DVB Bank SE v Shere Shipping Company Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Simon |
| Judgment Date | 31 July 2013 |
| Neutral Citation | [2013] EWHC 2321 (Comm) |
| Docket Number | Case N0s. 2012 Folio 1678 2012 Folio 1690 2013 Folio 364 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 31 July 2013 |
[2013] EWHC 2321 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Simon
Case N0s. 2012 Folio 1678 2012 Folio 1690 2013 Folio 364
Mr James Cutress (instructed by Dentons UKMEA LLP) for DVB Bank SE
Mr Peter Irvin (instructed by Stephenson Harwood LLP) for Melli Bank Plc and Persia International Bank Plc
Mr Peter de Verneuil Smith (instructed by Holman Fenwick Willan LLP) for the Defendants
Hearing dates: 26–27 June 2013
Introduction
By a syndicated loan agreement dated 5 December 2006 (as later amended) (the 'Loan Agreement'), DVB Bank SE ('DVB') and Bank Sepah International plc ('Bank Sepah') each advanced US$50m to Shere Shipping Company Limited, Tongham Shipping Company Limited, Uppercourt Shipping Company Limited and Vobster Shipping Company Limited (the 'Borrowers') to provide post-delivery financing in respect of the acquisition costs of four vessels. It is common ground that such sums were advanced and that the Borrowers have failed to make any payments of interest and principal since 14 September 2011.
On 22 November 2012, DVB (as agent for all the lenders) served notice accelerating the repayment of the loans. The outstanding amounts due under the Loan Agreement (approximately €42.3m) have not been repaid.
The Borrowers' obligations under the Loan Agreement were guaranteed by Woking Shipping Investments Limited ('Woking') and Islamic Republic of Iran Shipping Lines ('IRISL'), whom it is convenient to refer to collectively as the 'Guarantors'. The Borrowers are wholly owned by Woking, which is in turn owned by IRISL.
Following what were claimed to be defaults under the Loan Agreement and failure to satisfy demands under the Guarantee, DVB began the present proceedings (2012 Folio 1687), and the other two lenders which had replaced Bank Sepah, Melli Bank Plc ('Melli Bank') and Persia International Plc ('PIB') also brought proceedings seeking repayment of the sums due to them under the Loan Agreement (2012 Folio 1690). A further set of proceedings was then brought by DVB (as Security Trustee for all three lenders) against the Guarantors seeking payment of the sums due to all three lenders under the Guarantees (2013 Folio 364). It is convenient to group the Claimants together for the purposes of this judgment. Where they advance particular arguments I shall identify the particular claimant who makes the argument.
The Claimants in each of the three sets of proceedings have applied for summary judgment. The applications are (1) DVB's application (in 2012 Folio 1687) against the Borrowers in respect of €22.5m due to DVB under the Loan Agreement; (2) Melli Bank's and PIB's application (in 2012 Folio 1690) against the Borrowers in respect of the €19.8m due to them under the Loan Agreement, and (3) DVB's application (in 2013 Folio 364) against the Guarantors in respect of the sum of €42.3m due to DVB as security trustee under the Guarantees.
Chronology
The Loan Agreement named DVB and Bank Sepah as the lenders and the shipowning companies as the borrowers. The Borrowers, who were Maltese registered companies, provided security in the form of mortgages of the four vessels. Subsequently, on 14 December 2006, Woking and IRISL entered into the Guarantees which guaranteed to the loan.
In summary, the Loan Agreement provided that the Borrowers would pay capital and interest in forty quarterly instalments (clause 8.1), would insure the vessels on approved terms and with approved brokers/insurers (clause 13.3.1(e) and (f)) and would keep them registered in their respective names in Malta (clause 14.2). Principal instalments and interest on the loan were to be paid by the Borrowers transferring earnings from the vessels each month into an Earnings Account, held in the name of each Borrower in Germany with (at the material time) Unicredit Bank AG. This would then be transferred from the Earnings Account to a Retention Account with DVB held in the name of each Borrower; and DVB would transfer the sums due under the Loan Agreement to the respective Lenders. It will be necessary to refer to the terms of the 'Application of Earnings' clause (clause 18) in more detail later in this judgment. If the Borrowers failed to meet certain obligations, including payment of interest, an Event of Default would occur and DVB (as agent for the Lenders) was able on notice to call for immediate payment of all sums owed under the Loan Agreement (clause 19). The Loan Agreement was governed by English law (clause 31) with the English Courts having jurisdiction (clause 32).
On 5 December 2006 DVB had entered into an Agency and Trust Deed with the Borrowers which entitled it to act as Security Trustee on behalf of the Lenders.
The Loan was drawn down on 14 December 2006, with DVB and Bank Sepah each lending $50 million to the Borrowers; and on the same date DVB, in its capacity of Security Trustee, entered into the Guarantees with Woking and IRISL.
On 14 March 2007 the Loan Agreement was amended so that Bank Sepah's loan became what was referred to as the Euro Currency Tranche, which was novated to Melli Bank/PIB on 21 March 2007.
From 2006 international business with Iranian commercial entities began to be affected by UN imposed sanctions, which were effectively incorporated into and supplemented by the European Union.
So far as material to the present case, the sanctions were imposed in stages as follows:
(1) Regulation 1100/2009 (dated 17 November 2009) added Melli Bank to the list of Iranian entities which were subject to sanctions under Regulation 423/2007.
(2) On 26 July 2010 Regulation 668/2010 added PIB and IRISL to the list of Iranian entities which were subject to sanctions under Regulation 423/2007.
(3) On 27 October 2010 Regulation 961/2010 introduced a new set of sanctions against Iranian entities including IRISL, Melli Bank and PIB.
(4) On 24 May 2011 Regulation 503/2011 added the Borrowers and Woking to the list of Iranian entities which were subject to sanctions under Regulation 961/2010.
(5) On 24 March 2012 Regulation 267/2012 replaced Regulation 961/2010 and continued the sanctions imposed against the Borrowers, the Guarantors and Melli Bank/PIB.
Despite being subject to sanctions the Borrowers continued to perform their repayment obligations under the Loan Agreement for another four months until 14 September 2011.
Regulation 961/2010 (Article 18) and Regulation 267/2012 (Article 25) both contained derogations which permitted designated persons to make payments due under contracts made before the date they were designated. In broad terms, the Articles permitted Competent Authorities to authorise the release of frozen funds for the purpose of making payments which were due under such contracts. It will be necessary to look more closely at the nature of this authorisation later in this judgment.
It is common ground that the Loan Agreement and the Guarantees fall within this exception, in that they were entered into in 2006. It is also common ground that between September 2010 and September 2011, successful applications were made to the Bundesbank for authorisation under Article 18 of Regulation 961/2010 for quarterly repayments of principal and interest to be paid under the Loan Agreement to DVB from the Borrowers' retention accounts; and that the last instalment of principal and interest was made on 14 September 2011. The only payment that has been credited to the Borrowers' accounts since that date is a payment of €781,400 (USD$1m), received on 28 March 2013, which was recovered from accounts which had been pledged to DVB. DVB had applied to the Bundesbank for authorisation for such funds to be released from the asset freeze to repay the loan; and such authorisation was granted on 19 November 2012.
The Borrowers and the Guarantors contend that the performance of the Borrowers' obligations under the Loan Agreement has been rendered impossible due to the effect of the Regulations to which they were subject. The Claimants submit that the Borrowers were able to carry out their obligations for the four months after they became subject to Regulation 503/2011 and are simply using the imposition of sanctions as an excuse not to honour their contractual obligations.
In addition to their complaints of default under the repayment obligations in the Loan Agreement, the Claimants point out that the Borrowers have also defaulted on other provisions. In particular, it is common ground that they transferred ownership of the ships, apparently in April/May 2012, in breach of Clause 11.3 of the Loan Agreement, which only permitted transfers with the Lenders' consent. The Claimants contend that the breaches of the repayment obligations and of Clause 11.3 constituted Events of Default within the meaning of Clause 19.1(a) and (b) of the Loan Agreement, entitling DVB to accelerate the loans under Clauses 19.2(a) and 19.4.
Regulation 267/2012 repealed and replaced Regulation 961/2010 and, although it maintained the designation and asset freeze of the Borrowers and Guarantors, in almost identical terms, it introduced a potential confusion. The asset freeze provisions which were formerly in Article 16 of ...
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