High Court says US secondary sanctions are a “mandatory provision of law”

13/09/19

On 12 September 2019 the High Court (HHJ Pelling QC) gave judgment in a Part 8 claim brought by a Cypriot lender (Lamesa) against an English borrower (Cynergy) concerning the construction of a of a Facility Agreement that provided that the borrower would not be in default if it refused to make repayments “in order to comply with any mandatory provision of law”.

The ultimate beneficial owner of Lamesa has been placed on the USA’s Russia sanctions list of “specially designated nationals”, making it a ‘blocked entity’ under US sanctions law.  US “secondary sanctions” provide that the US President will impose sanctions on non-US persons that “facilitate a significant transaction” with a blocked entity.

Cynergy argued that those US secondary sanctions constituted a ‘mandatory provision of law’ within the meaning of the Facility Agreement and that in refusing to make payment to Lamesa it was acting in order to comply with those sanctions. Lamesa disputed this construction, including because (as was common ground) there was no US nexus between the parties or the transaction and US secondary sanctions have no legal effect in England (from where Cynergy was to be make payment in Sterling) such as to require ‘compliance’.  

HHJ Pelling agreed with Cynergy’s interpretation and held that the parties had intended to include US secondary sanctions as mandatory provisions within the meaning of the Facility Agreement. He relied in part on the meaning of mandatory provisions within the Rome I Regulation and held that the US provisions were ones from which the parties could not derogate.

The judgment is here.