In a recent decision, the English High Court has demonstrated its willingness to interpret contractual provisions broadly so as to enable performance in circumstances where the imposition of sanctions on a counterparty prohibits performance in the contractually prescribed manner, even in instances where such an interpretation would materially impact the parties' contractual obligations.

Gravelor Shipping Ltd v. GTLK Asia M5 Ltd & Anor [2023] EWHC 131 (Comm) concerned an application by Gravelor Shipping Ltd ("Gravelor") for summary judgment in the form of declaratory relief and an order for specific performance of obligations under two boat charterparties ("Charterparties"). In considering a clause requiring the parties to "take all necessary steps" for payments to be resumed following the imposition of sanctions on the vessel owners, the court accepted Gravelor's submissions that the term "all necessary steps" required the owners to take steps which would materially impact the obligations arising under the Charterparties, namely requiring them to nominate a new bank account (thereby changing the identity of the account into which the payment had to be made) and to accept payments in euros rather than U.S. dollars.


Gravelor entered into the Charterparties in 2019. These were analogous to finance leases in that they provided Gravelor with a means of financing the purchase of the two vessels (the "Vessels"). The owners of the Vessels were GTLK Asia M5 and GTLK Asia M6 (the "Owners"), which were in turned owned by JSC State Transportation Leasing Company ("JSC"). JSC is owned and/or controlled by the Ministry of Transportation of Russia.

The Charterparties contemplated, at their expiry, the transfer of title to the Vessels to Gravelor, but provided that if the Charterparties were terminated on the basis of Gravelor's default, then Gravelor would be obliged to purchase the Vessels against the payment of certain sums (the "Default Purchase Provision"). The terms of the Charterparties also required, inter alia, Gravelor to make all payments: (i) to a prescribed bank account or "such other account as notified by the Owner to [Gravelor] from time to time"; and (ii) in U.S. dollars, or, should payment be made in a different currency, to indemnify and hold harmless the Owners from and against any loss suffered as a result of exchange rate discrepancies (together, the "Payment Provisions").

Significantly, the Charterparties also contained the following provision in respect of "sanctions payment restrictions":

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 [Gravelor] shall cooperate and promptly take all necessary steps in order for the payments to be resumed. Any delay in payments resulting solely from the circumstances referred to in the immediately preceding sentence shall not be deemed an Event of Default contemplated by clause 17.1(a) of this Charterparty ("the Sanctions Clause").

The factual background then developed as follows:

  • On 8 April 2022, the EU imposed sanctions on JSC, which Gravelor contended prevented it from paying hire under the Charterparties;
  • On 25 April 2022, the Owners stated that the non-payment of hire amounted to an event of default;
  • On June 6 2022, Gravelor asserted its entitlement to exercise a purchase option in respect of the Vessels. The Owners challenged Gravelor's position, but stated, without prejudice to its position regarding default, that it was ready to transfer title of the Vessels to Gravelor upon receipt of sums due under the Default Purchase Provision. The account nominated by the Owners to receive this payment was held with JSC Gazprombank in Moscow (the "Gazprom Account"), and payment was sought in HKD, CNY, or RUB;
  • On 2 August 2022, the U.S. designated JSC and its subsidiaries as "blocked" under U.S. sanctions.

Gravelor contended that it could not make payments to the Gazprom Account as a consequence of the EU and U.S. sanctions, and sought an order for specific performance, including (among others) a requirement for the Owners to nominate a euro account into which the Default Purchase Provision sum could be paid in compliance with relevant sanctions, or for the court to nominate such an account in default. The Owners argued that payment had to be made in U.S. dollars into the Gazprom Account in accordance with the Charterparties and that payment into a euro account would bring the funds into scope of the EU sanctions, resulting in them being frozen.

A key question for the court was whether, given that the Owners had become subject to sanctions, the Sanctions Clause enabled payment to be made in the manner sought by Gravelor (i.e., not in strict accordance with the Payment Provisions).


Accepting the arguments of Gravelor, the court found as follows:

  • Gravelor's proposals required the Owners to take steps which would materially alter the obligations arising under the Charterparties in requiring the Owners to nominate a new bank account (and thereby change the identity of the account into which the payment had to be made) and in requiring the Owners to accept payment in euros instead of U.S. dollars.
  • There was no doubt that the ordinary meaning of the Payment Provisions was that payment had to be made in U.S. dollars into the Gazprom Account (as argued by the Owners).
  • However, the expression "all reasonable steps" in the Sanctions Clause extended, as a matter of construction, to requiring the Owners to nominate an alternative bank account into which the required payment could be made (if it could not be made into the Gazprom Account), even if this meant the Owners would be restricted in their ability to access and use those funds following payment. The court noted that:
    • The identity of the bank account into which payments could be made resulted from the unilateral nomination of the Owners from time to time (i.e., it was not fixed by contractual obligation, which could only be changed by a contractual variation);
    • The Sanctions Clause expressly addressed the position where a payment could not be processed by a bank because the Owners had been sanctioned. The focused nature of this was "highly instructive" in determining what the Sanctions Clause could require of Gravelor and the Owners;
    • The consequences to Gravelor of being unable to make a contractually compliant payment as a result of the Owners becoming sanctioned were potentially very significant.
  • The mere fact that the transfer of funds would be made into a frozen bank account from which the Owners would have great difficulty in withdrawing them could not of itself mean that payment had not taken place (as argued by the Owners). It was noted that in these circumstances, the Owners' difficulty in accessing the funds would be the result of an entirely external limitation arising from the Owners' sanctioned status; and
  • The Charterparties specifically contemplated that the Owners might become the subject of sanctions, and it would have been obvious to the parties that such sanctions were likely to include attempts to block the Owners' access to and use of the funds should they be sanctioned.


Although this decision is highly fact-specific, it provides a useful illustration of the potential approach of the English courts to interpreting contractual payment obligations when a sanctioned entity is party to the underlying contract. It is clear that courts may be willing to interpret a contractual provision (in this case the "all necessary steps" expression in the Sanctions Clause) broadly to enable a party to fulfil its contractual obligations in circumstances where the imposition of sanctions has resulted in performance in strict compliance with the contract being prohibited (and to the extent that fulfilment of the obligation will not itself breach sanctions). As this case shows, this may be so even where a broad interpretation would require a potentially material departure from the parties' obligations under the contract.

Edie Essex Barrett, London Trainee Solicitor, contributed to the drafting of this alert.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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