Litasco S.A. v Banque El Amana S.A.

The Ralli Bros principle is a narrow exception to the rule that an English-law contract is enforced without reference to foreign illegality. It applies where contractual performance necessarily requires an act which is unlawful under legislation or regulation at the contractual place of performance. It does not ordinarily apply merely because performance would breach an unrecognised foreign court order, or because preparatory steps are unlawful in the performer’s home jurisdiction. A party cannot rely on the principle where it could have performed lawfully before the supervening illegality arose, but failed to do so. For a cross-border payment, the relevant place of performance is the contractual place of receipt unless the contract mandates a particular payment method involving another jurisdiction.

Litasco claimed payment from Banque El Amana S.A. under an English-law standby letter of credit for USD 1.8 million. The bank had not paid following a compliant presentation. It relied on Mauritanian civil and criminal court orders which purportedly prevented payment, and sought permission to amend its Defence and stay the proceedings pending Mauritanian litigation.

Litasco applied for summary judgment. The central issues were whether the standby letter of credit was governed by English law, whether the Mauritanian orders should be recognised, whether the attachment order affected the debt, and whether the bank had a real prospect of relying on the Ralli Bros principle.

1. Governing law. The SWIFT amendment contained an obvious typographical error. Construed commercially and in context, it amended the standby letter of credit in issue, making English law the governing law. There was no real prospect of a contrary conclusion at trial.

2. Recognition of the Mauritanian civil orders. Litasco had consistently challenged the Mauritanian court’s jurisdiction and had not submitted to it. There was therefore no real prospect that the stay order would bind Litasco through res judicata, issue estoppel, abuse of process or recognition principles. Section 33 of the Civil Jurisdiction and Judgments Act 1982 also supported that conclusion.

3. Attachment order. The expert evidence showed that the order prohibited payment while it remained in force. It did not establish that the debt had been discharged, ceased to be due, or acquired proprietary or in rem effects. Power Curber International Ltd v National Bank of Kuwait Sak [1981] 1 WLR 1233 was therefore distinguishable and did not provide a defence. The later analysis in Taurus Petroleum Ltd v State Oil Marketing Co of the Ministry of Oil, Republic of Iraq [2018] AC 690 also meant that the majority’s lex situs analysis in Power Curber was no longer correct.

4. Ralli Bros principle. The principle does not extend to performance which is unlawful only because it breaches an unrecognised foreign court order. That would be inconsistent with its governing-law basis and with the rules on recognition of foreign judgments. It is concerned with illegality under foreign legislation or regulation at the contractual place of performance.

5. The bank could not rely on the principle in any event. Payment had been due from 17 January 2022, and the first order relied upon was made only on 30 April 2024. The bank could therefore have performed lawfully for a substantial period. Under Banco San Juan Internacional Inc v Petróleos de Venezuela S.A. [2020] EWHC 2937 (Comm) and Celestial Aviation Services Limited v Unicredit Bank GmbH, London Branch [2024] EWCA Civ 628, a party unable to show reasonable steps to achieve valid performance cannot invoke the principle.

6. Finally, the relevant place of performance was Switzerland, where payment was to be received. Mauritanian unlawfulness affecting the bank’s internal or preparatory payment steps was insufficient. The authorities, including Kleinwort Sons & Co v Ungarische Baumwolle Industrie AG [1939] 2 KB 678, Libyan Arab Foreign Bank v Bankers Trust Co [1989] QB 728 and Toprak v Finagrain [1979] 2 Lloyd's Rep 98, supported the distinction between performance and steps taken to equip a party to perform.

7. Summary judgment was entered for Litasco. The bank’s applications to amend and to stay the proceedings were dismissed.