Mamancochet Mining Ltd v Aegis Managing Agency Ltd & Ors

A sanctions clause in a marine insurance policy relieved insurers from paying only where payment would be legally prohibited under a named sanctions regime. A mere risk that an authority might regard payment as prohibited was insufficient. The clause suspended liability while payment was prohibited; it did not extinguish the insured’s claim. Where the relevant US wind-down provision authorised payment of a pre-existing claim, payment before the expiry of that provision did not expose the insurers to sanction. The absence of evidence proving an applicable exception meant that the insurers had not discharged the burden of showing prohibition. The same conclusion followed for EU sanctions where payment was no longer prohibited.

The claimant, as assignee of a marine cargo insurance policy, claimed approximately US$3.8 million for the theft of steel billets carried to Iran. The underwriters accepted that the claim was valid in principle but relied on a sanctions limitation and exclusion clause.

The court had to determine the meaning of exposure to sanctions, whether payment would breach US or EU sanctions, whether the clause suspended or extinguished liability, and, if necessary, whether article 5 of the Blocking Regulation affected reliance on the clause.

1. Construction of the sanctions clause. The clause applied where payment would be prohibited under one of the named systems of law and would thereby expose the insurer to sanction. It did not apply merely because an authority might wrongly consider payment prohibited or might impose a sanction. The insurers therefore had to establish the underlying legal prohibition.
2. US sanctions. Payment had previously been prohibited by section 560.215 of the Iranian Transactions & Sanctions Regulations. However, section 560.537 authorised transactions and activities ordinarily incident and necessary to winding down transactions otherwise prohibited by that provision. Its broad language did not distinguish between claims arising before and after General License H. The payment of this pre-existing insurance claim was within the wind-down provision and was not prohibited before 4 November 2018.
3. The insurers also failed to prove, on the balance of probabilities, that an exception to the wind-down provision applied, such as an excluded military use. The evidential burden therefore remained unsatisfied.
4. EU sanctions. The relevant prohibition on financial assistance had been lifted on Implementation Day. The failure of authorities to confirm that payment was safe did not itself expose the insurers to sanctions where payment was not prohibited by EU law.
5. Effect on liability. The clause did not extinguish the claim when payment was temporarily prohibited. It suspended the insurers’ liability for so long as payment would expose them to sanction. Once payment became lawful, liability revived. A claim could appropriately be stayed during the period of suspension.
6. Blocking Regulation. The claimant’s arguments under article 5 did not arise for decision. The judge nevertheless considered that there was considerable force in the insurers’ submission that reliance on the policy clause during a period of suspended liability would not constitute compliance with a third-country prohibition.
7. The claimant was entitled to payment of the claim.