Any Role for the Public Policy Exception?

7.46 Both the Convention (article 16) and the Regulation (article 21) provide for a foreign applicable law to be excluded by the forum on the ground that its application in the particular

case would be contrary to the forum's public policy.

A similar ground for excluding the governing law exists at common law. Thus, where a contract is valid under its governing law, the English courts may nevertheless refuse to apply that law and/or enforce the contract on the ground that enforcement in the particular case would be contrary to English public policy.^{^[680]} Similarly, where the performance of a contract is unlawful under its governing law, the English courts may rely on the public policy exception to exclude the governing law and enforce the contract in England. However, this public policy doctrine is normally used only in exceptional cases, such as where the foreign law, which prohibits performance of the contract, is an instrument of oppression or discrimination or otherwise constitutes a serious violation of human rights.^{^[681]} In the context of stop payment orders, if the order is discriminatory on the grounds of race, religion, or political belief, it is likely that an English court would refuse to recognise that order on the ground that its application would be contrary to English public policy. In the US case of JZeevi & Sons Ltd v Grindlays Bank (Uganda) Ltd,^{^[682]}for example, a New York court refused to recognise an ‘anti-Semitic' order issued by the Ugandan government prohibiting the issuing bank in Uganda from making payment under letters of credit issued in favour of Israeli beneficiaries. The New York court described the prohibition by the Ugandan government as ‘confiscatory and discriminatory’.^{^[683]}

7.47

However, in the absence of any element of human rights violation, would an English court refuse to give effect to a stop payment order on the basis that English public policy favours enforcement of letters of credit? In Cantrade Privatbank AG Zurich v Bangkok Bank Pub Co Ltd,^{^[684]} a court in New York refused to recognise a Thai court injunction restraining an issuing bank in Thailand from paying under its letter of credit.

In doing so, the New York court referred to ‘New York's strong public policy in favour of enforcing letter of credit agreements according to their terms’.^{^[685]} However, such an application of the public policy exception is open to question. Courts should not resort to public policy merely because the policy of the law of the forum is different from that of the foreign governing law. The public policy exception should be used only where, as Justice Cardozo famously put it, application of the foreign law would ‘violate some fundamental principle ofjustice, some prevalent conception of good morals, some deep-rooted tradition of the common weal'.^{^[686]} Thus, in a different US case, Banco Amazonas SA v BNP Paribas (Suisse) SA,^{^[687]} a New York court held that recognising a Swiss injunction restraining a Swiss issuing bank from making payment under a letter of credit would not offend the public policy of New York. The mere fact that the policy of New York law was in favour of enforcing letter of credit agreements was not enough to raise the public policy exception. That exception was normally invoked only in cases involving ‘fundamental public policies’.^{^[688]}

7.48size=1 face="Times New Roman"> It is submitted that the fact that the policy of English law is in favour of issuing banks honouring their obligations under their credits is unlikely to be a sufficient basis for an English court to invoke article 16 of the Convention or article 21 of the Regulation to refuse to give effect to a foreign stop payment order. In Power Curber, Lord Denning MR stressed ‘the importance of letters of credit in international trade. They are the means by which goods are supplied all the world over. It is vital that every bank which issues a letter of credit should honour its obligations.'^{^[689]} Griffiths LJ also contrasted the approach of the Kuwaiti courts with the approach that would have been taken by an English court on similar facts.

His Lordship said that, in the claim by the buyers in Kuwait, which was the basis of the stop payment order, there was no suggestion of fraud on the part of the US exporters. He further noted that, in the absence of fraud, an English court would not have interfered with the bank's obligation to pay under the credit and went on to state that ‘the approach of the Kuwaiti court appears to be so out of step with that of our own courts and the courts of other trading nations that I fear we cannot recognise [the order]. The choice lies between upholding the world-wide practices of international commerce or the order of the Kuwaiti court. I choose the first option.'^{^[690]} These are strong statements. However, they do not go so far as to suggest that, if the law of Kuwait was the law that governed the contract between the beneficiary and issuing bank, the English court would have refused to give effect to the Kuwaiti order on the ground that its application would be contrary to English public policy.

VI.

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Source: Hare C., Neo D. (eds.). Trade Finance: Technology, Innovation and Documentary Credit. Oxford University Press,2021. — 417 p.. 2021

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Any Role for the Public Policy Exception?

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