Iran sanctions: The English Court steers a course
In our previous briefing1, we looked at the challenges of complying with EU and US sanctions from 5 November 2018, when further US sanctions are re-imposed, and the need to steer a course between the divergent courses which are being taken by the EU and the US.
One of the significant changes is that entities which are themselves not US persons but which are owned or controlled by US persons will need to comply with so-called US primary sanctions, substantially impacting on their ability to engage in any trade with Iran.
The Commercial Court's expedited judgment in Mamancochet Mining Limited v Aegis Managing Agency Limited and others2 which was handed down on 12 October 2018 provides some much needed guidance for businesses on how the UK Courts will deal with the impact of President Trump's 8 May 2018 announcement that the US was withdrawing from the Joint Comprehensive Plan of Action in respect of Iran (JCPOA), in particular during the wind down period which runs until 23:59 on 4 November 2018.
The case turned on whether payment of a claim under a marine cargo insurance policy prior to 23:59 on 4 November 2018 by non-US insurers who were owned or controlled by US persons was prohibited as a result of the above developments or fell within the permitted actions as part of the wind down. The case also considers whether, as a matter of construction, the "Sanction Limitation and Exclusion Clause" under the Policy provided a contractual defence to the claim.
Teare J held that sanctions clause offered no defence, as the wind down provision authorised "all transactions". Further, the permitted actions during the current wind down period were not limited to those claims which arose after Implementation Day (16 January 2016) under the JCPOA. Consequently it was irrelevant that the claim itself was submitted during an earlier period of sanctions (post 9 March 2013) as at the time the policy was entered (August 2012) and loss suffered (September to October 2012) no sanctions applied.
Teare J held that the correct construction of the sanctions clause was that it would only "bite" where payment would be prohibited under applicable sanctions – it was not enough that insurers could point merely to a risk of being sanctioned. As payment of the claim prior to 5 November was not prohibited, the clause did not assist insurers.
Importantly, Teare also held that triggering the sanctions clause did not extinguish the Defendant's liability, but merely suspended the liability to pay a claim (for the period during which this was prohibited by the relevant sanction), with the liability being reanimated once the sanctions were lifted.
The practical impact of the above is twofold:
- Any claimant would be well advised to notify their claim and/or commence their action against any non-US insurers which are owned or controlled by US persons prior to 5 November 2018 to stop any limitation period, if necessary the action could then be stayed until the sanctions regime alters again.
- Most sanctions clauses will as a matter of English law be unlikely to provide grounds to prevent non-US insurers who are owned or controlled by US persons paying claims prior to 23:59 on 4 November 2018.
Although obiter Teare J also provided the first judicial comment on the inter-relationship between the EU Blocking Regulation and US sanctions, albeit in the context of non-US insurers which are owned or controlled by US persons, and are therefore subject to US primary sanctions, rather than US secondary sanctions.
The view of Teare J is that an insurer who relies on a sanctions exclusion clause in a policy to refuse to pay claims is not acting in breach of the EU Blocking Regulation. As Teare J put it, the insurer is "not complying with the [US] prohibition, but simply relying on the terms of the [contractually agreed] policy".
Should you have any questions, please do not hesitate to contact the authors of this briefing.
- Iran sanctions: Steering a course through difficult waters.
-  EWHC 2643 (Comm).
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