Gravelor Shipping Ltd v GTLK Asia M5 Ltd [2023] EWHC 131 (Comm)
Can a party perform its payment obligations by paying into a frozen account in a non-contractual currency where strict contractual performance would risk breaching sanctions? This was one of the key issues in Gravelor Shipping Ltd v GTLK Asia M5 Ltd.
A dispute arose out of two bareboat charters for the MV "WL TOTMA" and MV "WL KIRILLOV", which served as finance leases providing Gravelor, the bareboat charterer, with the means to finance the purchase of the Vessels.
The owners of the Vessels, GTLK M5 and M6 ("Owners"), were subsidiaries of JSC State Transportation Leasing Company ("JSC"), a company owned by the Russian state. Those companies were sanctioned as a result of the Russian invasion of Ukraine in 2022, which prevented Gravelor from paying hire. Owners treated their non-payment of hire as an event of default which accelerated Gravelor's payment obligations under Clause 18.3 of the charters. On fulfilment of those obligations, the Vessels would be transferred to Gravelor. Owners were also blocked under OFAC sanctions in August 2022, making payments in the contractual currency, US$, impossible.
Gravelor successfully applied for summary judgment on a claim for specific performance requiring Owners to nominate a frozen Euro account into which the Clause 18.3 sum could be paid so as to enable the Vessels to be transferred. Gravelor relied on Clause 8.10 of the charters, which provided:
"Where a payment under this Charterparty is incapable of being processed by the relevant banking institution and has not been received by the Owner on the due date by virtue of the Owner becoming a Sanctions Target, the Owner and the Charterer shall cooperate and promptly take all necessary steps in order for the payments to be resumed..."
After the imposition of OFAC sanctions, Owners were sold by JSC to a new entity ultimately owned by a local government within the Russian Federation. Without deciding whether this sale was a sham, Foxton J held that it was sufficient to trigger Clause 8.10 that Gravelor's banks could not process payment to Owners due to their having become Sanctions Targets in the past, irrespective of whether they still fell within the sanctions regime.
The Court rejected Owners' contention that, because payment required the payee to receive an unconditional right to the immediate use of the funds transferred per The Brimnes [1973] 1 WLR 386, payment into a frozen account would not be good discharge. If Owners could not access the funds, this would be the result of constraints in the sanctions context caused by Owners' perceived attributes rather than anything inherent in the process of payment. (Owners obtained permission from Foxton J to appeal on this point, but the appeal was not pursued.)
Finally, drawing on MUR Shipping BV v RTI Ltd [2022] Bus LR 473, Foxton J considered that the taking of "all necessary steps" under Clause 8.10 obliged Owners to nominate a frozen bank account, and to accept payment in Euros instead of US$. Owners were therefore obliged to accept performance that did not strictly accord with the terms of the charters in order to enable Gravelor to make payment without breaching sanctions.
Chris Smith KC and Andrew Leung acted for the Claimants instructed Nick Phillips and Maddy Askins at Tathams.
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