Lamesa Investments Ltd v Cynergy Bank Ltd

English law does not ordinarily excuse contractual performance because of foreign law unless the foreign law is the law of the contract or the place of performance. The parties may, however, contractually allocate the risk of foreign sanctions. A clause excusing non-payment to comply with a mandatory provision of law may include a foreign law imposing sanctions indirectly, including where payment carries a sufficiently probable risk of penalty or sanction rather than an express prohibition. “Mandatory” means a provision from which the parties cannot derogate or which they cannot disapply. The clause must be construed in its documentary, factual and commercial context.

Lamesa Investments Ltd lent £30 million to Cynergy Bank Ltd under a facility agreement governed by English law. The agreement required interest payments but permitted the bank to withhold sums where non-payment was necessary to comply with a mandatory provision of law, regulation or court order.

After Viktor Vekselberg, who indirectly owned the claimant, was designated a specially designated national by the US authorities, the claimant became a blocked person. Payment was not prohibited by US primary sanctions, but it exposed the bank to a potential US secondary-sanctions regime affecting its correspondent banking arrangements. The claimant sought a declaration that the bank remained obliged to pay. The central issue was whether clause 9.1 covered that risk.

1. Declaration granted. The bank was entitled to rely on clause 9.1 of the facility agreement for so long as Vekselberg remained a specially designated national and the claimant remained a blocked person by reason of his control.
2. The common law rule, reflected in Ralli Brothers v Campania Naviera Sota Y Aznar [1920] 2 KB 287, Kleinwort Sons & Co v UBIA [1939] 2 KB 678 and Libyan Arab Foreign Bank v Bankers Trust Co [1989] 1 QB 728, is that foreign law does not excuse contractual performance unless it is the law of the contract or the place of performance. National Bank of Kazakhstan and another v Bank of New York Mellon [2018] EWCA Civ 1390 showed that the parties may alter that position by express contractual wording.
3. The facility agreement contained no territorial qualification. The definition of “regulation” covered instruments issued by governmental and other authorities, and the reference to a mandatory provision of law therefore extended to relevant foreign law. “Mandatory” meant a provision which the parties could not vary or disapply.
4. The words “in order to comply” were not confined to an express statutory prohibition. A statutory penalty may create an implied prohibition, as recognised in Cope v Rowlands [1836] 2 M & W 150 and approved in Phoenix General Insurance Co of Greece SA v Halvanon Insurance Company Ltd [1988] 1 QB 216. Avoiding a sufficiently probable sanction could therefore amount to compliance with the implied prohibition.
5. The commercial context supported that construction. The parties knew of the risk of US sanctions, the consequences for the bank could be ruinous, and the clause was intended to prevent the bank facing both sanctions and continuing payment obligations. The territoriality principle did not prevent that contractual allocation of risk. The claim was therefore determined in the bank’s favour.