West One Loan Ltd v Okroyan: High Court grants possession of Virginia Water property despite Russia sanctions freeze

Russia sanctions are not a shield against mortgage enforcement. That is the headline from Mr Justice Edwin Johnson's judgement in West One Loan Ltd v Okroyan, a case that raises genuinely novel questions about where the limits of UK financial sanctions law end and the rights of secured lenders begin.

Anna Okroyan owns Dorchester House, a high-value property in Virginia Water, Surrey. In October 2022 she refinanced with West One Loan Limited on a bridging mortgage, borrowing approximately £4 million gross on a nine-month term, subsequently extended to July 2024. In December 2023 the Office of Financial Sanctions Implementation designated her as a sanctioned person under the Russia (Sanctions) (EU Exit) Regulations 2019. From that point, it became unlawful for her to make mortgage payments and equally unlawful for West One to accept them. She had sufficient funds to repay the loan, but they were held in Russian banks and could not be moved. West One commenced possession proceedings.

The property did not reach the Repayment Date unredeemed for want of trying. Both parties had applied for, and obtained, OFSI licences. The defendant wanted to sell the property and had a buyer lined up. West One wanted to take possession and sell it themselves. Both wanted the mortgage paid off. The question before Edwin Johnson J was which route the law permitted.

The defendant's primary argument was elegant: if sanctions law makes it unlawful to repay a debt, the obligation to repay is suspended, and a lender cannot enforce possession on the basis of a breach that never legally occurred. She relied on Fortenova Grupa v LLC Shushary Holding [2023] EWHC 1165 (Ch) and a line of wartime bills-of-exchange cases in which courts had refused to award interest as damages against debtors who could not lawfully pay. The principle, as summarised in McGregor on Damages, is that a defendant cannot be in default for failing to do what the law forbade.

Edwin Johnson J accepted the intellectual coherence of the argument but declined to extend it to mortgage possession. He identified four reasons. The wartime cases, and Fortenova, concerned claims for damages or interest where default had to be established. A possession claim does not require proof of default in the same sense; it arises from the contractual right to enforce security when a debt is not discharged. The claim is not "in respect of" the non-payment, but seeks recovery of a pre-existing liability. The Court of Appeal's analysis of section 44 of the Sanctions and Anti-Money Laundering Act 2018 in Celestial Aviation Services v UniCredit [2024] EWCA Civ 628, confirmed that the section protects against new civil exposures created by sanctions compliance, not against enforcement of obligations that pre-dated designation.

The judgement also contains a sharp warning on the evidential requirements for MAC clauses. West One sought to rely on a material adverse change event of default, which required it to prove that it had actually formed the requisite reasonable opinion before asserting the right. It had not pleaded when, by whom, or in what terms that opinion was formed. Its witness statement from the head of group servicing did not address it. Edwin Johnson J found a "fatal gap in the evidence" and declined to find the MAC event of default established, even though the underlying facts obviously warranted such a view. Lenders relying on opinion-based default triggers need to ensure that the formation of the opinion is documented and provable, not merely implied from a demand letter signed by an unidentified hand.

The possession order was ultimately granted on three separate grounds: failure to redeem on the Repayment Date, breach of the no MAC warranty, and failure to pay contractual interest.

Ian Tucker (instructed by Graphene Legal) appeared for the Claimant. Simon Arnold (instructed by Gherson Solicitors LLP) appeared for the Defendant.