The Dekagram: 18th November 2024

This week John Schmitt considers a recent case setting out the principles to be exercised when a court is considering ordering a party to do something that may be contrary to foreign law – a situation which occurs with perhaps surprising frequency in the cross border world. Practically anything involving interaction between the USA and Cuba, for example, may be problematic; some countries deprecate the payment of interest; and others have quite stringent views about where the intersection between privacy and disclosure lies.

When Can the English Courts Order Parties to Commit Crimes?

The recent judgment in O v C [2024] EWHC 2838 (Comm) concerned the scenario where an application for a court order may require a party to do something that is (or may be) contrary to a foreign law, including a foreign criminal law: in such circumstances, could or should the court ever make such an order?

The Background to the Application

The application came before Sir Nigel Teare sitting as a Judge of the High Court within the context of an arbitration claim. It concerned a cargo of naphtha (a flammable liquid hydrocarbon mixture) which was loaded on board a vessel and had remained there for 20 months. This was because, shortly after the cargo was loaded, the charterers had been added to a list of persons subject to sanctions by the US Office of Foreign Assets Control.

The owners of the vessel refused to discharge the cargo and the matter was in a state of limbo, with the vessel drifting in the South China Sea.

Selling the valuable cargo had now become a time-critical issue and would also allow the vessel to be engaged again in profitable activities.

Hence the charterers of the vessel brought an arbitration claim seeking an order that the cargo may be sold and the proceeds be paid into a blocked account with a US financial institution. The owners, however, opposed paying the proceeds of sale into court because to do so, they said, would risk breaching the sanctions in force.

Beyond the scope of this application was the substantive dispute in which the arbitral tribunal will have to decide whether the owners of the vessel had been entitled to terminate the Charterparty in reliance on sanctions and compliance clauses, and hence to decide upon the reach of US sanctions.

The Issues

The parties relied upon expert evidence of US law with regard to sanctions. This established that the cargo is blocked, that the owners are caught by the sanctions and that, absent a license from OFAC, they would not be permitted to pay the proceeds of sale into court. The result was that there is a real risk that owners would find themselves in breach of US sanctions if they paid the proceeds of sale into court.

Ordinarily, where a cargo is sold and there is a dispute as to who is entitled to the proceeds of sale, the court would order that they be paid into court so that they are preserved and are available to be paid to the person who establishes his claim to them. The difficulty in the present case arises because there is a risk that if the owners pay the proceeds into court, they will act in breach of US sanctions.

The Decision

The court ordered that the cargo may be sold and that the proceeds of any sale shall be paid into court.

In circumstances where there is a risk that payment into court may be a breach of US sanctions, it was held that this court would not lightly make an order that the proceeds of sale be paid into court. However, it is relevant to consider whether there is a real risk (as opposed to a fanciful risk) of prosecution.

In this regard, the court noted the owners appeared to have done all that they could to avoid any breach of US sanctions; and in fact they are not seeking to breach US sanctions but to comply with them. Further, payment of the proceeds into court would not damage the objectives of US sanctions. They would also not be voluntary payments but would be compelled by the order of the court. Thus, the court concluded, there was no real prospect of conviction.

The Principles

The court endorsed the principles relied upon by the charterers in their submissions. These will be helpful for practitioners to consider in terms of how the court, in exercising its discretion, should address the question of when it should make an order requiring a party to do something that may be contrary to foreign law.

The principles are:

• An English court can order a party to do something that is (or may) be contrary to a foreign law, including a foreign criminal law. It is a question of discretion.

• An order will not lightly be made where compliance would entail a party to English litigation breaching its own (i.e.. foreign) criminal law, not least with considerations of comity in mind.

• The burden is on the party relying on the foreign criminal law to prove that there is a real risk of prosecution. The party must show that the criminal law relied on is not merely a “text, or an empty vessel, but is regularly enforced so that the threat to the party is real”. What must be shown is a ‘real’ (rather than ‘fanciful’) risk, and the risk must be of prosecution, not merely of the breaching of foreign law or of the imposition of a sanction falling short of prosecution.

• Where the parties’ experts express a different view about the risk of prosecution, the Court should exercise care when approaching the issue of foreign law, but it does not follow from the disagreement that there is a ‘real risk’: “[t]o the contrary, there is force in the view that prosecution is relatively unlikely if there is real doubt about the law”.

• If a real risk of prosecution is established, the Court must then conduct a balancing exercise, weighing the risk of prosecution with the importance of the relief sought by the order. The greater the risk of prosecution is, the more weight is to be given to that factor.

• The Court can fashion an order that reduces or minimises the concerns under the foreign law, and considerations of comity may be expected to influence the foreign state in deciding whether or not to prosecute the foreign national for compliance with the Court’s order: “Comity cuts both ways”.

• Once the Court has decided to make the order, the fact that compliance would or might constitute a breach of a foreign law does not excuse non-compliance, as the Court must be able to enforce its decision.

About the Author

John Schmitt was called in 2013 and now specialises in complex personal injury work. He is also experienced in representing families at inquests in a clinical negligence context and has done so through the AvMA pro-bono inquest service. Most recently he has represented a family at a four day jury inquest at the conclusion of which the deceased’s employer was ordered to produce a Prevention of Future Deaths report. He is described by the Legal 500 as having a ‘lovely manner about him’ but being ‘as sharp as a tack’.