High Court holds that US sanctions are rarely an excuse for contractual non-performance

Many UK companies, particularly those with US ownership, comply with US sanctions as a matter of policy. Understandably, employees at such companies may internalise the policy and conclude that business simply cannot be done if it would be contrary to US sanctions. But is this right as a matter of law? And if not, can they protect their position by contract? 

The case of Beneathco DMCC v R.J. O'Brien Limited [2025] EWHC 3079 (Comm)¹ put these questions squarely before Mr Colton KC, sitting as High Court Judge. On the particular case before him, Mr Colton KC concluded that the answer to the first question was yes: US sanctions did afford an excuse to contractual non-performance. However, his conclusion rested on the highly specific facts of the case, in particular that the sum of money in dispute was held on trust in USD. In this circumstance, the narrow rule in Ralli Bros afforded an excuse for non-payment, as the contractual obligation at play extended only to payment of the specific funds held on trust, an act that would be unlawful for any US correspondent bank involved.

Perhaps with relief, Mr Colton KC observed that the case at hand therefore avoided many “interesting and difficult questions” that “might have arisen” if the parties had elected a different currency, or if the money were not held on trust. At the same time, Mr Colton KC pointed out that the risk of these “interesting and difficult questions” was heightened by the parties' failure to enter into a written contract. Had a written contract provided a carve-out for US sanctions compliance, the case might have been straightforward. As it did not, the situation was a problem of the parties' own making.

 

Background

In 2019 Beneathco DMCC (Beneathco), a UAE petroleum trader, opened an account with R. J. O'Brien Limited (RJOL), a UK futures brokerage indirectly owned by a US entity (and an affiliate of US futures brokerage R. J. O'Brien & Associates LLC (RJOA)).

Neither RJOL's standard professional client agreement nor similarly detailed contract was concluded between the parties at the time the account was opened. As determined by Mr Colton KC, the terms of the parties' agreement therefore fell to be defined by account opening forms exchanged between them as “set in their commercial and regulatory context”. 

After the account was opened and trading began, on 23 January 2020 Beneathco was designated by the US Office of Foreign Assets Control (OFAC) for providing support to the National Iranian Oil Company (NIOC). As a matter of US law this designation required Beneathco's property and interests and property in the US or within the possession or control of a US person to be blocked (frozen) and prohibited transactions with Beneathco.

One day later – on 24 January 2020 and at Beneathco's instruction – RJOL's Dubai-based affiliate liquidated Beneathco's most substantial open trading position and placed the resulting USD16.5 million cash into Beneathco's account. Beneathco then instructed RJOL to convert these funds into AED and transfer it to a Beneathco bank account in Dubai. On this instruction RJOL refused, citing US sanctions, and told Beneathco it would need to apply for a licence from OFAC to access the funds.

Nearly 18 months later, on 7 June 2024, the USD16.5 million had not moved. Beneathco commenced proceedings, claiming that RJOL had breached an implied term of the parties' agreement by failing to execute Beneathco's instruction to transfer them. 

Another 15 months later, in September 2025, and with the USD16.5 million still effectively frozen, Beneathco issued amended instructions to RJOL to pay the amount in AED instead to a third party called Future Plus Goods Wholesalers LLC (Future Plus). Beneathco pleaded that payment to Future Plus would discharge RJOL's debt to Beneathco pursuant to a gentlemen's agreement between the owners of Future Plus and Beneathco. 

RJOL did not comply with the revised instruction either.

Meanwhile, in the US, between 2020 and 2025 RJOA – RJOL's US affiliate – self-reported the 24 January 2020 liquidation to OFAC as a breach of US sanctions, received a cautionary letter from OFAC in respect of the breach, and applied to OFAC for a license authorising the transfer of the USD16.5 milion to Beneathco – which was denied.

 

Beneathco's case

Beneathco claimed that RJOL had breached an implied term of their contract as well as RJOL's fiduciary duty to comply with Beneathco's instructions. Beneathco sought specific performance “to procure the release” of the USD16.5 million or, alternatively, damages.

RJOL asserted by way of defence that it was “entitled under English law and obliged under US law to refuse to transfer the monies held by it on behalf of Beneathco”, on the basis that it had no obligation to pay Beneathco in the currency demanded (AED), only in USD, and that payment in USD was illegal under the principle in Ralli Bros.

 

The High Court's judgment

1. Beneathco's instructions were not ones that RJOL had to follow

The Court dismissed Beneathco's claim, holding that RJOL had no contractual obligation to comply with either set of instructions given by Beneathco and therefore had breached neither contract nor fiduciary duty.

In reaching this holding the Court rejected Beneathco's assertion that RJOL had an implied contractual obligation to comply with any instructions given to RJOL by Beneathco. Instead, the Court concluded, any implied contractual obligation must be construed in light of the express terms of the agreement between the parties, commercial common sense, and known facts, and must extend only to obligations “obvious and necessary to give business efficacy to the contract”.

Applying this principle, the Court went onto hold that:

• RJOL's contractual obligation was not to pay Beneathco in any currency, but to pay Beneathco in “whatever currency RJOL holds for Beneathco” – which in this case was USD:
  
  US dollars (USD) is [sic] the currency in which RJOL in fact held and holds Beneathco's funds in a segregated account. US dollars is the currency in which RJOL produced statements of account to Beneathco. US dollars is the currency which Beneathco selected as its base currency. US dollars, as pleaded in the Particulars of Claim . . . “is the currency used by the [parties] to do business.” Beneathco used its account exclusively to trade derivatives denominated in US dollars. All payments to and from the account were in US dollars.

• RJOL did not have an implied contractual obligation to make payment to any person nominated by Beneathco. Rather, RJOL's obligation was only to make payment to Beneathco itself:
  
  The contract works perfectly well with RJOL being obliged to pay only Beneathco itself. RJOL might have commercial, regulatory or legal concerns in dealing with the person nominated which would tell against the implication of [a term requiring RJOL to pay any person whom Beneathco might nominate].

Where, as the Court found, RJOL was only obliged to make payment to Beneathco on demand in US dollars, and Beneathco had only demands for payment in AED and/or demands for payment to a third party, no valid instruction had been given and Beneathco's claim failed.

2. US law would have excused RJOL from performance – but only because its contractual obligation required performance by a US correspondent bank

Had that been the end of the Court's reasoning, it might have been a simple matter for Beneathco to achieve payment in compliance with the implied contractual terms simply by issuing a revised payment instruction to RJOL.

However, the Court proceeded to conclude that even if an otherwise valid instruction were issued, RJOL would still not be obliged to pay. RJOL would instead be excused from performance by the principle in Ralli Bros, which allows that an English law contract is unenforceable where its performance “necessarily requires an act to be done in a place where it would be unlawful to carry it out”.

On the particular facts of Beneathco's case, the Court held that Ralli Bros would indeed have been engaged because RJOL's performance of the implied contract would necessarily require an act to be done by a US bank in the US, where it would be an unlawful breach of sanctions.

Importantly, however, the Court's analysis turned on a specific factual finding: that RJOL did not owe Beneathco a debt obligation in the sum of USD16.5 million, but rather that RJOL held a specific sum of USD16.5 million on trust for Beneathco. 

It followed that RJOL's contractual obligation was not to pay Beneathco any USD16.5 million but to pay Beneathco the USD16.5 million that it held on trust. And this, the Court found as a matter of fact, contractually required RJOL to use the US banking system. 

In this scenario, performance necessarily required an act to be done in a place where it would be unlawful, such that Ralli Bros engaged and excused performance.

Mr Colton KC was explicit that if he were wrong in holding that the funds were held on trust, then Ralli Bros would have no application and “there would be no question of [RJOL's] performance being unlawful.” In that alternative scenario:

Whatever difficulties RJOL might face in getting USD16.5 million to Dubai, whether in USD or in AED, these difficulties would be part of RJOL equipping itself to perform its debt obligation, not part of contractual performance. However challenging it might have been for RJOL to get USD or AED to a bank account in the [I]f RJOL entered into a contract with Beneathco under which it agreed to pay Beneathco (or some third party), on demand, a debt in the place of Beneathco's incorporation, without some carve-out for US sanctions, then this was a problem of RJOL's own making.

The careful but clear distinction drawn by the Court was accordingly between a contract for payment of a sum of USD held on trust (a contract for a performance of an unlawful act that would have been excused by Ralli Bros) and a contract for payment of a debt obligation in USD (a contract for performance of an act in respect of which unlawful acts would inevitably be required and not excused by Ralli Bros).

The Court also broke new ground by concluding that Ralli Bros would have been engaged not only where a contract was for performance of an unlawful act by the contract party but also where a contract was for performance of an unlawful act by a third party – in this case, the US correspondent bank that would be required to convert and/or transfer the USD16.5 million held on trust. Among the Court's reasons was that enforcement would “show the same lack of respect for the right of (here) the United States to legislate within its territory whether the person breaking US law would be the contracting party or some third party”.

3. An OFAC licence would have been refused

Notably, Mr Colton KC concluded that Ralli Bros excused RJOL's performance notwithstanding that RJOL had not sought a licence from OFAC. (Although RJOL's US affiliate RJOA had applied for – and been refused – an OFAC licence, RJOL had never applied.)

The Court held that although RJOL had not applied for a licence, it had discharged its burden to demonstrate that a licence would not have been granted.

Interestingly, the Court appeared to conclude that RJOL's burden was not to demonstrate that no licence would have been granted to release the USD16.5 million, but more specifically to demonstrate that no licence would have been granted allowing RJOL to comply with each of Beneathco's specific instructions:

• In respect of Beneathco's first instruction, which requested payment within days, the Court was “sure” that no licence could have been obtained in time.

• In respect of Beneathco's second instruction, which requested payment to Future Plus, the Court held it was “highly improbable“ a licence would have been granted in view of ” on the government of Iran and the opaque nature of the relationship between Beneathco and Future Plus.

4. The UK Blocking Regulation did not engage

The Court also provided welcome judicial interpretation of the “deep and largely uncharted waters” of the Protecting Against the Effects of Extraterritorial Application of Third Country Legislation (Amendment) (EU Exit) Regulations 2020 (the UK Blocking Regulation), which Beneathco had claimed precluded RJOL from invoking Ralli Bros in the context of US sanctions targeting Iran.

Though not its central holding on which the case turned, the Court rejected Beneathco's argument, and held that the UK Blocking Regulation would not criminalise compliance with specified US sanctions within the United States – only compliance with their extra-territorial effect.

Moreover, the Court stated that the UK Blocking Regulation would not criminalise compliance with the extra-territorial effect of all US sanctions targeting Iran – and specifically would not criminalise compliance with US sanctions made pursuant to Presidential powers under the International Emergency Economic Powers Act (IEEPA). The Court then found as a matter of fact that IEEPA was the sole legal basis for the sanctions targeting Beneathco as relevant to RJOL.

 

Key takeaways

The Court's observations provide useful clarity for companies with both US and UK exposure seeking to understand their competing obligations to comply with both countries' laws. The key practical takeaways from the judgment are:

1. Non-US companies that want to comply with US sanctions should seek express contractual terms entitling them to do so. Where no such terms exist, US sanctions will only excuse contractual performance in the narrow circumstances where the contract itself is for performance of an act in the US that is a breach of US sanctions.
2. Parties to English litigation about US sanctions should prepare themselves for a nuanced assessment of the facts and of US law, if they want to rely on the Ralli Bros principle that a particular contractual obligation is an act that is itself a breach of US sanctions.
3. The UK Blocking Regulation does not criminalise compliance with all US sanctions within its scope – only compliance with the extra-territorial effect of these sanctions.

 

Questions?

If you have any questions about this case or its implications on your own operations, please contact the authors of this article: Ramsey Jurdi, Charles Allin, Katie Palms and Cai Cherry.

DLA Piper has significant experience in advising on sanctions compliance and dispute resolution in complex cross-border matters.

 

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¹ Beneathco DMCC v R.J. O'Brien Ltd [2025] EWHC 3079 (Comm) (24 November 2025)