A sub-clause in a charterparty entitled one party not to comply if, in their reasonable judgement, to do so would be prohibited by sanctions or would “expose” them to sanctions. In Tonzip Maritime (Singapore) PTE Ltd v 2 Rivers PTE Ltd [2026] EWCA Civ 641, the Court of Appeal held that, in this charterparty, a party would be “exposed” to sanctions if it reasonably judged that there was a real risk of sanctions applying. Foxton LJ, with whom Coulson and Zacaroli LJs agreed, also gave limited weight to contemporaneous legal opinions offered on the sanctions position.
Summary of the facts
A dispute arose when the owners of a vessel (the “Owners”) refused to let a charterer (the “Charterer”) load a cargo to be shipped by Neftisa on the basis that they considered to do so might be contrary to sanctions laws. The Owners relied on sub-clause (C) of the charterparty, which provided:
“The Owners shall not be obliged to comply with any orders for the employment of the vessel …which in the reasonable judgement 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 and the charterers shall be obliged to provide alternative voyage orders.”
The Owners had seen a report which said that a designated person was the indirect owner and Chairman of Neftisa. The Owners did not look at a Kommersant article, linked in the report, which stated that the designated person had transferred his ultimate beneficial ownership of Neftisa to his brother and that he had been replaced on the Board of Directors.
The Charterers sought to change the Owners’ position by providing legal opinions from two law firms. The first law firm concluded that, subject to certain assumptions, the designated person did not own or control Neftisa and that, on the information available, the EU sanctions control test was not met. The second law firm also considered it unlikely that the designated person controlled Neftisa, albeit, again, this view was premised on certain assumptions proving true.
The question
The key question was whether, to rely on sub-clause (C), the Owners had to show either: (a) a reasonable judgment that sanctions were more likely than not to be breached; or (b) a reasonable judgment that there was a real risk of a sanctions breach.
Risk of exposure
To answer this question, it was necessary for the Court of Appeal to interpret the meaning of “expose” in sub-clause (C).
First, the Court of Appeal considered the wording of the clause. Two preceding sub-clauses also included the word “expose”. The effect of sub-clause (C), when compared with the effect of these sub-clauses, provided very strong support for the construction that “exposure” was used in the sense of “put at risk”.
Second, Foxton LJ examined the wording of sub-clause (C) itself. He acknowledged the use of the phrase “such risk” later in sub-clause (C). In his view, that reference to “risk”, looking back to both alternatives in the clause, was intended to capture their lowest common denominator: the risk inherent in “exposure” to sanctions. Sub-clause (C) therefore covered both cases where continuing the voyage would infringe sanctions and cases where there was a real risk that it would.
Third, Foxton LJ considered the commercial context for sub-clause (C). This was a context in which it was inherently more likely that the Owners would be required to reach a reasonable judgment that compliance with the Charterers’ orders would give rise to a real risk of liability for sanctions, rather than require a determination that such a liability would arise on the balance of probabilities.
Fourth, Foxton LJ considered other clauses in the charterparty using the word “expose”. These clauses derived from different sources. Foxton LJ was not persuaded that it was appropriate to assume consistency of linguistic usage across different market standard clauses, which would frequently have their own interpretative matrix, simply because they were incorporated into the same charterparty.
Finally, Foxton LJ reviewed the authorities in which “exposure” was used in a commercial context. The clauses in which the word was used were all differently worded and applied in different contexts. Consequently, Foxton LJ considered their use, for the purpose of aiding construction of clause (C) was limited.
Having regard to these factors, Foxton LJ concluded that the test was whether the Owners reasonably formed a judgement that there would be a real risk of a breach of sanctions law. Applying that test, Foxton LJ determined it was open to a reasonable owner to conclude that there was a real risk the designated person had not in fact wholly alienated his interest in Neftisa, and that it was not reasonably open to the Judge to have concluded (in effect) that no reasonable owner could have formed that view.
Law firm opinions
Foxton LJ’s view was not altered by the opinions of law firms proffered by the Charterers. Foxton LJ noted that those opinions rested largely on assumptions derived from a source that could not provide an independent view of whether control had in fact been transferred by the designated person. Indeed, Foxton LJ considered that one of the opinions would have reinforced a reasonable owner’s view that complying with the Charterers’ orders involved a real risk of sanctions liability.
Takeaways
This judgment is a classic example of the process by which the meaning of a contractual term can be discerned. In the sanctions context, it also underlines the need to scrutinise legal opinions carefully, particularly where they depend on assumptions advanced by an interested party. Where a party identifies a sanctions risk in a transaction, it should analyse any such opinions carefully, including the assumptions and information on which they depend.
