O v C – EWHC 2838 – King’s Bench Division, Commercial Court (Sir Nigel Teare) – 8 November 2024

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Charterers entered into a charterparty for a vessel carrying naphtha, but were added to the US OFAC sanctions list the same day, causing the cargo to become subject to US sanctions. Owners, fearing prosecution due to their US connections, terminated the charterparty and obtained an OFAC license to sell the cargo and hold proceeds in a blocked US account. Arbitration was initiated in London, and both parties approached the English High Court for directions on how the sale proceeds should be handled.

Background

Under a charterparty, a vessel had loaded a cargo of naphtha in Singapore on 9 February 2023. Later that day, the US Office of Foreign Assets Control (OFAC) added Charterers to its Specially Designated Nationals list, thereby subjecting the cargo to US sanctions.

Owners, though incorporated in Liberia, were ultimately controlled by US persons based in New York. Concerned about breaching US sanctions, Owners terminated the charterparty and applied to OFAC. On 10 March 2023, OFAC granted a license authorizing the sale of the cargo, with the proceeds to be deposited in a blocked account at a US financial institution.

A third party, claiming to have purchased the cargo, attempted to enforce delivery through ship arrests in South Africa and Malaysia. Both actions were dismissed. Meanwhile, the vessel remained adrift in the South China Sea for several months, during which the unstable and flammable cargo began to leak.

Charterers commenced arbitration in London, claiming that Owners’ refusal to deliver the cargo amounted to conversion and sought damages. They argued that delivery could have occurred without breaching US sanctions and applied to the High Court for an order directing that the sale proceeds be paid into the English court. Owners, relying on the OFAC license, maintained that the proceeds should instead be deposited in a blocked US account.

Judgment

The High Court considered whether directing the sale proceeds into the English court could expose Owners or their US-based controllers to the risk of prosecution for violating US sanctions.

Drawing upon OFAC’s enforcement guidelines and expert legal opinions, the Judge concluded there was no real risk of prosecution. The key factors included:

  • Owners had reported the matter to OFAC promptly and secured a license.
  • They consistently acted in compliance with US regulations and did not attempt to circumvent them.
  • Any transfer into the English court would not grant Charterers access to the funds until the arbitration resolved the issue of ownership.
  • Owners appeared to be fulfilling their obligations under English law, not willfully violating US sanctions.

The Judge emphasized that the mere possibility of enforcement action was not enough. The likelihood had to be real, not fanciful—and in this case, it was clearly the latter. Even if a minor risk existed, it would be outweighed by the practical advantages of holding the funds within the jurisdiction of the court managing the arbitration.

Accordingly, the High Court granted Charterers’ application and ordered that Owners deposit the proceeds from the sanctioned cargo sale into the English court, pending the outcome of the London arbitration. The Court determined that the risk of US prosecution against Owners or their US-based controllers for complying with this order was not real but merely speculative.

Editor’s Note:  This judgment set a useful precedent for handling cargo entangled in sanctions disputes. It confirmed that where parties demonstrate diligent compliance with sanctions regimes—such as timely reporting, seeking licenses, and following court orders—UK courts may allow funds to be preserved locally, even in the face of overlapping foreign sanctions. The ruling offers a pragmatic roadmap for similar disputes under English jurisdiction, especially where international sanctions complicate contractual obligations.