In IDBI Bank Ltd v Axcel Sunshine Ltd & Anor [2025] EWHC 442 (Comm) claimant is an Indian bank which, at the relevant times, operated outside India via a branch in the Dubai International Financial Centre – DIFC. Defendants are a company incorporated and registered in the British Virgin Islands, and a company incorporated and registered in India.
Second defendant argues ia that a relevant letter of comfort must not be enforced seeing as its performance would contravene Indian law.
Persey J discussed among others therefore whether an English court should disregard a letter of comfort due to A3(3) or A9(3) of the assimilated Rome I Regulation. These are the Articles which in the case of Article 3(3) give priority to domestic law in a ‘purely domestic’ contract subject to a third country law:
Where all other elements relevant to the situation at the time of the choice are located in a country other than the country whose law has been chosen, the choice of the parties shall not prejudice the application of provisions of the law of that other country which cannot be derogated from by agreement.
and in the case of Article 9(3):
Effect may be given to the overriding mandatory provisions of the law of the country where the obligations arising out of the contract have to be or have been performed, in so far as those overriding mandatory provisions render the performance of the contract unlawful. In considering whether to give effect to those provisions, regard shall be had to their nature and purpose and to the consequences of their application or non-application.
In the case of Article 3(3), domestic law trumping lex voluntaris is mandatory, while in the case of Article 9(3), the override is optional, at the discretion of the court.
As for Article 3(3), the judge refers in particular to Banco Santander Totta. It was there held that for Art 3(3) to apply, all elements of a claim needed to be within the other country. [105]
In the present case there are elements with connections to the BVI and Dubai, such that Art 3(3) does not apply. Thus, for example, the CFA was entered into by the Bank’s Dubai branch office, the LoC was addressed to the Bank’s Dubai branch office, Axcel was incorporated in the British Virgin Islands, Axcel was required to repay its loan to an account in Dubai, and the facilities under the CFA were used by Siva to repay the debt owed by WinWind (a Finnish company), and thereby to discharge the WinWind Guarantee and Facility (both contracts being governed by English law). The same discharge was used by Siva to obtain the discontinuance of the WinWind Proceedings (before the English court).
([106] the judge doubts very much whether the contended effect of Indian regulation is what defendant purports it to be).
As for A9(3), [108]
I am satisfied that Article 9(3) also does not apply in this case. It is only applicable where the obligations ‘have to be‘ performed in a country where performance would be unlawful. As I have already observed above, performance under clause 3 ought to have taken place in Dubai, not India. Had performance been required to take place in India, the FEMA Regulations are not regarded by India as crucial to safeguarding its public interests. [the judge refers here to expert evidence]
Moreover, obiter [109] even had Article 9(3) applied, the judge would have used his discretion not to grant priority to the Indian rules:
In circumstances where the Indian Courts would enforce the guarantee and/or a judgment of this Court, I am satisfied that there is no basis for giving Siva relief under Art 9(3).
This judgment is a good illustration of what Articles 3(3) and 9 might lead to – although not on the facts of the case.
Geert.
Handbook of EU Private International LAw, 4th ed. 2024, 3.73 ff.
