Reed Smith In-depth

Key takeaways

  • The courts in England and Singapore are continuing to resolve a stream of disputes arising out of an ever-evolving sanctions landscape.
  • This article reviews recent reported cases in which the courts have tackled the impact of sanctions on commercial contracts, whether through the interpretation of sanctions laws or sanctions clauses in contracts.
  • An understanding of the issues that the courts are increasingly grappling with will help parties to anticipate the sanctions-related issues that may affect their own contracts and business.

Authors: Kyri Evagora Leigh T. Hansson Paul Skeet Alexander Brandt James Willn Ray-Shio Ho Harry W. Hutchinson, Anna Tranter, Marcel Wibawa, Amy Y. Wong

Introduction

Since the Russian invasion of Ukraine, the courts in England and Singapore have had to consider the impact of an ever-evolving sanctions landscape on commercial contracts, offering critical insights through key decisions.

This article summarises certain key judgments of the courts of England and Singapore, illustrating  issues that the courts have tackled, notably in the following areas:

  • Interpreting sanctions clauses: Appreciating how courts interpret sanctions clauses is fundamental for commercial parties to understand how to both (a) assess their legal rights under existing sanctions clauses and (b) draft appropriate contractual protection for the future. In Lamesa Investments Ltd v. Cynergy Bank Ltd, the English Court of Appeal considered the proper interpretation of a sanctions clause within a loan agreement and the extent to which the clause in question protected a party from the risk of U.S. secondary sanctions (concluding ultimately that it did so). The decision is an example of the courts applying established principles of contractual interpretation to sanctions clauses, and highlights the factors that may influence the court’s interpretation of a sanctions clause, including extraterritorial risk.
  • Sanctions and trade finance: The intersection between sanctions and trade finance is particularly crucial in the context of letters of credit, which are pivotal for facilitating international trade. In Kuvera Resources Pte Ltd v. JPMorgan Chase Bank, the Singapore Court of Appeal examined whether a bank was entitled to invoke a sanctions clause in a confirmation added to letters of credit, in circumstances where its internal screening had flagged a vessel as being owned by a sanctioned entity. The case is a warning that even material sanctions risks identified by internal sanctions screening may not meet the contractual test for relief from performance, absent clear drafting of the sanctions clause.
  • The accrual of interest whilst sanctions are ongoing: Sanctions can have the effect of suspending substantial payment obligations, leading to significant claims for interest arising if and when those sanctions are lifted. In The Ministry of Defence and Support for Armed Forces of Iran v. International Military Services Limited, the English High Court held that interest did not accrue for the benefit of an EU-sanctioned entity during the period in which sanctions were imposed. This judgment provides important guidance on how obligations around interest may be interpreted in the context of sanctions legislation.
  • What is meant by “control” in sanctions regulations: Understanding the test for “control” under UK sanctions regulations is crucial for assessing the sanctions status of current and potential counterparties. In Mints & Others v. PJSC National Bank Trust & Another and Litasco SA v. (1) Der Mond Oil and Gas Africa SA (2) Locafrique Holding SA, the English courts examined the meaning of “control” in the context of the Russia (Sanctions) (EU Exit) Regulations 2019, arriving at different conclusions based on their respective facts. Mints, in particular, led to important clarificatory guidance being issued by the UK government on the meaning of “control” under those Regulations.

Whilst each case will turn on its own facts and their application to the relevant sanctions that arise for consideration, an understanding of the issues that the courts are increasingly grappling with will help parties to anticipate the issues that may affect their own contracts and business.

Ongoing commentary by Reed Smith on developments in sanctions law is available at viewpoints.reedsmith.com.