Amidst evolving sanctions imposed worldwide, the shipping and international trade industries continue to grapple with new challenges. Commercial parties have to carefully navigate the complex sanctions regime to ensure that they do not find themselves in breach. Increasingly, the courts have had to deal with how the sanctions regimes interplay with various protections and reliefs available to parties and which courts may grant.
This note examines two recent decisions from the Singapore courts in The “Tina I” [2024] SGHCR 12 and the English courts in O v C [2024] EWHC 2838 (Comm), analysing how the courts seek to mitigate the disruption caused by international sanctions and their implications. These two decisions involve security payments into court and how these may potentially result in a breach of the sanctions imposed by the United States of America against various sanctioned entities. Presently, the courts generally appear to take the position that payment of security into court will not necessarily lead to a breach of sanctions. This is significant for commercial parties as it underscores the court’s role in fashioning a suitable and robust security regime despite the potential impact and complications arising from the ever-developing sanctions regime.
Moving forward, as national courts seek to mitigate the mounting challenges to international commerce brought about by sanctions, we can expect jurisprudence on these issues to increase. For now, the present judicial approach provides much welcome certainty for commercial parties involved in the admiralty/shipping sector.
Singapore High Court Decision in The “Tina I” [2024] SGHCR 12
The dispute arose out of a collision between the “Shahraz” and the “Tina I”. At the material time, the Claimant, a company domiciled in the Islamic Republic of Iran, was the registered owner of the “Shahraz”, and the Defendant, a company incorporated in Greece, was the registered owner of the “Tina I”. The Claimant and the “Shahraz” are on the Specially Designated Nationals and Blocked Persons list (“SDN List“) administered by the US Office of Foreign Assets Control (“OFAC“).
The parties subsequently entered into an agreement on liability, under which the Defendant agreed to bear 100% liability for the collision. Specifically, the parties had agreed on the quantum of security to be provided by the Defendant by way of payment into court. However, as the parties were unable to agree on the inclusion of a sanctions clause (“Sanctions Clause“), this issue arose for the Court’s determination. The Sanctions Clause would effectively allow the Defendant to legitimately refuse payment out to the Claimant where (i) payment would in the “Defendant’s reasonable opinion” be prohibited or expose the Defendant or its insurers to the risk of breach or penalties under the sanctions laws of the US, or (ii) any bank in the payment chain is unable to process or receive payment.
Singapore Court’s Decision
The Court held that the payment out of security furnished by the Defendant should not be subject to the Sanctions Clause. The Defendant’s primary submission for the Sanctions Clause was premised on an argument that the Defendant and its insurers would be at risk of secondary sanctions if they pay security into court, and that security is subsequently paid out to the Claimant. The Court was not satisfied on the evidence that payment into court will give rise to a risk of secondary sanctions under US law. In reaching its conclusion, the Court reasoned that:
The Court therefore ordered that the Defendant is at liberty to provide security for the Claimant’s claim by payment into Court, declining to allow the Sanctions Clause as it held that, amongst other reasons, payment into court would not give rise to the risk of secondary sanctions.
English High Court Decision in O v C [2024] EWHC 2838 (Comm)
The case concerned a cargo of naphtha loaded on board the vessel by the charterers (“Charterers“). As the Charters were added to the US OFAC’s SDN List, the owners of the vessel (“Owners“) purported to terminate the charterparty and sought an order from the court to sell the cargo. The key issue was whether the proceeds from the sale should be ordered to be deposited into a blocked account with a US financial institution, as permitted by an OFAC licence, or paid into court. The Owners opposed paying the proceeds into the court, claiming that this would risk breaching sanctions.
Court’s Decision
While the Court acknowledged a risk that payment into court may breach US sanctions, it also considered whether there is a real risk of prosecution. In this regard, the Court observed that the Owners’ conduct would demonstrate that they are not seeking to breach US sanctions but to comply with them, and that they would not have acted “wilfully or recklessly” but in compliance with an English court order. On balance, given that the purpose of an order for payment into court was to “hold the ring” such that the proceeds of sale are preserved, the Court concluded that there was no real prospect of prosecution for breach of US sanctions.
Key Takeaways
As the ever-changing sanctions regimes threaten to hamper international commerce, the current position on the effect of payment of security into court provides a degree of certainty for parties involved. More importantly, this also highlights the court’s role in fashioning a robust security mechanism for commercial parties, who are able to conduct their dealings with assurance that they may seek orders for security payments into court without violating sanctions rules.
It remains to be seen how the jurisprudence on these related issues will develop (in particular, how such jurisprudence would develop outside the admiralty/shipping sector), as national courts seek to mitigate the impact of sanctions on international commerce and shipping.
How we can help you protect your interests
Prolegis LLC has significant experience in commercial litigation and resolving disputes in the Singapore courts. To find out more about protecting your interests and our disputes capabilities, please contact the authors, Daniel Chia, Kwah Chee Hian, and Carrisa Low, or your usual Herbert Smith Freehills Prolegis contact.
Prolegis LLC and Herbert Smith Freehills LLP (www.herbertsmithfreehills.com) are members of a Formal Law Alliance in Singapore marketed as Herbert Smith Freehills Prolegis (https://www.herbertsmithfreehills.com/content/herbert-smith-freehills-prolegis).
Daniel Chia |
Chee Hian, Kwah |
Carrisa Low
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