A cargo of Russian crude oil destined for Turkey, a voyage charter party, a sanctioned oligarch, a share transfer to his half-brother, charterer's order to lift the cargo - when does a shipowner's apprehension of sanctions exposure justify refusal to comply with a charterer's instructions to lift cargo, and abandonment of the charterparty?

The UK Court of Appeal answered that question in Tonzip Maritime (Singapore) Pte Ltd v 2 Rivers Pte Ltd [2026] EWCA Civ 641, considering a sanctions risk avoidance clause, and clarifying the threshold a shipowner must meet before invoking a sanctions clause to refuse to comply with cargo orders. You can read our client briefing on the case here: Sanctions Clauses: Lessons from the Court of Appeal.

Background

On 5 November 2021, Tonzip Maritime voyage chartered the MV CATALAN SEA to 2Rivers Pte Ltd to carry a cargo of Russian crude oil from Primorsk, Russia, to Aliaga, Turkey. The charter party contained the EPS Sanctions (risk avoidance) clause, which permits Owners to refuse to comply with Charterer's order if Owner reasonably apprehends compliance is prohibited by sanctions or which would expose the Owner, vessel or manger (and others) to sanctions risk.

The shipper Neftisa, a Russian company associated with Mikhail Gutseriev, was sanctioned by the EU in June 2021 and by the UK in August 2021 for his links to the Lukashenko regime in Belarus. Shortly after his designation, Gutseriev reportedly transferred his majority stake in Neftisa to his brother, Sait-Salam Gutseriev.

When the vessel arrived at Primorsk, Russia on 17 November 2021 to collect the cargo, Tonzip's Refinitiv World-Check screening flagged Neftisa as being "associated to sanctioned individual", identifying Gutseriev as its indirect owner and chairman. Fearing sanctions exposure, Tonzip refused to load the cargo, citing sanctions risk, and calling on Charterers to issue alternative voyage orders. Charterers refused, and instead purported to cancel the charterparty. Owners treated the cancellation as a repudiatory breach.

The Issue

The key issues in dispute were: (a) the proper construction of the EPS sanctions clause, and (b) whether in reliance on that clause, Owners were entitled to refuse to comply with Charterer's orders to lift the cargo. A central element was what level of risk sufficed to trigger the right of refusal.

The Decision

At first instance, the High Court held that on its proper construction, the EPS Sanctions clause did not require Owners to prove that sanctions would actually be breached. It sufficed that Owners form a reasonable commercial judgment that complying with charterers' orders created a real risk of a sanctions infringement. Applying that test, the High Court found against Tonzip, on the basis that there was insufficient evidence to form an objectively reasonable determination that Gutseriev continuing to control of Neftisa – it was at best speculation that de facto control persisted, which did not suffice to justify Owner's refusal to comply with Charterer's orders.

The Court of Appeal allowed Owner's appeal, identifying two material errors in the High Court's decision. First, the High Court had misunderstood the decision in Litasco SA v Der Mond Oil. Secondly, while the High Court set out the correct test, it had failed to apply that test, instead asking if Owners had made a reasonable determination that such control continued in fact. As a result the High Court applied a more demanding standard than the clause required.

The Court of Appeal found the Owner's determination of a risk of sanctions exposure was an objectively reasonable judgment. Three undisputed facts were sufficient: Gutseriev had held a majority stake in Neftisa of substantial value; that interest was transferred to his half-brother and long-time business partner immediately after EU designation, for no disclosed consideration; and the Refinitiv report flagged Neftisa as "associated to sanctioned individual".

Commentary

The Court of Appeal's decision is important for several reasons, including:

1. It confirmed that a real risk of sanctions exposure suffices; certainty of breach is not required. The Court of Appeal recognised that owners are rarely well-placed to verify the beneficial ownership of a shipper or the provenance of a cargo. That information is within the knowledge of the charterer and shipper, not the owner. Sanctions laws across multiple jurisdictions may be engaged by a single transaction, and owners often must reach a decision quickly, sometimes while the vessel is already at or approaching the load port. Requiring an owner to establish that a breach is probable in those circumstances would render the clause unworkable.

2. A post-designation transfer of a majority stake to a family member and long-time business partner, for no disclosed consideration, is capable on its own of grounding a "real-risk" assessment, as a matter of common sense. Compliance advice resting on assumptions fed by the very party whose independence is in issue does not dispel that risk; it may deepen it.

3. Significantly, the objective reasonableness of an owners’ determination is assessed by reference to the information available at the time the decision was made, not with the benefit of hindsight or later-available information.

Key Takeaways

• Real risk, not certainty, is the threshold. A shipowner invoking a sanctions clause does not need to prove that a sanctions breach will occur, or even that one is more likely than not. It suffices that Owner form a reasonable judgment that there is a real risk of sanctions exposure.
• The test is objective. The question is whether a reasonable shipowner, faced with the same information, could have reached the same conclusion.
• Post-designation transfers to family members warrants close scrutiny.