The Court of Appeal handed down its judgment in the case of Lamesa Investments Ltd v Cynergy Bank Ltd [2020] EWCA Civ 281 on 30 June 2020. The case appealed a 2019 High Court judgment that found that Cynergy Bank Limited was entitled to refuse to pay interest payments to Lamesa Investments Ltd, under a facility agreement, due to a concern that Cynergy would be subject to US secondary sanctions (please see our previous blog post here).

The Court dismissed the appeal, agreeing with the High Court decision but disagreeing with some of the reasoning.

The case serves as a reminder of the importance in being as clear as possible in sanctions clauses, particularly given the complexity of how US sanctions can apply and the fact that a number of factors will be balanced in interpreting sanctions clauses.


The appellant, Lamesa Investments Limited (“Lamesa“), had lent £30m to Cynergy Bank Limited (“Cynergy“) under an English law facility agreement.  The agreement contained a clause stating that Cynergy would not be in default if it refused to pay where “such sums were not paid in order to comply with any mandatory provision of law, regulation or order of any court of competent jurisdiction“.

Lamesa was indirectly owned by a Russian national, who became designated under US sanctions after Lamesa had lent the funds. Following the designation, Cynergy refused to make interest payments to Lamesa, citing US secondary sanctions that could be applied to Cynergy if it “knowingly facilitated a significant financial transaction on behalf of Lamesa’s Russian owner, and seeking to rely on the compliance with laws clause above.

Lamesa disagreed with Cynergy’s position, and took the matter to the High Court.  The High Court ruled in Cynergy’s favour, holding that the words “mandatory provision of law” meant a provision of law that the parties could not vary or disapply.  Since neither party would be able to disapply the US secondary sanctions, they constituted mandatory law.  Additionally, Cynergy was acting to “comply” with the secondary sanctions on the basis that there is a risk of a penalty (e.g., designation) under the secondary sanctions. In the High Court’s view, Cynergy’s refusal to pay therefore did not constitute an act of default.  Lamesa subsequently appealed to the Court of Appeal.


Lamesa argued the US secondary sanctions did not contain an express legal prohibition on payment, and therefore did not require Cynergy to act or not act in a particular way. It also noted that the relevant clause was a standard form of wording (and not the subject of specific negotiations), and that clearer wording was needed in order for Cynergy to escape its obligation to pay.

Cynergy argued, among others, that the clause was similar to language used in the EU Blocking Regulation (which prohibits “comply[ing] […] with any requirement or prohibition […] based on or resulting” from US sanctions legislation concerning Cuba and Iran).  It was therefore claimed that the parties intended for the clause to apply to the US secondary sanctions.

The Court of Appeal upheld the High Court’s judgment, albeit for different reasons than the High Court gave. In particular, in balancing a number of factors as per accepted principles of contractual interpretation under English law (including the relevant context, the commercial interests of the parties, and the fact that this was a standard clause intended to apply to international banks), Sir Geoffrey Vos placed material weight on the following in upholding the High Court’s position:

  • That the clause did not extinguish the obligation to pay, but instead meant that Cynergy was not in default and its obligation to pay was delayed (albeit recognising this may be for some considerable time).
  • That Cynergy’s reason for withholding interest payments is what mattered, rather than whether Cynergy would be certain or only likely to be sanctioned.
  • That a provision of law would be “mandatory” for the purposes of the clause if it imposes a “requirement or prohibition”. In this regard, the court noted (i) the mandatory nature of the relevant US secondary sanctions penalties (which the President “shall impose”, unless determined otherwise); and (ii) the terms of the EU Blocking Regulation, which it suggested regarded US secondary sanctions legislation as imposing a “requirement or prohibition” with which EU parties were otherwise required to “comply”. The court also stated that the terms of the EU Blocking Regulation would have been known to the parties at the time of drafting the facility agreement. Additionally, US secondary sanctions would have been far more likely to be a potential problem than US primary sanctions as the parties were outside US jurisdiction.

That said, this was by far a clear-cut decision. In his judgement, Lord Justice Arnold – while ultimately not dissenting – expressed doubts around the conclusion in respect of the wording “in order to comply with”, noting Lamesa’s argument that clearer words would be needed in order to excuse a party from a payment obligation.

Key considerations

This case underlines the risks around differing interpretations of sanctions clauses, where a number of factors will be weighed on a case-by-case basis (even where industry standard form wording is used). In turn, this underlines the importance – where possible – of including tailored sanctions clauses in contracts, especially where it is possible that extraterritorial sanctions may apply.  Depending upon the precise fact pattern, standard compliance with laws clauses may result in unexpected outcomes, whereas a bespoke sanctions clause can be drafted to take into account the unusual risks posed by extraterritorial measures such as secondary sanctions. 

In light of the Court of Appeal’s expansive interpretation, businesses engaged in countries subject to US secondary sanctions regimes may wish to consider reviewing the sanctions and compliance with laws clauses in their standard form contracts, in order to ensure that these clauses will operate as intended should there be a risk of exposure under secondary sanctions.