Mamancochet Mining Ltd v Aegis Managing Agency Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Teare |
| Judgment Date | 12 October 2018 |
| Neutral Citation | [2018] EWHC 2643 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2018-000335 |
| Date | 12 October 2018 |
[2018] EWHC 2643 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL
Mr. Justice Teare
Case No: CL-2018-000335
Jawdat Khurshid QC and Anna Gotts (instructed by Reed Smith LLP) for the Claimant
Richard Blakeley and Michael Harper (instructed by Roose + Partners) for the Defendants
Hearing dates: 2 and 3 October 2018
Judgment Approved
Notwithstanding the age of this marine insurance claim (the events which gave rise to it took place in 2012) it is being determined on an expedited basis. That is because its resolution is dependent upon, in part, the effect of President Trump's decision on 8 May 2018 to end the US's participation in the Joint Comprehensive Plan of Action by which it had been internationally agreed that multi-lateral sanctions targeting Iran would be eased. President Trump's decision was effectiveas of 27 June 2018, but subject to a wind down provision pursuant to which the relevant sanction will be re-imposed at 1159 pm eastern standard time on 4 November 2018. It is common ground that payment of the claim after that date will be prohibited as a matter of US law. For that reason the parties, or at any rate the Claimant, require a decision of the court before then.
Three main issues arise for consideration:
i) What is the proper interpretation of the phrase in the policy “ to the extent that …payment of such claim …would expose that insurer to any sanction, prohibition or restriction under …the trade or economic sanctions, laws, or regulations…”?
ii) As a matter of fact, would payment of the claim “ expose” the Defendants to US and/or EU sanctions, within the meaning of the sanctions clause in the policy?
iii) If the question above is answered affirmatively are the Defendants prevented from relying on the sanctions clause by virtue of Article 5 of Council Regulation (EC) No. 2271/96 (as amended by Commission Delegation Regulation (EU) 2018/1100)?
In view of the need to provide a speedy decision I shall explain the context, as shortly as I can, and then proceed to determine the matters at issue.
THE MARINE INSURANCE CLAIM
The Claimant is the assignee, by Deed of Assignment dated 30 April 2014, of the benefit of a marine cargo insurance policy ( “the Policy”) governed by English law. The Policy protected the assured, Metalloyd Limited, against (amongst other things) the risk of theft of two cargoes of steel billets carried on board the vessels M/V GELIUS 2 and M/V GULF TRADER, which were carried from Russia to Iran on 23 August 2012 and 25 August 2012, respectively. The two cargoes were worth some US$3.8 million. It was common ground that, on arrival at the port of Bandar-e-Anzali in Iran, the cargoes were put in bonded storage. The purchaser, Liberal Resources FZC, did not pay for them and Metalloyd arranged for substitute bills to be issued naming an Iranian national, (Mr. Fallah) as consignee. The goods were stolen from their bonded storage (by presentation of fraudulent documents) at some time between 22 September 2012 and 7 October 2012.
There is no evidence as to the actual or intended use of the cargoes in Iran either prior to or after their theft. It was common ground that the consignee under the contract of carriage was an Iranian person, who is not a ‘Specially Designated Person’ (“SDN”) subjected to specific sanctions by the US Treasury Department.
Following discovery of the theft of the cargoes, the assured made a claim under the Policy in March 2013. It was assumed by the experts that this claim was submitted after 8 March 2013 (which, as I set out below, is an important date in the history of US sanctions against Iran).
The Defendant underwriters have never denied that, in principle, the assured (and, latterly, the Claimant as assignee) has a valid claim under the Policy. However, the Defendants have resisted payment on the basis of the ‘Sanction Limitation and Exclusion Clause’ in the Policy.
The sanctions clause, on standard wording developed by the Joint Hull Committee (of the London market) and adopted by the Joint Cargo Committee, provides as follows:
“No (re)insurer shall be deemed to provide cover and no (re)insurer shall be liable to pay any claim or provide any benefit hereunder to the extent that the provision of such cover, payment of such claim or provision of such benefit would expose that (re)insurer to any sanction, prohibition or restriction under United Nations resolutions or the trade or economic sanctions, laws, or regulations of the European Union, United Kingdom or the United States of America.”
The Claim was issued in this case against 30 Defendants (being the underwriters of the Policy) on 22 May 2018, following President Trump's decision on 8 May 2018 to re-impose sanctions against Iran. Since that time, the claim has been settled with 19 of the Defendants, all of whom had defended the claim under the sanctions clause solely in respect of EU sanctions. Of the 11 remaining Defendants, 2 rely solely on EU sanctions as grounding their defence to payment under the sanctions clause; the other 9 rely on both US and EU sanctions.
THE UNITED STATES SANCTIONS REGIME
The 9 Defendants who rely on US sanctions are all established and maintained in the UK. Each is ultimately owned or controlled by a US person. For the purposes of the US sanctions regime, each is therefore classified as a ‘US owned or controlled foreign entity’ ( “USCFE”).
The US sanctions against Iran have a long and complex history, of which only a short summary is necessary for present purposes. The sanctions relevant to the present case are ‘primary’ sanctions – that is, those directed (initially) at US persons (as they are defined in the relevant legislation).
The sanctions regime is to be found in the Iranian Transactions & Sanctions Regulations, 31 C.F.R. Part 560 ( “ITSR”). The ITSR contain a number of relevant prohibitions, including, in section 560.204, a prohibition on the exportation, re-exportation, sale or supply of goods, technology or services to Iran. It was common ground that the provision of insurance cover, including the payment of a pre-existing claim, constitutes a ‘service’ within the meaning of section 560.204 of the ITSR.
It was common ground that, at the time the Policy attached, the ITSR did not apply to USCFEs. Accordingly, the Defendants were not prevented by US law from insuring the cargoes.
A change in the sanctions regime was heralded by the entry into force on 10 August 2012 of the Iran Threat Reduction and Syria Human Rights Act 2012 ( “ITRA”). Section 218 of that Act empowered the President to enact further legislation bringing USCFEs within the scope of the sanctions regime.
That power was not exercised until 22 October 2012. Accordingly, at the time the cargoes were stolen (at some time between 22 September 2012 and 7 October 2012), the ITSR would not have prevented the Defendants from paying a claim under the Policy.
On 22 October 2012, President Obama (acting through the Office of Foreign Assets Control ( “OFAC”), a division of the US Treasury Department) exercised the power contained in section 218 of ITRA. Specifically, a new section 560.215 was added to the ITSR. Section 560.215 provides (so far as is relevant) as follows:
“560.215 Prohibitions on foreign entities owned or controlled by U.S. persons.
(a) Except as otherwise authorized pursuant to this part, an entity that is owned or controlled by a United States person and established or maintained outside the United States is prohibited from knowingly engaging in any transaction, directly or indirectly, with the Government of Iran or any person subject to the jurisdiction of the Government of Iran that would be prohibited pursuant to this part if engaged in by a United States person or in the United States.
(b) Definitions:
(1) For purposes of paragraph (a) of this section, an entity is “owned or controlled” by a United States person if the United States person:
(i) Holds a 50 percent or greater equity interest by vote or value in the entity;
(ii) Holds a majority of seats on the board of directors of the entity; or
(iii) Otherwise controls the actions, policies, or personnel decisions of the entity.
(2) For purposes of paragraph (a) of this section, the term knowingly means that the person engages in the transaction with actual knowledge or reason to know.
(3) For purposes of paragraph (a) of this section, a person is “subject to the jurisdiction of the Government of Iran” if the person is organized under the laws of Iran or any jurisdiction within Iran, ordinarily resident in Iran, or in Iran, or owned or controlled by any of the foregoing.”
Alongside the new section 560.215 of the ITSR, OFAC also revised the ITSR to include a new section 560.555, allowing USCFEs to engage in transactions ‘ordinarily incident and necessary to the winding-down of transactions prohibited by section 560.215’. That wind-down provision effectively delayed the entry into force of the prohibition in the new section 560.215, until 8 March 2013.
Accordingly, from 9 March 2013, USCFEs fell within the scope of the ITSR. From that date, the 9 relevant Defendants would have been prohibited from paying a claim under the Policy. It was common ground that the claim was submitted after that prohibition came into effect.
The regulatory landscape changed again in 2015–16 following the agreement of the Joint Comprehensive Plan of Action ( “JCPOA”) between Iran, the five permanent members of the UN Security Council plus Germany, and the EU. The JCPOA, effective from 18 October 2015, provided...
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