Arbitration of Sanctions-Related Disputes Under English Law

by Tahmidur Remura Wahid | Sep 27, 2025 | Uncategorized | 0 comments

Arbitration of Sanctions-Related Disputes Under English Law — A TRW Law Firm Guide (London • Dubai • Dhaka)

Executive Overview

Economic sanctions have become one of the most consequential variables in cross-border commerce. Whether you are a Bangladeshi exporter with USD-settled receivables, a UK or UAE intermediary bank screening counterparties, or a multinational negotiating technology and energy supply, sanctions risk now permeates pricing, performance, financing, delivery, and enforcement. English law—and English-seated arbitration—sit at the heart of how sophisticated parties allocate, mitigate, and litigate that risk.

This TRW Law Firm guide synthesises the substantive English law landscape (statute and common law), the UK sanctions architecture (SAMLA 2018, implementing regulations, OFSI practice), and arbitration mechanics (Arbitration Act 1996; institutional rules; licensing and payment workarounds). We convert complex doctrine into a playbook for contract drafting, deal execution, and dispute strategy—drawing on TRW’s cross-border desks in London, Dubai, and Dhaka.

Bottom line for boards and GCs: most sanctions controversies in international trade are solvable ex-ante (via precise clauses, evidence protocols, and payment design) and arbitrable ex-post—but English courts will construe sanctions clauses strictly and keep frustration within narrow confines. Your words, your record, and your practical workarounds determine outcomes.

If you are evaluating arbitration and enforcement options, see our overview of International Arbitration and connect with our team to align contract architecture with sanctions reality.

1) The UK Sanctions Framework in Commercial Context

1.1 Legal sources and institutions

SAMLA 2018 empowers the UK to design and implement autonomous and UN-aligned sanctions regimes (e.g., Russia, Iran, Global Human Rights).
OFSI (HM Treasury) administers financial sanctions, maintains the Consolidated List, and issues general/specific licences.
Sectoral regimes are implemented through statutory instruments (e.g., Russia (Sanctions) (EU Exit) Regulations 2019), interacting with export controls, AML/CTF rules, and terrorism legislation.

1.2 Contract illegality at inception vs. supervening change

Contracts illegal at formation (expressly or impliedly prohibited by statute/public policy) are generally void ab initio.
Section 44 SAMLA affords a limited civil-liability shield for acts/omissions done in the reasonable belief that compliance with sanctions required them. It does not re-write risk allocation or salvage a prohibited bargain.

1.3 Why English law matters for non-UK deals

English law is widely chosen as governing law and London as seat because of predictability, a sophisticated commercial judiciary, and New York Convention enforceability of awards.
For Bangladesh-origin transactions clearing USD/EUR/GBP or routed via the UK/UAE, English law clauses and London/DIFC/ADGM seats are standard.

2) Sanctions Clauses: Design, Interpretation, and Lessons from the Cases

2.1 What a “sanctions clause” does

A sanctions clause is not a compliance policy. It is a risk-allocation instrument that:

Triggers termination, suspension, price adjustment, or standstill on defined sanctions events;
Specifies notice, mitigation, and co-operation duties (KYC, information, alternative banks/currencies);
Interfaces with force majeure/illegality and payment mechanics (on- and off-ramp solutions via licensing or alternative routes).

Sanctions language can appear under the label “sanctions” or be embedded in:

Force majeure (e.g., events beyond control, including sanctions, export bans, de-risking by banks);
Illegality (performance would contravene law);
MAC/MAE (material adverse change in law or counterparty status).

2.2 Strict construction: the Mamancochet principle

In Mamancochet, the Commercial Court resisted a broad reading of “expose [the insurer] to any sanction,” declining to equate mere risk with actual legal breach. Lesson: if you want risk of sanctions (not just breach) to trigger rights, say so expressly (e.g., “reasonable risk in the opinion of a Sanctions Lawyer/MLRO” or “where payment would likely be rejected by correspondent banks”).

2.3 Co-operation thresholds: Gravelor vs. RTI (UKSC)

Two guideposts show how wording calibrates mitigation obligations:

Gravelor: a clause obliging both parties to take “all necessary steps” to resume payments led the Court to require acceptance of EUR and an alternative bank account to overcome USD processing hurdles.
RTI v MUR (UKSC 2024): a general force majeure clause with a “reasonable endeavours” proviso did not compel a creditor to accept non-contractual performance (EUR instead of USD). The Supreme Court emphasised that departures from the bargain’s currency/bank need clear words.

Drafting takeaway:

If your commercial objective is maximum continuity, use “all necessary steps”/“including (without limitation) alternate currency, bank, route, payment chain”; spell out acceptance of non-contractual performance if required.
If you want strict performance and retain leverage, avoid broad co-operation words; tie endeavours to contractual performance only.

2.4 Interface with force majeure and illegality

Force majeure language is presumptively confined to unforeseeable, uncontrollable events and won’t override clear allocation of payment currency/bank unless the clause says so.
Illegality provisions should address which law(s) matter (governing law, place of performance, place of payment, correspondent bank location) to avert surprises.

3) Frustration and Supervening Illegality: Narrow Gates, Practical Paths

3.1 Frustration (radical change test)

Frustration extinguishes the contract automatically when performance becomes radically different from what was undertaken, due to an external event beyond the parties’ control. Courts apply a multi-factor test (terms, risk allocation, matrix, foreseeability, alternatives). It is exceptional.

Why frustration often fails in sanctions cases

Parties could have allocated sanctions risk by clause; if they did (even partly), frustration recedes.
Workarounds (licensing, alternative currency, different route) may render performance difficult, not radically different.

3.2 Supervening illegality (a close cousin)

If a new law or measure makes the agreed performance illegal in the place of performance (or under the governing law, depending on the clause), the contract can be discharged automatically—frequently analysed as frustration by illegality.
Key qualifier: if licences/derogations could plausibly cure the bar, courts expect the affected party to apply; only when no licence is realistically obtainable will discharge be favoured.

3.3 Arbitration agreements survive: Barclay’s VEB and access to justice

Sanctions typically do not frustrate arbitration agreements: arrangements for legal representation, institutional fee payment (often under general licences), and remote hearings are available. English courts characterise sanctions frictions as administrative inconvenience, not denial of justice.

4) Which Sanctions Laws Matter? (Governing Law, Place of Performance, and Beyond)

4.1 Primary anchors

Governing law of the contract usually frames the interpretation of sanctions and illegality provisions.
Place of performance (including place of payment) can make the act unlawful there—even if lawful under the governing law.

4.2 The Lamesa insight: extra-territorial realities

Even with English law and English place of payment, a clause referring to compliance with “mandatory provisions of law” was read to include US sanctions, given the international banking implications. Banks’ de-risking and correspondent exposure are business facts courts will not ignore if the wording permits.

Drafting takeaway: specify scope—e.g., “mandatory law of the Governing Law State and any jurisdiction through which payment is customarily routed, including correspondent banking hubs.”

5) Enforcement of Awards Amid Sanctions (Arbitration Act 1996; New York Convention)

5.1 Recognition/resistance

Under s. 101–103 Arbitration Act 1996 (mirroring the New York Convention), English courts recognise foreign awards unless limited exceptions apply. Public policy (s. 103(3)) can, in theory, justify refusal—e.g., paying a designated person without licence. In practice, courts aim to facilitate enforcement while ensuring licensing or escrow solutions prevent contravention.

5.2 Post-award interest and sanctioning events

Courts may halt accrual of post-award interest during periods where payment is legally impossible due to sanctions—reflecting the principle that a debtor cannot be penalised for what it cannot lawfully do. Expect nuanced orders (e.g., interest resumes once a licence is available or escrow is offered).

5.3 Workable payment structures

OFSI licence enabling payment to a frozen account;
Escrow in a permitted jurisdiction pending licence;
Third-country banks with no sanctions nexus (if compliant);
Currency substitution and payment chain redesign when the clause authorises it.

6) London, Dubai, and Dhaka: Strategic Seats and Execution Hubs

6.1 London (seat; governing law; financial nexus)

Premier seat for complex sanctions disputes; judiciary versed in OFSI licensing, correspondent banking, and institutional rules.
Synergy with English law drafting and leading arbitral institutions (LCIA, ICC London hearings).

6.2 Dubai (DIFC/ADGM ecosystems)

DIFC and ADGM offer common-law courts and arbitration frameworks within the UAE, useful where GCC exposure or regional banking is material.
For energy, commodities, and logistics with MENA chains, Dubai is often the practical venue for evidence, witnesses, and enforcement against non-UK assets.

6.3 Dhaka (originating trade, evidence, and operations)

Source of documents, witnesses, and operations proof (production, logistics, financing).
Coordination with Bangladeshi banks on L/Cs, UCP 600 issues, and KYC/AML harmonisation to smooth licensing and alternative payment plans.

TRW operates a tri-hub model: draft in English law, seat in London/DIFC/ADGM, marshal evidence in Dhaka, and structure lawful payment routes across hubs.

7) Sanctions-Ready Contract Architecture (Model Terms You Should Consider Now)

Use plain, precise words. English courts will not imply non-contractual performance or broad mitigation unless you write it in.

7.1 Definitions and scope

Sanctions Event: include designation, ownership/control tests (50%+ direct/indirect), sectoral bans, export controls, secondary sanctions exposure, and bank de-risking where payment is refused due to screening.
Relevant Jurisdictions: governing law state; place(s) of performance and payment; jurisdictions of correspondent banks; UN measures if relevant.

7.2 Compliance and co-operation

Mutual duties to exchange KYC, update on status changes, and notify potential breaches.
“All necessary steps” (if business objectives require): enumerate alternate currency, alternate bank, alternate route, split payments, escrow, and licence applications.

7.3 Payment mechanics

Currency waterfall: USD → EUR → GBP → AED (or as relevant).
Pre-designated fallback banks per party; reasonable timeframes to implement changes.
Licence cooperation: each party will apply promptly, supply supporting documents, and accept reasonable conditions attached to licences.

7.4 Illegality and termination

Suspension first: performance is suspended while parties seek a licence/solution.
Termination only after: (i) expiry of a defined cure period; (ii) documented refusal of licences; (iii) infeasibility memo by a Sanctions Counsel.
Cost allocation: who bears transaction fees, exchange costs, and compliance outlays.

7.5 Dispute forum and interim relief

Seat: London (or DIFC/ADGM for MENA orientation); rules: LCIA/ICC.
Express emergency arbitrator and court interim relief compatibility (s. 44 AA 1996).
Confidentiality (institutional/statutory) to reduce reputational spillovers.

8) Pre-Dispute Controls: Evidence, Banking, and Licences

8.1 Evidence foundation

Maintain a dual record: (i) confidential, (ii) robust non-confidential summaries (mirroring trade-remedy practice).
Keep a sanctions file: screening logs, KYC packs, ownership/control analysis, bank refusal notices, licence applications, regulator correspondence.

8.2 Banking choreography

Secure pre-cleared correspondent routes; test small-value pilots.
Include alternative accounts (EEA, UAE, UK) in contract appendices for quick switch.
Agree escrow mechanics in a sanctions-neutral jurisdiction.

8.3 Licensing strategy

Map where a licence might be required (payer’s bank, payee’s bank, seat’s authority).
Who applies (payer/payee/affiliate), timelines, and costs.
Prepare templated packs (corporate tree, beneficial owners, transaction trail, purpose of funds).

9) Case-Driven Tactics: What to Do When Things Go Wrong

9.1 Payment blocked mid-deal (bank refuses USD)

Trigger notice; activate co-operation clause.
Offer EUR/GBP/AED under the currency waterfall; provide alternate bank details.
File licence applications in parallel.
Build a record (swift MT messages, bank letters) to show reasonable steps—vital for tribunal and for avoiding interest penalties.

9.2 Counterparty becomes designated

Suspend under sanctions event; escrow any goods or funds if allowed; stop delivery to avoid exposure.
Consider novation to a non-designated affiliate (subject to sanctions rules and anti-avoidance).
If designation is likely temporary and licence feasible, pursue the licence route; otherwise move toward termination per clause sequencing.

9.3 Export prohibition hits performance

Evaluate place of performance legality; document impossibility and licence prospects.
If clause allows, re-route via alternative origin/processing path; agree cost-sharing.
If no contract solution, assess frustration by illegality risk—but expect a high bar unless licences are unavailable.

9.4 Enforcement posture

If you hold an award against a designated entity, seek licence-conditioned enforcement; propose escrow or blocked-account receipt to defuse public-policy objections.
Expect tribunals/courts to separate liability from payment mechanics; bring practical fixes to the table.

10) Sector Snapshots: How Sanctions Friction Manifests

Energy & Commodities: price caps, shipping services bans, insurance restrictions; need alternate insurers, re-flagging strategies, non-USD settlement.
Metals & Fertilisers: ownership/control traps; use enhanced beneficial-ownership screening and counterparty warranties with audit rights.
Technology & Dual-Use: export controls overlap with sanctions; embed use-case and end-user covenants; design compliance kill-switches.
Financial Services: correspondent banking refusals; deploy multi-bank ladders and escrow; contract for fee sharing on enhanced compliance.
Shipping & Logistics: port restrictions, AIS spoofing risks; stipulate routing warranties, vessel substitution, and data-integrity undertakings.

11) Choosing the Right Seat and Rules (and Why It Matters)

LCIA (London): strong confidentiality, well-oiled procedure, London courts supportive of interim relief and enforcement amidst sanctions.
ICC: global familiarity; flexibility on seat and language; supportive when licensing is part of the timetable.
DIFC/ADGM: common-law courts within UAE; useful when counterparties and assets are GCC-centric; recognition arrangements with onshore courts.

Institutional fees are generally payable even by or to designated parties under licence—plan your cashflow and applications early to avoid procedural derailments.

12) Governance for Sanctions-Resilient Deals (Board-Level Actions)

Mandate a sanctions term-sheet for every cross-border deal (scope, jurisdictions, currencies, banks, fallbacks).
Adopt clause libraries (strict vs. flexible), selectable per counterparty risk and margin profile.
License playbook with named owners, document checklists, and expected regulator SLAs.
Banking panel with pre-cleared corridors; annual dry-runs of payment switches.
Evidence hygiene: contemporaneous minutes of risk decisions; hash-stamped records.
Dispute drills: mock a Gravelor/RTI scenario—can you perform under non-contractual currency if required by your own clause?
Seat strategy: default to London; pivot to DIFC/ADGM for MENA-heavy performance or assets.
ESG & export-control alignment: avoid contradictions between sustainability commitments and sanctions responses.

13) How TRW Law Firm Executes (London • Dubai • Dhaka)

Drafting & Deals (London): we build workable sanctions clauses, payment waterfalls, and licensing commitments aligned with English law and institutional rules.
Payments & Operations (Dubai): we redesign payment chains via DIFC/ADGM platforms and GCC banks; stage escrow and correspondent solutions.
Evidence & Government (Dhaka): we mobilise documentation, liaise with Bangladeshi banks and regulators, and prepare licence-ready packs.

Across hubs, we run arbitrations end-to-end: emergency relief, merits, and enforcement (with licence-conditioned payment solutions)—minimising downtime and reputational exposure.

14) Quick-Reference FAQs

Does a general “reasonable endeavours” clause force me to accept a different currency?
No—not unless the clause clearly contemplates non-contractual performance.

Can I rely on frustration because banks refuse USD?
Rarely. Courts expect you to try licences and fallback mechanics first.

What if my counterparty is designated mid-performance?
Suspend, notify, pursue licensing and co-operation steps per clause; escalate to termination only after the clause’s cure path is exhausted.

Can an English court refuse to enforce an award paying a designated entity?
Public policy issues arise, but courts tend to shape enforcement (e.g., via licensed blocked accounts or escrow) rather than refuse outright.

Which law’s sanctions count?
Always governing law and place(s) of performance/payment. Depending on wording and banking reality, US/EU measures may be considered.

15) Structured Summary Table

Topic	Practical Risk	What English Law/Arbitration Does	Winning Move for Business	TRW Support
Clause Interpretation	Narrow readings can defeat broad “risk” arguments	Courts construe sanctions clauses strictly	Draft explicit triggers (risk, not just breach) and list fallbacks	Clause library; negotiation strategy
Currency/Bank Changes	USD routes blocked; correspondent refusals	Gravelor vs RTI: wording drives whether non-contractual performance is required	Add “all necessary steps” incl. EUR/GBP/AED, alternative banks	Currency waterfalls; tested corridors
Frustration/Illegality	Parties hope court will end contract	High bar; licensing and workarounds must be attempted	Build licence strategy; keep performance “possible”	Licence packs; regulator engagement
Which Sanctions Apply	Surprise exposure to third-country rules	Courts may factor banking reality (e.g., Lamesa)	Define Relevant Jurisdictions in clause	Scope drafting; banking counsel
Enforcement	Paying a designated entity	Courts prefer licensed/payment-conditioned enforcement	Propose escrow/block accounts; apply for licences early	Enforcement plans; OFSI interactions
Arbitration Seat	Asset/location mismatch	London/DIFC/ADGM each offer advantages	Choose seat to match assets, banks, witnesses	Seat selection; institutional interface
Evidence & Timing	Interest penalties; delays	Tribunals reward co-operation records	Keep bank refusal logs, licence filings, KYC	Evidence protocols; playbooks

16) Contact TRW Law Firm

Tahmidur Remura Wahid (TRW) Law Firm

Dhaka (Head Office): House 410, Road 29, Mohakhali DOHS
Dubai: Rolex Building, L-12, Sheikh Zayed Road
London: 330 High Holborn, London WC1V 7QH, United Kingdom

Phone: +8801708000660 · +8801847220062 · +8801708080817
Email: [email protected] · [email protected] · [email protected]

For board-level reviews of sanctions exposure, English-law clause upgrades, and arbitration strategies spanning London, Dubai, and Dhaka, our cross-border team can mobilise on short notice.

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Loading… | 5 MIN READ | BY TAHMIDUR REMURA WAHID