Arbitration - application to set aside the order of the Bailiff
Before : |
Sir Michael Birt, Commissioner, and Jurats Christensen MBE and Berry |
Between |
OWH SE i.L |
Plaintiff |
And |
RTI Ltd |
Defendant |
Advocate R. S. Christie for the Plaintiff.
Advocate W. A. F. Redgrave for the Defendant
judgment
the COMMISSIONER:
1. This is an application by the Defendant ("RTI") to set aside the ex parte order of the Bailiff on 18 November 2024 granting leave to the Plaintiff ("OWH") to enforce an arbitration award dated 25 September 2024 in its favour in the sum of €213,770,150.26 ("the Award") as if it were a judgment given by the Royal Court.
2. The application is based upon the ground that enforcement of the Award would be contrary to public policy in Jersey as reflected in Article 46A of the Sanctions and Asset-Freezing (Jersey) Law 2019 ("the Sanctions Law").
3. The factual background is described in detail in the Award and is also conveniently summarised in the skeleton arguments of both parties, upon which we have drawn. At this stage of the judgment, it is only necessary to describe the background in fairly general terms.
4. OWH is a bank incorporated in Germany. It is, for all practical purposes, a wholly owned (99.39%) subsidiary of VTB Russia (PJCS) ("VTB Russia"), a Russian bank. At the time of the events in question, OWH was called VTB Bank (Europe) SE, but it changed its name with effect from 2 January 2024 and we shall refer to it by its current name. It is now in a form of solvent liquidation.
5. RTI is a company incorporated in Jersey. The majority of its board of directors were at the material time resident in Gibraltar. It is a member of Rusal Group and its parent is United Company Rusal International PJSC ("Rusal"), a company that was originally incorporated in Jersey but has subsequently redomiciled to Russia. The Rusal Group is a substantial enterprise whose business is the production and sale of aluminium.
6. On 11 September 2019, RTI and OWH entered into a currency swap contract. RTI entered into the contract in order to hedge the Rusal Group's exposure to movements in the value of the Russian rouble (-rouble-).
7. The contract took the form of an ISDA (International Swaps and Derivatives Association) Master Agreement (2002 edition) ("MA"), an ISDA Schedule ("Schedule") and a Credit Support Annex ("CSA"). Under the CSA, OWH was entitled to require the payment of extra collateral from RTI if the USD/rouble rate moved such that the collateral already posted (if any) would be insufficient to cover the maximum amount RTI might have to pay. Rusal guaranteed RTI's obligations under a deed of guarantee.
8. Between April 2019 and November 2021, RTI and OWH entered into eleven transactions, each evidenced by a separate Confirmation. The transactions were all USD/rouble swaps or forward transactions.
9. The MA was governed by English law and provided that any dispute should be referred to and finally resolved by arbitration conducted in accordance with the London Court of International Arbitration rules.
10. A convenient summary effect of the various agreements (which, for convenience, we shall refer to in composite as "the Agreement" unless it is important to articulate which particular agreement is being referred to) is contained in the Award at paras 164-173. For our purposes, a shorter summary suffices as follows:
(i) The failure to pay an amount due under the Agreement (including a failure to pay a margin call) is a Potential Event of Default which, upon the giving of a notice to the defaulting party and the failure by the latter to remedy the default on the first local business day after notice of failure, becomes an Event of Default.
(ii) Upon the occurrence of an Event of Default, and provided it is continuing, the non-defaulting party may give not more than 20 days' notice to the defaulting party specifying the relevant Event of Default and designating a day not earlier than the day such notice is effective as an Early Termination Date in respect of all outstanding transactions.
(iii) Where it becomes unlawful under any applicable law to make a payment required under the Agreement, this amounts to an 'Illegality'. If an Illegality as so defined occurs, then the affected party must, promptly on becoming aware of it, notify the other party specifying the nature of the Illegality.
(iv) Where an Illegality occurs, payment obligations are deferred for a waiting period of three business days. On the expiry of the waiting period, either party may, on no more than 20 days' notice, designate an Early Termination Date. The Agreement further provides that an event or circumstance which gives rise to an Illegality will not, for so long as that is the case, also give rise to an Event of Default. Thus, if a party successfully invokes the Illegality provision before the other party serves a notice designating an Early Termination Date for Event of Default, then Illegality will 'trump' a (non-payment) Event of Default and the rights of the parties must then be determined by reference to the Illegality regime.
(v) However, whether or not non-payment is an Event of Default or arises by reason of Illegality, if either circumstance is continuing following any relevant waiting periods, the remedy in either event is Early Termination. Although there are minor differences in the calculation procedures, what the Agreement does not provide for is an indefinite suspension of obligations during the period of Illegality if one or other party wishes to bring about an Early Termination.
(vi) The position is different in respect of a "Relevant Sanctions Event". This occurs where the making of a required payment is prevented by sanctions (as defined). In that event, provided the relevant notice is given, there is no right of Early Termination on the part of the payee and there is no Event of Default. Thus, from the point of view of the paying party, a Relevant Sanctions Event is preferable to Illegality since a party which is entitled to rely upon it benefits from an indefinite suspension of its obligations of performance, whereas under Illegality, the non-affected party can choose to terminate the outstanding transactions at its option.
11. On 24 February 2022, Russia invaded Ukraine. Wide-ranging sanctions were imposed by the international community on Russian banks, companies and individuals. Thus, on that day:
(i) VTB Russia became a Designated Person under the relevant UK sanctions regulations.
(ii) In consequence, VTB Russia became a Designated Person under the relevant Jersey and Gibraltar legislation.
(iii) The US sanctions authority (OFAC) added VTB Russia and OWH to its list of Specially Designated Nationals and Blocked Persons.
(iv) The German federal financial supervisory authority (BaFin) issued an order banning OWH from making detrimental payments or asset transfers to VTB Russia or VTB Group companies.
12. Article 11 of the Sanctions Law makes it a criminal offence to make funds or financial services available to a Designated Person in the following terms:
"(1) A person ("P") must not make funds or financial services available (directly or indirectly) to a designated person if P knows, or has reasonable cause to suspect, that P is making the funds or financial services so available.
(2) A person who contravenes paragraph (1) commits an offence and is liable to imprisonment for a term of seven years and to a fine."
13. A Jersey company may commit an offence under Article 11 even by conduct outside Jersey pursuant to Article 45 of the Sanctions Law which provides as follows:
"(1) An offence under this Law may be constituted by conduct (including acts and omissions) wholly or partly outside Jersey by - ......
(b) a person incorporated or constituted under the law of Jersey."
14. Immediately following the invasion, the rouble suffered a steep fall. This caused OWH to issue a margin call to RTI on 25 February 2022 requiring payment of USD 43.5 million. RTI did not pay the margin call on the due date of 28 February because it had concerns about US secondary sanctions. Subsequently, on 4 March, it raised the question of Jersey sanctions with its legal advisers. OWH issued a further 18 margin calls between 25 February and 24 March, which RTI similarly did not pay.
15. Later in this judgment, we describe the events during this period in more detail but for present purposes, it is sufficient to say that over the next few weeks, there were discussions between RTI and OWH as to whether, and if so how, the margin calls could lawfully be paid in view of US secondary sanctions and Jersey sanctions. OWH itself was not a Designated Person under the Sanctions Law, but the concern was that payment to OWH would result in funds being made available, directly or indirectly, to its parent VTB Russia (which was a Designated Person) so as to amount to a breach of Article 11 of the Sanctions Law.
16. On 23 March 2022, in view of the failure to pay, OWH sent RTI a Notice of Early Termination for an Event of Default ("the Termination Notice") designating 25 March as the Early Termination Date. The sum calculated shortly afterwards as being due as a result was €214m. RTI responded on 31 March stating that it disagreed that an Event of Default had occurred or that OWH was entitled to designate an Early Termination Date. The letter repeated RTI's concerns that payments to OWH would risk breaching the Sanctions Law or attracting secondary sanctions under US law.
17. On 24 June 2022, RTI filed a request for arbitration asserting that the Termination Notice was invalid and that it was not liable to pay the termination amount.
18. The Arbitration Tribunal sat for five days in July 2024 and made the Award on 25 September 2024. It had to consider a number of issues but it is not necessary to recite these. For our purposes there were two relevant matters it had to decide. The first was whether RTI was entitled to rely on a Relevant Sanctions Event as suspending its payment obligations in March 2022 as described at para 10(vi) above. In that event, no Event of Default would have arisen by reason of RTI's non-payment of the margin calls.
19. Secondly, if the answer to that question was 'no', then the Tribunal had to consider whether RTI was entitled to rely on Illegality as a superior event to an Event of Default, thereby precluding termination on the basis specified in the Termination Notice.
20. The Tribunal held that RTI could not rely on a Relevant Sanctions Event as preventing it from performing its obligations for a number of reasons, including that the sanction authorities of Jersey and Gibraltar (where the majority of the board of directors of RTI were resident) were not Sanctions Authorities listed in the Schedule as being persons whose measures would count for the purposes of giving rise to a Relevant Sanctions Event.
21. As to the second issue, the Tribunal held that it was a condition precedent to RTI being able to rely on Illegality that it gave notice of Illegality 'promptly' in accordance with the Agreement. It found that RTI had not given such notice promptly and accordingly could not rely on Illegality. It followed that the Termination Notice was valid and that early termination of all outstanding transactions took place in accordance with the Termination Notice. Having considered matters of quantum, the Tribunal made the Award of €213,770,661.77 against RTI.
22. Because of its decision on these two points, the Tribunal did not rule on the issue of whether payment of the margin calls would in fact have been in breach of Article 11; nor did it consider the effect of Article 46A or the equivalent statutory provision in the United Kingdom (which only applied in respect of UK sanctions).
23. It is in these circumstances that OWH has instituted proceedings in this court to enforce the Award. It is common ground that the Award is a 'Convention award' for the purposes of the Arbitration (Jersey) Law 1998 ("the 1998 Law") i.e. it is an award made in a territory of a State (the UK) which is party to the New York Convention.
24. Pursuant to Article 42(1) of the 1998 Law, a Convention award is enforceable in Jersey in the same way as a domestic arbitration under Article 29 of the Law which provides:
"An award on an arbitration agreement may, by leave of the Court on an application made ex parte, be enforced in the same manner as a judgment or order to the same effect; and, where leave is so granted, the act of court shall specify the manner of enforcement."
25. Article 44 of the 1998 Law sets out the circumstances in which enforcement of a Convention award may be refused. It provides (so far as relevant) as follows:
"44. Refusal of enforcement
(1) Enforcement of a Convention award shall not be refused except in the cases mentioned in this Article.
(2) Enforcement of a Convention award may be refused if the person against whom it is invoked proves -
(a) ....
(b) ....
(c) ....
(d) ....
(e) ....
(f) ....
(3) Enforcement of a Convention award may also be refused if.... it would be contrary to public policy to enforce the award...."
26. The sole ground relied upon by RTI is that set out in Article 44(3), namely that it would be contrary to public policy to enforce the Award. It is therefore helpful to consider some of the cases on this topic.
27. We start with the clearly established approach of this court, in common with the courts of other jurisdictions, to adopt a pro-enforcement approach to arbitration awards. Thus, in Tepe Insaat (i)Sanayii AS v Boru Hatlari Ile Petrol Tasima AS [2016] (1) JLR 218 at [26] the court said this:
"26. The general approach to the enforcement of arbitration awards under the New York Convention was authoritatively summarised in the recent Privy Council case of Cukurova Holdings AS v Sonera Holdings BV [2014] UKPC 15, an appeal from the British Virgin Islands where the relevant statute is in similar terms to the 1998 Law. On behalf of the Privy Council, Lord Clarke said as follows....
"34. The general approach to enforcement of an award should be pro-enforcement. See e.g. Parsons and Whittemore Overseas Co Inc v Societe Generale 508 F 2d 969 (1974) at 973:
"The 1958 Convention's basic thrust was to liberalise procedures for enforcing foreign arbitral awards... [it] clearly shifted the burden of proof to the party defending against enforcement and limited his defences to seven set forth in Article V."
In IPCO (Nigeria) v Nigerian National Petroleum [2005] 2 Lloyd's Rep 326, Gross J said at para 11, when considering the equivalent provision of the English Arbitration Act 1996:
"...there can be no realistic doubt that section 103 of the Act embodies a pre-disposition to favour enforcement of New York Convention awards, reflecting the underlying purpose of the New York Convention itself..."
The Board agrees. There must therefore be good reasons for refusing to enforce a New York Convention award...."
27. Thus the court cannot refuse to enforce an award under the New York Convention merely because it considers that the arbitrators have reached an erroneous decision, whether on the law or on the facts. It may only refuse to enforce such an award in the limited circumstances set out in art. 44(2) or on the ground of public policy as set out in art. 44(3). Furthermore, a refusal on the grounds of public policy should be approached with extreme caution...."
28. There is no previous authority in Jersey which has considered the public policy exception to the enforcement of arbitration awards, but the position has been considered in a number of English cases in relation to section 103(3) of the Arbitration Act 1996, which is in identical terms to Article 44(3) of the 1998 Law. It is clear that the English courts have adopted a very restrictive approach to the public policy exception. In our judgment, the approach articulated in the cases mentioned below is equally applicable in Jersey law.
29. In Deutsche Schachtbau-und Tiefbohrgesellschaft MbH v Ras Al-Khaimah National Oil Co [1987] 2 Lloyd's Rep. 246 at 254, Sir John Donaldson MR said as follows when discussing the statutory predecessor to section 103(3):
"Considerations of public policy can never be exhaustively defined, but they should be approached with extreme caution. As Burrough J remarked in Richardson v Mellish (1824) 2 Bing. 229, 252, 'It is never argued at all, but when other points fail'. It has to be shown that there is some element of illegality or that the enforcement of the award would be clearly injurious to the public good or, possibly, that enforcement would be wholly offensive to the ordinary reasonable and fully informed member of the public on whose behalf the powers of the state are exercised."
30. In RBRG Trading (UK) Limited v Sinocore International Co Limited [2018] EWCA Civ 838, Hamblen LJ in the Court of Appeal at [24] quoted the following extract from Dicey, Morris and Collins, The Conflict of Laws (15th edition) at 16-150 as follows:
"English law recognises an important public policy in the enforcement of arbitral awards, and the courts will only refuse to do so under Rule 69(2) in a clear case. A controversial question, which has been the subject of several recent decisions, is the extent to which it may be contrary to English public policy to enforce a foreign arbitral award rendered on the basis of an underlying contract the enforcement of which (as distinct from enforcement of the arbitral award) might be contrary to English public policy. The following principles can be derived from the authorities. First, it is legitimate for the court, in considering whether a foreign arbitral award should not be enforced on the ground of public policy, to take account of the underlying contract on which the award is based. Second, if that contract is in itself contrary to public policy (e.g. the classic case of a contract to share the proceeds of crime) the award may be refused enforcement on the ground of public policy. Third, it is important to distinguish between domestic public policy in English law; and considerations of international public policy applied by the English courts so as to disapply foreign law or refuse to enforce an arbitral award, as the case may be. Thus the mere fact that English law would have arrived at a different result does not of itself justify the application of English public policy... Sixth, the court has to perform a balancing exercise between the finality that should prima facie exist particularly for those that agree to have their disputes arbitrated, against the policy of ensuring that the enforcement power of the English court is not abused - the nature of, and strength of the case for, the illegality, and the extent to which it can be seen that the asserted illegality was addressed by the arbitral tribunal are factors in the balancing exercise between the competing public policies of finality and illegality."
31. Hamblen LJ then said at [25(1)]:
"As is emphasised in Dicey, Morris & Collins, it is widely accepted that the public policy ground should be given a restrictive interpretation. This is recognised in the English law authorities - for example, Sir John Donaldson MR in Deutsche Schachtbau v National Oil [1987] 3 WLR 1023 at p 1035D - 'Considerations of public policy can never be exhaustively defined, but they should be approached with extreme caution'; Gross J in IPOC (Nigeria) v Nigerian National Petroleum [2005] 2 Lloyd's Rep 326 at [11] - '...there can be no realistic doubt that section 103 of the Act embodies a pre-disposition to favour enforcement of New York Convention Awards, reflecting the underlying purpose of the New York Convention itself; indeed, even when a ground for refusing enforcement is established, the court retains a discretion to enforce the award....'."
32. Hamblen LJ went on to say at [25(3)]:
"Where, on the facts found, there is no illegality under the governing law but there is illegality under English law, public policy will only be engaged where the illegality reflects considerations of international public policy rather than purely domestic public policy. This is in accordance with the rules at common law and under the Rome 1 Regulation (Article 21) in relation to the refusal of the application of the governing law on public policy grounds - see generally Dicey, Morris and Collins Rule 229 at 32R-181. In Lemenda Trading Co Limited v African Middle East Petroleum Co Limited [1998] 1 Lloyd's Rep 361 Philips J referred to the heads of public policy which would be engaged as being those "based on universal principles of morality". In Westacre [Investments Inc v Jugoimport-SPDR Holding Co Limited [2000] QB 288] the court stated at p304F that what the Lemenda case decided was that - "There are some rules of public policy which if infringed will lead to non-enforcement by the English court whatever their proper law and wherever their place of performance but others are based on considerations which are purely domestic"."
33. In Alexander Brothers Limited v Alstom Transport SA [2020] EWHC 1584 (Comm), Cockerill J summarised the authorities in the following terms:
"First there is the public policy in favour of enforcement. The basic and fundamental policy underlying both the New York Convention and the relevant parts of the Arbitration Act is to promote enforcement of New York Convention awards.....
70. In order to resist enforcement, a party must show that one of the grounds in sections 103(2) or 103(3) of the Arbitration Act is established. If none is established, section 103(1) makes clear that enforcement of the award "shall not be refused". Where a ground for refusing enforcement is established, the Court retains a discretion, albeit a narrow one, to enforce the award; Carpatsky (No 2) [40].
71. "Public policy" as referred to in section 103(3) of the Arbitration Act means the public policy of England and Wales (as the country in which enforcement is sought) in maintaining the fair and orderly administration of justice. The classic formulation as to what is seen as contrary to public policy is "contrary to the fundamental conceptions of morality and justice" of the forum....
72. The public policy exception in section 103(3) of the Arbitration Act is given a "restrictive interpretation"; "the public policy exceptions are a safety valve that should only be invoked in a clear case and which must be approached with extreme caution." Carpatsky (No 1) [41]."
34. Advocate Redgrave placed considerable reliance on the decision in Payward Inc & Others v Chechetkin [2023] EWHC 1780 (Comm). In that case, the defendant was a British national resident in England who entered into an online trading account with the third claimant, which was a UK company but part of a Californian group. The contract contained an arbitration clause and a California proper law clause. The defendant lost heavily and the claimants issued arbitration proceedings in California. The arbitrator applied the law of California and made an award in the claimants' favour.
35. Subsequently, the claimants sought to enforce the award in England. The defendant challenged the application relying on the public policy exception in section 103(3) of the Arbitration Act 1996. In particular, he argued that he was a 'consumer' within the meaning of the Consumer Rights Act 2015 of the United Kingdom ("the 2015 Act"). Section 62 of that Act provided that an unfair term in a consumer contract was not binding on the consumer. Section 74 of the 2015 Act specifically provided that the Act applied to contracts governed by foreign law provided that the contract had a close connection with the UK.
36. Bright J held that the defendant was a consumer and that the contract had the required close connection with the UK. Accordingly the 2015 Act applied to it. The judge held that enforcement of the award would be contrary to the specific public policy embodied in section 74 of the 2015 Act, namely that where a consumer contract has a close connection with the UK, the consumer rights issues should be dealt with under that statute rather than any foreign law. As the arbitration award had considered only the law of California, enforcement of it would be contrary to the public policy objective in section 74. The judge therefore refused leave to enforce the award.
37. Advocate Redgrave also referred to the case of Eternity Sky Investments Ltd v Xiaomin Zhang [2024] EWCA Civ 630. In that case Mrs Zhang had given a guarantee of the obligations of a Hong Kong company. In due course an arbitration award was obtained in Hong Kong against Mrs Zhang in respect of the guarantee and Eternity Sky sought to enforce the arbitration award against Mrs Zhang in England and Wales. Mrs Zhang argued that she was a consumer within the meaning of the 2015 Act, that the contract had a close connection with the UK and that the relevant term of the contract was unfair and therefore not binding on her. Leave to enforce should therefore not be granted on the basis that to do so would be contrary to public policy as reflected in the 2015 Act. The judge allowed enforcement on the basis, amongst other matters, that the guarantee did not have a close connection with the UK. On appeal, the Court of Appeal agreed and furthermore disagreed with the judge that Mrs Zhang was a consumer. Accordingly it upheld the judge's decision to permit enforcement of the arbitration award. However, at the conclusion of the Court of Appeal's judgment, delivered by Males LJ, the court agreed that effective consumer protection was an important aspect of public policy and went on to say at [140]:
"In order for the present issue to arise, Mrs Zhang needs to clear a number of hurdles - that she was a consumer, that the guarantee was therefore a consumer contract, that it has a close connection with the United Kingdom, and that its core term is lacking in transparency and unfair. If she were able to clear those hurdles, contrary to what I have so far decided, section 62 of the [2015 Act] provides unequivocally that 'An unfair term of a consumer contract is not binding on the consumer'. That is a principle of public policy which is embodied in primary legislation. To enforce the award would mean, contrary to what section 62 provides, that the personal guarantee is binding on Mrs Zhang."
38. Given the weight placed on these two cases by Advocate Redgrave, it is important to note that section 74 of the 2015 Act specifically provided that its provisions applied to contracts governed by foreign law if the contract had a close connection with the United Kingdom.
39. RTI relies on Article 46A of the Sanctions Law, which was introduced by amendment with effect from 8 June 2022. It is in the following terms:
"46A. Civil immunity
(1) A person is not liable to any civil proceedings to which that person would, in the absence of this Article, have been liable in respect of an act, if at the time of the act the person reasonably believed the act was necessary to comply with an obligation or prohibition imposed -
(a) by this Law;
(b) by an enactment under this Law; or
(c) by a direction or other instruction given under this Law or under an enactment under this Law.
(2) Nothing in paragraph (1) limits any other ground on which, in the absence of this Article, the person may claim not to be liable for an act."
Pursuant to the Interpretation (Jersey) Law 1954, an act includes an omission.
40. It is clear that Article 46A, together with other provisions, was introduced in order to strengthen Jersey's ability to implement all United Nations sanctions and autonomous UK sanctions. Thus the report accompanying the draft Sanctions and Asset Freezing (Amendment No 2) (Jersey) Law (which introduced Article 46A) contained the following comments:
"1.2 The draft Sanctions and Asset Freezing (Amendment No 2) (Jersey) Law 2002- (the "draft Law") to the Sanctions Law forms part of the preparation for the island's assessment by the Committee of Experts on the Evaluation of Anti Money Laundering Measures and the Financing of Terrorism (MONEYVAL). The MONEYVAL assessment will evaluate the Island's compliance with and effectiveness against the FATF Recommendations. The island will be assessed both against its "Technical Compliance" ("TC") with the 40 FATF Recommendations and its effectiveness in implementing the recommendations against 11 "Immediate Outcomes" ("ICs").
1.3 The Sanctions Law has been reviewed against the current FATF methodology for assessing the technical compliance ("TC") requirements of recommendation 6 ("R.6") and recommendation 7 ("R.7"), which concerned targeted financial sanctions relating to terrorism and targeted financial sanctions related to the financing of weapons of mass destruction proliferation, respectively.
1.4 Most of the changes that would be introduced by the draft law would improve Jersey's compliance with the TC requirements of R.6 and R.7, either through amendments to existing provisions or by adding new provisions...."
41. In relation to the proposed Article 46A, the report said as follows:
"2.3 Civil immunity
2.3.1 A new Article 46A would be inserted, which protects persons acting in good faith to comply with a sanction's obligation or prohibition from civil proceedings. These provisions are needed to comply with R.6 and R.7, which require explicit protections for third parties implementing their sanctions obligations." [emphasis added]
42. The Economic and International Affairs Scrutiny Panel also presented comments in connection with the draft Law. In relation to the proposed new Article 46A, the Scrutiny Panel said this:
"Civil immunity
A new Article would be inserted, which protects persons acting in good faith to comply with a sanction's obligation or prohibition from civil proceedings.
The Panel learned that the UK had recently been criticised in a MONEYVAL Report for not having a specific provision setting this out and this stressed the importance of Jersey meeting the FATF requirements."
43. In our judgment, it is clear that Article 46A is intended to support the important public interest of Jersey playing its part effectively in supporting sanctions imposed by the UN or the UK. Indeed, as described at paras 40-42 above, it was specifically intended to ensure that the Island complies with the technical requirements of Recommendations 6 and 7 of the FATF Recommendations. The obvious intention of the provision is to make it more likely that a person (including a company) will not make payments which turn out to be in breach of such sanctions. Previously, a person under a contractual liability to pay was on the horns of a dilemma. If he refused to pay, but it turned out that, strictly speaking, he was not prohibited from making the payment, he may have been liable in damages to the person he was supposed to pay. He therefore had to assess the risk of not paying against the risk of prosecution for breaching the Sanctions Law. With the introduction of Article 46A, it was no doubt intended that it would be more likely that a payer would err on the side of complying with sanctions because there would be protection from any liability at the instance of the payee if the payer reasonably believed that he was prevented from making the payment because of sanctions. He no longer had to prove that he was actually prevented. As Falk LJ, speaking for the Court of Appeal, said in Celestial Aviation Services Limited v Unicredit Bank GMBH [2024] EWCA Civ 628 in relation to the virtually identical provision in United Kingdom legislation:
"87. The evident purpose of s.44 is to ensure that a person is not pressurised into doing something that risks breaching sanctions by a fear of being exposed to civil claims...."
44. Having regard to the clear purpose of the provision to assist in ensuring that payments are not made in breach of international sanctions and the terms of Article 45 of the Sanctions Law extending the Jersey sanctions regime to cover payments by Jersey companies wherever they are effected, we find that the proper construction of Article 46A is that it applies not only to payments under a transaction which is governed by Jersey law but also to payments by a Jersey company or from Jersey in respect of transactions governed by some other proper law.
45. In our judgment, the public interest described above is of the sort referred to by Hamblen LJ in RBRG Trading in the passages quoted at paras 30 and 32 above, namely considerations of international public policy rather than purely domestic public policy. To allow enforcement of a foreign judgment or an award which has not considered whether the defence under Article 46A is available on the facts would be wholly inconsistent with the important public policy objective of the Article, namely the upholding and enforcement of international sanctions. Advocate Christie submits that, in order to amount to a rule of public policy for the purposes of Article 44(3) of the 1998 Law, a rule must be mandatory. Assuming this is correct, it seems to us that Article 46A is indeed a mandatory rule. A person is not to be liable for an act if he reasonably believes the act is necessary to comply with relevant sanctions obligations. The court has no discretion; if the defence is made out on the facts, the court has no alternative but to find the person not liable.
46. Accordingly, subject to the qualification described in the following paragraphs, we find that enforcement of an arbitration award against a party under an obligation to effect a payment he reasonably believes would be in breach of Jersey sanctions provisions in circumstances where the award has given no consideration to whether the defence provided for in Article 46A is available on the facts and where the court finds that it is so available, would fall within the public policy exception and such an award should not be enforced.
47. In written submissions made following the hearing, it was common ground between the parties that the relevant public policy is public policy at the time of the application to enforce an award. We accept that this is correct. However, it is important to identify with precision the public policy reflected by Article 46A. This requires consideration of whether the Article has retrospective effect.
48. Before turning to consider this aspect, we should address briefly Advocate Christie's submission that the doctrine of merger (approved as part of Jersey law by the Court of Appeal in Energy Investments Global Limited v Albion Energy Limited [2020] (2) JLR 421) means that the 'civil proceedings' before this court are not about whether RTI is liable for an act; they are only about RTI's liability under an arbitration award. It follows, he submits, that Article 46A is of no application.
49. However, that is to ignore the well-established principle, summarised in the passage from Dicey quoted at para 30 above, that it is legitimate for the court, in considering whether a foreign arbitral award should not be enforced on the ground of public policy, to take account of the underlying contract on which the award is based. We have held that it is Jersey public policy that a person should not be held liable for an act if he reasonably believes that the act (in this case non-payment) was necessary in order to comply with applicable sanctions obligations. It must follow that, if an award is based on a finding which is inconsistent with or has taken no account of Jersey public policy as reflected in Article 46A, it would be contrary to public policy to enforce the award. Whilst under the doctrine of merger the actual liability sought to be enforced is the liability under the award rather than a liability for breach of contract, when considering whether enforcement of the award would be contrary to public policy, the court must, as Dicey makes clear, be entitled to have regard to the underlying facts which gave rise to the award.
50. It is a well-established general principle that, unless a different intention appears, a statute applies from the time when it comes into force and does not have retrospective effect. The position at English law is summarised in Bennion, Bailey and Norbury on Statutory Interpretation (8th edition) at sections 7.13 and 7.14 of the authors' Code in the following terms:
"7.13 Retrospectivity: introduction and definition
(1) It is a principle of legal policy that, except in relation to procedural matters, changes in the law should not take effect retrospectively.
(2) Legislation is retrospective if it alters the legal consequences of things that happened before it came into force.
7.14 Presumption against retrospectivity
(1) Unless the contrary intention appears, an enactment is presumed not to be intended to have retrospective operation.
(2) The strength of the presumption varies from case to case, depending on the degree of unfairness that would result from giving the enactment retrospective effect.
(3) The greater the unfairness the clearer the language required to rebut the presumption.
(4) Special considerations apply to procedural changes (see Code s.7.15)."
51. This is equally the position in Jersey law. In Warren v Attorney General [2009] JCA 175, Sumption JA, speaking for the Court of Appeal, said at [11]:
"The starting point is that an enactment is presumed, unless a different intention appears, to apply from the time when it comes into force. The strength of that presumption varies with the circumstances, and it is fair to say that it is not normally regarded as applicable to purely procedural provisions... The real basis of the distinction [between substantive and procedural provisions] is that the presumption against retroactive effect is designed to protect accrued rights or obligations from retrospective alteration, unless it is sufficiently clear as a matter of construction that such an alteration was intended. It is conceived to be unjust to derive substantive rights or obligations from a person's conduct or some other state of affairs, by reference to a rule of statute law which did not exist at the time, because it is by then too late for him to act differently. By comparison, applying a new procedural provision to current proceedings will not normally involve any element of retrospectivity at all. A change in the procedural law of the court is not being applied retrospectively, simply because the proceedings are themselves concerned with things that happened long ago. The new procedural rule is being applied to what the court is doing now to discover the facts, and not to the facts themselves. To put the point another way, no accrued rights or obligations of a litigant are engaged by the court's decision to apply its current procedure to current proceedings....." [emphasis added]
52. To like effect are the observations of the Court of Appeal in Re Tantular [2020] JCA 013 at [32]-[49].
53. Advocate Redgrave prayed in aid the unfairness of what had occurred. As the Award stated at para 64, the effect of early termination might favour one party or the other depending upon the state of the market at the time of termination. On the facts of this case, early termination in March 2022 in the aftermath of the invasion of Ukraine and the consequent collapse of the rouble favoured OWH and substantially disfavoured RTI. However, by October 2022, the market had moved, with the consequence that early termination of all outstanding transactions would have substantially favoured RTI and disfavoured OWH. Advocate Redgrave submitted that the consequence for RTI of its proper and reasonable response to the imposition of sanctions had been that an enormous windfall had arisen in favour of a party that RTI reasonably believed was sanctioned under Jersey sanctions. However, this matter has to be approached as one of principle in accordance with well-established rules of construction.
54. In our judgment, there is nothing in the statute introducing Article 46A (or for that matter in the accompanying reports) to suggest that it was intended that Article 46A should apply to acts or omissions carried out before the date on which the Article came into effect. There is nothing therefore to rebut the normal presumption. Furthermore, to give the Article retrospective effect would clearly alter accrued rights or obligations. Thus, taking the facts of the present case, pursuant to the Award (ignoring Article 46A), RTI was liable to pay the Termination Amount because its failure to pay the margin call amounted to an Event of Default and accordingly a breach of contract. If Article 46A is given retrospective effect, as RTI suggests, this will retrospectively alter the accrued rights and obligations of the parties.
55. Furthermore, the clear purpose of Article 46A is to influence a payer's conduct by making it more likely that he will refuse to pay if he reasonably believes that payment would be in breach of Jersey sanctions. Until Article 46A was enacted, it could not have had any such influence. This further militates against a construction of the statute with retrospective effect.
56. We have no hesitation in concluding that Article 46A was not intended to have retrospective effect and applies only to acts carried out after the Article came into force on 8 June 2022.
57. As an alternative argument, Advocate Redgrave submitted that, even if Article 46A did not itself apply to acts which took place before 8 June 2022, it was good evidence of Jersey's underlying public policy prior to that date. In other words, given that an identical provision had been in force in the United Kingdom for a number of years and that the Article was needed to comply with the relevant FATF Recommendations, the court should find that there was a pre-existing public policy to the same effect as Article 46A.
58. We cannot accept this argument. Article 46A provides a defence to a claim in circumstances where liability would otherwise exist. It is not open to the courts of this jurisdiction to invent such a defence merely because the defence exists pursuant to a statute in the United Kingdom or because the FATF Recommendations require it. In an entirely domestic (i.e. Jersey) context, if before 8 June 2022, a plaintiff had sued a defendant in the Royal Court for breach of contract because a defendant had failed to pay a contractual sum merely because he reasonably believed that sanctions prevented him from doing so, the court would have had no option but to find the defendant liable.
59. In summary, we find that the public policy of Jersey at the present time is that, in respect of acts carried out after Article 46A came into effect on 8 June 2022, there can be no civil liability in respect of such an act if, at the time of the act, the person carrying out the act reasonably believed that it was necessary to do so in order to comply with a sanctions obligation or prohibition (as defined in Article 46A). Accordingly, on any future occasion concerning an act carried out after 8 June 2022, enforcement of an arbitral award in Jersey should be refused if enforcement would be contrary to Article 46A.
60. However, there is no public policy at the present time that this is also the position in relation to acts carried out before Article 46A came into effect. As all the acts relied upon in the present case occurred before 8 June 2022, it follows that RTI's application to set aside the order granting leave to enforce the Award must fail, as enforcement would not be contrary to Jersey public policy.
61. That is sufficient to deal with the application. However, in case we are wrong in our conclusion that Jersey's public policy, as reflected in Article 46A, only applies to acts committed after Article 46A came into force, we go on to consider whether the defence described in Article 46A is made out on the facts. In other words, did RTI reasonably believe that it was necessary to not pay the margin calls in order to comply with the Sanctions Law and therefore not commit an offence under Article 11 of that Law?
62. Given our decision that the application must be dismissed in any event for the reasons we have given, we shall consider this aspect as concisely as possible, but it is necessary first to describe the factual background in more detail.
63. Before turning to the facts, it may be helpful to describe the parameters of the factual dispute between the parties.
64. In order to bring itself within Article 46A, RTI needs to show that (i) it believed that paying the margin call to OWH would make the funds available indirectly to VTB Russia as a Designated Person, so that it was -necessary' to act in breach of contract by not making the payment; and (ii) this belief was reasonable. The first requirement is a question of RTI's subjective belief; the second requirement is an objective test of reasonableness.
65. RTI submits that on the evidence, both of these requirements are satisfied. It was not able to obtain advice from Jersey advocates; OWH was effectively a wholly owned subsidiary of VTB Russia which was a Designated Person; and the BaFin measures did not prevent voting control of OWH by VTB Russia until after the date of the Termination Notice. It reasonably believed that payment could not lawfully be made. OWH, on the other hand, submits that, whilst RTI had 'concerns' as to whether payment of the margin call would result in the funds becoming available indirectly to VTB Russia, this did not amount to the required belief. Secondly, it submits that, even if RTI did have the required belief that it was necessary not to pay the margin call, such belief was not reasonable because of (i) the existence of the BaFin restrictions on OWH and (ii) the failure to give notice of an Illegality pursuant to the Agreement.
66. Bearing in mind those limited parameters of the dispute, we turn to summarise the relevant evidence. We have received a number of affidavits, but the main witness evidence came from Ms Karina Oganian, the Head of Loan Administration of the Corporate Finance Department of Rusal, as the owner of RTI. In her affidavit she helpfully sets out the background and refers to many of the documents which are in evidence before us. In our judgment, this is one of those cases where contemporary documents provide the best evidence as to what was happening at the relevant time. As Males LJ said in Simetra Global Assets Limited v Ikon Finance Limited [2019] EWCA Civ 1413 at [48] and [49]:
"...I would say something about the importance of contemporary documents as a means of getting at the truth, not only of what was going on, but also as to the motivation and state of mind of those concerned. That applies to documents passing between the parties, but with even greater force to a party's internal documents including emails and instant messaging. Those tend to be the documents where a witness's guard is down and their true thoughts are plain to see. Indeed, it has become a commonplace of judgments in commercial cases where there is often extensive disclosure to emphasise the importance of the contemporary documents. Although this cannot be regarded as a rule of law, those documents are generally regarded as far more reliable than the oral evidence of witnesses, still less their demeanour while giving evidence...."
67. As stated earlier, following the invasion of Ukraine by Russia on 24 February 2022, there was a steep fall in the value of the rouble as a result of which, on 25 February, OWH issued a margin call. Subsequently there were a number of further margin calls as the rouble fell further.
68. There followed many discussions between RTI and OWH as to whether and, if so, how the margin calls could lawfully be paid, with a number of possible solutions being explored. We accept from the evidence that RTI was willing and able to pay the margin calls if it could lawfully do so; it would clearly be far less costly than termination at that point and in any event the whole point of margin payments is that they will be returned if the relevant currencies subsequently move in the opposite direction, as in fact happened in this case.
69. RTI also liaised extensively with its lawyers. It was not able to obtain advice from its normal Jersey advocates, Ogier, as that firm declined to act in view of the Russian connection. This was unfortunate as it meant that RTI was not able to obtain advice from a firm of Jersey advocates about compliance with sanctions. However, RTI was able to obtain advice from its English lawyers, Cleary Gottlieb Steen and Hamilton LLP ("CG"). We have been referred to many emails, both as between RTI and OWH and between RTI and its lawyers as well as internal emails. However, we propose to refer only to those which we consider significant in the context of the issues which we have to resolve. We should add that many of the emails were sent by employees of Rusal as opposed to RTI. However, they were clearly acting on behalf of RTI and we propose to refer simply to communications from RTI without specifying who sent them.
70. On 17 February 2022 BaFin appointed a special representative from Deloitte to monitor OWH's payment decisions. On 24 February 2022, the day of Russia's invasion of Ukraine, BaFin issued an order banning OWH from making payments or asset transfers to VTB Russia or VTB Group companies which were detrimental to OWH, the consequence of which was that OWH put in place internal measures to prevent any payments to VTB Russia or the VTB Group.
71. On 27 February 2022, BaFin issued a further ban on OWH granting loans or accepting deposits or dispersing any contractually agreed but not yet fully dispersed loans. OWH was also banned from making payments or other transfers of assets for the benefit of Russian credit institutions.
72. We shall refer to the composite measures of 17, 24 and 27 February as "the BaFin measures". OWH was only made subject to EU sanctions on 8 April 2022 and on 9 April BaFin issued further orders requiring OWH's management not to accept or implement any instructions from VTB Russia. However, these events occurred after the date of the Termination Notice and we do not include them in the expression "the BaFin measures".
73. As already stated, OWH made the first of a number of margin calls on 25 February 2022. RTI initially concentrated on whether payment of the margin would give rise to US secondary sanctions. The US lawyers advising on this aspect were the firm of Dentons. It appears that RTI were aware of the BaFin measures because, on 2 March, RTI sent Dentons a copy of a letter they had received advising that BaFin had taken control of OWH's incoming and outgoing payments. Dentons advised that this would not change the position in relation to US sanctions.
74. On 1 March, OWH notified RTI that its failure to pay the margin call was an Event of Default under the Agreement and reserved its rights.
75. On 2 March, RTI sought advice from CG as to whether the involvement of BaFin had decreased the risk of US secondary sanctions. CG replied that their current understanding was that the German regulators were simply preventing OWH from transferring funds to Russia but that existing customers of OWH could still use their accounts as normal. They considered that the supervision of OWH by BaFin per se would not reduce the risk of secondary US sanctions.
76. On 2 March, RTI replied to OWH's letter of 1 March. The letter disputed that there had been an Event of Default and went on to say:
"...given the international sanctions imposed in respect of [OWH] and its affiliates, RTI is assessing as a matter of urgency the manner in which it may make payment in respect of the Margin Call, and subsequent margin calls received on 1 March 2022 and 2 March 2022, without RTI...breaching any applicable sanctions, becoming a potential target or the subject of any secondary sanctions, or being involved in a sanctionable activity."
77. The issue of Jersey sanctions appears to have been raised for the first time on 4 March, when RTI sent an email asking CG whether Jersey and Gibraltar had joined the UK sanctions. CG replied the same day stating that, by reference to the Jersey and Gibraltar government websites, the answer to the question was 'yes'. RTI then sent an email to Ogier the same day seeking advice as to whether RTI had to observe Jersey sanctions in respect of OWH as a 100% subsidiary of VTB Russia.
78. On the same day, in a brief email to CG, RTI asked whether, if Jersey sanctions were applicable, RTI had to terminate under the Illegality clause of the Agreement. The short reply from CG said simply:
"You will still be short of Illegality I am afraid. But you can definitely state that performance of the obligations as they are stated would be in breach of applicable law/regulations."
It has to be said that it is not easy to understand this response. If payment of the margin call would be in breach of applicable laws, it is on the face of it hard to see why the Illegality clause was not applicable. However, no explanation was given.
79. Various exchanges took place between RTI and OWH on the same day, 4 March. First, RTI sent a letter (which had been drafted by CG) by email to OWH, stating that it "remained concerned" that making payment of the margin calls might result in RTI breaching applicable sanctions. The letter also asked OWH to provide an opinion from OWH's legal or compliance officer, or reputable external counsel, addressing how RTI could make payment without giving rise to a risk of sanctions.
80. OWH replied the same day. It rejected a proposed alternative which had been put forward by RTI and asked RTI to make payment to a specifically designated account of OWH with the German Central Bank, Deutsche Bundesbank, "which will be reserved by us and where all payments are subject to review and approval by a special representative of [BaFin]".
81. RTI responded on 5 March in a letter drafted by CG. The letter repeated that RTI remained "concerned" that payment of the margin calls might result in RTI breaching applicable sanctions. It asserted that, in connection with US sanctions, payment to the proposed designated account with the Bundesbank referred to in OWH's letter would not satisfy the relevant requirements. In relation to Jersey sanctions, it pointed out that RTI was a Jersey company and therefore subject to Jersey's sanctions requirements. Having set out the effect of Article 11 of the Sanctions Law, the letter went on to say:
"This effectively prohibits RTI from making the payment in the manner contemplated by your letter of 4 March 2022. In addition to the risk of secondary sanctions related to the breach of the OFAC sanctions referred to above, a breach of Jersey sanctions by RTI is a criminal offence with a maximum custodial sentence of 7 years imprisonment." [emphasis added]
The letter went on to repeat the request for OWH's "legal advice".
82. On 7 March, Ogier informed RTI by email that it was unable to advise RTI in light of the situation in Ukraine. RTI then set about trying to instruct another firm of Jersey advocates. After making various enquiries, it decided on 18 March to instruct Baker and Partners but there had not been time to obtain substantive Jersey legal advice from that firm by the time OWH terminated the Agreement on 23 March.
83. There was some discussion between CG and RTI as to whether RTI should make an application to the Minister for External Relations, as the relevant sanctions authority in Jersey, for permission to pay the margin calls, but RTI decided as a first step to seek advice from the Minister and accordingly sent a letter by email dated 8 March to the email address sanctions@gov.je. The letter set out the background. It asserted that RTI had the resources to make the margin call payments, which were stated at that stage to amount to approximately US$228m, but wished to clarify whether it was able to make them in the light of Jersey sanctions. Having set out its understanding of certain provisions of the Sanctions Law, it expressed the view that payment of the margin calls to OWH would breach, among other provisions, Articles 11 and/or 13 of the Sanctions Law and it asked the Minister to confirm its analysis of the position. The letter stated that RTI intended to make an application for a licence. There was no mention of the BaFin measures in the letter to the Minister.
84. On 14 March, RTI received some form of delivery failure message in response. There was no further instruction or guidance concerning where to direct its enquiries. There is no evidence before us that RTI thereafter took any steps to pursue the matter with the Minister.
85. OWH responded to RTI's letter of 5 March by letter dated 9 March which was emailed on 10 March. It asserted that the Event of Default was continuing unremedied. In relation to US sanctions, it asserted that the designated account with the Bundesbank was equivalent to a blocked account for OFAC purposes. It said that it had discussed the position with BaFin and attached a letter from BaFin which referred to the BaFin measures of 24 and 27 February and said that OWH's accounts at the Bundesbank were used for the repayment of loans and the execution of sales of securities for the purpose of repaying deposits at OWH, and that incoming and outgoing payments from the accounts were monitored on behalf of BaFin by the Bundesbank. The letter from OWH went on to say that OWH had received an opinion from US lawyers that the risk of OFAC imposing secondary sanctions on RTI or its affiliates if the margin calls were paid was "very remote".
86. With regard to Jersey sanctions, OWH asserted simply that OWH itself was not designated.
87. RTI sought advice from CG the same day. In particular, it raised certain questions about the bank accounts referred to in OWH's letter. CG replied that they were working on a draft response but asserted that OWH's interpretation of the Jersey sanctions was 'incorrect'. Later the same day, CG provided an email of advice. They said that they remained of the view that secondary US sanctions could not be excluded if the margin calls were paid. In relation to Jersey matters, they said that OWH's assertion that it was not listed as being the subject of sanctions was inaccurate. CG advised that UK sanctions applied not only to VTB Russia but also to OWH as an entity majority owned or controlled by VTB Russia. That was because UK sanctions generally applied to entities that were (i) greater than 50% owned by, or (ii) controlled by a designated person, even if those entities were not specifically designated. They went on to say that those UK sanctions were given effect to in Jersey by way of the Sanctions Law. However, there was no mention of the BaFin measures in their advice or whether the proposed payment to the designated account with the Bundesbank might ameliorate the position in relation to Jersey sanctions.
88. On 19 March, apparently in connection with a proposal for an agreed termination of the Agreement, RTI asked CG whether OWH could simply terminate the Agreement. CG responded that one way the Agreement could be terminated by OWH unilaterally was if it asserted that Illegality had occurred, but went on to say that CG had advised previously that this was not the case since licensing was available. CG then set out the relevant Illegality provisions in the Agreement.
89. On 20 March, RTI sought advice by email from CG as to whether there would be any difference for RTI's position in three scenarios, namely (i) an agreed termination, (ii) termination by OWH on the ground of an Event of Default, or (iii) OWH terminating following an Illegality notice; in all three cases advice was sought on the basis that RTI would not be able to pay the relevant amount due on termination because of sanctions.
90. CG responded by email the same day and commented on each scenario. In relation to Illegality, it said "On the third scenario, illegality would be difficult to trigger given the circumstances. But if RTI does not pay the close-out amount following termination upon an illegality termination event, RTI would again be in a payment default scenario".
91. We were not referred to any other material correspondence before the Termination Notice was served on 23 March. Accordingly, we turn to consider the issues summarised at para 64 above.
92. It is RTI's case, supported by the affidavit evidence of Karina Oganian, that it believed up until the date of the Termination Notice that payment of the margin calls would amount to a breach of Jersey sanctions as it would be contrary to Article 11 because it would make funds indirectly available to VTB Russia as a Designated Person. It was therefore -necessary' to default in making the payments.
93. OWH submitted that RTI's state of mind did not amount to one of 'belief'. In all the correspondence it had merely referred to 'concerns' that payment of the margin calls would amount to a breach of sanctions; see its letters of 4 and 5 March to OWH and a letter dated 31 March 2022 protesting about OWH's early termination and reiterating its previously expressed 'concerns'. A concern, submitted OWH, is not the same as a belief. The real position was that, in the time between the demand for the margin calls and the Termination Notice, RTI was simply uncertain as to whether it could lawfully pay the margin calls and was attempting to ascertain whether it could.
94. Indeed, submitted OWH, even in its skeleton argument for the hearing before the Bailiff on 5 December 2024 concerning a freezing injunction and accompanying order for disclosure, RTI referred to it being undesirable to penalise commercial parties for a contractual default "caused by a reasonable concern that performance of the obligation would breach sanctions" (para 50) and described its state of mind in February/March 2022 as being that "it was reasonably concerned that Jersey sanctions...might be infringed" (para 45). It was only after it had seen OWH's skeleton argument for the hearing on 5 December, which pointed out the difference between a concern and a belief, that RTI began to assert that it held the belief that payment was unlawful.
95. We take note of these points made by OWH. However, we are persuaded on balance that RTI did subjectively hold the required belief in the period leading up to the Termination Notice. We would summarise our reasons for reaching this conclusion as follows:
(i) In its letter of 5 March, drafted by CG and based upon their advice, RTI, having summarised its understanding of what was prohibited by Jersey sanctions legislation, asserted that 'this effectively prohibits RTI from making the payment in the manner contemplated by your letter of 4 March 2022'.
(ii) In its letter sent to the Minister on 9 March, RTI asserted that payment of the margin calls to OWH would breach, inter alia, Article 11 of the Sanctions Law and asked the Minister to confirm its analysis.
(iii) In its letter of 9 March (emailed on 10 March), OWH had asserted in effect that Jersey sanctions were not a problem because OWH was not itself a Designated Person under the Jersey sanctions regulations. In its initial email comment on this assertion, CG stated that this interpretation of the Jersey sanctions was incorrect. This was followed up by its email of advice on the same date, which advised that the Jersey sanctions would apply to OWH as a subsidiary (greater than 50%) of VTB Russia.
(iv) We accept that RTI's belief would be much influenced by the advice it was receiving from its lawyers. That advice was to the effect that payment of the margin calls to OWH would amount to a breach of Article 11 of the Sanctions Law. In our judgment, this contemporaneous material supports the assertion of Ms Oganian as to RTI's subjective belief.
(v) We accept that RTI made references on a number of occasions to 'concerns' that payment of the margin calls might breach Jersey sanctions, but that has to be set against the positive assertions and the advice that it was receiving as set out in the preceding sub-paragraphs. Furthermore, the references to 'concerns' were usually drafted by its lawyers and we can accept that lawyers may well use a softer expression to cover what may be a strongly held view. Considering the matter in the round, we do not consider that the references to 'concerns' cause us to conclude that RTI did not hold the required subjective belief.
96. It is clear that RTI was well aware of the BaFin measures from 2 March onwards (see para 75 above). They were again drawn to RTI's attention on 9 March in the context of OWH's suggestion that the margin payments could be made to an account of OWH opened with the Bundesbank. The uncontested evidence before the Tribunal was that, as a result of the BaFin measures, OWH put in place internal measures in order to prevent any payment to VTB Russia or to the VTB Group.
97. In our judgment, the obvious question for RTI to consider at that time was whether the BaFin measures and the subsequent suggestion by OWH of payment to a special account held with the Bundesbank were sufficient to mean that payment to OWH would not result in funds being made available (directly or indirectly) to VTB Russia as a Designated Person under the Jersey sanctions legislation. In our view, particularly for a large commercial organisation such as RTI, a belief that such measures were insufficient would not be a reasonable belief unless proper steps were taken to investigate whether the measures would negate the risk of margin call payments being made available to VTB Russia.
98. In our judgment, no such steps were ever taken. There were references to the BaFin measures in CG's advice of 2 March but this was solely in the context of US sanctions. No one focused on the Jersey position until 4 March.
99. There was never any specific request from RTI for advice from CG as to whether the BaFin measures and the suggestion of the account at the Bundesbank would negate the risk of any payments becoming available to VTB Russia. Indeed, in the letter of 5 March to OWH (drafted by CG) there is no mention or consideration of the BaFin measures in connection with the assertion that Article 11 effectively prevented the suggested payment. Furthermore, RTI's letter to the Minister makes no mention of the BaFin measures, which were clearly a potentially significant matter for the Minister to consider. Similarly, in its email of advice on 10 March advising that OWH's view as to Jersey sanctions was incorrect, no consideration was given by CG to the BaFin measures.
100. In summary, there is no evidence that RTI or its advisers ever gave any real consideration to whether the BaFin measures and/or the suggestion of the Bundesbank account negated the risk of payment of the margin amounting to a breach of Article 11 of the Sanctions Law.
101. Advocate Redgrave placed reliance on the observation of Falk LJ (with the concurrence of Males and Snowden LJJ) in Celestial Aviation Services Limited v UniCredit Bank GMBH (supra) at [43] in the following terms:
"As indicated above, I have concluded that UniCredit's belief about Reg. 28(3) was correct. But even if I had reached a different view I would still have disagreed with the judge about whether UniCredit's belief was a reasonable one. UniCredit was required to form a view about new legislation at short notice. There is no doubt that the literal words appear to catch payments under the LCs. That is why Celestial and Constitution have focused so much on purposive interpretation. It is important to avoid viewing the position with the benefit of hindsight, having heard argument from well-prepared leading counsel and with the benefit of judicial consideration that might ultimately appear to make clear what was in fact not at all clear at the relevant time." [emphasis added]
102. We agree with the view expressed in the emphasised passage. However, the position in this case is very different. RTI was fully aware of the BaFin measures, which had been drawn to its attention on more than one occasion. Even allowing for the uncertainties and the time pressures, it was, or should have been, obvious to RTI and its advisers that the BaFin measures raised an issue as to whether, despite OWH being a subsidiary of VTB Russia, funds could nevertheless safely be paid to it without risk of becoming available to VTB Russia because of the measures BaFin had put in place to prevent this. The failure by RTI even to investigate or consider the question properly, despite being a substantial commercial operation with appropriate resources at its disposal, means that its belief that it was necessary to default in making the margin payments to avoid a breach of Article 11 of the Sanctions Law, was not objectively a reasonable one.
103. Advocate Christie submitted, correctly in our judgment, that, for the purposes of Article 46A, the 'act' in this case was the failure to pay the margin call in breach of contract, thus giving rise to an Event of Default and the subsequent Termination Payment. The question therefore for the purposes of Article 46A is whether RTI reasonably believed that it was 'necessary' to fail to pay in breach of contract.
104. OWH submits that it was not necessary. The Agreement provided for an alternative route which would not result in a breach of contract. Given that RTI believed that it could not lawfully pay the margin calls because to do so would amount to a breach of the Jersey sanctions legislation (Article 11), RTI could clearly have given a notice of Illegality. This would mean that the failure to pay the margin payment would not amount to a breach of contract. Whilst giving such a notice would, as described at para 10(iii)-(v) above, only have delayed matters for a few days and OWH could still thereafter have given notice of early termination (which might well have resulted in a not dissimilar amount becoming due on termination), RTI would not have been in breach of contract. It would not therefore have committed the 'act' which in fact gives rise to liability in this case.
105. Accordingly, submitted Advocate Christie, RTI's belief that it was 'necessary' to commit the 'act' in this case (i.e. failure to pay the margin in breach of contract) could not be a reasonable one.
106. Advocate Redgrave sought to rely on the email from CG on 4 May stating "You will still be short of Illegality". However, as in relation to the BaFin measures, it was, or should have been, obvious to RTI that, in circumstances where it believed that it was unable to pay the margin because to do so would breach Article 11 of the Sanctions Law, an important option available to it lay in giving a notice of Illegality under the Agreement; after all, that provision was specifically stated to have effect where it becomes unlawful to make a payment required under the Agreement.
107. Despite this, RTI never seriously looked into the question. The only references to consideration of Illegality to which we were referred are those in the above email of 4 March (where no reasoning of any description was given and where, as stated at para 78 above, the advice is on its face difficult to comprehend) and in the emails of 19 and 20 March referred to at paras 88-90 above. Again, there is no proper consideration given; these are merely passing assertions by CG.
108. In our judgment, there is no evidence that RTI or its advisers ever gave proper consideration to whether RTI could give a notice of Illegality rather than simply defaulting in payment, thereby giving OWH the ability to terminate on the ground of an Event of Default.
109. We have reminded ourselves of the observation of Falk LJ referred to at para 101 above but, in circumstances where a large commercial organisation like RTI simply fails to consider what appears to be an obvious alternative to committing a breach of contract, we cannot find that RTI's belief that it was 'necessary' to commit a breach of contract because of the Jersey sanctions regulations was objectively a reasonable one.
110. In summary, our conclusions are as follows:
(i) For the reasons given above, we find that Jersey's public policy is that the protection from liability conferred under Article 46A only applies to acts committed after Article 46A came into effect. As the act in this case, namely the default in paying the margin call, occurred before Article 46A came into effect, there is no principle of Jersey public policy which would militate against enforcement of the Award.
(ii) Even if we are wrong in the above finding, the defence of public policy is not available to RTI on the facts because, whilst we find that it held the required belief under Article 46A that the relevant act was necessary, such belief was not reasonable because of the failure to have regard to the BaFin measures or the alternative of giving a notice of Illegality.
111. For these reasons, the application of RTI to set aside the ex parte order of the Bailiff giving leave to OWH to enforce the Award as if it were a judgment of the Royal Court is dismissed.
Authorities
Sanctions and Asset-Freezing (Jersey) Law 2019.
Arbitration (Jersey) Law 1998.
Tepe Insaat Sanayii AS v Boru Hatlari Ile Petrol Tasima AS [2016] (1) JLR 218.
Deutsche Schachtbau-und Tiefbohrgesellschaft MbH v Ras Al-Khaimah National Oil Co [1987] 2 Lloyd's Rep. 246 at 254.
RBRG Trading (UK) Limited v Sinocore International Co Limited [2018] EWCA Civ 838.
Dicey, Morris and Collins The Conflict of Laws (15th edition).
Alexander Brothers Limited v Alstom Transport SA [2020] EWHC 1584 (Comm).
Payward Inc & Others v Chechetkin [2023] EWHC 1780 (Comm).
Consumer Rights Act 2015.
Eternity Sky Investments Ltd v Xiaomin Zhang [2024] EWCA Civ 630.
Interpretation (Jersey) Law 1954.
Sanctions and Asset Freezing (Amendment No 2) (Jersey) Law
Celestial Aviation Services Limited v Unicredit Bank GMBH [2024] EWCA Civ 628.
Energy Investments Global Limited v Albion Energy Limited [2020] (2) JLR 421.
Bennion, Bailey and Norbury on Statutory Interpretation (8th edition).
Warren v Attorney General [2009] JCA 175.
Simetra Global Assets Limited v Ikon Finance Limited [2019] EWCA Civ 1413.