The Court of Appeal decision, which considered standard form wording and the “mandatory” nature of US sanctions laws, upholds a High Court ruling exempting a borrower’s non-payment of interest, albeit on different grounds.

By Charles Claypoole, Nell Perks, Robert Price and Thomas Lane

In the recent case of Lamesa Investments Limited v. Cynergy Bank Limited [2020] EWCA Civ 821, the Court of Appeal upheld — albeit on different grounds — a High Court decision (described here) that US secondary sanctions constituted a “mandatory provision of law”, and that the borrower’s compliance with these sanctions excused its default on payment obligations under a facility agreement.

High Court ruling acknowledges the extraterritorial effect of US secondary sanctions.

By Charles Claypoole and Nell Perks

In the recent case of Lamesa Investments Ltd v. Cynergy Bank Ltd [2019] EWHC 1877 (Comm), the High Court found that US secondary sanctions constituted a “mandatory provision of law” excusing non-payment under a Facility Agreement.

Facts

Lamesa is a Cypriot company indirectly owned by Mr. Viktor Vekselberg, a Ukrainian individual. In December 2017, Cynergy (an English bank) entered into a Facility Agreement with Lamesa, under which Lamesa lent Cynergy £30 million and Cynergy was obliged to make interest payments every six months. The Facility Agreement was governed by English law.

At the time the parties entered into the Facility Agreement, Cynergy was aware that it was possible that US sanctions would be imposed on Lamesa. Three months later, OFAC added Mr. Vekselberg to the list of Specially Designated Nationals and, consequently, Lamesa became a Blocked Person for purposes of US sanctions.

As a result, Cynergy was at risk of having secondary sanctions imposed on it by the US government under the Ukraine Freedom Support Act 2014, if it made payments to Lamesa. This would have been “ruinous” for Cynergy, so the bank stopped doing so.