Sanctions and a Successful Force Majeure Defence

In early 2018, the sanctions position regarding Iran was brought into the spotlight, with the Trump administration’s withdrawal from the Joint Comprehensive Plan of Action. 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 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, from June 2018 to the end of that year.

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

1. 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 our clients’ customers and, in turn, the goods could not be delivered as no bill of lading would be available at the discharge port; and
2. 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 Appeal

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. 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 11 April 2022 (a matter handled by our colleague Menelaos Nicolaou).

Take-Away Points

• The effectiveness of Force Majeure clauses depends entirely on the wording used, but they can 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.
• 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.