High Court Finds Loan Repayment Obligation Not Suspended By Borrower's Sanctions Designation

The High Court has granted a lender's claim for possession of a mortgaged property after the borrower became the target of UK sanctions: West One Loan Limited v Anna Okroyan [2026] EWHC 1428 (Ch).

The High Court found that the designated borrower was in breach of their obligation to repay the mortgage loan, rejecting the borrower's argument that the repayment obligation was suspended during the period of their designation. The effect of the designation was such that, without a licence or applicable exemption, the borrower could not make any payments to the lender, and the lender could not receive those payments. The High Court considered Fortenova Grupa D.D. v LLC Shushary Holding [2023] EWHC 1165 (Ch) (discussed in our blog post), which held that a company was not liable to pay default interest in circumstances where it was willing to pay the underlying sums due under a finance document, but prevented from doing so because the beneficiary was subject to international sanctions. The High Court found that the scope of Fortenova and similar authorities should be narrowly confined to claims for damages and thus had no application to the present claim for possession of a mortgaged property, following breaches of the loan agreement.

Whilst not strictly necessary, the High Court proceeded to consider whether the borrower's designation triggered other breaches of the loan. In doing so, the High Court made certain findings which have potential read-across value to situations involving designated counterparties. These included consideration of whether: (i) the loan was invalid, unlawful and/or unenforceable as a result of the borrower's designation (it was not); (ii) the material adverse change clause was triggered (it was not on the evidence provided); and (iii) the asset freeze prohibited the lender from making internal ledger changes to reflect the payment of interest by the borrower from a “retained interest” account (the High Court confirmed that the relevant accounting steps would breach the relevant regulations, even though no actual transfer of monies would take place).

The High Court also rejected the borrower's attempt to rely on s.44 of the Sanctions and Anti-Money Laundering Act 2018 (SAMLA), which protects a party from civil liability if they reasonably believe they are acting in compliance with UK sanctions. This aspect of the decision ought to be treated with some caution, however, as the High Court heard the present case shortly before the Supreme Court's landmark decision in UniCredit Bank GmbH v Celestial Aviation Services Ltd & Anor [2026] UKSC 10 was published (see our blog post). The Supreme Court overturned the Court of Appeal's conclusions on s.44 SAMLA, holding that this provision provides a defence for a person who acts or omits to act in the reasonable belief that doing so is required by UK sanctions law in relation to any claim, including a claim for recovery of a pre-sanctions debt. One therefore expects that the High Court's conclusions on this point may have differed, had the Supreme Court judgment been available for its consideration. Future cases on s.44 SAMLA will have regard to the Supreme Court's decision. 

We consider the decision in more detail below.

Background

In October 2022, West One Loan Limited (the Lender), a specialist bridging finance lender, made a bridging loan mortgage to Anna Okroyan (the Borrower) (the Loan). The Loan was secured by way of a first legal charge over a residential property in Surrey (the Property), and was due to be repaid in July 2024. The gross amount of the loan was £4,550,000, which included fees and interest. The total interest payable during the life of the Loan amounted to £409,500, which was retained by the Lender and applied to the Loan each month (the Retained Interest). 

On 6 December 2023, the Office of Financial Sanctions Implementation (OFSI) designated the Borrower under the Russia (Sanctions) (EU Exit) Regulations 2019 (the Regulations). The Lender's position was that the Borrower's designation triggered various breaches of the Loan and an immediate obligation to repay. The Lender first gave formal notice of its position to the Borrower in January 2024, and commenced the claim in March 2024. The Lender gave formal notice again in August 2024, alleging that the Borrower had further breached the Loan by failing to repay on the expiry of its term (in July 2024).

Both the Lender and the Borrower wanted to sell the Property and, in 2025, they obtained separate licences from OFSI which permitted each party to do this (in the Lender's case, subject to a possession order being obtained from the court). The licence obtained by the Lender also permitted it to deduct and apply the Retained Interest for its benefit.

The Lender brought proceedings claiming the sums due under the Loan, seeking an order for possession of the Property. The trial took place in early March 2026 without any oral evidence.

Decision

The High Court granted an order for possession of the Property in favour of the Lender. The central issues were:

• whether the Borrower's designation (i) suspended their contractual repayment obligation or whether they were in fact in breach of this; and/or (ii) amounted to other breaches under the Loan; and
• even if there was a breach of the Loan, whether s.44 SAMLA provided the Borrower with protection from liability.

Impact of the Borrower's designation on the Loan: suspension of the repayment obligation?

The Borrower sought to rely on Fortenova, and several other cases where the performance of a contractual obligation had become unlawful, in support of the argument that their designation suspended the repayment obligation under the Loan. 

Fortenova concerned a company's inability to redeem loan notes it had issued, due to the designation of the noteholder under international sanctions. As discussed in our earlier blog post, in Fortenova, the High Court found that default interest on the notes was not payable by the company because performance of the payment obligation was rendered unlawful by the noteholder’s designation and therefore suspended. As a result, there was no “default” by the company's failure to pay and, therefore, it was not liable to make default interest payments.

In the present case, the Borrower argued that Fortenova was analogous and that, by extension, no breach had occurred under the Loan which could give rise to the Lender's claim for possession of the Property. 

The High Court rejected the Borrower's argument, finding that there was nothing to suggest that the principle in Fortenova "extends beyond a claim for interest arising out of a failure to pay a debt which it was not lawful to pay at the time when payment was required to be made." The High Court commented on various "difficulties" with the Borrower's argument, including the following two key points:

• Claim for possession. In contrast to Fortenova and other cases, the Lender in the present case sought possession of the Property, as opposed to damages. The High Court referred to commentary in McGregor on Damages (22^nd Edition), making it clear that the reasoning in the relevant case law does not apply where "although the primary obligation is to pay money, the claim is not one for damages so that no default need be shown".
• Specific application to mortgage security. It would represent a "substantial widening" of the narrow principle established by Fortenova and other cases, if this were used to prevent a lender's enforcement of mortgage security where the mortgage debt has not been repaid on the due date. 

Accordingly, the High Court concluded that the Borrower's repayment obligation was not suspended and that, as a result of the failure to repay, the Lender was entitled to take possession of the Property.

Other alleged breaches under the Loan

In view of the High Court's finding that the Borrower had breached the repayment obligation, it was not strictly necessary for it to consider whether the Lender was entitled to take possession on other grounds. Those grounds related to the non-payment of interest and alleged warranty breaches by the Borrower.

The High Court proceeded to consider those grounds in any event. The following findings were made which may be of interest as they have potential read-across value to other situations involving designated counterparties or agreements that are impacted by international sanctions:

• The Lender sought to argue that the Loan was invalid, unlawful and/or unenforceable as a result of the Borrower's designation – with the consequence that an event of default had occurred. The High Court ultimately rejected this argument, whilst acknowledging that the enforceability of the Loan was "significantly complicated" by the Borrower's designation, principally as a result of Regulation 11, which prevents any dealing in funds or economic resources owned, held or controlled by a designated person, such as the Borrower (the Dealing Prohibition).

• The Lender sought to rely on the Borrower's non-payment of interest following the designation as a further reason why it was entitled to take possession of the Property. This prompted the High Court to consider whether the Lender would breach the Dealing Prohibition by taking certain accounting steps in relation to the Retained Interest, to apply this to the mortgage account for its benefit. The High Court, whilst criticising a lack of clarity in the Lender's evidence (which had been compounded by the absence of oral evidence), concluded that those accounting steps would involve the following:

  (a) The Lender maintained a single mortgage account in which the Retained Interest was held; and

  (b) Each month, the Lender would make internal ledger changes by which payments from the Retained Interest were treated as credited to the interest due under the Loan. No actual transfer of funds would take place as part of these steps. 

  The High Court considered that the Borrower continued to hold "some measure of ownership, or at least some form of control" over the Retained Interest. As a result, the High Court concluded that the Lender would breach the Dealing Prohibition by taking the steps described above (without an OFSI licence or applicable exemption), "notwithstanding that the monthly payments involved only an accounting exercise".

• The Lender also sought to argue that, in the Lender's "reasonable opinion", the Borrower's designation amounted to a breach of the Loan's material adverse change clause. The Borrower challenged whether the Lender had, in fact, formed such an opinion. The High Court observed that, given the Lender was a company, one would normally expect such an opinion to be formed by the board of the company and recorded in the minutes. Alternatively, it could be delegated to a director or employee, but the evidence in such a case must establish the individual who had the authority of the relevant company to form the relevant opinion (see Cukurova Finance International Ltd & Anor v Alfa Telecom Turkey Ltd (British Virgin Islands) [2013] UKPC 25). The Lender's primary evidence on this point was a letter to the Borrower which referred to the Lender's opinion. However, the High Court was critical of this evidence, as it was “wholly unclear” when, how or by whom the reasonable opinion was formed. It was not even clear who sent the letter on behalf of the Lender, or if they had the authority to form the opinion on behalf of the Lender. Accordingly, the High Court found that, although the Borrower's designation did amount to a material adverse change, the Lender had failed to prove that the Lender itself had validly formed the opinion prior to the letter being sent, or at any point thereafter.

Was the Borrower entitled to protection under s.44 SAMLA?

The Borrower argued that she could not be held liable for any breach of the Loan by virtue of s.44 SAMLA and, therefore, the Lender should not be entitled to possession of the Property. That provision under SAMLA provides protection from civil liability arising from a party's act or failure to act in the reasonable belief that doing so is required by UK sanctions law. 

The High Court found that the Borrower could not rely on s.44 SAMLA because her liability to repay the Loan pre-existed her designation and the application of UK sanctions. The Lender had commenced the claim to recover an amount, namely the Loan, which was owed irrespective of any action or inaction by the Borrower in purported compliance with the Regulations. In reaching this conclusion, the High Court partly relied on Celestial Aviation Services Ltd v UniCredit Bank GmbH, London Branch [2024] EWCA Civ 628.

Significantly, the High Court did not consider the more recent Supreme Court decision of UniCredit Bank GmbH v Celestial Aviation Services Ltd & Anor [2026] UKSC 10, which was published shortly after the present case was heard (and was discussed in our blog post). 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.