Hell or high water: contractual risk allocation prevails in GTLK v Pola Maritime

On 2 October 2026, the Commercial Court granted summary judgment in GTLK Malta Four Limited v Pola Maritime Limited and others [2026] EWHC 2514 (Comm), for claims exceeding US$40 million, plus interest, under 12 deeds of guarantee and indemnity connected with seven 10-year vessel finance charters.

The decision includes prominent findings in relation to four areas of charter party law, namely: the characterisation of finance charters; the application of frustration in a sanctions-context; the effectiveness of ‘hell or high water’ clauses; and the resilience of guarantees and independent indemnities.

This judgment serves as a reminder that, while sanctions disruption can frustrate a long-term contract, a high threshold will have to be met for this to be the case, especially where the parties have expressly allocated risk previously.

Background

Following Russia’s invasion of Ukraine, JSC GTLK was designated under EU sanctions on 8 April 2022 on the basis that it was financially supporting and deriving benefits from the Government of the Russian Federation. In response, Pola Logistics immediately ceased making hire payments under the charterparties. JSC GTLK was subsequently designated by both the United Kingdom and the USA in view of its links to the Russian state. Pola Logistics contended that the sanctions prevented it from lawfully using and insuring the vessels and, on 1 September 2022, purported to terminate the charterparties on grounds that the claimant was in repudiatory breach of its contractual obligations or, alternatively, that the charterparties had been frustrated.

On 31 May 2023, GTLK Europe was placed into liquidation by order of the Irish High Court. Subsequently, on 11 July 2023, the Irish High Court held that the presumption of control underpinning the sanctions asset freeze had been rebutted as a result of the liquidation. Both the Office of Financial Sanctions Implementation (OFSI) and the Office of Foreign Assets Control (OFAC) thereafter issued general licences permitting GTLK Europe and its subsidiaries to make and receive payments notwithstanding the sanctions regime.

On 28 February 2024, the claimant served its own notice of termination in response to Pola Logistics’ continuing non-payment of hire and demanded that Pola Logistics purchase the vessels at the contractually agreed purchase option prices. No payment was made. The claimant subsequently sought recovery of the outstanding sums, together with accrued interest, from the guarantors pursuant to the guarantees. The guarantors likewise failed to pay, giving rise to the claims before the court.

Issues

The Commercial Court addressed four principal issues.

First, the construction issue concerned whether the deeds of guarantee and indemnity continued to respond even if the underlying charters had been frustrated or terminated.

Second, the termination issue was whether the defendants had a real prospect of establishing that Pola Logistics had validly terminated the charters on 1 September 2022.

Third, the frustration issue concerned whether the defendants had a real prospect of establishing that the charters had been frustrated by impossibility or impracticability, or discharged by supervening illegality, in 2022.

Fourth, the suspension-of-hire issue was whether the OFAC licence granted on 18 September 2023 had ‘un-suspended’ Pola Logistics’ obligation to pay hire, such that hire was due and unpaid when the claimant terminated the charters on 28 February 2024.

Underlying those issues was a further fundamental dispute in relation to the true nature of the charterparties.

Nature of charters

A central issue before the court was whether the charterparties were conventional bareboat charters or, in substance, finance leases. The claimant argued that the charterparties could not be viewed in isolation because they were entered into as part of an integrated suite of transaction documents, including the facility agreement, under which funds were provided to Pola Logistics for the acquisition of the vessels. The court held that the charterparties were finance charters forming part of a broader financing structure rather than ordinary operating leases.

This finding was significant because it underpinned the court’s subsequent analysis of the parties’ payment obligations, the allocation of risk, and the effect of sanctions-related events on those obligations.

Hell or high water

The hell or high water provision (clause 38.10) in the charter imposed an absolute obligation on Pola Logistics to pay hire ‘irrespective of any contingency whatsoever’ and notwithstanding any unavailability of, or inability to use, the vessel.

The court held that clause 38.10 allocated the entire risk of the vessels’ unavailability or inability to be used to Pola Logistics. That allocation was consistent with the agreements being finance charters. The charter-hire formed part of the mechanism through which Pola Logistics repaid the financing provided for the acquisition of the vessels, with ownership ultimately intended to pass to Pola Logistics at the end of the transaction.

The defendants sought to distinguish between obligations that had already accrued and obligations which, they argued, never accrued because performance had become unlawful. The court rejected that distinction. It held that the wording of the charters and guarantees did not support it and stated that the ‘very purpose’ of clause 38.10 was to ensure that hire continued to accrue.

Frustration

In light of the above, the court held that the doctrine of frustration could not operate. Where the parties have expressly allocated a particular risk within their contract, the consequences of that risk are governed by the contractual regime rather than by the doctrine of frustration. The sanctions risk had been addressed through the parties’ agreed allocation of risk, leaving no scope for frustration to discharge the contract entirely.

In any event, the court held that the imposition of sanctions did not radically alter the nature of the charterparties. Applying the ‘wait and see’ approach, the court considered it significant that between five and eight years remained on the charters when the sanctions were imposed. Relying on Celestial Aviation Services Ltd v UniCredit Bank GmbH [2024] 1 Lloyd’s Rep 215, the court observed that the effect of a supervening illegality affecting a payment obligation is ordinarily to suspend performance, rather than to frustrate the contract as a whole.

The judge emphasised that the relevant question was whether reasonable businesspeople, assessing the position in August 2022, would have concluded that the sanctions were likely to endure for such a prolonged period that the parties’ bargain had been fundamentally transformed. The court held that the defendants had no real prospect of establishing that this threshold had been satisfied.

The existence of licences further undermined the argument that the charterparties had been frustrated. The availability of licences demonstrated that lawful performance remained possible in certain circumstances. Nevertheless, the judgment should not be read as establishing a universal principle that the existence of a sanctions licence will automatically render enforceable all payment obligations.

Quiet enjoyment

Clause 42 contained the owner’s covenant that the charterer would not be disturbed in the quiet and peaceful use, possession and enjoyment of the vessels. Pola Logistics argued that the sanctions interfered with its use of the vessels and therefore constituted a breach of that covenant which justified termination. The court rejected this argument and instead held that clause 42 could not be read in isolation from the wider contractual allocation of risk. Except in the case of an express ‘Owner’s Default’, the charters allocated the risk of the vessels’ unavailability or inability to be used to Pola Logistics. The quiet-enjoyment warranty did not extend to matters whose risk had already been assumed by the charterer. The defendants were not able to explain how clause 42 could coexist with the hell or high water clause.

Key takeaways

This case emphasises the courts’ willingness to give strong effect to ‘hell or high water’ provisions where the parties have expressly allocated risk by contract. Where commercially experienced parties have agreed that one party will bear the risk of an asset becoming unavailable or unusable, the courts will be reluctant to depart from that allocation through the doctrine of frustration. The judgment demonstrates the high threshold that must be met for sanctions to frustrate a long-term contract.

The decision also provides guidance on the effect of sanctions on contractual payment obligations, a topic of increasing significance in light of sanctions regimes affecting Russia, Iran and Venezuela. The court confirmed that sanctions do not automatically frustrate long-term contracts. Rather, where a sanctions regime renders payment temporarily unlawful, the more likely consequence is the suspension of the payment obligation, rather than its extinguishment. The subsequent grant of OFAC licences further supported the conclusion that the impediment to performance was temporary and capable of being overcome.

More broadly, the case offers an insight into the courts’ approach to the characterisation of charter arrangements. The court adopted a holistic approach and considered the wider suite of transaction documents. In doing so, it concluded that the agreed payment structure, security package and ultimate transfer of ownership were strong indicators of a financing arrangement rather than a conventional hire or lease.

Conclusion

This case demonstrates that sanctions disruption does not necessarily bring a contract entirely to an end. The outcome will depend on the obligation affected, the agreed payment route, and the contractual allocation of risk.

Charterers and lessees should examine carefully whether they have assumed risks outside their direct control, including sanctions, regulatory restrictions and loss of commercial use. Owners and financiers should ensure that their documents address both the continued accrual of sums and the lawful means by which those sums may be paid. Guarantors, meanwhile, must assess the entire transaction structure rather than assuming that their exposure is confined to liabilities presently enforceable against the principal debtor.

The decision does not establish that sanctions can never frustrate a long-term contract, or that every ‘hell or high water’ clause and guarantee will be effective in the same way. It does, however, demonstrate how difficult it is to escape a financing bargain where the documents expressly allocate the relevant risk, preserve the accrual of payment obligations and provide independent recourse against guarantors.

This article was co-written by Sayakki Pransveswaran, trainee solicitor in the marine, trade and aviation team.