[2025] EWHC 2036 (Comm)

Fecha: 31-Jul-2025

The Defendant’s submissions on sub-clause (C) of the EPS Sanctions Clause

The Defendant’s submissions on sub-clause (C) of the EPS Sanctions Clause

53.

The Claimant’s case must focus on sub-clause (C) because that is the clause that permits the Claimant to act on the basis of a reasonable judgment, rather than actual proof that a state of affairs existed.

54.

Mr Shirley submitted that some degree of certainty is required. The Claimant’s reasonable judgment must be that the performance required by the Defendant is prohibited or will expose one or more of the listed parties to sanctions, not that performance may be prohibited, or that there may be an exposure to sanctions.

55.

On its true construction, sub-clause (C) therefore required the Claimant to determine that the performance required by the Defendant:

(1)

was prohibited by sanctions; or

(2)

would mean that any of the listed parties would be in breach of sanctions (and therefore exposed to them); and

(3)

to do so reasonably.

56.

The Claimant’s submissions glossed over the certainty inherent in sub-clause (C). It argued that the parties used the word expose in the sense of “exposure to a risk or danger” and that the various parties would have been exposed to sanctions even if performance was not prohibited by sanctions and would not have put any of the listed parties in breach of sanctions, provided that performance would have given rise to a “risk of contravening” or “being found by the relevant authorities to have contravened” sanctions. However, Mr Shirley submitted that reading was simply wrong on the wording of sub-clause (C). He relied upon the pointed choice of the words “is” and “will” rather than “may” and said that it wasis inconsistent with a construction of sub-clause (C) that requires something less than an anticipated actual breach of sanctions. Contrary to the Claimant’s analysis, the words “such risk” do not appear to be intended to add anything material.

57.

Mr Shirley sought to interpret the words “SUCH RISK” as follows:

(1)

words such as these which refer back to a thing that has already been defined cannot be construed so as radically to expand the natural definition of the preceding words; instead, they simply contain a loose and non-technical reference back to the conditions already defined (“is prohibited”, “will expose”), in the manner of a reference to “war risks” or “political risk”;

(2)

they are “such” risks, i.e. the risk that the Claimant will reasonably judge that performance “is prohibited”, or “will expose” to sanctions;

(3)

a war risks clause is perfectly properly so called, even if the conditions of its operation require a judgment that piracy or conflict etc actually exist (or even that they will exist in future) rather than merely a judgment that there is a risk that they exist (or will exist);

(4)

in the sanctions context, “such risk” may simply recognise, as in Mamancochet Mining v. Aegis Managing Agency [2018] EWHC 2643 (Comm); [2018] 2 Lloyd’s Rep 441, that an actual breach of sanctions only ever gives rise to a risk of prosecution or penalty. In Mamancochet, Teare J decided that payment of an insurance claim would only expose an insurer to a sanction if payment of the claim was actually prohibited by a relevant sanctions regime. In reaching that conclusion at [47], the judge expressly rejected a submission (recorded at [42]) that exposure required less than proof of prohibition. Mr Shirley, however, accepted that Mamancochet concerned an ex post facto decision;

(5)

they are not words that can transform an “is” into a “may be” or a “will” into a “may”.

58.

Mr Shirley sought to interpret the words “WILL EXPOSE” as follows:

(1)

the fact that sub-clause (C) contains both the “is prohibited” limb and the “will expose” limb, does not mean that the latter is wider than the former: the “is prohibited” limb concerns the activity ordered, while “will expose” focuseson various parties who might be involved;

(2)

that difference of focus, rather than any difference in leniency of test, appears to be the essential difference between the limbs;

(3)

it might be that an activity cannot be said to be prohibited by sanctions, but it might be that one or more of the listed entities would nevertheless commit a breach of sanctions if the activity is carried out: the clause is intended to apply to a variety of different regimes, and not all possible fact patterns can be predicted;

(4)

even if there is overlap between the limbs, it is perfectly acceptable to say that sub-clause (C) simply approaches the issue of sanctions from two different directions, without there being any difference between them that is important in the present case;

(5)

In The Triton Lark case, the words used in relation to “WAR RISKS” and “ACTS OF PIRACY” were “MAY BE EXPOSED”. This is in contrast to the words “WILL EXPOSE” here ;

(6)

any doubt about the meaning of the words “will expose” should be resolved against the Claimant.

59.

The Claimant’s case on the interpretation of sub-clause (C) puts an unacceptable gloss on the plain words and permits a refusal to perform where there would only arguably be a contravention of sanctions. The Claimant’s interpretation, which extends sub-clause (C) to the risk of contravention, begs the question how serious the perceived risk must be.