Judgment has been handed down in the first case in the English courts to deal with the impact of President Trump’s reimposition of US sanctions against Iran following the US’s withdrawal from the Joint Comprehensive Plan of Action (JPCOA). In this article, Marc Jones and Elaina Bailes consider several points of interest arising from the judgment in Mamancochet Mining Ltd v Aegis Managing Agency Ltd & Others [2018] EWHC 2643 (Comm).

For background information about the current US Iran Sanctions regime, see our earlier articles US Iran Sanctions – EU Commission publishes welcome guidance on private law damages claims and US Iran Sanctions and the EU Blocking Regulation – private law claims for damages.

The dispute centred on whether the defendant underwriters could resist paying out on an indemnity under a marine cargo insurance policy following the loss of cargoes shipped to Iran in 2012. A standard-wording London market sanctions clause in the insurance policy provided that they would not have to pay out if such a payment “would expose that (re)insurer to any sanction, prohibition or restriction” under UN, EU, UK or US sanctions.

The decision deals with a number of points of interest to any commercial party exposed to US Iran Sanctions:

Timing

  • The case was brought on an expedited basis as some defendants (owned or controlled by a US parent) argued that payment could not be lawfully made after 4 November 2018, the end of the wind-down period for the second wave of new US Iran Sanctions. This shows the willingness of the English courts to swiftly resolve disputes for commercial parties against the fast-changing sanctions landscape.

Sanctions clauses

  • The court found that that the phrase “would expose that (re)insurer to any sanction” only applied to payments that would constitute an actual breach of EU or US sanctions, to be determined by the court on the balance of probabilities. It did not cover the situation where a payment merely gave rise to the “risk that the agency in question might conclude that there was prohibited conduct (when in law there was not or may not be) and so impose sanctions”.
  • The court also held that the clause operated to suspend, and not extinguish, the defendants’ liability. As a result, although payment was prohibited from 2012 to 2016, once the relevant US and EU sanctions were lifted pursuant to the JCPOA in early 2016 the claimant was entitled to enforce its right to receive payment.

Wind-down period

  • Determining an issue of US law, the judge found that the wind-down period (which ends on 4 November 2018) implemented by section 560.537 of the Iranian Transactions and Sanctions Regulations applies not only to transactions entered into pursuant to the relaxation of sanctions brought about by the JCPOA and under General License H, but also to transactions entered into prior to that (ie pre-16 January 2016). As such, the judge found that payment by the defendants under the policy up to 11.59pm on 4 November 2018 is lawful under the US sanctions regime.

EU Blocking Regulation

  • Having determined that the sanctions clause did not bite and the defendants were liable to pay, the court did not need to decide on the issue of whether the defendants’ reliance on the sanctions clause would breach Article 5 of the EU Blocking Regulation. The judge noted that he saw “considerable force” in the defendants’ argument that if the sanctions clause suspended the claim to pay, then the Blocking Regulation was not engaged because there was no “act” of compliance with US sanctions by the defendants: the contract simply operates according to its terms. The claimant contended that:
    1. reliance on the clause would constitute “compliance“ with US Iran Sanctions and therefore breach English criminal law;
    2. that US sanctions are unlawful under EU law and the sanctions clause only covers exposure to lawful sanctions; and
    3. that enforcement of the sanctions clause would be illegal and/or contrary to public policy.

Unfortunately, the judge did not deal with any of these important points, which go to the heart of the operation (and potential circumvention) of the Blocking Regulation. It remains to be seen whether future cases in the English courts or in other EU Member States will adopt this thinking or take the view that commercial parties cannot use sanctions clauses, in effect, to avoid compliance with the Blocking Regulation.

The full judgment can be found here – Mamancochet Mining Ltd v Aegis Managing Agency Ltd & Others [2018] EWHC 2643 (Comm)