11/12/2009 - Commercial Court Judgment on Conflict of Laws with respect to Cheques

Karafarin Bank v. Dara [2009] EWHC 3265

On 10 December 2009, Mr. Justice Blair gave judgment in favour of Karafarin Bank ("the Bank") for the sum of US$5,548,373 representing the equivalent in Iranian Rials of the principal amount of thirteen cheques together with damages for late payment.  The Bank's claim arose from thirteen cheques which were signed by the defendant, but not dated, and provided to the Bank in Iran to secure credit facilities provided to an Iranian company called Black Pearl.  After Black Pearl failed to meet the Bank's demand for payment of the outstanding credit facilities, the Bank inserted the date of presentation on each cheque and presented it for payment.  After the cheques were dishonoured for non-payment and notice of dishonour was given, the Bank commenced proceedings in the Commercial Court to enforce the cheques against the defendant.

In the reserved judgment at the end of the trial, Blair J held that section 72 of the Bills of Exchange Act 1882 (which sets out rules governing the position where laws conflict in relation to cheques) did not apply and that the proper law of the cheques was Iranian law.  After hearing oral expert evidence on Iranian law, Blair J rejected the seven defences under Iranian law advanced by the defendant.  A further question arose as to whether the English Court can award damages for late payment in the case of dishonour of a cheque other than interest (the recovery of which was precluded under Iranian law) under section 57 of the Bills of Exchnage Act 1882.  Blair J held that section 57 fixes the measure of damages for the dishonour of a bill in the domestic law of the UK, but it does not contain a rule of the conflict of laws, and that the measure of damages recoverable under a bill or note was a matter of substantive law governed by the law applicable to the relevant party's contract.  As the cheques were issued by the defendant as drawer in Iran and payable in Iran, Blair J found it unecessary to decide whether whether Iranian law applies as the law of the place of issue (preferred by Chalmers and Guest on Bills of Exchange) or as the law of the place of payment (preferred by Dicey, Morris and Collins, The Conflict of Laws) because it made no difference on the facts.