Balance of compliance with international sanctions and fulfilment of contractual obligations

The case O v C [2024] EWHC 2838 (Comm) involved a dispute as to the reach of US sanctions laws. In this case, O was the owner of a vessel chartered to C for the carriage of a cargo of naphtha. Shortly after the cargo was loaded on the vessel, C was added to the Specially Designated Nationals (SDN) List by the US Office of Foreign Assets Control (OFAC), In consequence, O purported to terminate the charterparty and refused to discharge the cargo to C. Approximately one month later, OFAC issued a licence permitting the cargo to be sold and the proceeds of the sale paid into a blocked account held by a US financial institution. O sought an order for this to happen.

C did not oppose the sale, but sought damages against O for conversion of their cargo and contended that the proceeds of sale should be paid into court (rather than into a blocked account with a US financial institution). Ordinarily, when a cargo under dispute is sold, the proceeds of the sale are required to be paid into the court to preserve them until one party or other establishes a claim to such proceeds. O opposed paying the proceeds of sale into court in this case on the grounds that to do so would risk breaching US sanctions (because the OFAC licence allowed only for the payment of the proceeds to a blocked account with a US financial institution).

The Commercial Court had to determine whether, if it made an order requiring the proceeds of sale to be paid into court, that would give rise to a real (as opposed to a fanciful) risk of O being prosecuted under US law for breach of sanctions. Even if there was a real risk of prosecution, the court would need to conduct a balancing exercise, weighing the risk of prosecution against the importance of a court order that the sales proceeds be paid into court (rather than to a blocked account where those proceeds may not be available to give effect to the result of the dispute between the parties).

Upon consideration of the facts of the case, the Commercial Court concluded that there was a low risk of prosecution given that a payment into court would be "to hold the ring" so that the proceeds of sale were preserved rather than to avoid or frustrate the effect of US sanctions. The Commercial Court therefore held in this case that “the importance of the order for payment into court outweighs the very low risk of prosecution”.

Further reading on the case can be found here.