In our earlier article on Tonzip Maritime Ltd v 2Rivers Pte Ltd [2025] EWHC 2036 (Comm), we examined the Commercial Court’s analysis of the construction and operation of the “EPS Sanctions Clause”. In that case, vessel owners had refused employment orders of their charterers due to sanctions’ concerns. They were not of parties directly related to the carriage, but rather due to alleged connections between the shippers and a Russian businessman targeted by UK and EU sanctions.
The more detailed circumstances to the matter are set out in our original article, but it will be recalled that the High Court agreed with the owners’ approach to the construction of the clause – namely that an owner does not need to establish an actual breach of sanctions, but must demonstrate that, at the time, it formed a reasonable judgment that compliance with charterers’ orders would expose it to a sanctions risk. But on the facts of the case, it was found that the owners had not established that there was sufficient link between the shippers and the sanctioned individual.
The decision was subsequently appealed by the owners to the Court of Appeal. The High Court’s interpretation of the sanctions’ clause, as largely advanced by the owners in the High Court, was endorsed, In particular:
- with respect to the construction of the EPS Clause, the phrase “expose … to sanctions” does not require a likely breach of sanctions, and instead, it is satisfied that if the owners form a reasonable judgment that compliance gives rise to a real risk of sanctions exposure; and
- the ‘reasonable judgment’ test is an objective one. It is not enough that the owners subjectively believed there was a risk - the judgment must be one that a reasonable owner could reach on the available material.
However, and despite acknowledging that an appellate court ‘should not lightly interfere’ with the judge’s application of the clause to the facts, the Court of Appeal nevertheless came to a conclusion that they would revisit the particular circumstances.
This was firstly because they considered that the judge’s reliance on a case which gave rise to his decision that owners could not have formed a reasonable judgement of the existence of a risk of sanctions was wrong.
Secondly, they found that, having concluded that the clause required a reasonable determination of a risk of sanctions liability, he instead applied it by asking whether the owners had made a reasonable determination of the sanctioned individual’s control of the shipper – a slightly different question.
On that basis, the Court of Appeal considered that it was justified in reaching its own conclusion on the reasonableness of the owners’ determination of the risk. In doing so, the Court of Appeal cited a number of factors which it considered meant that there was a real risk that sanctions authorities might consider the sanction individual sufficiently connected to the shippers. This included the fact that the sanctioned individual, after being sanctioned, had transferred his substantial interest in the company to his brother – a usual red flag. There was a no information as to what consideration there had been for the transfer.
The decision of the Court of Appeal is reminder of the complexities that can surround sanctions’ regimes. In the context of an owner / charterer relationship, it will be welcomed by owners who, as highlighted in our original article, can find themselves between the rock of sanctions’ authorities and the hard place of their obligation to obey charterers’ orders. More generally however, it emphasises the importance of due diligence where there are concerns with respect to sanctions and ensuring that you obtain and preserve as much evidence as you can where there might be a concern.
