Brujo Finance Company v Sea Energy Company (MT “Alkimos”) v ES Euro shipping AG (MT “Alkimos”) – SMA 4388, 3 Jul 2020

ASBATANKVOY – KOLMAR TERMS – VIOLATION OF US SANCTIONS – SANCTIONS CLAUSE – STS TRANSFER – ALTERNATIVE ORDERS – PARTIAL FINAL AWARD – SUBJECT MOTION – DISCERNABLE RISK – VENEZUELA

The Charter between the Owner and Respondents stipulated that gasoline would be transported on two consecutive voyages from Cristobal to Curacao or Aruba, with the charterer having the option of discharging the cargo by ship-to-ship transfer. The pertinent Charter provisions, as stated in a fixture recap dated March 27, included a sanctions clause that stated:

“…Any trade in which the vessel is employed under this charterparty which could expose the vessel, its owners, managers, crew or insurers to a risk of sanctions imposed by the United States, or EU, shall be deemed unlawful and owners shall be entitled, at their absolute discretion, to refuse to carry out that trade. 

In the event that such risk arises in relation to a voyage the vessel is performing, the owners shall be entitled to refuse further performance and the charterers shall be obliged to provide alternative voyage orders.”

The Master issued and signed a bill of lading dated April 8, stamped “Not Negotiable,” after the vessel loaded at Cristobal. The Bill of Lading was issued under a “CHARTER-PARTY dated: March 27, 2020,” and listed (1) the cargo as gasoline, (2) Aruba as the port of discharge, (3) the shipper as Gunvor, and (4) ES Euro shipping AG as the consignee.

On March 31, the owner communicated with the charterer that

 “…Owners WILL NOT participate in any illegal trading. If the intention is to transship the cargo s-t-s to move it to Venezuela same will not be done. Any vessel nominated for transshipment will be subject to strict anti-sanctions scrutiny.”

Communication between the parties continued over the next two weeks, with the owner repeatedly asking for documentation proving the cargo was not destined for Venezuela. Concerned that the vessel might be party to a transaction violating US sanctions against Venezuela, the owner repeatedly asked for assurances from the charterer, which were not satisfied. 

When the charterers named the BEAUTY ONE for the ship-to-ship transfer, the owner responded:

Because of (1) the unusual nature of the STS transfer (i.e., from a smaller vessel to a larger vessel), and (2) the BEAUTY ONE’s recent trading history exclusively in Venezuelan waters, Owners have concerns that Charterers are in the process of – or intend to – breach the trading restrictions provisions of the Charter’s Sanctions Clause. Accordingly, Owners make the following URGENT requests for adequate assurance of performance of the Charter in compliance with its terms, specifically: 

(a) Please confirm the origin of the cargo and provide documentation showing the shipper’s purchase/procurement of the cargo; 

(b) Please provide documentation showing the identity of the beneficial owners of the Charterers; 

(c) Please provide documentation regarding the BEAUTY ONE’s onward destination, including any declarations made to authorities about upcoming discharge of the cargo; and 

(d) The identity and beneficial owner of the ultimate consignee/buyer of the cargo. 

The charterer did not satisfy these written requests, so the owner demanded alternative voyage instructions, citing breach of Charter’s sanction clause.

Upon reviewing the documentation, the panel concluded the owner was within its rights under the sanction clause of the Charter, for there was a discernible risk that the ship-to-ship transfer of cargo could have led to a violation of US sanctions regulation. Although the Respondents were not recognized as Specifically Designated Nationals (SDNs) on April 13, this did not eliminate the possibility the owner might be found to have aided an SDN in avoiding US sanctions restrictions if the Cargo was eventually transferred to Petroleos de Venezuela, SA (PdVSA) or other SDNs after the STS.

The panel, therefore, made a partial final award, in favor of the owner.  It found the owner was correct in demanding alternative orders on April 13, 2020, and validly exercised the Charter’s Sanctions Clause. The charterer had an obligation to respond by providing alternative voyage orders.

The panel made no award regarding the parties’ or the panel’s legal fees and expenses in connection with the Subject Motion, however, it planned to do so as part of a final award in the arbitration or at such other time as the panel deemed appropriate. It was to hear the parties’ claims and counterclaims arising from the Charter and the Bill of Lading at a later time.