Lloyd's Maritime and Commercial Law Quarterly


Richard L Kilpatrick Jr*

Siemens Energy v PDVSA
In Siemens Energy Inc v Petróleos de Venezuela SA,1 a US federal appellate court in New York recently decided whether a defendant could avoid its contractual obligations because economic sanctions obstructed the ability to perform them. Running parallel to recent decisions in England and elsewhere, the decision by the US Second Circuit Court of Appeals adds a new American voice to the rapidly compounding body of case law examining when and whether commercial actors may terminate, suspend or modify contractual duties due to sanctions-related barriers. The judgment suggests that the party seeking to avoid performance must overcome a high burden in proving that disruption from sanctions has crossed into the realm of impossibility. It also provides insight on how a defendant’s direct consultation with the US Office of Foreign Assets Control (OFAC) might inform such assessments.


In January 2017, the Venezuelan state oil company Petróleos de Venezuela SA (PDVSA) contracted with the Texas-based Dresser-Rand Company, which provided $120 million under a note agreement to be paid back in instalments subject to interest. When interest payments came due later that year, PDVSA paid as scheduled in April and July, but by August it encountered difficulty when US President Donald Trump issued an Executive Order restricting certain transactions related to “new debt” involving PDVSA. In response to these sanctions, some international banks adopted internal risk management policies that screened for Venezuela-connected transactions in a manner exceeding what was required by the Executive Order or published OFAC guidance. The plaintiff amended the note to expand payment options, including acceptance of payment in foreign currency. However, PDVSA still failed to perform, claiming that it could not find banks willing to process payments.
The plaintiff sued for breach of contract and moved for summary judgment. PDVSA responded that payment was impossible because of the sanctions and the banks’ conservative risk policies. The US District Court for the Southern District of New York denied summary judgment on the basis that impossibility was a triable issue of fact, which the Second Circuit affirmed. Then, after a three-day bench trial, the Southern District of New York held in favour of the plaintiff, finding that PDVSA did not meet its burden


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