UK Court Adopts Broad Interpretation Of 'No Claims' Clauses In EU Sanctions Regulations

The English High Court recently handed down judgment in the case of Ministry of Defence & Support for Armed Forces of the Islamic Republic of Iran v. International Military Services Ltd [2019] EWHC 1994 (Comm). The Court held that the claimant was barred by EU sanctions legislation from claiming interest on an arbitral award obtained against the defendant. The decision is likely to have significant consequences for the interpretation of so-called “no claims” clauses widely included in EU sanctions legislation. Ministry of Defence & Support for Armed Forces of the Islamic Republic of Iran v. International Military Services Ltd [2019] EWHC 1994 (Comm) (24 July 2019). A recent decision of the English Commercial Court (the “Court”) is likely to have significant repercussions for the interpretation of the so-called “no claims” clauses widely included in EU sanctions legislation. These provisions generally prevent persons targeted by EU sanctions from bringing claims when contracts or transactions are affected by EU sanctions restrictions. The Court adopted a broad interpretation of these provisions, which may further limit redress available in such circumstances.

Background. In 2001, an arbitral tribunal awarded the Ministry of Defence & Support for Armed Forces of the Islamic Republic of Iran (“MODSAF”) damages plus interest for a breach of contract by International Military Services Ltd (“IMS”). MODSAF sought to enforce that award in the UK, but the enforcement action was stayed pending a challenge to the arbitral award in the Dutch courts. In the meantime, the EU imposed asset freezes against certain Iranian entities pursuant to Regulation 423/2007 (which later became Regulation 267/2012). In 2008, those sanctions, which remain in force, were extended to include MODSAF. As a result, IMS has been prohibited from paying any amounts under the award to MODSAF. IMS also argued, however, that it was not liable—at all—to pay interest on the award for the period after the sanctions were imposed. In particular, IMS argued that two provisions of the applicable sanctions legislation—Articles 38 and 42 of Regulation 267/2012—preclude liability for any interest accrued during the sanctions period.

The “No Claims” Clause Prevents MODSAF from Claiming Interest Accrued on the Arbitral Award for the Period When Sanctions Were in Force. Analogues to Articles 38 and 42 of Regulation 267/2012 exist in most EU sanctions regimes and, prior to this case, had not...