Karan Anil Chanana v Anzhelika Khan

For the purposes of the pre-designation payment exception in regulation 58(5) of the Russia (Sanctions) (UK Exit) Regulations 2019, a contractual obligation may arise when the contract is made, even if payment becomes due later. The exemption is construed consistently with the EU sanctions regime it replaced unless there is a compelling reason to depart from that approach.

Section 44 of the Sanctions and Anti-Money Laundering Act 2018 may protect against insolvency consequences arising from non-payment reasonably believed to breach sanctions, but it does not extinguish the underlying debt. A unilateral solicitor’s undertaking does not constitute security unless it creates an enforceable proprietary or equivalent security interest. Contractual default interest may remain seriously arguable even where the principal debt is unaffected.

The applicant tenant applied under rule 10.4 of the Insolvency (England and Wales) Rules 2016 to set aside a statutory demand for unpaid rent and contractual interest. The respondent landlord had become a designated person under the Russia (Sanctions) (UK Exit) Regulations 2019 after the tenancy agreement was made.

The applicant argued that payment was prohibited, that his reasonable belief in that prohibition engaged section 44 of the Sanctions and Anti-Money Laundering Act 2018, and that funds held by his solicitors under a conditional undertaking secured part of the debt. The issues were whether the rent fell within the pre-designation exemption, whether section 44 required the demand to be set aside, and whether the undertaking constituted security.

1. Pre-designation obligation. Payment of rent under the tenancy agreement fell within regulation 58(5) of the Russia (Sanctions) (UK Exit) Regulations 2019. The obligation arose from the lease made before designation, even though individual rent payments became due afterwards. The Regulations should, absent a compelling reason, be construed consistently with the EU regime which they replaced, as explained by the Court of Appeal in NBT v Mints.
2. Section 44 protection. Section 44 of the Sanctions and Anti-Money Laundering Act 2018 may protect a debtor against insolvency proceedings where non-payment resulted from a reasonable belief that payment would breach sanctions. The provision does not protect the debtor from an ordinary claim to recover a pre-existing debt. A statutory demand is not itself civil proceedings, but it establishes the statutory foundation for a bankruptcy petition. The court could therefore preserve the protection by directing that no petition be presented for a period equivalent to the payment period lost.
3. The applicant’s evidence of his subjective belief could not fairly be rejected summarily. The difference between the UK and EU wording, together with the available advice and correspondence, provided at least arguable reasonable grounds.
4. Interest. Following the reasoning in Celestial Aviation Services Ltd v UiniCredit Bank AG (London Branch), section 44 did not bar statutory interest ancillary to a debt claim. Contractual default interest was materially different because it arose by reason of non-payment. The contractual interest element was therefore at least seriously arguable as a defence.
5. Security. Funds held by the applicant’s solicitors under a unilateral, revocable and conditional undertaking were not secured for the purposes of the statutory demand. The arrangement created no proprietary consequence and did not hypothecate the funds to this debt.
6. The application to set aside the statutory demand was dismissed. Under rule 10.5(8) of the Insolvency (England and Wales) Rules 2016, no bankruptcy petition was to be presented before expiry of at least 21 days from the judgment.

First-instance decision. No appellate history was stated in the judgment.