OCM Maritime Nile LLC & Anor v Courage Shipping Co Ltd & Or

Factual and Procedural Background

The Claimants are Marshall Islands incorporated companies ultimately owned by investment funds managed by a US-based investment manager. They own two vessels, "Courage" and "Amethyst," which were chartered to the Defendants, also Marshall Islands companies formerly owned and directed by a designated individual ("Mr Mallah"). The Defendants chartered the vessels under agreements that included bareboat charterparties based on the Barecon 2001 form, with modifications, governed by English law.

In June 2021, Mr Mallah was designated a "Specially Designated Global Terrorist" ("SDGT") by US authorities, resulting in the blocking of his property and interests, including those of the Defendants. The Claimants alleged that this designation triggered Events of Default under the charterparties, entitling them to terminate the charters and repossess the vessels. They served multiple Notices of Events of Default and sought possession and damages. The Defendants admitted some Events of Default but denied entitlement to possession, raising defences based on contractual construction and penalty rules, and counterclaimed for relief from forfeiture.

The trial was expedited and held remotely in January 2022. The Claimants presented factual and expert evidence, including on US sanctions law, while the Defendants presented no factual evidence. During the proceedings, the Third Defendant was dissolved, and the court reserved judgment on issues relating to it.

Legal Issues Presented

1. Whether the Claimants are entitled to possession of the vessels following termination of the charterparties due to Events of Default triggered by the US sanctions designation of Mr Mallah.
2. The proper construction of clause 46 of the charterparties concerning the owners' rights to repossess the vessels and the necessity or otherwise of serving notice under that clause.
3. Whether clauses 28, 29, 46 or 48 of the charterparties constitute unenforceable penalty clauses.
4. Whether the Defendants are entitled to relief from forfeiture of the charterparties or restitutionary relief.
5. The implications of the US sanctions regime on the lawfulness of performing the charterparties and the risks of penalties to the Claimants and associated US persons.
6. The effect of the alleged transfer of beneficial ownership of the Defendants by Mr Mallah on the sanctions status of the Defendants and the parties' rights under the charterparties.

Arguments of the Parties

Claimants' Arguments

• The designation of Mr Mallah as an SDGT triggered Events of Default under the charterparties, entitling the Claimants to terminate and repossess the vessels.
• The proper construction of clause 46 allows immediate repossession upon termination without the necessity of serving a notice demanding payment.
• Clauses 28, 29, 46 and 48 are not penal clauses; clause 48 imposes primary obligations and rights, not secondary obligations capable of being penalties.
• The Defendants have not effectively divested Mr Mallah of beneficial ownership, meaning the Defendants remain blocked entities under US sanctions.
• The Defendants' misconduct and breaches of court orders disentitle them from relief from forfeiture.
• Relief from forfeiture would expose the Claimants and associated US persons to significant risks of penalties under the US sanctions regime.
• The Claimants have obtained licences from OFAC to undertake certain actions, but further licences necessary for performance of the charterparties or payments are unlikely to be granted.

Defendants' Arguments

• Although some Events of Default occurred, the Claimants are not entitled to possession without serving a notice under clause 46 demanding payment of specified sums (the "Construction Defence").
• The relevant provisions, particularly clause 48, are penal and therefore void and unenforceable (the "Penalty Defence").
• Mr Mallah transferred his beneficial interests in the Defendants on or about 23 June 2021 under a Transfer Agreement, so the Defendants ceased to be blocked entities.
• The Defendants seek relief from forfeiture to reinstate the charterparties or restitutionary relief, arguing the termination and repossession would cause irreparable prejudice and the Claimants would receive an unwarranted windfall.
• The US sanctions regime does not prevent lawful performance of the charterparties or restitutionary payments, as the parties and vessels are not US persons or blocked property.
• The Defendants contend that the Claimants’ conduct and the sanctions designation were wrongful or mistaken, and that relief from forfeiture is justified.

Table of Precedents Cited

Court's Reasoning and Analysis

The court carefully examined the contractual terms, US sanctions law, and the parties' conduct. It found that the Claimants were entitled to terminate the charterparties and repossess the vessels upon the occurrence of Events of Default without the necessity of serving a notice under clause 46 demanding payment. This interpretation aligned with the natural and commercial reading of clauses 29 and 46, and the Defendants’ contrary construction was inconsistent with the contractual scheme.

The court rejected the Defendants’ penalty defence, holding that clause 48 imposed primary obligations and rights, not secondary obligations capable of being penalties, and therefore was enforceable.

The court found the Defendants’ case that Mr Mallah had divested his beneficial ownership on 23 June 2021 to be unsupported by evidence and contradicted by conduct and admissions. It drew adverse inferences due to the Defendants’ failure to call witnesses or provide documents on this crucial issue, concluding that Mr Mallah retained beneficial ownership and control.

The court reviewed the US sanctions regime and expert evidence, concluding that the Defendants remained blocked entities due to Mr Mallah’s continued beneficial interest, exposing the Claimants and associated US persons to risks of penalties if they performed the charterparties or made payments without a licence. It found the prospect of obtaining such licences to be low.

The court considered the Defendants’ application for relief from forfeiture but found it disentitled due to their misconduct, including breaches of court orders, dishonest representations, and obstructive conduct. Even disregarding misconduct, the court found no appropriate basis to grant relief given the risks under the sanctions regime and the nature of the breaches.

The court also weighed the alleged windfall to the Claimants but found the Defendants overstated it, especially given the vessels’ condition, insurance deficiencies, and legal encumbrances.

Holding and Implications

The court REJECTED the Defendants' Construction Defence and Penalty Defence, affirming the Claimants' entitlement to terminate the charterparties and repossess the vessels upon Events of Default without serving a clause 46 payment notice.

The court REFUSED the Defendants' application for relief from forfeiture, concluding that their misconduct and the risks under the US sanctions regime disentitled them from equitable relief and that it was not otherwise appropriate to grant relief.

The direct effect is that the Claimants are entitled to possession of the vessels and to enforce termination of the charterparties against the first two Defendants. The court reserved further orders to give effect to these conclusions and to address the position of the dissolved Third Defendant.

No new precedent was established beyond the application of existing principles on contractual construction, penalties, relief from forfeiture, and sanctions law risks.