Limits to Ralli Bros Rule confirmed in Letter of Credit Dispute

William Day (leading Emmanuel Michelakakis-Howe of Lamb Chambers) instructed by Joe Gosden and Anastasiia Demidova of Floyd Zadkovich LLP successfully acted for Swiss petroleum trading firm Litasco in a dispute under a letter of credit governed by English law requiring payment to a Swiss bank account issued by Banque El Amana (“BEA”).

The USD 1.8m letter of credit was issued as part of the security package for a USD 12.7m facility to fund the construction of a liquified petroleum distribution network in West Africa. BEA is a bank in Mauritania.

BEA contended that it was not liable under the letter of credit because of civil and criminal orders issued by the Mauritanian courts. The judgment clarifies important limits to the Ralli Bros rule, which exceptionally gives effect to the law of the place of performance over the governing law: [2025] EWHC 312 (Comm).

In particular, Louise Hutton KC (sitting as a Deputy Judge of the High Court) accepted Will’s submissions on Litasco’s summary judgment application that BEA’s pleaded case could not engage the Ralli Bros rule because:

• Insofar as it applies to cross-border payment obligations, the Ralli Bros rule only applies to the law at the place of the bank account where payment is to be received, unless the contract prescribes that a method of payment that requires it to be routed through another jurisdiction (see [68]-[84]).

• The Ralli Bros rule only applies to illegality arising from foreign legislation or regulation, and not the orders of foreign courts which are instead subject to the rules on the recognition and enforcement of judgments (see [52]-[59]).

• The Ralli Bros rule is not available where the defaulting party could have performed before the commencement of the supervening illegality – on the facts BEA could have performed under the letter of credit for over two years before any court orders were made (see [60]-[67]).

The judgment also contains analysis of the principles governing (a) when parties can change governing law after contracting (see [12]-[23]) and (b) the recognition of foreign orders, including on the basis of the lex situs (see [24]-[42]).

The judgment can be accessed on the National Archives or here . At the consequentials hearing on 21 March 2025, the Court refused BEA permission to appeal and awarded Litasco its costs, in part on the indemnity basis.