A tanker carrying flammable naphtha has been drifting in the South China Sea for 20 months after its charterer was hit by US sanctions targeting an Iranian “shadow banking” network, according to a court ruling.
The cargo was loaded on board a vessel in Singapore on 9 February 2023 — the same day the unidentified charterer was hit by sanctions targeting the Iran-linked Triliance trading network. Triliance was first sanctioned by the US in 2020.
The measures by the Office of Foreign Assets Control were aimed at 39 businesses said to have been connected to the production, sale and shipment of Iranian petrochemical products and oil to buyers in Asia.
The sanctions meant the US-controlled owner of the vessel terminated the charterparty and refused to discharge the cargo back in Singapore.
The vessel’s tank coatings are not designed to hold the naphtha for more than 100 days and the “highly flammable” cargo has “leaked into areas where it should not be”, according to the High Court ruling in London.
Judge Nigel Teare said: “At present the vessel is, I was told, drifting in the South China Sea.”
He ruled in favour of the shipowner’s application to sell the cargo. He said the proceeds should be paid into the High Court pending an arbitration hearing that will rule on the decision to terminate the charterparty.
The shipowner, incorporated in Liberia but a subsidiary of a New York-listed company, said it was concerned that payment into an English court would be a breach of sanctions and lead to enforcement action by the US. It had wanted the sale proceeds to be paid into a blocked account of a US financial institution.
The charterer had argued that there was no real risk of US enforcement if money from the sale was paid into a UK court.
But it had claimed that it had sold the cargo to another company based in Dubai in April last year and it was inappropriate to make an order for sale.
The Dubai business arrested a vessel linked to the owners in July 2023 in South Africa to support their claim for the unlawful seizure of the cargo.
‘Sham sale’
A Durban court ordered the release of the vessel, but it was arrested again that month in Malaysia. A court there claimed the cargo sale was a “sham”.
The shipowner wrote to the new purported cargo owner in August this year about the English court action to sell the naphtha but received no response, according to a court ruling.
Teare said he had to consider if there was a real or fanciful risk of prosecution by the US if the money was paid into a UK court.
He said his decision was guided by his assessment that the shipowner had done all it could to comply with the sanctions.
“I have concluded that there is no real prospect of a prosecution,” said Teare. “That being so … the court should order that the proceeds of sale be paid into court.”
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