CL-2022-000456 - [2025] EWHC 1938 (Comm)

The rule in Ralli Brothers v Companie Naviera Sota y Aznar [1920] 2 KB 287 is a well-established principle derived from the Court of Appeal’s adoption in that case of the principle, now set out in Dicey, Morris & Collins on the Conflict of Laws (16th ed) at 32-257, that:

“… a contract (whether lawful by its governing law or not) [is], in general, invalid in so far as the performance of it [is] unlawful by the law of the country where the contract [is] to be performed.”

The principle was very recently summarised by the Court of Appeal in Celestial Aviation at [105]-[106] as follows:

“[105] The Ralli Bros principle is well-established. It is a limited exception to the general principle that the enforceability of a contract governed by English law is determined without reference to illegality under any other law. The exception applies where contractual performance necessarily requires an act to be done in a place where it would be unlawful to carry it out: see for example Dana Gas PJSC v Dana Gas Sukuk Ltd [2018] 1 Lloyd’s Rep 177 at [79] per Leggatt J and Banco San Juan Internacional Inc v Petróleos de Venezuela SA [2021] 2 All ER (Comm) 590 (“Banco San Juan”) at [62], [77] and [79] per Cockerill J.

[106] A distinction has been drawn in the case law between situations where performance is illegal in the jurisdiction where performance must take place, where the principle applies, and cases where the illegality relates to a preparatory step to performance, or “equipping to perform”: Banco San Juan at [80]–[83], where the illegality does not excuse non-performance.Further, it is not in dispute that a party will not be excused if performance would be legal if a licence was obtained, unless that party shows that they either made reasonable efforts to obtain a licence or that any such efforts would have been in vain because a licence would have been refused.”

This summary of the law was not challenged. There were two main issues that arose from it: