing. 314, 315-316.

10 [1935] A.C. 148, 156; 51 T.L.R. 189.

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country will not compel the fulfilment of an obligation whose performance involves the doing in a foreign country of something which the supervenient law of that country has rendered it illegal to do." I make two observations upon this citation; first, the case is a fortiori if the illegality is not supervenient but, as in the case under appeal, existent and known at the time of the contract; secondly - and I say this in deference to an argument that was vigorously addressed to us - it would, as Scrutton L.J. said in Aksionairnoye Obschestvo Dlia Mechanicheskoyi Obrabotky Diereva (1) A. M. Luther v. James Sagor & Co.,¹¹ "be a serious breach of international comity, if a State is recognized as a sovereign independent State, to postulate that its legislation is 'contrary to essential principles of justice and morality.'" Your Lordships were in effect invited to say that the relevant Indian legislation was of such a character. I can only say that there could be no possible justification for such a view, however hardly the Act may bear on the Union of South Africa.

It is time, then, to turn to those cases in which an exception has been made to the principle thus authoritatively stated. In doing so I repeat that, the principle being based on public policy, exceptions to it must be similarly based. It would, therefore, not be surprising if a contract, in one age, falls within the proposition, in another, without it. This observation has particular relevance to the first case that I shall cite. In Boucher v. Lawson,¹² the trade of exporting gold from Portugal being prohibited by the law of that country, Lord Hardwicke, then Lord Chief Justice, nevertheless upheld a contract which involved the violation of that law, observing that "if it should be laid down, that because goods are prohibited to be exported by the laws of any foreign country from whence they are brought, therefore the parties should have no remedy or action here, it would cut off all benefit of such trade from this kingdom, which would be of very bad consequence to the principal and most beneficial branches of our trade; nor does it ever seem to have been admitted." I must admit to some doubt whether, if this case had come before the court two hundred years later, so robust an assertion in favour of national interest to the prejudice of international comity would have been made. But, at any rate, in what might be regarded as purely revenue laws the same idea persisted. Thus, in Pellecat v.

11 [1921] 3 K.B. 532, 558-559; 37 T.L.R. 777.

12 (1734) Cas.t.Hard. 85, 89.

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A.C.	REGAZZONI v. K. C. SETHIA (1944) LTD. (H.L.(E.))	Viscount Simonds.

Angell,¹³ where it was held that a foreigner, selling and delivering goods abroad to a British subject and knowing at the time of sale and delivery that the purchaser intended to smuggle them into England, was not debarred from recovering the price of the goods, it was said by Lord Abinger that it would be "most unfortunate if it were so in this country, where, for many years, a most extensive foreign trade was carried on directly in contravention of the fiscal laws of several other States." The smuggling was in this case a breach of English law but it illustrates the view that was then entertained.

So, too, in Emperor of Austria v. Day and Kossuth,¹⁴ Lord Campbell L.C., after what may be regarded as a valuable exposition of the general principle, said: "A more specious objection was rested on the class of cases in which it has been held that we take no notice of the 'revenue laws' of foreign countries, so that an injunction would certainly be refused to a foreign Sovereign who should apply for one to prevent the smuggling of English manufactures into his dominions to the grievous loss of his fisc. But, although from the comity of nations, the rule has been to pay respect to the laws of foreign countries, yet, for the general benefit of free trade, 'revenue laws' have always been made the exception; and this may be an example of an exception proving the rule." In the case before him the Lord Chancellor was dealing with a claim by the foreign Sovereign himself, and in the earlier part of the passage that I have cited refers specifically to such a claim, but in the latter part his language is more comprehensive and clearly refers to the cases that I have cited, and particularly also to Holman v. Johnson,¹⁵ and the observation of Lord Mansfield C.J. often repeated and often criticized: "No country ever takes notice of the revenue laws of another." One more example I will give because it was much relied on by counsel for the appellant. In Sharp v. Taylor¹⁶ Lord Cottenham L.C. said that the courts of this country will not "refuse to administer justice between joint importers of any article of commerce upon proof that, in the production or exportation of such article, some fiscal law of the country of produce has been violated."

Here, my Lords, was a formidable line of authority when in 1920 Ralli Brothers v. Compañia Naviera Sota y Aznar¹⁷

13 (1835) 2 Cr.M. & R. 311, 313.

14 (1861) 3 De G.F. & J. 217, 241-242.

15 (1775) 1 Cowp. 341, 343.

16 (1848) 2 Ph. 801, 816.

17 [1920] 2 K.B. 287; sub nom. Sota and Aznar v. Ralli Brothers, 36 T.L.R. 456.

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came before the Court of Appeal. In that case the contract in suit was governed by English law but it required the performance in Spain of an act illegal by Spanish law, and it was held that for that reason it could not be enforced. I will cite one passage only from the judgment of Scrutton L.J. "Where," he said,¹⁸ "a contract requires an act to be done in a foreign country, it is, in the absence of very special circumstances, an implied term of the continuing validity of such a provision that the act to be done in the foreign country shall not be illegal by the law of that country. This country should not in my opinion assist or sanction the breach of the laws of other independent States." In the Ralli Brotherscase¹⁹ the relevant law was not a revenue law, and I am content to assume that Scrutton L.J. might have qualified his statement if he had had such a law in mind. But I venture to return to what I said earlier in this opinion. It does not follow from the fact that today the court will not enforce a revenue law at the suit of a foreign State that today it will enforce a contract which requires the doing of an act in a foreign country which violates the revenue law of that country. The two things are not complementary or co-extensive. This may be seen if for revenue law penal law is substituted. For an English court will not enforce a penal law at the suit of a foreign State, yet it would be surprising if it would enforce a contract which required the commission of a crime in that State. It is sufficient, however, for the purposes of the present appeal to say that, whether or not an exception must still be made in regard to the breach of a revenue law in deference to old authority, there is no ground for making an exception in regard to any other law. I should myself have said - and this is, I think, the only point upon which I do not agree with the Court of Appeal - that the present case was precisely covered by the decision in Ralli Brothers.¹⁹For when the fact is found that the very thing which the parties intended to do was to export the jute bags from India in order that they might go via Genoa to the Union of South Africa, it appears to me irrelevant that upon the face of the documents that wrongful intention was not disclosed. But, whether this is so or not, it is clearly covered by Foster v. Driscoll,²⁰ a decision the correctness of which is not to be doubted. The distinctive feature of the case was that Scrutton L.J. thought that the contract there in question could be carried out legally, and for

18 [1920] 2 K.B. 287, 304.

19 [1920] 2 K.B. 287.

20 [1929] 1 K.B. 470.

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that reason, differing from Lawrence and Sankey L.JJ., held that it was not invalid. The principle of the decision in Ralli Brothers²¹ was emphatically reasserted and the apparent innocence of the documents was disregarded, the guilty intention being proved ab extra. So, here, it has been conclusively found that the common intention of the parties was to violate the law of India, and it is of no consequence that the documents did not disclose their intention. I ought not to part from the case without noting that Sankey L.J. observed that the cases relating to the breach of a revenue law were not germane to the issue. Nor are they germane to this appeal. Whether they are still to be regarded as a binding authority is a question that must await determination.

The appeal should, in my opinion, be dismissed with costs.

LORD REID. My Lords, in September, 1948, a contract was made under which the respondents agreed to sell to the appellant 500,000 B twills (a kind of jute bag) to be shipped September or October c.i.f. Genoa at a price of 248 shillings per hundred. The appellant now sues for damages for breach of contract. Admittedly the proper law of the contract is English law. The respondents' defence is that the contract is unenforceable because of the facts known to both parties and their intentions when the contract was made. I shall not detain your Lordships by examining the evidence because I agree with what my noble and learned friend, Lord Simonds, has said about it.

[His Lordship stated the facts and continued:] To my mind, the question whether this contract is enforceable by English courts is not, properly speaking, a question of international law. The real question is one of public policy in English law: but in considering this question we must have in mind the background of international law and international relationships often referred to as the comity of nations. This is not a case of a contract being made in good faith but one party thereafter finding that he cannot perform his part of the contract without committing a breach of foreign law in the territory of the foreign country. If this contract is held to be unenforceable, it should, in my opinion, be because from the beginning the contract was tainted so that the courts of this country will not assist either party to enforce it.

I do not wish to express any opinion about a case where parties agree to deal with goods which they both know have

21 [1920] 2 K.B. 287.

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already been smuggled out of a foreign country, or about a case where the seller knows that the buyer intends to use the goods for an illegal purpose or to smuggle them into a foreign country. Such cases may raise difficult questions. The crucial fact in this case appears to me to be that both parties knew that the contract could not be performed without the respondents procuring a breach of the law of India within the territory of that country.

On that question I do not get very much assistance from the older cases. Most of them do not deal with that point and, further, it must, I think, be borne in mind that they date from a time when international relationships were somewhat different and when theories of political economy now outmoded were generally accepted. Many dealt with revenue laws or penal laws, which have always been regarded as being in a special position, and I do not wish on this occasion to say more than that probably some re-examination of some of these cases may in future be necessary. The Indian law prohibiting exports to South Africa does not appear to me to be a revenue or penal law any more than was the law of exchange control considered by this House in Kahler v. Midland Bank Ltd.²²

Further, this case does not, in my view, involve the enforcement of Indian law in England. In fact, no breach of Indian law in the execution of this contract was ever committed or attempted because the contract came to an end by its repudiation by the respondents within a few days after it was made.

The only recent authority which is directly in point is Foster v. Driscoll.²³ There Scrutton L.J. dissented because he took a different view of the facts: if he had held that performance of the contract necessarily involved a breach of American law, I think that he would have agreed with the majority. He said²⁴: "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,²⁵not because it was illegal here but as a matter of public policy based on international comity." He then cited with approval²⁶Dicey's Conflict of Laws, 4th ed., p. 620: "'It must, however, be noted that if a contract is an English contract, it will only be held invalid on account of illegality if it actually necessitates the performance in a foreign and friendly country of some act which is illegal by the law of such country.'" And he also

22 [1950] A.C. 24; 65 T.L.R. 663; [1949] 2 All E.R. 621.

23 [1929] 1 K.B. 470.

24 Ibid. 496.

25 [1920] 2 K.B. 287.

26 [1929] 1 K.B. 470, 497.

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quoted with approval a passage from the judgment of Blackburn J. in Waugh v. Morris²⁷: "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 to avoid 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." By "a thing which cannot be performed without a violation of the law," I think that Blackburn J. meant a thing which the contract expressly or by clear implication requires to be done. This contract does not require the seller to obtain the goods from India: it is only after investigation of the facts that it appears that he could not have got them anywhere else. And this contract does not disclose the buyer's intention to send the goods to South Africa. On the face of it this contract could be performed without a breach of the laws of any country. I shall also quote from what Lawrence L.J. said in Foster's case²⁸: "On principle, however, I am clearly of opinion that a partnership formed for the main purpose of deriving profit from the commission of a criminal offence in a foreign and friendly country is illegal, even although the parties have not succeeded in carrying out their enterprise, and no such criminal offence has in fact been committed; and none the less so because the parties may have contemplated that if they could not successfully arrange to commit the offence themselves they would instigate or aid and abet some other person to commit it." These passages cover the present case, and I agree with them.

Finally, it was argued that, even if there be a general rule that our courts will take notice of foreign laws so that agreements to break them are unenforceable, that rule must be subject to exceptions and this Indian law is one of which we ought not to take notice. It may be that there are exceptions. I can imagine a foreign law involving persecution of such a character that we would regard an agreement to break it as meritorious. But this Indian law is very far removed from anything of that kind. It was argued that this prohibition of exports to South Africa was a hostile act against a Commonwealth country with which we have close relations, that such a prohibition is contrary to inter national usage, and that we cannot recognize it without taking sides in the dispute between India and South Africa.

27 (1873) L.R. 8 Q.B. 202, 208.

28 [1929] 1 K.B. 470, 510.

[1958]		326
A.C.	REGAZZONI v. K. C. SETHIA (1944) LTD. (H.L.(E.))	Lord Reid.

My Lords, it is quite impossible for a court in this country to set itself up as a judge of the rights and wrongs of a controversy between two friendly countries, we cannot judge the motives or the justifications of governments of other countries in these matters and, if we tried to do so, the consequences might seriously prejudice international relations. By recognizing this Indian law so that an agreement which involves a breach of that law within Indian territory is unenforceable we express no opinion whatever, either favourable or adverse, as to the policy which caused its enactment. In my judgment this appeal should be dismissed.

LORD COHEN. My Lords, I concur.

LORD KEITH OF AVONHOLM. My Lords, on the only question of fact in this case I agree that the contracting parties knew that the contract could only be carried out, and intended that it should be carried out in circumstances which, if all the facts were known to the Indian shipper, would be a violation of Indian law.

It is accepted that the proper law of the contract is English law, and the only other question is whether the contract is one which the English courts will enforce. I am clear that it is not. The case is within the ratio of the decision in Foster v. Driscoll,²⁹and that case was, in my opinion, rightly decided. I would say a few words about Foster v. Driscoll.²⁹ In that case recourse was had to the courts in the form of three separate actions involving rights and liabilities inter se of the members of an English partnership or joint adventure. Owing to failure among the partners to achieve the objects of the joint adventure certain of the members brought actions to rescind the agreement and others actions to enforce liabilities incurred under their agreement, including certain bills of exchange drawn by some and accepted by others. The decision of the court was that the agreement constituted an illegal joint adventure, being designed to run whisky into the United States of America during a period of prohibition in that country. Lawrence L.J. stated the matter thus³⁰: "On principle, however, I am clearly of opinion that a partnership formed for the main purpose of deriving profit from the commission of a criminal offence in a foreign and friendly country is illegal, even although the parties have not succeeded in carrying out their enterprise, and no such criminal offence has in fact been committed; and none the less so because the

29 [1929] 1 K.B. 470.

30 Ibid. 510.

[1958]		327
A.C.	REGAZZONI v. K. C. SETHIA (1944) LTD. (H.L.(E.))	Lord Keith of Avonholm.

parties may have contemplated that if they could not successfully arrange to commit the offence themselves they would instigate or aid and abet some other person to commit it. 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."

In the result, the court refused to entertain the suits between the various partners and all the actions were dismissed. No point can be made of the fact that the decision related to an illegal partnership. It was necessary so to find because the court was concerned with disputes within the partnership. It was for that reason that Lindsay, for instance, one of the co-partners, endeavoured unsuccessfully to make out that his share in the transaction was merely as an independent seller of whisky in the ordinary course of trade to certain parties to the agreement, in which case other considerations might have arisen. If the contemplated object of the adventure had been achieved, and the partners had found themselves forced to sue the purchaser of the whisky for the price in the English courts, it would have been equally impossible for them to succeed against a plea of illegality, even assuming delivery had taken place on the high seas or somewhere outwith the territory of the United States.

In the present case I see no escape from the view that to recognize the contract between the appellant and the respondent as an enforceable contract would give a just cause for complaint by the Government of India and should be regarded as contrary to conceptions of international comity. On grounds of public policy, therefore, this is a contract which our courts ought not to recognize. It is said that the Indian legislation is discriminatory legislation against a country which is a member of the Commonwealth and with which this country is on friendly terms. But that, in my opinion, is irrelevant. The English courts cannot be called on to adjudicate upon political issues between India and South Africa. The Indian law is not a law repugnant to English conceptions of what may be regarded as within the ordinary field of legislation or administrative order even in this country. It is the illegality under the foreign law that is to be considered and not the effect of the foreign law on another country.

[1958]		328
A.C.	REGAZZONI v. K. C. SETHIA (1944) LTD. (H.L.(E.))	Lord Keith of Avonholm.

I have not found it necessary to refer to a number of cases which were much canvassed in the course of the hearing. Apart from those where there were clear violations of English law, as in Biggs v. Lawrence³¹ and De Wütz v. Hendricks,³² many of these cases would seem to fall broadly into two categories: (1) cases where a vendor knew or suspected that goods sold and delivered abroad were to be smuggled by the purchaser into England in breach of her customs laws (for example, Holman v. Johnson,³³ Pellecat v. Angell³⁴; (2) cases where goods or moneys had been acquired and brought to this country in breach of some foreign law: Boucher v. Lawson³⁵; Sharp v. Taylor.³⁶ I agree with the view entertained by some of your Lordships and by all the Lords Justices in the Court of Appeal that the proposition that "no country ever takes notice of the revenue laws of another" is too widely expressed. It may require in some other case fuller examination and elucidation. It was but lightly touched on in the case of Government of India v. Taylor.³⁷ But it is not a proposition that can be invoked in the circumstances of this case. I would reserve my opinion whether, apart from any such supposed rule of law, some of these decisions may not be supported on the view that the transaction in question was unaffected by the illegality, either because in one category of case the transaction was finished and the vendor had no concern, or reason to be concerned, with the intentions of the purchaser, or because in the other category the illegality had been exhausted and new rights and liabilities had emerged which did not call for any recognition of the illegality.

I would dismiss the appeal.

LORD SOMERVELL OF HARROW. My Lords, a foreign State or prosecuting authority cannot in our courts enforce its criminal law. "Crimes, including in that term all breaches of public law punishable by pecuniary mulct or otherwise, at the instance of the State Government, or of someone representing the public, are local in this sense, that they are only cognizable and punishable in the country where they were committed": Huntington v. Attrill.³⁸ In the result there are treaties of extradition.

31 3 Term Rep. 454.

32 2 Bing. 314.

33 1 Cowp. 341.

34 2 Cr.M. & R. 311.

35 Cas.t.Hard. 85.

36 2 Ph. 801.

37 [1955] A.C. 491; [1955] 1 All E.R. 292.

38 [1893] A.C. 150, 156; 8 T.L.R. 341.

[1958]		329
A.C.	REGAZZONI v. K. C. SETHIA (1944) LTD. (H.L.(E.))	Lord Somervell of Harrow.

At the other end of the legal scale our courts, in a dispute between contracting parties, will enforce foreign law of contract if according to the applicable rules it is the proper law by which to determine the issues raised. The fact that the contract was made abroad and to be performed abroad does not affect the jurisdiction.

Although many revenue laws do not come within the words from Attrill's case³⁸ cited above, they are unenforceable in our courts: Government of India v. Taylor.³⁹

The principles stated above do not in themselves solve or throw any real light on the present problem, which may be stated as follows: Will our courts enforce a contract if its performance involves a breach of foreign criminal or "public" law? If the answer is "No," one has to consider the degree of involvement that will produce unenforceability.

It seems to me impossible to suggest that our courts would enforce an agreement to commit in country A a crime such as murder, arson or burglary. Is there any justification for drawing a line between what are evils generally and acts prohibited by the foreign State, no doubt because they are regarded as local evils?

The statements in the old cases support the view that it is the illegality under the foreign law which is the test and one does not have to distinguish or attempt to distinguish between what is "wrong" from what is prohibited. In Holman v. Johnson⁴⁰tea had been sold and delivered in Dunkirk, the seller knowing that the buyer intended to smuggle it into England. The proper law of the contract was the law of Dunkirk, and the illegality had to be considered in the first place under that law. Lord Mansfield, in considering this point, held that the contract was valid not on the ground that illegality under foreign law is never relevant but on the ground that no country ever takes notice of the revenue (my italics) laws of another country. He was clearly directing his mind to the law in force in Dunkirk, as the revenue law in question was the law of England. He implies that the law of one country would take notice of illegalities arising under the laws of another country other than revenue laws.

The principle appears clearly from a paragraph in Lord Campbell L.C.'s judgment in Emperor of Austria v. Day and Kossuth⁴¹: "A more specious objection was rested on the class of cases in which it has been held that we take no notice of the 'revenue laws' of foreign countries, so that an injunction

38 [1893] A.C. 150, 156.

39 [1955] A.C. 491.

40 1 Cowp. 341.

41 3 De G.F. & J. 217, 241-242.

[1958]		330
A.C.	REGAZZONI v. K. C. SETHIA (1944) LTD. (H.L.(E.))	Lord Somervell of Harrow.

would certainly be refused to a foreign sovereign who should apply for one to prevent the smuggling of English manufactures into his dominions to the loss of his fisc. But, although from the comity of nations, the rule has been to pay respect to the laws of foreign countries, yet, for the general benefit of free trade, 'revenue laws' have always been made the exception; and this may be an example of an exception proving the rule." That is the principle rightly applied in Foster v. Driscoll.⁴² It is a principle of our municipal law. Its aim is no doubt to preserve comity with other friendly States, but it is in no sense dependent on proof of universality or reciprocity.

In the present case, for reasons which have been stated by your Lordships, the performance of the contract to the knowledge and intention of both parties involved a breach of Indian law. Prima facie that is sufficient to make it unenforceable in our courts. Your Lordships were invited to make an exception to the principle on the ground that the law in question was directed against the Union of South Africa arising out of a dispute between the two States. I do not think this would justify taking the case out of the rule.

The statement that in this field one country takes no notice of the revenue laws of another seems to have been based on the principle that smuggling and freedom "gang thegither" and had its high water mark in Boucher v. Lawson.⁴³ Scrutton L.J., in Ralli Brothers v. Compañia Naviera Sota y Aznar,⁴⁴ reserved the issue for consideration should it arise. It was submitted that the prohibition in the present case of export to a particular destination was a revenue law, and one can imagine such a prohibition being a revenue law. On the evidence in the present case it would seem not to fall within the ordinary meaning of the phrase, but in any event I myself think that the courts of this country should not today enforce a contract to smuggle goods into or out of a foreign and friendly State.

There may, of course, be laws the enforcement of which would be against "morals." In such a case an exception might be made to the general principle. The point can be dealt with if it arises.

In conclusion, I would like to say a word as to the scope of the word "involves" in my statement of the question raised in the present appeal. One has, at one end of the scale, a contract which on its face necessitates a breach of the foreign law: a

42 [1929] 1 K.B. 170.

43 Cas.t.Hard. 85.

44 [1920] 2 K.B. 287.

[1958]		331
A.C.	REGAZZONI v. K. C. SETHIA (1944) LTD. (H.L.(E.))	Lord Somervell of Harrow.

contract to deliver prohibited goods in the territory. At the other end one may have a contract of sale legal on its face at a normal market price, the vendor suspecting or knowing that the buyer intends to use the goods for an illegal purpose in a foreign country. The same problem arises when a contract is said to be unenforceable as immoral or illegal under our own law: Pearce v. Brooks.⁴⁵ In Foster v. Driscoll⁴⁶ the majority found that the evidence established a joint enterprise to import whisky into the United States. "It is not a case," said Sankey L.J.,⁴⁷where one or other of them merely knew that the whisky was going to the States." I am never very clear as to the effect of "mere" and "merely," though I may have used one or other myself. If the question is one of illegality under our law, the contract is unenforceable if the defendant knew that the goods or money or other consideration were to be used for a purpose immoral or illegal under our law.

It would be convenient if the same principle was applied but it does not arise directly in this case.

I would dismiss the appeal.

Appeal dismissed.

Solicitors: Buckeridge & Braune; Stuart Hunt & Co.

F. C.

45 (1866) L.R. 1 Ex. 213.

46 [1929] 1 K.B. 470.

47 Ibid. 515.