When Two Courts Say “Don’t Pay” and “Pay”: Ralli Brothers, Foreign Injunctions and Arbitration
There are few things more interesting in international dispute resolution than a demand guarantee, a foreign injunction and two courts pulling in opposite directions.
A recent decision of the English Commercial Court has produced a particularly good example.
In Central Térmica de Temane SA v Banco Santander SA [2026] EWHC 2587 (Comm), Santander had issued two autonomous demand bonds governed by English law, with exclusive jurisdiction conferred on the English courts.
The beneficiary, a Mozambican company, made valid demands. Payment was due within five business days. There was, however, a complication.
A Spanish court had meanwhile ordered Santander not to pay, following an application by the contractor in the underlying EPC dispute. That dispute was subject to an arbitration seated in London. Santander argued that the Spanish injunction triggered the Ralli Brothers principle: English courts should not enforce a contractual obligation where performance would be unlawful in the place of performance.
Calver J rejected the defence. The crucial point was contractual. The bonds required payment into the bank account specified by the beneficiary in Mozambique. The demands happened to be delivered in Spain, but delivery of the demand was not the contractual performance in question. Payment was.
There is, however, an even more intriguing passage. The judge went on, obiter, to consider whether Ralli Brothers could apply where the foreign illegality arose from a court order, rather than legislation or regulation. He concluded that it could, and said that Litasco was “clearly wrong” insofar as it suggested otherwise.
That observation sits at the intersection of international comity, party autonomy, foreign court orders and arbitral proceedings. And it raises a practical question: what happens when the court chosen by the parties to govern a payment obligation is asked to give effect to that obligation, while another court has ordered the obligor not to perform it?
International arbitration lawyers should have this case on their reading list.