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SANCTIONS & COMMERCIAL LAW 29 April 2013 Penelope Nevill 20 Essex Street, London.

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Presentation on theme: "SANCTIONS & COMMERCIAL LAW 29 April 2013 Penelope Nevill 20 Essex Street, London."— Presentation transcript:

1 SANCTIONS & COMMERCIAL LAW 29 April 2013 Penelope Nevill 20 Essex Street, London

2 I. INTRODUCTION English contract law & sanctions Commercial responses to sanctions Problems & issues



5 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)

6 – 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 Leiston- Cum-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

7 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)

8 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

9 III. COMMERCIAL RESPONSES contract clauses due diligence specialist information providers

10 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)

11 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 war- like 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.”

12 – 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.’

13 IV. PROBLEMS & ISSUES scope of application certainty – time lags in domestic implementation – amount of legislation across 3 legal systems – interpretation ‘freezing effect’

14 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

15 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

16 … 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)

17 ?

18 – interpretation - gaps

19 ‘It shall be prohibited to sell, supply, transfer or export, directly or indirectly, equipment which might be used for internal repression…’

20 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

21 – 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)

22 -autonomous EU meaning -objective of sanctions relevant (see also Case C- 177/95 Ebony Maritime, esp paras 24-27, Case C- 117/06 Möllendorf [2008] 1 CMLR 11) -meaning of “economic resource” – wide, includes a furnace, whether or not ready to use

23 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)

24 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)

25 ‘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’


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