Financial sanctions: force majeure and licences

The FM clause under consideration in MUR Shipping BV v RTI Ltd suspended contractual performance if that performance was prevented or delayed by (among other things) "any rules or regulations of governments,….restrictions on monetary transfers…". The definition of an FM event included that "it cannot be overcome by reasonable endeavours from the Party affected".

The defendant became a sanctioned entity under US sanctions in 2018. Although the claimant was a Dutch entity, it argued that as the contract specified that payment to it was to be made in US dollars (the only connection with the US under the contract), the sanctions would prevent it being paid.

The defendant countered that, although the contract provided for payment in dollars, the "reasonable endeavours" requirement obliged the claimant to accept a non-contractual payment (for example, payment in Euros instead).

That argument was accepted by an arbitral tribunal but, in the appeal from the award, Jacobs J held that the tribunal was wrong on that point. Nothing in the FM clause required the claimant to accept non-contractual performance. As the judge put it: "The exercise of reasonable endeavours required endeavours towards the performance of that bargain; not towards the performance directed towards achieving a different result which formed no part of the parties' agreement".

Nor had the tribunal erred in finding that the clause applied even though US dollar payments were still permitted legally: the judge believed that, in practice, it was highly probable that the US intermediary bank would (initially at least) have stopped the transfer. There was no requirement to wait and see what would actually happen (for example, whether the US bank would process the payment).

In another sanctions-related case, the claimants in OCM Maritime Nile LLC & Anor v Courage Shipping chartered out vessels to the defendants - non-US companies which are owned by a Syrian national. When that Syrian national subsequently became a designated person under US sanctions, the claimants terminated the charterparties. The English court refused to give the defendants a remedy on the ground that it would put the claimants at risk of breaching US sanctions (and the judge found sufficient US nexus to conclude that the claimants were subject to US sanctions).

There was some debate about whether the claimants were likely to be able to obtain a licence from the Office of Foreign Assets Control (OFAC). The defendants suggested that OFAC would be likely to grant a licence to a party ordered by an English court to do something that would otherwise breach US sanctions. That argument was rejected by the judge: there was said to be little prospect here of a licence being granted and "I would expect any US authority to give proper weight to any order of an English Court, but that does not require OFAC to agree with it without regard to other considerations".