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Part II The Private Law of Monetary Obligations, 7 The Performance of Monetary Obligations

Charles Proctor, Dr Caroline Kleiner, Dr Florian Mohs

From: Mann on the Legal Aspect of Money (7th 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

Performance of monetary obligations — Nominalism — Sterling — Debt — Set-off

(p. 177) The Performance of Monetary Obligations

  1. A. Introduction 7.01

  2. B. The Concept of Payment 7.04

  3. C. The Money of Payment 7.64

  4. D. Payment and Private International Law 7.75

A. Introduction

7.01  Chapters 5 and 6 dealt with the interpretation of monetary obligations, and the difficulties which could arise if the money of account was uncertain at the time of the contract or became uncertain as a result of subsequent events. In some respects, those chapters were coloured by the application of Article 12(1)(a) of Rome I, at least in so far as obligations of a cross-border character were concerned. At the same time, those chapters considered such rules of municipal law as fell to be applied following the identification of the governing law.

7.02  In contrast, the present chapter is more directly concerned with Article 12(1)(b), read together with Article 12(2), of Rome I, although once again the relevant rules of domestic law will also be considered. The analysis in the previous chapters has examined whether or not a monetary obligation has actually come into existence, and has explained both the nature and scope of such an obligation and the identification of the currency in which it is expressed. The present chapter assumes that a valid and enforceable monetary obligation does indeed exist; it therefore seeks to determine whether the steps taken by the debtor have been sufficient to discharge (p. 178) that obligation.1 In other words, has the debtor satisfied his monetary obligation, or is he in breach of it?

7.03  In order to answer this general question, it is proposed to consider the following matters:

  1. (a)  the concept of payment and the performance of monetary obligations;

  2. (b)  the money of payment;

  3. (c)  payment in the context of private international law; and

  4. (d)  the performance of monetary obligations abroad.

B. The Concept of Payment

7.04  The concept of payment is, of course, a fundamental aspect of the law of money.2 Payment in the legal sense must connote any act offered and accepted3 in performance of a monetary obligation without changing the essential nature of the original (p. 179) obligation.4 This approach is in some respects supported by remarks made in the Libyan Arab Bank case,5 where Staughton J stated, ‘in my view, every obligation in monetary terms is to be fulfilled, either by the delivery of cash or by some other operation which the creditor demands and which the debtor is either obliged to, or is content to perform’.6 It may be helpful to ask whether a transfer of funds has the effect of discharging a genuine liability and, if so, this may properly be regarded as a ‘payment’.7

7.05  Of course, in practice, the lawyer is less likely to be concerned with purely conceptual issues. He is more likely to confront problems of a more direct nature, for example, whether the steps offered by a debtor amounted to an adequate tender of payment in compliance with the contract at issue.8 The subject therefore requires discussion in some depth. For convenience, it is proposed to consider sterling and foreign currency obligations separately for these purposes. This treatment merely reflects the fact that, in the case of a foreign money obligation, a right of conversion into sterling may arise where the debt is payable in England; it does not detract from the general view that no material distinction should now be drawn between domestic and foreign money obligations.9 As will be seen, most of the relevant principles are applicable to both forms of obligations.

7.06  Before proceeding to the details, it is perhaps fair to note that the concept of payment cannot be defined in a single fashion for all legal systems. In France, (p. 180) Article L 133–3 of the Code Monétaire et Financier defines payment as ‘an action which consists in putting, transferring or withdrawing funds, independently of any underlying obligation between the debtor and the beneficiary, ordered either by the debtor or the beneficiary’. French writers have debated whether payment should be regarded as a legal fact or a legal act (fait juridique or acte juridique). One writer has argued that the extinction of an obligation through payment is always a legal fact because the extinction of the obligation in this way is mandated by law,10 but this view is not widely shared.11 The importance of the distinction lies in the fact that an acte juridique must be proved by reference to specific rules set out in the Civil Code, whereas a fait juridique can be proved by reference to any available evidential means. In a recent decision, the Cour de Cassation has held that proof of payment is a factual issue that can be proved by evidence.12

Sterling obligations

7.07  Returning to questions of English law, how is a debtor to perform an obligation payable in sterling and to be performed in England? It is necessary to explain at the outset that the present discussion is concerned with the performance of liquidated debts or obligations.13 In England, it is well established that a claim for an unliquidated sum cannot be discharged by payment alone—for how can one pay a sum of an indeterminate amount? An unliquidated obligation can only be discharged by accord and satisfaction—that is to say, (a) a contract between the parties which settles the amount to be paid (thus discharging the unliquidated obligation and substituting for it a liquidated amount); and (b) the payment of the consideration which makes the contract operative.14 In other words, a contract between the parties is required effectively to convert the unliquidated obligation into a liquidated debt, so that it can be discharged in accordance with the rules about to be discussed.

7.08  In contrast, the payment of a liquidated obligation presupposes the existence of a contract between the parties.15 No further agreement is therefore required either to (p. 181) fix or to discharge the obligation. However, when notes and coins are handed over to the creditor, or money is transferred in any other way, it seems that the purpose of the transfer must either be made clear to the creditor or it must otherwise be apparent from the circumstances. The debtor must intend to discharge his obligation by the payment in question. The point may seem obvious but difficulties can arise in particular cases. For example, if a company owes a series of ten debts of £1,000 each, which of those debts is discharged if it pays £2,000 to its creditor? The point may be important, especially where each debt carries a different rate of interest.16 Likewise, suppose that a father owes a debt of £1,000 to his son. Shortly before his death, the father hands £1,000 (or a larger sum) to his son in cash. Did the father intend to repay his debt, or did he intend to make a gift to his son in anticipation of the father's death? In the latter case, the debt could be recovered from the father's estate, whilst in the former case it plainly could not. Applying the rules discussed above, it seems that (in the absence of any intimation that the father intended to discharge his debt) the payment would probably fall to be treated as a gift.

7.09  If the intention of the debtor is important, then one is naturally driven to enquire as to the relevance of the intention of the creditor. The debtor will have undertaken to pay the creditor under the terms of the contract and (by necessary implication) the creditor must have agreed to accept it. Why, otherwise, has he entered into the contract at all? But in spite of this reasoning, it seems that no creditor is under any positive, legal duty to accept payment, nor can the debtor effectively force payment upon the creditor. If payment is to be made in a legal sense, then the consent of the creditor is necessarily required.17 If the creditor declines to accept the proffered funds—even though tendered in strict conformity with the terms of the contract—then payment does not occur in the legal sense, even thought the creditor's refusal is apparently at odds with the terms of the contract.18 All the debtor can do is to tender payment, ie he may make an unconditional offer to pay in the (p. 182) agreed manner. In the event of non-acceptance, this places the creditor in default because he is responsible for the delay in performance.19 If the tender complies with the terms of the contract and the debtor thereafter remains ready and willing to pay in that manner, then any action brought against him will be dismissed with costs, provided that the money is paid into court immediately after service of the proceedings.20 Under English law, therefore, it is necessary to re-emphasize the distinction between tender and payment in accordance with the terms of the contract. Tender is a unilateral act of the debtor, whereby he takes all of the steps which are open to him, acting alone, to complete the payment in accordance with the terms of the contract. On the other hand, payment is a bilateral act requiring the consent both of the debtor and creditor.21 In addition, payment must clearly be made to the creditor or his duly authorized agent, for payment to some other third party clearly cannot discharge the obligation. This statement is obvious and some of the difficulties that may arise in the context of payment to an agent—including the scope of any actual/apparent authority—will be discussed later in this chapter. But, in rare cases, there may even be doubt or confusion about the identity of the creditor himself, and the debtor will clearly need to exercise care in such a case. This may occasionally occur in cases involving transactions with a group of companies where there is a lack of clarity as to the identity of the precise entity which is entitled to receive payment.22

7.10  In English law, therefore, the question of law is not how payment is to be made, for it may be made by any means agreed between the parties or which the creditor may otherwise choose to accept. Anything so agreed and accepted constitutes (p. 183) a payment provided that the creditor is put in a position freely to dispose of the money transferred to him, to the extent required by the terms of the contract.23 The correct question is—how is a valid and effective tender to be made, such that it will produce the legal consequences described above? In principle, the answer is that a valid tender is made by unconditionally24 proffering to the creditor the amount due in legal tender,25 or otherwise in compliance with the terms of the contract. This rule enjoys general recognition26 and is firmly established in England. In so far as the rule relates to cash, there exists a long line of decisions of the Court of Appeal which have expressed it in the clearest terms and occasionally in remarkable circumstances. At the end of the nineteenth century, the Court of Appeal held that £463—then a substantial amount—had to be proffered in legal tender. As a result, a solicitor had no authority on behalf of his client to accept another solicitor's cheque, and accordingly such a cheque could not constitute a valid tender.27 A year later, the Court of Appeal likewise held that an auctioneer was entitled to insist upon a deposit being paid ‘in cash’, ie in legal tender rather than by cheque; and the rule was held still to be ‘strictly’ applicable even as late as 1974.28 Indeed, as recently as 2005, the Supreme Court of New Zealand was called upon to decide that a vendor of land was not obliged to accept the purchaser's personal cheque as payment of the deposit on exchange of contracts.29 The rule is, however, in all respects subordinate to the terms of the contract and (in the light of modern commercial practice) the courts will be very astute to find that the obligation to pay in cash has been varied or waived.30

(p. 184) 7.11  Where large amounts are involved, payment by legal tender is frequently unthinkable and cannot possibly be within the contemplation of the parties. Accordingly, whilst a contractual requirement for payment ‘in cash’ may in some cases connote a requirement to pay by means of legal tender,31 terms of this kind must always be interpreted against the background of modern commercial practice. Consequently a contractual requirement for ‘payment in cash’ was interpreted to indicate ‘any commercially recognised method of transferring the funds the result of which is to give the transferee the unconditional right to the use of the funds transferred’.32 The robust process of interpretation just described can only be further accelerated by the current (and strenuous) governmental efforts to prevent money laundering and to trace the proceeds of crime, and which thus render problematical the acceptance of physical cash in many cases.33 But the existence of such an implied term (or the existence of the creditor's consent) was perhaps surprisingly denied in a case involving the repayment of some US$292 million, with the result that the debtor would have been required to pay that sum in cash.34

7.12  If it follows from this discussion that a creditor may often be compelled to accept a payment in the ‘commercial equivalent’ of cash (or, perhaps more accurately, the debtor may be entitled to make his tender by proffering such an equivalent), then it naturally becomes necessary to identify that which will amount to a commercial equivalent. Plainly, it would not include a cheque, for in the absence of his express (p. 185) or implied consent, the creditor cannot reasonably be expected to take the risks of countermand or dishonour; further, pending clearance, the effect of payment by cheque is to allow the debtor a few days’ continued use of the money.35 But if the creditor refuses to accept a banker's draft issued by a reputable institution and insists on legal tender, then the Court should treat the creditor's attitude as vexatious and uphold the validity of the tender. It may pray in aid the judgment of the US Supreme Court in support of its approach.36 Thus, an obligation to pay ‘in cash’ to the credit of an account at a particular bank may be performed by means of a bank transfer, for the net result for the creditor is the same in either case.37 Likewise, in some cases, it will be possible to infer from previous dealings that the creditor is prepared to accept payment in a particular manner, or a similar inference may be drawn from the conduct of the parties or the surrounding circumstances.38 If a creditor has agreed to accept payment by cheque, then the delivery of the cheque constitutes a valid tender, but the debt is still only discharged when the creditor accepts the cheque and, even then, this is conditional on subsequent payment of the instrument.39

7.13  It should not be overlooked that this process of interpretation is necessary in order to conclude that the creditor—whether expressly or impliedly—has waived his right to receive payment in cash.40 For the reasons just given, this type of interpretation will usually be reached with ease, but it must nevertheless be emphasized that the validity of any payment or tender otherwise than by legal tender does depend upon the express or implied consent of the creditor; whilst this may easily be inferred, it is not possible to dispense with it.41 Furthermore, it may be necessary (p. 186) in particular cases to consider the nature and extent of the consent which the creditor has given. For example, the debtor may happen to know that the creditor has several bank accounts; has the creditor consented to payment to any of these accounts, or merely to selected accounts? The point may be important if the recipient bank fails shortly following receipt of the payment and before the creditor has been notified of the funds transfer. If the payment was so made without the creditor's (express or implied) consent, then it is difficult to see why the creditor should be saddled with the loss under such circumstances; if such a payment were treated as a valid discharge of the obligation, then the creditor would necessarily also lose the benefit of any guarantee or security which he might hold. So far as English law is concerned, it is now clear that payment to the account of the creditor with a particular bank will not discharge the obligation—nor will it even constitute a valid tender—in the absence of the creditor's consent; the same principle appears to have been applied elsewhere.42 In other words, whilst ‘bank money’ may in general practice be accepted by creditors as a means of payment, it does not follow that they are legally bound to do so. Bank money and other non-cash forms of money can thus only function as money with the creditor's consent but, as noted elsewhere,43 this does not in any sense disentitle them to their label as ‘money’.

7.14  It has been shown that a monetary obligation can be discharged by any means agreed between the parties or to which the creditor is prepared to consent. In most cases, of course, the creditor will be very willing to accept any reasonable form of payment tendered to him, even if it does not strictly conform to the express or implied terms of the original agreement.44 Creditors will accept payment by means of cheque, letter of credit, or other instruments. Instruments of this kind are regarded by the courts as ‘equivalent to cash’, so that, following dishonour, judgment for the face amount of the instrument will generally follow as a matter (p. 187) of course,45 although the payee does have the alternative of reviving the original cause of action.46 The drawer of the cheque cannot raise defences or counterclaims arising under the underlying commercial contract, at any rate in the absence of fraud.47 Of course, the mere acceptance of the cheque or other instrument by the creditor does not of itself constitute ‘payment’, for it does not have the immediate effect of making funds available to the creditor;48 such instruments only constitute payment if they are subsequently honoured, but if this happens then the date of payment is deemed to be the date on which the cheque, letter of credit, or other instrument is given.49 If the creditor has authorized the debtor to pay by cheque and send it through the post, then the creditor runs the risk that the cheque will be stolen and paid to a third party.50 By contrast, payment by means of a credit card will usually involve the unconditional and absolute discharge of the debtor, for the (p. 188) supplier of goods or services accepts the issuing company's payment obligation in place of the customer's liability. The customer thereupon assumes an obligation to make a corresponding payment to the card issuer.51

Payment via funds transfer

7.15  Important though the foregoing means of payment may be in daily life, it must be said that the most difficult types of dispute which may have arisen in recent years have centred on payment by means of bank transfers.52 No doubt this is because transfers of this kind are now viewed as both a secure and more rapid means of transferring funds, and because the higher values which may be involved create a greater incentive to litigation in the very few cases in which some difficulty occurs.53 In practical terms, most disputes have centred on the precise time and the date at which payment has been received. If payment was tendered later than the contractual date and time, then a number of consequences may ensue. First of all, the creditor may become entitled to interest or other damages in respect of the late payment. Alternatively, the creditor may be contractually entitled to reject the tender, to terminate the arrangements and, in a rising market, employ his assets more profitably elsewhere.54

7.16  The principal payment system for large value transfers in this country is the Clearing House Automated Payments System (CHAPS). This and many other systems used (p. 189) to operate on the basis that all transfers were settled on a ‘net’ basis at the end of the working day. However, in line with many other modern, high value systems,55 transactions are now settled on a real time, gross payments basis. Transactions are effected through the Bank of England via settlement accounts held by a group of banks56 with the central bank. Although generally used for higher value payments, there is no specific lower limit on payments through CHAPS and settlement can be almost immediate, in the sense that no period of prior notice is required for an instruction to be given. All payments through this system are made in sterling.57 In order to allow for the smooth operation of the system and to provide certainty of payments, CHAPS Rules require that payment instructions must be given on an unconditional basis and must be irrevocable. A bank that receives a payment within a set timescale is also required to credit its own customer's account on a ‘same day value’ basis, in the sense that the amount must be at the immediate disposal of the payee.

7.17  Other payment systems in this country include the following:

  1. (a)  BACS (Bankers Automated Clearing Services) is commonly used for lower value but high volume business, including the collection and payment of direct debits and standing orders. Payments are processed over a three-day cycle.

  2. (b)  Faster Payments provides for the collection of electronic payments within a short timescale following the receipt of the instruction. Again, members must hold settlement accounts at the Bank of England.

7.18  It may be helpful at the outset to say a few words about the legal nature of a funds transfer through the banking system.58 First of all, it should be observed that—convenient though the terminology may be—nothing is, in fact, ‘transferred’ at all, at least in the literal sense of that word.59 The payer simply instructs his bank to reduce his own account balance and to create a credit in favour of the payee's bank. (p. 190) The payee's claim on his own bank is thereby correspondingly increased.60 There is no intention that the payee should acquire any rights as against the payer's bank and, hence, no assignment can be involved. This analysis, although correct, gave rise to an unsatisfactory outcome in R v Preddy,61 where defendants who had fraudulently procured a bank transfer as part of a mortgage scheme could not be convicted of obtaining property ‘belonging to another’ for the purposes of the Theft Act 1968.

7.19  A series of questions may arise in relation to payment via this means. These may include:

  1. (a)  does payment through this means constitute a valid discharge of the debt;

  2. (b)  does the payment comply with the terms of the contract; and

  3. (c)  at what point of time will payment be complete?

7.20  First of all, does payment through the banking system amount to a discharge of the debtor's payment obligation? On ordinary principles of agency law, a payment made on behalf of the debtor through the banking system to the creditor's bank will discharge the debt if the recipient bank has actual or ostensible authority to receive it.62 The mere fact that the creditor is known to have an account with a particular bank does not of itself mean that such institution has authority to receive payments on behalf of the creditor for the purposes of the particular transaction at hand.63 Equally, a transfer to a bank account of the creditor will not discharge the obligation if it has been made clear to the debtor that payment will only be accepted by means of a funds transfer to the client account of the creditor's legal advisers for, in such a case, the creditor's own bank plainly has neither actual nor apparent authority to accept the transfer.64 Alternatively, and again on the basis of agency law, the payment will also discharge the debt if the creditor, having become aware of the transfer, elects to ratify the payment.65

(p. 191) 7.21  The difficulties do not, however, end at this point. If payment is made to the creditor's bank—or, for that matter, to any other agent of the creditor—a question may arise as to the precise scope of that authority. For example, does the agent have authority only to accept the tender, or does he have authority to accept the payment? This apparently fine distinction may have real consequences. Two decisions may helpfully be contrasted. In Mardorf Peach & Co Ltd v Attica Sea Carriers Corp of Liberia,66 the charterer of a vessel was late in paying the hire, but funds were remitted to the owner's bank on the next business day. Since the payment had been received by the owner's bank, the charterer argued that this amounted to acceptance of the payment and, hence, a waiver of the breach on which the owner had relied to terminate the charter. That contention was rejected; the bank would have had no knowledge of the underlying transaction or the due dates under the charter. Whilst it had authority to receive the payment, it had no authority to accept it, with the result that the owner was entitled to reject the payment when it became aware of it and terminate the charter on the basis of late payment.67 As a result, payment to the creditor's bank account of itself will not normally amount to the full discharge of the obligation concerned. The tender is only accepted when the creditor treats the funds as his own68 or where he fails to take steps to reject the funds within a reasonable time of becoming aware of the credit.69 In contrast, in Central Estates (Belgravia) Ltd v Woolgar (No 2),70 a managing agent of property received and accepted a payment of rent whilst a breach of the lease was subsisting. Since the agent had accepted the payment and, in the course of its business, was aware of the possibility of forfeiture proceedings, this amounted to an effective waiver of the breach. In other words, the agent (in contrast to the bank in Mardorf Peach) had authority not merely to receive the payment, but also to accept it.71

7.22  Whether or not a payment or tender by means of a bank transfer has complied with the terms of the contract between the creditor and the debtor inevitably involves (a) an analysis of the contract in order to ascertain what he was obliged to do; and (b) an analysis of the steps taken by him in the intended performance obligation. This statement of the obvious means that one must separately consider the contractual time of payment and the actual time of payment.

(p. 192) 7.23  As to the first point, the time at which payment should be made (or, more accurately, tendered) is once again a matter of substance which must be ascertained by reference to the law applicable to the contract.72 Each case will thus depend upon the terms of the contract at issue. A few general points may however be noted in an English law context:

  1. (a)  If no time for payment is expressly stipulated, then it must be inferred from the terms of the contract. Where the contract involves the provision of services, payment will often be due once the work has been completed and the debtor has had an opportunity to confirm its completion to a proper standard.73

  2. (b)  The time of payment is not usually of the essence of the contract74 unless the express terms or the nature of the contract require a contrary conclusion or, following notice to perform given by the creditor, the debtor's continuing delay becomes a matter which goes to the root of the contract breach.75

  3. (c)  The mere stipulation of a date for payment will not usually indicate that time is of the essence of the contract. But where time has been expressed to be of the essence, then the courts will be slow to find a waiver of that term. Thus, where a contract provides for ‘punctual’ payment on a Sunday, payment on Monday is too late.76 Where payment has to be made ‘on demand’, the debtor has to have it ready at a convenient place where he can get it within a reasonable time and without having to make time-consuming arrangements.77

Whilst the identification of the date on which payment is contractually due may occasionally be obscure, the time at which payment is in fact made can usually be determined without difficulty.78

7.24  Where the creditor is to receive or accept payment by means of a transfer of funds to his bank account, it is suggested that payment occurs only when the account (p. 193) has been unconditionally credited with the requisite amount.79 It is sufficient if the amount was credited intentionally and in good faith, and not as a result of error or fraud, and under circumstances that the credit is unconditional and cannot properly be reversed. Payment is deemed to be made at that point, because the bank has unconditionally recognized that the recipient has become a creditor of the bank to the extent of the amount so transferred.80 Notification to the creditor is not required in order to perfect or complete the payment, or to render it effective;81 nor is it even necessary that the creditor's bank has actually received a corresponding payment from the debtor's bank.82 It must be re-emphasized that the creditor must have complete, unconditional, and immediate access to the full amount of the funds concerned. Thus, if payment is due on 22 January and is credited to the creditor's account on that date, but subject to the proviso that the ‘value date’ is 26 January, then payment is only deemed to be made on 26 January, for the creditor only has full access to the required funds on the latter date. This remains the case even though the creditor could access the funds on 22 January subject to minor interest or other charges, for the requirement for such deductions derogates from the full and complete unconditionality which is an essential feature of this form of payment.83

7.25  It may be argued that (as between the parties) payment should be treated as made when the requisite funds are received by the creditor's bank, ie before they will actually have been allocated to the creditor's own account. There is something to be said for this view, in that the debtor has done everything in his power to ensure payment and he should not be prejudiced by errors or delays within the creditor's bank in ensuring proper allocation—the creditor must take all the risks associated with (p. 194) his own choice of bank. This appears to be the justification for the first instance decision in The Afovos,84 where payment was held to be complete at the point at which the receiving bank had received and tested the incoming telex from the paying bank. However, the decision was reversed and no firm views were expressed on the point in the House of Lords.85 In the United States, it has been held that payment is treated as made once the electronic transfer instructions to the receiver bank have become incapable of alteration or revocation—an actual credit to the creditor's account was not a necessary part of the payment process.86 But in spite of these decisions, it is suggested that payment can only be deemed to be made when the necessary credit entry has been made to the creditor's account, for it is only at that point that the creditor will acquire the immediate and unconditional use of his money which, as has been shown, is an essential ingredient of payment. Thus in The Brimnes87 the Court of Appeal noted that ‘the credit of the owner's account so as to give them the unconditional right to the immediate use of the funds transferred was good payment’ and ‘“payment” is not achieved until the process has reached the stage at which the creditor has received cash or that which he is prepared to treat as the equivalent of cash or has a credit available on which, in the normal course of banking practice, he can draw, if he wishes, in the form of cash’. It is submitted that these statements are entitled to approval,88 and that accordingly, nothing short of a credit entry is sufficient to achieve payment under these circumstances.89

(p. 195) 7.26  In this context, it is possible to draw a parallel with EU law on the late payment of commercial debts. Article 3(1)(c)(ii) of the relevant directive90 requires Member States to ‘ensure that the creditor shall be entitled to interest to the extent that … he has not received the amount due on time, unless the debtor is not responsible for the delay’. According to the decision of the European Court of Justice in 01051 Telecom GmbH v Deutsche Telecom AG,91 this provision ‘is to be interpreted as meaning that it requires, in order that a payment by bank transfer may avoid or put an end to the application of interest for late payment, that the sum due be credited to the account of the creditor within the period for payment’. As the Court also pointed out:92

it is therefore explicit in the wording of that provision that a debtor's payment is regarded as late, for the purposes of entitlement to interest for late payment, where the creditor does not have the sum owed at his disposal on the due date. In the case of payment by bank transfer, only the crediting of the amount due to the creditor's account will enable him to have that sum at his disposal.93

It is true that the language of the directive then excuses the debtor from liability for interest if he is not responsible for the delay—eg, because he gave timely instructions to his bank but which were not properly executed. But this goes to the question of liability for interest, and does not affect the question whether the payment has been ‘received’.

7.27  Although perhaps not directly relevant to the relationship between the debtor and the creditor, it may be helpful to note one point in relation to the position of the creditor's bank. Once it has received the funds transferred, together with sufficient instructions to credit the recipient's account,94 it is not open to the creditor's bank to reject the transfer and return the funds to the debtor's bank, unless it has authority from the creditor for that purpose. To express matters in a different way, the (p. 196) bank becomes indebted to the customer when it receives the funds for credit to his account, and there is no implied term of the contract which entitles the bank unilaterally to cancel that debt. This may seem to be a curious statement, yet it became the practice of some banks to reject or to return funds transfers if there were grounds for suspecting that they were the proceeds of criminal activity. It has now been decided that a bank could not commit a money laundering offence merely on the grounds that it received and retained funds under these circumstances, although the bank would have to comply with the reporting requirements laid down by the Proceeds of Crime Act 2002. Where a bank returned the funds to the remitting bank in such a case, it did so without lawful authority and thus remained indebted to the customer for the amounts which had temporarily been credited to his account.95

The date of payment

7.28  The date on which payment actually occurs—as compared to the date on which it was contractually due—will be of importance in a variety of cases. For example, interest may accrue on a payment that is overdue, or late payment may entitle an owner to withdraw a vessel from a charter.96

7.29  For the reasons given above, it has been noted that:

  1. (a)  where payment is made by cheque, the payment effectively back-dates to the date of receipt of the cheque by the creditor, subject to the condition that it is met by the paying bank on presentation; and

  2. (b)  in the case of a bank transfer, payment is complete when the account of the payee is unconditionally credited with the necessary funds and expressly or impliedly accepted by the creditor.97

7.30  Whilst it is suggested that these are the correct approach to payments of this kind, it should be noted that this view is not universally accepted. For example, French law appears to take the view that payment is complete when the funds are received by the creditor's bank, even though they have not then been credited to the account concerned.98

(p. 197) Foreign currency obligations in England

7.31  How, in principle, is a foreign money obligation to be paid in England?99 Many of the issues of a purely monetary law character have already been discussed in the context of sterling obligations. The starting point must therefore be that a foreign currency obligation governed by English law must be discharged by the payment of legal tender prescribed by the lex monetae. As discussed earlier, however, this prima facie rule may be displaced by the express or implied consent of the creditor, whether expressed in the contract itself or at the point of payment.

7.32  The obligation to pay in the legal tender of the lex monetae is inherent in the nominalistic principle as understood in England.100 It defines not only the quantum of the obligation, but also the form of payment. Thus, it was held that the obligation to repay in Gibraltar a loan of pesetas involved the duty ‘to pay in whatever at the date of repayment was legal tender and legal currency in the country whose money was lent’.101 In strict terms, this remains the case if the original loan was made by means of a cheque or bank transfer in favour of the borrower.102 Yet it must be repeated that, at least in commercial cases, the requirement for payment in legal tender has both a dated and unrealistic flavour; consequently, the requirement for payment in this form should readily be set aside in modern business conditions, especially where large sums are involved.103

7.33  As has been noted on a number of occasions, English law now strives, so far as possible, to treat sterling and foreign money obligations on an essentially similar footing. Both types of obligations are classified as ‘debts’ and the legal framework applicable to their enforcement in England will be the same in each case. Yet it is clear that this assimilation of domestic and foreign money obligations cannot be regarded as entirely complete. The very fact that an English law contract is expressed in a foreign currency raises private international law questions which would not arise in the context of a sterling obligation arising between the parties in England. Furthermore, where payment is to be made by means of an inter-bank funds transfer, it will frequently be necessary to record and give effect to that transfer through the payments or clearing system operated in the country which issues the currency concerned. If the contractual place of payment is outside that country, then it is plain that further conflict of law issues can arise.

7.34  Such questions arose in a particularly acute form in English litigation concerning US sanctions against Libya. In the leading case on the subject, Libyan Arab Foreign (p. 198) Bank v Bankers Trust Co,104 a Libyan entity maintained accounts with both the London and New York branches of the defendant American bank. In January 1986, the US President imposed sanctions against Libya by blocking Libyan property held by US persons, both within and outside the United States. The Presidential Order thus prohibited repayment of the London deposits by Bankers Trust. The case is one of some complexity, but for present purposes it is sufficient to note that: (i) the London account was found to be governed by English law;105 and (ii) following demand, amounts owing to the depositor were repayable in London. It followed that the Libyan depositor was entitled to judgment because:

  1. (a)  the US Presidential Order plainly could not vary, suspend or discharge an obligation governed by English law;106 and

  2. (b)  although the English courts will not enforce a contract where the steps necessary for performance are illegal in the place of performance,107 the rule did not apply in this case. The place of performance was London, where the depositor was entitled to receive his money. The fact that funds would have had to be cleared through New York in order to achieve that payment did not mean that New York thereby became the place of payment.

7.35  In the result, the Court held that the Libyan depositor was entitled to the repayment of some US$292 million in cash, because the right to receive payment in that form was not affected by market practice or by the previous course of dealings between the parties. This decision was made in the face of cogent expert evidence to the effect that eurodollar deposits of this kind and amount are never repaid in cash. In other words, it was not possible to imply into the contract a term which required that payment should only be made through the clearing system operated in New York. Nor could it now be argued that the obligation was to procure a credit to an account in New York, so that such obligation ceased to have a purely monetary character and could thus become impossible to perform;108 such an argument in any event becomes more difficult to maintain in the light of the definition of ‘payment’ which was adopted earlier in this chapter. Whilst this result understandably caused some consternation in international banking circles, it may be seen as (p. 199) satisfactory from the purely monetary law perspective. It would be unfortunate if a debtor acquired additional defences to a monetary obligation merely because he has to pay by means of bank transfer rather than in cash or, to put matters another way, the intended mode of performance should not have an impact on the broad substance or enforceability of the obligation; such a state of affairs would subvert the dominance of the applicable law of the contract over the law of the place of performance.109 Further, a single monetary obligation must have a single place of performance; this is sound both from a logical perspective and also because it ensures that the unfortunate rule in the Ralli Bros case is confined within proper limits.110

7.36  It was for some time thought that a distinction ought to be drawn between, on the one hand, an ordinary foreign currency obligation and, on the other, an obligation to repay a eurocurrency deposit.111 The distinction between the two types of obligation is one of fact. For example, an individual may hold a foreign currency account with a London bank. Funds may periodically be paid into or out of the account; cheques may be drawn upon it. This ordinary type of account must be distinguished from a eurocurrency deposit, which will usually involve a single deposit of a very significant sum of money for a fixed term and at a pre-agreed interest rate; the transaction consists solely of the initial deposit and its subsequent repayment with interest. Deposits of this kind are normally placed and repaid by means of bank transfers. It was suggested that the latter type of deposit was only repayable via the Clearing House Interbank Payments System (CHIPS) or the corresponding payment system in the country of issue. It was therefore argued that eurodollar deposits should in this respect be treated differently from ordinary foreign currency accounts, and the suggestion met with some academic support. However, since the existence of the implied term was rejected in the Libyan Arab Bank case, it seems likely that there are no legally relevant distinctions to be made between the two types of account.112

(p. 200) 7.37  Leaving aside these special difficulties, it becomes necessary to ask the more general question—how is a foreign money obligation required to be performed in England?113 The essential question may be briefly stated: how (quomodo) should the debtor discharge his obligation to pay a sum of foreign money which he owes and the identity (quid) and extent (quantum) of which is defined? If a debtor has incurred an obligation of US$1,000 payable in London, is he obliged to tender that sum in US dollars, or is he entitled or even obliged to tender the equivalent sum in sterling? In other words, can or should the money of the place of payment be substituted for the agreed money of account where there is a lack of identity between them, so that the mode of payment differs from what appears to be the substance of the obligation?114

7.38  It is, of course, true that in most cases, the debtor who owes US$1,000 payable in London will simply tender that amount in US dollars, whether in cash or in some other convenient form acceptable to the creditor. It will probably not occur to either party even to consider adopting a different course of action. Furthermore, payment should be effected in such a manner as to ensure that the creditor or the debtor does not receive or pay any more or any less than he contracted for; the best way to achieve this result is to require payment of the stipulated sum in natura. If there is a promise to pay US$1,000 in London, and if it is performed by the payment of US$1,000, neither party has any ground of complaint.115 That the international value of US$1,000 may have risen or fallen between the date of the contract and the stipulated maturity date is an entirely irrelevant consideration, for only the US dollar is at issue.116 In such a case, it is clear that the mode of payment is in accordance with what is determined by the substance of the debt, because the money of account and the money of payment are identical; the money of the place of payment does not even fall for consideration.

7.39  On the other hand, there may be many cases where no prejudice to either the creditor or the debtor would be involved if, for the purpose of performing the contract, the money of account is converted into a different money of payment. This would generally be so in times of relative monetary stability and may even be so when monetary values are fluctuating, at least if payment is made on the stipulated maturity date. Furthermore, if the creditor generally carries on business in sterling, (p. 201) he would in all probability convert the dollar proceeds into sterling upon receipt. It may well be that nothing is lost by such an arrangement, and the creditor will have no objection at all.117

7.40  Under these circumstances, it becomes necessary to consider whether such a right of conversion exists, who is entitled to exercise any such right, and what rate of exchange is to be used; it must also be asked whether the right of conversion can be excluded, and whether the right continues to apply when the debt is overdue. Each of these questions requires separate consideration.

The right of conversion

7.41  There seems to be no doubt that a general right of conversion exists where foreign money is to be paid in England.118 The origins of this right lie in the law merchant of the Middle Ages. In connection with bills of exchange, it was conceived at an early date that, from the point of view of both parties and the State, it was convenient and advisable to avoid the recurrent remittance of a domestic currency to a foreign place of payment. This objective could be achieved by requiring the creditor to accept local money at the place of payment.

7.42  Against that background, it is perhaps unsurprising that the right of conversion became recognized in most countries.119 The general right of conversion is recognized in the United States120 and is perhaps most firmly established in relation to (p. 202) bills of exchange.121 Whilst there exists widespread agreement on the principle of conversion into the money of the place of payment, different answers have been given to some of the detailed questions—for example, whether the debtor may or must convert, the rate of exchange to be used, and similar matters.122 It is obvious that these questions of detail may have significant consequences for the parties. For example, the rate of exchange as at the date of payment is plainly acceptable if the debtor meets his obligations on the maturity date, for the creditor receives full value for the amount owing. But what rate should be adopted if the debtor is in default? The rate of exchange as at the maturity date may differ from that which prevails as at the date of payment; whether this position favours or disadvantages the debtor or the creditor will of course depend upon exchange rate movements in the intervening period. Neither the selection of the rate of exchange as at the due date or that applicable as at the date of payment can be guaranteed to produce a fair result in every case. In truth, the crux of the matter lies in the fact that the selection of either date cannot eliminate the need for the creditor to be able to claim damages for monetary depreciation during the period of the debtor's default.123 Where no such claim can be entertained, the creditor must effectively take his risk on monetary depreciation.

7.43  Under these circumstances, perhaps the best solution is that to be found in the Uniform Law on Bills of Exchange and Notes.124 The debtor may elect to pay in the currency of the place of payment provided that payment is made on the (p. 203) maturity date.125 But if payment is made after the maturity date, the creditor may select either the rate of exchange which prevailed at the maturity date or that which prevails as at the date of payment. Thus, in the event of delayed payment, the creditor will receive the full value reflected by the substance of the debt, and the debtor cannot profit from his delay.

7.44  Where this happy solution does not apply, some countries have adopted a rule requiring conversion at the maturity date, whilst others have adopted the rate as at the date of payment.126 For reasons given earlier, neither solution will be satisfactory in every case. In the United States, however, the legal effect of the debtor's default has at least found a more secure solution. It was stated by Mr Justice Holmes, giving the judgment of the Supreme Court in Hicks v Guinness.127

7.45  On 31 December 1916, a German debtor owed to an American creditor a sum of 1,079.35 marks on an account stated; the creditor brought an action claiming the dollar equivalent on 31 December 1916. Mr Justice Holmes said:128

We are of the opinion that the Courts below were right in holding that the plaintiffs were entitled to recover the value in dollars that the mark had when the account was stated. The debt was due to an American creditor and was to be paid in the United States. When the contract was broken by a failure to pay, the American firm had a claim here, not for the debt, but, at its option, for damages in dollars. It no longer could be compelled to accept marks. It had a right to say to the debtor, you are too late to perform what you have promised and we want the dollars to which we have the right by law here in force … The event has come to a pass upon which your liability becomes absolute as fixed by law.

7.46  As was made clear in a later case,129 these remarks were based on the assumption that the obligation was subject to the law of the United States. Thus, under the rules laid down in Hicks v Guinness, a debtor is entitled to meet his obligation on the stated maturity date by payment of the requisite amount of foreign currency stipulated in the contract. However, in the event of late payment, the creditor acquires an optional right to payment in US dollars calculated at the rate of exchange prevailing on the maturity date. These rules apply if the obligation is subject to the laws of the United States and the obligation is payable within that country.130

(p. 204) 7.47  What, then, is the solution so far as English law is concerned? There is no statutory provision which deals with the matter.131 The problem admits of three possible solutions:

  1. (a)  the debtor who has to meet a foreign currency debt in England has an obligation to tender that foreign money only;

  2. (b)  the debtor may be required to tender sterling only; or

  3. (c)  the debtor may have the option of tendering the stipulated foreign currency or sterling.132

7.48  As to the first alternative, it can only be said that this does not prevail; it would be curious if the creditor could reject a tender in his own currency and which provides to him the monetary value for which he contracted.133 The second alternative is unattractive, for it is difficult to see why English law should prevent the debtor from tendering that which he has undertaken to pay; and if as a result of some express stipulation there may be a positive duty to tender foreign currency, the absence of such a term cannot very well have the effect of excluding the mere right to do so.134 Further, if the debtor were positively prevented from making payment in the contractual currency, then this position would seem to be irreconcilable with the principle of nominalism, which is a fundamental tenet of monetary law. Thus there remains the third alternative, which allows the debtor the option of paying in the stipulated currency or in sterling.135 This is, in fact, the prevailing rule in England:

I think it is clear that when someone is under an obligation to pay another a sum of money expressed in a foreign currency but to pay it in this country, the person under the obligation has an option, if he is to fulfil his obligation at the date the money is payable, either to produce the appropriate amount in the foreign currency (p. 205) in question or to pay the equivalent in sterling at the rate of exchange prevailing at the due date. This proposition seems to me to be elementary and a matter of common sense.136

7.49  Earlier authorities are less explicit but clearly operate on the basis of the same proposition by accepting that the debtor can pay in the money of the place of performance.137 Thus in one case, Bankes LJ remarked:138

In my experience, I have never heard the proposition challenged that in an ordinary commercial contract where a person has entered into a contract which is to be governed by English law and has undertaken an obligation to pay in foreign currency a certain sum in this country the true construction of the contract is that when the time comes for payment the amount having to be paid in this country will be paid in sterling, but at the rate of exchange of the day when payment is due, applicable to the particular currency to which the contract refers.

7.50  This language suggests that the debtor's option to pay in sterling can only arise where the contract is governed by English law, for a matter of construction is involved. Yet it is submitted that this is not the correct approach to the debtor's option. If the obligation is expressed in a foreign currency, then a right to discharge it by payment in sterling must be regarded as a rule which deals with the mode of performance rather than its substance, and this remains the case regardless of the identity of the law which is applicable to the contract as a whole. Accordingly, if a (p. 206) foreign money obligation is payable in England, the debtor's option to discharge the debt in sterling forms part of the law of the place of performance and can be taken into account if necessary to do justice between the parties.139

7.51  If the option to pay in sterling is exercised, it has already been shown that the date with reference to which the exchange rate is ascertained may have a significant impact. Whilst the creditor should not object to receiving sterling so long as he receives full ‘value’, an exchange arrangement which affects the quantum of his receipt would interfere with the substance of the obligation and is thus plainly unacceptable from that perspective. Fortunately, it is now possible to say that the conversion is to be effected at the rate of exchange on the date of payment, ‘this is the clear result of the Miliangos case’.140 Thus, it is the rate at the date of actual payment (and not at the contractual maturity date) which will determine the amount of sterling which the debtor must tender in discharge of his foreign currency obligations.

7.52  It will be necessary to identify a rate of exchange to be applied in the event that the debtor exercises his option to pay in sterling. It is tempting to think that the rate of exchange should be ascertained in accordance with the law of the place of payment (ie English law, in this context) because that is the place in which the creditor will receive his funds. However, since the selected rate may affect the amount which the creditor will receive, it is submitted that the identification of the rate of exchange should be regarded as a matter of substance and should accordingly be governed by the law applicable to the contract.141

7.53  It is necessary to make one further observation about the debtor's option to discharge his foreign currency obligation in sterling. It has been shown that this option is derived from the fact that English law supplies the law of the place of performance. But the influence of the law of the place of performance has in some respects been diluted by Article 12(2) of Rome I. As a result, it is submitted that the option to pay in sterling now rests on a less secure foundation than was hitherto the case. Since the point may be relevant in any case where the location of the place of payment differs from the money of account (ie it is not confined to cases in which payment is to be made in England), the subject will be considered later.142

(p. 207) 7.54  Finally, it may be noted that the French Cour de Cassation has held that a US dollar debt payable in France may be paid in euro at the rate of exchange on the date of payment, unless the debtor is paying late.143

Exclusion of the conversion option

7.55  It is clear that the debtor's option to convert a foreign money obligation into the money of the place of payment can be excluded by the parties; this is particularly so in the case of bills of exchange.144 This seems to mean that a problem of construction is involved; certainly this appears to be the approach adopted by English law.145 Thus, if an intention to exclude the debtor's sterling option can be discerned, then the debtor will be bound to pay in the stipulated foreign currency. Such a different intention may readily be inferred from the terms of the contract and the surrounding circumstances. There is no need for an express term, for it is the intention of the parties which matters.146 This may, for example, be influenced by the existence of a system of exchange control in the place of payment; if and so long as the foreign currency in question is not freely obtainable, then it may well defeat the intention of the parties if the debtor is allowed to pay in sterling.147 It is probably (p. 208) reasonable to suggest that, where the exercise of the debtor's option to pay in the currency of the place of payment would affect not only the mode but also the quantum of the debtor's obligation, then it is likely to be excluded. Further, as between banks dealing in the eurocurrency markets, it is almost certainly intended that repayment should be effected in the currency in which it was originally advanced, and not in sterling.148

Overdue debts

7.56  To what extent do the rules described above continue to apply if a debt is not paid on the stipulated maturity date and thus becomes overdue? Consistently with the decision in Camdex International Ltd v Bank of Zambia (No 3),149 debts must be treated on the same footing, whether they are expressed in sterling or denominated in a foreign currency. Thus, any debt remains a debt even after it is overdue and even after the obligation has been repudiated. In consequence, such a debt can still be discharged by payment in the currency in question rather than by accord and satisfaction.150 The point is by no means academic; a debtor in financially straitened circumstances may be unable to pay as at the maturity date, but may come into funds shortly thereafter. Equally, a debtor who has repudiated his obligation may, on reflection, decide that it would be in his best interests to pay. In each case, the debtor retains the right to discharge his or her debt by payment, or at least to secure the procedural advantages flowing from a valid tender.

7.57  That an overdue foreign currency debt can still be discharged by payment under these circumstances is apparent from the Court of Appeal decision in Société des Hôtels Le Touquet v Cummings.151 In 1914, the defendant had contracted a debt of 18,035 French francs to the plaintiff, which was repayable before the end of (p. 209) that year.152 The defendant failed to pay and the plaintiffs commenced proceedings in 1919. The external value of the franc had fallen heavily by this time, and the plaintiffs accordingly claimed the amount of sterling which would have been equivalent to the amount of the French franc loan as at the end of 1914. While the action was pending, the defendant went to France and handed 18,035 francs to the manager of the plaintiffs; the manager knew nothing of the transaction but apparently had authority to accept money on its behalf. At first instance, the Court awarded the plaintiffs the sterling sum which was equivalent to 18,035 francs on 31 December 1914, less the sterling value of the money paid at the rate of exchange on the day of payment.153 The Court of Appeal reversed the decision, effectively finding that the French franc debt had been fully discharged by payment in that currency, and that fluctuations in the comparative value of the French franc and sterling were entirely irrelevant.

7.58  Bankes LJ said that, as the manager knew the money was tendered in discharge of a debt due to the company, and as the plaintiffs had kept the money without protest, the payment must be treated as discharging the debt.154

7.59  Scrutton LJ held that the payment could not be treated as an accord and satisfaction. Instead, he held that the tender and acceptance of the money actually handed over to the plaintiffs manager amounted to payment and thus discharged the debt: ‘the plaintiffs who were owed 18,035 francs payable in France must be content with 18,035 francs paid in France’.155

7.60  Atkin LJ also held that there was no accord and satisfaction.156 He rejected the notion that, once the English writ was issued, the debt was in some way transformed into a sterling debt of an amount calculated at the rate of exchange on 31 December 1914 and payable in England: ‘It appears to me that she was sued here for a French debt … and that by paying the debt in France, she discharged the debt.’

7.61  All three members of the Court of Appeal thus held that, accord and satisfaction being unnecessary, the claim for 18,035 French francs had been ‘paid’, and the action therefore had to fail. The French franc debt thus remained a French franc debt, regardless of default, the falling international value of the franc, the commencement of proceedings, or any other matter.

(p. 210) 7.62  The judgment in this case attracted some criticism,157 but it is submitted that the decision is plainly correct. The Court of Appeal reached the only conclusion which would have been consistent with the principle of nominalism. Furthermore, the decision conforms to good sense; it is not at all obvious why a foreign currency debt governed by English law should be transmuted into a sterling debt merely because there is a delay in payment or legal proceedings are commenced.158 It is true that the implications of the decision have not always been fully recognized and accepted in later cases, although the key elements of the decision were followed in an interesting New York case.159 It should, however, be appreciated that the Le Touquet decision only applies to claims in debt where the concept of payment can apply; it is not applicable to claims for unliquidated damages.160


7.63  It is finally necessary to consider whether payment by means of set-off is possible as between debts which are expressed in different currencies. Although in England, the law on set-off is in many respects open to doubt and its importance is in some cases diminished by the availability of a counterclaim, there is no reason of substance which should prevent set-off in such a case.161 The method was indicated by Brandon J at first instance in The Despina R:162 ‘the currency of the lesser liability should be converted into the currency of the greater liability, and the set-off then (p. 211) effected, at the date on which the amounts of the two liabilities are ascertained by agreement or decision’. In such a case, neither party is liable to pay until the balance has been struck and judgment is given for the amount of the excess. This is an eminently sensible and practical procedure.163

C. The Money of Payment

7.64  In their essence, the rules discussed in the previous section have been consistent with the principle of nominalism. A debt expressed in sterling or a foreign currency can generally be discharged by payment of the requisite amount in legal tender or, subject to the express or implied consent of the creditor, other ‘cash equivalent’ for the currency concerned. By way of exception, a debtor obliged to pay a foreign currency amount in England may have an option to tender sterling in discharge of that obligation. But there may also be cases in which an obligation is expressed in one currency but is to be performed in another. It is now proposed to consider this separate category of cases.

7.65  Reference has already been made to the distinction between the money of account and the money of payment. It has been shown that the money of account provides the measure of a financial obligation; it has also been shown that the identification of the money of account is a matter of substance, which is thus governed by the law applicable to the obligation at issue.164

7.66  In contrast, the money of payment is the currency which must be used as a means of performing the obligation which has been so defined and measured. The distinction between the money of account and the money of payment was explained with great clarity by Lord Denning MR in Woodhouse AC Israel Cocoa Ltd v Nigerian Produce Marketing Co Ltd,165 where he noted that ‘the money of account is the (p. 212) currency in which an obligation is measured. It tells the debtor how much he has to pay. The money of payment is the currency in which the obligation is to be discharged. It tells the debtor by which means he has to pay.’ He then proceeded to illustrate the practical problems which might flow from this distinction:

Suppose an English merchant buys twenty tons of cocoa-beans from a Nigerian supplier for delivery in three months’ time at the price of £5 Nigerian a ton payable in pounds sterling in London. Then the money of account is Nigerian pounds. But the money of payment is sterling. Assume that, at the making of the contract, the exchange rate is £1 Nigerian for £1 sterling—‘pound for pound’. Then, so long as the exchange rate remains steady, no one worries. The buyer pays £100 sterling in London. It is transferred to Lagos where the seller receives £100 Nigerian. But suppose that, before the time of payment, sterling is devalued by 14 per cent while the Nigerian pound stands firm. The Nigerian seller is entitled to have currency worth £100 Nigerian because the Nigerian pound is the money of account. But the money of payment is sterling. So the buyer must provide enough sterling to make up £100 Nigerian. To do this, after devaluation, he will have to provide £116 5s in pounds sterling. So the buyer in England, looking at it as he will in sterling, has to pay much more for his twenty tons of cocoa-beans than he had anticipated. He will have to pay £116 5s instead of £100. He will have to pass the increase on to the customers. But the seller in Nigeria, looking at it as he will in Nigerian pounds, will receive the same amount as he had anticipated. He will receive £100 Nigerian just the same; and he will be able to pay his growers accordingly. But now suppose that in the contract for purchase the price had been, not £5 Nigerian, but £5 sterling a ton, so that the money of account was sterling. After devaluation, the buyer in England would be able to discharge his obligation by paying £100 sterling; but the Nigerian seller would suffer. For, when he transferred the £100 sterling to Nigeria, it would only be worth £86 Nigerian. So, instead of getting £100 Nigerian as he anticipated, he would only get £86; and he would not have enough to pay his growers. So you see how vital it is to decide, in any contract, what the money of account is and what the money of payment is.

7.67  As is apparent from the commercial illustration provided by Lord Denning, the application of the distinction between the money of account and the money of payment can have far-reaching financial consequences. A default in payment may lead to further difficulties if the money of payment further depreciates against the money of account, for the actual amount payable in the latter currency will increase.166 Thus, both the creditor and debtor should be aware of the risks they are (p. 213) assuming if they contract for ‘US$1,000, payable in six months’ time in pounds sterling’ or ‘£1,000 payable in US dollars in 12 months’ time’. In the first case, the amount of sterling to be paid in six months’ time is unknown, and a degree of risk is borne by the debtor in that regard. The creditor is protected in that he knows that—regardless of exchange rates prevailing on the date of payment—the amount of sterling which he is to receive will be equivalent to US$1,000. Similar risks would arise in relation to the second example.167 For these reasons, it remains important for the lawyer to distinguish carefully between the money of account and the money of payment. Yet it must be observed that the risks just described would flow from the language which the parties had selected to express their rights and obligations and, to that extent, the risks have been voluntarily assumed. The problem of the distinction between the money of account and the money of payment will only occasionally trouble the courts since, in the vast majority of cases, the two will be identical. Yet the issue recently arose in Procter & Gamble v Svenska Cellulosa AB.168 In that case, the price of goods to be supplied was expressed in euro but payment was required to be made in sterling. Whilst an appendix to the contract contained a passing reference to a ‘£/euro exchange rate of 1.4916’, the court found that this was not intended to set a rate for the contract as a whole. In the absence of a contractual exchange rate, the court held that the debtor should generally be required to discharge its obligations by reference to the exchange rate as at the due date for payment. As the court rightly observed,169 to imply any other term into the contract would involve an allocation of exchange risk that the parties themselves had not contemplated, and the court should therefore be wary of implying a different term. Finally, it may be noted that the distinction between the money of account and the money of payment has also troubled courts in other countries. The French Cour de Cassation has had to decide a case involving a lease of agricultural equipment to a company in French Guyana.170 The rental was expressed in Surinamese guilders, but the lessor succeeded in obtaining a judgment (p. 214) in French francs. Effectively, the court found that the choice of the Surinamese unit functioned only as the money of account, and that the French franc was intended to provide the money of payment.171

7.68  It is now necessary to turn to other cases in which the creditor may be compelled to accept payment in a currency which differs from that stipulated in the contract. It has been observed elsewhere that there is no necessary connection between the law which governs a contract and the currency in which the monetary obligations arising under it are to be discharged.172 This was because the mode of performance was to be determined according to the law of the place in which payment was required to be made. The identification of the currency or money tokens which the debtor was required to proffer in settlement of his obligation was thus decided by reference to the law of the place of performance.173 As has been shown,174 a debtor who has an obligation to pay US dollars in London may tender either dollars or their sterling equivalent; and the creditor must accept the sterling amount so offered, or at any rate it constitutes an adequate tender in respect of the US dollar obligation.175 Thus, a creditor who expected to receive payment in US dollars may be compelled to accept a sterling amount instead.

(p. 215) 7.69  It is suggested that rules of this nature should no longer be applied automatically or as a matter of course:

  1. (a)  As already noted, the courts are now no longer positively required to give effect to the law of the place of performance in matters touching the mode of payment, they are merely required to have regard to that law where the justice of the case so requires.

  2. (b)  It is difficult to see why—as a matter of justice as between the parties—the creditor should be obliged to accept payment in a currency different from that which was mutually agreed. The creditor may have stipulated for a particular currency because he requires those funds to meet other obligations or simply because he believes it to be a stable currency. There is no reason why the law should deprive him of the benefit of that bargain, or impose upon him the inevitable cost of converting local currency proceeds into his chosen medium of payment.

  3. (c)  The notion that the currency of payment touches merely the mode of performance has limited connection with commercial reality, at least in the modern world.176 Parties agree that payment should be made in (say) US dollars for a variety of reasons but they will usually regard this as a point of some importance. There seems to be no compelling reason why the debtor should be allowed unilaterally to decide upon payment in the local (as opposed to the agreed) currency.

  4. (d)  Rates of exchange may vary from day to day. Thus, if a creditor receives US$10,000 in discharge of an obligation of that amount, he will continue to have US$10,000 on the ensuing day. But if he receives £6,000 in discharge of a US$10,000 obligation at a rate fixed by the applicable law, he will have the sterling equivalent of US$10,000 on the date of payment, but the sterling funds may be worth less than US$10,000 on the ensuing day. Furthermore, the creditor will have received a sterling amount at a rate of exchange fixed by the applicable law, but it will not necessarily follow in every case that he can obtain the identical rate in the place of payment. Even if payment is received through the banking system on the due date and at the appropriate rate, it may arrive towards the end of banking hours, with the result that the creditor is unable to secure to himself the benefit of that day's rate.

(p. 216) 7.70  For these reasons, rules forming part of the law of the place of payment and which allow the debtor the option to pay in the local currency will only rarely do justice as between the parties. Rather more frequently, they will distort the parties’ intentions and will consequently lead to injustice. The origins of the right of conversion lie in the mercantile practices of the Middle Ages.177 They have very limited relevance in the modern commercial world. Accordingly, in the absence of any contrary indication in the contract, it should be assumed that the money of payment is identical to the money of account.

7.71  Inevitably, matters will not always be so straightforward and there will be exceptional cases. For example, the application of such a rule may do justice in a case where payment in the agreed foreign currency has become impossible as a result of supervening illegality. In such a case, payment in the local currency at the appropriate rate of exchange is clearly preferable to no payment; and some payment (rather than none) clearly accords with the justice of the case. Article 10(2) of the Rome Convention should accordingly apply the law of the place of performance in such a case.178 Likewise, where exchange controls in the place of payment render it impossible to obtain the necessary foreign currency, Article 10(2) may lead to the conclusion that payment in the domestic currency may be required in accordance with the law of that place.179

7.72  This analysis suggests that the influence of the law of the place of payment should be regulated in individual cases. In particular, it should not be applied where it would unnecessarily subvert the intention of the parties, or create an option of payment which was not contemplated by the parties. But it may be applied in cases where there is a genuine difficulty in making payment in the agreed currency in the agreed place. In other words, the traditional distinction between the money of account and the money of payment180 should be less sharply drawn; if the parties have contracted by reference to a particular currency, then (at least as a starting point) the courts should assume that payment is likewise to be made in that currency, irrespective of the law of the place of payment.

7.73  It may be noted that French law has adopted a different approach to this subject. In 1917, the Cour de Cassation ruled that ‘all payments within France, whatever the (p. 217) cause, shall be made in French currency, if the parties did not agree otherwise’.181 In a more recent case, the Cour de Cassation refused to enforce a US dollar ‘depreciation clause’ in a lease of a building in the French West Indies, on the basis that the contract was of an internal character and was thus payable in the French currency.182 Where, however, the contract is of a truly international character, then the parties’ choice of a foreign currency as the means of payment is to be respected.183

7.74  Various uniform rules also deal with questions touching the money of payment. In most cases, these rules allow the parties to select the money of payment but, failing that, generally provide for payment in the currency of the place where payment is required to be made.184

D. Payment and Private International Law

7.75  It is a well-established principle of English private international law that the question whether a certain payment operates as a discharge of an obligation is governed by its applicable law.185 But, however clear the principle may be, various specific aspects of the rule require discussion.

Accord and satisfaction

7.76  Whether or not a payment can, in particular cases, by itself discharge an obligation or whether some further action or step is required for that purpose is governed by the applicable law. Thus, it is for the law applicable to the obligation to determine whether the discharge is dependent upon a separate agreement, ie whether a doctrine similar to the English concept of ‘accord and satisfaction’ is to be applied.186 Thus, if the governing law allows for tender and payment to be made in respect of a claim for unliquidated damages, then the English court will give effect to that state of affairs. It would be irrelevant that, under English domestic law, the concepts of tender and payment can be applied only to liquidated obligations.187

(p. 218) Tender

7.77  In a private international law context, the concept of tender gives rise to peculiar difficulty, in that it has two separate meanings.

7.78  In the first instance, it may mean that tender has been made in accordance with the law applicable to the obligation and that this has resulted in the discharge of the monetary obligation or at least in some alteration in its structure. The effect of such tender should be governed by the applicable law.188 On the other hand, the plea may mean that by offering the amount due to the creditor, the debtor has procured for himself the advantages of a plea of tender in the English sense which, if followed by payment into court, merely entitles the debtor to the costs of the action and bars a claim for interest.189 In the light of the procedural nature of this class of tender, the matter would fall to be governed by English law, as the law of the country in which the proceedings take place.

7.79  It was the failure to draw this distinction which lay at the root of a misunderstanding of the Canadian Gold Clauses Act 1937 in New Brunswick Rly Co v British and French Trust Corp.190 In that case, Lord Maugham said:

I am of the opinion that the questions that arise as to the validity or form of a tender, or the advantage of making one in a particular form, are questions of procedure for the lex fori. There may well be special rules in different countries.

7.80  It was for this reason that Lord Maugham held that a creditor enforcing a gold clause in England could not be defeated by a Canadian statute according to which:

tender of the nominal or face amount of the obligation [governed by Canadian law] in currency which is legal tender for the payment of debts in the country in the money of which the obligation is payable shall be a legal tender and the debtor shall, on making payment in accordance with such tender, be entitled to a discharge of the obligation.

The basis of this view was that the operation of the Canadian statute had to be confined to cases ‘where the action to recover the amount due is brought in Canada’. Yet Lord Maugham's approach was mistaken. The Canadian legislator did not seek to interfere with the law of tender in England or elsewhere; he merely intended to provide that a monetary obligation governed by Canadian law could be reduced or (p. 219) discharged in a particular way.191 Lord Maugham's opinion thus rests upon a failure to distinguish between the substantive and procedural meanings of ‘tender’.


7.81  So far as English law is concerned, rights of set-off are usually seen as matters of procedure which are thus governed by the law of the country in which the proceedings take place.192

7.82  In a contractual context, however, the right to pay a reduced sum in diminution of a larger debt may be treated as a matter of substance,193 and in such a case the availability of such a right must be governed by the law applicable to the contract which is claimed wholly or partly to be discharged by reason of the set-off.194

Deposit in court

7.83  The governing law of the obligation should also determine whether the method of paying a debt by depositing the amount due with a court (consignation), which is known to civil law countries, is available in a given case and whether such deposit amounts to a discharge of the obligation. This appears to be the reasoning on which the two difficult cases of The Baarn195 were decided.

7.84  Both cases arose out of a collision between a Chilean vessel, owned by a company domiciled in Chile, and a Dutch vessel owned by the defendants, a Dutch firm.196 The defendants admitted liability; the Chilean plaintiffs therefore issued proceedings in England and sought a determination of damages for expenses incurred by them in Chile in Chilean currency for the repair of their vessel. During the course of the English proceedings, the defendants deposited the amount of pesos spent by the plaintiffs with the court in Chile in accordance with certain provisions of the Chilean Code. The English court was thus called upon to determine whether that payment had discharged the defendants’ obligations.

(p. 220) 7.85  The economic background to the proceedings can only be understood if it is remembered that the Chilean peso was a ‘frozen currency’, that is to say that money could not be freely transferred out of Chile. As a result, the value of blocked accounts held within the country was quoted abroad at a discount, although the official rate of exchange was unaltered and, within Chile, the money had an undiminished purchasing power.

7.86  At first instance, the court fell into error in that it assumed that Chilean law governed the issue.197 Having reviewed the evidence of Chilean law, the court held that the payment was valid according to Chilean law. This judgment was reversed on appeal, although each judge offered different reasons. Scrutton LJ took the view ‘that there is no final decision by the Chilean court that the payment in depreciated pesos is sufficient while proceedings are pending in London’—although it is not at all clear how a Chilean judgment would or could have affected the outcome in England. Greer LJ said that it was not clear whether the payment had discharged the debt under Chilean law; consequently, once damages were assessed in England, the court would have to give credit for that payment ‘by its equivalent value in sterling at the rate of exchange prevailing on the date when the payment was finally approved by the Chilean judge’. Romer LJ held that what happened in Chile could have the effect of a payment only where the relationship of the parties was that of debtor and creditor, and no such relationship subsisted in the present case.198 During further proceedings the question arose whether the order drawn up by the Court of Appeal in The Baarn (No 1)199 actually reflected the judgments given; it was contended that the Court of Appeal had not intended to exclude the possibility of taking the Chilean payment into account pro tanto, and to order payment in England. This contention was rejected by the Court of Appeal.200 Greer LJ dismissed the defendant's appeal on the ground that they were estopped from challenging the order; Scrutton LJ adhered to his view that there had been no payment (apparently according to Chilean law); whilst Maugham LJ emphasized201 that he was ‘unable to see that Chilean law has anything to do with the matter before the court’.

7.87  The judgments in these two cases thus present something of a confused picture. Nevertheless, the central point appears to be that the claim for damages was governed by English law202 and English law must thus determine whether the liability has been discharged. English law should likewise determine whether credit should (p. 221) be given for payment made to a foreign court; it should decline to give credit if the payment so made is ‘blocked’ by local legislation.203

7.88  It should be appreciated that paragraphs 7.83—7.87 deal only with the question whether a payment into court has the effect of discharging a particular debt. Where a payment is made into court under (for example) an order allowing the defendant to resist the claim on the footing that security is given, then this issue will obviously be a procedural matter for the law of the forum. For example, where such an order is made by the English court, the cheque must be received by the deadline set for the payment, and it does not matter that the cheque is only cleared at a later date. This rule applies to both sterling and foreign currency payments.204

Conversion for adjustment

7.89  It has been necessary at an earlier stage to consider in some detail the identification of the money of account and of the money of payment. It is now necessary to consider a further set of cases, where both the money of account and the money of payment have been identified, but where an item expressed in a foreign currency has to be converted into the money of payment in order finally to calculate the amount required to be paid. If, for instance, under an insurance policy providing for an indemnity in sterling, a claim is made in respect of a loss expressed in a foreign currency, it is clear that a conversion into sterling is required; for the insurer is only liable to pay in that currency. Similarly, if security over property in France has been given by way of security for a sterling loan and, upon enforcement, the property is sold to a French buyer for a price in euros, it becomes necessary to convert the euro proceeds into sterling so that the outstanding balance of the loan can be ascertained. The need for conversion is thus obvious in both instances.

7.90  In such cases, conversion should be effected at the rate of exchange on the day on which, according to the contract and the circumstances of the case, there arose the right to payment or the duty to give credit and, consequently, the occasion for conversion likewise arose.205 This rule renders it necessary in the first instance to turn to the contract to search for an express or implied agreement between the parties. Thus, where a charterparty provided for the revision of hire payable in dollars (p. 222) in accordance with wages paid to the crew in Deutsche marks, the latter are to be converted into dollars as at the date on which the wages are changed.206 Equally, it is of the essence of an indemnity policy that the holder is entitled to the value at the time and place of the fire; if the property is valued in a foreign currency and the policy is expressed in sterling, the value will have to be converted at the rate of exchange on the day of the fire.

7.91  In the case of reinsurance contracts, conversion will take place with reference to the rate of exchange on the date on which the insurer itself pays and the reinsurer's liability therefore arises. This point is impressively illustrated by the decision of the Court of Appeal in Versicherungs & Transport AG Daugava v Henderson.207 The defendant, an English underwriter, had reinsured the plaintiffs, a Latvian insurance company, against their liability on a fire policy relating to buildings in Riga. Following a fire in April 1930, the plaintiff ‘s liability to the defendants was ascertained by the Latvian courts in lats and the sum due was paid in January 1932. As between insurer and reinsurer, the question arose whether the sum in lats should be converted into sterling at the rate of exchange as at the date of the fire or as at the date on which the insurer settled his liability. The Court of Appeal adopted the latter date, on the basis that the reinsurer had no liability until the insurer's liability had been quantified and satisfied.208

7.92  A case in which credit has to be given according to the rate of exchange on the day when the obligation to give credit comes into existence arises where the victim of a tort or breach of contract is entitled to damages in terms of sterling, but in mitigating his damage has obtained a sum in US dollars for which credit must be given. It is submitted that the US dollars are to be converted into sterling on the date on which the victim receives them, rather than the date when the damage occurred or the wrongdoer makes payment.209

7.93  In Pape Williams & Co v Home Insurance Co,210 American owners of cotton lying in Barcelona insured it with an American insurance company in terms of dollars, (p. 223) subject to terms: ‘Loss if any payable on the basis of the actual market value at time and place of loss, such loss to be payable in New York exchange to bankers.’ The goods were confiscated in Barcelona at a time when they had a dollar value of US$30,000. The Spanish Government subsequently paid to the owners compensation in pesetas which produced US$18,000. The court upheld the insured's claim for the difference, and rejected the insurer's argument that the loss had been made good by payment of the value of the goods in pesetas. The compensation paid by the Spanish Government was merely an item to be brought into account; for this purpose, it was to be converted into US dollars at the rate prevailing at the time of receipt of the credit.211

7.94  A final example is provided by a line of cases which arose in the sphere of taxation, as a consequence of the rule that the domestic currency is an unchanging measure of value, whilst foreign currencies can fluctuate against it. The decision in Bentley v Pike212 arose in the context of capital gains tax. In October 1967, a British taxpayer became entitled to a German property then worth DM132,000. She sold it in July 1973 for DM152,000. The question was whether the taxable gain was (a) DM 20,000 converted into sterling at the rate for July 1973, or (b) the excess of the sterling value of DM152,000 in July 1973 over the sterling value of DM132,000 in October 1967. The court decided in the latter sense, so that the taxpayer largely paid tax ‘on a gain resulting from the devaluation of the pound in November 1967’. It is submitted that the former solution would have been preferable on the basis that no question of converting anything into sterling should have arisen until the disposal in July 1973.213 In contrast, in Goodbrand v Loffland Brothers North Sea Inc,214 the taxpayer was affected by currency fluctuations which occurred after the disposal of four drilling rigs at a pre-determined price expressed in US dollars. The whole amount of the applicable capital gain was taxable in the year of disposal, but the dollar consideration was to be paid to the seller over a period of nine years. As a result of exchange rate fluctuations over that period, the company had paid more capital gains tax than would have been justified by the overall sterling equivalent of the gain. However, the taxpayer's attempt to adjust the assessment failed, because the consideration for the rigs had been expressed in US dollars, and payment of that sum had been received in full. The conversion of the dollar amount into sterling was a mere valuation exercise for the purpose of computing the tax payable; the taxpayer had never expected to receive payment in sterling and changes in the exchange rate which post-dated the assessment were accordingly (p. 224) irrelevant. Nevertheless, fluctuating rates of exchange cannot be invoked in order to create a taxable profit or gain where none has in fact been made. Thus, in Pattison v Marine Midland Ltd,215 an international bank borrowed US dollars in order to make loans to customers seeking advances in that currency. Upon receipt of US dollar repayments from its customers, the bank made corresponding repayments to its own financier. The sterling value of the dollars originally borrowed was £6 million, whilst the sterling value of the same amount of dollars received on repayment was £8 million. The Inland Revenue claimed that the difference amounted to an income profit, which was liable to corporation tax accordingly. The House of Lords held that the transactions had been effected entirely in US dollars, and no question of exchange gains or losses could therefore arise.216 Thus, whilst a conversion of currencies may be needed to effect any necessary adjustment, it should be appreciated that this is only required where the context positively demands that a sterling value must be placed on a foreign currency amount.

Performance of monetary obligations abroad

7.95  It has been shown that the determination of the money of account can cause particular problems in cases involving a conflict of laws.217 The determination of the money of payment raises slightly different, but equally difficult problems. The point may perhaps be illustrated by an example. Suppose that, under English law, a debtor owes a sterling amount which is payable in Paris. Applying the English rules on conversion, the debtor should be entitled to discharge his debt by payment of the corresponding amount in euros. But should not the latter point be decided by French law, as the law of the place of payment? In other words, should the rule218 of English municipal law that a monetary obligation is discharged by tendering the money of the place of payment be extended to a rule of private international law, to the effect that the determination of the money of payment falls to be decided by the law of the place of payment?

7.96  The situation involves two distinct questions, namely:

  1. (a)  which system of law determines whether the debtor has a right or duty to convert the money of account into the local money of payment; and

  2. (p. 225) (b)  which legal system governs the mechanics of conversion (for example, the rate of exchange to be employed and the date and place with reference to which such rate is to be ascertained)?

7.97  As to the first question, it has been noted that, at least in a more traditional line of reasoning, the creditor suffers no prejudice from the fact that he receives payment in the currency of the place of payment. In general therefore, and in the absence of indications to the contrary in the contract, it seems that the availability of an option or obligation to settle the debt in the local currency can be treated as one relating to the mode of performance; the court may therefore have regard to the law of the place of payment in this context.

7.98  As to the second question, however, a different approach is required. The rate of exchange to be employed and the date with reference to which it is to be ascertained will clearly affect the amount which the debtor is required to pay, ie they go to the substance of the obligation. As a matter of principle, it must follow that such questions must be governed by the law applicable to the obligation.219

The place of payment

7.99  So far as English private international law is concerned, the ‘place of payment’ is the place in which the debtor is obliged to tender payment; this must, of course, correspond to the place in which the creditor is contractually entitled to receive the payment.220 Subject to that formulation, the identity of the place of payment will be determined by the law applicable to the contract, by establishing where the creditor is entitled to receive his money in accordance with that law. The place of payment is often fixed by the parties, either expressly or impliedly. But in the absence of such a determination, the general rule—under a contract governed by English law—is that the place of payment is the place where the creditor resides or carries on business221 at (p. 226) the time of the contract.222 This solution is adopted by a number of legal systems and also by the Vienna Convention on the International Sale of Goods,223 but it may be noted that French law provides for payment to be made in the place designated by the agreement or, failing that, payment must be made at the domicile of the debtor.224

7.100  The function of the place of payment may vary in different legal systems as well as in different contexts. So far as English law is concerned, the present work examines two particularly important legal characteristics of the law of the place of performance. First of all, it has been shown that English private international law pays regard to the law of the place of payment in questions touching the mode of performance.225 Secondly, it will be shown that the English courts will not enforce an obligation whose execution would be illegal in the law of the place of performance.226 But it is also necessary to enquire whether the place of performance and its laws have any wider or deeper consequences than those just described. Although the point does not appear to have been explored directly in decided cases, it seems that (so far as English law is concerned) the character and purpose of the place of payment is determined by (a) the express or implied terms of the contract; and (b) the overall rationale and purpose of the contract. Thus, as a matter of construction, the place of payment may be the place at which the debtor is both entitled and bound to pay. Alternatively it may be a place in which the debtor is entitled to pay; payment in that place is not mandatory but is ‘permissible’,227 or such place may be the ‘primary’ (if not the exclusive) place of payment.228 A nominated place of (p. 227) payment may be unalterably fixed, or it may be intended that it should be changed under circumstances which are expressly or impliedly defined by the terms of the contract. The mere fact that a contract specifies a place of payment does not necessarily or conclusively mean that there cannot be another one. It may be specified so as to be binding upon both parties or for the benefit of one of them, so as to allow either such party to make or require payment elsewhere. The difficulty which may thereby be caused in identifying the contractual place of performance can cause difficulties in related contexts. For example, in dealing with matters relating to performance of a contractual obligation, the court may have regard to the law of the place of performance. The application of this provision is obviously problematic if the place of payment cannot readily be identified, or if the creditor or debtor have options to require that payment be made in alternative locations.

7.101  The law of the place of payment may be of particular significance in the context of international banking transactions. For example, the contract arising from a bank deposit will generally be governed by the law of the country in which the account-holding branch is situate.229 If repayment of the deposit has become unlawful under its applicable law, then the English courts will not order repayment by the English branch of the bank concerned.230 The result is that the head office of an English bank is not generally liable for the repayment of blocked deposits placed with its overseas branches, at least for so long as the relevant blocking legislation remains in force.231 If, however, the account-holding branch is closed or wrongfully refuses payment, then the head office and other branches are in principle liable to repay the deposits since the contract remains legally binding on the entity as a whole.232

(p. 228) 7.102  It has already been seen that, where a US dollar deposit is to be repaid by a bank in London, England is the place of payment of the obligation concerned.233 This is so even though, ultimately, transfers of US dollar funds have to be cleared through New York via the New York Clearing House Interbank Payments System (CHIPS). New York may thus be the place of settlement, but the principal obligation to make the US dollars available rests with the London branch—England therefore remains the place of payment. Whatever the merits of this rule, it does at least have the advantage of clarity.

7.103  Unfortunately, litigation in the United States on the place of payment for interbank Eurodollar deposits has served to confuse matters. In Wells Fargo Asia Ltd v Citibank NA,234 Wells Fargo Asia placed two US dollar term deposits with the Manila branch of Citibank. In line with the practice described previously, the initial placing of the deposits was achieved through a credit to an account of Citibank Manila with Citibank New York, as correspondent bank. Likewise, repayment to Wells Fargo Asia was to be effected via a credit to that institution's correspondent account with Wells Fargo International Corporation in New York. Prior to the maturity date of the deposits, and in an effort to deal with a worsening economic crisis, the Philippine Government issued a decree prohibiting the repayment of foreign currency obligations to external lenders unless central bank approval was obtained.

7.104  The Supreme Court drew a distinction between the place of repayment (‘location where the wire transfers effectuating repayment at maturity were to occur’) and the place of collection (‘the place or places where plaintiff was entitled to look for satisfaction of its deposits in the event that Citibank should fail to make the required wire transfers at the place of repayment’). The Court appears to have thought that the parties would agree as to the place of collection following default, which would surely be an unusual contract term. At all events, on remand, the Court of Appeals235 held that New York law would determine whether a depositor at a foreign branch of Citibank could recover payment of the debt in New York. If the Philippine law had expropriated the deposit then the New York courts would have treated this as an assignment of the debt, with the result that the original depositor would no longer have title to sue for the debt. However, where the foreign law merely suspended the right to repayment, the debt would remain in existence and could be recovered elsewhere.236 In addition, the court noted that there was (p. 229) nothing in the contract to prohibit collection of the deposit in New York, with the result that collection there was permissible. The court seems to have regarded New York as the place of payment on the grounds that the wire transfers had to be cleared through New York, but, for the reasons already given, that view would appear to be erroneous.

7.105  The court also determined that the deposit arrangement was governed by New York (as opposed to Philippine) law. In the writer's view, it is legitimate to regard Eurodollar deposits as a service provided by the lender of those deposits237 so that—in contrast to ‘ordinary’ deposits—they will be governed by the law of the country in which the depositor (rather than the depositee) bank is located. But Wells Fargo Asia was a Singapore entity, so it still remains difficult to see how the contract could be governed by New York law.

7.106  If a similar situation were to come before an English court then, for the reasons just given, it is suggested that it should hold that the interbank deposit is governed by the law of the country in which the lender is located. Assuming the lender to be a London bank, the Eurodollar deposit would be governed by English law and would be repayable in London. The result would be that blocking or similar legislation in the jurisdiction of the borrowing bank would not, in principle, constitute a defence to a claim for repayment.238(p. 230)


1  On the subject of payment generally and for further case law, see Goode, Payment Obligations, ch 1; Goode, Commercial Law, ch 17; Brindle & Cox, chs 1 and 3. For detailed discussion of payments through the banking system, see Geva, The Law of Electronic Funds Transfers (M. Bender, 1992).

2  Indeed, as noted in Ch 1, the concept of payment is in many respects more important than the definition of money itself. It should not be overlooked that the expression ‘payment’—like ‘money’—may have different meanings in different contexts—see, eg, Kingsby v Sterling Industrial Securities Ltd [1966] 2 All ER 414 (CA), where the court had to consider the meaning of ‘actual payment’ where it appeared in a statutory instrument. Likewise in Hillsdown Holdings plc v IRC [1999] STC 561 it was held that a ‘payment’ connotes a transfer of funds which has some real and effective value to the recipient, although that decision again depended on a specific, statutory context. The expression ‘payment’ does, however, necessarily connote the discharge of a monetary obligation: White v Elmdene Estates Ltd [1960] 1 QB 1. The same theme was taken up by the House of Lords in MacNiven (Inspector of Taxes) v Westmoreland Investments Ltd [2001] UKHL 6. In that case, a taxpayer had made a payment of interest out of funds loaned to it by the original lender. The Crown claimed that this was a device to avoid tax, and that, for the purpose of the relevant statutory provisions, the payment should accordingly be disregarded on the basis of the approach adopted in WT Ramsay Ltd v IRC [1980] AC 300. However, the House of Lords held that ‘payment’ ‘means an act, such as the transfer of money, which discharges the debt’ (per Lord Hoffman, at para 67). The words ‘paid’ and ‘payment’ were to be given their ordinary commercial meaning and it was not possible to adopt a different approach to that point merely because the question arose in the context of a taxing statute.

3  This language is employed by Goode, Commercial Law, 498, and is quoted with apparent approval by Brindle & Cox, para 1.1. It appears to be generally accepted that ‘payment’ requires some act of acceptance on the part of the creditor, whilst a valid tender is a unilateral act on the part of the debtor—the point is discussed at para 7.08. The formulation set out in this paragraph was approved by the Federal Court of Australia in ABB Australia Pty Ltd v Commissioner of Taxation [2007] FCA 1063, at para 166. The case decides that, where A owes money to B but, at the direction of B, A makes payment to C, these arrangements constitute ‘payment’ of the debt owing by A to B. A similar approach was approved by the same court in Quality Publications Australia Pty Ltd v Commissioner of Taxation [2012] FCA 256, para 48.

4  Thus, if the parties agree that the debtor shall hand over his car in discharge of a debt of £10,000, the car does not thereby become ‘money’ nor does the act of delivery amount to ‘payment’, for the parties have varied the original contract by discharging the monetary obligation without payment. This statement was approved by the New Zealand Court of Appeal in Trans Otway Ltd v Shephard [2005] 3 NZLR 678, para 27 (affirmed, [2006] 2 NZLR 289), and was noted with apparent approval by the High Court of New Zealand in Reynolds (liquidator of Southern HSE Holdings Ltd) v HSE Holdings Ltd [2010] NZHC 1815, para 24. But a monetary obligation retains its original character even though it is subsequently discharged by the tender and acceptance of cash, cheque, by means of a bank transfer, by means of set-off, or by any other means which might ordinarily be described as ‘payment’: see Charter Reinsurance Co Ltd v Fagan [1997] AC 313, 384 (noted by Brindle & Cox, para 1.1).

5  See Libyan Arab Foreign Bank v Bankers Trust Co [1989] QB 728, 764.

6  Of course, and as noted in para 7.06, it must not be overlooked that in any particular case, the concept of payment must be defined by reference to the law applicable to the obligation at issue, for questions of performance are ascribed to that system of law by Art 12(1)(b) of Rome I. See the discussion at para 4.12.

7  Peterson v Commissioners of Inland Revenue [2005] UKPC 5. In contrast, an amount is ‘payable’ if it can be made due by demand and even though no demand has yet been made: Thomas Cook (New Zealand) Ltd v Commissioners of Inland Revenue [2005] STC 297 (PC).

8  Whether a particular transaction amounts to a ‘payment’ to an employee for the purposes of applicable tax legislation will often be a difficult issue and will depend upon the terms of the particular statute in question. For a recent case in which a transfer of shares did not have the effect of a ‘payment’ because it did not place funds unconditionally at the disposal of the recipient, see Aberdeen Asset Management plc v Commissioners for Her Majesty's Revenue and Customs [2012] UKUT 43 (Upper Tribunal, Tax and Chancery Chamber).

9  See the discussion of Camdex International Ltd v Bank of Zambia (No 3) [1997] CLC 714 at para 1.61.

10  Nicole Catala, La Nature Juridique du Paiement’ (Dalloz, 1961).

11  Grua, ‘L'obligation et son paiement’ in Aspects actuels du droit des affaires, mélanges en l’Honneur de Yves Guyon (Dalloz, 2003) 481; Rouverie, ‘L'envers du paiement’, D. 2006 481.

12  Cour de Cassation, decision of 16 September 2011. In this respect, it may be noted that the project for the preparation of the Code Monétaire et Financier had originally proposed that Art 1231 should read: ‘Le paiement se prouve par tous moyens’ (Payment can be proved by any means).

13  The distinction between liquidated and unliquidated sums will be discussed in more detail in the context of the nominalistic principle—see Chs 9 and 10.

14  On this point, see Chitty, para 22–012; British Russian Gazette and Trade Outlook Ltd v Associated Newspapers Ltd [1933] 2 KB 616, 643. The formulation in the text was noted with approval by the Supreme Court of New South Wales in Nab Ltd v Market Holdings Pty Ltd (in liquidation) [2001] NSWSC, para 126.

15  An obligation to pay a liquidated amount may also arise in other ways, eg pursuant to statute, but for present purposes the discussion is limited to contractual claims.

16  Under English law, the debtor has the right of appropriation. But if he fails to communicate that appropriation to the creditor at the time of payment, then the creditor may instead exercise the right of appropriation—see Chitty, paras 21–059 and 21–061. The debtor's intention was important in The Turiddu [1999] 2 Lloyd's Rep 401 (CA).

17  For another formulation, see Goode, Payment Obligations, para 1.09. The point made in the text would also follow from the definition of ‘payment’ given at para 7.04, which refers to an act offered and accepted in discharge of a monetary obligation. The same point is emphasized in Brindle & Cox, para 1.1.

18  The requirement for the creditor's consent as a necessary ingredient of the payment process in a contractual case and the formulation of this rule in the sixth edition of this work were cited with approval in PT Berlian Laju Tanker TBK v Nuse Shipping Ltd [2008] EWHC 1330 (Comm), para 67. The corresponding formulation in the fifth edition (at 75) was cited with approval in TSB Bank of Scotland v Welwyn & Hatfield DC [1993] 2 Bank LR 267 and in Commissioners of Customs and Excise v National Westminster Bank plc [2002] EWHC 2204. Likewise, in The University of Arts London v Rule (Employment Appeal Tribunal, 5 November 2010, 2010 WL 5590230), the tribunal noted that the payment of an interim award (acceptance of which would relieve the employer from any obligation to make an additional, ‘uplift’ payment) had to be positively accepted (as opposed to merely received) by the claimant.

19  Cf Code Civil, art 1257 and German Civil Code, ss 293 and 294. Under the latter provisions, the debtor must tender payment in accordance with the terms of the contract, and the creditor who refuses to accept such performance is in default of his contract. So far as English law is concerned, the creditor's refusal to accept payment does not of itself appear to constitute a breach of contract, with the result that the debtor would not thereby become entitled to damages in respect of the non-acceptance (although note the suggestion to the contrary in Canmer International Inc v UK Mutual Steamship Assurance Association (Bermuda) Ltd [2005] EWHC 1694 (Comm), at para 53). Even if it did constitute a breach, the debtor would usually find it difficult to show that he had suffered any loss as a result of the non-acceptance.

20  Civil Procedure Rules, r 37.3. Any claim for damages or interest will generally also be dismissed—Rourke v Robinson [1911] 1 Ch 480. However, an award of interest may be made if the debtor continues to make use of the money following the tender—Barratt v Gough-Thomas [1951] 2 All ER 48. It should be noted that the defendant will only achieve the position stated in the text if, in addition to making the payment, he also meets all of the notice and other, associated procedural requirements in full: see Greening v Williams [2000] CP Rep 40 (CA).

21  See Chitty, para 21–039; Goode, Payment Obligations, para 1.13. Payment is consensual in the sense that the creditor must accept the payment, either expressly or by his conduct in treating the funds as his own: Canmer International Inc (n 19), at para 51. See also ABB Australia Pty Ltd v Commissioner of Taxation [2007] FCA 1063 (Federal Court of Australia).

22  For cases in which this problem arose, see Stag Line Ltd v Tyne Shiprepair Group Ltd [1984] 2 Lloyd's Rep 211; Empresa Lineas Maritimas Argentinas v Oceanus Mutual Underwriting Association (Bermuda) Ltd [1984] 2 Lloyd's Rep 517. For a case in which the court had to decide whether a party was a ‘creditor’ for the purposes of serving a winding-up petition, see New Hampshire Insurance Co v Magellan Reinsurance Co Ltd (Privy Council Appeal No 50 of 2008).

23  See Seligman Bros v Brown Shipley & Co (1916) 32 TLR 549; The Chikuma [1981] 1 All ER 652 (HL). In the same sense, see China Mutual Trading Co Ltd v Banque Belge pour l’Etranger (1954) Hong Kong LR 144, 152—‘payment by a debtor into a blocked account cannot be a good discharge of a debt’.

24  A conditional tender will not usually suffice, since the creditor will normally expect unconditional access to the funds for his own use—see Re Steam Stoker Co (1875) LR Eq 416. For the same reason, a payment made on terms that seek to reserve an interest in the relevant funds to the payer will not amount to a valid tender or payment: Re Kayford Ltd [1975] 1 WLR 279, on which see Goode, Payment Obligations, para 1–18. However, where there is some doubt about the creditor's contractual entitlement to the payment, the debtor may elect to make payment ‘under reserve’, which—if accepted by the creditor—creates a right to reimbursement if the creditor's claim is ultimately held to be ill-founded—see Banque de I’ Indochine et de Suez v JH Rayner (Mincing Lane) Ltd [1983] 1 All ER 468. The offer of payment under reserve and its acceptance by the creditor thus effectively creates a collateral contract between the parties.

25  On the notes and coins which constitute legal tender in the UK, see Currency and Banking Notes Act 1954, s 1 and Coinage Act 1971, s 2 as amended by Currency Act 1983, s 1(3).

26  See, eg, the decision of the German Federal Supreme Court, 25 March 1983, BGHZ 87, 162.

27  Blumberg v Life Interests and Reversionary Securities Corp [1897] 1 Ch 171, affirmed [1898] 1 Ch 27.

28  Pollway Ltd v Abdullah [1974] 1 WLR 493, dealing with a sum of £555 and where (on the particular facts) the Court was justified in concluding that a requirement for payment ‘in cash’ involved an obligation to pay with legal tender.

29  Otago Station Estates Ltd v Parker [2005] NZSC 16.

30  Thus, if a creditor objects to the amount of a tender but does not complain about its mode or form, then he will be taken to have waived any objection to the tender on the latter ground. The whole subject of tender is considered in Chitty, paras 21–083–21-096. In so far as those principles deal with a tender in physical cash, it will be noted that the English authorities there cited are of some antiquity; this perhaps reflects the realization that the courts cannot now be expected to lend their assistance to a vexatious creditor who refuses to accept a reasonable means of payment. To the collection of English cases cited by Chitty, there may be added the American decisions in Atlanta Street Railway Co v Keeny (1896) 25 SE 629; Jersey City and Bergen Railroad v Morgan (1895) 160 US 288; and US v Lissner (1882) 12 Fed Rep 840. Once again, these cases are largely of historical interest.

31  eg, as in Pollway Ltd v Abdullah [1974] 1 WLR 493.

32  The Brimnes [1973] 1 WLR 386, 400. This definition was approved by the Court of Appeal in the same case, [1975] QB 929, 948, 963, and 968. It was also approved by the Court of Appeal in Mardorf Peach & Co Ltd v Attica Sea Carriers Corp of Liberia [1976] QB 835, 849–54. The Court of Appeal's comments remain valid even though its decision was reversed by the House of Lords, [1977] 3 All ER 124. For a good example of the Court's attitude, see Farquharson v Pearl Assurance [1937] 3 All ER 124. Where the debtor has, with the creditor's approval, established a direct debit with his bank for payments to be made over an extended period, it may be that the existence of the direct debit mandate constitutes a sufficient tender in respect of each instalment, even though the creditor omits to collect the funds: Weldon v SRE Linked Life Assurance [2000] 2 All ER 914 (Comm).

33  In relation to the UK, it is an offence to be concerned in arrangements which assist in the retention or concealment of ‘criminal property’, a term which includes the monetary fruits of crime—see Proceeds of Crime Act 2002, Pt 7; some of the difficulties which can arise in this context are discussed and considered in Bowman v Fels [2005] EWCA Civ 226 and see also the discussion of the decision in Tayeb v HSBC Bank plc at para 7.27. In the context of terrorist funds, see Anti-Terrorism, Crime and Security Act 2001, Pts 1 and 2. These UK measures reflect international trends in the same area.

34  Libyan Arab Foreign Bank v Bankers Trust Co [1989] QB 728. It will be necessary to return to this case in the context of the performance of foreign money obligations and the debtor's option to pay in sterling—see para 7.23.

35  That the offer of a cheque does not constitute a valid tender was decided in Re Steam Stoker Co (1875) LR 19 Eq 416 and in Johnson v Boyes [1899] 2 Ch 73; more recent authority to the same effect may be found in OK Bakery Co v Morten Milling Co (1940) 141 SW (Texas) 436. In many cases, the contract may stipulate for payment by cheque or the creditor may elect to accept it anyway, but that does not in any sense affect the statement in the text. A creditor is entitled to refuse a personal cheque where the contract provides for payment by means of ‘legal tender, bank cheque or other cleared funds’: see the decision of the New Zealand Supreme Court in Otago Stations Estates Ltd v Parker [2005] 2 NZLR 734.

36  Simmons v Swan (1927) US 113, where the creditor had rejected an instrument in the nature of a banker's draft. Mr Justice Holmes said: ‘If without previous notice he insisted upon currency that was strictly legal tender instead of what usually passes as money, we think that at least the plaintiff was entitled to a reasonable opportunity to get legal tender notes and as it was too late to get them that day might have tendered them on the next.’

37  See Mardorf Peach & Co Ltd v Attica Sea Carrier Corp of Liberia [1977] AC 850. The very fact that the contract includes details of the creditor's bank account must surely imply that payment by means of a funds transfer is to be accepted in lieu of cash.

38  Thus where the creditor includes details of his bank account on notepaper or invoices, he must be taken to have consented to payment by way of transfer to that account: German Federal Supreme Court, 13 May 1953, NJW 1953, 897; contrast the decision in Commissioners of Customs & Excise v National Westminster Bank plc [2002] EWHC 2204.

39  Official Solicitor to the Supreme Court v Thomas The Times, 21 February 1988.

40  The waiver may be an express or implied term of the contract or it might be derived from the subsequent conduct of the creditor.

41  For a telling example, see the decision of the Court of Appeal at Frankfurt, 22 September 1986, JZ 1986, 1072: a taxi driver may insist on payment in cash and refuse a euro-cheque.

42  In England, see Commissioners of Customs & Excise v National Westminster Bank plc [2002] EWHC 2204; see also the decisions of the German Supreme Court, 25 March 1983, BGHZ 87, 163; 5 May 1986, BGHZ 98, 24, 29, 30. In relation to France, see Cass Civ, 12 February 1960, S 1960, 131; Cass Com, 19 July 1954, D 1954, 629, Cass Civ, 12 January 1985, D 1989, 80.

43  See para 1.51.

44  Nevertheless, in many cases it will remain important to scrutinize the terms of the contract in order to determine whether a particular transfer will amount to an effective payment and discharge of the obligation. In PT Berlian Laju Tanker TBK v Nuse Shipping Ltd [2008] EWHC 1330 (Comm), the purchase price of a vessel was payable in full by credit to a bank account in Greece. A 10 per cent deposit had been credited to an escrow account in Singapore. The buyers intimated to the sellers that they would complete the transaction by paying 90 per cent of the price to the Greek bank account and releasing the escrow deposit to the sellers. Whilst this may appear to have been a reasonable approach in commercial terms, it did not accord with the contractual provision requiring full payment to the account in Greece. As the court observed, the buyers were effectively requiring the sellers to accept a funds transfer risk which was not contemplated by the terms of the contract. The sellers were therefore entitled to treat the buyers’ conduct as an anticipatory and repudiatory breach of the sale and purchase agreement.

45  Such instruments are ‘equivalent to cash’ in the sense that, in the absence of fraud, judgment must usually be given for the full face amount of the instrument, disregarding any counterclaims of the drawer. As noted previously, however, the creditor cannot be compelled to accept a cheque in the absence of a contractual obligation to do so, for he cannot be required to run the risk of dishonour. Consequently, a cheque is not ‘equivalent to cash’ in this latter sense. In Stirling Properties Ltd v Yerba Pty Ltd [1987] 73 ACTR 1, an Australian court noted that under modern commercial conditions, the parties may expect to make and receive payment by cheque, but that the entitlement to pay by cheque is not absolute and depends upon the acceptance of the tender by the creditor.

46  Re Romer & Haslam [1893] 2 QB 286; and see Michael Aronis & Aronis Nominees Pty Ltd (t/a Welland Tyrepower) v Hallett Brick Industries Ltd [1999] SASC 92.

47  See, eg, Nova (Jersey) Knit v Kammgarn Spinnerei GmbH [1977] 2 All ER 463, HL. In the context of documentary credits, this rule is frequently referred to as the ‘autonomy’ principle. It now appears that similar treatment is to be accorded to a direct debit, on the footing that it is an assurance of payment which is separate from the commercial contract—see Esso Petroleum Ltd v Milton [1997] 1 WLR 938, CA, followed in Sankey v Helping Hands Group plc [2000] CP Rep 11 and 3 Com Europe Ltd v Medea Vertriebs GmbH [2004] UKCLR 356.

48  This is especially the case in the context of bills of exchange and documentary credits, which may have maturity periods of several months or even longer.

49  See Chitty, paras 21–073 and 21–084. English decisions on the subject include Marreco v Richardson [1908] 2 KB 584 Re Hone [1951] Ch 85; ED & F Man Ltd v Nigerian Sweets and Confectionery Co Ltd [1977] 2 Lloyds Rep 50; Homes v Smith [2000] Lloyd's Rep Bank 139. The same point arose for decision in WJ Alan & Co Ltd v El Nasr Export & Import Co [1972] 2 All ER 127 (CA), a case which has broader monetary law implications and will thus be referred to in other contexts. More recent confirmation of the same rule is provided by Day v Coltrane [2003] 1 WLR 1379. The position in the US is similar: Ornstein v Hickerson (1941) 40 F Supp 305. See also the remarkable decision of the Appellate Division of South Africa in Eriksen Motors (Wellcom) Ltd v Protea Motors, Warrenton and others (1973) 3 South African LR 685, 693. Since the payment ‘relates back’ to the date on which the instrument was given, it follows that any contractual right to interest cannot accrue from that date, even though the creditor may be out of funds for a few days pending presentation and clearance of the cheque. The French courts have likewise held that payment occurs on the receipt of the cheque, subject to clearance—Cour de Cassation, Ch Soc 17 May 1972, D 1973, 129, whilst the German courts seem to look to the date of the dispatch (not receipt) of the cheque—Federal Supreme Court, 7 October 1965, NJW 1966, 47 and 29 January 1969, NJW 1969, 875.

50  This was so decided by the Court of Appeal in Norman v Ricketts (1886) 3 TLR 182. It appears that the authorization to post the cheque must be explicit and cannot be derived from a previous course of dealing—Pennington v Crossley (1897) 77 LT 43. Both of these decisions merit reconsideration, but they were followed in Thairwall v Great Northern Railway Co [1910] 2 KB 509. As noted in the text, a cheque is treated as a payment, on condition that it is subsequently honoured; this must mean that the cheque must be paid when presented for payment by or on behalf of the creditor himself. Of course, if the paying bank becomes insolvent at this point, then the cheque will not be met and the creditor must pursue the drawer of the cheque, who will not have been discharged. For the position where the collecting bank becomes insolvent, see Re Farrow's Bank Ltd [1923] 1 Ch 41 and the discussion in Goode, Commercial Law, 577.

51  For an analysis of the obligations of the debtor, creditor, and card issuer, see Re Charge Card Services Ltd [1989] Ch 497. For a discussion of some of the issues that may arise when a card payment is made over the internet, see Goode, Payment Obligations, para 4–22.

52  The means by which banks effect such transfers and the systems established for that purpose are discussed by Goode, Commercial Law, 501; Brindle & Cox, ch 3. For present purposes, it must, however, be noted that a payment by means of funds transfer will generally (although not invariably) involve the use of the payment and clearing systems in the country which issues the currency concerned—see the discussion of this difficult subject in Brindle & Cox, paras 3–24–3-293.

53  The expression ‘bank transfers’ is well understood in practice; the processes involved are well described in the note to Art 4A of the Uniform Commercial Code—the text is reproduced by Goode, Commercial Law, 503. The court in R v King [1991] 3 All ER 705 suggested that a payment order through the Clearing House Automated Payments System (CHAPS) operated to transfer a proprietary right in the chose in action represented by the bank credit. For the reasons just given, no assignment of the credit is involved, and the decision must be regarded as incorrect to that extent; this aspect of the decision does, in any event, seem to be nullified by the House of Lords’ analysis of bank transfers in the Preddy case—see the discussion in Brindle & Cox, para 1–006. That the use of the word ‘transfer’ may lead to confusion in this area was also noted by Staughton J in Libyan Arab Foreign Bank v Bankers Trust Co [1989] QB 728, 750.

54  It is no accident that a number of the cases which dealt with the precise time of payment involved shipowners who wished to terminate charterparties in order to obtain the higher returns then available in the market. Had the market been moving in the opposite direction, the owners would no doubt have contented themselves with payments which had been tendered, even though technically out of time.

55  See, eg, the discussion of TARGET 2 at para 33.58.

56  Settlement banks must meet a number of criteria in order to qualify for membership under the CHAPS Rules, including the ability to comply on a continuous basis with CHAPS technical and operational requirements.

57  CHAPS formerly also operated a system for transfers in euro, but this service was terminated in 2008 in view of the alternative payment methods available.

58  The present section draws on the writer's previous work in ch 4 of Goode, Payment Obligations.

59  Since the well-known decision in Foley v Hill (1848) 2 HL Cas 28, it has been established that a current or deposit account balance represents a debt and, in principle, is therefore capable of assignment. As a consequence, it has in the past been asserted that an instruction to a bank to transfer funds amounts to an assignment of the relevant balance in favour of the payee. However, for the reasons given in the text, this view cannot be accepted. See the discussion in Brindle & Cox, para 3–061. For essentially the same reasons, the payee cannot claim any security or beneficial interest over the funds contained in the payer's account, by reason only that the payer gives a transfer instruction to his bank. For an unsuccessful attempt to establish a claim of this type, see Triffitt Nurseries Ltd v Salads Etcetera Ltd (Court of Appeal, 18 April 2000).

60  For judicial discussion of the legal nature of a funds transfer and an analysis in terms of the law of agency, see Royal Products Ltd v Midland Bank Ltd [1981] 2 Lloyd's Rep 194.

61  [1996] AC 815 (HL). On this case, see Goode, Commercial Law, 493. The decision is unsatisfactory but the 1968 Act was subsequently amended to deal with the issue. Contrast the decision in R v Hilton The Times, 13 April 1997 (CA).

62  Chitty, para 21–043. Payment to an agent with no authority of any kind will clearly not discharge the debtor from his obligation to the ‘principal’: for an example of this problem that arose in a banking context, see Cleveland Manufacturing v Muslim Commercial Bank Ltd [1981] 2 Lloyd's Rep 646; and see also British Bank of the Middle East v Sun Life Assurance Co of Canada [1983] 2 Lloyd's Rep 9.

63  For a case in point, see Commissioners of Customs & Excise v National Westminster Bank plc [2003] 1 All ER (Comm) 327. See also Rick Dees Ltd v Larsen [2006] NZCA 25.

64  This obvious point is illustrated by the decision in Razcom CI v Barry Callebaut Sourcing AG [2010] EWHC 2598 (QB).

65  TSB Bank of Scotland v Welwyn Hatfield DC [1993] 2 Bank LR 267. But ratification is only effective if, at the time of making the payment, the bank purported to act on behalf of the principal: Keighley, Maxted & Co v Durant [1901] AC 240; Owen v Tate [1976] QB 402; Goode, Commercial Law, 500. For a case in which ratification was found to be ineffective, see Secured Residential Funding Ltd v Douglas Goldberg Hendeles & Co [2000] NPC 47. The ingredients of an effective ratification are considered in SEB Trygg Liv Holding AG v Manches [2005] 1 Lloyd's Rep 318 (CA).

66  [1977] AC 850.

67  Of course, had the owner received notice of the payment and taken no steps to reject it, then this might amount to an implied acceptance: Suncorp Insurance & Finance v Milano Assicurazioni [1993] 2 Lloyd's Rep 225.

68  TSB Bank of Scotland plc v Welwyn Hatfield DC and Brent LBC [1993] 2 Bank LR 267; The University of the Arts London v Rule (Employment Appeal Tribunal, 5 November 2010, 2010 WL 5590230).

69  Mardorf Peach & Co Ltd v Attica Sea Carriers Corp of Liberia [1977] AC 850 (HL); HMV Fields Properties Ltd v Bracken Self Selection Fabrics Ltd [1991] SLT 31.

70  [1972] 1 WLR 1048.

71  For other cases on this subject, see A-G for Ceylon v Silva [1953] AC 461 (PC); Armagas Ltd v Mundogas SA [1986] AC 717 (HL); First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 Lloyd's Rep 194 (CA).

72  Rome I, Art 12 (1)(a).

73  For examples, see Hughes v Lenny (1839) 5 M & W 183; The Tergeste [1903] P 26.

74  See, eg, Law of Property Act 1925, s 41 and Sale of Goods Act 1979, s 10(1).

75  For the relevant rules in this area, see Chitty, paras 21–011 and 21–026. Time may also be of the essence in certain contracts of a financial nature where the only material obligations of both parties are of a monetary character, eg interest rate swaps, currency swaps, or similar transactions. The point will invariably be academic, since such contracts will usually contain express provisions dealing with the consequences of a payment default.

76  Mardorf Peach & Co Ltd v Attica Sea Carriers Corp of Liberia [1977] AC 850. This would remain the case even if the law of the place of payment allowed for later payment as a result of the holiday, for the law applicable to the contract should be given effect where the contract stipulates for a specific date and makes it clear that nothing later will suffice. In each case, the express terms of the contract would appear to override the court's discretion to ‘have regard’ to the law of the place of payment: see Art 12(2) of Rome I.

77  RA Cripps v Wickenden & Son Ltd [1973] 1 WLR 944, 955.

78  See generally the Report and the proposed rules submitted by the Monetary Law Committee of the International Law Association, Warsaw Conference (1988).

79  Thus, while the receiving bank maintains a block or reservation that prevents access to the relevant funds by the account holder, the funds have not been ‘credited’ for these purposes: The Chikuma [1981] 1 WLR 314 (HL); In re Holmes [2004] EWHC 2020 Admin.

80  On this formulation, see Goode, Commercial, 508.

81  On these points, see Momm v Barclays Bank International Ltd [1977] QB 790. This case is of particular interest because both the creditor and the debtor had accounts at the same bank, and the transfer was thus to be achieved through actions to be effected entirely ‘in-house’.

82  This point, which might otherwise easily be overlooked, is made by Professor Goode in Commercial Law, 508. In many cases, the creditor's bank may not even expect to receive a directly corresponding and immediate payment from the debtor's bank. It may simply debit an account which the debtor's bank has with the creditor's bank and this may well happen after the creditor's own account has been credited.

83  This is the effect of the House of Lord's decision in The Chikuma [1981] 1 WLR 314. The decision itself may be criticized on the facts, because the ‘value date’ condition was stipulated as between the transferring and the receiving institutions, but does not appear to have been reflected as a condition of the credit to the creditor's own account. For criticism, see in particular the case note by Mann (1981) 97 LQR 379. Despite these criticisms, the decision does make it clear that in the context of a monetary obligation, performance must be complete, and not merely substantially complete. There is thus no room for the argument that payment of £999,990 constitutes substantial performance of an obligation to pay £1 million. This may be contrasted with other forms of obligation where, eg, a duty to deliver 12,600 tons of maize may be adequately performed by the delivery of 12,588 tons, if that would reflect the intention of the parties—see Margaronis Navigation Agency Ltd v Henry W Peabody & Co of London Ltd [1965] 1 QB 300.

84  [1980] 2 Lloyd's Rep 479. The decision in this case would seem to be inconsistent with the earlier decision in The Effy [1972] 1 Lloyd's Rep 18—see n 88.

85  [1983] WLR 195. It was suggested (at 204) that the practice of bankers should be regarded a decisive in this area, but this statement must be treated with some care given that it is the rights and obligations of non-bank parties which are at issue.

86  Delbreuck & Co v Manufacturers Hanover Trust Co (1979) 609 F 2d 1047. It should be said that this case involved an attempt by a debtor to revoke payment instructions given to its own bank; and it is fair to observe that (under the rules of systems which effect this type of payment) revocation of the instructions may become impossible some time before the funds are actually allocated to the creditor's account, ie revocation may become impossible whilst the payment is going through the system. Whilst the decision is an important one, it may not necessarily be of direct relevance in the context of payment as between the debtor and creditor themselves.

87  [1975] QB 929, 948, and 963.

88  In The Brimnes [1973] 1 WLR 386 the charterer's bank asked the owner's bank to make an internal transfer of the amount due in respect of hire to the owner's account. The telex which made this request arrived before the owner gave notice to terminate the charter, but that notice was given before the recipient bank had made the decision to allocate funds to the owner's account. The despatch of the telex could not be regarded as ‘payment’ because it did not create a source of immediately available funds so far as the owner was concerned. The decision in The Effy [1972] 1 Lloyd's Rep 18 was perhaps a little harsher from the perspective of the charterer, although it is entirely consistent with the principles just described. In that case, the necessary funds arrived at the owner's bank on the due date (5 October 1970) but, owing to the incompleteness of instructions given to one of the correspondent banks involved in the process, the payment was not actually credited to the owner until he had been given notice to terminate the charter. Once again, the notice was found to have been validly given, because the owner did not have unconditional access to the necessary funds on the due date.

89  This point has been decided by the German Federal Supreme Court, 25 January 1988, BGHZ 103, 143, which also confirms that notification to the creditor is unnecessary to complete the payment. The International Law Association (Warsaw 1988, Report of 63rd Conference) also regards an unconditional credit as both necessary in order to achieve payment, and sufficient for that purpose.

90  Directive 2000/35/EC of the European Parliament and of the Council on combating late payment in commercial transactions, OJ L 2000 8.8.2000, 35. This directive will be replaced by a new directive under the same title with effect from 16 March 2013 (OJ L 48, 23.2.2011, 1), but the language about to be discussed remains in the same form.

91  Case C-306/06, [2008] All ER (D) 36 (Apr), at para 32.

92  Para 23 of the judgment.

93  A similar approach has been adopted by the Court in the context of late payment by Member States of their contributions to the EU budget: see Case C-363/00, Commission v Italy [2003] ECR I-5767, and the earlier case law there discussed. It may be noted in passing that the decision has caused some difficulty in Germany in that the views expressed in the judgment are at odds with various German rules on payment: for discussion, see Zochling/Jud in Pruttig/Wegen/Winreich, BGB: Kommentar (Luchterhand, 6th edn, 2011), section 270, para 1.

94  The latter requirement should not be overlooked. The payee's bank may be entitled to reject the transfer if the stated account has been closed or, in some cases, is expressed in a currency that differs from that of the receipt. Where the remittance details are insufficient, it may be incumbent on the receiving bank to notify the sender: see, for example, the rules envisaged by Arts 10 and 11, UNCITRAL Model Law on International Credit Transfers. French law appears to be in line with these provisions and a receiving bank has been held liable for failure to seek clarification of payment instructions or to clarify inconsistencies: see, for example, BRED v CCF (Paris Commercial Court, 18 December 1992; French Supreme Court 29 January 2002, no 99–16.571).

95  See Tayeb v HSBC Bank plc [2004] EWHC 1529 (Comm). The case contains a useful description of the practical operation of the Clearing House Automated Payments System (CHAPS) and an analysis of the bank's potential liability as a constructive trustee if it is found that a customer was not the true owner of the funds passed through his account.

96  See, eg, Mardorf Peach, n 76.

97  See the discussion at para 7.26 and the Deutsche Telecom case there noted.

98  See Com. 22 October 1996, Dalloz Affaires 1997, p 22, commentary by J Mazeaud and Com 3 February 2009, pourvoi No 06–21184, JCP E 2009, No 1227, commentary by J Stoufflet.

99  The present section works on the basis that England is the place of payment.

100  The nominalistic principle is considered generally in Part III.

101  Pyrmont Ltd v Schott [1939] AC 145, 153 (PC).

102  If England is the place of payment, the debtor may have the option to pay in sterling in accordance with the principles outlined at para 7.41.

103  It must, however, be acknowledged that this statement is in some respects at odds with the decision in Libyan Arab Foreign Bank v Bankers Trust Co [1989] QB 728.

104  [1989] QB 728.

105  This point would now flow from the application of Art 4(1)(b) of Rome I, but it is also consistent with the pre-existing rules of private international law.

106  However, had the deposit contract been governed by New York law, then the Presidential Order would have formed a part of the law applicable to the contract. In the absence of some countervailing consideration of public policy, the English courts would then have to give effect to the blocking arrangements—see Libyan Arab Foreign Bank v Manufacturers Hanover Trust Co (No 2) [1989] 1 Lloyd's Rep 608.

107  This is the rule in Ralli Bros v Compania Naviera Sota y Aznar [1970] 2 KB 287. For a criticism of this rule, see para 16.38. The rule is now in some respects mirrored by the terms of Art 9(3), Rome I.

108  The suggestion was made in the fourth edition of this work, 193. It could be argued that this view derived some support from the decision in Re Banca Commerciale Italiana [1942] 2 All ER 208, but the point is not convincing.

109  The relative priority of the applicable law in this area is established by Art 12(1)(b) of Rome I, read together with 12(2).

110  For a discussion of the Libyan Arab Bank case, see Smedresman and Lowenfeld, ‘Eurodollars, Multinational Banks and National Laws’ (1989) 64 New York University LR 733. The authors are critical of the court's reasoning, on the ground that eurodollar deposits were always repaid via CHIPS, and never in cash (761), although they approve the result (801) on the basis that the law of the place where the deposit is maintained should govern. But the case was decided on the basis that English law alone was applicable to the London deposit. The issue was whether the English contract included an implied term that payment would not be made in cash. Since the authors believe that such a term ought to have been implied, the decision would not ‘have come out as it did’ (801).

111  The US Supreme Court has defined eurodollars as ‘United States dollars that have been deposited with a banking institution outside the US with a corresponding obligation on the part of the banking institution to repay the deposit in US dollars’ Citibank NA v Wells Fargo Asia (1990) 495 US 660. The legal nature of eurodollars has been considered at para 1.67.

112  In the fifth edition of this work, 200, it was suggested that the debtor's option to pay in sterling might be excluded in the case of a eurodollar deposit. However, this argument would likewise appear to be unavailable following the decision in the Libyan Arab Bank case; the court saw no objection to ordering payment in sterling if payment in US dollars proved to be impossible.

113  In cases in which there is no doubt that an obligation expressed in foreign money is required to be settled in that money, there will usually be no difficulty. If the debtor is to pay in cash, he must proffer whatever constitutes legal tender for the requisite amount in accordance with the lex monetae—see Marrache v Ashton [1943] AC 311 and the discussion at para 7.09. If he is to transfer funds to the creditor's bank account, then the principles described at para 7.17 (in relation to sterling payments) will apply equally in this context.

114  It will be apparent that this type of problem arises only where the money of account differs from that of the place of payment.

115  This self-evident proposition finds judicial support in Société des Hôtels Le Touquet v Cummings [1923] 1 KB 451 (CA).

116  The statement in the text reflects the principle of nominalism.

117  This line of reasoning does, however, have its limitations—eg an international bank makes and receives countless payments on every business day. It would be very inconvenient if its borrowers or counterparties could all elect to meet their obligations in sterling instead of the stipulated currency. In practical terms, however, the point will arise only rarely; London will not usually be the place of payment for financial obligations expressed in US dollars (although, see the discussion of the Libyan Arab Bank litigation, at para 7.34).

118  This statement must, however, now be read subject to the provisions of Art 12(2) of Rome I. The relevance of this provision in the present context is discussed later in this section. It is the view of the present writer that the availability of this option should be reconsidered. Although the text follows the traditional line that payment at the rate of exchange on the due date should be acceptable where payment is made punctually, it should be appreciated that currencies can fluctuate against each other even on an intra-day basis. Consequently, if the creditor receives payment in sterling in respect of a US dollar debt at 10.00 am, he may well have suffered an exchange loss by 11.00 am. The debtor should be compelled to pay in sterling if payment in the foreign currency is unlawful for some reason, but it is not easy to see why a debtor should have the free right to pay in a currency that did not form the subject matter of the contract.

119  For an illuminating comparative survey, see Dach (1954) 3 AJCL 155. In relation to Germany, see sec 244, German Civil Code.

120  Section 3–107 of the Uniform Commercial Code reads: ‘A promise or order to pay a sum stated in a foreign currency is for a sum certain in money and, unless a different medium of payment is specified in the instrument, may be satisfied by payment of that number of dollars which the stated foreign currency will purchase at the buying sight rate for that currency on the day on which the instrument is payable or, if payable on demand, on the day of demand. If such an instrument specified a foreign currency as the medium of payment, the payment is payable in that currency.’

For a South African case which recognizes the right of conversion, see Barry Colne & Co (Transvaal) Ltd v Jacksons Ltd (1922) South African LR, Cape Prov Div 372.

121  Art 14 of the Uniform Law on Bills of Exchange and Notes (League of Nations Official Journal, xi (1930), 933) reads as follows: ‘When a bill of exchange is drawn payable in a currency which is not that of the place of payment, the sum payable may be paid in the currency of the country, according to its value on the date of maturity. If the debtor is in default, the holder may at his option demand that the amount of the bill be paid in the currency of the country according to the rate of the day of maturity or the day of payment.’

The usages of the place of payment determine the value of foreign currency. Nevertheless the drawer may stipulate that the sum payable shall be calculated according to a rate expressed in the bill.

The foregoing rules shall not apply to the case in which the drawer has stipulated that payment must be made in a certain specified currency (stipulation for effective payment in foreign currency).

In so far as it relates to foreign currency obligations payable in Germany, a similar rule is to be found in Art 244 of the German Civil Code. Art 244 was amended with a view to the introduction of the euro, but the precise scope of the article is disputed. For example, it is unclear whether it extends to contracts governed by a foreign law or payable outside the eurozone.

122  This state of affairs prompted the International Law Association to take up the subject and, in 1956, it accepted the ‘Dubrovnik Rules’ prepared by its Monetary Law Committee—Report of the 47th Conference (1956) 294. These rules were considered by the Council of Europe which, in 1967, opened for signature the European Convention on Foreign Money Liabilities (European Treaty Series No 60). However, the Law Commission rejected the Convention and the Government accordingly declined to sign it. The text is reproduced in Appendix IV to the fourth edition of this work.

123  As to the circumstances in which a claim for such damages may be made, see paras 9.36–9.45.

124  See Art 14, reproduced in n 121.

125  As mentioned previously, in the absence of some contrary stipulation, the creditor should have no objection to this arrangement, for he receives the value to which he is entitled.

126  For comparative materials, see the fifth edition of this work, 316–19.

127  (1925) 269 US 71.

128  At 80, emphasis added.

129  Deutsche Bank Filiale Nürnberg v Humphreys (1926) 272 US 517, 519. See also Sutherland v Mayer (1926) 271 US 272. These cases are noted in more detail at para 8.12.

130  For a more recent application of the rule, see Jamaica Nutrition Holdings v United Shipping (1981) 643 F 2d 376, although it is difficult to understand why the plaintiffs did not sue for the sum of US dollars with which they procured the Jamaican dollars.

131  Bills of Exchange Act 1882, s 72(4) formerly allowed for payment in the currency of the place of performance, but this provision was repealed by Administration of Justice Act 1977, s 4. Cases on s 72(4) include Syndic in Bankruptcy v Khayat [1943] AC 507 and Barclays International Ltd v Levin Bros [1977] QB 270.

132  In some countries, of course, the ability to tender foreign currency may be limited by exchange controls of the kind described in Ch 14, but this aspect has to be left out of account for the purposes of the present discussion.

133  As will be seen, however, the debtor may assume a contractual obligation to tender only the foreign currency in question—see para 7.43. It would be wrong to attach any weight to the mere assumption in Marrache v Ashton [1943] AC 311, 317 that a debtor who tenders Spanish pesetas in Gibraltar would specifically perform his obligation to deliver a commodity, and that a breach of this duty involves a liability to pay damages. The notion of foreign currencies as ‘commodities’ must be regarded as suspect following the decision in Camdex International Ltd v Bank of Zambia (No 3) [1997] CLC 714.

134  Again, not too much should be read into Lord Reid's observation that ‘all payments which had to be made in Melbourne must be made in Australian currency’: National Mutual Life Association of Australasia v A-G for New Zealand [1956] AC 369, 389.

135  A further alternative might allow the creditor the option to require payment either in the foreign currency or in sterling. Whether or not the creditor enjoyed the right to demand payment in sterling in lieu of the stipulated foreign currency was left open by the court in Libyan Arab Foreign Bank v Bankers Trust Co [1989] QB 728, but it is suggested that this solution would be impracticable. It would, eg, be necessary to stipulate for the creditor to give a period of notice prior to the maturity date, so that the debtor would know what was expected of him and he would have adequate time to make the necessary arrangements. It must be said that the statement departs from the old decision in Willshalge v Davidge (1586) 1 Leon 41: the creditor was entitled to a payment in ‘ducats’ and ‘portugues’ and it was held that it was ‘in his election’ to demand payment either in the proper coin of the contract or in sterling. For the reasons just given, this solution is not practicable. As noted earlier, Art 244 of the German Civil Code allows a debtor to settle a foreign currency debt in Germany by payment in the domestic currency. It has been expressly decided that the option is that of the debtor, and the creditor has no right to demand that such a debt be paid in the domestic currency: German Federal Supreme Court, 7 April 1992, Praxis des Internationalen privat- und Verfahrensrecht 1994, 336, with note by Grothe (at 346).

136  Barclays International Ltd v Levin Bros [1977] QB 270, 277. The reference to the rate of exchange at the due date is correct if payment is made on that date, and the court rightly emphasized the requirement for punctual payment. That the debtor enjoys this option is confirmed by some of the older cases, eg Adelaide Electric Supply Co Ltd v Prudential Assurance Co Ltd [1934] AC 111. The same rule has more recently been confirmed in Libyan Arab Foreign Bank v Bankers Trust Co [1989] QB 728. If payment is delayed, see George Veflings Rederi A/S v President of India [1979] 1 WLR 59, considered at para 7.51.

137  Ralli Bros v Compania Naviera Sota y Aznar [1920] 2 KB 287, 291, 294, and 299; Rhokana Corp Ltd v IRC [1937] 1 KB 737, 797 (reversed on other grounds, [1938] AC 380); New Brunswick Railway Co v British & French Trust Corp [1939] AC 1, 23. If the debtor is for some reason prohibited from tendering the required amount of foreign money in England, then it seems that he must exercise the option to pay in sterling—see Libyan Arab Foreign Bank v Bankers Trust Co [1989] QB 728. In other words, the debtor has an option to pay either in sterling or the relevant foreign currency, but he cannot exercise that option in a manner which effectively deprives the creditor of the right to payment.

138  Anderson v Equitable Assurance Society of the United States of America (1926) LT 557, 562. See also the remarks of Warrington LJ at 564: ‘the payment having been made in London would be a payment in sterling’. The decision in this case was followed in Heisler v Anglo Dal Ltd [1954] 1 WLR 1273.

139  The rule deals with the mode of performance and regard may be had to that rule in accordance with Art 12(2) of Rome I. It is submitted that the provision applies even to foreign currency contracts made between persons in England governed by English law and requiring that payment is made in England. Similar questions have arisen in relation to Art 244 of the German Civil Code which, upon the introduction of the single currency, was amended to state that foreign currency obligations payable within Germany could be discharged by payment of the corresponding amount in euros, unless the parties have explicitly agreed to the contrary.

140  George Veflings Rederi A/S v President of India [1979]1 WLR 59, 63, per Lord Denning MR. The full implications of the Miliangos case are considered in Ch 8. The same point also forms a part of the decision in Libyan Arab Foreign Bank v Bankers Trust Co [1989] QB 728.

141  Of course, the distinction is of no consequence if the contract is governed by English law. English law will usually apply the rate at the place of payment in any event: see para 18.10(3).

142  See ‘The Money of Payment’, para 7.64.

143  Civ 1ere, 20 May 2009, pourvoi no 07–21847. The same solution had been adopted on previous occasions: Civ 1ere, 18 December 1990, Bull Civ I, no 300; RTD Civ 1991, p 529, commentary by J Mestre.

144  Since the repeal of s 72(4) of the Bills of Exchange Act 1882, there is no express provision in England. The so-called ‘effective clause’ is, however, commonly seen in bills of exchange and means that payment must be made in the stipulated currency. The addition of such a clause does not deprive the instrument of its character as a bill of exchange; it remains an unconditional order to pay a fixed sum of money at a specified future date for the purposes of s 3 of the 1882 Act. According to Dicey, Morris & Collins, para 36–057, the validity of an ‘effective’ clause should be tested by reference to the law of the place of payment. However, since the ‘effective’ clause is intended to reflect the intention of the contracting parties, and may affect the amount which the debtor is required to pay, it is submitted that this question should be decided by the law applicable to the obligation. Certainly, such a clause is valid if governed by English law. Art 244(1) of the German Civil Code provides that in the case of a foreign currency debt payable within Germany, payment may be made in the local currency ‘unless payment in the foreign currency is expressly stipulated’. On the Supreme Court cases dealing with such a stipulation see Schmidt, Geldrecht (de Guyter, 1983) para 244, n 38.

145  See the discussion (para 7.49) of the decision in Anderson v Equitable Assurance Society of the United States of America (1926) LT 557. The nature of the contractual relationship between the parties may provide the solution. For example, an agent who collects a foreign currency debt for his English principal must pay over the foreign currency proceeds; he may not convert them into sterling. This perhaps flows from the fact that the relationship between the agent and his principal is not comparable with that which subsists between a creditor and his debtor; a duty to account is not necessarily identical to an obligation to pay.

146  An example is offered by the Italian Civil Code (trans Beltramo, 2001). Art 1278 provides that, in the case of a debt expressed in foreign money, ‘the debtor has the power to pay in legal money at the rate of exchange of the day when the sum is due and at the agreed place of payment’. Art 1270 then provides that the option to pay in local currency ceases to be available if the reference to foreign money is reinforced by the word ‘actual’ (effective) or other equivalent term. In many respects, English law adopts an essentially similar approach.

147  See the remarks of Somervell LJ in Heisler v Anglo Dal Ltd [1954] 1 WLR 1273. The rationale seems to be that the creditor would be particularly keen to receive the relatively scarce foreign currency under such circumstances. Yet it cannot always be so, for a person who received foreign currency during the era of exchange controls in the UK was legally obliged to surrender it in exchange for the sterling counter-value—see Ch 14.

148  The point would only occasionally arise in practice, for payment is usually made by credit to an account located in the country of issue. The court in the Libyan Arab Bank case held that eurocurrency and other foreign money obligations were to be treated on the same basis.

149  [1997] CLC 714. The decision has been noted at para 1.61.

150  Accord and satisfaction has been defined as ‘the purchase of a release from an obligation … not being the actual performance of the obligation itself’—British Russian Gazette and Trade Outlook Ltd v Associated Newspapers Ltd [1933] 2 KB 616, 643. This is an apt description, for the original obligation has not been crystallized into a specific amount and is thus itself incapable of being discharged by payment. In the present context, the point is that the debt obligation is performed (albeit after its due date), with the result that no ‘purchase of a release’ from the obligation is required. In New Brunswick Rly Co v British French Trust Corp [1939] AC 1, the debtor repudiated a gold clause and it was said (at 29) that thereafter the debtor could ‘only tender damages’. But it is not possible to ‘tender’ damages in the formal sense; rather, the debtor could have elected to comply with the gold clause, even if belatedly.

151  [1922] 1 KB 451. See also Beaumont v Greathead (1846) 2 CB 494, 499: ‘If a man being owed £50 receives from his debtor after the due date £50, what other inference can be drawn than that the debt is discharged?’ See, however, New Brunswick Railway Co v British and French Trust Corp [1939] AC 1, 29.

152  In the absence of any evidence as to French law, the court was bound to proceed on the footing that the obligation was governed by English law. In Lloyd Royal Belge v Louis Dreyfus & Co (1927) 27 Ll LR 288, 293 and in Re Chesterman's Trust [1923] 2 Ch 466, 493, the court suggested that the contract was in every sense a French contract and that this was a distinguishing feature of the Le Touquet case. In truth, it was treated as an English contract.

153  [1921] 3 KB 459.

154  [1922] 1 KB 451, 456.

155  At 461. This, of course, is a clear application of the principle of nominalism.

156  At 464.

157  In Lloyd Royal Belge v Louis Dreyfus & Co (1927) 27 Ll LR 288, 293, Scrutton LJ noted that ‘some doubt had been expressed in various quarters’ about the correctness of the Cummings decision.

158  There was therefore no basis for the suggestion that, if legal proceedings are instituted with respect to a foreign currency debt, it could ‘be said with force that an obligation to pay sterling equivalent arises on that date’: Cummings v London Bullion Co Ltd [1952] 1 KB 327, 335. Apart from other considerations, this would be contrary to the spirit of the Miliangos decision, which is considered in Ch 8.

159  See Transamerica General Corp v Zunino (1948) 82 NYS 2d 595. However, the decision of the US Court of Appeals for the Second Circuit in Competex SA (in liquidation) v La Bow (1986)783 F 2d 333 suggests a different approach. In that case, a broker had obtained an English judgment against his client for some £187,000 and started proceedings in New York for the enforcement of that judgment. The Court converted the English judgment into US dollars as of the date on which it was given. The Court found that the debt could no longer be discharged by payment of the sterling sum; so far as New York law was concerned, the debt had to be paid in accordance with the American judgment. This decision may be unfortunate but was perhaps inevitable, given that the process of enforcement had gone so far. In contrast, the defendant in the Le Touquet case had made payment before the case had been heard. The subject is discussed by Gold, Legal Effects of Fluctuating Exchange Rates (IMF, 1990) 348.

160  Thus, had the defendant in the Le Touquet case tendered 18,035 French francs in purported settlement of a claim for damages, this would not have discharged her obligation because there was no agreement to that effect and, so far as English law is concerned, the notion of ‘payment’ must be confined to debts; it is not possible to discharge a claim for damages merely by payment. See also the discussion in The Baarn (No 1) [1933] P 215, 271.

161  Similar views are expressed by Wood, English and International Set-off (Sweet & Maxwell, 1989) 602.

162  [1977] 1 Lloyd's Rep 618, 628. The formulation was adopted in The Transoceanica Francesca [1987] 2 Lloyd's Rep 155.

163  The point has, however, given rise to difficulty in Germany and continues to do so; see Schmidt, Geldrecht, 244, No 47 and, since then, the decision of the Court of Appeal, Berlin Recht den Internationalen Wirtschaft 1989, 815. More recently, the Court of Appeal of Koblenz (3 May 1991, RIW 1992, 59 or IPRspr 1991, No 174) has held that debts expressed respectively in marks and in a foreign currency may be extinguished by way of set-off provided that the latter currency was freely convertible into marks. On the other hand, the Municipal Court of Kerpen has decided that such a set-off is not permitted, because the claims lack the equivalence (Gleichartigkeit) which is a necessary requirement under Art 387 of the German Civil Code. If the parties have agreed an ‘effective’ payment clause, then this will serve to negate any possible right of set-off between different currency obligations, although set-off would remain possible in the event of insolvency: on these points, see Schluter, Muenchener Kommentar (Verlag C.H. Beck), sec 837, para 32.

164  The money of account is discussed in some depth at Chs 5 and 6. The points about to be discussed should not be allowed to obscure the fact that the usual method of discharging a monetary obligation will be by payment to the creditor of the amount stated in the contract in the currency in which the obligation is expressed. In other words, the money of account and the money of payment will coincide in the vast majority of cases.

165  [1971] 2 QB 23, 54. The decision was affirmed by the House of Lords [1972] AC 741, where the distinction between the money of account and the money of payment was recognized. Lord Denning's reasoning in this case has also been cited with approval by the Federal Court of Australia in Commissioner of Taxation v Energy Resources of Australia Ltd [1994] FCA 1521. On the whole subject, see the Law Commission's Working Paper No 80, Private International Law: Foreign Money Liabilities and Report (Cmnd 8318, July 1981). As a matter of historical interest, it may be noted that France used to distinguish between the money of account and the money of payment even in a purely domestic context: ‘L’ ancienne France distinguait la monnaie de compte, qui servait à mesurer la dette (ex: la livre) et la monnaie de paiement (ex: l’ecu, le louis d'or) qui servait au paiement; le louis valait 20 livres’, Malaurie and Aynes, Les Obligations (Cujas Paris, 1994) para 985.

166  This is contrary to the suggestion of Robert Goff J in BP Exploration Co (Libya) v Hunt [1979] 1 WLR 783, 840, to the effect that on the maturity date, the money of account is converted into the money of payment, such that the debt is ‘crystallized’ into the money of payment on that date. In the event of delayed payment, ‘the parties will be taking the risk of fluctuation in the currency of payment’ rather than the money of account. It is submitted that this approach cannot be supported. Following the decision in Le Touquet (n 115), a debt expressed in a particular currency does not change its character merely because the maturity date has passed. Furthermore, the suggested formulation elevates the mode of performance over the substance of the monetary obligation itself.

167  The distinction between the money of account and the money of payment also arises in other contexts, eg where a loan is made in one currency but is expressed to be payable in another. Thus in Boissevain v Weil [1950] AC 327, the borrower of 320,000 French francs, undertook to repay £2,000, so that the money of account was expressed in pounds sterling and French francs were the money of payment. For a similar set of facts, see the decision of the Supreme Court of Missouri in Re De Gheest's Estate (1951) 243 SW (2d) 83. In The Damodar General TJ Park [1986] 2 Lloyd's Rep 68 demurrage was expressed in terms of US dollars but payable ‘in external sterling in London’. It was held that demurrage was payable in sterling, although it is difficult to see why the point mattered, for by this time sterling was freely convertible into US dollars.

168  [2012] EWHC 498 (Ch).

169  Para 92 of the judgment.

170  Cass Civ I, 21 February 1989, pourvoi no 87–16394.

171  This and earlier cases are considered by Kleiner, La monnaie dans les relations privées internationales (LGDJ, 2010) 224.

172  Dicey, Morris & Collins, para 36–052, citing Re United Railways of Havana and Regla Warehouses Ltd [1961] AC 1007, 1060; see also the discussion at para 4.13. In many respects, this point is now obvious; in the international financial markets, obligations will usually be governed by English or New York law, but will involve many different currencies.

173  There are numerous cases on this point. See, eg, Jacobs v Credit Lyonnais (1884) 12 QBD 859; Adelaide Electricity Supply Co v Prudential Assurance Co [1934] AC 122 (HL); Auckland Corp v Alliance Assurance Co Ltd [1937] AC 587 (PC); Mount Albert BC v Australasian Temperance and General Mutual Life Assurance Society Ltd [1938] AC 224 (PC); and Bonython v Commonwealth of Australia [1950] AC 201 (PC). The money of payment may be specifically agreed between the parties, and such an agreement would generally override any relevant provision of the law of the place of performance in this context. Thus, in Pennsylvania Railway Co v Cameron (1924) Pa 458, a bill of lading provided for payment in sterling, but then provided that ‘freight, if payable at destination (Philadelphia), to be at the rate of exchange of $4.866’. Since payment was to be made in Philadelphia, it could be inferred from this language that the US dollar was to be the money of payment in that case. For decisions to similar effect, see Brown v Alberta & Great Waterways Rly Co (1921) 59 DLR 520; Royal Trust Co v Oak Bay (1934) 4 DLR 697. These different cases involved an option of currency but involved wording which is now out of use; for discussion, see the fifth edition of this work, 215–17. In some cases, the parties may agree that the debtor has an option to pay in two or more moneys of payment. In the absence of contrary provision in the contract, the debtor may take advantage of such provisions and discharge his obligation by paying in the currency which is most favourable to him: Ross T Smyth & Co Ltd v WN Lindsay Ltd [1953] 2 All E R 1064; Booth & Co v Canadian Government [1933] AMC 399.

174  See para 7.41.

175  As has been noted at para 7.42, (a) the amount of sterling to be so offered is to be determined by reference to a rate of exchange, and (b) since the amount to be paid is plainly a matter of substance, the identification of the required rate is a matter for the law applicable to the contract.

176  It may be that the rule is derived from periods in which the exchange control was more widespread and financial markets were less international than they are now. At such times, the rule may have been appropriate because of the practical difficulty involved in obtaining the necessary foreign currency in the place of payment. The payment of an equivalent amount in the local currency may well have reflected the parties’ expectations at that time. It is, however, perfectly sensible to argue to the contrary; if the relevant currency is difficult to obtain, then it may have been important to the creditor to receive that particular currency—see Heisler v Anglo Dal Ltd [1954] 1 WLR 1273.

177  See ‘The right of conversion’, para 7.41.

178  Thus if a US dollar obligation is payable in London but payment in that currency has become impossible, then payment should be made in sterling. This was the result in Libyan Arab Foreign Bank v Bankers Trust Co [1989] QB 728. It was noted earlier that the option to pay in sterling instead of the foreign currency ought not to be conferred upon the creditor. The present suggestion is not inconsistent with this view, for the creditor receives local currency only because payment in the money expressed in the contract has become impossible; no true option arises in such a case.

179  Where, however, the contract at issue is governed by English law and exchange controls are imposed after the contract was made, it is suggested that payment in the contractual currency should be required to be made in another jurisdiction by virtue of an implied contractual term to that effect. The point is considered in the context of supervening exchange controls—see Ch 16.

180  On this distinction, see para 5.06.

181  Schreter v Whishaw, Cass Req 11 July 1917, Sirey, 1918, I, 125. The same approach was adopted in Pelissier du Besset, Civ 17 ma7 1927, Dalloz Permanent 1928, I, 125. On this subject, see Kleiner, La monnaie dans les relations privées internationales (LGDJ, 2010), 350.

182  Civ 3eme, 18 October 2005, pourvoi No 04–13930, Bull Civ III no 268.

183  Civ 1er, 15 June 1983, pourvoi no 82–11882.

184  See, eg, Art 7:109, European Principles on Contract Law; Arts 6.1.9 and 6.1.10, UNIDROIT Principles of International Commercial Contracts (2004).

185  The point is now beyond dispute in the light of Art 12(1)(b) of Rome I.

186  This rule has been expressly laid down in Ralli v Dennistoun (1851) 6 Ex 483.

187  The position may be slightly confused by the observation of Maugham LJ in The Baarn (No 1) [1933] P 215, 271, where he noted that ‘if the defendant is defending on the grounds of accord and satisfaction he must prove accord and satisfaction according to our procedure’. It is necessary to emphasize the distinction between (a) the requirement for, and the content of, the accord and satisfaction, which are matters of substance governed by the applicable law; and (b) the means of proving that accord and satisfaction has occurred, which are procedural and evidential matters governed by the law of the country in which the proceedings occur. It seems that Maugham LJ was referring to the latter aspect, in which case his statement is consistent with the principle in the text.

188  In Re British American Continental Bank, Lisser & Rosenkranz's Claim [1923] 1 Ch 276, a tender of marks was made at Hamburg. However, the court did not discuss whether the effect of the tender fell to be determined by English or German law.

189  This point has been discussed at para 7.09.

190  [1939] AC 1 (HL) 23–4.

191  That Canada was entitled to legislate in this way in relation to gold clauses governed by Canadian law and that such legislation should have been recognized and applied by the House of Lords seems to be correct as a matter of principle and would also seem to follow from the decision in R v International Trustee for the Protection of Bondholders AG [1937] AC 500 (HL).

192  For a comparative survey, see Max Planck Institute for Foreign and Private International Law: Comments on the European Commission's Green Paper on the Conversion of the Rome Convention of 1980 on the law applicable to contractual obligations into a Community instrument and its modernization, RabelZ 2004, 1, at 81–6. For discussions of the law of set-off in a number of jurisdictions, see Wood, English and International Set-off (Sweet & Maxwell, 1989); Fountoulakis, Set-Off Defences in International Commercial Arbitration: A Comparative Analysis (Hart, 2010).

193  See, eg, the buyer's right to set off losses flowing from the delivery of defective goods: Sale of Goods Act 1979, s 53(1).

194  This is especially the case in the light of Art 12(1)(b) of Rome I. The applicable law must determine whether the set-off amounts to performance of the monetary obligation.

195  (No 1) [1933] P 251; (No 2) [1934] P 171.

196  The collision occurred on the high seas, with the result that the substance of the claim would be governed by English law—see the remarks of Scrutton LJ in The Baarn (No 2) [1934] P 171, 176.

197  Chilean law plainly could not govern the discharge of an obligation which arose under English law.

198  [1933] P 251, 273.

199  [1933] P 251.

200  The Baarn (No 2) [1934] P 171, 176.

201  At 184.

202  See n 196.

203  For a similar approach to these cases, see Dicey, Morris & Collins, para 36–058. The ‘blocked account’ reasoning may, however, be unjust to the defendants. The plaintiffs were a Chilean entity seeking reimbursement of expenses incurred in Chile. Since they were domiciled in Chile, the fact that the peso payment could not be transferred out of the country should not have affected them.

204  See Petroleo Brasiliero SA v ENE Kos I Ltd [2010] 1 All ER 1099.

205  Such cases should be distinguished from those in which the conversion has been carried out and produces a surplus, when it becomes necessary to determine which party is entitled to it. Such cases tend to turn either upon principles such as subrogation—see, eg, Yorkshire Insurance Co v Nisbet Shipping Co [1961] 2 All ER 487 or upon the interpretation of the contract at issue, eg Lucas Ltd v Export Credits Guarantee Department [1973] 1 WLR 914. Such cases do not involve principles of a specifically monetary law character.

206  ie, not as at the date when the hire is payable or paid—The Brunswode [1976] 1 Ll LR 501.

207  (1934) 49 Ll LR 252.

208  The Court would also have adopted the rate of exchange as at the date of payment in Noreuro Traders v Hardy & Co (1923)16 Ll LR 319, except that the rate was to be ascertained in Antwerp; this could not in fact be done at the relevant time in view of the German occupation. In a different context, a Canadian court dealing with the taxation of costs of the successful party held that disbursements incurred in a foreign currency should be converted into Canadian dollars on the date on which the bill of costs was certified by the court: Dillingham Corp Canada Ltd v The Ship Shiuy Maru (1980) 101 DLR (3d) 447.

209  This was the position reached by the German Administrative Court, 13 December 1973, RzW 1974, 186. Compare the decision of the German Federal Supreme Court, 12 June 1975, RzW 1975, 301; if a claimant is entitled to recover medical expenses incurred in a foreign currency, they were to be converted into the German unit at the rate on the day on which the expenses were incurred.

210  (1943) 139 F 2d 231 and [1944] AMC 51 (CCA, 2d).

211  Rules of this kind may cause particular difficulty in the context of the administration of estates, where a significant period may elapse between the date of the death and the final distribution of the estate, thus enlarging the potential for significant exchange rate damages during the period at issue; eg see Re Heck's Estate (1952) 116 NYS 2d 255.

212  [1981] STC 360. See also para 1.64.

213  For conversion questions which arise or used to arise in relation to stamp duty, see Stamp Act 1891, s 6.

214  [1998] STC 930.

215  [1984] 1 AC 362. Contrast the decision in Capcount Trading Ltd v Evans [1993] 2 All ER 125. Both cases were considered by the Federal Court of Australia in Commissioner of Taxation v Energy Resources of Australia Ltd [1994] FCA 1521.

216  For similar cases in the US and Australia, see National Standard Co v Commissioner of Inland Revenue (1983) 80 TC 551; AVCO Financial Services Ltd v Commissioner of Taxation 56 ALJR 668 and Federal Commissioner of Taxation v Hunter Douglas Ltd [1983] 14 ATR 639. The cases are considered by Gold, SDRs, Currencies and Gold (IMF, Pamphlet Series No 44, 1987). For a more recent decision see Messenger Press Pty Ltd v Commissioner of Taxation [2012] FCA 756.

217  See generally Chs 5 and 6.

218  If a rule it continues to be. It has been submitted at para 7.70 that the rule requires reconsideration in the light of Art 12(2) of Rome I.

219  A similar line of reasoning applies where a foreign money obligation is to be settled in England—see para 7.41. In the same sense see, Dicey, Morris & Collins para 36–056.

220  Thus, if payment is to be made by means of an international credit transfer, the place of payment is the place in which the bank branch holding the creditor's account is situate. The debtor may have to take preparatory steps to organize the payment from the country in which his own bank is situate, but that country does not thereby become the place of payment: Libyan Arab Foreign Bank v Bankers Trust Co [1989] QB 728.

221  Chitty, para 21–054 and cases there noted. See in particular Robey v Snaefell Mining Co Ltd (1887) 20 QBD 152; Rein v Stein [1892] 1 QB 753, 758; The Eider [1893] P 119 (CA), Drexel v Drexel [1916] 1 Ch 251; Bremer Oeltransport GmbH v Drewry [1933] 1 KB 753, 765; Gamlestaden PLC v Casa de Suecia SA [1994] 1 Lloyd's Rep 433; Definitely Maybe Ltd v Lieberberg GmbH [2001] 1 WLR 1745. A creditor under an English judgment has only the right to be paid in England, even though he resides abroad: Re a Debtor [1912] 1 KB 53. Conversely, an award ordering payment abroad is not to the same effect as a judgment to pay a sum of money here: Dalmia Coment v National Bank of Pakistan [1975] QB 9, where it was suggested at 24 that an action claiming payment abroad was an action for damages. In Pick v Manufacturers Life Insurance Co (1958) 2 Ll LR 93, the contract required payment to be made to a foreign creditor by means of sterling banker's drafts drawn on a London bank. Somewhat surprisingly, London was held to be the place of payment. Based upon the principle outlined in the text, the place of payment was the creditor's country of residence, where the drafts would have to be tendered to him.

222  Otherwise, the creditor would unilaterally alter one of the debtor's obligations by moving abroad: The Eider [1893] P 119.

223  Art 57 of the Convention. For similar approaches, see Art 59 of the Uniform Law on International Sales Act and Art 6.1.6 of the UNIDROIT Principles of International Commercial Contracts (2004).

224  Art 1247 of the Civil Code. In contrast to the position under English law, this refers to the domicile of the debtor at the time of payment, rather than as at the date of the contract: Cass Civ 9 July 1895, D 1896 I 349. It is understood that this approach is mirrored by the laws of Belgium and Luxembourg. For a reconciliation of some of the differing provisions to be found in the Civil Code and the Code Monétaire et Financier, see the decision of the Cour de Cassation, Civ 1ere, 22 February 2005, Bull Civ I no 93, Com 5 October 2004, Bull Civ IV no 179. In the United States, the situs of a debt is the place in which the debtor is located (Harris v Balk 198 US 215 (1905)), although the situs of a debt and the place in which payment is due will not necessarily coincide.

225  Art 12(2) of Rome I, which has already been noted on a number of occasions.

226  See the decision in Ralli Bros v Compania Naviera Sota y Aznar [1970] 2 KB 287. The rule appears to apply only to contracts governed by English law. It is thus a rule of English domestic law, rather than private international law. Nevertheless, the rule necessarily only applies in cases where the laws of more than one jurisdiction are invoked, and the application of the rule can only be considered once the place of payment has been identified. It is possible that the rule has been superseded by Art 9(3), Rome I. See further the discussion at para 16.38.

227  See Rossano v Manufacturers Life Insurance Co [1963] 2 QB 352.

228  See Pick v Manufacturers Life Insurance Co (1958) 2 Ll LR 93, where (even though the parties were respectively resident in Israel and Canada) London was held to be ‘the primary place of payment in the strict sense’ because payment was to be made by means of drafts on London.

229  Art 4(1)(b), Rome I and earlier decisions on this subject such as Libyan Arab Foreign Bank v Bankers Trust Co [1987] QB 728. For US authority to similar effect, see American Training Services Inc v Commerce Union Bank 415 F Supp 1101 (1976), aff'd 612 F 2d 580 (1979).

230  Art 12(1), Rome I.

231  Joachimson v Swiss Bank Corp [1921] 3 KB 110; Arab Bank Ltd v Barclays Bank DCO [1954] AC 495. In the US, the head offices of American banks are likewise not responsible for the ‘blocked’ obligations of their overseas branches if ‘the branch cannot repay the deposit due to (1) an act of war insurrection or civil strife or (2) an action by a foreign government or instrumentality (whether de jure or de facto) in the country in which the branch is located’. See US Code, Title 12, s 633, which allows the bank to negate this provision by contract. However, that legislation effectively reversed a line of decisions in which the head office had been held to be so responsible: Vishipco Line v Chase Manhattan Bank (1982) 660 F 2d 976; Trinh v Citibank (1988) 850 F 2d 1164; Wells Fargo Asia Ltd v Citibank (1988) 852 F 2d 657. In the last-mentioned case, the court drew a distinction between the place of repayment (‘location where the wire transfers effectuating repayment at maturity were to occur’) and the place of collection (‘the place or places where plaintiff was entitled to look for satisfaction of its deposits in the event that Citibank should fail to make the required wire transfers at the place of repayment’). For reasons given earlier, this distinction is of very doubtful value, and the decision of the Supreme Court which sent the case back to the Court of Appeals does not contribute to the clarification of the distinction: Citibank v Wells Fargo Asia Ltd (1990) 495 US 660. On remand, the Court of Appeals held that the deposit contract was governed by New York law and that a creditor could collect his debt at the agreed place for repayment. In the absence of any restriction on the situs of collection, the depositor could recover its deposit from Citibank in New York: see Wells Fargo Asia Ltd v Citibank NA (1991) 926 F 2d 273 (2nd Cir), cert denied (1992) 505 US 1204.

232  See, for example, Sokoloff v National City Bank 250 NY 69 (1928).

233  See, for example, Libyan Arab Foreign Bank v Bankers Trust Co [1989] QB 728, n 229.

234  The various stages of the case are reported at 612 F Supp 351 (SDNY 1985), 660 F Supp 946 (SDNY 1987), 847 F 2d 837 (2nd Cir, 1988), 695 F Supp 1450 (SDNY 1988), 852 F 2d 657 (2nd Cir 1988), 110 S. Ct 2034 (1990), and 936 F 2d 723 (2nd Cir, 1991). Analysis of the case is not assisted by its rather tortuous procedural history.

235  Wells Fargo Asia Ltd v Citibank NA 936 F 2d 723 (1991).

236  In this respect, the court relied on Dunn v Bank of Nova Scotia 374 F 2d 876 (5th Cir, 1967) and Perez v Chase Manhattan Bank NA 61 NY 2d 460, cert denied 469 US 966 (1984).

237  See Art 4(1)(b), Rome 1.

238  Art 12, Rome I; Libyan Arab Foreign Bank v Bankers Trust Co [1989] QB 729.