High Court finds terms of English law Facility Agreement allowed borrower to withhold interest payments given risk of US “secondary” sanctions

In a recent decision, the High Court has found that the terms of a Facility Agreement governed by English law allowed the borrower to withhold payment of interest instalments where there was a risk of secondary sanctions being imposed on the borrower under US law, notwithstanding that the Facility Agreement had no connection with the US: Lamesa Investments Limited v Cynergy Bank Limited [2019] EWHC 1877 (Comm).

At first sight the decision is surprising because English law does not generally excuse contractual performance by reference to a foreign law unless it is the law of the contract or the place of performance (and these exceptions did not apply here). However, the court noted that parties can contract out of this general rule, which is precisely what happened in this case. The relevant clause of the Facility Agreement permitted the borrower to withhold payment of interest instalments “in order to comply with any mandatory provision of law, regulation or order of any court of competent jurisdiction”.

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SANCTIONS CLAUSES IN A CHANGING SANCTIONS REGIME

How far can a sanctions clause protect a party from having to perform their contractual obligations – and in the case of Iran-related sanctions concerns, how does this interact with the Blocking Regulation? In Mamancochet Mining Limited v Aegis Managing Agency Limited and Others[2018] EWHC 2643, the High Court held that, in order to avoid payment of a claim, insurers were required to show that payment would expose them to sanctions under US or EU law. A mere exposure to the risk of a sanction was not sufficient.

In this post, our Insurance Disputes team consider the implications of the decision. Continue reading