High Court Rules On The Effect Of Sanctions When Interpreting Contractual Clauses

• Published date: 06 June 2023
• Subject Matter: International Law, Litigation, Mediation & Arbitration, Transport, Marine/ Shipping, Export Controls & Trade & Investment Sanctions, Trials & Appeals & Compensation
• Law Firm: Norton Rose Fulbright
• Author: Ms Lubna Fahoum

On 27 January 2023, the High Court handed down judgment in Gravelor Shipping Ltd v GTLK Asia M5 Ltd & Anor [2023] EWHC 131 (Comm), where it considered the potential implications of MUR Shipping BV v RTI Ltd [2022] EWHC 467 (Comm) in interpreting contractual clauses intended to deal with the effect of sanctions. The case concerned the payment of the purchase price for two ships to an entity that is the target of asset-freeze sanctions.

Background

Gravelor, a company incorporated in Cyprus, financed two ships (the Vessels) via a bareboat arrangement with GTLK Asia M5 Limited and GTLK Asia M6 (GTLK) acting as lenders (the Arrangement). GTLK's ultimate parent company is JSC State Transportation Leasing Company (JSC GTLK), a Russian state-owned entity. Following the Russian invasion of Ukraine in February 2022, JSC GTLK were the subject of both EU and UK asset-freeze sanctions in April 2022 and US blocking sanctions in September 2022 in connection with the financial support and benefits it received from the Russian Government.

The effect of sanctions

Until the Russian invasion of Ukraine, Gravelor upheld its obligations under the Arrangement, making all required payments. In March 2022, Gravelor expressed its intention to exercise its purchase options under the Arrangement. However, as a direct result of the EU asset-freeze sanctions in April 2022, Gravelor was (a) unable to meet a number of its payment obligations to GTLK; and (b) the transfer or trade of the Vessels was blocked. GTLK argued that under the Arrangement, this constituted an Event of Default, and consequently called for accelerated payment of the sums payable, nominating an account with JSC Gazprombank in Moscow for payment of the sums owed.

EU sanctions prevented payment into the nominated JSC Gazprombank account, as its owners were targeted by asset-freeze sanctions and it became illegal to credit the nominated account or to make funds or economic resources available to GTLK in any way. Similarly, US sanctions had the effect of blocking all payments to GTLK entities.

Gravelor applied for summary judgment upon its claim for specific performance in relation to purchase options, seeking to rely on a wide interpretation of a clause relating to sanctions payment restrictions (the Sanctions Payment clause).

The High Court Decision

The High Court held that Gravelor was entitled to summary judgment.

First, when considering Gravelor's claim for specific performance, the High Court considered the...