The government wants to discourage the sale to regimes subject to sanctions of goods that could be used to repress civilian populations. A commendable aim. It also wants the measures aimed at securing this goal to be lawful, implementable and targeted, and to have a well-defined and realistic impact, while minimising legal, reputational and economic risk to the UK.
Amen to that. No one wants untargeted, ill-defined or reputationally damaging measures.
The policy proposed by the Foreign & Commonwealth Office is ‘contract sanctions’. This would prevent UK courts from enforcing any contract entered into by an entity already the subject of sanctions. The problem is that these contract sanctions are anything but targeted; they could damage the UK and won’t put people off dealing with sanctioned regimes. The proposal fails according to the FCO’s own criteria.
Suppose that an English company enters into a contract to supply grain to a targeted regime. That transaction is lawful because the sanctions do not block food supplies. If the English company defaults, the English courts could not enforce the contract, thereby depriving the regime’s starving population of food. Hardly a reputation-enhancing move for the UK. If the sanctioned regime fails to pay, the FCO’s proposal would prevent the English company from enforcing in the English courts a lawful contract. Why disincentivise UK businesses from entering into legal transactions?
Further, if contract sanctions were introduced by the UK alone, the Brussels I Regulation would oblige the English courts to enforce a judgment given in favour of the sanctioned regime by the courts of another EU member state. Public policy is one of the few permitted exceptions to this obligation, but could a UK court really say that it was contrary to UK public policy to enforce a judgment on a contract aimed at providing food for the hungry?
The FCO concedes there could be exceptions to its trade embargo. If so, this would create a curious two-tier system. First, the sanctions themselves (usually derived from the EU or UN), making it unlawful for UK persons to enter into particular contracts; and, second, further transactions that are not illegal but which the English courts cannot enforce. If the international community does not prohibit particular transactions, it is hard to see what benefit there is in discouraging UK businesses from entering into those transactions or in sending dispute resolution abroad.
The FCO is, perhaps, looking to dissuade nationals of foreign states that have not imposed sanctions from entering into transactions that prop up targeted regimes. The FCO shudders at the prospect of foreigners using English courts to enforce contracts that would have been unlawful if entered into by UK nationals.
But this is an invented problem. Imagine you are a non-UK national and want, legally under your country’s laws, to supply weapons to a regime already subject to sanctions in the UK. In the real world, you will not give jurisdiction to the English courts over disputes arising from your arms contract. You will instead search for a means of dispute resolution that hides your transaction from the publicity that is generated by court proceedings.
You will certainly not want to make your transaction potentially subject to control by a foreign legal system that has already targeted your counterparty. The utter improbability of foreign arms dealers coming to UK courts is presumably why the FCO does not cite any instance of it having happened.
Even if the arms dealer were willing to crawl out of the shadows, it is questionable whether an English court would enforce the contract. The sanctions could capture the transaction if well drafted, but, even if not, an English court might be able to invoke public policy as a ground for refusing to have anything to do with the transaction. Enforcing an arms contract is very different from recognising a foreign judgment relating to the supply of food.
The FCO drawing board beckons.
Simon James is chair of the City of London Law Society’s Litigation Committee and a partner at Clifford Chance