Wilson, Smithett & Cope Ltd v Terruzzi
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE ORMROD,LORD JUSTICE SHAW |
| Judgment Date | 20 January 1976 |
| Judgment citation (vLex) | [1976] EWCA Civ J0120-1 |
| Court | Court of Appeal (Civil Division) |
| Date | 20 January 1976 |
| Docket Number | 1974W No. 94 |
[1976] EWCA Civ J0120-1
In The Supreme Court of Judicature
Court of Appeal
On Appeal from The High Court of Justice
Queen's Bench Division
(Commercial List)
(Mr. Justice Kerr)
The Master of the Rolls (Lord Denning)
Lord Justice Ormrod
and
Lord Justice Shaw
MR. A. BATESON Q.C, and MR. M. G.TUGENDHAT (instructed by Messrs. Crawley & de Reya, Solicitors, London) appeared on "behalf of the Defendant (Appellant).
MR. R. ALEXANDER Q.C. and THE HON. PEREGRINE SIMON (instructed by Messrs. Coward, Chance & Co., Solicitors, London) appeared on behalf of the Plaintiffs (Respondents).
Signor Terruzzi lives in Milan. He is a dealer in metals, trading under the name Terruzzi Metalli. But he is also, it seems, a gambler in differences. He speculates on the rise or fall in the price of zinc, copper and so forth. He speculated in 1973 on the London Metal Exchange. He did so in plain breach of the Italian laws of exchange control. These provide that residents in Italy are not to come under obligations to non-residents save with ministerial authority. Signor Terruzzi never obtained permission.
In making his speculations, Signor Terruzzi established an account with London dealers, Wilson, Smithett & Cope Limited. He was introduced to them by their Milan agent, Signor Giuliani, and made his deals through him. All the transactions were in sterling and reduced into writing on the standard contract forms of the London Metal Exchange. Sometimes Signor Terruzzi was a "bear". That is, he thought that the price was likely to rise in the near future. So he bought metal from the London dealers at a low price for delivery three months ahead: not meaning ever to take delivery of it: but intending to sell it back to the London dealers at a higher price before the delivery date: thus showing him a profit in his account with the London dealers. At other times he was a "bear". That is, he thought that the price was likely to fall in the near future. So he sold metal "short" (which he had not got) to the London dealers at a high price for delivery three months ahead: not meaning ever to deliver it: but intending to buy back from the London dealers a like quantity at a lower price before the delivery date: thus showing him a profit in his account with the London dealers. Such transactions would have been gaming contracts if both parties had never intended to make or accept delivery: and they would not have been enforced by the English Courts. Butthe London dealers were not parties to any such intention. They always intended to make or accept delivery according to the contracts they made. So far as the London dealers were concerned, they were genuine commercial transactions. They were enforceable accordingly by the English Courts – see Bassett v. Sinker (1925) 41 TLR 660 (London Metal Exchange): Weddle Beck & Co. v. Hackett (1929) 1 K.B. 321 (London Stock Exchange): Woodward v. Wolfe (1936) 53 TLR 67 (Liverpool Cotton Exchange): Garmac Grain Co. Inc. v. Faure (H.M.F.) & Fairclough (1966) 1 Q.B. 651 (Contracts for Lard). But they were not enforceable in the Italian Courts because they infringed the exchange control.
The critical months here were October and November 1973. The price of zinc was very high. The price for "forward" delivery (that is, for delivery three months ahead) had been steadily rising from £465 on 18th October, 1973, to £520 on 7th November, 1973. Signor Terruzzi thought that the price was much too high and that it was likely to fall soon. So he made a series of contracts with the London dealers whereby he sold to them 1,200 tons of zinc for delivery in the next three months. He sold "short", that is, he had then no zinc to meet his obligations. Unfortunately for Signor Terruzzi, his forecast was wrong. Even after 7th November, 1973, the price did not fall. It rose steeply. So much so that within a week it had risen to £650 a ton. By 12th November, 1973, the London dealers were anxious as to the ability of Signor Terruzzi to meet his commitments. They asked him to provide a deposit or "margin" of £ 50,000. as they were entitled to dc under the contracts. On the evening of Tuesday, 13th November, 1973, Signor Giuliani, on behalf of the London dealers, met Signor Terruzzi at the Cafe Ricci in Milan. He told him the state of the account. Signor Terruzzi flamed with anger. He said that he was not going to pay anything to the London dealers by way of margin, or otherwise, andthey could take him to Court. Signor Giuliani telephoned the London dealers. They were fearful that the price might go still higher. There were frantic telexes. In the result the London dealers "closed" the contracts with him, as they were entitled to do under the written terms thereof. They sold back to him 1,200 tons of zinc at the ruling price. They telexed him with details. The result showed a balance due to the London dealers amounting to £220,440.38: and credit due to him on previous profits of £25,418.37. So on balance the sum of £195,022. 01 was due from him to them. On 10th January, 1974. they issued a writ against him for that amount in the High Court in England. He got leave to defend by swearing, quite untruly, that the transactions had been carried out without his knowledge or authority. Afterwards he took a different line. He said that the London dealers had failed to advise him properly about the transactions. The trial opened on 9th October, 1974. He came to London for the first day. He went back to Italy for the weekend. He had a heart attack there. He never returned to the trial. All his defences crumbled. So did his counterclaim. The only point which remained was that the contracts were "exchange contracts" and were unenforceable against him by reason of the Bretton Woods Agreement. Mr. Justice Kerr decided this against him. It is reported in 1974 2 Weekly Law Reports, page 1009. Signor Terruzzi appeals to this Court.
Now for the Bretton Woods Agreement. Bretton Woods is a small town in New Hampshire, U.S.A, but it has a place in history. During the Second World War, even in the midst of raging hostilities, here was a conference there attended by the members of the United Nations. The object was to organise their monetary systems so as to meet the post-war problems. At this conference the United Kingdom was represented by the distinguished economist Lord Keynes, and by the legal adviserto the Foreign Office, Sir Eric Beckett. In July 1944 Articles of Agreement were drawn up and signed. By the Agreement the International Monetary Fund was established and provisions were made (amongst other things) "to promote international monetary co-operation" and "to promote exchange stability".
In 1945 Parliament passed an Act to give effect to the Agreement. In January 1946 an Order in Council was made giving the force of law to this provision, among others "Article VIII – Section 2(b): Exchange contracts which involve the currency of any Member and which are contrary to the exchange-control regulations of that Member maintained or imposed consistently with this Agreement shall be unenforceable in the territories of any Member……".
That provision is part of the Law of England, but it has given rise to much controversy, particularly as to the meaning of the words "exchange contracts". There are two rival views: First the view of Professor Nussbaum set out in 1949 in 59 Yale Law Journal at pages 426/7. He said that "an exchange contract" is exclusively concerned with the handling of international media of payment as such. Therefore, contracts involving securities or merchandise cannot be considered as exchange contracts except when they are monetary transactions in disguise. This view is in accord with the meaning given by Lord Radcliffe in United States of Havana (1961) Appeal Cases at page 1059: "A true exchange contract", he said, "is a contract to exchange the currency of one country for the -currency of another".
Second: The view of Dr. F. A. Mann set out in 1949 in the British Year Book of International Law, page 279; and in his book The Legal Aspect of Money, 3rd Edition, page 441. He said that "exchange contracts" are contracts which in any way effect a country's exchange resources – a phrase which I accepted without question in Sharif v. Azad (1967) 1 Queen's Bench, at page 613, in the belief that, coming from such a source, itmust be right. Dr. Mann recognises that his view makes the word "exchange" redundant and thus seems counter to established methods of interpretation. But he contends that it is in better harmony with the purpose of the Agreement.
Dr. Mann suggests that the lawyers did not take much part in drafting the Agreement of Bretton Woods. In this he is mistaken. I trust that I may be forgiven a digression if I borrow from the argument of Mr. Alexander, and recite part of the speech which Lord Keynes made at the final Act of the Conference (as recorded by Sir Roy Harrod in his biography of Keynes at page 690) "And, for my own part, I should like to pay a particular tribute to our lawyers. Al the more so because I have to confess that, generally speaking, I do not like lawyers. I have been known to complain that, to judge from results in this lawyer-ridden land, the Mayflower, when she sailed from Plymouth, must have been entirely filled with lawyers. When I first visited Mr. Morgenthau in Washington some three years ago accompanied only by my secretary, the boys in your Treasury curiously inquired of him: Where is your lawyer? When it was explained that I had none – Who then does your thinking for you? was the rejoinder… Only too often our lawyers have had to do our thinking for us. We owe a great deal of gratitude to Dean Acheson, Oscar Cox, Luxford, Brenner,...
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