Schering Ltd (in Voluntary Liquidation) v Stockholms Enskilda Bank Aktiebolag and Others

 Schering Ltd (in Voluntary Liquidation) v Stockholms Enskilda Bank Aktiebolag and Others

CONTRACT

HOUSE OF LORDS

LORD THANKERTON, LORD RUSSELL OF KILLOWEN, LORD MACMILLAN, LORD PORTER AND LORD GODDARD

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18, 19, 20, 21, 25, 26, 27 JUNE, 29 NOVEMBER 1945

Contract – Illegality – Enemy debt to neutral country guaranteed by English company – Contract completely performed except for payment – Whether

contract abrogated on outbreak of war.

By a contract called a “contract of debt” made in Feb 1936, the respondents, a Swedish bank, agreed to advance to a German company Reichmarks to the

value of £84,000 sterling at the official rate of exchange, in respect of which the German company agreed to be indebted to them for the sum of £50,400

sterling without interest to be repaid in 8 years. The appellants, an English company (now in liquidation), and an Indian company (both of whom were

controlled by the German company) constituted themselves jointly and severally guarantors of that debt, and they further agreed to purchase the Swedish

bank’s claim (£50,400) against the German company by instalments of varying amounts to be paid over a number of years. In April 1936, the terms of the

contract were varied, inter alia, by the appellants and the Indian company undertaking to pay the instalments as principals and not as guarantors, and the

payment of each instalment was to be a pro tanto satisfaction of their liability under the guarantee. It was also agreed that the contract between the Swedish

bank and the appellants should be governed by English law. Instalments were paid under the contract until the outbreak of war in 1939, and in 1941 the Court

of Appeal held that it would be an offence under the Trading with the Enemy Act, 1939, to pay the instalment then due. The appellants contended that the

April contract was dissolved on the outbreak of war on the ground, inter alia, that its continued existence would enure for the benefit of the German company

to the detriment of English interests:—

Held – Lord Russell of Killowen and Lord Macmillan dissenting]: on a proper construction of the February and April contracts, the respondents having

performed their obligations to the German company in full before the outbreak of the war, there only remained the liability of the appellants to carry out their

part of the contract. The contract, therefore, being executed and no longer executory, the respondents’ right thereunder was not affected by the war between

England and Germany.

Decision of the Court of Appeal ([1943] 2 All ER 486) affirmed.

Notes

The principle underlying the law as to the effect of the outbreak of war on subsisting contracts in which an enemy is interested is that a country at war cannot

allow transactions to proceed which would be of benefit to the enemy. Such contracts are, therefore, abrogated unless (a) they are executed, or (b) if

executory, they are within an exception from the general rule, as being the concomitants of rights of property. The majority of the House of Lords find that

the contract here in issue was executed and affirm the decision of the Court of Appeal in favour of suspension and not abrogation.

Lord Greene MR, in the Court of Appeal, stressed the fact that the contract in question was with a neutral and, therefore, deserving of special

consideration. Recent experience, however, has shown that in modern war true neutrality is virtually impossible and Lords Russell and MacMillan in their

dissenting judgments agree with Simonds J, that the vital question is simply whether the performance of the contract would benefit the enemy.

􀂭 36􀀉

As to Supervening Illegality due to War, see Halsbury, Hailsham Edn, Vol 7, pp 218, 219, para 297; and for Cases, see Digest, Vol 12, pp 386–404, Nos

3172–3252.

Cases referred to in opinions

Ertel Bieber & Co v Rio Tinto Co, Dynamit Act v same, Vereinigte Koenigs and Laurahuette Act v same [1918] AC 260, 12 Digest 395, 3211, 87 LJKB 531,

118 LT 181.

Janson v Driefontein Consolidated Mines Ltd [1902] AC 484, 2 Digest 128, 49, 71 LJKB 857, 87 LT 372.

Esposito v Bowden (1857), 7 E & B 763, 2 Digest 168, 371, 27 LJQB 17, 29 LTOS 295.

Halsey v Lowenfeld [1916] 2 KB 707, 2 Digest 157, 272, 85 LJKB 1498, 115 LT 617.

Stevenson (Hugh) & Sons v Akt Fur Cartonagen Industrie [1918] AC 239, 2 Digest 177, 416, 87 LJKB 416, 118 LT 126.

Zinc Corpn Ltd v Hirsch [1916] 1 KB 541, 12 Digest 394, 3208, 85 LJKB 565, 114 LT 222.

Distington Hematite Iron Co Ltd v Possehl & Co [1916] 1 KB 811, 2 Digest 175, 403, 85 LJKB 919, 115 LT 412.

Stockholms Enskilda Bank Aktiebolag v Schering Ltd [1941] 1 All ER 257, [1941] 1 KB 424, 165 LT 19.

Re Badische Co, Bayer Co, etc [1921] 2 Ch 331, 12 Digest 397, 3219, 91 LJCh 133, 126 LT 466.

Ottoman Bank v Jebara [1928] AC 269, 43 Digest 481, 188, 97 LJKB 502, 139 LT 194.

Ex p Boussmaker (1806), 13 Ves 71, 2 Digest 157, 270.

Flindt v Waters (1812), 15 East 260, 2 Digest 162, 317.

Appeal

Appeal by the respondents, an English company (now in liquidation) and an Indian company from a decision of the Court of Appeal (Lord Greene MR, Lord

Clauson and Du Parcq LJ), dated 12 October 1943, reported ([1943] 2 All ER 486), reversing an order of Simonds J, dated 10 March 1943, and reported

([1943] 1 All ER 418). The facts are fully set out in the opinions of Lord Thankerton, Lord Russell of Killowen and Lord Porter.

N L C Macaskie KC and J A Wolfe for the appellants.

D A Scott Cairns and I J Lindner for the respondents.

Their Lordships took time for consideration

29 November 1945. The following opinions were delivered.

LORD THANKERTON [read by Lord Goddard]. My Lords, this is an appeal from an order of the Court of Appeal (Lord Greene MR, Lord Clauson and Du

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Parcq LJ), dated 12 October 1943, which discharged an order of Simonds J dated 10 March 1943, and dismissed the appellants’ action.

By the order of Simonds J (i) it was declared that a contract dated 16 April 1936, which I will call the April contract, and made between the appellants

acting on behalf of themselves and on behalf of Schering Kahlbaum (India) Ltd which I will call the Indian company, and the respondent bank, had been

abrogated by the outbreak of war between Great Britain and Germany and could no longer be enforced against the appellants, and (ii) it was ordered inter alia

that the respondents, Arthur Williams Edwards and Henry Morris, should release to the appellants £25,000 and any interest thereon which was standing in the

joint names of the liquidator of the appellant company and these two respondents under the terms of a letter dated 16 April 1936, to provide security to the

respondent bank for the appellants’ performance of their obligations under the April contract.

In this appeal the appellants seek restoration of the order of Simonds J. Alternatively they maintain that the April contract, by reason of circumstances

arising out of the war,became impossible of further performance, and that the parties were thereby excused from further performance.

Early in 1936 the respondent bank was possessed of a sum of German Reichsmarks, the value of which at the current rate of exchange was £84,000,

which Schering-Kahlbaum Aktiengesellschaft, which I will call the German company, desired to acquire. The German company was the parent company of

the appellant company, and owned or controlled all its share capital; it was also the parent company of the Indian company. The German company found it

convenient, owing to restrictions in Germany, to provide for the sterling payments to be made to the respondent bank through its two subsidiaries, with whom

it could settle its indebtedness by means of the manufactured goods 􀂭 37􀀉 which it supplied to them. The contractual relations between the parties were

contained in three agreements, viz:

1. A contract in writing dated 24 and 28 February 1936, which I will call the February contract, which was made between the respondent bank of the one

part, the German company of the other part, and the appellants and the Indian company as sureties.

2. The April contract, made between the appellants, the Indian company and the respondent bank.

3. A letter dated 16 April 1936, by the appellants to the respondent bank, which I will call the April letter.

The February contract was in German, and subject to German law, but for the legal relationship between the sureties and the respondent bank the English

law was to apply. In the absence of evidence to the contrary, it may be assumed that, for the present purposes, the German law does not differ from the

English law. Though there was some argument to the effect that the price payable by the German company for the Reichmarks was £50,400, I am satisfied,

looking at the various provisions, that, on the Reichsmarks being placed at the disposal of the German company, the latter became debtors to the respondent in

the sum of £84,000, payable without interest, in effective pounds sterling on the expiry of eight years thereafter. The Reichsmarks were placed at the disposal

of the German company on 28 April 1936. For the debt, the sureties became surety jointly and severally as principals to the amount of £50,400, with the

proviso that, against the liability as sureties all payments must be set off which the respondent bank should receive from the sureties or one of them or from the

principal debtor or from third persons for account of the sureties or of the principal debtor. Cl 4 begins by providing that the sureties would acquire from the

respondent bank its claims against the German company by a series of fourteen six-monthly instalments, gradually decreasing in amount, beginning one and a

half years after 28 April 1936, with an instalment of £6,300, and ending eight years after the said date with a final instalment of £1,680. The instalments make

up a total of £50,400. Cl 4 then proceeds:

‘If, and to the extent that the sureties do not acquire the claim at the dates specified, the remission resulting from cl. 2 in conjunction with cl. 1 shall,

without prejudice to the provisions of cl. 3, lapse rateably in respect to that amount of debt which remains in relation to Enskilda after setting off any

payments which may have been made. (Example: Enskilda has received £6,300 and no further payments have been made; there remains a debt of

Schering to Enskilda to the amount of £73,500). With regard to the due date and repayment of the remaining amount of debt the provisions of cl. 2

paras. 2 and 3 shall apply. The remaining amount of debt is owing free of interest.’

It may be noted that this paragraph does not affect the amount of the liability of the sureties, that the remission referred to is clearly the reduction of the

debt from £84,000 to £50,400, and that the effect of this paragraph was somewhat obscurely modified by a letter dated 17 March 1936, from the respondent

bank to the German company, but the effect of it would seem to be that the benefit of the remission was preserved to the latter, provided that the payment of

the instalments, or some of them, though made after their due dates, was made prior to the expiry of the eight years. I will only add that the February contract

is headed “Contract of Debt,” and is so described at least four times in the body of the agreement.

By the April contract, which was in English, the liability of the appellants and the Indian company as sureties is not materially altered, but under cl 8 they

jointly and severally undertook as:

‘… principals and not as guarantors to make the following payments to you in consideration of the assignment by you to us on the occasion of each

such payment of a like sterling amount of your claim against the German company. Such payments shall be made as follows, namely … ’

Here followed a list of fourteen six-monthly instalments of decreasing amount, corresponding to those in cl 4 of the February contract. Cl 9 provided that each

payment under cl 8 should be a satisfaction pro tanto of their liability as sureties, and that they should not be liable to make such payment, in so far as the

amount in question had been paid by the German company or any other person or company. Cl 10 provided that default in payment of any one instalment

should not accelerate the date for payment of any other instalment, 􀂭 38􀀉 provided that that provision should not prejudice the respondent bank’s rights of

proof in a liquidation of either the appellants or the Indian company.

On the same day, the appellants addressed the April letter to the respondent bank, providing for the pleading by them of goods to the value of £25,000 as

security for the discharge by the appellants of their obligations to the respondent bank, whether as sureties or principals, under the April contract. The assets

of the appellants have been realised in the liquidation, and the sum of £25,000 has now been placed as security in joint names as already mentioned.

Stripped of its somewhat intricate provisions, it appears that, in substance, the contract was for the sale of commodities, viz, German Reichsmarks, for a

price, which was to be paid in sterling. The commodities had been supplied and accepted, and all that remained was the payment of the price, and the only

provisions remaining operative related to the payment of the debt due in respect of the price, and the relative safeguards for its payment.

Four instalments had been duly paid by the appellants to the respondent bank prior to the outbreak of war on 3 September 1939. The fifth instalment,

amounting to £3,360, became due on 28 October 1939; the appellants took the view that such payment would contravene the provisions of the Trading with

the Enemy Act, 1939, and the respondent bank raised an action for recovery of the amount in the King’s Bench Division. The action was dismissed, and its

dismissal was confirmed by the Court of Appeal. The appellants have now raised the present action, to have it declared that the April contract is no longer

enforceable against them, and for the release to them of the £25,000.

My Lords, we had a very full citation of authorities and the able arguments of counsel on both sides have been very helpful, but I find little need to go

beyond the speeches of Lord Dunedin and Lord Sumner in Ertel Bieber & Co v Rio Tinto Co, in which the earlier authorities are reviewed. Lord Dunedin

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([1918] AC 260, at p 274) says:

‘From these cases I draw the conclusion that upon the ground of public policy the continued existence of contractual relation between subjects and

alien enemies or persons voluntarily residing in the enemy country which (1) gives opportunities for the conveyance of information which may hurt the

conduct of the war, or (2) may tend to increase the resources of the enemy or cripple the resources of the King’s subjects, is obnoxious and prohibited

by our law.’

In his judgment Lord Greene MR appears to draw a distinction, on matter of principle, between contracts between a British subject and an alien enemy,

and a contract between a British subject and a neutral. In my opinion, the paramount consideration of public policy in either case is the unhampered carrying

on of the war, without harmful intercourse with the enemy, or economic benefit to the enemy or economic disadvantage to this country. But the applicability

of the principle is likely to be rare in the case of contracts between a British subject and a neutral, or not so obvious as in the case of a contract between a

British subject and an enemy.

As regards the consequence of this contravention of public policy, I am of opinion that the courts have no choice between the abrogation and suspension

of the contract, abrogation being the necessary consequence. I agree with Lord Sumner’s statement on this point in Ertel Bieber & Co ([1918] AC 260, at p

286):

‘My Lords, if upon public grounds on the outbreak of war the law interferes with private executory contracts by dissolving them, how can it be open

to a subject for his private advantage to withdraw his contract from the operation of the law and to claim to do what the law rejects, merely to suspend

where the law dissolves? The prohibition, which arises at common law on the outbreak of war, has for this purpose the effect of a statute. The choice

between suspending and discharging the contract on the outbreak of war was quite deliberately made, and if occasionally the contract is said to be only

suspended, or a court refuses to dispose of a case on the ground of dissolution alone, this only brings into relief the fact that by an overwhelming

preponderance of authority such trading contracts have been held to be dissolved on the outbreak of war. An appearance of authority to the contrary is

sometimes found to be in truth a misreading of the language of a decision.’

After reference, by way of illustration, to the language of Lord Halsbury, in Janson v Driefontein Consolidated Mines, Lord Sumner proceeded (ibid, at p

287):

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‘There can be no doubt that the matter must have been considered. To many people suspension seems to have much to recommend it. Freedom of

contract is challenged less; the sacrosanctity of commerce is respected more. The courts could not have adopted the rule of dissolution unless they had

reasoned that suspension would be inconsistent with this principle of the law of contract. I will quote the language of WILLES, J., in Esposito’s case:

“In all ordinary cases, the more convenient course for both parties seems to be that both should be at once absolved, so that each, on becoming aware of

the fact of a war, the end of which cannot be foreseen, making the voyage or the shipment presumably illegal for an indefinite period, may at once be at

liberty to engage in another adventure without waiting for the bare possibility of the war coming to an end in sufficient time to allow of the contract

being fulfilled, or some other opportunity of lawfully performing the contract perchance arising. The law upon this subject was doubtless made,

according to the well known rule, to meet cases of ordinary occurrence.” To his mind I think it is clear that the rule was one made to provide certainty

at the outbreak of war, where in itself everything is uncertain; that it was one made to apply generally, although taking its form from the needs of

ordinary cases; and that, for the purpose of applying it, the case must be looked at as things stood when war broke out, and not as they were ascertained

to be or as they ultimately happened during the interval before the trial of the action.’

The contracts which fall under this principle of public policy are clearly contracts the performance or further performance of which after the outbreak of

war may involve the consequences which the principle, by its application, seeks to avoid, but it is equally clear that there are certain well established

exceptions to the contracts thus broadly defined. I may quote the speech of Lord Dunedin in Ertel Bieber & Co ([1918] AC 260, at p 269):

‘Now Esposito v. Bowden has been cited by learned judges in many cases, and no doubt has ever been cast on its authority. Nor has it ever been

taken as dealing with any particular contract, but it has been held as dealing with contracts in general. So far as Janson’s case is concerned, the only

matter there decided was that there must be an actual state of war to determine a contract: a mere imminence of war is not enough. It is true that LORD

HALSBURY’S dictum, if applied as an universal proposition, would be counter to the doctrine of Esposito v. Bowden. But I am satisfied not only that

the dictum was obiter and not binding, but that LORD HALSBURY was not dealing with or thinking of executory contracts, but of contracts under

which rights had already accrued. There is indeed no such general proposition as that a state of war avoids all contracts between subjects and enemies.

Accrued rights are not affected though the right of suing in respect thereof is suspended. Further, there are certain contracts, particularly those which

are really the concomitants of rights of property, which even so far as executory are not abrogated. Such as, for instance, the contract between landlord

and tenant, of which an example may be found in the recent case of Halsey v. Lowenfeld. In other words, the executory contract which is abrogated

must either involve intercourse, or its continued existence must be in some way against public policy as that has been laid down in decided cases.’

In the case of the established exceptions to which Lord Dunedin refers the necessity for intercourse with an enemy is obviated by the postponement of the

right of action, and non-forfeiture of an existing right supersedes any question of an immediate or future benefit to the enemy. This is well illustrated in the

order made in the Ertel Bieber case, to which I will refer later. In the present case Simonds J applied that test at once without considering whether the case fell

within the class of exceptional cases, and, coming to the conclusion that continued performance of the contract would involve both such intercourse and such

benefit, he held that the contract was abrogated on the outbreak of war. The question of whether the present case fell within the class of exceptional cases was

also not considered by the Court of Appeal, but, in considering the test of intercourse and benefit, they drew a distinction between the case of a contract

between a British subject and an enemy subject and the case of a contract between a British subject and a neutral subject, and this appears to have led them to

differ from Simonds J and they reversed his decision. As already expressed by me, I am not prepared to accept that, as a matter of principle, there is any

distinction between these two classes of contract, but it is unnecessary for me to deal further with the judgments of the courts below, as I have come to the

conclusion that the present case does fall within the exceptional class, and that, for that reason, the April contract was not abrogated by the outbreak of war, so

that the appeal fails so far as rested on that ground.

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I am inclined to agree with Sir Arnold McNair’s suggestion (Legal Effects Of War (1944), 2nd Edn; at p 93), that the distinction between “executed” and

“executory contracts” may not be very helpful in this connection, and that it may be safer to say that the effect of the outbreak of war upon contracts legally

affected by it is to abrogate or destroy any subsisting right to further performance other than the right to the payment of a liquidated sum of money, view, I

proceed to consider what is included in the phrase “a liquidated sum of money, which will be treated as a debt.”

The appellants’ counsel admitted that a debt payable by instalments would be so included, and that provision for discount on anticipation of the

instalment dates would not alter the position, nor would express provision for the acknowledgment in writing of each sum paid affect the matter. In my

opinion the fact that the creditor held security for the payment of the debt, which would fall to be restored to the debtor on payment of the debt, would make

no difference even though the security had been absolutely assigned to the creditor, and would require retransfer to the debtor. In my opinion, the present case

only raises one further point, viz, the fact that the appellants were bound as principals to the respondents to discharge the debt in respect of which the German

company were the original principal debtors, and were, therefore, entitled under the April contract on payment to the respondents of each instalment, to an

assignment by the latter of a like sterling amount of their claim against the German company. My Lords, I cannot think that this makes any difference to the

position. The appellants, under the April contract, were bound to discharge the whole debt within a period which would terminate before the elapse of the

eight years, when the liability of the German company to make any payment towards the debt would first arise; in other words, the appellants were bound to

acquire the debt, and their being placed by assignment in the shoes of the respondents is merely incidental to the discharge of the debt owed to the

respondents, and is not different in substance from the case of the return of securities to which I have already referred.

It is important to make clear that the principle of abrogation does not involve destruction of the contract so far as already performed. That which is

abrogated is the further performance of the contract, as from the outbreak of war; or, as Lord Dunedin expresses it in the passage already quoted, the continued

existence of the contractual relationship is prohibited. As Lord Finlay LC, in Hugh Stevenson & Sons v Aktiengesellschaft fur Cartonagen-Industrie states

([1918] AC 239, at p 244): “It is not the law of this country that the property of enemy aliens is confiscated.” This important point is well illustrated by the

form of order that was made in the Ertel Bieber case, which related to contracts for the sale of large quantities of cupreous sulphur ore, to be delivered by

instalments extending over a number of years. The order made by Sankey J which was affirmed in the Court of Appeal and by this House, was in similar

terms to that made in Zinc Corporation v Hirsh, which related to contracts of sale of zinc concentrates to be delivered by monthly instalments. In both cases

the contracts had been partly performed before the outbreak of war. In the Zinc Corporation’s case, Bray J, made a declaration, which was affirmed by the

Court of Appeal, that the contracts were dissolved as from the outbreak of war, by the existence of a state of war between Great Britain and Germany, and that

the plaintiffs as from the said time were and are released and absolved from any obligation at any time to supply to the defendants or their assigns any zinc

concentrates; but the declaration was without prejudice to the rights of either party in respect of concentrates supplied or which ought to have been supplied

prior to the said time or to moneys paid to the special trust account mentioned in the agreement of 14 December 1908, or to any cause of action which had

arisen prior to 4 August 1914. It seems clear to me that this reservation included matters involving intercourse with the enemy, but, as Lord Dunedin points

out, the right of action is postponed. It seems equally clear it might involve substantial economic benefit to the enemy. The declaration of Simonds J contains

no such reservation, and the result, in my opinion, is to confiscate the right of debt, which had arisen to the respondents on the delivery of the Reichsmarks on

28 April 1936. I am not aware of any precedent for such confiscation, and it is clearly not justified under the decision of this 􀂭 41􀀉 House in the Ertel Bieber

case. Indeed, it is inconsistent with it. I may add that in Esposito v Bowden the performance of the contract had not commenced prior to the outbreak of war.

As regards the appellants’ alternative argument that the April contract, by reason of circumstances arising out of the war, became impossible of further

performance, and that the parties were thereby excused from further performance, that argument is clearly out of place in the view that I have already

expressed that all that remained to be done was the discharge of an accrued debt by instalments, subject to an assignment of the right of ultimate recourse

against the German company and I have nothing to add to the views expressed by Lord Greene MR on this matter.

It follows that, in my opinion, the appeal fails, and I propose that it should be dismissed with costs.

LORD RUSSELL OF KILLOWEN [read by Lord Wright]. My Lords, this is a very exceptional case arising out of a very exceptional contract made

between a German company (called Schering-Kahlbaum AG Berlin, and hereinafter called the German company), a Swedish bank (called Stockholms

Enskilda Bank Aktiebolag and herein called Enskilda), and two companies called respectively Schering Ltd (a company registered in England) and

Schering-Kahlbaum India, Ltd (a company registered in India). As may be gathered from their names the English company and the Indian company were

subsidiaries of the German company, and dealt, in their respective spheres, in drugs and chemicals manufactured by the German company. The German

company owned all the shares in the English company, which was, therefore, completely under its control.

In 1936 Enskilda and others owned a large quantity of Sperrmarks in Germany which the German company was anxious to acquire. Sperrmarks were

Reichsmarks spendable only in Germany. Throughout the transaction with which we are concerned Enskilda was in fact acting for this group of owners, who

were willing to sell for sterling, which the German company could only furnish through its two subsidiaries. Thus it was that the English company and the

Indian company became involved in the transaction between Enskilda and the German company.

The rights and obligations of the four contracting parties were first defined and recorded in a document (referred to as the February contract) in the

German language and dated 24 and 28 February 1936, a translation of which has been agreed between the parties. It is headed “Contract of Debt,” but it is

really a contract for the sale of Reichsmarks. By cl 1 Enskilda agrees to sell “an amount in Reichsmarks to the amount of the equivalent of £84,000 sterling.”

Cl 2 provides that in respect of the Reichsmarks the German company shall be indebted to Enskilda in £50,400 free of interest; and then follow these words

“The debt shall fall due on the expiry of 8 years reckoned from the day of paying out.” It is agreed that the due date became 28 April 1944. By cl 3 the

English company and the Indian company constituted themselves surety for “the debt” jointly and severally as principals “to the amount of £50,400.” Then

followed cl 4 which requires to be set out verbatim, and which runs thus:

‘The sureties will acquire from the Enskilda its claims against Schering by instalments, with the proviso that they shall pay to Enskilda:

1½ years after day of paying over of the loan .. .. £6,300 0 0

2 ,, ,, ,, ,, ,, ,, ,, ,, ,, .. £6,300 0 0

2½ ,, ,, ,, ,, ,, ,, ,, ,, ,, .. £6,300 0 0

3 ,, ,, ,, ,, ,, ,, ,, ,, ,, .. £6,300 0 0

3½ ,, ,, ,, ,, ,, ,, ,, ,, ,, .. £3,360 0 0

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4 ,, ,, ,, ,, ,, ,, ,, ,, ,, .. £3,360 0 0

4½ ,, ,, ,, ,, ,, ,, ,, ,, ,, .. £2,940 0 0

5 ,, ,, ,, ,, ,, ,, ,, ,, ,, .. £2,940 0 0

5½ ,, ,, ,, ,, ,, ,, ,, ,, ,, .. £2,520 0 0

6 ,, ,, ,, ,, ,, ,, ,, ,, ,, .. £2,520 0 0

6½ ,, ,, ,, ,, ,, ,, ,, ,, ,, .. £2,100 0 0

7 ,, ,, ,, ,, ,, ,, ,, ,, ,, .. £2,100 0 0

7½ ,, ,, ,, ,, ,, ,, ,, ,, ,, .. £1,680 0 0

8 ,, ,, ,, ,, ,, ,, ,, ,, ,, .. £1,680 0 0

If, and to the extent that the sureties do not acquire the claim at the dates specified, the remission, resulting from cl. 2 in conjunction with cl. 1 shall,

without prejudice 􀂭 42􀀉 to the provisions of cl. 3, lapse rateably in respect to that amount of debt which remains in relation to Enskilda after setting off

any payments which may have been made (Example: Enskilda has received £6,300 and no further payments have been made; there remains a debt of

Schering to Enskilda to the amount of £73,500). With regard to the due date and repayment of the remaining amount of debt the provisions of cl. 2,

paras. 2 and 3 shall apply. The remaining amount of debt is owing free of interest.’

The other clauses need not be referred to: but it will be convenient at this stage to state my view of the true construction of this agreement, which became

operative on 28 April 1936. The primary debt for which the German company became liable to Enskilda was the sum of £84,000 referred to in cl 1. I am of

opinion that this must be so, notwithstanding the meaning to the contrary which would prima facie be gathered from cl 2, because any other view is not

consistent with the words “to the amount of £50,400” in cl 3 and is hopelessly inconsistent with the second half of cl 4. The German company made itself

liable to pay £84,000 to Enskilda at the end of 8 years, but the liability might be reduced by degrees thoughout the 8 years according as the sureties made some

or all of the payments specified in cl 4, and might ultimately amount to no more than a debt of £50,400, owing, not to Enskilda, but to the sureties. The

sureties, it is to be observed, whose liability as sureties is limited to £50,400, and cannot mature for 8 years, assume under cl 4 a most unusual burden, viz, the

obligation to pay off portions of their principal’s debt before any part of it is due from the principal, and so reduce their principal’s liability by an amount for

which the sureties can never be liable; but this unusual feature is easily accounted for when one remembers that these sureties were bound to do whatever the

principal debtor told them to do.

Notwithstanding the existence of the February contract, a further document was executed, in the English language, by Enskilda, the English company and

the Indian company, which is known as the April contract. Why this document was executed has never been explained. Both sides agree that the relationship

and obligations as between Enskilda and the two companies are the same as the relationship and obligations which were established as between them by the

February contract, and that the latter have never been terminated and still subsist. It may be that the parties desired a record in the English language of their

obligations inter se, or it may be that they wished to make it clear that cl 4 of the February contract was obligatory and not merely optional on the part of the

two companies. But whatever the object in view, the April contract is the contract in relation to which this action is brought. Nevertheless, in my opinion, it is

quite impossible to treat that contract as a matter apart and separate from the February contract; it is part and parcel of one transaction between Enskilda and

the German company, into which the two companies are introduced by the German company in order to provide sterling and thus enable the German company

to achieve its object, viz, the purchase of the Sperrmarks.

The April contract takes the form of a document addressed to Enskilda, dated 16 April 1936, and signed by one Edwards, both as managing director of

the English company and as attorney of the Indian company. It opens thus:

‘In consideration of your making on our joint and several request an advance of £84,000 sterling to be made available in Sperrmarks to [the German

company] we hereby jointly and severally guarantee the payment in sterling of the amount hereinafter mentioned by the German company.’

The amount thereinafter mentioned is £50,400. This opening statement may be characterised as a gentle fiction. It is clear from the February contract, and a

letter of 5 November 1935, from London to Bombay, that the initiative and the request came from the German company and that the suretyship was

undertaken under the German company’s instructions. The April contract contains usual provisions relating to the suretyship. In addition it contains three

clauses which, although not numbered in the original, were conveniently referred to during the arguments as Nos 8, 9 and 10. Cl 8 ran thus:

‘Further we hereby jointly and severally undertake as principals and not as guarantors to make the following payments to you in consideration of the

assignment by you to us on the occasion of each such payment of a like sterling amount of your claim against the German company. Such payments

shall be made as follows, namely …’

􀂭 43􀀉

Then follows a list of amounts in sterling, and the dates on or before which each payment shall be made, corresponding exactly with the amounts and dates set

out in cl 4 of the February contract. The subsequent part of cl 4 naturally does not appear in the April contract, as it deals with a matter which concerns only

Enskilda and the German company. Cl 9 of the April contract in effect corresponds with cl 3 of the February contract. Cl 10 provides that default in payment

of one instalment shall not accelerate the date for payment of any other instalment. There was no suggestion in the February contract that it would. On the

same date (16 April 1936) the English company gave security for its liability under the April contract “whether as guarantors or as principals.” The nature and

terms of the security are set out in what has been called the April letter, but in the view which I take of this case it is unnecessary to refer to that document in

detail. One other document should be mentioned. Some doubt seems to have arisen as between Enskilda and the German company as to the true construction

to be placed upon that part of cl 4 of the February contract, which (as I have stated) was omitted from cl 8 of the April contract, and the construction which

was agreed between them is set out in a letter from Stockholm to Berlin of 17 March 1936. But again, in the view which I take of this case, it is unnecessary

to set out the contents of this letter, or to discuss its exact effect upon the provision as originally drafted.

All went smoothly under the February and April contracts. The German company acquired the Reichsmarks, the first four payments by the two

companies mentioned in cl 4 of the February contract and cl 8 of the April contract were made, and the corresponding claims of Enskilda against the German

company were assigned, with the result that the liability of the German company to Enskilda which would become due at the end of the 8 years became

reduced to £42,000, instead of £58,800. The fourth payment and assignment took place on 28 April 1939. The fifth payment and assignment fell to be made

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on 28 October 1939, but in the meantime, on 3 September 1939, war broke out between this country and Germany. The crucial question on this appeal can

now be stated, viz, was the April contract abrogated on the outbreak of war, so that it can no longer be enforced at any time thereafter?

As a matter of history it is right to state that on 30 October 1939, Enskilda commenced an action in the King’s Bench Division claiming payment of the

fifth payment, viz, £3,360, but the action was dismissed by Hawke J whose decision was affirmed by the Court of Appeal. The ground of the decision was that

the payment would be for the benefit of the German company, and was therefore prohibited by the Trading with the Enemy Act, 1939. Subsequently the

English company went into voluntary liquidation, and its assets have been sold, but a sum of £25,000 has been placed in joint names to answer its obligations

(if still subsisting) under the April letter. On 29 January 1942, the English company issued the writ in the present action, claiming a declaration that the April

contract can no longer be enforced against it and an order for the release to it if the £25,000 above mentioned. This claim was based upon allegations that the

April contract was a contract the continued existence of which would be for the benefit of the enemy, or would involve intercourse between the English

company and the enemy. It was also alleged that the contract had been frustrated.

Simonds J was of opinion that the April contract was one the performance or continued existence of which after 3 September 1939, would benefit the

enemy, and would involve intercourse with the enemy. He did not deal with frustration. He accordingly made an order declaring that the April contract had

been abrogated by the outbreak of war and could no longer be enforced against the plaintiffs, and ordering the release of the £25,000.

On appeal, this order was discharged and the action was dismissed. As I read the judgment of the Court of Appeal the reasoning proceeded thus. It was

admitted that further performance of the April contract during the war “must benefit the enemy”; it was also apparently agreed that a contract with a neutral

the further performance of which during the war “would in fact confer an immediate or future benefit on the enemy would be abrogated by the outbreak of

war”; nevertheless the court was of opinion that the April contract, being a contract with a neutral, might continue in existence after the outbreak of war on the

basis of suspension during the war. Upon that footing, it was 􀂭 44􀀉 said, the benefit to the German company (and, therefore, to the enemy) became so vague

and uncertain that no valid ground existed on which a British subject could be freed from his obligation to a neutral.

My Lords, I confess I feel great difficulty in following this reasoning. By the very terms of the bargain struck between all the parties in February, and

formally recorded as between Enskilda and the two companies in April, the further performance by the English company during the war, either of cl 4 of the

February contract (eo nomine) or of cl 9 of the April contract (eo nomine), must inevitably result in a clear and direct benefit to the German company (which

was stipulated for by the German company and asseted to by Enskilda in order to obtain sterling) viz, a large reduction in the German company’s indebtedness

of £84,000. The four payments made before the war had already reduced it is £42,000, leaving outstanding a liability of £42,000. The carrying out of the

April contract during the war according to its terms would relieve the German company from a further liability of £16,800. But the axe falls when war breaks

out. At that moment there was nothing vague or uncertain about the benefit to the enemy which would result from carrying out the very terms of the bargain.

All the necessary conditions existed for abrogation under the common law rule. Illegality does not suspend, it dissolves: See per Lord Sumner in Ertel Bieber

v Rio Tinto ([1918] AC 260, at p 285). What justification then can there be for saying, we will not declare this contract to be abrogated because it is a contract

with a neutral, but we will declare it to be only suspended, and then suspension will only involve a vague and uncertain benefit to the enemy, insufficient to

justify freeing a British subject from his obligation to a neutral? I know of none, and can imagine none. Indeed, a fatal difficulty seems to arise. If a contract,

the further performance of which (like this one) requires acts to be done on or before fixed dates, from the doing of which on those dates stated consequences

clearly beneficial to the enemy are to flow, is prima facie abrogated at common law on the outbreak of war, it can be no answer to say that the contract need

only be suspended during the war if the benefit to the enemy thereby becomes vague and uncertain, for you would be the suspension be substitution a new and

different contract into which the parties had never entered: see eg, Distington v Possehl.

The case for the respondents on the appeal before this House was argued on different grounds. It was conceded that contracts the further performance of

which would confer upon the enemy an immediate or future benefit or involves intercourse with the enemy are abrogated on the outbreak of war. To quote

Lord Dunedin in Ertel Bieber v Rio Tinto ([1918] AC 260, at p 274):

‘From these cases I draw the conclusion that upon the ground of public policy the continued existence of contractual relation between subjects and

alien enemies or persons voluntarily residing in the enemy country which (1) gives opportunity for the conveyance of information which may hurt the

conduct of the war, or (2) may tend to increase the resources of the enemy or cripple the resources of the King’s subjects, is obnoxious and prohibited

by our law.’

It was also conceded that the same principle would apply to a contract between British subjects, or between a British subject and a neutral if according to its

very terms further performance of it would give the opportunity or tend to the increase indicated above. It was, however, contended that this contract fell

within certain exceptions to the rule. That certain exceptions do exist is well established. To quote Lord Dunedin once more, he states the exceptions thus in

Ertel Bieber v Rio Tinto (ibid, at p 269):

‘There is indeed no such general proposition as that a state of war avoids all contracts between subjects and enemies. Accrued rights are not

affected thought the right of suing in respect thereof is suspened. Further, there are certain contracts, particularly those which are really the

concomitants of rights of property, which even so far as executory are not abrogated. Such as, for instance, the contract between landlord and tenant, of

which an example may be found in the recent case of Halsey v. Lowenfeld.’

Thus a contract which is completely executed on one side, and under which nothing remains to be performed except payment to be made by the other of a

liquidated sum whether already due, or debitum in praesenti solvendum in futuro, is unaffected by the outbreak of war. The payment cannot in fact take place

between enemies in war time; so long as the war lasts the payment is suspended. Nor is enemy property confiscated at common law by the outbreak 􀂭 45􀀉 of

war, and consequently contractual rights and obligations incidental to the ownership of property are not put an end to at common law by the outbreak of war.

The enforcement of them during the war may be impossible, but they will survive the war.

It was first contended that the April contract fell within the exceptions because the April contract was a contract wholly executed by Enskilda and under

which nothing remained to be done by the English company except the payment of money. This was the main contention advanced by the respondents before

us, and it is this contention which is adopted by those of your Lordships who favour the dismissal of this appeal. But they reach this conclusion on two

ground, concerning the construction and effect of the April contract, which appear to me fundamentally wrong, and I feel bound to state in detail my reasons

for so thinking.

One ground is of this nature. The payments to be made by the English company under the April contract are treated as payments made at the request of

the German company, and it is then said that the English company would, independently of the provisions of cl 8, and whether it paid as a surety or a

principal, be entitled to reimbursement. Equity, it is said, would transfer to the English company the right vested in Enskilda to recover from the German

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company the amounts paid. The April contract added nothing in this respect; cl 8 conferred on the English company no right which it would not have obtained

by the mere fact of making the specified payments. Surely this view is misconceived. That the English company entered into both the February contract and

the April contract in obedience to the instructions of the German company, no one can doubt. But the right in Enskilda to receive, and the obligation on the

English company to pay, the instalments rests on the April contract. They are payments which will become payable by the English company to Enskilda

before anything is payable to Enskilda by the principal debtor at all. Nor are they made by the English company as a surety, or at the request (express or

implied) of the German company. They are made by the English company as a principal under compulsion of the April contract. Even if the pre-war

instalments could (contrary to my view) be treated as being payments made at the request of the German company, no post-war instalment could possibly be

treated as having been made at the request of an enemy. But for the existence of the April contract, there would have been no obligation on the English

company to pay any of the “instalments”; any such payment would have been a purely voluntary act, creating no right, legal or equitable, in the payer. Even if

the first portion of cl 4 of the February contract was not (as between the parties to the April contract) superseded by cl 8 of the April contract, but still

remained binding, the legal position would remain unchanged. The English company would make the payments not as a surety, or at the request of someone

who was indebted to the payee, but as a principal under the compulsion of a contract with the payee.

The other ground is of this nature. It is said that the provision in the April contract for the assignment of Enskilda’s rights against the German company is

only a provision as to the method of payment, that the April contract had been wholly executed by Enskilda before the outbreak of war, that Enskilda had then

an accrued cause of action in debt for each instalment, that the tender of an executed assignment by Enskilda was a mere formality, and that Enskilda could

sue for an instalment, if unpaid on the specified date, upon an allegation that Enskilda was always ready and willing to execute an assignment on payment. I

cannot agree. It is, in my opinion, impossible to treat cl 8 as a mere agreement to pay fixed amounts on stated dates, constituting debts to be paid on those

dates, subject to the fulfilment by Enskilda of conditions. It is a contract to pay the instalments (I quote the words) “in consideration of the assignment by you

to us on the occasion of each such payment of a like sterling amount of your claim against the German company.” This is nothing but a contract for the sale

and purchase of a number of choses in action on specified dates. As was pointed out in the judgment of Sir Wilfrid Greene MR, in Stockholms Enskilda Bank

Aktiebolag v Schering Ltd (see [1941] 1 All ER 257, at p 264), the remedy thereunder would be not by action for debt, but by proceedings for specific

performance of the contract of purchase, after, execution and tender of a proper assignment of the subject-matter of the purchase. When 􀂭 46􀀉 war broke out

no cause of action had accrued to Enskilda in respect of post-war instalments. The only obligation to pay is on receipt of a tendered executed assignment of

the property agreed to be sold; the only obligation to part with the property sold is on receipt of the purchase price. A “ready and willing” plea may well be a

proper and necessary plea in an action for breach of a contract, for the purpose of alleging and establishing that the plaintiff who sues for breach is not himself

in breach. But we are here considering the position in relation to an action for the enforcement of this contract, not in relation to an action for its breach. In

order to enforce, it, Enskilda would have to sue for specific performance, and except upon allegation and proof of execution and tender of an assignment of the

property sold, there would be no cause of action for the purchase money. In other words the April contract, so far from having been fully performed by

Enskilda before the outbreak of war, remained completely executory on both sides in relation to the post-war instalments. On each instalment date each party

had to complete the sale and purchase, Enskilda by delivering an assignment of the property sold in exchange for the purchase money, the English company by

paying the purchase money in exchange for an assignment for the property sold.

Another argument advanced on behalf of the respondents was to the effect that so far as concerns that part of the April contract which deals with

suretyship, Enskilda had wholly performed its part. It had complied with the request of the two companies, and had made over the marks to the German

company which constituted the consideration for the suretyship, and the carrying out of that obligation involved neither intercourse with nor benefit to the

enemy. I have already drawn attention to the fact that in sober truth no consideration for the suretyship had moved from Enskilda to the two companies who

had made no request; but assuming the truth of this fiction, it is in my opinion impossible to sever the April contract and to treat it as if there were two separate

and independent contracts, one for suretyship and the other for the sale and purchase of Enskilda’s claims against the German company. The April contract is

one entire and essential constituent of a transaction between Enskilda and the German company. In order that the German company might induce Enskilda to

let it have the Reichsmarks for the reduced price of £50,400 sterling, it was necessary that the two companies should, under instructions from Germany, both

guarantee the larger price up to £50,400, and agree to buy Enskilda’s claims against the German company at prices in sterling sufficient to provide in sterling

the reduced price of £50,400. Unless this twofold liability had been undertaken by the two companies (as it was undertaken both in the February contract and

the April contract) the bargain between Enskilda and the German company could not have been struck.

Reliance was also placed upon the exception which was described by Lord Dunedin ([1918] AC 260, at p 269), in these words:

‘Further, there are certain contracts, particularly those which are really the concomitants of rights of property, which even so far as executory are not

abrogated.’

I am not sure, that I understand correctly one argument on this contention. I think that it was said that the April contract was a concomitant of the right of

property which Enskilda had acquired by its contract with the German company. But that is not the kind of property to which Lord Dunedin refers. He is not

referring to choses in action or contractual rights. He is referring to contracts such as covenants running with the land, the right to enforce which belongs to

the owner for the time being of the land. The interest in the land is not confiscated at common law by the outbreak of war; the power to enforce the covenant

cannot be exercised during the war, but when the war ends the power of enforcement revives. It may be difficult to define with exactitude or exhaustively the

class of “concomitants.” Each case must be considered when occasion arises. But I am of opinion that the present case cannot be treated as a contract which

is a concomitant of rights of property within the exception.

Finally, it was suggested that the existence of the security created by the April letter brought the case within this exception. This appears to me an

argument which must fail. So far from the April contract being a concomitant of the right of property created by the security, it is the security which is a

􀂭 47􀀉 concomitant of or ancillary to the April contract; and the argument when brought to bedrock comes to this, that obligations which (if unsecured) would

be abrogated at common law, are saved from this fate by the fact that security has been given for their performance. That will not do. With the disappearance

of the obligations the security for their performance necessarily disappears as well.

My Lords, I am in agreement with the views of Simonds J on this part of the case. I agree with him when he says, that the simple question is whether the

performance of the April contract after 3 September 1939, would benefit the enemy, by increasing his resources or crippling those of His Majesty’s subjects.

That it must do so is as he and the Court of Appeal thought, and is, as I think, plain: and I will add that it is equally plain that the pecuniary benefit to the

German company was one of the very objects for which, in the first instance the February contract, and subsequently the April contract, were entered into.

Whether the performance of the April contract, would involve intercourse with the enemy, is a point with which I need not deal, but the course of dealing

between the parties in the days of peace affords strong support for the view expressed by Simonds J. I express, however, no view of my own, nor do I say

anything on the question of frustration. One cannot but regret the unsatisfactory outcome of the argument in this House. The appeal fails for reasons which

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differ from those which prevailed in the Court of Appeal and which differ, inter se. To me two devisive points stand out crystal clear, unanswered and, I

venture to think, unanswerable; (i) the April contract, if performed in war-time confers a distinct and immediate benefit on the enemy; and (ii) as regards

post-war instalments it was at the outbreak of war wholly executory.

I would allow this appeal and restore the order which the Court of Appeal discharged.

LORD PORTER. My Lords, I have found the solution of this case a matter of difficulty, primarily, I think, because of the complexity of the arrangements

between the parties and the necessity of safeguarding the rights of neutrals whilst not diminishing the ability of this country to preserve its interests in time of

war. It is, no doubt, generally true that the further performance of contracts made before the outbreak of war and not fully performed on either side is

prohibited as contrary to public policy provided that such performance involves intercourse with an enemy or benefits him. For the sake of brevity I speak of

this result as abrogation of the contract though the contract itself is not abrogated, but further performance alone forbidden. There are, however, exceptions

and limitations upon this doctrine. So far, at any rate, as concerns benefit to the enemy, the further performance of contracts which have been completely

performed on one side and in which all that remains is payment by the other are suspended, not dissolved, and in the same category are to be placed certain

contracts, particularly those which are really concomitants of the rights of property though still executory: see per Lord Dunedin in Ertel Bieber & Co v Rio

Tinto Co ([1918] AC 260, at p 269).

In each case, therefore, before deciding whether a contract is abrogated or merely suspended on the outbreak of war it is essential to determine its exact

construction and effect. In the present instance there are four documents which must be considered.

(1) A contract dated 24 and 28 February 1936, originally in German of which your Lordships have been furnished with an English translation. This,

headed “Contract of Debt,” is made between the respondents, as creditors of the one part and a German company, the Schering-Kahlbaum AG, of Berlin, as

debtor of the other part. The appellants and the Schering Kahlbaum India Ltd of Bombay, called the sureties, are also parties;

(2) A contract dated 16 April 1936, made between the respondents, the appellants and the Schering Kahlbaum India Ltd;

(3) A contract between the respondents and the appellants contained in a letter dated 16 April 1936; and

(4) A letter dated 17 March 1936, written by the respondents to Schering-Kahlbaum AG modifying the terms of the contract of February in so far as those

two companies were concerned but to which the appellants were not parties.

(1) By the first of these contracts the respondents, as I think, undertook 􀂭 48􀀉 to provide Reichsmarks of the value of £84,000 at the rate of exchange

current in Berlin on the day when the Reichsmarks were handed over in return for the promise of repayment by the German company, in eight years time, of

that sum in sterling or, if that was impossible, in blocked marks at the rate of exchange current in Berlin for payment in London at the date of repayment. For

the repayment of this sum the English and Indian companies became sureties to the extent of £50,400 and bound themselves as principals to repay it with the

proviso that they should have credit for all repayments by themselves or the German company or third persons. Cl 4 contained certain special terms under

which the sureties were to acquire the claims of the respondent against the German company “with the proviso that” (By which I understand is meant,

“provided that”) they should pay at stated intervals terminating after eight years certain fixed instalments amounting in all to £50,400. £50,400 is 60 per cent

of £84,000 and if and to the extent that these payments were made at the agreed dates the German company was to enjoy the remission of the extra 40 per

cent, but if prompt payment of any one instalment was not made the German company was to cease to have this remission in respect of any sums still due, and

was to pay the remitted and unremitted portions at the end of the eight years. In my view this clause gave the sureties an option to furnish the stipulated

instalments if they chose but did not compel them to do so. It is, however, as I think, unnecessary to determine whether it was left to them to pay or not to pay

or whether they obliged themselves to make the payments. In case the German company or the sureties should become bankrupt or should make an

arrangement with their creditors the debt became immediately payable and, whereas the relationship between the German company and the respondents was to

be governed by German law, that between it and the sureties was to be governed by English law. The marks to be supplied were Sperrmarks for internal use in

Germany and the actual value in a European market may well have been nearer to £50,400 than to their nominal value of £84,000, but this consideration is, I

think, immaterial.

(2) On 16 April of the same year two further contracts were entered into apparently to clarify the position and possibly to make what had been only an

option in the earlier contract obligatory for the sureties. The first of these two contracts was between the sureties and the respondents and by its first seven

paragraphs guaranteed payment of £50,400 out of the £84,000 advanced to the German company. Para 8 contained a joint and several undertaking by the

sureties as principals and not as guarantors to make the payments stipulated in the earlier contract at the appointed dates in consideration of the assignment on

the occasion of each payment of a like sterling amount of the Swedish company’s claim against the German company. Para 9 contained the proviso that each

payment by the sureties should satisfy pro tanto their liabilities under the guarantees and that they should not be liable to make any of the payments stipulated

in whole or in part in so far as they had been paid by the German company or from any other source. Default in payment of any one instalment was not to

accelerate the date for payment of another and the agreement was to be governed by English law. It contained no provision for any remission in the amount to

be paid by the German company as a result of the prompt payment of the stipulated instalments.

(3) The second of these two contracts of 16 April was made between the appellants and respondents only and provided for the retention in the hands of

trustees of certain goods the property of the English company in order to furnish security for their due fulfilment of the other April contract. The release of the

goods held under it forms part of the claim in this action, but in my view this contract itself is not otherwise material.

(4) The fourth contract is of more importance. It is made between the appellants and the German company only and is, so far as that company is

concerned, a modification of that part of the first contract which stipulated that non-payment at the due date of any one of the instalments by the sureties

should deprive the German company of all future remissions. Under the new arrangement, as I understand it, failure to pay an instalment on the part of the

sureties was no longer to prove fatal to the remission: in future any payment from any source, including a recovery by execution upon the property of the

sureties, was to keep it alive. The time by which these recoveries were 􀂭 49􀀉 to be made is not stipulated. In these circumstances it is said by the appellants

that they are absolved by the outbreak of war from any future performance of their obligation to pay the instalments payable after that date, are entitled to have

the goods held as security for their guarantee released and are freed from their obligation as sureties to pay the sum of £50,400. The actual relief claimed is a

declaration that the April contract can no longer be enforced against the appellants and an order for the release of the security.

Strictly speaking it might be contended that the German company was not a party to either of the April contracts and that neither of them contained any

term which would benefit the German company unless it could be said that the assignment of their debt to the respondents in favour of the appellants portion

by portion as the instalments were paid brought about this result, inasmuch as the respondents might recover it from the German company at the end of the

eight years if it were still due to them, but so long as England and Germany were at war, the appellants could not do so. So also it might be contended that the

sureties were not parties to the fourth contract and therefore, so far as concerned any contract to which they were parties, the right to remission ceased when it

was held (as it was held by the Court of Appeal in Stockholms Enskilda Bank v Schering Ltd) that it was illegal to pay the instalments whilst England and

Germany were at war and when consequently they were not paid at the due dates.

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These suggestions, however, in my opinion, take too narrow a view of the contracts between the parties. Their relationship must, I think, be judged by

the agreements as a whole and indeed the case was so argued before your Lordships. But though the consideration of the problem must be approached in this

way I do not think it proper to neglect the form of the contract between the parties or the development of the arrangements which finally took shape in four

separate sets of provisions, none of which purported to put an end to those which preceded them.

What then are the principles to be considered? It is not true to say as a general proposition that a state of war avoids all contracts even between subjects

and enemies: see per Lord Dunedin in Ertel Bieber v Rio Tinto ([1918] AC 260, at p 269). One such exception at any rate is the case of an executed contract

where all that remains to be done is the payment of money by a subject of this country to an enemy: see Ottoman Bank v Jebara where it is said ([1928] AC

269, at p 276):

‘… it is not every contract that is abrogated by … war; it is only a contract which is still executory and which for its execution requires intercourse

between the English subject and the enemy.’

It was said that the present contract was still executory and necessitated intercourse with the enemy, since the appellants would require to ascertain from the

German company what, if any, payments it had made. I see no reason for such intercourse; the appellants could and would in the normal course ask the

respondents what payments had been received from the enemy or other persons and need not make any enquiries of the enemy and the same considerations are

equally true of the appellants’ obligations as surety. Whether the contract was still executory or not I leave for consideration later on. But executory contracts

with an enemy are not dissolved only where they involve intercourse: they are also dissolved where they may tend to increase the resources of the enemy or

cripple the resources of the King’s subjects: see per Lord Dunedin in Ertel Bieber v Rio Tinto [1918] AC 260, at p 274).

In the contract under consideration there does not appear to be any question of crippling the resources of the King’s subjects, but four questions remain:

(i) is this an executed contract, ie, one which has been wholly performed on one side; (ii) does it bring any substantial advantage to the enemy; (iii) is it one of

the class which, executory or executed, in excepted from those abrogated by war, and in any case (iv) is it wholly abrogated by the existence of a state of war

between Great Britain and Germany.

(i) So far as concerns any obligation to the German company, the respondents have performed their contract in full. They had to provide and they have

provided £84,000 worth of Reichsmarks: all that remained was for the German company to perform its part by paying its debt to whoever was found to be

entitled in 1944. They had, however, still to receive from the appellants or 􀂭 50􀀉 from elsewhere the remainder of the instalments and in return for any

payments by the appellants to give the partial assignments of the German company’s debt. That part of the April contract, therefore, which stipulated for the

payment of £50,400 by instalments was wholly executed on the respondents’ side as between them and the German company, but is still uncompleted as

between the respondents and the appellants to the extent that the rest of the instalments have still to be paid and the rest of the debt to be assigned.

(ii) There is no certainty of benefit to the German company but the contract makes provision for it. By the earlier case between the same parties already

referred to it was held by the Court of Appeal that the payment of any of the instalments was an offence under the Trading with the Enemy Act, 1939, as it

would result in (a) the respondents having financial dealings for the benefit of an enemy within sect. 1(2)(a) of the Act; (b) making a payment for the benefit

of an enemy within sect 1(2)(a)(ii); and (c) discharging an obligation of an enemy within sect 1(2)(a)(iii). The decision was a decision with regard to certain

instalments then due under the provisions of the February and the April agreements and was arrived at by a consideration of the wording of the 1939 Act. It

does not deal with the position at common law now in dispute before your Lordships’ House. As, however, the instalments were not paid at the dates

prescribed the German company would have lost the remission had the original agreement of February not been modified. It was modified by the letter of 17

March 1936, which altered the rights of the German company as to remission of the sum of £33,600, ie, 40 per cent of the original debt. Whereas by the

original agreement failure on the part of the sureties to pay the instalments on the prescribed dates would have prevented to German company from obtaining

any remission after the date of such failure, the result of the March agreement was that the remission would not be forfeited unless the respondents were not

satisfied by payment from third parties or by execution on the sureties’ property or in some other way in full. The agreement is obscurely expressed and

nowhere stipulates a date by which this repayment has to be made but the reference to execution suggests that repayment at the prescribed time or even

immediately after the accruing of the German company’s obligation to pay the whole sum was not required. It was not contended that the right to earn the

remission was lost provided that payment was made at or before the eight years’ intermission, granted by the contracts to the German company, had elapsed,

and having regard to the provision as to “execution” I should myself say that some additional time after that date must be allowed. What additional time is

permissible it is perhaps unnecessary to determine. The result of the change would, therefore, appear to be that the German company was to have the

advantage of this remission if from any source or by any means the respondents were to obtain payment of £50,400 within a reasonable time after April 1944.

In these circumstances the German company was said to derive two benefits from the continued existence of the contract (a) a transfer of the liability of

the German company to repay Enskilda to a liability by that company to repay the English or Indian companies, (b) an undertaking by the English company to

pay at some unspecified time instalments which if made in time, would insure remission, whether the German company paid or not, whereas the German

company might be unable or unwilling to repay in time and so would fail to avoid liability for the larger payment to the respondents or their assigns. If this be

the position, the question to be determined is whether these contracts are abrogated on the ground that they may benefit the enemy if the instalments are duly

paid, though fulfilment of the guarantee may not be open to any objection.

(iii) Admittedly contracts which are wholly performed on one side and certain contracts which are really the concomitants of rights of property are not

abrogated by war and this is true of the latter even though they are still executory on both sides. There is, indeed, no such general proposition as that a state of

war avoids all contracts between subjects and enemies. “Accrued rights are not affected though the right of suing in respect thereof is suspended” are Lord

Dunedin’s words in Ertel Bieber v Rio Tinto ([1918] AC 260, at p 269).

In the present case the respondents had fulfilled all their obligations to the 􀂭 51􀀉 German company: they had handed over Reichsmarks of the nominal

value of £84,000. It is true that they had still to tender to the appellants an assignment of part of the debt in return for the payment of each instalment, and one

view of the transaction is that the suretyship was only one and that an incidental part of the agreement. On this view the substance of the matter was that the

English company had not contracted to repay the loan which the respondents had made to the German company but had agreed to purchase assignments of

parts of the German indebtedness by payments of stipulated sums at stated times.

This view, in my opinion, lays too great stress upon the contract of 16 April to the exclusion of the original agreement of February and the letter of 17

March which modifies its terms. Unless it be conceded, and I see no reason for the concession, that the April contract, by inference, put an end to the February

agreement the abrogation of the former would still leave the latter in force. Indeed it is, I think, impossible to say that the February contract was superseded.

If it were, there would be no provision for remission and no corresponding benefit to the German company. The most that can be said is that it modifies it.

Moreover, though the March letter is, as I have said, obscurely worded, yet it apparently enables the German company to earn the remission by means of a

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payment made by it or by some one on its behalf even up to or possibly beyond the date on which the German company was under contract to repay the loan.

(iv) In these circumstances I think that the arrangement between the parties was not merely or substantially a purchase by the appellants of portions of a

debt in which they were not otherwise interested. Rather I think it was a stipulation for repayment of a sum of money lent to the German company at, as the

April contract states, the request of the appellants and the associated Indian company, on their undertaking to stand surety for its ultimate payment, coupled,

however, with an additional obligation to pay by instalments in consideration of an assignment of portions of the debt. In considering its import one has,

therefore, to remember that the appellants were not merely under contract to pay by instalments but were also, and, as I think, primarily, guarantors of the

debt. Indeed in my view they were bound, so far as the February contract was concerned, only to act as surety though given an option to earn remission of part

of the debt by paying off sixty per cent of it at earlier agreed dates. So regarded, an important element in the matter was repayment, not purchase; the contract

was not simply an agreement to sell and purchase instalments of a debt but to repay the money advanced to the German company. The whole method by

which the negotiation was arranged and the form which it took appears to me to bear out this view.

Originally there was an obligation of suretyship with an option to make advance payments and take assignments of portions of the debt in return. This

was followed by a continuance of the suretyship but with an obligation instead of an option to make payments in advance of the time when the Germans must

repay. This again was modified so that the incentive to prior payment was removed, since the obligation to fulfil the contract of suretyship and the right to

earn remission coincided in time, whereas originally remission was lost if punctual payment of the prescribed instalments was not made. In a conflict of views

as to whether the contract was primarily for payment of a debt or purchase of portions of it, I ask myself what in substance the final bargain was. One thing is

certain: the contract, so far as it was a contract of guarantee, had been fully performed on the part of the respondents and they have nothing more to do than

require the guarantee to be implemented. If the contract as a whole is declared to be abrogated—and by the contract as a whole I mean not only the April

contract of which alone abrogation is claimed, but also the February contract and the March letter as regards which no claim is made—then the guarantee as

well as the contract to pay by instalments is gone. I see no reason for so drastic a step. The fulfilment of the guarantee can give no benefit to the German

company, beyond that existing in every case where there remains no obligation except the payment of a debt due presently or in the future. Such an

obligation, it is conceded, is suspended, not abrogated.

The question of the right of the respondents to claim payment of the instalments 􀂭 52􀀉 is now academic; the time for payment by the German company

has arrived and a claim on the guarantee can be made, unless guarantee and instalments are abrogated together. For the reasons I have given I do not think

they are. There remains only the fact that the neutral might sue at a date when the Englishman being still at war could not do so. I do not think this is enough

to dissolve the contract. If it were then any assignment of an enemy debt to a British national in time of war by a neutral would be invalid, since the result

would prevent any immediate recovery—a consequence which would appear at least unlikely. I agree with Lord Thankerton that there is no ground for

applying the doctrine of frustration. The agreement is, as I think, a very special one and I cannot say that I have found the solution other than difficult.

Nevertheless for the reasons which I have stated, I would dismiss the appeal.

LORD MACMILLAN [read by Lord Porter]. My Lords, Schering Ltd, the plaintiffs and now the appellants in this action, claim that a contract with a

Swedish bank dated 16 April 1936, to which they were a party, ceased to be enforceable against them on the outbreak of war between this country and

Germany on 3 September 1939. They base their claim on the ground that the further performance of the contract would be to the benefit of the King’s

enemies and that it has accordingly at Common Law become illegal and ought to be abrogated.

The law as to the effect of the outbreak of war on subsisting contracts in which an enemy of this country is interested cannot be said to have reached a

high degree of precision. It has to gathered from a series of decisions, each of them concerned with the circumstances of a particular case, in which the

principle involved has been progressively though not always consistently formulated. The root of the matter is that a country at war cannot allow transactions

to proceed which are calculated to aid the enemy in the prosecution of hostilities. A subject of this country must have no truck with the enemy. It is illegal for

him to do anything which may tend to increase the war potential of the enemy in goods, money, credit or information. The growing complexity of

international transactions and the increasingly pervasive character of modern warfare have combined to render more difficult the problems which confront the

common law in this sphere, with the result that the Legislature has found it necessary to come to its aid by statutes relating to trading with the enemy, but with

these statutes the present case has no concern.

I do not propose to narrate in detail the terms of the contract under challenge, for they are sufficiently set out in the judgments of the courts below and in

the opinions of my brethren. I shall confine myself to drawing attention to the features of the transaction which in my view are material. I note in the first

place that although no enemy subject is formally a party to the contract, the plaintiffs are a subsidiary, and entirely under the control of, a German company. It

is only by way of compliment that I shall call them “the English company.” Then I note that it is in consideration of the Swedish bank making an advance of

£84,000 sterling (to be made available in Sperrmarks) to the German company that the English company, in association with another subsidiary of the German

company registered in India, guarantee payment in sterling of the German company’s debt to the Swedish bank to the extent of £50,400. Next I find the

English and the Indian companies jointly and severally undertaking as principals to make a series of fourteen payments to the Swedish bank of varying sums

amounting cumulatively to £50,400 at various dates between 28 October 1937, and 28 April 1944, in consideration of the assignment to the companies by the

Swedish bank, on the occasion of each such payment, of a like sterling amount of the Swedish bank’s claim against the German company. Each payment is to

be a satisfaction pro tanto of the liability of the English and Indian companies under their guarantee and they are not to be liable to make such payment in so

far as the amount in question has been paid by the German company or any other person or company.

The April contract which it is sought to abrogate cannot be considered in isolation. It is part of a transaction which, as the respondents state in their

printed case to this House, was “carried into effect by three agreements,” viz, a previous February contract to which the German company was a party, the

April contract now challenged and a contract by letter of the same date 􀂭 53􀀉 as the April contract between the English company and the Swedish bank. It is

accordingly necessary to a true appreciation of the position, as the respondents say, “to consider the terms of the February contract.” From the February

contract it appears that in respect of the Swedish bank placing at the disposal of the German company Reichsmarks to the amount of the equivalent of £84,000

sterling the German company is to stand indebted to the Swedish bank in a sum of £50,400 free of interest repayable on the expiry of eight years and that the

English and Indian companies are to acquire from the Swedish bank its claims against the German company by a series of instalment payments, being the

same as those repeated in the April contract. If the English and Indian companies do not acquire the claim of the Swedish bank against the German company

by paying the stipulated instalments then the “remission” or reduction of the principal debt of £84,000 to £50,400 is to “lapse rateably.” Thus is the English

and Indian companies pay only the first instalment of £6,300 the German company’s debt to the Swedish company will be £73,500. In point of fact, four

instalments had been paid before the outbreak of war. Thereafter further payments during the war were, in other proceedings, declared illegal under the

Trading with the Enemy Act, 1939. When the transaction is seen in its entirety there can be no question that it was highly beneficial to the German company.

As the managing director of the English company says in a letter to the Indian company—“this is an extremely interesting business for Berlin.”

Now, can the contract of April 1936, forming part as it does of this transaction highly beneficial to the enemy, be allowed to subsist after the outbreak of

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war? Lord Greene MR is in agreement with Simonds J that the further performance of the contract during the war would be illegal at common law, but differs

from him on the question of abrogation, holding that the effect of the outbreak of war has been only to suspend the operation of the contract during hostilities.

Lord Greene MR lays stress on the fact that the April contract is a contract not with an enemy subject but with a neutral and is, therefore, deserving of

specially considerate treatment. To my mind that question turns upon the nature of the transaction, not upon the parties to it. I cannot do better than quote and

adopt the words of Lord Russell of Killowen, then Russell J, in Re Badische Co ([1921] 2 Ch 331, at pp 373, 374):

‘… assume a contract between British subjects, but of such a nature that either its further performance involves intercourse with the enemy or its

continued existence would confer upon the enemy an immediate or future benefit. Does such a contract become void on the ground of illegality upon

the outbreak of war? The illegality being based upon considerations of public policy, I can see no reason why a contract of such a nature should not

become void on the outbreack of war, irrespective of any question whether the parties thereto are enemies or friends. The test should be, in my opinion,

not whether one of the parties to the contract is an enemy, but whether the contract involves intercourse with the enemy or confers an immediate or

future benefit on the enemy.’

I have already pointed out that, although the German company was not formally a party to the April contract, it was a party to the transaction of which that

contract forms a part, but, agreeing with Lord Russell, I think that the question is one not of parties but of substance. Applying his test I ask whether the

contract involves intercourse with the enemy or confers an immediate or future benefit on the enemy. Not much was made by the appellants of the point of

intercourse, although I think that Simonds J was justified in his view that in the execution of the contract communication between the English company and

the German company would in ordinary course inevitably have taken place, especially in view of the fact that the English company is not to be liable to pay

any instalment to the Swedish bank “in so far as the amount in question has been paid by the German company or any other person or company.”

The main point, however, is whether the contract confers an immediate or future benefit on the German company. It plainly does. Every instalment paid

by the English company to the Swedish bank not only discharges pro tanto the liability of the German company to the Swedish bank, substituting a

corresponding liability to the German company’s own subsidiary in England, but also earns for the German company a substantial discount or rebate of their

capital indebtedness to the Swedish bank. Each instalment as it is paid by the 􀂭 54􀀉 English company to the Swedish bank progressively improves the

financial position of the German company by diminishing its liabilities. That being so, I cannot see how the contract can be allowed to stand.

The argument of Lord Greene MR, in his very full discussion of the problem, does not convince me. He agrees with Simonds J that the further

performance of the contract during the war “must benefit the enemy,” yet he says ([1943] 2 All ER 486, at p 497) that:

‘… it cannot be the case the a contract with a neutral is abrogated on the outbreak of war merely because its performance or existence is detrimental

to this country.’

With all respect, I regard as vital in the light of the authorities the fact that the continued performance or the continued existence of a contract after the

outbreak of war is beneficial to the enemy and detrimental to this country; and I do not agree that the possibility of benefit accruing to the enemy is in the

present case vague or speculative. It seems to me very real.

Sir Arnold Macnair, in his learned treatise on the Legal Effects of War (1944), 2nd Edn, to which I express my indebtedness, finds “the clue” to the

decision of the Court of Appeal in the present case in their view that the contract on the outbreak of war was an executed and not an executory contract. He is

probably right. Lord Greene MR says ([1943] 2 All ER 486, at p 491):

‘In the case of an executory contract with an enemy it is not merely performance so long as the state of war persists that is prohibited. The whole

contract is abrogated. The reason for this is that, even if performance were postponed until after the war, the mere existence of the contract during the

war might benefit the enemy by, for example, improving his credit or assisting him in his prosecution of the war by the knowledge that after the war the

contract will remain on foot for his benefit.’

Subject to the observation that this doctrine applies not only to contracts with the enemy but also to contracts between British subjects and neutrals or between

British subjects themselves if they may benefit the enemy, the proposition is clearly well-founded. But Lord Greene MR finds it inapplicable to the present

case inasmuch as in his view the contract was executed and not executory. The Swedish bank had before the war handed over the stipulated marks to the

German company; it had done all that was incumbent upon it; nothing remained for it but that it should receive payment. This, it is said, is an accrued right,

acquired before the outbreak of war, and accrued rights, as Lord Dunedin has pointed out, “are not affected though the right of suing in respect thereof is

suspended.” (Ertel Bieber & Co v Rio Tinto Co ([1918] AC 260, at p 269)).

I cannot agree with this account of the matter. The distinction between an executed and an executory contract is not always easy to draw but I do not

regard the present contract as having ceased to be executory before the outbreak of war. The whole transaction and in particular the consequences of payment

by the English company to the Swedish bank were very special. As each instalment payable by the English company fell due and was paid, assuming that it

had not been paid by the German company or otherwise, the Swedish bank was bound to grant an assignment to the English company of a like sterling amount

of their “claims against the German company.” This has reference to the description in the February contract of the contemplated procedure as a progressive

acquisition by the English and Indian companies of the Swedish bank’s claims against the German company by instalments. As each instalment is paid a pro

tanto discount is to be granted by the Swedish company to the German company on its principal debt of £84,000. It is by no means a simple case of the

Swedish bank having an accrued right to a liquidated sum of money, as to which it had nothing more to do than to collect what was due to it. Suspension may

be appropriate in the case of an accured right. It means that the contract is not affected by the war and only the right to exact performance of the accrued

obligation is in abeyance. Accrued rights are not forfeited at common law because the common law does not confiscate enemy property in this country. But

where as here benefit would accrue to the enemy during the war as a consequence of the further performance of the contract, the contract in my opinion

becomes illegal on grounds of public policy on the outbreak of war, and is abrogated. I am accordingly in favour of allowing the appeal and restoring the

judgment of Simonds J.

􀂭 55􀀉

LORD GODDARD. My Lords, but for the fact that there is a difference of opinion among your Lordships I should content myself with saying that I entirely

agree with the opinion of Lord Thankerton which I have had the advantage of reading. As, however, there is a difference I will very briefly state in my own

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words my reasons for thinking that this appeal should be dismissed. It is unnecessary for me to set out the terms of the various documents which give rise to

this action, as they have been fully dealt with in the opinions of those of your Lordships who have preceded me. In my opinion it is not open to question that

where one party to a contract has fully performed his part and all that remains is that the other party has to pay a sum of money, the contract is executed and

no longer executory. That payment is to be made by instalments is immaterial, nor in my opinion does it make any difference that in the present case the

appellants were entitled to assignments of the respondents’ claim against the German company. A surety who pays the debt is entitled without any assigment

to indemnity from the principal debtor just as he is entitled to have the security, if any, transferred to him by the creditor. So, too, if a payment is made by

one, not as surety, but at the request, express or implied, of another, the former is entitled to recover the amount from the latter on the common count for

money paid for and at his request.

There can be no doubt that in making payments which, as between themselves and the respondents they did as principals, the appellants were acting on

the implied request of the German company, who were all along parties to the main transaction. Indeed, it seems to me that so far as their obligation to pay is

concerned, the April contract added nothing to what had already been undertaken by the appellants under the February contract. I, therefore, regard the

contract between the appellants and respondents as executed, and one which gave rise to a debt incurred when the marks were put at the disposal of the

German company. In the events which happened the debt was, therefore, incurred under a contract made before the war and it was payable in part before and

in part after the outbreak. A series of cases has firmly established that war does not abrogate or discharge a debt incurred before the declaration, though the

obligation to pay and the right to recover are suspended during the war. An early example is Ex parte Boussmaker. A petition was there presented on behalf

of an enemy to prove a debt in bankruptcy. Lord Erskine LC said (13 Ves 71, at p 71):

‘… if the two nations were at peace at the date of the contract, from the time of war taking place the creditor could not sue: but, the contract being

originally good, upon the return of peace the right would survive. It would be contrary to justice, therefore, to confiscate this dividend.’

He allowed the proof, but directed that the dividend should be reserved. In Flindt v Waters a policy of marine insurance had been effected on goods and a loss

incurred before the owners of the goods became enemies. Lord Ellenborough CJ said (15 East 260, at p 266):

‘The insurance, the loss, and cause of action had arisen before the assured had become alien enemies: when therefore they became such, it was only

a temporary suspense of their own right of suit in the courts here, as alien enemies …’

That case was expressly approved by Lord Lindley in Janson v Driefontein Consolidated Mines Ltd. Coming to more recent times, in the Ertel Bieber case,

Lord Dunedin held ([1918] AC 260, at p 289), that accrued rights were not abrogated by war and in Ottoman Bank v Jebara, Lord Dunedin said ([1928] AC

269, at p 276):

‘… it is not every contract that is abrogated by … war; it is only a contract which is still executory and which for its execution requires [I

emphasise that word] intercourse between the English subject and the enemy.’

I take it, therefore, to be well settled that the effect of war upon a debt arising out of a contract made before the war is to suspend the right of action and not to

abrogate or discharge the debt. The present is a true case of debitum in praesenti solvendum in futuro; the cause of action, the debt, is unaffected; the right of

action is postponed until after the war. If this is true of a debt due to an enemy, it must a fortiori be so of one due to a neutral, though I agree that in matters

relating to trading with the enemy there is no room for more tender treatment of the one than the other. There is this difference, that by reason 􀂭 56􀀉 of the

Trading with the Enemy Act, 1939, had the debt been due to an enemy it would have had to be paid to the custodian of enemy property, while in the case of a

neutral the money will remain with the debtor to be paid by him to the neutral at the end of the war. In passing one may observe that the fact that this Act

makes debts payable to the custodian shows that the Legislature recognised that they were not abrogated, for there is nothing in the Act to revive debts or

obligations which had become abrogated by operation of law.

But it is said, that there is here an overriding consideration, namely, that the payment will preserve the remission of 40 per cent for the benefit of the

German debtor. It is beyond question that if the result of performance of a contract would be beneficial to the enemy or detrimental to this country the further

performance is forbidden and the contract abrogated, though again rights, such as debts, accured before the war are unaffected. This is illustrated by the order

in the Ertel Bieber case made by the Court of Appeal and affirmed in this House and which your Lordships have seen in the printed book. Now one of the

reasons why a suspensory clause to operate in the event of war in a contract for the sale of goods to an enemy will not save the performance of the contract

from abrogation as illegal is that to ensure to an enemy a supply of goods or raw material after the war is or may be to enhance his resources during the war. If

this consideration were taken to its full logical extent it might be said to apply to debts, as it would certainly be of some benefit to an enemy to have an English

debt remaining due to him even though it is not payable until the end of the war. He might be able to raise money from neutrals upon an assignment of his

rights which could be enforced at the conclusion of the war. But this doctrine never has been applied to debts arising out of previous contracts, and I am not

prepared now for the first time to apply it and to hold that accrued causes of action are destroyed and not suspended because otherwise an enemy might obtain

a discount or some other benefit by reason of the continued existence of the obligation. The matter cannot, I agree, be tested by considering whether a benefit

must or only may result, and I do not, therefore, discuss the true meaning of cl 4 of the February contract as amended by the March letter, which is certainly

somewhat obscure. It may be that by the application of German law which governs the contract between the German company and the respondents the former

has lost the benefit of the discount as the instalments have not been paid; but the matter must be determined on the rights of the parties as they existed on 3

September 1939, and I base my opinion on the grounds which I have already stated. It was also submitted that the contract was still executory because of the

provision for the assignment by the respondents to the appellants of their rights against the German company. I regard this as no more than a provision as to

the method of payment and perhaps as some additional precaution, and, as I have already said, whether the appellants paid as sureties or as principals, in either

case they would without any assignment be entitled to reimbursement, though in this particular case the right to reimbursement could not be enforced until the

expiration of eight years from the date of the agreement. I do not agree with the opinion expressed by the Court of Appeal in the former action brought by the

respondents, that their true remedy was by an action for specific performance. I think they could, but for the war, have sued at law, alleging either that they

had made tender of an assignment or that they were always ready and willing to execute one on payment. I would dismiss the appeal.

Appeal dismissed with costs.

Solicitors: Kenneth Brown, Baker, Baker (for the appellants); Slaughter & May (for the respondents).

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C StJ Nicholson Esq Barrister.

􀂭 57􀀉

[1946] 1 All ER 58