UK court says US secondary sanctions are a ‘mandatory provision of law’

Yesterday (12 September 2019) the English High Court gave judgment in a claim brought by a Cypriot lender (Lamesa) against an English borrower (Cynergy) about the interpretation of a loan agreement which provided that the borrower would not be in default if it refused to make repayments “in order to comply with any mandatory provision of law” – Lamesa Investments Limited v Cynergy Bank Limited [2019] EWHC 1877.

The beneficial owner of Lamesa was on the USA’s Russia sanctions list, and US secondary sanctions provide that the executive will impose sanctions on non-US persons that “facilitate a significant transaction” with a blocked entity.  Cynergy argued that those US secondary sanctions constituted a “mandatory provision of law” within the meaning of the contract and that in refusing to make payment to Lamesa it was acting in order to comply with those sanctions. Lamesa (for whom Maya Lester appeared) disputed this, including because there was no US nexus between the parties or the transaction and US secondary sanctions have no legal effect in England (from where Cynergy was to make payment in Sterling) to require ‘compliance’.   The Court agreed with Cynergy’s interpretation and held that the parties should be inferred to have had intended to include US secondary sanctions as mandatory provisions within the meaning of the Facility Agreement.