The Court of Appeal has considered the effect of a sanctions clause that excused a party from performance where, in that party's reasonable judgment, it would otherwise be at risk of sanctions liability.

The unanimous judgment in Tonzip Maritime Ltd v 2Rivers Pte Ltd is commercial and pragmatic: it supports the use of desktop searches to identify potential risks; "common sense" when assessing those risks; and healthy scepticism of attempts to explain the risks away.

This decision should be reassuring to those dealing with the day-to-day complexities of sanctions.  It recognises the speed at which decisions must be taken in some contexts; and supports the use of diligence processes which will be familiar to those involved in global compliance functions.

However, it is reassuring only if you have a clause that entitles you to delay or refuse performance with the same level of autonomy as that afforded by the sanctions clause in Tonzip's charterparty.  Where no such clause exists (as in the recent case of Eurochem North-West-2 and another v Société Générale S.A. and others), the party seeking to rely on sanctions to excuse performance will need to satisfy itself (and, if necessary, prove at trial) not only that there is a real risk of sanctions liability, but that contractual performance would in fact contravene sanctions. Where there is no sanctions clause at all, a party will need to rely on common law illegality to determine if there is a basis on which to refuse performance, and that may not be the desired answer, even where performance might cause a party to contravene a sanctions regime to which it is subject.

For further details, see our Clifford Chance Briefing.