William Chetwood Partner
Finance charters and events of default
OCM Maritime Nile LLC & Anor v. Courage Shipping Co Ltd & Others (Courage and Amethyst)  EWCA Civ 1091
This case concerned an alleged Event of Default under a finance bareboat charter and owners’ rights to terminate and raised issues of general importance under bareboat charters.
We have previously reported on the Commercial Court judgment here: https://www.incegd.com/en/news-insights/maritime-court-considers-termination-provisions-and-equitable-relief-against
The Court of Appeal has now confirmed that decision and dismissed the bareboat charterers’ appeal on all grounds.
The Commercial Court decision
At first instance, the judge decided that Owners were entitled to terminate the charters and repossess two vessels after the US had designated the Charterers’ beneficial owner as a global terrorist. The contracts provided that such designation would constitute an ‘Event of Default’. The judge rejected the Charterers’ arguments that: 1) On a proper construction of the charter, the Owners were not entitled to the right to repossession (the “Construction Defence”); and 2) that the claim for repossession relied on provisions which were penal and therefore void and unenforceable (the “Penalty Defence”).
The judge further rejected the Charterers’ claim for equitable relief against forfeiture to either restore the charters or grant restitutionary relief in respect of payments already made to Owners. He did so on the basis that: 1) the Charterers’ misconduct before and during the proceedings precluded them from such relief; and 2) the evidence did not establish that such relief would have been appropriate as Charterers’ evidence was insufficient to establish that termination would create such a ‘windfall’ as to make it unjust to allow repossession. Further, the Court considered that the risk of placing the Owners in breach of sanctions given the designation was itself sufficient to refuse relief. As we commented before, the Construction Defence depended on the precise wording of the contract but the other arguments raise points of far wider importance.
The Court of Appeal decision
On appeal, the Charterers accepted that an ‘Event of Default’ had occurred, but maintained their Construction Defence. The Court of Appeal upheld the judge’s reasoning. This defence turned on the interpretation of bespoke clauses.
Charterers did not appeal the Penalty decision or challenge the judge’s conclusions that there was little prospect of the US Office of Foreign Assets Control (OFAC) granting a licence to permit continued performance of the charterparties. However, they maintained their position that, in this instance, the Court should exercise its discretion to grant equitable relief given the “colossal windfall” which would accrue to the Owners if they were permitted to repossess the vessels and the adverse consequences the Charterers would face if they lost their funds which they had invested as advances towards the vessels’ purchase prices.
The Court of Appeal concluded that “… the judge's rejection of the charterers' dishonest case that Mr Mallah had ceased to be associated with them is fatal to the claim for relief…” and that the Charterers had “no answer” to the problem that, as the judge had concluded: 1) it was impossible for the charterparties to be performed lawfully given Mr Mallah’s designation; and 2) there was little prospect of OFAC granting the required licences.
The Court considered that the judge was right to conclude that “this was not a case in which relief against forfeiture was appropriate, for the decisive reasons which he gave”, and that, moreover, the submission that repossession would afford the Owners a “colossal windfall” ran counter to the judge’s findings of fact in relation to what the true value may be concerning one of the vessels, and doubt in relation to the other. The Court of Appeal agreed with the judge that, in the circumstances, it was unnecessary to resolve the ‘windfall’ point, and also considered it unnecessary to say anything further as to whether the Charterers’ misconduct itself debarred them from seeking the relief they sought.
This case is important as bareboat charters are common “sale and leaseback” transactions. It demonstrates that although equitable relief against forfeiture may in principle be available, the remedy remains discretionary. The Court will look at the circumstances as a whole, and consider whether the applicant’s conduct may debar it from being granted relief, and whether in fact the remedy would be appropriate. These factors will likely be highly fact sensitive, and we would recommend seeking legal advice at an early stage. It is clear from the decision, for example, that cogent evidence of the adverse consequences of termination needs to be provided if equitable relief is to be sought.
新闻 / Ince celebrates one year since Scotland office opening
23-11-2022 / 保险, 航运, 房地产
We are pleased to be celebrating one year since opening our first Scottish office in the city of Glasgow. Stefanie Johnston, dual-qualified Partner and Head of Scotland, has worked tirelessly over the last year to develop our offering through the opening of an Ince office in what is arguably an established Scottish market. Starting from the ground up, Stefanie and her team have successfully gained an admirable reputation in the region and further afield in the maritime, insurance, real estate and regulatory sectors.
新闻 / Shipping E-brief November 2022
17-11-2022 / 航运
The Shipping E-Brief is a publication providing you with key information on legal decisions and developments in shipping and related business areas.
新闻 / Appeals from arbitration: is reform required?
15-11-2022 / 航运
In September 2022, the UK Law Commission published a consultation paper with provisional recommendations for updating the Arbitration Act 1996 (the Act 1996). Amongst other things, the Law Commission considered whether any changes need to be made to: (i) s.67 of the Act 1996, which deals with jurisdictional challenges to arbitral awards; and (ii) s.69 of the Act 1996, which deals with appeals on points of law.
新闻 / Owners not in breach of charter and entitled to claim demurrage
09-11-2022 / 航运
CM P-MAX III Limited v. Petroleos Del Norte SA (MT Stena Primorsk)  EWHC 2147 (Comm) This recent laytime and demurrage dispute demonstrates that an owner can legitimately refuse orders where such orders may jeopardise the safety of a vessel.
新闻 / Court of Appeal finds owner should have accepted non-contractual performance
09-11-2022 / 航运
Mur Shipping BV v. RTI Ltd  EWCA Civ 1406 A majority of the Court of Appeal has held that the Owner under a contract of affreightment (COA) should have accepted payment of freight in Euros, rather than the US dollars provided for in the COA. Its refusal to do so meant that the Owner could not rely on the force majeure clause in the COA, in circumstances where US sanctions might have restricted US dollar transfers from or on behalf of the Charterer.
新闻 / “Due” means due!
03-11-2022 / 航运
Ceto Shipping Corporation v. Savory Inc (Victor 1)  EWHC 2636 (Comm) The Court in this case had to construe a purchase option clause in a bareboat charter. Specifically, it considered whether the fact that the charterer had not fulfilled certain payment obligations under the charter because it was disputing them in good faith meant that the owner was not obliged to transfer title to the vessel at the end of the charter period.