Sanctions exposure in oil and gas voyage charterparties

In Tonzip Maritime (Singapore) Pte Ltd v 2 Rivers Pte Ltd [2026] EWCA Civ 641 (“The Catalan Sea”), the Court of Appeal provided guidance for the oil and gas industry on the construction and interpretation of sanctions clauses in voyage charterparties, and on the standard required for a shipowner to exercise its “reasonable judgement” that compliance with a charterer’s cargo orders would expose the vessel or its interests to sanctions risk.

The Court of Appeal’s decision carries important implications for parties drafting sanctions clauses across the oil and gas supply chain who must make time-pressed, high-stakes decision about sanctions exposure with imperfect information about the ultimate beneficial ownership of counterparties and cargoes.

Facts

Tonzip Maritime (Singapore) Pte Ltd (the “Owners”) were the owners of the the owner’s vessel “CATALAN SEA” (the “Vessel”).

By a voyage charterparty on an amended ExxonMobil VOY2005 dated 5 November 2021, 2 Rivers Pte Ltd (the “Charterers”) chartered the Vessel to carry a cargo of crude oil from a Russian Black Sea port (in the Ust Luga to Primorsk range) to the Mediterranean (intention Aliaga, Turkey) (the “Charterparty”). The Charterparty contained the following sanctions clause:

1. The Charterers hereby warrant and represent to the Owners that neither the Charterers nor any person or entity on whose behalf or under whose direction the Charterers act or assist, or who directly or indirectly owns or controls the Charterers, nor, to their knowledge, any person or entity at any time having an interest in any of cargo carried under this charterparty, are designated or subject to any national, international or supranational law or regulation imposing trade and economic sanctions, prohibitions or restrictions (‘sanctions’) and that entry into and performance of this charterparty is not and will not be prohibited or restricted by, and will not expose the Owners, the Vessel or its managers, crew, the Vessel's insurers or re-insurers to sanctions.
2. The Owners hereby warrant and represent to the Charterers that neither the Owners nor any person or entity on whose behalf or under whose direction the Owners act or assist, or who directly or indirectly owns or controls the Owners, are subject to sanctions and that entry into and performance of this charterparty is not and will not be prohibited or restricted by, and will not expose the charterers to sanctions.
3. The Owners shall not be obliged to comply with any orders for the employment of the vessel in any carriage, trade, voyage, ship-to-ship transfer operation or other service which in the reasonable judgement of the Owners, is prohibited by sanctions or will expose the owners, the vessel or its managers, crew, the vessel's insurers or reinsurers 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 sanctions concern arose because Neftisa, the shipper of the cargo, was associated with Mr Mikhail Gutseriev, a Russian businessman who was sanctioned by the EU on 21 June 2021 and by the UK on 9 August 2021 - in both cases due to his links to the Lukashenko regime in Belarus. After those designations, it was reported that Mr Gutseriev had transferred the ultimate beneficial ownership of Neftisa to his brother, retaining only a 7% share. That alleged transfer was itself a difficulty. A contemporaneous report in the Russian financial newspaper Kommersant stated that “it is not clear whether the EU will evaluate the Neftis[a] deal as an attempt to circumvent sanctions”, describing the situation as “ambiguous”.

The Vessel arrived at Primorsk on 17 November 2021. The draft bills of lading provided to the owners in respect of the cargo identified Neftisa as the shipper. The charterers confirmed that Neftisa were the shipper and ordered the owners to load the cargo on board the Vessel. It was accepted that the lifting of the cargo took place within the territorial scope of the relevant sanctions laws.

After Neftisa was identified as the shipper, the Owners carried out sanctions screening using Refinitiv World-Check, a platform used by banks and shipowners to manage sanctions issues, which showed that Neftisa was associated to a sanctioned individual. The owners refused to load and called for alternative voyage orders pursuant to sub-clause (C) of the sanctions clause.

The Charterers sought to persuade the Owners to change their minds, providing a letter from Neftisa and legal opinions from Herbert Smith Freehills and Baker McKenzie. However, all of these materials were based on factual assumptions provided by Neftisa and were addressed solely to Neftisa. They did not resolve the Owners’ concerns. The Charterers refused to provide alternative voyage orders and purported to cancel the Charterparty. The Owners treated the cancellation as a repudiatory breach and terminated.

Subsequent events would prove significant. On 29 June 2022, Mr Gutseriev’s brother was himself sanctioned by the UK. In September 2023, the EU General Court rejected Mr Gutseriev’s challenge to his sanctions listing. In December 2024, the Charterers themselves were sanctioned by the UK, and in July 2025 by the EU.

The Commercial Court Decision

On the construction of the sanctions clause, the Commercial Court accepted the Owners’ construction of the sanctions clause that the owners did not have to show that complying with the Charterers’ orders was “more likely than not” to place the Owners in breach of the sanctions. It was sufficient that they had formed a “reasonable commercial judgement” that complying with the orders created a risk or a danger that the Owners would be in breach of sanctions.

However, the Commercial Court found that the Owners’ entitlement arose where they held a “reasonable apprehension to a risk of sanctions”, but that “no such reasonable apprehension arose on the facts”. In coming to its conclusion, the Commercial Court focused on whether the material evidenced Mr Gutseriev’s control, indirect or indirect, of Neftisa in November 2021, finding that it was a matter of speculation, and that the Owners’ state of mind was insufficient to “amount to an objectively reasonable decision that Mr Guseriev had de facto control”. The Commercial Court further held that the materials provided by the Charterers and the Kommersant newspaper article “all spoke with one voice” and “should have been properly taken into account”.

The Owners appealed and the Charterers cross-appealed on construction.

The Court of Appeal’s Decision

The Court of Appeal allowed the Owners’ appeal and dismissed the Charterers’ cross-appeal, finding that the Owners had been entitled to refuse to load the cargo.

The key issue, as identified by the Court of Appeal, is whether the words “expose … to sanctions” would only be satisfied by: (i) a reasonable judgement by the Owners, on the balance of probabilities, that sanctions are more likely than not to be contravened if the Charterers’ orders are complied with; or alternatively (ii) whether it was sufficient that the Owners reasonably formed a judgement that there would be a ‘real risk’ of such a breach of sanctions.

Sub-clauses (A) and (B) provide that entry into and performance of the Charterparty is not “prohibited or restricted by” sanctions, and will not “expose” the owners or charterers to sanctions.

Sub-clause (C) is triggered at two different points in time: first, when a voyage order is given, and second when the voyage order was already being performed when the sanctions issue arose.

Pursuant to sub-clause (C), the owner is not obliged to obey the order if it makes one of two reasonable judgements. The first is when the owner reaches a reasonable judgment that compliance with the order is prohibited by sanctions. The Court of Appeal accepts that this involves a reasonable determination that the voyage is more likely than not to trigger the application of sanctions. The second is a reasonable judgment that compliance will “expose” it to sanctions.

The Court of Appeal found that the words “prohibited by sanctions” addressed the actual legal effect of sanctions. The additional words “expose … to sanctions” therefore had to mean something different. The second sentence of sub-clause (C) referred to the same matters as “such risk”, which gave very strong support to the owners’ construction that “exposure” was used in the sense of being “put at risk”.

The Court found that commercial context reinforced this approach to construction. Owners must make prospective determinations of the effect of future or continued compliance with an order in circumstances where the owners are likely to be much less well-informed than the Charterers. When issues of beneficial ownership arise in a sanctions context, they will “frequently be hidden from public view” and be “eminently contestable”. Sanctions laws are generally broadly phrased and complex, and owners are required to reach a “speedy determination” in light of the commercial significance of delay against a background of “moving commodity and freight pieces”. The Court held that in this context it is inherently more likely that the owners are required to reach a reasonable judgment that compliance with an order will give rise to a real risk of liability for sanctions, rather than require a determination that such a liability will arise on the balance of probabilities.

On the application of the clause to the facts, the Court of Appeal found that the Commercial Court had erred. The Commercial Court had placed undue reliance on Litasco SA v Der Mond Oil and Gas Africa [2023] EWHC 2866 (Comm) (“Litasco”), which the Court of Appeal held was addressing a different question of not whether there was a real risk of a state of affairs existing, but whether the defendant had a triable defence that it did. The Court of Appeal observed that “[a]ssessments of risk are necessarily going to have to embrace a number of imponderables, and to that extent inherently call for some form of speculative evaluation”. Similarly, the Commercial Court relied on Vneshprombank LLC v Bedzhamov [2024] EWHC 1048 (Ch) (“Vneshprombank”), which concerned the statutory test of reasonable cause to suspect in penal legislation. The Court of Appeal found that Vneshprombank was “very different to the issue which arises in this case concerning a contractual determination by a commercial party”.

More fundamentally, despite correctly identifying the legal test, the Commercial Court had in practice required the Owners to show that they had material which evidence Mr Gutseriev’s control, and treated the Owners’ inability to reach a positive belief in continuing control as fatal. The Court of Appeal stated that “all that was necessary was for Owners to have reached a reasonable determination that there was a real risk that this was the position”.

On the additional materials provided by the Charterers, the Court of Appeal observed that the package “essentially rests on assumptions originating from a source which could not have offered an independent perspective on the reality of any transfer of control”. In particular, the Baker McKenzie memorandum “would, if anything, have led a reasonable owner to be even more confident that following the Charterers’ orders involved a real risk of sanctions liability”, as it stated that the relevant authorities could come to the conclusion that Mr Gutseriev had control, and that a different interpretation of factual background by the EU authorities regarding presence of control over Neftisa may not be excluded.

Accordingly, the Court of Appeal concluded that the Commercial Court erred in concluding that the determination made by the Owners that complying with the Charterers’ voyage orders gave rise to a real risk of liability to sanctions was not a determination which any reasonable shipowner could reach, and allowed the appeal.

Comments

Sanctions remain one of the primary concerns for traders and shippers operating in the oil and gas industry. When it comes to the operation of sanctions clauses in charterparties and commodity sales contracts, much will turn on the specific express words adopted by the parties in their contract.

Although the Charterparty was based on the ExxonMobil VOY2005 model form, the key amendment in this case was the insertion of the Eastern Pacific Voyage Charter Trade and Economic Compliance Clause. In turn, the amendment placed emphasis on the “reasonable judgment” of the in relation to the “risk” of sanctions.

Each sanctions clause will require construction on its terms. However, here the Court of Appeal emphasised that in the contractual context used here:

1. “Exposure” was a reference to the sense of “put at risk”.
2. The Commercial Court judge misdirected himself in relying on Litasco to support a conclusion that the Owners could not have formed a reasonable judgment of the existence of a risk of sanctions without having reached a positive conclusion that Mr Gutseriev’s control continued.
3. The issues of whether and to what extent the decision of a contractual decision-maker (here, the Owner) can be impugned not simply by reference to the outcome, but the process by which it is reached, is a complex one.
4. The Owners’ decision that following the Charterers’ orders would have given rise to a real risk of liability for sanctions was an objectively reasonable decision, whether tested solely by reference to the material which all of the Owners' decision-makers reviewed, or also the additional material referred to at trial.
5. However, in other circumstances the authorities leave open a number of possible arguments, including as to:
   1. the extent of the enquiries which the contractual decision-maker must make, and whether that too involves a Wednesbury judgment;
   2. the status of a decision reached on the basis of enquiries which satisfy that test, if more extensive enquiries would have required a different decision;
   3. the status of a decision which was not reasonably open on the information before the contractual decision-maker but which would have been reasonably open on the basis of information which a wider enquiry would have revealed; and
   4. how far evidence or facts only becoming available after the contractual-decision is made can impact on the objective reasonableness of the decision.

Standing back from such issues, two key drafting points arise:

1. First, what is the standard that is being set to permit non-performance? Is it the actual application of sanctions, the “risk” of sanctions, or a “likelihood” of sanctions (or something else)? That test will set a threshold for invoking the clause.
2. Second, who decides whether the threshold is met? Key to this is determining: (i) whether the assessment is an objective one (e.g. there is a risk that sanctions will apply) or (ii) whether it is an assessment to be made by a party acting reasonably (e.g. “reasonable judgement” of a specified person, company or officeholder).

In relation to the second point, if a person, company or officeholder is asked to make the assessment, the law will often be slow to interfere with their decision as primary decision maker. The exact grounds for doing so might turn on whether the clause suggests that the scope for review should be limited to a Wednesbury reasonableness (or “GCHQ rationality”) review to consider the rationality of the decision-making process rather than to concentrate on the outcome (deriving from limited public law review of Government decisions) (see Braganza v BP Shipping Ltd [2015] UKSC 17 at [29]-[30]) or whether a different “objective” standard of reasonableness applies (see for example lease cases that deal with the consent of a landlord to sub-letting of a lease that will not be “unreasonably withheld”, for example International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch. 513). That said, according to Foxton LJ, writing extra-judicially, the difference between the Wednesbury standard of review and the standard of review adopted by the lease cases may actually be quite limited in practice (see Foxton and Davies, ‘Legal issues concerning private equity investment in jointly owned North Sea midstream infrastructure’ (2018) (5) I.E.L.R. 155-161).

In addition, for charterers, traders and oil majors nominating shippers or cargo interests with any recent history of sanctions association, the decision is a warning that providing an owner with reassurance letters or legal opinions premised on unverified factual assumptions supplied by the entity under scrutiny – and addressed solely to that entry – will not necessarily discharge sanctions concerns. Parties structuring cargo sales or nominations involving a counterparty that has undergone a recent change of ownership or control following a sanctions designation should expect that owners may treat the transaction as carrying a real risk of sanctions exposure notwithstanding such assurances, particularly where the transfer lacks transparency as to consideration, timing or the independence of the new beneficial owner.

For oil and gas industry participants navigating an evolving and increasingly complex sanctions landscape, particularly in relation to Russian-origin cargoes and their associated counterparties, the decision highlights the importance of the words used in the contractual sanctions clause.