The Havila case concerns financing arrangements for vessels commissioned by subsidiaries of Havila, a Norwegian shipping group. Under the relevant contracts, financing was to be provided by subsidiaries of JSC GTLK, a Russian state-owned entity that was sanctioned by the EU on 8 April 202, and by the US in September 2022. The subsidiaries are also to be considered sanctioned.
In a recent judgment of Stephen Houseman KC (sitting as a Judge of the High Court), the Court determined various applications by the claimants and defendants for summary judgment and cross-summary judgment.
The GTLK defendants claimed that termination events had occurred under the relevant contracts because of actions taken by the claimants to avoid the impact of sanctions, allowing them to claim a contractual termination payment. But because of sanctions restricting payments to the GTLK parties, they sought a declaration that the Havila claimants were unable to discharge those debts. The Havila defendants pointed out that if the GTL parties received this declaration, they would be contractually permitted to seize the relevant vessels under the terms of the granted security, and would be able to sell them in Turkey, outside the reach of relevant sanctions.
1. The Court thus had to determine whether, on a summary judgment basis, sanctions-related events had caused termination events. Houseman KC’s judgment determined that termination events had arisen under one set of contracts, but not another:
1.1. On one set of contracts, GTLK claimed that termination arose because of Havila’s “failure to keep the vessel insured”. Summary judgment was refused, because that obligation was subject to an express contractual carve-out if insurance “would or might in [the Havila Claimants’] reasonable opinion constitute a breach of any of the applicable sanctions”. So where sanctions prohibits insurance cover, failure to have such cover is not a breach of contract.
1.2. But GTLK successfully obtained summary judgment for breaches under another contract for attempts by the Havila Claimants to amend the finance terms and identity of purchaser entities to avoid the impact of sanctions. Houseman KC considered that the fact that these actions were allegedly taken to mitigate the effect of sanctions was not enough; on the wording of the contract, to escape the contractual consequences of breaches of contract.
1.3. In adopting this approach, it is clear that the Court will undertake a proper contractual analysis to understand the scope of any sanctions carve-outs. The outcome will be contract-specific. This judgment indicates a reluctance to fall back on a general laissez faire approach of indulging complaints about sanctions difficulties.
2. Having determined that point, the Court then had to decide whether payment of a resulting termination payment into a contractually stipulated but frozen account of the Defendants was good discharge under the relevant contract. It found that it was good discharge:
2.1. “It follows that payment made into such an account, even if frozen, constitutes receipt by the lessor, and hence a good discharge of the clause 28.1(e) obligation triggering the regime in clause 29. The fact that an account is frozen in the functional sense described above does not alter this position in my judgment.”
2.2. In line with the Court’s approach of analysing the contract on its terms, this conclusion was based on the language of the contract, which stated that sums payable “shall be paid” to the relevant account.
2.3. It remains an open question as to whether the same would hold true if there was no stipulation as to the method or destination of payment, and a debtor nevertheless attempted to claim discharge after paying into an account it knows to be frozen.