US Secondary Sanctions Recognized As "Mandatory Provision Of Law" In UK Contract

Key takeaways:

• The English High Court recently decided a case in which a UK borrower sought to rely on a “mandatory provision of law” clause to avoid paying interest on a loan provided by an entity owned by a person on the SDN list maintained by OFAC.
• Despite the lending agreement being governed by UK law and there being no U.S. nexus, the English High Court held that U.S. secondary sanctions can constitute a “mandatory provision of law” affecting the UK borrower, as there was a risk that payment of interest could lead to the United States imposing secondary sanctions on the UK borrower.
• The decision constitutes a broad interpretation of the “mandatory provision of law” exception and may lead to other parties seeking to avoid contractual obligations on the grounds of US secondary sanctions.