Jump to Content Jump to Main Navigation
Signed in as:

Part IV Exchange Controls, Exchange Rates, and Sanctions, 14 Exchange Control—The UK Model

From: Mann and Proctor on the Law of Money (8th Edition)

Charles Proctor

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved. Subscriber: null; date: 07 June 2023

Currency — Exchange control — Monetary obligations — Bank of England

(p. 375) 14  Exchange Control—The UK Model

A.  Exchange Control up to the Exchange Control Act 1947

14.01  The Exchange Control Act 1947 created the statutory regime for the administration of exchange control which remained in place for some thirty-two years,1 until the system was suspended by the Conservative Government in 1979 and, ultimately, repealed in its entirety.2 As matters stand at present, it would now be virtually impossible for the United Kingdom to reintroduce general and wide-ranging measures of this kind; the United Kingdom cannot now introduce restrictions on the free movement of capital or payments, for this would be inconsistent with its treaty obligations as a member of the European Union.3 Even though the completion of the Brexit process has freed the country from those shackles, it will remain subject to the restrictions contained in the Articles of Agreement of the International Monetary Fund. These would essentially prohibit the introduction of exchange controls that inhibit current payments, but the United Kingdom would acquire the right to impose capital controls, if that even became necessary.4

14.02  Although the present chapter will focus primarily on the provisions of the 1947 Act, it should not be thought that exchange control was an innovation at that point. On the contrary, this country had sought to legislate against the export of gold and silver for a number of centuries—the development of exchange control can be traced back to the beginning of the thirteenth century, and a detailed scheme was put in place in 1576. The whole matter (p. 376) was again addressed in two later Acts.5 This legislation remained in force until the end of the Bank Restriction Period when Parliament repealed6 the long list of statutes prohibiting the export of precious metals and, after more than 500 years, finally established complete freedom of trade. During the First World War, there was no specific prohibition of the export of gold (nor any exchange control in general) but such exports were in fact prevented through purely administrative measures. After that war, the prohibition against the export of gold was placed on a statutory footing,7 until complete freedom of trade was restored in 1925 and remained intact until the outbreak of the Second World War. At that point, exchange control was reintroduced through the Defence (Finance) Regulations 1939.8 Subsequently, however, exchange control in this country rested principally upon the Exchange Control Act 1947 and upon numerous statutory instruments and Notices to Banks.9 The remainder of this chapter will thus consider the 1947 Act, although some of the cases to which reference will be made have been decided on the basis of the corresponding provisions contained in earlier regulations.

14.03  It may be helpful to provide a brief explanation of the purpose and objectives of the UK’s system of exchange control. In essence, the system prevented British residents—whether individuals or corporate entities, from holding foreign currencies. This helped the UK authorities to conserve the country’s gold and foreign reserves and to maintain its balance of payments position. By the same token, British residents were prohibited from providing sterling-denominated credit to persons resident elsewhere. The controls did not apply to Ireland or to other ‘scheduled territories’ (ie, Commonwealth countries within the sterling area). Cross-border payments for goods and services had to be authorized because the Bretton Woods Agreement had required liberalization for current payments.10

14.04  Although the United Kingdom no longer imposes a system of exchange control, it should be noted that the 1947 Act still provides the basis for corresponding legislation that remains in force in some Commonwealth countries, including South Africa and Malaysia. The commentary in the present chapter may therefore be of assistance in countries where this model is still used, and is included to provide an overview of the operation of an exchange control system. Since exchange controls may have the effect of inhibiting access to property, the relevant regulations may be subject to challenge when read against overacting provisions of a written constitution.11

(p. 377) B.  The General Scheme of the 1947 Act

14.05  The Exchange Control Act 1947 adopted a ‘streamlined’ pattern; it took very broad powers for the prohibition and control of monetary and financial transactions. The ambit of the legislation was then made workable by statutory instruments and Notices to Banks, which permitted numerous transactions which would otherwise have fallen within the scope of the broad prohibitions in the Act itself.

14.06  The 1947 Act consists of six Parts, namely: I gold and foreign currency; II payments; III securities; IV import and export; V miscellaneous; and VI supplemental provisions. There are also six Schedules to the Act. Many provisions of the Act are not concerned with money in the narrow sense of the term, but with monetary resources. Thus, Part III relates exclusively to securities, their issue, transfer, and deposit, while section 30 deals with the restrictions which could be imposed upon foreign companies by reason of the fact that their controllers were resident in the United Kingdom.

14.07  Most of the provisions of the Act are prohibitive; these prohibitions are not absolute, but are relative in the sense that they cease to apply if the consent of the Treasury had been given.12 Consents could be given specially, in response to a specific application by the party concerned, or generally, that is to say, authorizing any transaction which satisfied the criteria set out in the permission concerned. Any such permission could be granted unconditionally or subject to conditions; but (except in certain cases specifically provided by the Act) permissions could not have retrospective effect, or ‘validate’ transactions which had previously been effected in contravention of the Act.13

14.08  The contractual consequences of a contravention of the 1947 Act are considered later.14 So far as criminal liability is concerned, an offence was committed by ‘any person in or resident in the United Kingdom’ who contravened the prohibitions contained in the 1947 Act, and by ‘any such person who conspires or attempts or aids, abets, counsels or procures any other person’ to contravene those prohibitions.15 Ignorance of the 1947 Act or its legal effect would plainly have afforded no defence in criminal proceedings.16 Given that the 1947 Act was (p. 378) designed to protect the (then precarious) position of the national currency, the courts had to work on the assumption that rigorous enforcement was appropriate.17 Nevertheless, whilst regulating the ability to make payments to or for the benefit of non-residents, the 1947 Act was not intended to provide a moratorium for debtors.18

14.09  It is necessary to emphasize one of the key structural features of the 1947 Act, namely that a sharp distinction was drawn between authorized dealers and other persons. Authorized dealers were banks named as such by the Treasury, and they were entitled to buy and sell and to borrow and lend gold and foreign currency, and to retain specified currency.19 As a result, British banks could deal in gold and foreign currencies—both with other British banks and with foreign institutions—without any requirement for Treasury permission. The City of London was thus able to develop its role as an international financial centre, notwithstanding the existence of a rigid (domestic) system of exchange control which applied in other contexts.

C.  The Offences Created by the 1947 Act

14.10  It is not necessary to undertake a detailed analysis of the offences created by the Exchange Control Act 1947. Instead, it is proposed to undertake an admittedly selective examination of some of the core sections which lie at the heart of an exchange control system and thus provide an outline to those unfamiliar with such a system.

14.11  Section 1(1) of the 1947 Act provided that:

Except with the permission of the Treasury, no person, other than an authorised dealer, shall in the United Kingdom, and no other person resident in the United Kingdom, other than an authorised dealer, shall outside the United Kingdom, buy or borrow any gold or foreign currency from, or sell or lend any gold or foreign currency to, any person other than an authorised dealer.

Transactions involving foreign currency or gold20 were thus prohibited if they involved a person resident in the United Kingdom, even though he was abroad at the time of the transaction. Likewise, such a transaction was prohibited if it took place in the United Kingdom, even though both parties were resident abroad. The privileged position of authorized dealers is also highlighted by section 1 and will be further emphasized in other sections of the Act.

14.12  Section 2 of the Act provided that:

(p. 379)

Every person in or resident in the United Kingdom who is entitled to sell, or to procure the sale of, any gold, or any foreign currency to which this section applies and is not an authorised dealer, shall offer it, or cause it to be offered, for sale to an authorised dealer, unless the Treasury consent to his retention and use thereof or he disposes thereof to any other person with the permission of the Treasury.

14.13  Sections 5 and 6 of the 1947 Act dealt with payments made to persons outside the United Kingdom.21 In the absence of permission from the Treasury ‘no person resident in the United Kingdom shall … in the United Kingdom … make any payment to or for the credit of a person resident outside [the United Kingdom]’.22

14.14  Section 1 of the 1947 Act thus prohibited dealings in gold and foreign currencies, whilst section 2 prohibited the holding of foreign currencies by creating an obligation to surrender any such holdings by means of offering them for sale to an authorized dealer. Sections 5 and 6 of the Act prohibited the making of payments—whether in sterling or in foreign currencies—to persons outside the United Kingdom.23 Without attempting a sophisticated analysis, it is now possible to discern the main elements of the UK system of exchange control. No one could use their sterling funds or assets to acquire gold or foreign currency unless he did so through a bank (authorized dealer) which acted within the scope of the framework operated by the Bank of England. Similarly, in the absence of the necessary permission, it was unlawful to make a payment to a person outside the United Kingdom. These provisions were thus designed to control and preserve the use and availability of financial resources within this country. It necessarily followed from these rules that foreign holdings of sterling were restricted.24 Yet the provisions were not of unlimited scope. Thus, if a person in the United Kingdom provided security for the borrowings of a non-resident, the fact that the security might ultimately be enforced did not lead to the conclusion that the mortgagor or charger had, in creating the security, made a payment to a non-resident.25

14.15  Yet matters cannot end there, for gold, sterling, and foreign currency were by no means the only forms of monetary resources. This point is acknowledged by Part III of the Act, and in particular by sections 8 and 9. In essence, these sections prohibited both the original issue of debt and equity securities to a person outside the United Kingdom and the subsequent transfer of any securities to such a person. In the absence of permission, persons outside this country were not permitted to hold securities issued by entities within the United Kingdom, for they would thereby acquire claims upon monetary resources within this country. These (p. 380) provisions thus illustrate that a system of exchange control is not merely aimed at protecting the domestic currency but also serves to protect monetary resources in a much wider sense of that term.26

14.16  A person convicted of an offence under the Act was liable both to a fine and a period of imprisonment of up to two years.27

D.  Personal and Territorial Ambit

14.17  Since the purpose of exchange control was to protect both sterling and other monetary assets by restricting outward transfers, it is perhaps unsurprising that, in a number of respects, the 1947 Act applied to transactions which were effected abroad and which had the effect of transferring such assets to foreigners. Indeed, the Act was expressed to apply to all persons, whether or not they were within the United Kingdom at the relevant time and whether or not they were British subjects;28 absence from the United Kingdom and foreign nationality did not necessarily exempt a person from the obligations imposed by the 1947 Act. In practice, however, individual sections tended to deal with the territoriality question in different ways, and invariably restricted the scope of the Act as a result. This particular point is apparent from the statutory language employed in sections 1, 2, 5, and 6 of the 1947 Act which were considered in the preceding section. It followed that a payment or other transaction could infringe the Act if:

  1. (a)  the person responsible for it acted within the United Kingdom, even though he was a foreign national resident abroad; and

  2. (b)  the responsible person acted outside the United Kingdom but was resident in this country.29

Thus, UK residents were subjected to the provisions of the 1947 Act at all times, whether in or outside the country; foreign nationals were subjected to the Act only whilst they were present physically in, or were acting through, the United Kingdom. That this was intended to be the general rule may be derived from a number of the provisions of the Act,30 but certain restrictions applied only to persons resident in the United Kingdom.31 Other provisions applied only to persons ‘in the United Kingdom’,32 whilst in other cases a person was prohibited from taking certain steps in the United Kingdom, even if not physically here at the relevant time.33 The scope of the criminal provisions may thus in some cases have exceeded (p. 381) the jurisdiction which international law allows a State to exercise,34 although it is plainly no longer necessary to consider the matter.

E.  Exchange Control and Monetary Obligations

14.18  Having examined the 1947 Act in terms of its legal effect and territorial scope, it is necessary to examine the terms of the Act in so far as it affected monetary obligations.35 At the risk of oversimplification, it may be said that the existence of an exchange control regime could affect contractual obligations in three possible ways. First of all, it could affect the very existence of the contract itself. Secondly, it could have consequences for the terms of contracts which created monetary obligations; finally, it could have an impact upon the enforceability of such contracts. These three points must be considered separately.

14.19  The first point rests upon fundamental principles of contract law. Specifically, the parties will not be legally bound to any arrangements which they may have discussed unless it can be shown that they intended to enter into arrangements of a legally binding nature.36 In a commercial context one may refer to ‘letters of comfort’, where a party provides assurances as to its future conduct, but which are framed in a manner which may be intended as a statement of policy or goodwill, as opposed to a binding commitment. The (non-)contractual character of such documents will be a question touching the material validity of the bargain between the parties, and will thus be governed by the putative applicable law in accordance with Article 10 of Rome I.37 Thus when a bank advanced money to the English subsidiary of a Malaysian parent company, it obtained from the parent a letter confirming that it was its policy to ensure that its subsidiaries were able to meet their respective liabilities as they arose. The Court of Appeal understandably held that this was merely a statement of current policy and it could not be construed as a contractual undertaking to ensure the continued solvency of the subsidiary concerned, or as a guarantee of the underlying loan. In reaching that conclusion, however, the Court was influenced by the fact that the issue of a formal guarantee by the parent company would have required exchange control in Malaysia, because of the external monetary obligations which such a course would have involved. The existence of the Malaysian Exchange Control Act—coupled with the absence of any intention to apply for approval—justified the inference that the document was not intended to create a binding contractual obligation.38

14.20  Turning now to the terms of the contract concerned, section 33(1) of the 1947 Act reads39 as follows:

(p. 382)

It shall be an implied condition in any contract that where, by virtue of this Act, the permission or consent of the Treasury is at the time of the contract required for the performance of any term thereof that term shall not be performed except in so far as the permission or consent is given or not required: Provided that this subsection shall not apply in so far as it is shown to be inconsistent with the intention of the parties that it should apply, whether by reason of their having contemplated the performance of that term in spite of the provisions of this Act or for any other reason.

14.21  According to the House of Lords, it was not clear why section 33(1) was thought to be necessary.40 In the view of the present writer, the subsection was designed to preserve the contractual bargain where (as in the vast majority of cases) the parties would have intended to seek exchange control approval before any relevant payments were made, and to defeat any unmeritorious claim to the effect that the 1947 Act rendered the contract unlawful from the outset; yet the point remains obscure, for judgment on a debt could be obtained even though the requisite approval had not been given.41 The following points may be noted in this regard:

  1. (a)  It is clear that the 1947 Act did not prohibit a person from agreeing to lend foreign currency, although, as we have seen, the actual advance of the money would be unlawful until the necessary permission had been obtained under section 1 of the Act. Section 33(1) seems to be consistent with that analysis, and implied an appropriate term into the contract to ensure its validity.

  2. (b)  If an exchange control consent was required and the parties included an express condition that the necessary permissions must be obtained, then they would thereby create a valid and binding contract, but neither party would be obliged to perform his obligations unless and until the necessary permission had been given.42 If the parties had included no express provision on this point but had nevertheless intended to perform their contract lawfully, then the necessary term would be implied by virtue of section 33(1). In either case, the legal position is essentially the same. Generally speaking, the obligation to apply for the necessary permission would fall upon the party who is subject to the relevant prohibitions under the 1947 Act, for it is he who required the consent and he would usually possess the information required in order to obtain it.43 If the party required to apply for the permission failed to use reasonable diligence to obtain it, then he would be unable to rely on the condition and may also be liable for damages in respect of his breach.44

14.22  Turning now to the enforceability of contracts affected by the exchange control regime:

  1. (a)  If the evidence demonstrated that the parties intended to disregard their obligations under the 1947 Act, then it was impossible for the court to imply a term requiring that consent be obtained as a condition precedent to performance.45

  2. (b)  Under these circumstances, non-compliance with the 1947 Act usually rendered the transaction illegal and void. In view of the policy considerations which formed the (p. 383) basis of the UK exchange control system, a payment made in contravention of the 1947 Act could not be recovered by means of an action for money had and received. Thus where a British national involuntarily resident in Monaco during the Second World War was forced to borrow money to save her family, it was held that this constituted a breach of the Defence (Finance) Regulations 1939, and the loan contract was thus unenforceable in England whatever its governing law.46 By way of exception, a plaintiff who had been fraudulently induced to make the illegal payment might be able to recover his money on this basis, because the court would be reluctant to allow the defendant to benefit from his fraud.47

  3. (c)  Where a contract had been partly performed, this would generally lead to the conclusion that the parties had not intended to obtain the required approval for the payment obligations arising under it. The implied term contemplated by section 33(1) of the 1947 Act could not apply and the contract would thus be unenforceable on the grounds of illegality.48

  4. (d)  The position should not, however, be overstated. Where a transaction involved a series of contracts, some of those contracts might remain enforceable even though associated contracts contravened the 1947 Act. Thus the ultimate holder of a bill of exchange could enforce the payment obligations of the acceptor, even though the holder derived his title through an intermediate endorsement made in contravention of the 1947 Act.49

  5. (e)  If a valid debt or monetary obligation had been incurred under the terms of an enforceable contract and under circumstances where an approval was required under the 1947 Act for the payment of that debt, then judgment could be obtained for the payment of that debt even though the latter could only be discharged with a Treasury consent which had not been forthcoming. The result was that judgment could be given against a debtor even though it was unlawful to pay the creditor—payment could be made into court. This point is explicitly made in the 1947 Act,50 which provided that ‘a claim for the recovery of any debt shall not be defeated by reason only of the debt not being payable without the permission of the Treasury and of that permission not having been given or having been revoked’. Thus, in a case involving a bill of exchange accepted by a person resident in the United Kingdom, the holder of the bill was able to obtain judgment even though the consent required under section 5 of the Act had not been granted; the debt could not be paid without permission, but it nevertheless remained a debt obligation in respect of which the creditor was entitled to judgment.51 In Malaysia, it has been decided that the execution of a guarantee by a (p. 384) local resident for the purposes of a borrowing by a foreign entity does not necessarily involve a contravention of exchange control regulations, because enforcement would usually occur within Malaysia and no payment in respect of the judgment would be remitted outside the country without official approval.52

  6. (f)  matters appear to have taken an essentially similar course in South Africa. The exchange control legislation prohibits (amongst other things) the entry into of ‘any transaction whereby any capital or any right to capital is indirectly exported from the Republic’ unless the permission of the Treasury has been obtained. Where a contract engaging this prohibition has been entered into that requires Treasury approval, the contract can only be enforced once that approval has been obtained. If permission in fact is refused, then the contract will be unenforceable, but the contract remains effective until that time.53

14.23  It follows that both the 1947 Act and the courts which were called upon to apply it demonstrated some sensitivity to the conflicting requirements of national financial interest and the need to preserve the sanctity of the contractual bargain. The relative lack of case law on the subject suggests that the successful application of the Act relied heavily on administrative practice and pragmatism.


1  For a discussion of UK exchange controls and the events leading up to their abolition, see Kynaston, ‘The Long Life and Slow Death of Exchange Controls’ [2000] JIFM 37.

2  The suspension of the exchange control system took effect from midnight on 23 October 1979 and was achieved by means of a general consent given under s 37 of the 1947 Act. The Act itself was finally repealed by the Finance Act 1987 (s 72(7) and Sch 16, Pt XI). It may be added in passing that a system of exchange control should be applied generally and for the purpose of protecting the country’s monetary resources. Viewed in that light the use of the Exchange Control Act 1947 to regulate commerce with Rhodesia in the period following its Unilateral Declaration of Independence may be open to objection—see App (Southern Rhodesia) to Exports from the United Kingdom (Bank of England Notice to Exporters, 8 September 1970). However, this merely formed a small part of a broader set of sanctions against that country and the point is no longer of practical concern. In the view of the present writer, sanctions should not be seen as a form of exchange control—see para 17.02.

3  The provisions of the TFEU dealing with free movement of capital and payments are considered in Ch 25 in the context of economic and monetary union.

4  On these points, see Article VIII(2)(a), IMF Agreement (current payments) and Article VI(2)(b) IMF Agreement (capital controls).

5  Respectively, 15 Chas II, ch 7, ss 12 and 7 and 8 Will III, ch 19.

6  By 59 Geo III, ch 49, ss 10–12; 1 & 2 Geo IV, ch 26, s 4.

7  See in particular the Gold and Silver (Export Control) Act 1920.

8  SR & O 1939, No 950. The Order in Council was made on 25 August 1939, pursuant to powers conferred by the Emergency Powers (Defence) Act 1939, s 1. The Defence (Finance) Regulations Amendment Order 1939 (SR & O 1939, No 1620) was made on 23 November 1939 and formed the basis of UK exchange control for a number of years. For a survey of these regulations, see Mann, ‘Exchange Control in England’ (1939–1940) 3 MLR 202.

9  Notices to Banks did not have legal force, but explained the policy of the authorities from time to time and indicated those types of case in which permission might (or might not) be expected to be forthcoming. Consent might sometimes be given subject to conditions, eg a premium rate of exchange would generally be applied if the applicant wished to purchase foreign securities or make capital investments overseas. The general subject was covered in Exchange Control Notices EC 7 and 18. The so-called ‘dollar premium’ was briefly noted in Shelly v Paddock [1978] 3 All ER 129.

10  On the points made in this paragraph, See Bank of England, A Guide to United Kingdom Exchange Control (February 1977).

11  For a recent and successful attack on South Africa exchange controls imposing an ‘exit charge‘ on the basis of inconsistency with the Constitution, see Shuttleworth v South African Reserve Bank and others [2014] 4 AIISA 693 (Supreme Court of Appeal, South Africa.

12  The official administration of exchange control was in fact delegated by the Treasury to the Bank of England. The Bank, in turn, delegated a number of responsibilities to commercial banks, which were ‘authorized dealers’ for the purpose of the Act. At least in so far as discretions were conferred upon the Treasury of the Bank of England, the exercise of such discretions might be amenable to judicial review if irrelevant factors had been taken into account in reaching a decision. For a New Zealand case which illustrates this point in the context of exchange control, see Rowling v Takaro Properties Ltd [1975] 2 NZLR 62. The case involved a refusal by Mr Rowling (in his capacity as New Zealand Minister for Finance) to grant the approval that was necessary to enable a Japanese company to acquire shares in Takaro, a New Zealand entity. The refusal was based on a desire to ensure continued New Zealand ownership and operation of the Takaro Lodge. Under the legislation giving the Minister power to sanction share acquisitions of this kind, the Minister was required to consider the financial and economic resources of New Zealand, with the result that presentation of New Zealand ownership was a legally irrelevant consideration. The Court of Appeal accordingly declared the Minister’s decision to be invalid. The episode is the subject of later decisions in New Zealand, but these deal with the potential liability of the Minister for an erroneous decision. The Minister was ultimately absolved of such liability by the Privy Council: Rowling v Takano Properties Ltd [1988] AC 473. The Privy Council cast some doubt on the decision in the original exchange control case.

13  Thus, if a loan had been made in contravention of s 1 of the Act, then the lender could not recover the amounts owing to him even though permission were obtained subsequently. The injustices to which these provisions could give rise are plainly illustrated by Boissevain v Weil [1950] AC 327 (CA) and by the County Court decision in Mortarana v Morley (1958) 108 LJ 204. In each case, the debtor was able to avoid his repayment obligations by relying on exchange control regulations, but the objective merits of the defence are by no means obvious.

14  See para 14.22.

15  See Pt II, Sch 5, para 1.

16  Ignorance of particular types of directions given by the Bank of England could, in limited cases, constitute a defence under s 37(3) of the Act, but this only marginally detracts from the general statement in the text.

17  Pickett v Fesq [1949] 2 All ER 705. In spite of this view, it should be emphasized that there are relatively few decisions relating to the 1947 Act. Given the scope of the prohibitions created by the 1947 Act, the absence of a significant body of case law is remarkable.

18  A point emphasized in Contract & Trading Co (Southern) Ltd v Barbey [1960] AC 244. This decision was cited by the Court of Appeal of Barbados in Kings Beach Hotels Ltd v Johanna Kesmin Marks (Civil Appeal No 26 of 2006), where the company alleged that the security created by a debenture over its assets was void, on the basis that the foreign borrowing thereby secured had not been approved by the Central Bank of Barbados. The court dismissed this argument, in part because it would have allowed the company to use the exchange control legislation as a means of defrauding the foreign lender.

19  See ss 1 and 2 of the 1947 Act. The list of authorized dealers was published pursuant to s 42 of the Act. Authorized dealers and certain others were required to comply with directions given by the Treasury and were thus charged with an administrative role in ensuring compliance with the provisions of the Act—see s 34.

20  ‘Gold’ referred to gold coin and gold bullion—see s 42 of the 1947 Act. The Act was thus directed to gold which had a monetary value as a currency or means of exchange; it did not apply to gold merely on account of its market value. On this point, see Freed v DPP [1969] 2 QB 115, (DC).

21  For ease of illustration, the discussion will proceed on this basis. However, it should be appreciated that payments could generally be made to residents of other countries within the sterling area—referred to as the ‘scheduled territories’ in the 1947 Act. The sterling area is discussed in Ch 33.

22  1947 Act, s 6(1). Consent was generally given for payments of a current nature, thus securing compliance with this country’s obligations in that respect under the terms of the Articles of Agreement of the International Fund—see paras 22.29–22.41. Where, however, payment was to be made to acquire an overseas investment, approval from the Bank of England was almost invariably required, and the rate of exchange used to acquire the necessary foreign currency would involve an ‘investment premium’—see generally, A Guide to United Kingdom Exchange Control (Bank of England, 1977).

23  These provisions were to some extent supplemented by ss 21 and 22 of the 1947 Act, which prohibited both the import and export of banknotes.

24  Thus, whilst the import of both sterling and foreign currency banknotes was unrestricted, any foreign currency held by a person resident in the UK had to be offered for sale to an authorized dealer. The export of such notes was subject to a requirement for consent under the 1947 Act. In practice, however, a number of exceptions applied—see A Guide to United Kingdom Exchange Control (Bank of England, 1977) 19; Bank of England Notice EC2 to Authorised Banks Import and Export of Notes, Assurance Policies, Bills of Exchange etc (29 November 1972).

25  See Koh Kim Chai v Asia Commercial Bank [1984] 1 WLR 860, considering an equivalent provision in the Malaysian Exchange Control Act 1953.

26  This point is further considered in the context of Art VIII(2)(b) of the IMF Agreement—see Ch 22. It will be apparent that the wide-ranging statutory prohibitions which have just been outlined would, of themselves, render impossible almost any form of international commerce. It is thus necessary to repeat that the provisions were made workable by means of numerous concessions created by means of statutory instruments and Notices to Banks. However, the text is concerned with the broad framework, rather than the detailed exceptions.

27  For the details, see Sch 5 to the 1947 Act.

28  See s 42(5) of the 1947 Act.

29  The concept of ‘residence’ can be an elusive one, but the Treasury had power to determine whether or not a particular person was resident in the UK for these purposes—see s 41(2) of the 1947 Act.

30  See, in particular, ss 1, 2, 7, and 10.

31  See, eg, ss 6, 24, 28, 29, and 30.

32  See, eg, s 3.

33  See, eg, s 5—‘no person shall do any of the following things in the United Kingdom’. The United Kingdom refers to the place in which the act is done, not the place in which the relevant person was to be found at the time.

34  International law would not generally permit the United Kingdom to claim criminal jurisdiction over the actions of foreigners abroad—see Oppenheim para 137, discussing The Lotus Case (1927) PCIJ Series A, No 10 and Brownlie, Principles of Public International Law (Oxford University Press, 6th edn, 2003) 299–305.

35  The present discussion again proceeds by reference to the provisions of the 1947 Act. Nevertheless it is suggested that the broad contractual issues which are about to be discussed would apply equally in any country which continues to operate a system of exchange control.

36  For a discussion of this principle under English law, see Chitty, paras 2-153–2-179.

37  On this subject generally, see Ch 4.

38  Kleinwort Benson Ltd v Malaysia Mining Corporation Bhd [1989] 1 All ER 785 (CA). It seems to have been accepted that English law governed the question of material validity.

39  A similar provision remains in effect in several Commonwealth countries, eg see s 36 of the Malaysian Exchange Control Act.

40  See remarks made in Contract and Trading Co (Southern) Ltd v Barbey [1960] AC 244, 245. In accordance with general principles of statutory interpretation, the section could only apply to contracts governed by English law.

41  See the 1947 Act, Sch 4, para 4. The point was confirmed in relation to corresponding Malaysian exchange control legislation in Tow Kong Liang v Nomura Singapore Limited [2004] MYCA 41 (Malaysian Court of Appeal).

42  Windschuegl Ltd v Alexander Pickering Ltd (1950) 84 Ll LR 89.

43  AV Pound & Co Ltd v MW Hardy & Co Inc [1956] AC 588.

44  Brauer & Co (Great Britain) Ltd v James Clark (Brush Materials) Ltd [1952] 2 All ER 497.

45  This is apparent from the proviso to s 33(1), which has been reproduced in para 14.1820.

46  Boissevain v Weil [1950] AC 327, 341. This case illustrates in the clearest terms the injustice which exchange control regulations could cause in certain cases; for criticism, see Mann, Rec 111 (1964, i) 124, and see also the discussion by Jonathan Anderson, ‘Currency Control, Exchange Contracts and War: Boissevain v Weil’ (2018) 3 Jus Gentium, Journal of International Legal History 505. In Swiss Bank Corp v Lloyds Bank Ltd [1982] AC 684, the Court of Appeal noted that actions taken in breach of the 1947 Act were devoid of legal effect as between the parties, and that they merely exposed the wrongdoer to criminal sanctions. The Court was concerned with s 16(2) of the Act (which dealt with the holding of certificates for securities by authorized depositories) and the comment may be justifiable in that specific context. However, it is plainly not acceptable as a statement of general principle.

47  Shelly v Paddock [1980] 2 WLR 647, distinguishing JM Allen (Merchandising) Ltd v Clarke [1963] 2 QB 340.

48  See, eg, Boissevain v Weil [1950] AC 327 (HL); Bigos v Boustead [1951] 1 All ER 92; Re HPC Productions Ltd [1962] Ch 466; and Shaw v Shaw [1965] 638 (CA).

49  Bank für Gemeinwirtschaft v City of London Garages Ltd [1971] 1 All ER 541(CA). The decision in part reflects s 33(2) of the 1947 Act, which preserved the validity of a bill of exchange notwithstanding any requirement for permission under the Act.

50  See the 1947 Act, Sch 4, para 4.

51  Contract and Trading Co (Southern) Ltd v Barbey [1960] AC 244, and see also Credit Lyonnais v PT Barnard & Associates Ltd (1976) 1 Ll LR 557. In Shaw v Shaw [1965] 1 All ER 638, the Court of Appeal had to consider a claim for a refund of a payment made in connection with the purchase of a property in Spain. The Court of Appeal struck out the claim, on the basis that the plaintiff based himself on nothing but the illegal payment. Yet this was not so, for the plaintiff was suing for the return of money paid for a consideration which had wholly failed (see p 639 of the judgment). Regrettably, the Court did not consider the Fourth Schedule provisions (n 46), although it seems unlikely that they would have assisted the plaintiff—they apply only to ‘debts’, and recovery seems precluded by the decision in Boissevain v Weil [1950] AC 327.

52  Koh Kim Chai v Asia Commercial Banking Corp [1984] 1 WLR 850 (PC), applied and followed in American Express Sdn Bhd v Dato Wong Kee Tat [1990] MLJ 91 and Tow Kong Liang v Nomura Singapore Ltd [2004] MYCA 41.

53  This is the effect of the decisions of the Supreme Court of Appeal in Oil Well (Pty) Ltd v Protech International Ltd and others 2011 (A) SA 394 and of the Western Cape High Court in Van Zyl and others v Master of the High Court of South Africa 2013(5) SA 71