SANCTIONS &
COMMERCIAL LAW
29 April 2013
Penelope Nevill
20 Essex Street, London
I. INTRODUCTION
• English contract law & sanctions
• Commercial responses to sanctions
• Problems & issues
II. ENGLISH CONTRACT LAW
• history: effect of war on contracts
– ‘the courts will give no assistance to proceedings
which, if successful would lead to enrichment of
an alien enemy’: Rodriguez v Speyer [1919] AC 59,
66
• basis in public policy
• Trading With the Enemy Act 1939
• whether a ‘state of war’ still (and only) relevant to
domestic law (Amin v Brown [2005] EWHC 1670 (Ch),
paras 21-42)
– frustration of contract, eg Draddy v Deacon, Court
of Chancery, 1 January 1691 23 ER 757; (1691) 2
Vern 242, Finelvet AG v Vinvava Shipping Co
[1983] 1 WLR 1469
• depends on contract – Leiston Gas Company v LeistonCum-Sizewell Urban District Council [1916] 1 KB 912 (5
year street lighting agreement)
• effect of - Fibrosa Spolka [1943] AC 32 (sale and
purchase agreement), Arab Bank Ltd v Barclays [1953]
2 QB 527 (current account), illegality – will not enforce
where illegal at place of performance or where
intention to perform illegally – Ralli Bros [1920] 2 KB
287, Foster v Driscoll [1929] 1 KB 470
• from war to sanctions
• Amin v Brown – ‘To the extent that there is a public policy
against enriching a person who is resident in a foreign
State with which there are hostilities, that policy was
satisfied in the case of Iraq by the Iraq (United Nations
Sanctions) Order 2000 (SI 2000 No 3241)’ (para 46)
• illegal contracts - Royal Boskalis [1997] CLC 816 (Iraq
sanctions), Al-Kishtani v Shanshal [2001] EWCA Civ 264
(Iraq sanctions)
• frustration – Saipem v Rafidain Bank [2007] EWHC 3119
(Ch) – Iraq sanctions – 1993 Settlement Agreement –
‘frustrated’ by 31 Oct 1995
– ‘it is hardly to be imagined that any of the parties to agreement
could have envisaged that the sanctions would continue in force
for a further 10 years… Such an agreement would seem to be
outside the commercial contemplation of the parties’ (para 16)
• But what if I’m sued for breach of contract,
and what happens when the sanctions regime
ends?
– provisions made in EU legislation, eg Council
Regulation (EU) 267/2012 (Iran), Articles 38, 42
– Shanning International Ltd v Lloyds [2001] UKHL
31; [2001] 1 WLR 1462 – European Council
Regulation (EEC) No 3541/92 interpreted as
permanent ban on enforcement by Iraqis
III. COMMERCIAL RESPONSES
• contract clauses
• due diligence
• specialist information providers
• insurance, eg
– ‘The insurance shall not cover the Assured for any
liability, losses or costs which arise in respect of;
…where payment or the provision of cover in
respect thereof may expose […] to the risk of
being subject to a sanction, prohibition or any
adverse action by a state or international
organisation or competent authority’
– but termination?
• Arash Shipping Enterprises Co Ltd v Groupama
Transport [2011] 1 Lloyd’s Rep IR Plus 42 (Court of
Appeal)
• charterparties
– standard forms
– trading areas, eg
“World-wide safe ports, always afloat within IWL,
excluding Cambodia …… and other countries/ dangerous
zones by actual threatened war, hostilities and/or warlike operation or the like acts and countries banned
and/or boycotted by the United Nations. Subject always
to instruction and/or recommendation by the country of
the Vessel’s flag from time to time …
Equally should circumstances change for the worse in
any countries and areas currently included in the trading
limits, the Charterers agree to review the clause with a
view to excluding such certain countries and areas.”
– unlawful merchandise clauses (clause 4 of
Shelltime 4 time charter “for the purpose of
carrying lawful merchandise”), unsafe port,
restraint of princes, eg ‘The Greek Fighter’ [2006]
EWHC 1729 (Comm); [2006] 2 CLC 497
– bespoke clauses – eg Intertanko sanctions clause
‘Any trade in which the vessel is employed under this Charterparty which
could expose the vessel, its Owners, Managers, crew or insurers to a risk of
sanctions imposed by a supranational governmental organisation or the
United States, { insert other countries } shall be deemed unlawful and
Owners shall be entitled, at their absolute discretion, to refuse to carry out
that trade. In the event that such risk arises in relation to a voyage the
vessel is performing, the Owners shall be entitled to refuse further
performance and the Charterers shall be obliged to provide alternative
voyage orders.’
IV. PROBLEMS & ISSUES
• scope of application
• certainty
– time lags in domestic implementation
– amount of legislation across 3 legal systems
– interpretation
• ‘freezing effect’
scope of application
– EU & national - depends on the wording of the
instrument & principles of statutory
interpretation, e.g. where silent as to
extraterritorial application
– EU provisions broad:
Art 49 No 267/2012 , (Iran), Art 35 No 36/2012 (Syria),
incl “(iv) any legal person, entity or body in respect of
any business done in whole or in part within the Union”
– UK does not go so far:
Reg 1(2), The Syria (European Union Financial Sanctions)
Regulations 2012 (2012 No 129): an offence may be
committed by conduct wholly or partly outside the UK
by a (a) UK national, or (b) a body incorporated or
constituted under the law of any part of the UK
• lack of certainty
– time lags in implementation, e.g. UK Export
Control Order implementing EU Reg 961/2010 of
7.7.10 came into force on 13.6.11
– amount of legislation, eg Iran
• 25 EU instruments (not including human rights); 29 UK
• Council Regulation (EU) No 267/2012, in force 24 March
2012 (replaced 961/2010) – 112 pp; dual use regulation
428/2009 269 pp
• Amended 21 December 2012 - Council Regulation (EU)
No 1263/2012 – export ban on key naval equipment
and technology for ship-building, prohibition on trade
in graphite, raw or semi-finished metals (eg aluminium
& steel) and software for industrial processes
• practice of ‘pre-dating’ transitional provisions of
implementing Regulations to date of Decision
• … after reports of an internet shopping spree by Mrs
Assad in March - sanctions on luxury goods under
Syrian sanctions (EU Regulation (EU) No 509/2012,
15 June 2012)
?
– interpretation - gaps
‘It shall be prohibited to sell, supply, transfer or export, directly
or indirectly, equipment which might be used for internal
repression…’
• P&I cover withdrawn 19 June 2012
• Council Regulation (EU) No 545/2012 (Syria) in
force 26 June 2012 & HM Treasury Financial
Sanctions Notice, 26 June 2012 (main regulation
Council Regulation (EU) No 36/2012, in force 19
Jan 2012)
• No 545/2012 “clarifies” provisions on direct or
indirect insurance or reinsurance related to the
transport or export of military technology
(according to HM Treasury Financial Sanctions
Notice 26 June 2012)
• R v PD & EB (Iraq sanctions) [2011] EWCA Crim
2082, [2011] Lloyd's Rep. F.C. 610
– interpretation - wording
• need to understand relationship of
international, EU and national law under rules
of each legal system
• some guidance from courts: wide
interpretation in line with objectives of
sanctions, e.g., Case C-72/11 Afrasiabi [2011]
ECR 000, 21 December 2011 - Reg 423/2007
(now 267/2012)
- autonomous EU meaning
- objective of sanctions relevant (see also Case C177/95 Ebony Maritime, esp paras 24-27, Case C117/06 Möllendorf [2008] 1 CMLR 11)
- meaning of “economic resource” – wide, includes a
furnace, whether or not ready to use
• making available an economic resource indirectly
“if… Mr Afrasiabi acted on behalf, under the control or
on the instructions of SHIG and intended to use the
asset in question for the benefit of SHIG, that court is
entitled to conclude that an economic resource was
indirectly made available within the meaning of Article
7(3) of Regulation No 423/2007” (para 53)
“it is for the national court to assess, in respect of each
defendant, whether, at the time of performing the acts
at issue in the main proceedings, he knew or, at least,
should reasonably have suspected that those acts
would be contrary to such a prohibition” (para 57)
• circumvention – activities that do not contravene a
sanction “under cover of formal appearance”
“Those two cumulative requirements of knowledge and
intent are met where the person participating in an
activity covered by Article 7(4) of Regulation No
423/2007 deliberately seeks the object or the effect,
direct or indirect, of circumvention connected
therewith.
They are also met where the person in question is
aware that his participation in such an activity can have
that object or effect and accepts that possibility.”
(para 67)
• ‘freezing effect’
- Does the routing of hire/freight through the
New York Banking system breach the US/Iran
sanctions regime? some guidance in Libyan
Arab Foreign Bank v Bankers Trust [1986] QB
728
- unwillingness to risk listing in the US, even if
an ‘excessive exercise of jurisdiction’
- ‘over enthusiastic’ implementation by banks –
but Article 42(1) Council Regulation (EU)
267/2012
- competition – ‘other States ignore and we lose
out’