Beneathco DMCC v R.J. O’Brien Limited

DMC/SandT/26/04

England

Beneathco DMCC v R.J. O’Brien Limited

English Commercial Court: Simon Colton KC (sitting as a Judge of the High Court): [2026] EWHC 3079 (Comm): 24 November 2025

Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWHC/Comm/2025/3079.html

Rachel Barnes KC and Jacob Turner (instructed by Zaiwalla & Co) for Beneathco (Client/Payee)

Maya Lester KC, Fred Hobson KC and Joshua Pemberton (instructed by Morgan, Lewis & Bockius UK LLP) for RJOL (Broker/Payor)

PETROLEUM PRODUCTS DERIVIATIVES TRADING CONTRACT: US IRANIAN SANCTIONS: UAE CLIENT OPENED AND PAID USD FUNDS INTO UK-BASED BROKER’S CLIENT ACCOUNT: CLIENT LATER DESIGNATED UNDER US SANCTIONS: WHETHER CLIENT GAVE VALID INSTRUCTIONS FOR PAYOUT FROM CLIENT ACCOUNT: WHETHER UK BROKER ENTITLED TO REFUSE TO MAKE PAYMENT UNDER RALLI BROS PRINCIPLE PREMISED ON PAYMENT BEING ROUTED VIA US BANKING SYSTEM: WHETHER TERM TO BE IMPLIED INTO CONTRACT RELATED TO PAYMENT CURRENCY AND PAYEE OF FUNDS

DMC Rating: Developed

Summary

In finding for the Broker, and thus dismissing the Client’s claim seeking to obtain payment of the USD funds held in the client account, the High Court held that:

1.     The Client had not at the two material times in question given valid instructions to the Broker to make a payment from the client account, because the Broker was not obliged to make payment in any currency other than USD or to a third-party payee nominated by the Client; and

2.     The Broker was, in any event, entitled to refuse to pay the USD funds to the Client, in reliance on the Ralli Bros principle, as this would have involved an unlawful act, because the USD funds would have had to be routed via a US-based correspondent bank in breach of US sanctions on the Client.

Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor Advocate of England & Wales, IMI Qualified Mediator, LMAA Supporting Member and Deputy Editor of DMC’s CaseNotes

Background

Beneathco, a company registered in Dubai, UAE, traded in petroleum products.  RJOL, a company incorporated in the UK, was a wholly owned subsidiary of another UK company, which, in turn, was wholly owned by a US company.  RJOL acted as a broker and clearing firm on the world’s major futures and options exchanges.

Beneathco opened a client trading account with RJOL to trade financial derivatives in support of its physical petroleum products trading business.  Beneathco paid substantial USD funds into the client account for that purpose.  The contract was subject to English law and the jurisdiction of the English courts.  However, not all of the Broker’s usual business terms were fully incorporated into the contract.

Beneathco became designated by the US authorities under US sanctions due to its trading activities.  The client account at that time contained USD16.5m.  Beneathco gave payment instructions to RJOL on two occasions thereafter.  First, to make payment in AED currency.  Second, to make payment to a third-party.  RJOL declined to make either payment in view of Beneathco’s US sanctions designation.

Disputes arose as to whether Beneathco had given valid payment instructions and whether RJOL was entitled to refuse to make payment given the designation.  Beneathco sought to claim payment from RJOL in the English High Court.

Judgment

Having dealt with the background, facts, express contract terms and parties’ submissions, the Judge addressed the issues and found and held as follows.

The Judge concluded that Beneathco had not given any valid payment instructions and RJOL was entitled – by way of defence – to refuse to make payment relying on the Ralli Bros principle (fn.1), for the following reasons.

Valid Payment Demand

The Judge considered that the relationship between Beneathco and RJOL was analogous to that of client and banker.  A banker’s client cannot sue on a cause of action without more; the client must allege and prove it made a valid payment demand with which the banker was obliged to comply (fn.2).  That meant, to determine if a cause of action had arisen, he had to consider whether a valid demand had been made by Beneathco with which RJOL was obliged to comply.

However, in this case RJOL’s usual business terms were not fully incorporated, which left some gaps to be filled, given that the express terms agreed were incomplete. RJOL’s belated provision of those terms to Beneathco did not, said the Judge, vary the terms of the contract as originally agreed between the parties at the outset.

The nature of the relationship meant, in the Judge’s view, that RJOL held the USD16.5m on trust for, rather than as a mere creditor of, Beneathco.  That required, under client money management regulations, RJOL to segregate Beneathco’s USD funds in a separate client account from its own funds.

The Judge identified the major challenge as the limited express terms agreed between the parties, despite the sophisticated parties, regulatory complexity and cross-border nature of the relationship.  That, said the Judge, made it necessary to imply sufficient mutual obligations to make the relationship work (fn.3).

The Judge accepted RJOL’s pleaded implied term that RJOL was obliged to pay Beneathco on demand the USD currency funds standing to its account.  The Judge considered it was neither obvious nor necessary to give business efficacy to the contractual relationship between the parties to oblige RJOL, in effect, to execute any instructions that Beneathco might give regarding the return of the USD funds held for its benefit.  In particular, the Judge considered that it was neither obvious nor necessary to oblige RJOL to:

1.     convert USD sums it held into any currency Beneathco chose; or

2.     pay USD sums to any person whom Beneathco might nominate.

However, the Judge was not prepared to accept RJOL’s various implied carve-outs or qualifications to its obligation to pay the USD funds to Beneathco on demand. That left other matters to the general law, although did exclude any obligations on RJOL to pay in any other currency or to any other person.

Given that Beneathco had only ever given instructions to pay in a currency other than USD and to pay to another company, it followed, said the Judge, that Beneathco had never given valid instructions the non-compliance with which by RJOL would have provided Beneathco with a cause of action to sue for payment.  With RJOL under no obligation to make payment, Beneathco’s claim failed.

Ralli Bros Principle Defence

While the Judge’s conclusion above meant, in effect, the Ralli Bros issue did not need to be decided, he considered it in case his primary analysis were wrong.

The Judge noted the Ralli Bros principle had most recently been summarised by the Court of Appeal in the Celestial Aviation case (fn.4).  On a proper analysis of Ralli Bros, the Judge concluded that the principle was engaged if a US correspondent bank were contractually required, in order to perform RJOL’s obligation, to pay to Beneathco the USD16.5m held by RJOL on trust for it.

The Judge was satisfied, on the evidence available, that payment of the USD16.5m from any of RJOL’s roster of banks, on the balance of probabilities, would have involved the use of a US bank, even if converted into a different currency, because doing so had to involve passing the USD payment instructions through a US-based correspondent bank.  That also accorded with how RJOL had previously made payment to Beneathco. That meant the Ralli Bros principle was engaged on the facts of the case.

As to whether RJOL could have sought or should have obtained a licence from the US authorities, to render lawful the activity of the US correspondent bank that would have to be used to make the payment, the Judge considered the evidence.

The Judge concluded that no licence could have been obtained in time to make the payment in accordance with the first instruction, which had been withdrawn within days of being made.  Equally, with the second instruction, he considered it highly improbable that RJOL could have obtained a licence since that instruction was made, given the US’s “maximum pressure” policy on the Iranian government, and the opaque nature of the relationship between Beneathco and its nominee.

Finally, the Judge considered the potential effect of the UK Blocking Regulation, which gave effect, post-Brexit, to the EU Blocking Regulation.  He concluded that the regulation was designed and intended to prevent compliance with extra-territorial legislation of a foreign state.  So, in this case, it would only apply if US law made contractual performance unlawful outside the US.  That was not this case, because the US sanctions only made conduct within the US unlawful.

Therefore, the Judge dismissed Beneathco’s claim for want of a valid payment instruction and given RJOL’s right to rely on the Ralli Bros principle defence.

Comment

This judgment, in the context of financial trading client accounts, may also have relevance to payment obligations under international shipping and commodities contracts if sanctions adversely impact the making or receiving of payments.

The term implied in relation to the currency and payee of funds is notable for its limited scope.  This reflects that implied terms must be both reasonable and necessary in order to make the contract work; they are, therefore, to be quite narrowly framed.

The findings of fact in relation to how payments in USD are made and the limited potential to obtain licences to facilitate lawful payment are helpful, although evidence is required in each case to establish and prove the material facts.

Accordingly, while a party may have a legitimate defence to not paying USD funds to another party that is subject to sanctions, if the payment must be routed via a US-based correspondent bank, that is not indisputably always the case.

Footnote 1:

Ralli Bros v Compania Naviera Sota y Aznar [1920] 2 KB 287 (CA)

Footnote 2:

Libyan Arab Foreign Bank v Bankers Trust Co [1989] 1 QB 728

Footnote 3:

Marks & Spencer plc v BNP Paribas Securities Services [2016] AC 742

Footnote 4:

Celestial Aviation Services Ltd v UniCredit Bank AG (London Branch) [2024] EWCA Civ 628, [105]-[106] – see DMC’s case note at https://www.onlinedmc.co.uk/index.php?title=Celestial_Aviation_Services_Limited_%26_Others_v_UniCredit_Bank_GmbH,_London_Branch