Sanctions Developments

On July 6, 2020 the UK government announced the introduction of a “Global Human Rights” sanctions regime (the “GHR Sanctions”)—the first time the UK has imposed sanctions measures independently from the European Union and the first time it has imposed sanctions directly in response to human rights violations.[1]

Under the GHR Sanctions, it is prohibited for persons in the UK, and UK nationals and entities located overseas, to: (i) deal with funds or economic resources owned, held or controlled by a designated person; or (ii) make funds or economic resources available to or for the benefit for a designated person. The designated persons are also prohibited from entering the United Kingdom. The asset freeze also applies to any entity “owned or controlled” by a designated person. The measures are similar to existing EU sanctions with effect in the United Kingdom; however, there may be divergence on points of detail and interpretation.

On June 30, 2020, the Court of Appeal confirmed in Lamesa Investments Limited v Cynergy Bank Limited [2020] EWCA Civ 821 that a borrower under a facility agreement was excused from making payments because of the risk of U.S. secondary sanctions. This case offers rare guidance from a national court in relation to the impact of the risk of U.S. secondary sanctions on contractual performance. In this instance, the court clarified that whether or not non-performance may be excused will depend on the specific words of the affected contract and the wider context. This was later reiterated in Banco San Juan Internacional Inc v Petroleos De Venezuela SA [2020] EWHC 2937, wherein the Commercial Court rejected all of the arguments put forward by Petroleos De Venezuela SA as to why it was prevented from making repayments as a result of the imposition of U.S. sanctions. In this case, the court rejected the argument that the Court of Appeal’s decision in Lamesa v Cynergy demonstrated that it is normal course in commercial agreements to suspend payment obligations where payment would otherwise be in breach of US sanctions.

Both cases emphasise the importance of the contractual construction of the particular wording of the sanctions clause and demonstrate the complexity of determining the extent to which the risk of sanctions may excuse non-performance of a party’s obligations. It is likely that the courts will continue to grapple with these questions in future years.[2]

[1] See our alert memorandum: New UK Sanctions Regime Introduced.

[2] See our alert memorandum: UK Court of Appeal Says Risk of U.S. Secondary Sanctions is a “Mandatory Provision of Law” Excusing Non-Payment.