Ministry of Defence & Support for Armed Forces of the Islamic Republic of Iran v International Military Services Ltd

EU sanctions provisions must be construed by considering their language, context and purpose, with proportionality informing interpretation where fundamental rights are engaged. A no-claims provision may prevent enforcement of part of an award where the content of that claim results from sanctions. Where sanctions prevent payment of an award debt, they may also prevent enforcement of interest accruing during the sanctions period. A provision protecting persons who freeze funds or refuse payment in good faith must be read in context and confined to mistaken, non-negligent applications of the sanctions regime.

The claimant sought enforcement of two ICC awards arising from terminated contracts for the supply of military vehicles. The awards required payment of principal, costs and interest, and security had been paid into court pending challenges and enforcement proceedings. The Dutch courts later reduced the principal amount of one award but otherwise upheld the awards.

Because the claimant was subject to EU sanctions, the parties agreed that the defendant could not pay the awards during the relevant period. The court considered whether interest remained enforceable for that period, principally under Articles 38 and 42 of Council Regulation 267/2012. Other enforcement and quantum issues were left for later determination.

1. Disposition. Article 38 of Council Regulation 267/2012 precluded enforcement of the interest component of the award insofar as it related to the period during which the claimant was sanctioned. The parties were invited to agree the recalculated quantum and the security returnable to the defendant.
2. EU instruments are construed by reference to text, context and legislative purpose. Proportionality requires measures to be interpreted so that they are suitable for their legitimate objectives and do not go beyond what is necessary, particularly where fundamental rights are affected.
3. Article 38 applied because the enforcement application was a “claim” within Article 1(c), the award fell within the relevant contract-or-transaction language, and the content of the claim for interest during the sanctions period resulted directly or indirectly from the sanctions.
4. Article 29 did not assist the claimant. It concerns additions to frozen accounts, whereas Article 38 addresses whether a claim for interest arising from sanctions-affected performance may be satisfied.
5. Article 42 was not independently necessary to the result. Although expansively worded, it protected persons whose good-faith, non-negligent action under the Regulation was mistaken. It did not protect liability arising from a proper application of the sanctions regime.