QCR Winter 2018: Claim for unjust enrichment - At what point in time was the bank enriched in respect of payment made by a borrower who was subject to a sanctions regime - Limitation Act 1980

QCR Winter 2018: Claim for unjust enrichment - At what point in time was the bank enriched in respect of payment made by a borrower who was subject to a sanctions regime - Limitation Act 1980

Sixteenth Ocean GMBH & Co KG v Societe Generale [2018] EWHC 1731 (Comm)

Facts

Sixteenth Ocean GMBH & Co KG (“16th Ocean”), a subsidiary of the Islamic Republic of Iran Shipping Lines (IRISL), entered into a shipbuilding contract with Hyundai Heavy Industries Co Ltd (Hyundai) for the construction of a container carrier by Hyundai and its purchase by the IRISL subsidiary. 16th Ocean entered into a loan agreement with three lenders, including Societe Generale (SocGen), to finance the construction and the purchase of the vessel.

In September 2007, 16th Ocean entered into a transaction with SocGen as Swap Bank, to hedge 16th Ocean’s obligations in relation to the vessel. SocGen was therefore a party to the loan agreement in the capacity of “Agent”, “Lender” and “Swap Bank”.

Following the designation of IRISL as a Specially Designated National (SDN) by US OFAC

in September 2008, and the subsequent prohibition of all dollar transactions with any Iranian entities, SocGen as Agent informed 16th Ocean that the final advance under the loan agreement required to purchase the vessel could not be drawn down. As a result, 16th Ocean did not pay the funds outstanding for the purchase of the vessel, and on 31 December 2009, Hyundai terminated the shipbuilding contract.

The lenders then demanded repayment of outstanding sums due under the various agreements. On 9 June 2010, SocGen as Swap Bank demanded payment from 16th Ocean of US$8,889,063.42 (the Termination Amount) as the sum due under the Swap Agreement. Three vessels which had been delivered to the IRISL subsidiaries were arrested in September 2010 by Credit Agricole as Security Trustee.

On 13 December 2010, 16th Ocean and the three other IRISL subsidiaries paid €155 million, which included the Termination Amount above, to SocGen as Agent for the lenders. The monies, received by SocGen on 14 December 2010, were transferred to a suspense account, and only transferred to the lenders on 5 January 2011, after receipt of authorisation from the competent authorities. The termination payment was allegedly appropriated to SocGen’s account only on 24 January 2011.

16th Ocean claimed that the above funds were paid subject to a reservation of rights and under economic duress, and commenced proceedings against SocGen for restitution of the Termination Amount on the grounds of unjust enrichment. The claim form was issued on 10 January 2017.

SocGen applied for summary judgement to dismiss 16th Ocean’s claim for being time-barred under section 5 of the Limitation Act 1980. 

16th Ocean resisted SocGen’s application arguing (i) as a matter of banking law, SocGen did not receive payment on 14 December 2010 because it did not then receive an unfettered or unrestricted right to the immediate use of the funds transferred, (ii) SocGen had breached the swap agreement by wrongfully calculating the termination amount as US$8.8 million rather than nil, in June 2010, and that SocGen owed a continuing obligation not to calculate and seek payment of the termination amount where the trigger event for payment obligations under the swap agreement had not yet occurred, and (iii) 16th Ocean sought to rely on section 32(1)(a) and (b) of the Limitation Act 1980 to postpone the start of running of time citing fraud and concealment of information on the part of SocGen.

Judgement

The High Court allowed SocGen’s application for summary judgement and struck out 16th Ocean’s restitutionary claim for unjust enrichment holding that the cause of action accrued on SocGen’s receipt of the termination amount on 14 December 2010, and at the latest on 5 January 2011. The receipt of the payment constituted a real and incontrovertible benefit to SocGen as at 14 Decmeber 2010.  The transfer by SocGen of the funds into a suspense account, pending receipt of authorisation from competent EU authorities, did not alter the date of enrichment.

The court held that on a proper construction of the swap agreement, there was neither a continuous obligation, nor successive breaches of a single obligation by SocGen. The breach under the swap agreement had therefore accrued no later than 9 June 2010.

16th Ocean’s reliance upon section 32 of the Limitation Act was also rejected by the Court. The Court clarified that a finding of fraud is needed in relation to section 32(1)(a). This section did not extend to wrongs or breaches of duty carried out dishonestly or involving dishonesty, but not involving fraud.  As for section 32(1)(b), the fact that was deliberately concealed had to be relevant to the claim.  In this case, the date of transfer of the funds from the suspense account was not relevant to 16th Ocean’s claim for unjust enrichment. 

Permission to appeal has been given.

Comments

This decision is important for the following reasons:

  1. There is no statutory limitation period for a common law restitutionary claim in unjust enrichment but case law suggests, and the court has now affirmed, that such claims are generally time barred after 6 years. 
  2. This decision clarifies the application of section 32(1)(a) and (b) of the Limitation Act 1980 set out below;
    32(1) .... where in the case of any action for which a period of limitation is prescribed by this Act, either-
    the action is based upon the fraud of the defendant; or
    any fact relevant to the plaintiff's right of action has been deliberately concealed from him by the defendant; or …
    the period of limitation shall not begin to run until the plaintiff has discovered the… concealment… or could with reasonable diligence have discovered it."
  3. The finding that the bank was enriched as soon as it received monies into its account as agent - notwithstanding that the monies were immediately placed into a suspense account - may potentially increase the scope of banks’ liability for unjust enrichment. 
  4. The judgement also provides a useful reminder that legal complexity alone should not be an impediment to a summary determination.

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