Sanctions And Risk Avoidance Clauses In The Court Of Appeal - Emmet Coldrick

In Tonzip Maritime (Singapore) PTE Ltd v 2 Rivers PTE Ltd (The “Catalan Sea”) [2026] EWCA Civ 641, the Court of Appeal provided guidance of the interpretation of risk avoidance clauses and, allowing the appeal, held that shipowners had been entitled to refuse to load a cargo of Russian oil on sanctions risk grounds.

In a thoughtful judgment, Foxton LJ (with whom Coulson and Zacaroli LJJ agreed) made observations which are likely to be of wider interest to commercial practitioners who deal with risk avoidance clauses, not only in the sanctions context but more generally.

Facts

In November 2021, before Russia’s full-scale invasion of Ukraine, 2Rivers (then named Coral Energy) chartered the tanker ship “Catalan Sea” for a voyage from the Russian Baltic to Turkey. The shipper was not identified in the charterparty, but by the time that the vessel arrived at the intended port of loading, Primorsk, and draft bills of lading were produced, it had emerged that the shipper was Neftisa.

While Neftisa was not itself on any sanctions list, searches on Refinitiv World-Check revealed that Neftisa was associated with Mikhail Gutseriev. Mr Gutseriev had been sanctioned by the EU, UK and Switzerland earlier in 2021, due to his connections with the Lukashenko regime in Belarus.

At least until recently, Mr Gutseriev had controlled Neftisa. However, a letter from Neftisa was produced stating that he had left Neftisa’s Board of Directors and no longer controlled Neftisa as a matter of Russian law. A contemporaneous report in the Russian financial newspaper Kommersant indicated that he had transferred most of his shares in Neftisa to his brother, but noted concerns that this could be interpreted as an attempt to circumvent sanctions.

In an effort to persuade the Owners to carry the Neftisa cargo, the Charterers produced copies of letters from international law firms. These letters acknowledged that Neftisa could be regarded in effect as sanctioned if it was controlled by Mr Gutsersiev. However, they opined that, if various factual assumptions were made, Mr Gutseriev did not control Neftisa and so Neftisa was not subject to sanctions.

The Owners were not persuaded. They refused to load the Neftisa cargo, citing the sanctions risk. The Charterers purported to terminate the charterparty, maintaining that its terms did not entitle the owners to refuse to load the cargo. The Owners treated this as a repudiatory breach and themselves purported to terminate.

The Owners commenced proceedings claiming damages, on the grounds that the Charterers had repudiated the charterparty. The Charterers denied the claim and counterclaimed damages, maintaining that it was the Owners who had repudiated the charterparty.

The two main issues

Both at first instance and on appeal, there were two main issues in dispute:

1. What was the true construction of the sanctions clause in the charterparty?
2. Applying that clause, were the Owners entitled to refuse to load the Neftisa cargo?

The relevant clause stated:

“The Owners shall not be obliged to comply with any orders for the employment of the Vessel … which in the reasonable judgment of the Owners, is prohibited by sanctions or will expose the Owners … to sanctions. 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 …”

“Sanctions” had been given a wide definition earlier in the clause, which encompassed the UK and EU laws that imposed sanctions on Mr Gutseriev.

As regards the first issue (construction), the central dispute was as to the meaning of the phrase “will expose the Owners … to sanctions”. The Charterers’ case was that the clause entitled the Owners to refuse orders only where they reasonably judged that compliance with the orders would breach sanctions laws or – on the facts of the case – that Mr Gutseriev controlled Neftisa. The Owners’ case was that they were entitled to refuse orders where they reasonably judged that compliance would give rise to a risk or danger of breaching sanctions laws.

As regards the second issue, the central dispute was as to whether the Owners had made a reasonable judgment. The Charterers contended that they had not. They said that there was no evidence that Mr Gutseriev had continued to control Neftisa and relied on the fact that the Owners accepted that they did not know whether he had retained control. Citing the decision of Foxton J in Litasco v Der Mond Oil [2023] EWHC 2866 (Comm), the Charterers maintained that the Owners were engaged in mere speculation and had not made a reasonable judgment.

For their part, the Owners emphasised that it was common ground that Mr Gutseriev had owned and controlled Neftisa at least until around the time he had been sanctioned, that the supposed divestment of ownership and control was to Mr Gutseriev’s brother and that there was no evidence of consideration from the transfer. In these circumstances, the Owners maintained, there clearly was a real risk that the supposed divestment of control was a “cosmetic disposal” designed to circumvent sanctions while enabling Mr Gustersiev to retain de facto control.

The High Court judgment

The matter went to trial before Andrew Hochhauser K.C., sitting as a Deputy High Court Judge. In his judgment (Tonzip v 2Rivers [2025] EWHC 2036 (Comm)) at [77], he preferred the Owners’ construction of the clause, holding that “… what is contemplated … is the assessment of a reasonable commercial person as to whether a real risk or danger is present …”.

However, he dismissed the Owners’ claim and awarded the Charterers damages, reasoning (at [132]) that the material obtained by the Owners did not evidence Mr Gutseriev’’s control of Neftisa in November 2021. He held that it was a matter of speculation whether or not there was such control, noting that the Owners had not been able to confirm the position and accepted that they did not know whether control continued. The Judge held that that was insufficient to “amount to an objectively reasonable decision that Mr Gurseriev had de facto control”.

The Owners appealed, and the Charterers cross-appealed against the Judge’s decision on the construction issue.

The Court of Appeal judgment

The Court of Appeal allowed the Owners’ appeal and dismissed the Charterers’ cross-appeal. On the construction issue, the Court held (at [38]) that the Judge was right to conclude that the words “such risk” in the sanctions clause provide strong support for the Owners’ construction. His preferred construction was also supported by a consideration of the commercial context (at [41]):

“i) … the Owners are likely to be much less well-informed than the Charterers as to the factual circumstances bearing on the potential application of sanctions: the beneficial ownership or control of the shipper, and the origins and destination of the cargo.

ii) When those issues arise in a sanctions context, they will frequently be hidden from public view, and be eminently contestable.

iii) Sanctions laws are generally broadly phrased and complex …

iv) The Owners are required to reach a speedy determination, given the commercial significance of delay …

v) This is a context in which it is inherently more likely that the Owners are required to reach a reasonable judgment that compliance with the Charterers’ orders will give rise to a real risk of liability for sanctions, rather than require a determination that such a liability will arise on the balance of probabilities.”

On the issue of whether the Owners had made a reasonable judgment, the Court held (at [66]) that the Judge had treated Litasco as authority for the proposition that a determination by a contractual decision-maker which involved “speculation” could not be a reasonable determination for the purposes of the clause, when in fact Litasco had not decided any such thing. Moreover, whilst the Judge had correctly set out the issue for decision in his judgment – which was as to whether a reasonable judgment had been made regarding exposure to a sanctions risk – the Court held (at [73]) that he had lost sight of that question and, “at least on the specific issue of Mr Gutseriev’s continuing involvement with Neftisa … his analysis was addressed to a different (and contractually irrelevant) question of whether the Owners had made a reasonable determination that such control continued in fact”. The Court concluded that these errors justified the Court in reaching its own conclusion on the issue of the reasonableness of the Owners’ determination. The Court held (at [86]) that:

“The package of information provided by Neftisa through the Charterers would ordinarily have been expected to advance the position that there was no sanctions risk in the transaction to its strongest effect. However, the material provided essentially rests on assumptions originating from a source which could not have offered an independent perspective on the reality of any transfer of control. The [law firm letter] would, if anything, have led a reasonable owner to be even more confident that following the Charterers’ orders involved a real risk of sanctions liability.”

The Court therefore allowed the Owners’ appeal, concluding (at [89]) that “… the Judge erred in concluding that the determination made by the Owners that complying with the Charterers’ voyage orders gave rise to a real risk of liability to sanctions was not a determination which any reasonable shipowner could reach”.

Points to note

While the use of the word “risk” in the clause clearly was an important factor in the Court’s decision on the construction issue, considerations of commercial context (summarised above) also had an important part of play. Where present, such considerations are likely to support a reasonably liberal approach to the construction of clauses intended to avoid sanctions risks, arguably outweighing countervailing arguments based on the Gilbert-Ash principle that it should be presumed that the parties did not intend the contract to derogate from the parties’ normal rights and obligations.

Foxton LJ’s judgment also has points of wider interest, beyond the sanctions context.

Foxton LJ made some general remarks on contractual discretions, noting (at [76]) that “[t]he issues of whether and to what extent the decision of a contractual decision-maker can be impugned not simply by reference to the outcome, but the process by which it is reached, is a complex one”. He went on to quote from several cases, before stating (at [80]):

“The authorities to which we were referred leave open a number of possible arguments, including as to:

i) the extent of the enquiries which the contractual decision-maker must make, and whether that too involves a Wednesbury judgment …

ii) the status of a decision reached on the basis of enquiries which satisfy that test, if more extensive enquiries would have required a different decision;

iii) the status of a decision which was not reasonably open on the information before the contractual decision-maker but which would have been reasonably open on the basis of information which a wider enquiry would have revealed; and

iv) how far evidence or facts only becoming available after the contractual-decision is made can impact on the objective reasonableness (in the required sense) of the decision …”

These observations may provide fertile ground for argument in future cases where a party seeks to challenge the exercise of a contractual discretion. Such discretions are often found in risk avoidance clauses, which have become widely used in recent years and which, in some contexts, could be said to be overtaking force majeure clauses as the preferred way of addressing a variety of risks, from physical risks (arising from, for example, war or piracy) to legal risks (such as the risk of falling foul of laws relating to, for example, sanctions, money-laundering or data-protection).

Moreover, in the course of addressing arguments by the Charterers based on differences in the wording of the sanctions clause and other risk avoidance clauses in the charterparty (including the VOYWAR war risks clause), Foxton LJ considered authorities bearing on when it is appropriate to read such clauses consistently or at least as influencing the meaning of one another. He stated (at [48]): “I am not persuaded that it is appropriate to assume consistency of linguistic usage across different market standard clauses, which will frequently have their own interpretative matrix (e.g. the accompanying circulars of the BIMCO clauses), simply because they are incorporated into the same charterparty.”

These observations are potentially of relevance in any case where a market standard clause has been incorporated into a commercial contract and it is contended that the clause in question should be construed in light of some other clause.