A charterer became subject to US sanctions shortly after his cargo was loaded and the shipowner was allowed to sell the cargo and deposit the proceeds into a blocked account, in a recent case.
O v C [2024] EWHC 2838 (Comm): 8 November 2024
Facts: A cargo of naphtha was loaded on board the vessel by the Charterers (“C”) at Singapore on 9 February 2023. The said cargo remained on the vessel for over 20 months because, shortly after it was loaded, the US Office of Foreign Assets Control (“OFAC”) added the Charterers to its List of Specially Designated Nationals and Blocked Persons (the “SDN List”). In consequence, the Owners (“O”) of the vessel decided to terminate the charterparty and refused to discharge the cargo. The Charterers commenced arbitration proceedings seeking damages for conversion. The Owners argued that that they were entitled to terminate the charterparty in reliance on para (D) of the BIMCO Sanctions Clause and/or para (h) of the Compliance Clause, which were terms of the charterparty.
Pursuant to section 44 of the Arbitration Act 1996, the Owners sought an order from the court that the cargo may be sold and that the proceeds be paid into a blocked account with a US financial institution. The Charterers did not oppose the sale but requested that the proceeds should be paid into the court. The Owners, in turn, opposed that payment into court would risk breaching US sanctions. The importance of the order was that it was to be made in support of the arbitration and, in particular, to enable effect to be given to whatever the arbitral tribunal decided.
Held: Sitting as a Judge of the High Court, Sir Nigel Teare had to consider whether, in case that the payment into court of the sale proceeds were a breach of US sanctions, the risk of a prosecution of the Owners (or of the US citizens in New York who control the Owners) was real or fanciful. He first noted that the Owners appeared to have done all that they could to avoid any breach of US sanctions. Second, he acknowledged that the Owners would not have acted “wilfully or recklessly” but in compliance with an order of the English court. Further, he believed that payment of the proceeds into court would not damage the objectives of US sanctions. That is because the Charterers would not be able to access those proceeds if, after a careful review of US sanctions law, the arbitral tribunal considered that the Owners were within the reach of US sanctions and were obliged to ‘block’ the cargo. So, on the material before the court, the judge said that “it was certainly much more likely than not that there would be no criminal prosecution (…) the importance of the order for payment into court outweighs the very low risk of prosecution.” That being so and applying the principles set out above, Teare J. ordered that the proceeds of sale be paid into court.
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