The Court of Appeal has upheld a decision allowing shipowners to refuse cargo orders based on a “real risk” of breaching sanctions, clarifying the standard required under a sanctions clause in a voyage charterparty. The judgment affirmed that shipowners do not need to establish that sanctions are more likely than not to be breached; it suffices for them to reasonably assess that a genuine risk of incurring sanctions exists.

The ruling arose from a dispute involving the vessel Catalan Sea, owned by Tonzip Maritime (Singapore) Pte Ltd, and chartered by 2 Rivers Pte Ltd. Under a charterparty dated November 5, 2021, the ship was engaged to transport crude oil from the Russian port of Primorsk to the Mediterranean. The cargo was linked to Neftisa, a Russian oil company formerly majority-owned by Mikhail Gutseriev, a businessman subject to European Union and United Kingdom sanctions due to his association with the Lukashenko regime in Belarus.

Following the imposition of EU sanctions on Mr. Gutseriev in June 2021, it was reported that his majority interest in Neftisa was transferred to his brother and longtime business partner, Sait-Salam Gutseriev, while Mr. Mikhail retained a minority 7 percent share. The shipowners declined to load the cargo and requested alternative voyage orders, concluding that proceeding as chartered posed a more than theoretical risk of sanctions exposure.

At issue was the interpretation of the charterparty’s sanctions clause, which allowed refusal of orders if compliance would “expose” owners to sanctions. The Court of Appeal held that the owners’ decision relied on a reasonable judgment that there was a real risk sanctions could be imposed, without needing certainty or a probability above 50 percent. The owners were not required to determine definitively that Mr. Mikhail Gutseriev still controlled Neftisa, only that it was reasonably possible he did.

The court noted that the reported transfer of ownership could raise questions as to whether control had genuinely shifted, given the family relationship and absence of information regarding any consideration for the transfer. These factors supported a reasonable conclusion of continuing risk under the sanctions regimes.

The charterers sought to mitigate the risk by providing a letter from Neftisa and associated legal opinions, but these did not remove it. The letter addressed only Russian law, which was irrelevant to sanctions compliance, and the legal opinions were based on assumptions about the unresolved issue of Mr. Gutseriev’s control. One opinion even acknowledged that sanctions authorities might reach a contrary conclusion.

The judges found that the High Court had erred in dismissing the owners’ concerns. Lord Justice Zacaroli and Lord Justice Coulson agreed that a reasonable shipowner could reach the owners’ view, leading to the allowance of the appeal and dismissal of the cross-appeal by the charterers.

The case highlights the complexities of maritime operations involving sanctioned parties and underscores the importance of a cautious, risk-based approach when sanctions compliance may be implicated. Legal teams for the parties included Wikborg Rein LLP and HFW Middle East LLP.