Sixteenth Ocean Gmbh & Company KG v Société Générale
| Jurisdiction | England & Wales |
| Judge | Peter MacDonald Eggers |
| Judgment Date | 06 July 2018 |
| Neutral Citation | [2018] EWHC 1731 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2017-000012 |
| Date | 06 July 2018 |
[2018] EWHC 1731 (Comm)
Peter MacDonald Eggers QC (Sitting as a Deputy Judge of the High Court)
Case No: CL-2017-000012
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
Royal Courts of Justice
Strand, London, WC2A 2LL
Peter de Verneuil Smith (instructed by Holman Fenwick Willan LLP) for the Claimant
Emily Wood (instructed by Dentons UK and Middle East LLP) for the Defendant
Hearing dates: 19 April 2018
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Peter MacDonald Eggers QC
Peter MacDonald Eggers QC:
Introduction
The Claimant (“16th Ocean”) is a shipping company incorporated in Germany and is a wholly owned subsidiary of the Islamic Republic of Iran Shipping Lines (“IRISL”). IRISL also owned three other subsidiary companies (“13th Ocean”, “14th Ocean”, and “15th Ocean”).
On 4th February 2005, each of these four subsidiaries of IRISL entered into a shipbuilding contract with Hyundai Heavy Industries Co Ltd (“Hyundai”) for the construction of a container carrier by Hyundai and its purchase by the IRISL subsidiary. The fourth of these vessels — the vessel Zagros or vessel no. 1821 (“vessel no. 4”) — was intended to be acquired by 16th Ocean.
On 23rd August 2006, each of the IRISL subsidiaries entered into a loan agreement (“the Loan Agreement”) for a facility in the sum of US$235,537,280 in order to finance the construction and purchase of these vessels.
The Defendant (“SocGen”) was a party to the Loan Agreement in the capacity as “ Agent”, a “ Lender” and a “ Swap Bank”. The other lenders under the Loan Agreement were Crédit Agricole Corporate and Investment Bank (“Crédit Agricole”) and The Export-Import Bank of Korea (“KEXIM”). I shall refer to SocGen, Crédit Agricole and KEXIM as “the Lenders”.
In September 2007, 16th Ocean and the other IRISL subsidiaries entered into an interest rate swap agreement to hedge their exposure to interest rate fluctuations in respect of the Loan Agreement. The interest rate swap agreement was contained in or evidenced by a 1992 ISDA Master Agreement and Schedule dated 12th September 2007. On 18th September 2007, 16th Ocean and SocGen as Swap Bank entered into a swap transaction to hedge 16th Ocean's obligations in relation to vessel no. 4, contained in or evidenced by a Confirmation dated 18th September 2007 (“the Swap”).
Three of the vessels were built by Hyundai and delivered to three of the IRISL subsidiaries (13th Ocean, 14th Ocean, and 15th Ocean) in 2008. For each of these vessels, the facility under the Loan Agreement was used to fund the payments due to be made for the acquisition of these vessels.
In September 2008, the US Department of the Treasury Office of Foreign Assets Control (“OFAC”) designated IRISL, its subsidiaries and vessels owned or controlled by IRISL, including the three vessels acquired by 13th Ocean, 14th Ocean, and 15th Ocean, as Specially Designated Nationals under Executive Order 13382. On 10th November 2008, OFAC further prohibited all “ U-turn” dollar transactions with any Iranian entities.
As a result, in December 2008, SocGen as Agent informed the IRISL subsidiaries that the final advance under the Loan Agreement, required by 16th Ocean to purchase vessel no. 4 could not be drawn down. As a result, 16th Ocean did not pay the funds outstanding for the purchase of vessel no. 4.
On 31st December 2009, Hyundai terminated the shipbuilding contract.
During 2010, the Lenders demanded repayment of outstanding sums due under the Loan Agreement and the interest rate swap agreement, which led to the Lenders' purported acceleration of all sums due under those agreements, such that more than US$200 million was said to be due and owing by the IRISL subsidiaries to the Lenders.
On 9th June 2010, SocGen as Swap Bank demanded payment from 16th Ocean of US$8,889,063.42 (“the Termination Amount”) as the sum due under the Swap.
In September 2010, Crédit Agricole as Security Trustee instituted proceedings in Singapore and obtained an order from the Singapore High Court for the arrest of the three vessels which had been delivered to the IRISL subsidiaries. The vessels were arrested in September 2010.
In October 2010, IRISL and its subsidiaries became subject to EU Council Regulation 961/2010 of 25th October 2010, which froze the assets of the IRISL subsidiaries. However, article 18 of that Regulation provided that where a payment was due under a contract concluded before the date on which IRISL was designated by the Sanctions Committee, the competent authorities of the Member States could authorise the release of frozen funds.
On 13th–14th December 2010, the IRISL subsidiaries paid approximately €155 million, being the Euro equivalent of US$205,221,665, to SocGen as Agent for the Lenders. The moneys were received into SocGen's EURO CAF Account, but then transferred to a Suspense Account, pending the receipt of authorisation from the competent authorities.
Included in the sum paid by the IRISL subsidiaries was US$8,889,063.42, being the Termination Amount claimed by SocGen under the Swap agreed between SocGen and 16th Ocean. 16th Ocean alleges that this sum (as well as the greater sum paid) was paid subject to a reservation of rights and was paid under duress (economic duress).
The competent authority in France was the Direction générale du Trésor (“the DG”). The DG's authorisation was required for all three Lenders. In addition, authorisation was also required from the Central Bank of Korea for KEXIM. The authorisations were received from the competent authorities on the following dates:
(1) On 7th October 2010 from the DG for SocGen.
(2) On 22nd December 2010 from the Central Bank of Korea for KEXIM.
(3) On 27th December 2010 from the DG for Crédit Agricole.
(4) On 10th January 2011 from the DG for KEXIM.
It is SocGen's case that the funds paid into the Suspense Account were distributed (via the EURO CAF Account) to the Lenders on 5th January 2011, save that SocGen's share was at first mistakenly paid to Crédit Agricole, but then repaid to SocGen on 6th January 2011, and KEXIM's share was paid to KEXIM on 12th January 2011. This is not accepted by 16th Ocean, who argued that the Termination Amount was transferred, and by reason of that transfer appropriated, after 10th January 2011.
On 5th January 2011, the vessels were ordered by the Singapore Court to be released from arrest.
On 10th January 2017, 16th Ocean commenced proceedings seeking from SocGen the recovery of the Termination Amount paid to it on the grounds of unjust enrichment (economic duress) and/or as damages for breach of the Swap. I understand that the Termination Amount was not a sum paid to and is not a sum recoverable from any Lender other than SocGen.
SocGen has applied to the Court for an order striking out the claim ( CPR rule 3.4(2)(a)) or summary judgment dismissing the claim ( CPR rule 24.2) on the ground that 16th Ocean's claims are time-barred under section 5 of the Limitation Act 1980.
If the causes of action accrued prior to 10th January 2011, the claims are potentially time-barred, subject to the operation of section 32(1)(a) and/or (b) of the Limitation Act 1980.
16th Ocean resisted the application either on the grounds that the claims are not time-barred and/or because the issue as to when the funds were paid to SocGen should be tried, as SocGen's case was said to be inconsistent and contradictory, given the lack of information, documentation and evidence relating to the transfers which took place in January 2011.
Factual background
The Loan Agreement and the Swap
On 4th February 2005, each of the four subsidiaries of IRISL entered into the shipbuilding contract with Hyundai for the construction of four container carriers for purchase by the IRISL subsidiaries. Vessel no. 4 was intended to be acquired by 16th Ocean.
On 23rd August 2006, each of the IRISL subsidiaries and the Lenders concluded the Loan Agreement for a facility in the sum of US$235,537,280 in order to finance the construction and purchase of these vessels.
The Loan Agreement contained the following provisions:
“ 16.6 Agent only obliged to pay when monies received
Notwithstanding any other provision of this Agreement or any other Finance Document, the Agent shall not be obliged to make available to any Borrower or any Lender or any Swap Counterparty any sum which the Agent is expecting to receive for remittance or distribution to that Borrower or that Lender or that Swap Counterparty until the Agent has satisfied itself that it has received that sum …
16.12 Source of funds
16.12.1 The Agent may at any time at the request of any Lender require evidence satisfactory to the Agent that any payment under this Agreement is legally compliant and until such evidence has been provided to the Agent neither the agent nor the Lenders (each a beneficiary) shall be obliged to accept such payment but each beneficiary shall be entitled to place such payment into a suspense account and such payment shall not be an effective discharge of the liabilities of the Borrowers under this Agreement.
16.12.2 For the purposes of this Clause legally compliant means that the payment of any funds under this Agreement and their source (whether direct or indirect) and their receipt and handling is or will be in the opinion of the Agent in all respects in accordance with any law and regulatory requirements of any relevant jurisdiction and, and [sic] the receipt of such funds by any beneficiary will not or is not reasonably likely in the...
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