The case, brought by Virgo Marine and Nixie Marine, centres on allegations that Reed Smith unlawfully instructed Barclays to block access to client funds after one of the companies was designated under US Iran sanctions.
The English High Court has rejected a £6 million security for costs bid by Reed Smith in a high-stakes £20 million sanctions dispute involving Dubai-based shipowners and frozen escrow funds. The case, brought by Virgo Marine and Nixie Marine, centres on allegations that Reed Smith unlawfully instructed Barclays to block access to client funds after one of the companies was designated under US Iran sanctions. The decision marks a notable development in the evolving intersection of UK litigation and international sanctions, particularly the extraterritorial impact of US measures on UK-based financial and legal institutions.
In Virgo Marine and Nixie Marine Inc. v. Reed Smith LLP and Barclays Bank PLC [2025] EWHC [1157] (Comm.), the Defendant, Reed Smith, applied for security for costs against Zaiwalla & Co clients who are suing Reed Smith following the failure of a ship sale transaction. Virgo Marine, a Dubai-based shipping company, was in the process of purchasing a tanker for approximately $13.3m in late 2022, when OFAC designated it under the US Iran sanctions regime. By that time, Virgo Marine had paid the full purchase price to Reed Smith acting as escrow agent, but Reed Smith took the view that to comply with relevant US sanctions law its London office should direct Barclays to freeze all Virgo’s funds in escrow. Although Reed Smith later concluded that its London office was not subject to US sanctions and instructed its bank to release the sums, Barclays has refused to do so with the result the Claimant’s funds remain frozen in Reed Smith’s client account.
Virgo and Nixie commenced a claim against Reed Smith in negligence, breach of contract and breach of trust, seeking repayment of the balance of the escrow funds and Reed Smith in turn sued Barclays in a Third Party Claim for the bank’s refusal to release the sum. Reed Smith then applied for over £6m in security for costs against Virgo and Nixie, to cover both its and Barclays’ costs to trial. Virgo and Nixie resisted the application, arguing that adequate security was available by the sum already held in Reed Smith’s client account, which could be re-designated to Reed Smith and/or paid over to Reed Smith by order of the Court if the claim was unsuccessful. However, Reed Smith asserted that Barclays had said it would not act on their payment instruction in such a case, because of sanctions and compliance concerns, and the frozen funds could therefore not constitute security for costs.
Mr Justice Foxton refused Reed Smith’s application for security on the ground that it would not be just in all the circumstances. In looking at the evidence provided as to Barclays’ stated position, he held that there was no proper evidence that Barclays would refuse a payment to Reed Smith following a Court order, despite Barclays apparent reservations about foreign sanctions. Moreover, he further concluded that the evidence that Barclays would face any real legal jeopardy by making a payment from a UK-based bank account to Reed Smith to discharge a liability arising under an order of the English Court was “thin and unpersuasive”.
