English High Court Comments On The Jurisdictional Scope Of The UK Blocking Regulation For The First Time

• Published date: 08 January 2026
• Law Firm: Herbert Smith Freehills Kramer LLP
• Author: Susannah Cogman, Kate Meakin, Elizabeth Head and Ali Grodzki

High Court finds UK broker did not breach contract by refusing to return funds to US-sanctioned client in first recorded case to consider the UK Blocking Regulation and its interaction with the Ralli Bros principle

The High Court has dismissed a claim brought against a UK derivatives broker following its refusal to return funds to a UAE client who was designated by the US as a specially designated national (SDN) under the Iranian sanctions regime: Beneathco DMCC v R.J. O'Brien Ltd [2025] EWHC 3079 (Comm).

The court found against the sanctioned claimant on the basis that the (largely unwritten) contract between the parties should be construed as imposing only a narrow obligation on the defendant broker to pay its client (and no other party) on demand and in the currency in which the funds were held (which was USD in this case). As the claimant's payment requests specified that payment should be made in another currency and to a third party, the broker therefore had no obligation to make payment.

The court went on to provide, on an obiter basis (and therefore not binding), a detailed analysis of the broker's alternative defence, namely that any obligation to pay would have been suspended under the common law principle in Ralli Bros v Compania Naviera Sotay Aznar [1920] 2 KB 287. As a refresher, the Ralli Bros principle provides a limited exception to the general rule that an English law contract is enforced without regard to foreign illegality. Where contractual performance necessarily requires an act to be done in a place where it is unlawful to carry it out, the obligation is suspended to the extent of that illegality (we recently considered the application of the Ralli Bros principle in the context of LLC EuroChem North-West-2 & Anor v Société Générale S.A. & Ors [2025] EWHC 1938 (Comm) - see our blog post).

The decision is notable as it is the first known case to comment (obiter) on the interplay between the Ralli Bros principle and the UK Blocking Regulation (Retained Council Regulation (EC) No 2271/96 of 22 November 1996 (as amended by The Protecting against the Effects of the Extraterritorial Application of Third Country Legislation (Amendment) (EU Exit) Regulations 2020)). The UK Blocking Regulation seeks to counteract the extraterritorial effect of specified foreign sanctions (currently, US sanctions against Iran and Cuba) by prohibiting UK persons from complying with those proscribed laws. Many readers will be comforted that the court viewed the UK Blocking Regulation as only prohibiting compliance with extra-territorial US legislation. Since the inception of the UK Blocking Regulation, it has been the consensus that the UK Blocking Regulation should not be interpreted as prohibiting UK persons from complying with US sanctions within the US, but this is the first time that view has received judicial endorsement in England and Wales. However, some uncertainty will remain on this point, and the interpretation of the UK Blocking Regulation more generally, until there is binding authority.

We consider the decision in more detail below.

Background

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