By John Whittaker, Partner, Clyde&Co.
This article is republished with the author’s permission. Any opinions expressed are those of the author, and do not necessarily reflect the views of Libya Business News.
The decision of Glenn Maud v The Libyan Investment Authority on 8 June 2015 is of interest to those involved with sanctions.
A claim was made by The Libyan Investment Authority (LIA) under a guarantee given by Mr Maud in his personal capacity in April 2008, before the imposition of sanctions against Libya in March 2011. The guarantee covered the default of a company (Propinvest Group Ltd).
The guarantee was overdue as from 2 March 2010. There was no dispute that the company had defaulted. LIA served a Statutory Demand on Mr Maud based on the guarantee issued in April 2008. The Statutory Demand was challenged by Mr Maud on grounds that to pay would amount to a breach of sanctions, and accordingly that it should be set aside.
Although in some respects the case was specific to the Libyan sanctions regime (in particular Council Regulation (EU No 204/2011) as amended) ("the Regulation"), the decision is relevant to other regimes such as Iran and Syria. There are a number of issues arising from the Judgment, which in the sanctions context are principally as follows:
The Judge decided:
- Meaning of funds
The guarantee was "funds" rather than "economic resources" and therefore subject to the more restrictive regime concerning "unfreezing".
- Derogations applicable to pre-existing contract
Notwithstanding the "unfortunate" wording in the Regulation, there was no inconsistency between allowing funds to be "made available" to the LIA and their "assets outside Libya" being frozen. The derogations available in respect of "making funds available", for example, in respect of pre-existing contracts could not be construed on the wording of the Regulation as applicable to the "freezing restriction". The "freezing restriction" in relation to "funds" prevents "any move, transfer, alteration, use of, access to, or dealing with funds in any way that would result in any change in their volume, amount, location, ownership, possession, character, destination or other change that would enable the funds to be used" (Article1(b) of the Regulation) (emphasis added). The Judge decided that conversion of "the contingent rights under a guarantee into cash once the principle debtor has defaulted and liability under the guarantee had arisen" would amount to a change of character.
- An HM Treasury Licence
An alternative argument was advanced by LIA. This concerned the application of Domestic Regulation applicable to Libya1 which provides that the prohibitions set out do not apply to anything done under the authority of a licence granted by HM Treasury. The LIA maintained that since Mr Maud is the debtor it was his responsibility to take whatever steps he could to make payment under the guarantee. This included an application for a licence to be granted by HM Treasury. It appears that no application was made, neither by Mr Maud nor by the LIA. The Judge decided first, that the obligation to obtain a licence is on the sanctioned entity, i.e. the LIA not Mr Maud. Second, it would be wrong for the Court to make an assumption that a licence would be granted in these circumstances and that payment of money to the LIA in these circumstances would not amount to a breach of the sanctions regime. The Judge's decision seems to have been solely based on the submission of LIA that since the guarantee was not frozen it was not "affected" by sanctions, a point which, as mentioned above, the Judge rejected.
Mr Maud also maintained that he was not obliged to pay under the guarantee by virtue of Article 12 of Regulation 45/2015 which provides immunity for certain sanctions related claims. This provision (which is identical to the provisions in both the Iranian and Syrian regime) provides that "No claims in connection with any contract or transaction the performance of which has been affected, directly or indirectly in whole or in part, by the measures imposed under this Regulation, including claims for indemnity or any other claim of that type, such as a claim for compensation or a claim under a guarantee, in particular a claim for extension or payment of a bond, guarantee or indemnity, particularly a financial guarantee or financial indemnity, of whatever form, shall be satisfied, if they are made by ... designated persons; ... any other Libyan person, entity or body". The Judge decided that the guarantee issued by Mr Maud fell within the terms of this Article.