Regazzoni v KC Sethia, [1958] AC 291, HOL

Citation:Regazzoni v KC Sethia, [1958] AC 291, HOL

Rule of thumb:Where economic sanctions/ trade embargoes are placed upon a country, can you contract around this using third party countries? No, any contracts to do business with the country’s organizations under a trade embargo, either directly or indirectly, even if the sanctioned country is only one part of the process, will be deemed to be a breach of public policy and unenforceable. Trade embargoes are to be strictly enforced.

Background facts:

The facts of this case were that the pursuer supplied the defender with the vegetable, jute. This jute involved a South African company as part of the process. Once the defender realised of the involvement of a South African company in the process they refused to pay because there was a trade embargo on South Africa that was breached during the course of the agreement. The defenders asked the pursuers to collect the jute because they could not use it.

Parties argued:

The pursuers argued that the pursuers had not actually transacted with the South African company and they were not in breach of public policy. Furthermore, they argued that this breach of public policy certainly did not invalidate the whole agreement - they were allowed to trade with the defenders meaning that the agreement was inherently sound. The defenders argued that this was a breach of the public policy principle, and they argued that this was a sufficiently serious breach of public policy that it invalidated the whole agreement. They further argued that the pursuers always intended to breach the trade embargo from the beginning of the contract and it was therefore in breach of public policy from the start, thereby invalidating it.

Judgment:

The Court upheld the arguments of the defender and affirmed that if transactions involved organisations from countries who have trade embargoes put on them then this is a breach of public policy that does indeed invalidate the whole agreement.

centered image

Ratio-decidendi:

'we must have in mind... the comity of nations... unenforceable ... from the beginning the contract was tainted', Lord Reid

‘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’, Lord Reid

Warning: This is not professional legal advice. This is not professional legal education advice. Please obtain professional guidance before embarking on any legal course of action. This is just an interpretation of a Judgment by persons of legal insight & varying levels of legal specialism, experience & expertise. Please read the Judgment yourself and form your own interpretation of it with professional assistance.