OCM Maritime Nile LLC v Courage Shipping Company

JurisdictionEngland & Wales
JudgeLord Justice Males,Lord Justice Newey,Lord Justice Underhill
Judgment Date29 July 2022
Neutral Citation[2022] EWCA Civ 1091
Docket NumberCase No: CA-2022-000558
CourtCourt of Appeal (Civil Division)
Between:
1) OCM Maritime Nile LLC
2) OCM Maritime Kama LLC
Respondents/Claimants
and
1) Courage Shipping Co.
2) Amethyst Ventures Co.
3) Oryx Shipping Limited “Courage” / “Amethyst”
Appellants/Defendants
Before:

Lord Justice Underhill,

VICE PRESIDENT OF THE COURT OF APPEAL, CIVIL DIVISION

Lord Justice Newey

and

Lord Justice Males

Case No: CA-2022-000558

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

COMMERCIAL COURT

Sir Andrew Smith (sitting as a Deputy Judge of the High Court)

[2022] EWHC 452 (Comm)

Royal Courts of Justice

Strand, London, WC2A 2LL

David Berkley QC & Claudia Wilmot-Smith (instructed by AMZ Law) for the Appellants

Robert Bright QC & Charles Holroyd (instructed by Reed Smith LLP) for the Respondents

Hearing date: 21 July 2022

Approved Judgment

Remote hand-down: This judgment was handed down remotely at 3.00 p.m. on 29 July 2022 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

Lord Justice Males
1

On 10 th June 2021 the United States authorities designated Mr Abdul Jalil Mallah, who was the legal and beneficial owner of the shares in the appellant companies, a “Specially Designated Global Terrorist”. That was an Event of Default under the bareboat charterparties of two vessels, the Courage and the Amethyst, concluded between the first and second appellants as charterers and the respondents as owners. The owners gave notice on 18 th June 2021 to terminate the charterparties and said that they would re-possess the vessels at their next ports of call, but the charterers disputed their right to do so. In the event the owners succeeded in taking possession of the Amethyst on or about 1 st September 2021 at Sharjah in the United Arab Emirates, but the charterers caused the Courage to proceed into Syrian waters and the vessel remains there in the charterers' possession.

2

There is now no dispute that the designation of Mr Mallah resulted in an Event of Default under the charterparties, but there remains a dispute whether the owners were entitled to take possession of the vessels.

3

The judge, Sir Andrew Smith, held that they were. In a careful and comprehensive judgment he held that:

(1) the owners terminated the charterparties lawfully and effectively by notices dated 18 th June 2021;

(2) the owners were entitled to possession of the vessels;

(3) they had been so entitled since about 28 th July 2021 in the case of Courage, while in the case of Amethyst they had lawfully taken possession of the vessel on or about 1 st September 2021;

(4) the charterers had precluded themselves from seeking relief from forfeiture of the charterparties by their misconduct in and in relation to the proceedings; and

(5) in any event this would not have been an appropriate case in which to grant such relief.

4

In this appeal the appellant charterers contend that, on the proper construction of the charterparties, the owners are not entitled to possession of the vessels on termination unless they first serve a notice requiring payment of the aggregate amount due to them which the charterers then fail to pay; as no such notice was given, the right to retake possession did not accrue. Alternatively, the charterers say that the judge was wrong to refuse to order relief against forfeiture by way of either (i) restoration of the charters or (ii) restitutionary relief in respect of payments made to the owners (essentially repayment to the charterers of the contributions made by them to the purchase of the vessels).

The facts

5

The owners are special purpose vehicles incorporated in the Marshall Islands. Their ultimate beneficial owners are investment funds managed by Oaktree Capital Management LP, a Delaware limited partnership with headquarters in California. Pursuant to the arrangements described below, OCM Maritime Nile LLC became the owner of the Courage, while OCM Maritime Kama LLC became the owner of the Amethyst. Both vessels are handysize bulk carriers.

6

The charterers are also incorporated in the Marshall Islands. Before June 2021, their shares were legally and beneficially owned by Mr Mallah, a Syrian national, apparently resident in Greece, who was also their sole director. A major issue at the trial was whether Mr Mallah had divested himself of his ownership of the charterers, but the judge held that he had not and that he remained the beneficial owner of the shares in the charterers at all material times.

7

By an agreement dated 12 th July 2019 (“the letter agreement”) made between Oaktree Maritime Finance I LLC (“Oaktree Maritime”) and Oryx Shipping Limited (“Oryx”, another Marshall Islands company owned by Mr Mallah but now dissolved), Oaktree Maritime offered, and Oryx accepted, terms on which Oaktree Maritime would provide finance for the acquisition of bulk carriers to be owned by single purpose companies wholly owned by Oaktree Maritime and to be chartered to companies controlled by Oryx. Oaktree Maritime was to provide up to half of the purchase price of the vessels (or, if lower, 60% of their appraised value at delivery). Each charter was to be “a ‘Hell or High Water’ bareboat charter incorporating the terms of [the letter agreement], based on Barecon 2001 terms”, with a charter period of 25 months from delivery. The letter agreement provided that the charter hire included a fixed element, designed to cover the capital provided by Oaktree Maritime, and a floating element, designed to cover interest at the rate of 7.5% above one-month LIBOR. The charterers were to have an option to purchase the vessels at any time during the charter period, and an obligation to do so on the last day of that period.

8

Mr David Berkley QC for the charterers emphasised that the true nature of the transaction between the parties was that the owners provided what was essentially loan finance for the charterers to acquire the vessels, with the charterers themselves contributing about half of the purchase price.

9

Two vessels were then acquired by the owners which were renamed Courage and Amethyst. The purchase price of Courage was US $8.5 million and of Amethyst was US $10.51 million. The charterers contributed just under half of the purchase price.

10

Bareboat charters were then concluded as envisaged in the letter agreement. The charterparty of the Courage was dated 5 th November 2019 and the Amethyst charterparty was dated 8 th February 2021.

11

Under the charterparties, the vessels were demised to the charterers, who therefore had possession and control of them and were responsible for their maintenance and repair and for crewing and insurance. As contemplated in the letter agreement, the monthly hire payable consisted of “Fixed Hire” together with “Variable Hire” and the charterers were given an option to buy the vessels during the term of the charterparties and were obliged to do so at the end of the term.

12

On 10 th June 2021, the United States authorities designated Mr Mallah a “Specially Designated Global Terrorist” under Executive Order 13224 of 23 September 2001 and he was included on the “Specially Designated Nationals and Blocked Persons List” (“SDN List”). His property and property interests were “blocked”, and, as they were owned by Mr Mallah, the charterers' assets were also blocked. According to a US Treasury press release, Mr Mallah had facilitated transactions for sending US dollars to officials of Iran's Islamic Revolutionary Guard Corps-Qods Force and had facilitated the shipment of Iranian crude oil to Hezbollah. The judge was not in a position to decide whether any of the allegations against Mr Mallah were true and expressed no view about them.

13

The owners' position was that Mr Mallah's designation gave rise to an Event of Default under the charterparties, entitling them to terminate the charterparties, which they did by serving Notices of Events of Default on 18 th June 2021, saying that they would take possession of the vessels at their next ports of call. However, the charterers did not accept this position. The judge set out in detail the steps taken by the charterers to prevent the owners from taking possession of the vessels in the narrative section of his judgment at [37] to [89]. In the case of the Courage, the charterers' efforts have so far been successful and the vessel remains in their possession in Syrian waters, in defiance of an order made by the Commercial Court. The owners were able to take possession of the Amethyst on or about 1 st September 2021 at Sharjah in the United Arab Emirates, but the vessel is detained there because of claims made by third parties there against Mr Mallah and others.

The issues at the trial

14

By the time of the trial the charterers accepted that Mr Mallah's designation gave rise to an Event of Default under the charterparties, entitling the owners to terminate the charterparties. However, they denied that the owners were entitled to possession of the vessels. There were three issues for the judge to decide. The first was a question of construction, whether the owners were entitled to possession in the absence of a notice served under clause 46 giving the charterers an opportunity to pay the “Outstanding Principal” and the “Indemnity Sum”, both of which were defined terms. The second was whether the owners' claim for possession relied on provisions which were penal, and so were void and unenforceable. The third was whether the court should grant the charterers relief from forfeiture by way of (i) restoration of the charters, or (ii) restitutionary relief in respect of payments made to the owners.

15

The judge decided all three issues in favour of the owners. The charterers now appeal on the construction issue and the issue of relief against forfeiture. There is no appeal on the penalty issue.

The construction issue

The...

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1 cases
  • OCM Maritime Nile LLC v Courage Shipping Company
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