Thu, 26 April, 2018
“Persons whose property and interests in property are blocked pursuant to an Executive order or regulations administered by OFAC (blocked persons) are considered to have an interest in all property and interests in property of an entity in which such blocked persons own, whether individually or in the aggregate, directly or indirectly, a 50 percent or greater interest. Consequently, any entity owned in the aggregate, directly or indirectly, 50 percent or more by one or more blocked persons is itself considered to be a blocked person. The property and interests in property of such an entity are blocked regardless of whether the entity itself is listed in the annex to an Executive order or otherwise placed on OFAC's list of Specially Designated Nationals ("SDNs"). Accordingly, a U.S. person generally may not engage in any transactions with such an entity, unless authorized by OFAC. …..
U.S. persons are advised to act with caution when considering a transaction with a non-blocked entity in which one or more blocked persons has a significant ownership interest that is less than 50 percent or which one or more blocked persons may control by means other than a majority ownership interest. Such entities may be the subject of future designation or enforcement action by OFAC. Furthermore, a U.S. person may not procure goods, services, or technology from, or engage in transactions with, a blocked person directly or indirectly (including through a third party intermediary).”
“impose the sanctions described in subsection (b) with respect to a foreign person if the President determines that the foreign person knowingly on or after the date of the enactment of the Countering Russian Influence in Europe and Eurasia Act of 2017 ….
(b) facilitates a significant transaction or transactions, including deceptive or structured transactions, for or on behalf of –
(A) any person subject to sanctions imposed by the United States with respect to the Russian Federation; or
(B) any child, spouse, parent or sibling of any individual described in subparagraph (A)”. (added emphasis)
“For purposes of section 10(a)(2) of SSIDES, OFAC will consider the totality of the facts and circumstances when determining whether transactions are “significant.” OFAC will consider the following list of seven broad factors that can assist in the determination of whether a transaction is “significant”: (1) the size, number, and frequency of the transaction(s); (2) the nature of the transaction(s); (3) the level of awareness of management and whether the transaction(s) are part of a pattern of conduct; (4) the nexus between the transaction(s) and a blocked person; (5) the impact of the transaction(s) on statutory objectives; (6) whether the transaction(s) involve deceptive practices; and (7) such other factors that the Secretary of the Treasury deems relevant on a case-by-case basis.”
“For purposes of section 10(a)(2) of SSIDES, facilitating a significant transaction for or on behalf of a person will be interpreted to mean providing assistance for a transaction from which the person in question derives a particular benefit of any kind (as opposed to a generalized benefit conferred upon undifferentiated persons in aggregate). Assistance may include the provision or transmission of currency, financial instruments, securities, or any other value; purchasing, selling, transporting, swapping, brokering, financing, approving, or guaranteeing; the provision of other services of any kind; the provision of personnel; or the provision of software, technology, or goods of any kind.” (added emphasis)
This will have to be worked out on a case-by-case basis by reference to any specific contractual provisions (i.e. force majeure or sanctions clauses). There may also be questions as regards whether the effect of the US sanctions renders a contract subject to English law illegal and unenforceable.
The first question will be whether the particular transaction is caught by the US sanctions regime. This will largely depend upon the construction and effect of the amendment to section 10 of SSIDES which will be a matter of US law. However at the moment (and in the absence of more specific guidance) FAQ 545 provides guidance as to the likely approach to be adopted.
The second question will be whether, even if the US sanctions regime is applicable, a contract governed by English law is rendered illegal and unenforceable by reference to an overseas statutory regime. In Rallis Bros. v. Compania Naviera Sota y Aznar  2 KB 287 the Court of Appeal established a common law rule that where an act required by a contract to be performed in a foreign country becomes illegal under that country’s law, the contractual obligation to perform that act is discharged. Applying that principle, it was held that where under a contract governed by English law, charterers had agreed to pay freight in Spain to shipowners at a particular rate, and the Spanish government, after the conclusion of the contract, promulgated an order that freight should not exceed a fixed sum which was less than the agreed rate, the charterers were only obliged to pay the fixed rate rather than the agreed rate.
The principle was restated by Lord Collins in Ryder Industries Ltd v Chan (HKCFA: 17/11/2015) at . A contract governed by English law will not usually be affected by illegality under some other system of law unless the contract to be performed involved “a sufficiently serious breach of foreign law which reflects important policies of the foreign state or separate law district may be such that it would be contrary to public policy to enforce a contract. But there is no basis in authority or principle for holding that every breach of foreign law would come into this category”.
However the editors of the 4th Supplement to Dicey, Morris and Collins: The Conflicts of Laws (15th Ed) at para 32-102 suggest that there may be scope for adopting a flexible approach to the question whether a contract is tainted by illegality in the light of the decision of the Supreme Court in Patel v Mirza  UKSC 42.
Finally there are also wider commercial considerations. Even if the contract governed by English law is not rendered unenforceable, a contractual party with interests or assets in the United States may nevertheless be (or feel) exposed.
 See Freehill Hogan & Mahar LLP’s “Client Alert” dated 12th April 2018.
Nigel Jacobs QC is a specialist in shipping, insurance, commodity and commercial disputes. His appears both in the High Court and in arbitration. He is regularly instructed in (worldwide) freezing injunction, anti-suit injunctions and jurisdictional disputes. His recent arbitrations include the termination of a substantial Middle Eastern joint venture and a successful challenge to the conclusion of a long-term charterparty. He is currently involved in an unsafe port case (South America) and a number of other casualties. He is also increasingly appointed as an arbitrator.
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