Havila Kystruten AS & Ors. v STLC Europe Twenty Three Leasing Limited & Anor.

This hearing was fixed by the Judge in Charge of the Commercial Court, Mr Justice Foxton, for two days on Monday 5 and Wednesday 7 December to determine two applications: the claimants' application made on 22 July 2022 seeking summary judgment on various declarations on its pleaded claim, issued on 22 June this year; and the defendants' cross-application dated 18 November, as subsequently amended, seeking reverse summary judgment on key ingredients of that pleaded claim.

The dispute arises out of the cross-collateralised financing arrangements for four vessels built or being built by and at a Turkish shipyard that I refer to simply as "the Yard". The vessels were commissioned for use as coastal passenger transport service under long-term charters to the Norwegian Ministry of Transport.

The second claimant, referred to as "HKO", is the buyer under the relevant shipbuilding contracts which are all dated 31/12/19. It is part of the Havila Group based in Norway. HKO says it has invested substantial equity of just over €54 million in the new build project. The financing for the balance of the build cost was provided by indirect subsidiaries of GTLK, a Russian state-owned and controlled financing house. This was structured as lease financing with back-to-back sales and bareboat charters.

The present claim concerns two of the four vessels, known as ‘Polaris’ (NB 1103) and ‘Pollux’ (NB 1104). The earlier two vessels were ‘Capella’ (NB 1093) and ‘Castor’ (NB 1094) which are already in service. As regards ‘Polaris’, the first defendant in this action is the purchaser from HKO under the relevant memorandum of agreement or MOA, and is, therefore, the corresponding lessor under the relevant bareboat charterparty, the lessee being the third claimant. In relation to the ‘Pollux’, the position is that it is the second defendant who is the MOA purchaser and the lessor and the fourth claimant is the lessee under the charter. The first and second defendants are Irish-registered entities.

The primary security document for each vessel is a pre-delivery security assignment dated 25 January 2021, referred to as “PDSA”. All relevant agreements are governed by English law. Their terms are materially identical across each vessel. It therefore makes sense just to refer to them in the singular for analytical purposes, but that includes the plural where necessary.

I do not repeat substantial background. The key event which dominates and indeed created this dispute is the imposition of sanctions against various Russian state-owned and associated persons and entities on 8 April of this year: see Council Regulations (EU) No. 269/2014 and No. 22/2850. The sanctions were immediately transposed into Norwegian law pursuant to arrangements between that country, a member of the EFTA, and the EU. This sanctions regime covers the first and second defendants as indirect subsidiaries of a Russian state emanation. Broadly speaking, this prohibits the transfer of economic resources to either of them.

I will attach to this judgment as edited and approved an appendix containing the material provisions of both the charters and the PDSAs, as extracted and provided to me by the parties at my request. This is Appendix 1.

The claimants obtained an interim injunction from this Court on 15 June this year. That was designed to hold the ring by preventing either defendant from taking any steps to enforce its security in respect of either ‘Polaris’ or ‘Pollux’ still under construction at the Yard, by stepping in or taking over the relevant shipbuilding contract. This was prompted by discovery of GTLK's attempts to find new buyers for the two vessels under construction. As a prelude to that occurring, both defendants had given (purported) notice to the Yard on 27/28 May pursuant to clause 7 of the PDSA, i.e. perfecting its assignment and activating its security rights in respect of the vessels pre-delivery. I refer to those as the “Clause 7 Notices”.

As a matter of chronological overview, all four lessors gave notice pursuant to clause 28.1 of their charter on 29 April this year, demanding payment from the relevant lessee of specified Termination Sums. I refer to these as the “Clause 28 Notices”. The Termination Event for ‘Capella’ related to its loss of insurance resulting from the EU sanctions. The Termination Event/s for ‘Castor’ related to the restructuring of the sale and finance effected in response to the sanctions, whereby a different SPV took delivery from the Yard with different financing arrangements and security.

Termination Events for ‘Polaris’ and ‘Pollux’ are parasitic via the cross-collateralisation provisions. The Clause 28 Notices each invoked the regime in clause 28.1(e) by demanding immediate payment of Termination Sums. Those notices were disputed on behalf of each lessee. The Clause 7 Notices were sent by each lessor as assignee under the PDSA and they were dated 27 May, but apparently received the following day. The premise was the existence of a Termination Event and hence an Enforcement Event as defined in the PDSA.

The first and second defendants then made further or fresh demands for payments of Termination Sums under clause 28.1(e) on 3 June, based on the same Termination Events notified in their Clause 28 Notice - also nominating JP Morgan, Dublin as the bank account for the purposes of clause 6.6 of the charter. I refer to this as the “Payment Account” or “Nominated Payment Account” depending on context below.

Despite at first accepting the existence of Termination Events, the claimants contested them in subsequent correspondence and do so now in this action on various pleaded bases.

Havila sought a licence from the Norwegian Ministry of Foreign Affairs to enable payment to be made to GTLK. This was granted in respect of the Payment Account held at JP Morgan Dublin on 6 September.

This action was commenced in mid-June. Expedition was resisted by the defendants. The claimants have explained in evidence, and I accept, that they have a ‘Catch 22’ or ‘chicken-and-egg’ problem, as it was described, in terms of raising finance to pay the Termination Sums in these circumstances, hence the need for a judgment and court order. Their proposed new lenders will not agree to advance finance unless they have an assurance that the vessels will be free of any security in favour of GTLK. That can only happen if this court declares the final position between the relevant contracting parties in the event that Termination Sums are paid in full into, for present purposes, the relevant frozen bank account in Dublin. The negative interim injunction has been continued until further order on this hearing. The claimants ask me to extend it to any trial. The defendants seek its discharge.

A list of issues was agreed for this hearing. It contains five primary issues, most with various sub-issues. I attach it as a further appendix to this judgment so as to contextualise the analysis below (Appendix 2).

The claimants say there is pressing urgency this week because the Yard has given notice of delivery of ‘Polaris’ which will take effect tomorrow, Friday 9 December. The claimants say they need an order of this court that is recognisable and enforceable in other jurisdictions, such as Ireland, where the defendants are registered and where they hold the Payment Account, i.e. an order that declares the legal position between each set of contracting parties in the event that payment is made into the relevant bank account of the Termination Sum as demanded by each of the defendants. Without such an order, the claimants say, they cannot raise finance needed to pay those Termination Sums, as demanded under the Clause 28 Notices. If they cannot raise finance, they cannot pay those sums, and hence the ‘chicken-and-egg’ conundrum.

I have prepared and given this judgment and will make an order in time to be of use to the parties against this perceived urgency. This inevitably means that my judgment is not as refined as it would otherwise have been, but it is hopefully clear and helpful to the parties and any third parties or foreign court.

The claimants do not seek summary judgment on the questions of whether, first, a Termination Event existed as at 29 April of this year, the date of the Clause 28 Notices, under the charters for ‘Capella’ or ‘Castor’, or, therefore, whether an Enforcement Event otherwise thereby existed as at 27 or 28 May, the date of the Clause 7 Notices, or any material time under the PDSAs for ‘Polaris’ or ‘Pollux’ via applicable cross-default provisions in the charters. The defendants do, however, seek reverse summary judgment on both these matters. They are Agreed Issues 1 & 4.

The claimants press their summary judgment application and seek corresponding declaratory relief in respect of two sets of issues, namely:

There is nothing between the parties on the test either for summary judgment or reverse summary judgment: see Easyair Limited v. Opal Telecom Limited [2009] EWHC 339 (Ch). It is well-established that a court faced with summary judgment or reverse summary judgment, and especially where there are cross-applications on the same point, on questions of pure construction may “grasp the nettle” - as it is sometimes described - and resolve those disputes on a final basis. I have decided to do this on the two core construction issues I have identified.

At my invitation, the claimants provided a revised draft order after the first day of the hearing. A further revised draft order was provided after the second day of the hearing, following discussion of various points without prejudice to my pending decision. My conclusions and brief reasons are as follows.

Interim Injunction

I deal firstly with the continuation of the injunction. I will extend the interim injunction until trial. The balance of convenience and associated relative remedial calculus remains as evaluated by HHJ Pelling QC (as then was) sitting as a judge of the High Court at the without notice hearing in mid-June. As regards threshold merits, I am persuaded that there is at least a real prospect of success at trial of Agreed Issue 4.2, which corresponds with Agreed Issue 2.4, that is to say the first of the two substantive questions I have described above; Agreed Issue 4.3, which broadly equates to public policy; and Agreed Issue 4.4, relief from forfeiture, as more fully defined in the Agreed List of Issues.

Thus, even if there was a Termination Event under the relevant charters via cross-default, and therefore and without more, an Enforcement Event for the purposes of clause 7 of the PDSA for each vessel, there is a sustainable legal basis for disputing the validity of the clause 7 notice as a matter of proper contractual analysis, or preventing steps being taken pursuant to such notice on the basis that they are, amongst other things, contrary to the public policy and will be harmful to the legal system in this jurisdiction.

I deal below with the proper contractual analysis of the interplay between clause 28 of the charters and clause 7 of the PDSA, i.e. the first substantive question. I have chosen to deal with that contractual issue on a final basis in this judgment, having heard full argument on the cross-applications.

In so far as matters in light of that conclusion, firstly as regards public policy, I am persuaded as was HHJ Pelling QC (as he then was) that there is a real prospect of this being established in circumstances where a sanctioned entity, or at any rate a wholly owned and controlled subsidiary of such entity, is seeking to invoke contractual rights so as to remove an asset or its economic equivalent from the applicability of an international sanctions regime. Here, the defendants are seeking to enforce security rights so as to take over the two vessels in Turkey outside the sanctions, and potentially sell them, presumably for profit, in circumstances also outside the sanctions regime.

As analysed below, the effect of this, if permitted, would be to defeat contingent contractual rights of redemption belonging to the third and fourth claimants as lessees under clauses 28.1(e) and 29 of the charters. If those rights were enforced and performed, the relevant transaction and economic transfer would remain within the bite of the sanctions regime as addressed further below. It is this circumvention that potentially engages public policy, at least on a sufficiently arguable basis to justify continuation of the protective interim relief.

As regards relief from forfeiture, while this may be a challenging objection for the claimants to run in the context of a commercial transaction, as submitted by Mr. Berry KC by reference to the Privy Council decision in Cukurova Finance International Ltd and another v. Alfa Telecom Turkey Ltd (Nos 3 to 5) [2016] AC 923, I am not persuaded that it has no real prospect of success. There is reason to believe that the defendants may benefit by more than the extent of the security for their indebtedness in respect of each vessel if enforcement is permitted, for example by selling the vessels for profit to third party buyers outside the sanctions regime.

No explanation has been offered as to why GTLK waited four weeks after service of the Clause 28 Notices, which demanded payment of Termination Sums to enforce an accelerated redemption, before then serving the Clause 7 Notices seeking to enforce security and effectively take over the vessels. An inference may arise that they bought time to investigate more lucrative commercial options in response to the international sanctions regime. The fact that time is of the essence under the charters is not preclusive of this equitable doctrine protecting a party against foreclosure of secured property. On this basis, as to threshold merits on such issues, it follows that I refuse the reverse summary judgment on the pleaded allegations involved.

Termination Events / Agreed Issue 1

Secondly, I deal with the remainder of the reverse summary judgment application other than the substantive questions. This corresponds to Agreed Issue 1. I will give my decision now and then the reasons:

I address the existence of an Enforcement Event under clause 7 PDSA, which is Agreed Issue 4.1, below in the context of the contractual analysis as to the interplay with an election by the lessor under clause 28.1(e).

The defendants say there obviously was, and that the claimants have no real prospect of showing otherwise without prejudice to any burden of proof.

I am not persuaded that cancellation of insurance fell within the clause 25.16 of the charter. It occurred because the registered owner of the vessel, and hence primary assured under such policies, was a Russian-owned entity. It does not follow from this that the Capella Lessee failed or omitted to comply with any requirements of the insurers or underwriters. There was nothing that the lessee could do about the identity of the vessel's legal owner. There is no suggestion that the lessee had any responsibility or even ability to "comply with" any requirement imposed by the insurer as to the identity of the legal owner in light of sanctions. In so far as a requirement in this context presupposed a contractual obligation on the part of the Capella Lessee under the relevant policy of insurance, no such obligation has been identified or alleged.

However, on the face of things, and subject to clause 4.3(a), the cancellation of insurance put the Capella Lessee in breach of its primary obligation under clause 20.1 of the charter to "keep the vessel insured" throughout the entire duration of the charter. That was a strict obligation. Cancellation of insurance would, without any contractual mitigation, put the lessee entity in instant breach of that clause.

On the assumption there was a breach of clause 20.1, this was a Termination Event under clause 25.3(b). It was or involved non-compliance by a Relevant Party with a provision of an Operative Document, i.e. the charter itself, other than one carved out of clause 25.3(a); and it was not remedied by the Capella Lessee within 14 business days, either on becoming aware of the non-compliance or, indeed, being notified of it.

Although the Clause 28 Notice in respect of the Capella did not allege a breach of clause 20.1 or invoke clause 25.3(b) as an additional or alternative Termination Event, it clearly notified the circumstances, i.e. loss of insurance cover, that constituted such non-compliance within the meaning of clause 25.3(b). The Capella Lessor's right to invoke clause 28.1(e) was dependent on it giving "written notice" to the lessee of "the occurrence of" a Termination Event having occurred and continuing. They clearly did this in the Clause 28 Notice in respect of ‘Capella’ even though no reference was made to breach of clause 20.1 or reliance upon 25.3 as a Termination Event.

However, the effect of clause 4.3(a) was arguably to excuse the Capella Lessee from compliance with clause 20.1 when maintaining the vessel's insurance "would or might in its reasonable opinion constitute a breach of" any of the applicable sanctions. On the evidence before me, this is enough to justify refusal of reverse summary judgment in favour of the defendants in respect of the Capella Termination Event as at 29 April or otherwise.

For these reasons, I refuse reverse summary judgment in respect of the existence of a Termination Event for ‘Capella’.

I am satisfied that on the evidence before me no estoppel or waiver can realistically be made out by the claimants in respect of all four of the Termination Events notified for this vessel.

I regard the pleas of estoppel and waiver in POC 37.3.2 as lacking a real or reasonable prospect of success, essentially because no clear and unequivocal representation was made on behalf of the Castor Lessor (GTLK Asia) to the Castor Lessee to the effect that substitution of a new buyer by amendment to the shipbuilding contract with the Yard was or would be acceptable. The witness evidence shows that any confirmation as was given by GTLK was subject to relevant approvals. They were not provided at any material time.

The fact that the European parent entity was in a state of corporate trauma following impositions of sanctions on 8 April, if that was the case, does not render the stated need for internal corporate approval less meaningful or thereby render a conditional assurance, if given, an unconditional one capable of founding a clear and unequivocal representation to feed an estoppel as pleaded. Any case to the effect that there was a settled understanding by 10 April 2022 is gainsaid by an e-mail between the parties the next day, which records delivery taking place to the original party, not a new SPV.

Clauses 36 and 37 of the charter make a pure waiver argument even more difficult as a matter of pre-determined common intention. So-called ‘no oral modification’ clauses of this kind, extended beyond the need for formalities in variation or amendment situations, have effect under English law. The claimants have evidenced their estoppel and waiver allegations fully, as might be expected, by reference to communications which crossed the line during the critical period. This will not be enough to make good an estoppel or waiver at trial. There is no other compelling reason to include this issue at trial.

I therefore grant reverse summary judgment in respect of such allegation, which is Agreed Issue 1.3.1.

With regards to the allegation in POC 37.3.1, which corresponds to Agreed Issue 1.3.2, I likewise do not regard this as having a real or reasonable prospect of success at trial. This was referred to as the ‘cannot take advantage of your own wrong’ point. It depends on showing either (i) that the Castor Lessor is seeking to take advantage of its own wrong by notifying all four Termination Events in its Clause 28 Notice and demanding payment of a Termination Sum pursuant to clause 28.1(e) or (ii) that the Polaris Lessor (the first defendant) and the Pollux Lessor (the second defendant) are seeking to take advantage of their own wrong by notifying the cross-default Termination Event in respect of the relevant vessel in their Clause 28 Notice.

However, the only wrong identified, other than that their parent company has been sanctioned - which seems far too remote or extraneous to engage this canon of construction - is an anticipatory breach by the Castor Lessor in its capacity as purchaser under the relevant MOA from HKO to pay a final instalment for such purchase. No authority has been identified to support the proposition, even by analogy, that the first defendant and second defendant cannot invoke the cross-default Termination Events under their charters in such scenario. They are different entities invoking rights under different agreements between different parties.

The Castor Lessor is not in any event seeking to rely on or take advantage of any non-payment on its behalf qua purchaser under the relevant MOA. The Termination Events all relate to the change in identity of the purchasing entity under the shipbuilding contract with the Yard and granting of security over the vessel to finance that purchase and delivery. The change in identity of the buyer of the vessel vis-à-vis the Yard was a response to sanctions. Any construction argument that seeks to preclude a Termination Event arising from such step would need to be consistent with the effect of clause 4.3(a), which is the specific provision governing the impact of sanctions on the parties' performance of the charter.

I do not regard it as sustainable to contend that all four Termination Events invoked in these circumstances are vitiated as a matter of contractual construction on this alleged basis. This leaves the clause 4.3(a) question in respect of the Termination Events for ‘Castor’.

Whatever else it may do, clause 4.3(a) does not alter the existence of a state of affairs or deprive any steps actually taken by the Castor Lessee of their consequence under the charter. The four Termination Events relied upon for this vessel in the Clause 28 Notice all relate to positive acts done by the Castor Lessee. The fact that these may have been done in alleged reasonable mitigation of the problems created by the imposition of sanctions is not relevant to this analysis. Clause 4.3(a) cannot alter the position, except perhaps in respect of clause 25.12 which deals with repudiation. Clause 4.3(a) cannot preclude a Termination Event arising if it otherwise would, even if based on steps taken because of sanctions.

In these circumstances, I am satisfied to the reverse summary judgment standard that there was as at 29 April 2022 a Termination Event in respect of ‘Castor’ such that via the cross-default provisions a Termination Event existed and was validly notified in respect of all four vessels on that date. There is no compelling reason to include this issue at any trial. I therefore grant reverse summary judgment on it, i.e. as to the validity of the Clause 28 Notices.

First Substantive Question: Election Issue

I turn now to the first substantive question, the election question correlating to Agreed Issues 2, 4.1 & 4.2.

What is the legal effect of the lessor giving written notice pursuant to clause 28.1(e) demanding payment of a Termination Sum in respect of a Termination Event? What is the legal effect of the lessee, as assignee, giving a clause 7 notice under the PDSA in the context of such a pre-existing demand under clause 28.1(e)?

The claimants contend, in effect, that clause 28 of the charter involves or requires an election between inconsistent regimes or consequences in the event of a Termination Event.

The lessor can, of course, choose to do nothing about a Termination Event if it so wishes. It could waive a Termination Event and thereby affirm and preserve the charter as is. The mere failure to invoke clause 28 would not, without more, constitute a waiver or affirmation: see clause 36.

Clause 25.1 of the charter makes it clear that the occurrence of any Termination Event constitutes a repudiation by the lessee of the charter. Clause 25.1(b) continues, "entitling the Lessor to accept such repudiation and to exercise any of its rights under Clause 28 ..." At first blush this appears to suggest that clause 28 operates after or upon or only consistent with an acceptance of repudiation at common law.

However, I am satisfied that the word "and" in this context is not intended as any form of nexus or gateway into or conditionality to clause 28. This provision is making it clear that the common law consequences of repudiation, itself a common law phenomenon, are preserved and may be stacked with - hence the word "and" - a contractual consequence as set out in clause 28.1, at any rate so far as consistent with an election under clause 28.1.

If the lessor chooses to avail itself of any of the clause 28.1 consequences, it must give "written notice" as the clause itself says. The contents of such written notice are therefore paramount.

The five sets of consequences in clause 28.1 each comprise a distinct contractual regime, activated by a written notice upon the occurrence and subsistence of a Termination Event. The lessor must expressly invoke or opt into or opt for at least one of them, and perhaps only one of them depending which is chosen. They are linked with "and/or" but they are clearly not all cumulative in the sense of being capable of invocation and operation in parallel with one another. Some are manifestly contradictory or mutually exclusive.

Clauses 28.1(a) and 28.1(b) could co-exist with one another, and perhaps with others. Neither is existential or fundamental to the fate of the lease financing.

Clause 28.1(d) contains its own "and/or" which means that the first option within it, namely "inspect the vessel", is a stand-alone right. That too is consistent with other options being exercised and operated in parallel.

Clause 28.1(c) contains a range of consequences to be chosen between. These include foreclosure. That option is not reflected elsewhere in clause 28 or the charter. A question therefore arises whether clauses 28.1(e) and 28.1(c), or at least the foreclosure option under that paragraph, are inconsistent with one another such that electing one precludes election for the other, absent a contractually sanctioned change of circumstances.

Clause 28.1(c) starts with the words "accept the repudiation of this Charter by the Lessee". It is clear that acceptance of repudiation, i.e. at common law, is a prerequisite of electing any of the options under this paragraph. Those options include but are not limited to foreclosure.

None of the other choices under clause 28.1 start with this wording. In particular, clause 28.1(e) involves keeping the charter on foot for the specific purpose provided for in that paragraph, i.e. mandatory early redemption. The demand to pay the Termination Sum creates a new primary obligation upon the lessee, i.e. to pay it immediately. That obligation arises in the legal moment of such demand: see the word "whereupon". If and when that is done, i.e. payment of the Termination Sum in full, the lessee then acquires the right to have the vessel transferred to it, pursuant to clause 29. That occurs when the Termination Sum is received in full by the lessor. The clause says "upon receipt of the Termination Sum in full". This corresponds with the phrase "Immediately upon receipt by the Lessor…" at the beginning of clause 29 itself.

“Termination Sum” is defined in the charter as the sum calculated in accordance with clause 28.2. For present purposes, i.e. absence a Total Loss, that means clause 28.2(b). The Termination Sum includes interest accruing on any outstanding capital Pre-Paid Purchase Price at the Default Rate: see clause 28.2(b)(iii). The cross-default and cross-collateralisation structure is reflected in the calculation of the Termination Sum: see clause 28.2(b)(vii).

The lessor's election to operate clause 28.1(e) therefore keeps the charter alive and confers a contingent right to title in the vessel upon the lessee under clause 29. The contingency is immediate payment of the Termination Sum as demanded by the lessor, i.e. payment into the Payment Account in accordance with clause 6.6.

It is fair to speak of clause 28.1(e) as conferring upon the lessee both an obligation to make immediate payment of the Termination Sum and a contingent right of redemption under clause 29. The words in brackets at the end of clause 28.1(c) refer to the lessee's "right to pay the relevant Termination Sum and take title to the Vessel in accordance with clause 29". The parties thus saw clause 28.1(e) as conferring a right upon the lessee, albeit one conditioned by the primary obligation to immediately pay the Termination Sum. They even made provision for the survival of that right in certain circumstances.

It is beyond question to my mind that clause 28.1(c) and 28.1(e) contain inconsistent and mutually exclusive options, at least in so far as the former involves choosing foreclosure. It would not be possible to elect both foreclosure and redemption at the same time or in respect of the same Termination Event. Clause 28.1(e) involves an affirmation. Clause 28.1(c) expressly requires acceptance of the deemed repudiation. A lessor cannot do both in the same legal breath or episode. That is paradoxical and nonsensical. The parties cannot have intended to permit it, in my judgment.

Choosing clause 28.1(e) therefore precludes the choice of foreclosure under clause 28.1(e) in respect of the same Termination Event unless something were to occur that justified the lessor in re-electing.

The defendants contend that no such election exists. They say that the rights in clauses 28.1(c) and 28.1(e) are consistent and co-existent, both in principle and in practice, or at any rate the security rights granted under the PDSA are independent and co-exist with any choice made under clause 28.1 of the charter in respect of a Termination Event. It is common ground that those security rights cover all liabilities, and that includes a liability to pay a Termination Sum if validly demand pursuant to clause 28.1(e).

Mr. Berry KC argued this position with characteristic charm and guile. He submitted that whereas a choice of clause 28.1(e) does not preclude a parallel or subsequent choice of clause 28.1(c) for the same Termination Event or the giving of notice under clause 7 PDSA for the corresponding Enforcement Event, the converse does not hold good. The clause 7 security notice would, he submits, trump a prior choice of clause 28.1(e) for the same Termination Event, and therefore Enforcement Event. It would bring to an end whatever rights had been conferred upon a lessee under clause 28.1(e).

The basis for this analysis is that the two agreements form part of a unitary package or composite contractual scheme. They fall to be read together and their operability is co-dependent in this way. This basis itself is common ground. It is obviously correct.

As to this:

Mr. Berry KC accepted, and indeed averred, that the logic of his case accommodated what he called a “maximal” position whereby his clients were free to do both things in the same legal breath, i.e. make a demand under clause 28.1(e) for payment of the Termination Sum and give a clause 7 notice under the PDSA perfecting security and activating their rights over the vessel vis-à-vis the Yard. Security covers an unpaid Termination Sum, after all.

This extreme but necessary position illustrates the vice in such construction, to my mind. The interdependence of the two sets of contradictory rights must be two-way. There cannot be a "one-way inconsistency" as the lessor submits.

The lessor's distinct security rights qua assignee under the PDSAs are not wholly independent and freestanding. They are not superior rights. They are contingent or parasitic upon the position under the charterer, at least in the sense that an Enforcement Event can only arise under the former if there is a Termination Event under the latter. If such rights, whether exercised via 28.1(c) or autonomously, can somehow displace a 28.1(e) regime, then the converse must hold good. This is all a matter of proper or purposive construction of the two financing documents read together as a sensible consensual scheme.

Thus, where the lessor elects to invoke clause 28.1(e) in respect of the Termination Event, it has no right to also or later elect to invoke clause 28.1(c) in respect of the same Termination Event absent a legally recognised change of circumstances. It has, in other words, agreed not to treat the relevant Termination Event as an Enforcement Event for the purpose of the PDSA or give notice under clause 7 in respect of it, at any rate for so long as performance of clause 28.1(e) remains live under the charter itself.

What then if the lessee does not pay the Termination Sum immediately, as required by clause 28.1(e)? Absent a legal excuse or accommodation for this default, it would by definition be a fresh Termination Event under clause 25.2 that deals with non-payment. I note here that clause 25.2 is carved out of clause 25.3(a), so such default cannot be a Termination Event under clause 25.3. This fresh clause 25.2 Termination Event is a deemed repudiation (see clause 25.1(b)) which gives rise to a new right of election for the lessor under clause 28.1. The lessor can at this stage and on this basis elect for clause 28.1(c) instead, i.e. accept repudiation and foreclose. That would also create a new Enforcement Event for the purposes of clause 7 of the PDSA, or otherwise pave the way for a security notice on the basis of such fresh Enforcement Event.

The effect of that occurring would be to repudiate or frustrate or discharge the executory regime under clause 28.1(e), activated on these facts on 29 April 2022. I did not use these concepts in their technical or common law sense. There is no self-standing contract being brought to an end, only a specific payment obligation and the correlative contingent right of redemption arising upon a prior election in respect of the original Termination Event, save that an election under clause 28.1(c) is prefaced on acceptance of the deemed repudiation, which brings the whole charter to an end. The clause 28.1(e) election is superseded or revoked by a fresh Termination Event and election flowing from failure of performance of the clause 28.1(e) regime.

This is how the contractual scheme operates, in my judgment. The parties made provision for how to bring the clause 28.1(e) regime to an end in the case of default in immediate payment by the lessee. For this reason, I reject the contention made by reference to cases such as Union Eagle Ltd v. Golden Achievement Ltd [1997] AC 514, that the lessee has no right to make payment of the Termination Sum other than immediately. Here the parties have defined or delineated the duration or durability of that obligation and correlative right, including by calling it a “right” as observed above, through the mechanisms of clauses 25 and 28. Those clauses represent a sophisticated contractual scheme.

Put another way, the clause 28.1(e) right does not lapse when payment is not made immediately. It is brought to an end when a fresh contrary election is made under clause 28.1 on the basis of a Termination Event arising from such payment default. This is what the parties agreed as a coherent scheme of rights and obligations.

If necessary, I would go as far as to say that whereas there is a primary obligation to pay the Termination Sum immediately, there is a subsisting right to pay it non-immediately. That right is delineated in duration by the service of a fresh clause 28.1 notice for default. Non-immediate payment is a deemed repudiation of the whole charter. The only way to extinguish a lessee’s accrued rights under clause 28.1(e) is to accept repudiation and elect foreclosure under clause 28.1(c).

No fresh clause 28 notice has been sent on this basis. Could that be validly done at the present time?

I am satisfied that it could not, as explained next. If, however, I am wrong about this as a matter of final determination, I am nevertheless satisfied that the lessee has at least a real prospect of success on such analysis, and this in turn justifies interim injunctive relief to prevent the lessor serving a further clause 28 notice, if needed as a gateway to the clause 7 notice under the PDSA, in respect of the lessee's non-payment of the Termination Sum demanded on 29 April and further demanded on 3 June 2022. As it happens, I am satisfied that paragraph 1(a) for ‘Polaris’ and paragraph 2(a) for ‘Pollux’ in the interim injunction order made on 15 June this year prevent such a step being taken by the relevant lessor.

While the phrase "shall immediately pay" is clear and mandatory, and time is of the essence per clause 39, the context of clause 28.1(e) is the contemplated need for Havila to refinance the vessels in order to redeem the current lease financing with GTLK. The nature of this financing arrangement presupposes that Havila require financing for the vessels. The concept of immediate payment of a Termination Sum takes its meaning from that essential commercial context and impetus.

That aside, immediate payment does not mean instantaneous or even same day payment in this clause. In the absence of a nominated Payment Account at the time of a demand under clause 28.1(e), clause 6.6 contemplates nomination of a Payment Account by written notice "at least five (5) Business Days before the due date for payment". That further conditions the immediacy of payment.

All that said, however, Havila have had since 29 April this year to make such payments. They have not yet done so. They have, therefore, not made immediate payment under clause 28.1(e) as a matter of ordinary language, even if that mandatory promissory wording is tempered by contextual factors.

The lessees have been unable to make payment of any part of the Termination Sum into the payment account, as nominated on 3 June, at any material time because they reasonably believed that doing so may breach the sanctions regime. The existence of and basis for this belief is explained in the witness statement of Stein Pettersen. There is no challenge to this evidence or its sufficiency as proof of a reasonable belief.

Havila only secured a licence from the Norwegian government to make payments into the nominated payment account on 6 September. JP Morgan had by then frozen the account for incoming payments pursuant to the OFAC / US sanctions regime biting during August.

Where the only account nominated for receipt of a Termination Sum has been blocked in this way, where payment into any other account, for example in Hong Kong, risks violation of international sanctions, the relevant lessees cannot be blamed for not having yet made payment of the Termination Sum.

They have not delayed in the commencement of these proceedings or pursuit of their application for summary determination of claims for certain declaratory relief. Indeed, their request for expedition was resisted by the defendants, resulting in the hearing of the application and subsequent cross-application being heard this week, just days before the notified date of delivery of ‘Polaris’ by the Yard.

The effect of clause 4.3(a) is, therefore, that the lessee is not in breach under clause 28.1(e), and there is no default that could constitute a non-payment Termination Event under clause 25.2. This means that the lessor could not, without more, serve a new notice under clause 28.1(c), electing to foreclose and enforce its security. The lessee's so-called clause 28.1(e) right is preserved because it need not make immediate payment by operation of clause 4.3(a).

Further, absent an effective revocation of the lessee's extant clause 28.1(e) contingent right to redemption, there is no Enforcement Event under the PDSA, or at any rate the lessor qua assignee had and still has no right to serve notice under clause 7 to take steps pursuant to such purported notice. The fact that no fresh notice, i.e. clause 28 notice, has been served is therefore not determinative.

I conclude that no fresh notice could validly be sent as matters stand. Come what may, as explained above, this position is at least seriously arguable and sustains the negative protective injunction in this regard.

In summary: the lessor’s election under clause 28.1(e) on 29 April, as confirmed on 3 June, remains effective; the lessee has not breached or defaulted on its payment obligation under that clause due to the effect of clause 4.3(a) and there has, therefore, been no fresh Termination Event; the effect of this subsisting election is that the lessor could not make a contrary election under clause 28.1(c) in respect of the same Termination Event, or give valid notice pursuant to any Enforcement Event under clause 7 of the PDSA; it has, in effect, agreed not to do so in such circumstances. The lessee’s so-called clause 28.1(e) right is therefore preserved. I declare this to be the contractual position on a final basis.

Second Substantive Question: Bank Account Issue

Turning then to the second and shorter substantive question, the bank account issue, which corresponds to Agreed Issue 3. Would payment of the Termination Sum into the Nominated Payment Account, if accepted, provide a good discharge of the lessee's liability vis-à-vis the lessor?

This is a short point and I consider the answer to be Yes. The question of construction concerns the proper meaning of the words "upon receipt of the Termination Sum in full" in clause 28.1(e) and therefore the phrase "upon receipt by the lessor" in clause 29.

Clause 6.6 is headed "Manner of payment". It says that all sums payable by the lessee "shall be made" to the Payment Account "or such other account as the lessor may notify in writing at least five (5) Business Days before the due date for payment". It follows that payment made into such an account, even if frozen, constitutes receipt by the lessor, and hence a good discharge of the clause 28.1(e) obligation triggering the regime in clause 29. The fact that an account is frozen in the functional sense described above does not alter this position in my judgment.

The defendants argue that the concept of payment, or indeed receipt, requires that the payee or recipient has a right to the immediate use of the funds. Reliance is placed upon The Brimnes [1973] 1 WLR 386. The answer to this lies in what the parties agreed here. They agreed that payment into the bank account described in clause 6.6(b) was required. They agreed nothing else about what payment or receipt meant or required. They therefore agreed that if such payment was made, this was sufficient for all contractual purposes, which envisaged receipt of payment.

Whether or not the payee, here the lessor, has access to or gets the benefit immediate or otherwise of funds in such bank account is immaterial to this contractual analysis. This account was frozen when it was nominated. No other entity has access to or the benefit of such funds, and certainly not the payor, i.e. the lessee, which is what matters most.

If I am wrong about this, I am not presently persuaded that any other bank account would work for such matters, unless contractually nominated by the relevant lessor. Nor I am persuaded as things currently stand - although this may require further analysis, if it arises - that a payment into Court Funds would constitute receipt by the defendants for contractual purposes.

I will grant liberty to apply in the event that payment into the Nominated Payment Account, i.e. JP Morgan Dublin, remains impossible upon the raising of fresh finance by Havila.

I turn to the form of order. Subject to further discussion, I am satisfied that the revised draft order contains declaratory relief that it is appropriate to order in favour of the claimants in all circumstances. It is not hypothetical. It reflects the contractual position and serves an important practical purpose in the context of this dispute.

I have separately found that the interim injunction was properly granted and ought to be continued until trial and that its substantive basis does not assume or depend upon the absence of a Termination Event via cross-default in respect of either ‘Polaris’ or ‘Pollux’. Both injunctive relief and declaratory relief are, therefore, consistent with the existence of such Termination Event.

I will hear and work with counsel now to finalise a form of order reflecting this outcome so that it can be sealed without delay in the morning. In the meantime, and given the urgency in play, I authorise the parties to show to any affected party, firstly, a faithful if not agreed note of this judgment and/or any unapproved transcript of it in the meantime and/or, secondly, an agreed or approved, even if unsealed, order so as to progress the raising of fresh finance without further delay.

I will edit the transcript of this judgment when it is sent to me and issue an approved judgment as soon as possible, which will attach the two documents I have referred to as attachments.

All other consequentials such as costs, including those reserved from prior hearings, will be dealt with at a further short remote hearing to be fixed next week. In accordance with modern practice in the Commercial Court, that hearing will be listed without reference to the availability of leading counsel. It will take place soon. It will not require more than an hour. Skeleton arguments will be guillotined in length.

Any party wishing to claim its own costs on any issue or seek to reduce the costs claimed by the other side, either as a proportion by reference to issues won or lost, or in terms of quantification, must file and serve a costs schedule by no later than 10.30 a.m. on Monday 12 December. Failure to do so will mean that such arguments are not admissible unless I allow otherwise.

That concludes my judgment. It was handed down between 3pm and 4pm via MS Teams on Thursday 8 December 2022.

Appendix 1

Issue 1. Has a Termination Event occurred under all the BBCPs because of events in relation to Capella and/or Castor? See POC in action 301 [37]-[38]; POC in action 323 [29.1]. The sub issues are:

Issue 2. Is the relevant Havila Claimant entitled to pay the Termination Sums under the BBCPs? See POC in action 301 [42.1-42.2]. The sub issues are

Issue 3. Is the relevant Havila Claimant entitled to pay the Termination Sums into Court or into a frozen account in either the EU or Norway, so as to get good discharge? see POC in action 301 [42.2].

Issue 4. Have the Defendants validly exercised, and are they entitled to enforce, rights under clause 7 of the Polaris and Pollux PDSAs? (POC in action 301 at [33]). The sub issues are

Issue 5 – Relief: In view of the answers to issues 1-4: