Alliance Petrochemical Investment (Singapore) Pte Ltd v Francesco Mazzagatti & Anor

Monday, 04 August 2025 JUDGE PELLING KC

1. Introduction This is the hearing of the defendants’ application to strike out sentences or parts of sentences from paras.4 and 62, and the whole of paras.114 to 117 of the defendants’ defence on the grounds that the illegality defence that is pleaded there has no real prospect of success. The defendants submit that the issue cannot be resolved at this stage and requires a trial on the merits the availability of the illegality defence can or should only be decided on the basis of factual findings made following the trial. The defendants submit, in any event, that this application must be determined on the assumption that the defendants’ averments of fact and foreign law pleaded in the parts of their defence under challenge would be proved by the defendants at trial and that the alleged breach of US sanctions that is at the heart of the defendants’ illegality defence is regarded by the US legal system as “ a most serious breach of criminal law in an area of high foreign policy .” I agree and do not understand Mr Malek KC to suggest otherwise. His point is that, on those assumptions, the defence is nevertheless bound to fail on each of the grounds that he relies on.

2. Background The claimant’s claim is to recover c. €143 million against the first defendant on the basis that he allegedly misappropriated that sum in breach of trust or fiduciary duty, and against the second defendant on the basis that he allegedly knowingly assisted the first defendant’s breach of trust or fiduciary duty and/or for alleged knowing receipt and/or unjust enrichment. It is alleged by the claimant that at all material times the first defendant was the CEO of the claimant and the second defendant is CFO.

3. Although the detail is not important for present purposes, in summary, it is alleged that the first defendant acquired control of the claimant in 2018 when a company owned and controlled by him called Petrochemical Industries Limited (“PIL”) acquired all the shares in the claimant in return for shares in an entity called Mehr Petrochemical Company (MHPC), an Iranian-registered entity. It is alleged that thereafter, the defendants caused the claimant to incorporate another entity called Alliance Petrochemical Trading LLC (APT) and that thereafter, the first defendant and second defendant procured the transfer from each of the claimant and APT of the sums the subject of this claim to accounts controlled by PIL, which were then transferred to the first defendant’s personal accounts. The claimant brings this claim following a change in the ownership of 50 per cent of the claimant’s shares.

4. Broadly, the defendants raise two defences to these allegations. Firstly, they deny that they, or either of them, controlled the claimant and allege that, at all material times, the claimant was controlled by an individual called Mr Jahanpour, who was responsible for the alleged defalcations; and secondly, the defendants assert what they characterise in the defence as the “ex turpi causa ” defence in paras.115 to 117 of the defence in these terms: “115. US sanctions applied to any actions by API that were directed by Mr Jahanpour or in which Mr Jahanpour was involved in any manner because Mr Jahanpour is a US citizen. Those sanctions prohibit certain trade and investment activities involving Iran by US citizens, including: (1) providing any services, including brokering services, to Iranian companies or the Iranian state; (2) engaging in any transactions, including purchase, sale, transportation, swap financing, or brokering transactions relating to goods of Iranian origin, and; (3) investment, including commitment of funds or other assets, loans, or any other extensions of credit to Iran. Further, those US sanction prohibitions separately apply to Mr Jahanpour through the transactions and dealings of API when that entity was owned 50 per cent or greater or otherwise controlled by Mr Jahanpour, even if Mr Jahanpour had no involvement in the trade or investment activities involving Iran. Additionally, there are extensive secondary sanctions on Iran, including the Iranian petrochemical industry that likely applied to actions by API in relation to MHPC.

116. … The US sanctions on Iran are implemented principally through the Iranian Transactions and Sanctions Regulations (ITSR) adopted by the Treasury Department… As a US citizen and non-US entity owned or controlled by a US citizen, Mr Jahanpour and API were subject to and breached the following prohibitions under US law: 116.1, paragraph 560.204, which prohibits US citizens from providing goods, technology or services to Iran; 116.2, paragraph 560.206, which prohibits US persons from engaging in any transaction or dealing related to goods or services of Iranian origin. 116.3, paragraph 560.208, which prohibits US persons from facilitating or approving transactions by non-US persons that would be prohibited for a US person. 116.4, paragraph 560.211, which prohibits US persons from dealing in property that is blocked under the Iranian sanctions, including property of the government of Iran, Iranian financial institutions and persons on the specially designated nationals list, and 116.5, 560.215, which implements the extension of Iranian related sanctions prohibitions to non-US entities owned or controlled by a US person.

117. Accordingly, the claim is barred by operation of the defence of ex turpi causa and/or illegality. Mr Jahanpour was actively engaged or otherwise facilitated such unlawful conduct as pleaded in paragraph 115. The entire claim is founded on serious unlawful conduct. Further, the claimant should exercise its discretion to withhold any equitable relief on the basis of the clean hands doctrine.”

5. The factual basis for this defence is therefore that: a. from September 2018 the claimant was controlled by Mr Jahanpour; b. Mr Jahanpour was a US citizen and as such, was prohibited from facilitating transactions in respect to petrochemicals originating from Iran; c. Mr Jahanpour managed the day-to-day operations of MHPC and actively facilitated transactions between it and third parties; d. API, acting by Mr Jahanpour, breached the US sanctions laws referred to above by dealing directly or indirectly with MHPC, as alleged in para.3 of the defence which insofar as is material pleads: “By a distribution agreement dated 30 September 2005 between API and MHPC … API has, since this date, in summary purchased 60 per cent of MHPC’s high density polythene and marketed it worldwide, except for in Israel and Iran…” e. MHPC was specifically sanctioned by the US authorities from 9 March 2023; but f. MHPC is not now, nor has it ever been sanctioned by either the UK or EU. It is not alleged that API is a US-registered entity or person within the scope of the US sanctions regulations, nor that it has ever dealt with any US counterparty or exported product to the United States of America. The sole basis on which the foreign illegality defence is based is that Mr Jahanpour is a US citizen.

6. By its Reply, the claimant alleges that the foreign illegality defence is misconceived because: a. neither claimant or its directors is or ever has been a United States citizen or resident; b. the claimant is not and never has been a US corporation or operating in the United States; c. it is not alleged that the claimant has conducted business in the United States or with a US-registered entity; and d. MHBC has never been sanctioned under either UK or EU law.

7. The defendant alleges that the foreign illegality defence is demurrable and should be struck out on three separate grounds, being: a. that the defence is unarguable as a matter of English law in the absence of an allegation that either US law is the governing law of the claim or that the allegedly illegal activity relied on took place or was intended to take place in the United States of America; b. the defence is not available because UK public policy is opposed to US unilateral sanctions on Iran; and c. even if API arguably breached US sanctions, it would be contrary to English public policy to prevent the claimants for that reason from recovering losses caused by dishonest breach of trust or fiduciary duty or by reference to the dishonest assistance of such breaches.

8. Before turning to the issues of substance, it is worth recording that: a. a strikeout application is not the appropriate venue for determining a claim or defence in a developing area of the law because decisions on novel points of law should generally be resolved by reference to actual findings of fact; and b. an application to strike out should not be granted unless the court is certain what is pleaded is bound to fail. In my judgment, this involves a similar analysis to that first formulated by Lewison J as he then was in EasyAir Ltd v Opal Telecom Ltd [2009] EWHC 339 Ch and followed on countless occasions since in relation to summary judgment applications. In particular, whilst it may be appropriate to resolve summarily a short point of law if a court is satisfied that it has all the necessary evidence available to it, it will not be appropriate to do so in a developing area or where the points that arise are ones of general importance.

9. In my judgment, a dispute as to the scope and importance of what is alleged to be a developing area of English public policy in relation to a foreign illegality defence is likely to engage the point just made. In this regard, I respectfully agree with and adopt what Fancourt J held in Byers v Samba Financial Group [2020] EWHC 853 Ch at [183] where he held: “Even if illegality under foreign law was established, the question of whether the English court would deny the claimants relief on that basis is a fact-sensitive question. The point is based on public policy and international comity but I cannot see how the court could exercise its discretion without regard to the particular facts of the case. Proportionality being the touchstone relevant to that assessment must be the seriousness of the illegality in the given case, the extent of a claimant’s knowledge of it or involvement in it, the importance of his role, the impact of denial of recovery as between the parties, and whether denial would prevent the making of a profit out of wrongdoing or alternatively prevent wrongdoing.” To my mind, this point applies in particular to the second and at least, to an extent, the third of the three grounds relied on by the claimant in support of the strikeout application. However, this this point is unlikely to apply in relation to the first of these grounds, which depends on the alleged existence of a binary principle which renders – so it is submitted – the illegality defence entirely unarguable.

10. Discussion - Ground 1 I accept for present purposes that the availability of a foreign law illegality defence is one governed by the substantive law of the forum, which in this case is that of England and Wales - see most recently Byers v Samba Financial Group (ibid.) per Fancourt J at [178]. The claimant maintains that, as a matter of English law, a foreign illegality defence is never available unless either the act in question is illegal under the governing law of the claim – in this case English law and not something which is alleged – or (b) where the act in question is illegal according to the laws of the place of performance of the acts alleged to be illegal.

11. It is submitted by the claimant that English law gives effect to the defence as a matter of public policy only to the extent required by the recognised requirements of comity, and that that does not extend further than I have described in the summary of the claimant’s case set out above. The case law on which the claimant relies is concerned with contractual rather than tortious claims, but there is no reason to suppose that the underlying principles and rationale are any different, particularly where, as here, the illegality relied upon is the performance of an agreement being; the agreement pleaded in para.3 of the defence.

12. The line of authorities relied upon by the claimant starts with Foster and Driscoll [1929] 1 KB 470 , a decision of the Court of Appeal in which it was held that a contract for the sale of whisky for onward sale in the United States during the prohibition era was in breach of international comity and thus contrary to public policy and void because performance of the contract was illegal in the place it was to be performed. Similar considerations apply to Regazzoni v KC Sethia Ltd [1958] AC 301 , which concerned the sale of jute bags from India to South Africa via Genoa when the law of India prohibited the export of jute to South Africa. The House of Lords held that the contract was unenforceable because an English court will not enforce a contract, the performance of which would involve doing an act in a foreign state which violates the law of that state. It is noteworthy that Lord Simmonds, at p.318 observed that: “It may well be that different considerations will arise and a different conclusion will be reached if the law of the contract is English and the contract can be wholly performed in England or at least in some other country than those whose law makes the act illegal.” He emphasised that the outcome was the result of: “Nothing else than comity which has influenced our courts to refuse, as a matter of public policy, to enforce … a contract which involves the violation of foreign law on foreign soil…” This issue was returned to by the Court of Appeal in Ispahani v Bank Melli Iran [1997] All ER (D) 124, where the Court of Appeal held that a contract will not be enforced where it is to be performed in a country where its performance is unlawful by the law of that country. However, Robert Walker LJ continued: “However, the absence of a reported decision clearly demonstrating the point ought not, in my view, to deter the court from affirming that the carrying out of prohibited acts within the territory in question is an essential and necessary element of the principle stated by Lord Justice Sankey in Foster v. Driscoll … and approved by the House of Lords in Regazzoni v Sethia…Apart from the formidable weight of judicial opinion behind that formulation of the principle, there are, to my mind, two compelling reasons against regarding as irrelevant the place where the prohibited acts are carried out. One reason is that international comity is naturally much readier to recognise that a country’s laws ought to be obeyed within its own territory than to recognise them as having exorbitant effect. The other reason is that the Ralli Brothers principle, although now regarded as a distinct principle, grows from the same root stock. In the Ralli Brothers line of authority, it is clear beyond argument that it must be the law of the place of performance that prohibits the act of performance, and for that I need refer only to Kleinwort Sons & Co v Ungarische Baumwolle Industrie AG [1939] 2 KB 678 , in which MacKinnon LJ at page 694 regarded the alternative as leading to preposterous results.”

13. It follows from this line of authority that it is critical that it should be pleaded and ultimately proved that the acts relied upon were prohibited under the law governing the claim – which is not alleged here, as I’ve said – or the law where the acts relied on have been or are to be carried out. In those circumstances, I reject the broad submission by the defendant that it is not essential that the relevant act must have occurred in the territory of the foreign state concerned. No authority has been identified by the claimant that supports such a proposition and, in my judgment, it is fanciful to suppose that such an argument could succeed in the light of the judicial statements set out above and, more particularly, the underlying rationale for them.

14. It was submitted that different considerations would apply if the foreign law was expressed to have extraterritorial effect as, at least in part, does the US sanction law relied on in this case. In my judgment, that too is fanciful given the absence of any decision to that effect; the adverse comments of Lord Simmons about such a proposition referred to above, and the decision of the Court of Appeal in Kleinwort Sons & Co v Ungarische Baumwolle Industrie AG [1939] 2 KB 678 .

15. Kleinwort Sons & Co v Ungarische Baumwolle Industrie AG (ibid.) was concerned with a bill of exchange drawn on by a Hungarian company payable in London. Hungarian legislation prohibited payments by Hungarian subjects outside Hungary without consent, and that was relied on as a defence to a claim on the bills. That defence failed. The governing law of the contract was English law, and the contract was to be performed in England and was enforceable on that basis - see MacKinnon LJ at 694, where he described the consequences of not confining the principle in this way as liable to result in absurdity. Du Parcq LJ described the submissions to the contrary as being “ remarkable heresies ,” and then added at paras.698-9: “The question in this case is whether one can go very much further than any decision has done and say that if a foreign sovereign state chooses to enact that if one of its subjects, obeying the law of a foreign country, carries out in that foreign country a contract which he has made according to its laws, he will be committing an offence against the laws of his own country. Then the courts of England must say ‘We cannot compel you to keep your contract because if you do, you will be breaking the law of your foreign your sovereign state.’ I think that the answer to that suggestion ought to be a very emphatic negative. I do not say for a moment that a sovereign state may not legislate to control the acts of its subjects beyond its borders. Of course it may. Nothing can prevent a sovereign state from so legislating, and it is a matter with which these courts have no concern. But it is right that it should be understood that if a sovereign state legislates so as to interfere with the acts of its subjects outside its own territory and, in a sense, its own jurisdiction, then it cannot expect – and I suppose that no state would expect – that the courts of another country will enforce that legislation at the expense of their own laws. Primarily, it is our business to see that English contracts are observed and carried out according to English law. It is an exception to that rule that if, in carrying out a contract, the law of the place where it is performed will be broken, to that extent, the contract is treated as invalid. Here, the place where the contract is to be performed is London. For all we know, the defendants may have money due to them in London from British creditors, on payment of which they will be in a position to pay the plaintiff’s just demand. In those circumstances, I have no doubt at all that it would be quite inconsistent with principle to hold that the argument put forward on behalf of the defendants should prevail.” These principles were endorsed by the House of Lords in Kahler v Midland Bank Ltd [1950] AC 24 .

16. The question that remains is whether the determination of this question should be reserved until after completion of a trial. It is submitted by the defendants that this is so, because only then will it be possible to say how the claimant’s profits have been generated, who the claimant’s trading relationships were with, what shipping routes were used, in what currencies the transactions were denominated, and by what international clearance system payments were made.

17. I am satisfied that, on the pleadings as they stand, the relevant paragraph should be struck out. It is nowhere pleaded that the contract between the claimant and MHPC pleaded in para.3 of the Defence was performed in any respect in the territory of the United States: see para.116, where the allegations made are pleaded in the most general and non-specific of terms. The evidence filed in answer to the application takes matters no further. The pleading as currently formulated could not justify a finding of illegality applying the rationale that underlies the principles outlined in the contract cases referred to above. It is not to the point that the defendants allege all the claimant’s revenues were determined by its trading with MHPC and that such trading was in contravention of US sanctions law because the claimant was, in truth, controlled by Mr Jahanpour, without also alleging facts that, if proved at trial, would engage the foreign illegality principle as it is to be understood from the authorities referred to above.

18. It is also not to the point that it must be assumed that the breach as alleged would be regarded by the US legal system as a serious breach of the criminal law in an area of high foreign policy. That is nothing to do with the issue I am currently considering, which is a territoriality issue. It is for this reason that I reject the submission summarised at paras.25 and 39 of the defendant’s skeleton argument that the sole test for foreign illegality is whether there has been a sufficiently serious breach of foreign law which reflects important policies of the foreign state. That issue arises, of course - see by way of example Magdeev v Tsvetkov [2020] EWHC 887 (Comm) per Cockerill J at [330] and following. However, it does not lead to the conclusion that the territoriality point is of no application. It was not suggested that the illegality alleged in the authorities to which I have referred was anything other than sufficiently serious to engage the principle. The decision in Les Laboratoires Servier & Anor v Apotex Inc [2014] UKSC 55 ; [2015] AC 430 , is not to the point for present purposes because the territorial issue did not arise in that case. I reject as unarguable the proposition that the decision of the Supreme Court leads to the conclusion that the territoriality requirements considered above are of no application, other than in a claim for breach of contract, the performance of which would be unlawful in either of the ways I have referred to. No principled basis for adopting such an approach was identified and there was no reason identified for concluding that an illegality defence to a tort claim should be available by reference to conduct that was not unlawful either according to the governing law of the tort or the place where the conduct alleged took place. The underlying rationale of those cases applies with equal force where illegality is relied on as a defence to a non-contractual claim, such as those that arise in this case. Comity requires and, for that matter, justifies no greater response.

19. In light of these conclusions, it is not necessary for me to determine the application on the alternative grounds relied upon, and I address them only shortly for the purposes of completeness and because they were fully argued at the hearing.

20. Discussion - Ground 2 I say at once that I do not consider the issue that arises in relation to Ground 2 is one that can be resolved on a strikeout application of this sort. Deciding what public policy is in a novel area is likely to be difficult and controversial, and the need to resolve it at all may never arise if the factual case the defendants seek to advance fails.

21. I am doubtful whether any conclusions about public policy can safely be reached simply by examining what UK foreign policy may be from time to time. Rather, I consider that public policy in this area is likely to be based on more general and immutable concepts such as those I have so far considered. Indeed, that may supply an additional reason for adopting and applying the territoriality rule I have referred to, because if that principle is applied then whether UK foreign policy is as alleged by the claimant becomes immaterial.

22. However, the short point is that the issue that arises in relation to this part of the case is one which, if it arises at all, ought to be resolved at trial. This cannot seriously be described as being a short issue of law, nor as one that would not benefit from the greater opportunity for consideration that a trial offers, or anything other than it being a novel point. All this points to this issue being one which, if it had arisen, would have to be determined at trial.

23. Discussion - Ground 3 The claimant submits that even assuming that every aspect of the illegality defence so far considered was to be resolved in the defendants’ favour, the English court would not permit the defendants to evade liability for fraud in the ways alleged in the claim, because it is to be assumed for the purposes of considering this element of the application that (a) the defendants were involved in the very business said to have been carried on in breach of the US sanctions law; and (b) the defendants committed a fraud on the claimant through the dishonest misappropriation of funds belonging to the claimant.

24. In my judgment, it is wrong to say that I can safely or even properly assume that the defendants were involved in the running of the claimant, given the defendants’ case that, at the material time, the claimant was owned or controlled by Mr Jahanpour. No suggestion has been made that the defendants’ factual case is demurrable, which means that it can only be resolved at a trial. In those circumstances, the only point that remains is whether it has been decided as a matter of English law that an illegality defence can never be available where a claim based on dishonest breach of trust or fiduciary duty is made. The claimant suggests that is the position. I do not accept that is so.

25. Leaving to one side the decision in Lilly Icos LLC v 8PM Chemists Ltd [2009] EWHC 1905 (Ch) , [2010] FSR 4 on the basis that it was made by reference to the decision of the House of Lords in Tinsley v Milligan [1994] 1 AC 340 , which was overruled by the decision of the Supreme Court in Patel v Mirza [2016] UKSC 42 , [2017] AC 467 , the two authorities relied upon by the claimant as having this effect are Grondona v Stoffel & Co [2020] UKSC 42 , [2021] AC 540 and Mansion (Gibraltar) Ltd v Manasco (2025/GCA/001), a decision of the Court of Appeal of Gibraltar.

26. Turning first to Mansion (Gibraltar ) , a decision of Sir Colin Rimer sitting as a Justice of Appeal in Gibraltar, he addressed the illegality issue that arose in that case at [179] and following of his judgment. Strictly what is set out there is obiter because he had dismissed the appeal, for reasons considered at length before this point: see [178] of his judgment. In my judgment that case does not assist on the issues that arise on this part of the application. It is an obiter statement in a judgment that is not binding on me and involved an application of Patel v Mirza , ibid, to a foreign illegality defence. That test is not directly applicable in a foreign illegality defence: see Magdeev v Tsvetkov , ibid . In my judgment, that case does not provide authority for the proposition that the defendant against whom allegations of breach of trust or fiduciary duty have been made cannot ever rely on a foreign illegality defence. In any event in this case causes of action other than breach of trust or fiduciary duty are relied on which makes a strike out on this basis all the more problematic.

27. The other authority relied upon by the claimant is Grondona v Stoffel & Co [2020] UKSC 42 . That was a domestic illegality case. More generally, the paragraphs of the judgment relied upon, [32] and following, do not support the proposition that an illegality defence could never be available. What those paragraphs demonstrate is that in each case a factual balancing exercise is required to be carried out. That is why Lord Lloyd-Jones was prepared to recognise at [32] that, even in the extreme situation he was considering, a denial of a remedy might be justified. All this leads me to conclude that this issue, too, is one that should be left to trial had it arisen.

28. Disposal In my judgment, the claimant is entitled to succeed on Ground 1 for the reasons I have given. Allegations of the sort made by the defendants must be pleaded with proper particularity. It is inconceivable that the defendants did not have available to them the information to do so, and certainly there is no indication on the face of the pleading or evidence of any lack of factual knowledge that inhibits the proper pleading of a coherent illegality defence that addresses the territorial requirements I have identified, if they could be. In the result, I conclude that the claimant should succeed on the basis that there is an unquestionable territorial element to a foreign illegality defence and that the defendant has not pleaded a defence that demonstrates, even as a matter of pleading, that that requirement is satisfied. ______________