Sanctions and a successful force majeure defence

Legal firm Preston Turnbull has reported that, with the issue of sanctions never more relevant to global shipping, the recent decision of Laysun Service Co Limited v Del Monte International GMBH [2022] EWHC 699 (Comm) had affirmed that “a well-drafted force majeure clause can, when unforeseen events take their toll, provide welcome relief from contractual obligations”.

In early 2018 the then US administration withdrew from the Joint Comprehensive Plan of Action regarding Iran. Preston Turnbull said that “as a result, our clients experienced increasing difficulties in performing their obligations under a contract of affreightment, and served a force majeure notice on Owners”.

The main question in the subsequent arbitration brought by Owners was whether, from June 2018 to the end of that year, Charterers were entitled to rely on the Force Majeure clause to escape their obligation to provide cargoes to Owners and to discharge them to receivers in Iran.

In relation to this question, Preston Turnbull maintained that the relevant Force Majeure events were:

  • US sanctions imposed on Iran, making it impossible to make payments with any link to Iran. As a result, no bank would accept payments from the customers of Preston Turnbull’s clients and, in turn, the goods could not be delivered as no bill of lading would be available at the discharge port;
  • Restrictions imposed by the Iranian Government on the issuance of import permits, meaning that it became impossible to import the cargo into Iran.

The Tribunal agreed, finding that Charterers were entitled to rely on the Force Majeure clause to excuse performance for the balance of the contract period.

The Owners appealed the matter to the High Court on the basis that they were appealing findings of law, as opposed to fact.

The Court disagreed, holding that the Tribunal’s findings were of fact and therefore unopen to challenge under Section 69 of the Arbitration Act 1996. Preston Turnbull observed that “conversely, challenges under section 68 for serious irregularity are notoriously difficult to make out – the only successful s68 challenge in two years was handed down on April 11th 2022.

Preston Turnbull concluded that the effectiveness of Force Majeure clauses depended entirely on the wording used, but they could provide a reasonable defence.

“It is worth spending time assessing the particular risks of any charterparty, trade or contract so that the force majeure trigger event and the mitigation requirements/resumption of performance are adequate.”

Preston Turnbull also observed that “the Court will not entertain an appeal on the facts dressed up as an appeal on law, so it is better not to waste the time and money”.

Rob Collins, Natalie Johnston and Lachlan McLeod of Preston Turnbull acted for Del Monte International, with Yash Kulkarni QC and Andrew Leung of Quadrant Chambers.

https://www.preston-turnbull.com/insights/sanctions-and-a-successful-force-majeure-defence