The Disputes Brief

Must try harder

Sanctions lawyers in particular will be familiar with the concept of supervening illegality: performance of a contractual obligation becomes illegal due to a change in the law after the agreement is made. In general, illegality under foreign law (whether supervening or otherwise) does not frustrate or otherwise relieve a party from performance of an English law contract. The rule in Ralli Brothers v Compania Naviera Sota Y Aznar [1920] 2 KB 287 operates as a narrow exception. It may prevent enforcement of an obligation under a contract governed by English law or, in the case of a payment obligation, suspend it, where the contract requires performance in a place where that performance would be unlawful. In Central Termica De Temane SA v Banco Santander S.A. [2026] EWHC 2587 (Comm), Calver J had cause to review the Ralli Brothers principle, holding that: (a) when determining whether it applies, it was essential to identify the place of performance; (b) foreign court orders are capable, in principle, of engaging the principle, just as legislative or executive measures may do; and (c) the party relying on it must show that they took reasonable efforts to bring about valid performance, or that such efforts would have been in vain.

Summary of the facts

CTT, the First Claimant and a Mozambican corporation, entered into a contract with entities in the TSK Group. TSK requested Santander issue two bonds in favour of CTT to secure aspects of the contract. The terms of each bond provided that Santander would make payment within five working days of receipt of a demand made in accordance with the terms of the bond and without further enquiry. Payment was required to be made to an account nominated in the demand. Both bonds were governed by English law.

TSK purported to terminate the contract with CTT due to a force majeure event. CTT disputed the termination and made demands under the bonds, requesting payment be made to an account in Mozambique. TSK successfully applied ex parte to the Spanish Court for interim injunctions against CTT, which prohibited Santander from making payments under the bonds. TSK then commenced an arbitration against CTT. CTT took steps to discharge the injunction in Spain, but to no avail. Due to delays in that process, CTT initiated proceedings in England seeking an order to enforce payment under the bonds.

Where should performance take place?

Calver J started with the proposition that, for the Ralli Brothers principle to be engaged at all, the relevant contractual obligation had to be illegal in the place of performance. This required an analysis of the terms of the bonds. Santander was expressly obliged by the bonds to make payment to the account specified in the demand. This was not simply administrative machinery: by making such a payment, Santander performed its contractual obligation. The receipt and processing of the demands in Spain were, at most, preparatory steps by which Santander equipped itself to perform. The place of performance was Mozambique, payment was lawful in Mozambique and therefore the Ralli Brothers principle did not apply.

Does a court order engage the Ralli Brothers principle at all?

Notwithstanding he had found that the Ralli Brothers principle did not apply, in case he was wrong, Calver J addressed the submissions made by CTT that Santander could not rely on the principle in any event. This was, CTT argued, because it does not apply to unlawfulness deriving from breach of a court order. In putting forward this proposition, CTT relied upon Litasco v Banque El Amana SA [2025] EWHC 312 (Comm) and Beneathco DMCC v RJ O’Brien Ltd [2025] EWHC 3079 (Comm).

Calver J observed that, prior to Litasco, there was no support in the authorities for a distinction between unlawfulness by reason of legislation or regulation and unlawfulness resulting from a breach of a foreign court order. Calver J continued that the Ralli Brothers principle derived from international comity and he did not consider that supervening court orders of a foreign state should be treated any differently to its supervening legislative acts. Each of these measures, court orders, legislative and executive acts, are an exercise of sovereign authority by the state concerned. In so far as Litasco suggested that court orders, including interim injunctions, could not as a matter of principle fall within the scope of the Ralli Brothers exception, Calver J considered this to be “clearly wrong”.

What steps are necessary to rely on the Ralli Brothers principle?

The party seeking to rely on the Ralli Brothers principle must discharge the burden of establishing that it took reasonable steps to bring about valid performance, or avoid illegality. Alternatively, it must establish that, even had it taken such steps, the outcome would not have been any different. In this case, Santander had to show either that it took reasonable steps to procure the discharge of the injunction (including, potentially, by supporting CTT’s challenge), or alternatively that any such steps would have been futile.

Although, having determined that the Ralli Brothers principle did not apply, he did not need to determine the point, Calver J found that Santander had made no effort at all to have the injunction discharged. Neither had it adduced any factual or expert evidence to support an argument that its intervention (or attempted intervention), as the debtor under the bonds, would have made no difference. Calver J added that it did not suffice for Santander, as the non-performing party, merely to assert that it reasonably believed that its intervention would have made no difference.

What practical points should business take from this?

This decision underlines the need to distinguish carefully between the governing law of an instrument, the jurisdiction chosen to determine disputes and the contractual place of performance. Parties drafting demand bonds and similar instruments should expressly address where payment is to be made and consider whether the instrument should provide protection where performance, or steps necessary to effect it, becomes unlawful in the obligor’s home jurisdiction. As Calver J observed, Santander could have obtained sufficient protection by selecting Spanish law, specifying Spain as the place of payment, or negotiating a contractual provision dealing expressly with supervening illegality.

A party which finds itself in the position where supervening foreign illegality applies, which needs to rely on the Ralli Brothers principle, cannot do nothing. It should take reasonable steps to remove or overcome the illegality and preserve evidence of those efforts. A bare assertion that intervention would probably have been futile will not discharge the burden of proving that reasonable steps would have made no difference.

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Disclaimer: This article is provided for general information only and is accurate as of 19 October 2026. It may not be updated to reflect subsequent legal or other developments. It does not constitute legal advice and should not be relied on as such. Specific legal advice should be obtained in relation to particular circumstances.