Interpretation of "mandatory provision of law" in facility agreement
The Court of Appeal was asked to interpret the expression "in order to comply with any mandatory provision of law" contained in a facility agreement relating to a loan made for regulatory capital (tier 2 capital) purposes.
The wording was contained in a clause relating to a carve-out to a non-payment event of default.
The lender, an offshore company, was ultimately owned by a person placed on the US Department of the Treasury Office for Foreign Assets Control's list of Specially Designated Nationals. In other words, a sanctioned person.
The Court found that the borrower under the loan facility agreement could rely on the carve-out wording while the lender's owner remained a sanctioned person under US secondary sanctions law and despite the fact that the relevant US secondary sanctions law did not directly prohibit the borrower paying amounts to a sanctioned person. It did, however, create a risk that the borrower would be sanctioned if it made the payment.