Lamesa Investments Ltd v Cynergy Bank Ltd
| Jurisdiction | England & Wales |
| Judge | Pelling |
| Judgment Date | 12 September 2019 |
| Neutral Citation | [2019] EWHC 1877 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2018-000826 |
| Date | 12 September 2019 |
[2019] EWHC 1877 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Rolls Building, Fetter Lane,
London, EC4A 1NL
HIS HONOUR JUDGE Pelling QC
SITTING AS A JUDGE OF THE HIGH COURT
Case No: CL-2018-000826
Ms Maya Lester QC and Mr Richard Blakeley (instructed by Elborne Mitchell LLP) for the Claimant
Mr Brian Kennelly QC and Ms Harriet Ter-Berg (instructed by Sidley Austin LLP) for the Defendant
Hearing dates: 15 July 2019
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
HIS HONOUR JUDGE Pelling QC
His Honour Judge Pelling (sitting as a judge of the High Court): Introduction
This is the hearing of a Part 8 Claim by which the claimant (“LIL”) seeks a determination as to whether the defendant (“CBL”) continues to be obliged to make repayments under a Facility Agreement dated 19 December 2017 (“FA”) in the events that have happened and on the true construction of the FA.
Factual Background
There is no dispute concerning the material factual background. LIL is a company registered in accordance with the laws of the Republic of Cyprus. It is wholly owned by Lamesa Group Incorporated (“LGI”), a company registered in accordance with the laws of the British Virgin Islands. LGI is wholly owned by Mr. Viktor Vekselberg (“VV”).
CBL is a UK registered company carrying on business in England as a retail bank. CBL's only connection with the United States of America (“US”) is that in common with most banks it is only able to carry on its US-Dollar denominated business by maintaining a US Dollar correspondent account with a US bank.
Under the FA, LIL lent £30m to CBL. CBL was contractually obliged to make interest payments on 21 June and 21 December of each year throughout the term of the loan. To date, interest totalling £3.6m has become due but has not been paid, although it has been “ ring-fenced” by CBL and is available for payment subject to resolution of the issues to which I turn below – see paragraph 1.6 of Mr Jordan's first witness statement. What Mr Jordan means when he says the interest payable under the FA has been ring-fenced is unclear – see paragraph 13 of Mr Brentnall's second witness statement – but this is immaterial to the issue I have to decide.
In so far as is material to the issue I have to decide, the FA provides as follows:
“1.2 Construction
(a) Unless a contrary indication appears, any reference in this Agreement to:
…
(iv) a “ regulation” includes any regulation, rule, official directive, request or guideline (whether or not having the force of law) of any governmental, intergovernmental, or supranational body, agency, department or of any regulatory, self-regulatory, or other authority or organisation
…
9. ENFORCEMENT
9.1 Non-payment
In the event that any principal or interest in respect of the … loan has not been paid within 14 days from the due date for payment and such sum has not been duly paid within a further 14 days following written notice from [LIL] to [CBL] requiring the non-payment to be made good, [LIL] may institute proceedings in a court of competent jurisdiction in England for the winding up of [CBL] … provided that [CBL] shall not be in default if during the 14 days after [LIL's] notice is satisfies [CBL] that such sums were not paid in order to comply with any mandatory provision of law, regulation or order of any court of competent jurisdiction. Where there is doubt as to the validity or applicability of any such law, regulation or order, [CBL] will not be in default if it acts on the advice given to it during such 14 day period by its independent legal advisers.
…
16 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the Parties in relation to the Facility and supersedes any previous agreement, whether express or implied, regarding the Facility.
…
18 GOVERNING LAW
This Agreement and any non-contractual obligations arising out of or in connection with it are governed by English law.
19 ENFORCEMENT
19.1 Jurisdiction
(a) The courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement …”.
On 6 April 2018, VV was placed on a list of “ Specially Designated Nationals” (“SDN”) by the US Department of The Treasury Office for Foreign Assets Control (“OFAC”) by Executive Order No. 13662 made under the International Emergency Economic Powers Act – a US Federal statute. In consequence LIL became a “ blocked person” by reason of its indirect ownership by VV.
Although some time was taken up at the hearing in exploring the various US statutes and regulations, it is not necessary that I do so in this judgment since their effect is largely common ground. All US persons anywhere in the world, anyone dealing with property subject to US jurisdiction and anyone operating in the US are prohibited from dealing with VV by reason of him being a SDN or LIL by reason of it being a Blocked Person. Anyone dealing with either VV or LIL in breach of these prohibitions is liable to have various economic sanctions of unquestionably potential severity imposed upon it. These sanctions are known in US sanctions law as “ primary sanctions”. It is not suggested by either party that the payment of interest by CBL to LIL is prohibited by the requirements of US primary sanctions law.
In addition to the imposition of primary sanctions, the US legislation entitles the US Federal Government to impose “ secondary sanctions” on non-US persons not dealing with property subject to US jurisdiction and not operating in the US. Although there are various US Federal Acts that are relevant, the primary Act relevant for present purposes is section 5(b) of the Ukraine Freedom Support Act 2014 (as amended) (“UFSA”). It provides that:
“(b) FACILITATION OF FINANCIAL TRANSACTIONS ON BEHALF OF SPECIALLY DESIGNATED NATIONALS – The President shall impose, unless the President determines that it is not in the national interest of the United States to do so, the sanction prescribed in (c) with respect to a foreign financial institution if the President determines that the foreign financial institution has, on or after the date that is 30 days after the date of the enactment of the Countering Russian Influence in Europe and Eurasia Act of 2017, knowingly facilitated a significant financial transaction on behalf of any … person included on the lost of specially designated nationals and blocked persons maintained by [OFAC] pursuant to …(2) Executive Order ….13662 …
(c) SANCTIONS DESCRIBED – The sanction described in this subsection is, with respect to a foreign financial institution, a prohibition on the opening, and a prohibition or the imposition of strict conditions on the maintaining, in the United States of a correspondent account or a payable through account by the foreign financial institution …
(d) NATIONAL SECURITY WAIVER – The President may waive the application of sanctions under this section with respect to a foreign financial institution if the President –
(1) determines that the waiver is in the national security interest of the United States; and
(2) submits to the appropriate congressional committees a report on the determination and the reasons for the determination”
It is common ground that the US Government could impose the sanction described in section 5(c) UFSA on CBL if it determined that the payment of interest to LIL pursuant to the FA was “… a significant financial transaction …”, subject to the president's express power to waive the imposition of that sanction conferred by sections 5(b) and/or 5(d)(1) of the Act.
The potential effect of the imposition of the section 5(c) UFSA sanction on CBL is described in its skeleton argument as “ … obviously ruinous …”. The reasons why that is so are set out in paragraphs 2.3 to 2.8 of the second witness statement of Mr. Jordan filed on behalf of CBL. In summary, a significant part of CBL's business is denominated in US Dollars; Dollars deposited with CBL by its retail customers are deposited by CBL in a correspondent account (known as a “Nostro” account) maintained by CBL with JP Morgan in the US. Its Nostro account currently has a balance in favour of CBL of about US$15m. In addition to this critical issue, Mr. Jordan draws attention to the fact that CBL has entered into foreign exchange swap contracts with another bank in order to protect against exchange rate risk, which of necessity is denominated in Dollars and has long term service contracts with a number of US based companies that would or might be prevented from dealing with CBL if it was sanctioned. I accept this evidence at face value since it is not challenged.
English Law Principles
There is no real dispute that apart from any contractual provision that modifies the position, English law will not excuse contractual performance by reference to foreign law unless that law is the law of the contract or the law of the place of performance – see Ralli Brothers v. Campania Naviera Sota Y Aznar [1920] 2 KB 287, Kleinwort Sons & Co v. UBIA [1939] 2 KB 678 at 694–5 and Libyan Arab Foreign Bank v. Bankers Trust Co [1989] 1 QB 728 at 743 F-G. The outcome in National Bank of Kazakhstan and another v. Bank of New York Mellon [2018] EWCA Civ 1390 was as it was because the contract in issue was subject to an express provision that in effect reversed the common law position – see the judgment of Hamblen LJ at paragraphs 27, 28 and 68 to 70. CBL submits that clause 9.1 of the FA is similar in effect. Thus the sole issue that arises is whether, on its true construction, clause 9.1 of the FA in effect reverses the common law principles that would otherwise apply. If it does not...
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