OCM Maritime Nile LLC & Anor v Courage Shipping Co & Ors - The Courage & The Amethyst
DMC/SandT/22/15
England
OCM Maritime Nile LCC & Another v Courage Shipping Co & Others (The “Courage” and “Amethyst”)
English Court of Appeal: Underhill, Newey & Males LLJ: [2022] EWCA Civ 1091: 29 July 2022
Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWCA/Civ/2022/1091.html
Robert Bright QC and Charles Holroyd (instructed by Reed Smith LLP) for OCM (Owners)
David Berkley QC and Claudia Wilmot-Smith (instructed by AMZ Law) for Courage (Charterers)
BAREBOAT CHARTERPARTIES: BARECON 2001: DEFAULT EVENTS: US IRANIAN SANCTIONS AGAINST SOLE BENEFICIAL OWNER AND DIRECTOR OF CHARTERERS: TERMINATION OF CHARTERS: WHETHER OWNERS HAD RIGHT TO REPOSSESS VESSELS UNDER CLAUSE 46: WHETHER CHARTERERS ENTITLED TO RELIEF AGAINST FORFEITURE
Summary
The Court of Appeal, in affirming the High Court judgment, held that (a) Owners had the right to repossess the vessels under clause 46 of the relevant Charterparties, and (b) Charterers were not entitled to equitable relief against the forfeiture of the vessels.
Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor Advocate of England & Wales, IMI Registered Mediator, LMAA Supporting Member and International Contributor to DMC’s Case Notes
Background
OCM Nile and OCM Kama (“Owners”), both Marshall Islands companies which were ultimately beneficially owned by investment funds managed by Oaktree Capital Management LP of Delaware, USA, agreed two bareboat charterparties on the Barecon 2001 form (“CPs”) with Courage and Amethyst, also Marshall Islands companies (“Charterers”). Charterers were ultimately beneficially owned by Mr Abdul Jalil Mallah, a Syrian national resident in Greece and the sole director of both companies. Charterers were obliged to purchase the vessels under the CPs, which were, in effect, a method of financing the intended eventual purchase off Oaktree’s managed capital investment funds.
During the course of the performance of the CPs, the United States (“US”) sanctioned Mr Mallah on 10 June 2021, and included him on the Specially Designated Nationals (“SDN”) and Blocked Persons lists, and also “blocked” his property and property interests, which included the Charterers.
As a result, Owners claimed that events of default had arisen under the CPs, whereby they were entitled to terminate them and to repossess the vessels. Owners obtained declarations from the High Court that the CPs had been lawfully terminated and that they were entitled to possession of the vessels. The High Court also dismissed Charterers’ counterclaim for relief from forfeiture.
On appeal, Charterers contended that, on the proper construction of the CPs, Owners were not entitled to possession (“Construction Issue”), and they were entitled to relief from forfeiture, by restoration of the CPs or restitution in respect of the payments made to Owners thereunder (“Forfeiture Relief Issue”). The fuller facts can be found in the note on the High Court judgment here [[1]].
Judgment
The judgment of the Court of Appeal was given by Males LJ, with whom Underhill and Newey LLJ agreed.
Construction Issue
Males LJ noted that the relevant terms of the CPs were clauses 28, 29 and 46 (fn.1), clause 46 being the most critical clause. He also noted that the parties had extended the scope of clause 28 – see the words in bold in fn.1 - so that it applied in any case of termination in accordance with any of the applicable provisions of the CPs.
In summarising the conclusions of the judge, Males LJ stated that he had held that, upon termination of the CPs upon an Event of Default, Owners were entitled to possession of the vessels; in particular, clause 46(a)(i) gave Owners an option to serve a notice requiring payment by Charterers, but Owners were not required to do so and, if they choose not to, that did not affect their right to possession. That reasoning included the following points:
(1) Owners’ construction respected the wording of clause 46 because the clause made clear that Owners had an option, but not an obligation, to serve a notice under clause 46(a)(i);
(2) The words “unless the Charterers have paid to the Owners the full amount as mentioned in clause 46(a)(i)” in the succeeding paragraphs meant no more than that, if Owners served a notice and Charterers paid, the remedies in those paragraphs were not available to Owners;
(3) Owners’ construction was harmonious with clause 29, which provided an unqualified right to possession in the event of termination, whilst Charterers’ construction was not;
(4) The underlying purpose of the transaction as a financing arrangement to enable Charterers to acquire the vessels and to provide security for the money advanced by Owners (who were not themselves in the shipowning business) did not affect these conclusions: even on Charterers’ construction, they would lose possession of the vessels if a clause 46(a)(i) notice was served and they failed to pay immediately the full amount outstanding;
(5) Even though the purpose of the transaction was to provide finance for Charterers’ purchase of the vessels, the parties chose to give effect to that purpose by entering into bareboat charterparties, a standard feature of which is that they include a right for Owners to repossess the vessel in the event of termination; there was, therefore, nothing commercially remarkable about the consequences of Owners’ construction; and
(6) There could be circumstances in which, acting reasonably, Owners would prefer to take possession of the vessels in response to an Event of Default rather than to serve notice under clause 46(a)(i) and take the outstanding payment, breach of a sanctions regime being only one example in which Owners might be unable, or might reasonably not wish, to take payment from Charterers.
In light of the above, Males LJ considered it sufficient, in this one-off case, to say he agreed with the judge’s reasoning as summarised. As such, in his judgment, Charterers had no answer to that reasoning, as the judge had given effect to the written terms of the CPs, whilst having fully in mind their commercial background and the consequences of his decision. That was what the CPs said and whilst that might be an advantageous bargain for Owners, it was not contrary to business common sense.
Forfeiture Relief Issue
Males LJ noted that the judge had set out in the narrative of his judgment a lengthy history of disobedience by Charterers to court orders and breach of undertakings during the proceedings, together with the provision of misleading and untruthful information in the course of interlocutory proceedings.
As Males LJ also noted, in the light of this lengthy catalogue of defaults, taken together with what the judge described as “other justified criticisms” of their conduct, he concluded, applying Royal Bank of Scotland Plc v Highland Financial Partners LP (fn.2) and Freifeld v West Kensington Court Ltd (fn.3), that Charterers were barred from claiming the equitable remedy of relief against forfeiture.
In the view of Males LJ, the judge’s rejection of Charterers’ dishonest case, that Mr Mallah had ceased to be associated with Charterers, was fatal to the claim for relief against forfeiture. Charterers simply had no answer to the points which the judge regarded as decisive. Those points were:
(a) If relief from forfeiture were granted, any order would put Owners and US persons associated with them at risk of penalties under the US sanctions regime if they complied with it;
(b) There was little prospect that Owners would be granted licences by the US authorities in order to permit them lawfully to give effect to an order for relief from forfeiture; and
(c) For Owners to continue doing business with Mr Mallah or entities associated with him whilst he remained on the SDN list would be likely to damage their reputation with investors, banks and others with whom they did business.
Accordingly, the Court of Appeal upheld the High Court judgment in dismissing both grounds of Charterers’ appeal.
Comment
This judgment confirms that parties will be held to their bargain, despite the consequences being potentially draconian, if the language used is sufficiently clear, as the High Court and the Court of Appeal considered to be the case here.
The aspect dealing with relief from forfeiture is a salutary reminder that the English courts will be slow to come to the aid of a party that has been less than candid and, worse, has behaved reprehensibly in the pursuit of its own interests.
Footnote 1:
Clause 28, headed "Termination":
"(a) Charterers' Default
The Owners shall be entitled to withdraw the Vessel from the service of the Charterers and terminate the Charter with immediate effect by written notice to the Charterers if:
(i) The Charterers fail to pay hire in according with the provisions of this Charter...
(ii) The Charterers fail to comply with the requirements of:
(1) Clause 6 (Trading Restrictions)
(2) Clause 13(a) (Insurance and Repairs)
provided that the Owners shall have the option, by written notice to the Charterers, to give the Charterers a specified number of days grace within which to rectify the failure without prejudice to the Owners' right to withdraw and terminate under this Clause if the Charterers fail to comply with such notice;..."
Clause 29, headed "Repossession":
"In the event of the termination of this Charter in accordance with the applicable provisions of this Charter Clause 28, the Owners shall have the right to repossess the Vessel from the Charterers at her current or next port of call or at sea. or at a port or place convenient to them without hindrance or interference by the Charterers, courts or local authorities. Pending physical repossession of the Vessel in accordance with this Clause 29, the Charterers shall hold the Vessel as gratuitous bailee only to the Owners and continue to maintain, class and insure the vessel as required by the terms of this Charter notwithstanding the termination of the chartering of the Vessel...
All arrangements and expenses relating to the settling of wages, disembarkation and repatriation of the Charterer's Master, officers and crew shall be the sole responsibility of the Charterers..."
Clause 46, headed "Owners' Rights":
"(a) At any time after any circumstances described at Clause 45 (Events of Default) have occurred and are continuing, the Owners may, by notice to the Charterers, (aa) … and (bb) in all other cases immediately or on such date as the Owners shall specify, terminate the chartering by the Charterers of the Vessel under this Charter, whereupon the Owners may at their option (but with no obligation so to do):
(i) declare by notice given to the Charterers the aggregate amount of (i) the then Outstanding Principal and (ii) the Indemnity Sum to be immediately due and payable whereupon the same shall become immediately due and payable and the Charterers shall be obliged to pay the actual balance of the same to the Owners together with any interest in accordance with Clause 35(d) and then the applicable payment premium payable pursuant to Clause 34(i) as if the Outstanding Principal was being prepaid on the date of the Owners' notice; and/or
(ii) take any action at law and under the Relevant Documents to collect the full amount as mentioned in Clause 46(a)(i) above; and/or
(iii) unless the Charterers have paid to the Owners the full amount as mentioned in Clause 46(a)(i) above, by their agent or otherwise without further legal process, re-take the Vessel (wherever she may be)...
(iv) unless the Charterers have paid to the Owners the full amount as mentioned in Clause 46(a)(i), declare by notice given to the Charterers that the Vessel should be promptly re-delivered by the Charterers to the Owners whereupon the Charterers shall be obliged to cause the Vessel to be re-delivered to the Owners...
(v) unless that [sic] Charterers have paid to the Owners the full amount as mentioned in clause 46(a)(i), with or without retaking possession of the Vessel … to sell, lease or otherwise dispose of the Vessel...
(d) No remedy referred to in this Clause 46 … is intended to be exclusive, but each shall be cumulative. Save as expressly stated in this clause 46 …, the exercise or purported exercise of any one remedy shall not prevent the simultaneous or later exercise of any other remedy nor shall it prevent the later exercise of the same remedy...
(f) The Owners and the Charterers each agree that the payment of the Outstanding Principal and the Indemnity Sum as set out at Clause 46(a)(i) above is a reasonable pre-estimate of the damages that will be suffered by the Owners from the termination of the chartering of the Vessel and represent liquidated damages and not a penalty..."
Footnote 2:
[2013] EWCA Civ 328
Footnote 3:
[2015] EWCA Civ 806
