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In the recent English case of Lamesa Investments v Cynergy Bank  EWCA Civ 821, the Court of Appeal (“CA”) affirmed the High Court (“HC”)’s ruling that non-US financial institution borrower Cynergy’s (a) refusal to pay Lamesa did not constitute a default where the ultimate beneficial owner of Lamesa remained a blocked person under US sanctions law based on a clause in the facility agreement that Cynergy would not be at fault if a sum was not paid “in order to comply with any mandatory provision of law”.
After the HC ruled that “mandatory” meant a law that the parties could not vary or disapply contractually, Lamesa appealed contending the US sanctions legislation contained no express legal prohibition on payment, so Cynergy could not say it refused to pay in order to comply with a mandatory provision of law.
In deciding that the Borrower’s non-payment was within the scope of the proviso to the relevant clause and did not constitute a payment default under the facility agreement, the CA held that:
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