On 8 November 2024, Sir Nigel Teare (sitting as a High Court Judge) handed down judgment in O v C [2024] EWHC 2383 (Comm). The judgment addresses the circumstances in which a party can be ordered to take actions that would (or might) place that party in breach of foreign sanctions.
The facts
The respondent charterers (C) had entered into a charter with the applicant shipowners (O), pursuant to which O was to carry a cargo of naphtha from Singapore to Japan. Shortly after the vessel left Singapore with the cargo, C was placed on the US Office of Foreign Assets Control (OFAC) list of Specially Designated Nationals and Blocked Persons (the SDN List).
C instructed O to return to Singapore and discharge the cargo. O refused, contending that (1) as a result of C being added to the SDN List, the cargo was ‘blocked’ under U.S. law, and (2) the sanctions provisions in the charter entitled O to refuse to discharge the cargo. C then commenced a London-seated arbitration against O seeking damages and delivery-up of the cargo, including on the ground that the cargo was not in fact ‘blocked’ on a proper understanding of the relevant US regulations.
O’s application for an order for the sale of the cargo
The cargo remained onboard the vessel for 20 months as the dispute ran on, and O claimed that the cargo’s continued presence was preventing O from making profitable use of, and causing damage to, the vessel. O therefore applied to the English court for an order under s. 44 of the Arbitration Act 1996 permitting it to sell the cargo so that the net proceeds of sale could be held pending the arbitral tribunal’s award.
The usual order following a sale ordered under s. 44 is for the net proceeds of sale to be paid into court. However, O contended that (1) the OFAC sanctions imposed on C prevented O from paying the sale proceeds anywhere other than into an OFAC ‘blocked account’ at a US financial institution; and (2) if O was ordered to pay the proceeds into court, there was a real risk that O, its parent company, and their US-based personnel would be criminally prosecuted for violating US law. O therefore sought an order that the net proceeds of sale should be paid into an OFAC ‘blocked account’.
The decision
C accepted that there were good reasons to order the sale of the cargo, but contended that the sale proceeds should be paid into court, notwithstanding the risk that this might place O in breach of OFAC sanctions. In this regard, C contended that (1) whether the cargo was in fact ‘blocked’ was a question for the arbitral tribunal; (2) an order requiring the sale proceeds to be paid into a ‘blocked account’ would render the cargo de facto blocked, regardless of what the arbitral tribunal might ultimately decide; and (3) the order sought by O would therefore cause irremediable prejudice to C.
Sir Nigel Teare agreed with C. While he accepted O’s submission that an order requiring payment of the sale proceeds into court would arguably require O to breach OFAC sanctions, that was not—without more—a reason not to make that order: [22]-[24]. Instead, he agreed with C that the relevant question was whether O could show a ‘real’ (as opposed to ‘fanciful’) risk that O or its personnel would be criminally prosecuted for the violation. On that question, the judge preferred the evidence of C’s expert. Having regard to OFAC’s enforcement guidance and the particular circumstances of the case, he was satisfied that the risk of prosecution was ‘fanciful’ rather than ‘real’: [25]-[33].
Further, even if (contrary to the judge’s view) there was a real risk of prosecution, that was not the end of the story. The court would then have had to weigh the risk of prosecution against the importance of ordering payment into court. Having regard to the prejudice that C would suffer if the cargo were to become de facto blocked, that balancing exercise would have favoured an order requiring payment into court in any event: [35]-[40].
The judge therefore ordered that the net sale proceeds should be paid into court, as requested by C.
Tom Foxton (led by Oliver Caplin KC) acted for the successful respondent, instructed by Belgravia Law, and addressed the court on an issue at the hearing.
View Judgment