Court upholds broker’s decision not to make payment to sanctioned client

Beneathco DMCC -v- R.J. O’Brien Limited [2025] EWHC 3079 (Comm)

In a dispute arising from the impact of U.S. sanctions on a UK broker’s client and its broker’s payment obligations, the Commercial Court has confirmed that compliance with foreign sanctions can suspend contractual duties where performance would involve illegality abroad.

The decision is particularly noteworthy for its application of the Ralli Bros principle, which addresses illegality in the place of performance, in a modern sanctions context and its guidance on how English law reconciles contractual rights with international sanctions’ obligations.

The background facts

The case concerned Beneathco DMCC, a Dubai-based petroleum trading company, and R.J. O’Brien Limited (RJOL), an FCA-regulated broker operating in the UK. Beneathco became a client of RJOL in 2019 and traded derivates through RJOL, resulting in a positive balance of approximately US$16.5 million held in a segregated client account.

On 23 January 2020, Beneathco was designated by the U.S. Office of Foreign Assets Control (OFAC) as a Specially Designated National (SDN) under Executive Order 13846, linked to Iran-related sanctions. This designation prohibited US persons from dealing with Beneathco’s property or interests. Shortly before designation, RJOL processed one payment to Beneathco, but thereafter froze the remaining funds, citing sanctions’ compliance obligations.

Beneathco issued two instructions for payment. First, on 23 January 2020, requesting transfer of the funds in Emirati dirhams (AED) to its UAE account. On 24 January 2020, Beneathco requested that its most substantial open trading position be liquidated. RJO MENA liquidated these positions during the course of the day, before closing all positions and cancelling Beneathco's access to its trading account. This resulted in a positive cash balance in Beneathco's account in the sum of US$16.5 million.

The sanctions

The sanctions at the heart of this case arose under Executive Order 13846, issued by President Trump in August 2018 as part of the United States “maximum pressure” campaign against Iran. EO 13846 reinstated and expanded a range of secondary sanctions targeting Iran’s shipping, energy and financial sectors following the US withdrawal from the Joint Comprehensive Plan of Action (JCPOA). Under this framework, OFAC designated Beneathco as a SDN on the afternoon of 23 January 2020. The designation was based on allegations that Beneathco materially assisted the National Iranian Oil Company (NIOC) by facilitating transactions and concealing the origin of Iranian petroleum products.

All property and interests in property of the designated entity that come within US jurisdiction are “blocked” and US persons are prohibited from engaging in any transactions involving such property unless authorised by OFAC.

OFAC’s designation of Beneathco therefore created an immediate compliance challenge for RJOL, as a UK-based broker with US ownership links and operational reliance on US dollar clearing. RJOL responded by withholding Beneathco’s US$16.5 million balance and filing voluntary self-disclosures with OFAC. Although RJOL later sought a specific licence to release the funds, OFAC ultimately refused, citing inconsistency with current licensing policy

The arguments

Beneathco contended that RJOL was contractually and fiduciarily bound to execute its payment instructions and that failure to do so constituted a breach of contract and a breach of trust. It sought specific performance or damages of US$16.5 million.

RJOL denied any such obligation, arguing that its duty was limited to paying Beneathco itself in US dollars, not in AED or to a third party. RJOL further maintained that the funds were held on trust under FCA Client Money Rules (CASS), not as a debt, and that performance would be unlawful under US sanctions, engaging the principle in Ralli Bros -v- Compania Naviera Sota y Aznar [1920] 2KB 287, which prevents enforcement of contracts requiring illegal acts abroad.

The Commercial Court decision

The Court dismissed Beneathco’s claim in its entirety. It held that RJOL was not contractually obliged to comply with Beneathco’s payment instructions. Neither instruction fell within RJOL’s contractual obligations, which were limited to paying Beneathco itself, on demand, in US dollars.

The Court also confirmed that RJOL held US$16.5 million on trust for Beneathco under the FCA’s Client Money and Assets (CASS) rules, rather than owing a freestanding debt. To this end, the Court held that RJOL had an obligation to transfer trust property, not to satisfy a debt claim. The Court also rejected Beneathco’s argument that broad implied terms should be read into the contract, finding terms such as an obligation to pay in any currency or to any nominated recipient, were neither obvious nor necessary to give business efficacy to the agreement.

In an alternative analysis, the Court accepted that even if RJOL had been contractually obliged to comply, the obligation would have been suspended under the Ralli Bros principle. Performance of either instruction would have required the use of US correspondent banks, making the act unlawful under US sanctions law. RJOL’s failure to obtain an OFAC licence did not undermine its position. The Court recognised the practical reality that such licences can take years to secure.

Finally, the Court confirmed that the UK Blocking Regulation (which protects legitimate trade between UK persons and countries affected by extraterritorial sanctions regulations) does not override the Ralli Bros principle where the foreign illegality occurs within a foreign territory which, in this case, was the United States.

Comment

This judgment serves as a reminder of the inherent complexity involved between sanctions compliance and cross-border financial relationships. The Court’s finding that client money held under CASS rules creates a statutory trust, rather than a simple debt, narrows the scope for clients to argue that brokers must “pay on demand” regardless of sanctions.

Second, the Court’s approach to implied terms is a reminder of the judicial restraint in this area. Broad obligations, such as paying in any currency or to any nominated third party, will not be implied unless obvious and necessary for business efficacy. This limits the ability of sanctioned entities to compel alternative payment arrangements and highlights the importance of clear drafting to address sanctions contingencies.

Finally, the decision confirms the continuing relevance of the Ralli Bros principle in sanctions cases. English law will respect foreign illegality where contractual performance requires an act in that foreign territory. Here, the use of US correspondent banks was treated as part of the contractual performance, not merely “equipping to perform”. This reinforces that sanctions risk can excuse performance under English law if illegality is integral to the act required, a critical consideration for firms operating in USD markets.

This article was authored by Tom Burdass and Liam Callaghan.