OCM Maritime Nile LLC and Anor v Courage Shipping Co and Ors

Upon termination of a bareboat charterparty for an event of default, an owner’s contractual right to repossess the vessel may arise independently of a further notice requiring payment of outstanding principal and indemnity sums, where the charterparty’s wording provides cumulative remedies. The penalty doctrine applies only to a secondary obligation arising upon breach of a primary obligation. A contractual right or release from a primary obligation is not, without more, a penalty. Relief from forfeiture is available for possessory rights under a bareboat hire-purchase arrangement, but remains an equitable and exceptional remedy. Serious misconduct closely connected with the claim, together with sanctions-related legal and commercial risks, may justify refusing relief.

The claimants financed and chartered two vessels to companies associated with Oryx Shipping Limited. The charterparties contained events of default, termination and repossession provisions, together with purchase options and obligations. Following the designation of the defendants’ owner as a sanctioned person, the claimants served termination notices and sought declarations of termination, possession and damages.

The defendants admitted that events of default had occurred but relied on contractual construction, penalty and relief-from-forfeiture defences. They also sought reinstatement of the charterparties or restitution of payments. The central issues were whether repossession required a payment notice, whether the purchase provisions were penal, and whether equitable relief should be granted.

1. Construction. The claimants were entitled to repossess the vessels after terminating the charterparties for events of default. Clause 46 gave the owners an option, rather than an obligation, to serve a notice requiring payment of outstanding principal and indemnity sums. The remedies in clause 46 were cumulative, and clause 29 independently supported repossession. The defendants’ interpretation would reduce the unqualified right in clause 29 to a contingent right and was inconsistent with the charterparties read as a whole.
2. Penalty. The relevant challenge concerned clause 48, which qualified the purchase option and purchase obligation. Applying Cavendish Square Holding BV v Makdessi, [2013] UKSC 76, the penalty rules regulate remedies for breach, not the fairness of contractual rights and obligations. Clause 48 conferred or released primary rights and obligations; it did not impose a secondary obligation triggered by breach. The question whether the resulting detriment was out of all proportion to the owners’ legitimate interest therefore did not arise.
3. Relief from forfeiture. The charterparties transferred possessory rights in a hire-purchase arrangement and were capable in principle of attracting relief. However, the jurisdiction was confined to appropriate and limited cases. The defendants’ breaches of court orders, obstruction of inspection, continuation of foreign proceedings, misleading evidence and deliberate attempt to conceal the continuing beneficial involvement of Mr Mallah were closely connected with the relief sought and disentitled them to equitable relief.
4. In any event, relief was inappropriate. The defendants remained subject to the relevant sanctions risks; performance or restitution could expose the claimants and associated US persons to penalties; and there was little prospect of obtaining an OFAC licence to confer commercial benefits on sanctioned persons. The application for relief from forfeiture was refused.
5. The construction and penalty defences were rejected. Relief from forfeiture was refused. The court invited submissions on the consequential order, the position of Oryx and other consequential matters.