CL-2022-000249 - [2025] EWHC 1156 (Comm)

So far as the law relating to the effect of sanctions is concerned, it was common ground that Bryan J. could make the Interim Payment Order without itself breaching sanctions. In this regard:

The Defendant sought to go further and submitted that the reasoning of the Court of Appeal at paragraph 215 of their judgment in Mints supported the proposition that a court should vary an order requiring payment by a designated person if that person were unable to pay the order due to the absence of a licence. I do not accept that proposition. The question discussed by the Court of Appeal at paragraph 215 was whether OFSI could grant licences to enable payment of an adverse costs order. It is correct that part of the Court’s reasoning for holding that OFSI could grant such licences was because otherwise the designated person risked their claim being stayed for non-payment of adverse interlocutory costs orders through no fault of their own. That is, however, a different question to whether it is appropriate for a court to vary the payment terms of an order because no licence has been obtained by the date on which payment is required. The fact that the Defendant has been unable to obtain a licence is simply one of the facts that the court is entitled to take into account when deciding whether in all the circumstances it is appropriate to vary a payment order. It does not require the court, however, to order a variation.

The Defendant also relied on the recent decisions in Re VTB Capital Plc [2022] EWHC 1106 (Ch), [2022] BCC 1049 and Re KRF Services (UK) Ltd [2024] EWHC 2978 (Ch) as supporting the proposition that the Court will not make an order where performance of that order involves the party being in breach of UK and US sanctions.

Both Re VTB Capital Plc and Re KRF Services (UK) Ltd provide only limited assistance in relation to the present application. Both cases are dealing with a different issue to the one before me, namely the appointment of administrators to run a company in circumstances where it was clear that the administrators would require licences from the relevant national authorities to exercise their powers. In Re VTB Capital Plc, the Court made the order in the form it did at the request of the applicant. Fancourt J. was not required to consider whether it was in fact appropriate to make an immediate order. In Re KRF Services (UK) Ltd, the Deputy Judge did consider whether it was appropriate to make an immediate order or whether to make a suspended order and held that the appropriate form of order depended on the circumstances before the Court. Neither case considers the question of whether more generally the Court should not make an order, performance of which might require a party to take steps in breach of either UK or US sanctions legislation.

Of more relevance is the recent decision of Sir Nigel Teare sitting as a Judge of the High Court in O v C [2024] EWHC 2838 (Comm). In that case, the underlying dispute concerned the termination of a charterparty in circumstances where the respondent charterers had been listed as a designated entity by OFAC and the applicant owners brought the charterparty to an end and refused to discharge the cargo. The underlying dispute was subject to arbitration but the owners sought an order from the court for the sale of the cargo and payment of the proceeds of sale into a blocked account with a US financial institution. OFAC had issued a licence which permitted this to happen without breach of sanctions. The charterers did not oppose the making of the order save that they submitted that the proceeds of sale should be paid into court. The owners opposed paying the proceeds of sale into court because to do so, they said, would risk breaching sanctions.

The Judge accepted that, on the evidence before it, there was at least a risk that payment of the proceeds of sale into court would be a breach of US sanctions legislation. Nevertheless, having found that there were good reasons to order sale of the cargo, the court ordered payment of the proceeds of sale into court. The Judge accepted that in circumstances where there was a risk that payment into court may be a breach of US sanctions, the court will not lightly make an order that the proceeds of sale be paid into court. However, the Judge found that it is relevant to consider whether there is a real risk (as opposed to a fanciful risk) of prosecution. On the facts, the Judge held (at [33]) that it was much more likely than not that there would be no criminal prosecution. However, he went on to hold (at [35]) that if he were wrong about this, then the risk of prosecution by the US authorities, though real, was still very low. The Judge balanced that risk against the fact that the order sought was in support of a London arbitration. If the proceeds were paid into court, it was simple for the Court to give effect to the decision of the arbitral tribunal. If the proceeds were paid into a blocked account of a US financial institution, it would be necessary for an application for payment to be made to OFAC which might take a different view of the reach of US sanctions than the arbitral tribunal and, if an order for payment were made in favour of the charterers, refuse to allow payment to them of the funds. Accordingly, balancing the competing risks, the Judge held that the proceeds should be paid into court.

Considering all of the authorities discussed above, the risk that the Interim Payment Order might require the Defendant to make a payment to the Claimants in breach of either UK or US sanctions is a factor which I should take into account when deciding whether it is appropriate to vary the terms of that order as requested by the Defendant. But it is only one factor to take into account. The risk does not require me to vary the Interim Payment Order nor does it have any priority over the other factors which I have to take into account.