CL-2022-000456 - [2025] EWHC 1938 (Comm)

I have set out my reasoning process in Section XLV above in elementary steps, in order to show that the conclusion that the Banks were prevented from paying is one that, at first sight, seems straightforward, given both the terms of Article 2 and the purpose of Regulation 269. I now have to consider the decision of the Court of Appeal in Libyan Investment Authority v Maud [2016] EWCA Civ 788.

That case concerned sanctions against Libya, which affected the Libyan Investment Authority (“LIA”). These sanctions had their origin in UN Resolution 1970 (2011), which imposed sanctions on Libya, which included a freeze on assets belonging to the various persons and entities. The LIA was designated with effect from 11 April 2011.

The UN resolution was implemented in the EU by Regulation (EU) No. 204/2011 (“Regulation 204/2011”). Article 1 of that regulation had definitions of “funds” and “freezing of funds” which were materially identical to Article 1 of Regulation 269; and its Article 5 was materially identical to Article 2 of Regulation 269.

Furthermore, Article 9 of that Regulation was materially identical to Article 7 of Regulation 269, in that it provided that Article 5(2) (i.e., the equivalent of Article 2(2)) did not apply to payments into frozen accounts, in certain circumstances.

Regulation 204/2011 was made part of UK domestic law by the Libya (Asset-Freezing) Regulations 2011 (the “domestic regulations”).

Mr Maud provided the LIA with a guarantee in respect of a loan made by the LIA to a third party. The guarantee fell within the definition of “funds” in Article 1 of Regulation 204/2011. The third party defaulted, and the LIA made a compliant demand under the guarantee.

On 16 September 2011, following the fall of Colonel Gadaffi and the establishment of the National Transitional Council of Libya, the UN Security Council wanted assets frozen pursuant to Resolution 1970 (2011) to be made available to and for the benefit of the people of Libya. By UN Resolution 2009 (2011), funds outside Libya that were already frozen continued to be frozen, but the prohibition on making new assets in the form of funds, financial assets or economic resources available to the LIA was lifted, as was the freeze on any newly acquired assets.

The EU gave effect to this by removing the LIA from the list annexed to Regulation 204/2011, but adding a new provision at Article 5(4):

“4.

All funds and economic resources belonging to, or owned, held or controlled by the following on 16th September 2011:

(a)

Libyan Investment Authority

… and located outside Libya on that date shall remain frozen.”

The UK domestic regulations were amended so as to reflect this.

The LIA’s case was that the guarantee was not frozen so as to prevent payment; and that such payment would give rise to funds that had not belonged to or been owned, held or controlled by it before 16 September 2011 and so were not frozen.

The leading judgment was given by Moore-Bick LJ, with whom the others agreed. I find it necessary to quote his judgment at some length, at [15]-[21]:

“The effect of Article 5 of Regulation (EU) No. 204/211

15.

Mr. Swift Q.C. submitted that the key to a proper understanding of Regulation (EU) No. 204/2011, as amended by Regulation (EU) No. 965/2011, lay in the Security Council Resolutions to which they were intended to give effect. He submitted that paragraph 17 of Resolution 1970 (2011) dealt separately with assets of two kinds: funds and economic resources owned or controlled by Libyan persons and entities and funds and economic resources that might be made available to such persons or entities. That distinction was reflected in article 5 of the Regulations as originally adopted, which drew a distinction between the freezing of funds and economic resources belonging to the LIA in article 5(1) and the prohibition in article 5(2) on making funds or economic resources available to it. The freezing of assets was, however, subject to the provisions of paragraph 20 of the resolution, which permitted payments into frozen accounts of sums due in respect of obligations that had arisen before the date on which the accounts became frozen, provided that they remained frozen in accordance with the resolution. That provision, he submitted, was reflected in article 9 of the Regulations and its effect was to allow Mr. Maud to make payment under the guarantee, provided the money was paid into a frozen account. The relaxation of the sanctions in relation to the LIA in September 2011 limited their effect to maintaining the freeze only on those assets which it owned outside Libya at the date of the resolution, but even those remained frozen subject to the provisions of paragraph 20. In Mr. Swift's submission, following its amendment by Regulation (EU) No. 965/2011, Regulation (EU) No. 204/2011 as a whole was to be construed in a way that gave effect to the Security Council resolutions.

16.

Mr. Maclean Q.C. submitted that the language of article 5(4) was clear: all funds belonging to the LIA on 16th September 2011 and located outside Libya on that date were to remain frozen. For this purpose, by virtue of article 1(a) "funds" included the guarantee given by Mr. Maud and by virtue of article 1(b) "frozen" meant that any form of dealing with the guarantee which would enable the funds to be used was prohibited. Payment of the guarantee was a form of dealing with it and was the most obvious way of enabling the funds to be used. Article 9 of the Regulation could be disregarded; it no longer had any effect as far as the LIA was concerned, because the LIA was no longer subject to the provisions of articles 5(1) or 5(2).

17.

I think there is little doubt that the successive EU Regulations were intended to reflect and give effect to the Security Council resolutions rather than to establish a parallel but independent regime of a potentially more extensive nature. That appears clearly from the recitals to the Regulations themselves. Accordingly, I think they must be construed as far as possible compatibly with the Security Council resolutions. The purpose behind those resolutions is clear from their terms: Resolution 1970/2011 was intended to freeze economic assets owned by certain Libyan persons and entities and to prevent new economic assets from being made available to them. But even that all-embracing regime was subject to certain exceptions, the most important of which for present purposes was that contained in paragraph 20, which permitted the payment of frozen debts into frozen bank accounts, thus substituting one form of frozen asset for another. The relaxation of sanctions following the overthrow of Colonel Gaddafi's regime was intended to allow the LIA to deal with assets outside Libya acquired after 16th September 2011 and to allow it to obtain new assets free of sanctions. It would have been very surprising if the Security Council had intended at the same time to tighten the sanctions insofar as they applied to assets which remained frozen, and the terms of Resolution 2009 (2011) make it clear that it did not. In my view Regulation (EU) No. 204/2011 as amended must be construed with that in mind.

18.

I can see the force of Mr. Maclean's argument that paying a debt involves dealing with the chose in action in a way that enables the funds it represents to be used, but in my view the Regulations must be read and understood as a coherent whole against the background of the Security Council Resolutions. The extensive definition of "funds" and the expression "freezing of funds" in article 1 makes it easy to elide the difference between the asset and the funds into which it can be turned. Mr. Swift submitted that, under the Regulation in its original form, enabling the LIA to deal with the guarantee, for example, by way of assignment, would have contravened article 5(1), whereas paying the debt due under it would have involved making funds available to the LIA, contrary to article 5(2). I think that that is right. Article 1(a) is concerned with dealing with the asset itself, in this case the guarantee, which could be discounted or used as security in order to obtain new funds. Paying the debt is not dealing with the instrument itself in any real sense; it is simply performing the obligation to which it gives rise. That can be seen as providing funds which are otherwise not available to the recipient.

19.

This approach to the construction of article 1(a) may appear rather technical, but paragraph 20 of Resolution 1970 (2011) and article 9(1)(b) of the Regulation in my view point clearly to that conclusion. The two limbs of paragraph 17 are reflected in articles 5(1) and 5(2) of Regulation (EU) No. 204/2011, but article 9, which reflects paragraph 20, states in terms that it provides an exception to article 5(2), not article 5(1). It follows, therefore, that the payment of debts arising under obligations which came into existence before sanctions were imposed is to be regarded as falling within article 5(2) and thus as making new funds available rather than dealing with existing assets. That in turn strongly suggests that debts arising under frozen assets continue to be recoverable, although they no longer need to be paid into frozen accounts, and that the correct understanding of article 5(4) is that the payment of debts due under obligations such as the guarantee in this case does not involve dealing with the obligation but represents the provision of new or additional funds.

20.

That interpretation of the Regulation is reinforced by two further considerations. First, it is apparent from the recitals to Resolution 2009 (2011) that the Security Council intended to relax the sanctions regime to enable the Libyan people to have the benefit of most of the assets to which it had previously related. It is not surprising, therefore, that the funds frozen at the date of that resolution should remain frozen, and thus incapable of being alienated, but that LIA should be allowed to obtain payment of sums due under them without restriction. Second, the argument put forward on behalf of Mr. Maud proves too much, since, if it were correct, it would make it impossible for any payments to be recovered under paragraph 20 of Resolution 1970 (2011) and article 9(1)(b) of Regulation (EU) No. 204/2011 by any party which remained subject to article 5(2). That can hardly have been the intention of the Security Council or the EU Council of Ministers.

21.

The judge thought that the expressions "funds" and "economic resources" had to be given the same meaning wherever they appeared in articles 5(1), 5(2) and 5(4). With that I respectfully agree. However, she also considered that payment under the guarantee would amount to an alteration which would result in a change of character that would enable it to be used. There, with respect, I think she went wrong, confusing "funds" in the sense of the guarantee with "funds" in the sense of the proceeds of payment. She appears to have thought that the limited scope of article 9(1)(b) was to be explained by an error on the part of the draftsman in failing to state expressly that article 9 as a whole provided an exception to article 5(1) as well as article 5(2), but for the reasons I have given I do not think that can be correct.”

Thus, the Court of Appeal concluded that paying under the guarantee did not involve an “alteration” of the guarantee or any other activity within Article 5(1) (equivalent to Article 2(1) of Regulation 269). It involved only Article 5(2) (equivalent to Article 2(2) of Regulation 269), and so could be made subject to Article 9 (equivalent to Article 7 of Regulation 269).

Mr Handyside KC submitted that Libya Investment Authority v Maud was distinguishable, because the EU Regulation in that case fell to be considered against the background of UN Resolution 1970 (2011), whereas there is no such UN Resolution in this case. I do not regard this difference as significant. It is certainly striking that Moore-Bick LJ drew as much as he did from that UN Resolution, but what it revealed about the purpose of the EU Regulation was not really anything that cannot be said about Regulation 269.

A more significant difference, albeit not one that readily justifies distinguishing the judgment, is the change that occurred after the fall of Colonel Gaddafi and desire to make assets that would otherwise have been frozen available to the Libyan people. This is reflected in the judgment at [17] and [20].

If this were a case under Regulation 204/2011 and the UK domestic regulations, I would naturally be bound by Libya Investment Authority v Maud. If it were a case involving a different sanctions regime, considered as a matter of UK domestic law, where materially identical provisions fell to be applied in an English law context, I again would consider myself bound. In such a case, I would make no observations regarding the Court of Appeal’s judgment. It would be impertinent and inappropriate to do so.

However, in the present case I am concerned with Regulation 269 as it applies as part of the law of various foreign countries – in particular, France and Italy. I have to do so in accordance with the approach that I identified in Section XXIX above – i.e., I must seek to predict what the highest court in any relevant foreign jurisdiction would decide. I do not know how likely it is that Libya Investment Authority v Maud would be cited in France or Italy. If it were cited, it would no doubt be considered respectfully, but not with any deference. It would be evaluated critically. I therefore find myself in the unhappy position of being obliged to consider how the judgment might be criticised.

I confess that I find the reasoning of the Court of Appeal in Libya Investment Authority v Maud difficult to follow at some points. I am particularly struck by the words used by Moore-Bick LJ at [18], where he said that it was “… easy to elide the difference between the asset and the funds into which it can be turned”. Of course, it is right that one must bear in mind the difference between the asset and the funds into which it can be turned. In this case, this means the difference between the Bonds and their proceeds, this difference being highlighted by the fact that the Assignment concerns only the proceeds. But it seems to me very telling that Moore-Bick LJ made this point by talking about a process by which the frozen asset is “turned into” something else. I struggle to see how this is not an “alteration”.

Later in [18], Moore-Bick said that paying under an instrument such as a guarantee (or bond) is not dealing with it. But honouring such an instrument, following a demand for payment, involves personnel employed by the issuer (here, the Banks) processing the demand and giving payment instructions. I find it quite difficult not to see these banking processes as a form of dealing with the instrument. My impression is that employees such as Mr Colbert and NCAs such as the DGT and the CSF take the view that payment would involve Bank staff performing functions in relation to the Bonds which are not consistent with an asset-freeze.

Then, at [19], Moore-Bick LJ said that the fact that Article 9 (in this case, Article 7) provides an exception to Article 5(2) but not to Article 5(1) (in this case, Article 2(2) and Article 2(1), respectively) means that the payment of debts under obligations that preceded sanctions is to be regarded only as payment under Article 5(2) (in this case, Article 2(2)). I confess that this seems circular.

I am concerned that the reasoning here is perhaps influenced by the first point that follows at [20] – i.e., the UN’s desire to relax sanctions for the benefit of the Libyan people. That is noble, but not a logical basis for the interpretation of provisions that (i) were drafted before Colonel Gaddafi fell and that desire arose, (ii) were not amended thereafter and (iii) have been used again in the context of a number of other sanctions regimes. In the specific context of Regulation 269, the underlying purpose is not to relax sanctions for the benefit of the Russian people. It is to exert sufficient economic pressure on the government of Russia to make it withdraw from Ukraine and thus bring an end to the war. This purpose cannot be achieved by interpreting the provisions of Regulation 269 narrowly and with a view to enabling the performance of payment obligations.

With extreme diffidence and no little discomfort, my conclusion is that the courts of France and Italy (and, if relevant, of any other EU country) probably would not be persuaded by Libya Investment Authority v Maud. They are more likely to apply their own reasoning, to regard the Bonds as frozen, and to take the view that this precludes payment, which would necessarily require “alteration, use of, access to, or dealing with” the Bonds. I note that this is in fact the view of the relevant NCAs, in particular the DGT and the CSF.