The "CATALAN SEA" – Sanctions Risk Assessment for Shipowners

Background

The "CATALAN SEA" (the "Vessel") was fixed for a voyage from Primorsk, Russia to the Mediterranean (with an intended discharge at Aliaga, Turkey) in November 2021. The Shipowner was Tonzip Maritime (Singapore) Pte Ltd ("Owners") and the Charterer was 2 Rivers Pte Ltd (formerly Coral Energy Pte Ltd) ("Charterers"), a Singapore-based oil trader.

The draft bills of lading provided to Owners identified Neftisa as the shipper. Owners carried out their due diligence using Refinitiv World-Check, which highlighted connections between Neftisa and Mikhail Gutseriev, an individual sanctioned by the EU and the UK.

Earlier reporting in a Russian financial newspaper (available but not seen by Owners) indicated that Mr Gutseriev had transferred his majority beneficial interest in Neftisa to his brother, Mr Sait-Salam Gutseriev, retaining only a minority stake, and that he had stepped down from Neftisa's board. The article also flagged that the restructuring might be characterised by regulators as an attempt to circumvent the sanctions regime rather than a genuine divestment of control.

Due to the sanctions concerns, Owners refused to load the cargo and called upon Charterers to provide alternative voyage orders.

Charterers sought to reassure Owners that Neftisa had no sanctioned connections. They put forward a letter from Neftisa itself asserting that Mr Gutseriev was neither a director nor a controlling person of the company, and produced three legal opinions in support of their position.

Owners remained unconvinced and pressed for alternative voyage orders. Charterers instead sent an email purporting to cancel the charterparty on the ground that Owners had wrongfully refused to load, which Owners claimed was a repudiatory breach.

Issues

The charterparty Sanctions clause read:

"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 main issue was whether Owners had the right to refuse to load the cargo based on the information before them. Underlying that question was a prior issue of construction: what standard did the Sanctions Clause actually require Owners to meet in order to invoke it?

High Court Decision – Tonzip Maritime Ltd V 2 Rivers Pte Ltd [2025] Ewhc 2036 (Comm)

Construction of the Sanctions Clause

The judge sided with Owners on the question of construction, holding that the clause contemplated "the assessment of a reasonable commercial person as to whether a real risk or danger is present". In other words, Owners did not need to demonstrate that a sanctions breach would actually occur or was more probable than not, it was enough that, in their reasonable judgement (arrived at following an assessment made in good faith and with due enquiry), there was a genuine risk of exposure. If this threshold was met, it was then open to Charterers to rebut the evidence.

Application to the Facts

Despite reaching a favourable construction, the judge dismissed Owners' claim and awarded Charterers damages of US$233,600 plus interest.

The judge concluded that Owners had not formed an objectively reasonable judgement. He considered that the materials before Owners fell short of evidencing that Mr Gutseriev had any continuing ownership or control of Neftisa as at November 2021. He treated the question of whether control persisted as one of mere speculation, noting that Owners themselves had acknowledged they were unable to confirm the position, and held that speculative reasoning of that kind could not satisfy the objective reasonableness standard required by the clause.

As Owners fell at the first hurdle, there was no evidence for Charterers to rebut, but in any event, the material on which Charterers relied all spoke with one voice and should have been properly taken into account.

Permission to appeal was granted.

Court Of Appeal Decision – Tonzip Maritime (Singapore) Pte Ltd V 2 Rivers Pte Ltd [2026] Ewca Civ 641

The Court of Appeal allowed Owners' appeal and dismissed Charterers' cross-appeal.

Construction of the Sanctions Clause

The Court of Appeal upheld the first instance construction. Emphasis was based on the phrase "such risk" in the sanctions clause being a clear textual indication that the requirement was a reasonable assessment of risk, not proof that a breach would materialise. Foxton LJ identified a series of commercial factors that reinforced this reading:

1. Owners are typically far less well-placed than Charterers to obtain information about the beneficial ownership or control of the shipper, or about the origins and destination of the cargo.
2. Where those matters engage sanctions, relevant information is frequently opaque, unavailable through public channels, and difficult to verify.
3. Sanctions regimes are generally expressed in broad and complex terms that do not lend themselves to binary conclusions.
4. Owners must reach their assessment quickly, and commercial delay carries its own significant consequences.

Application to the Facts

The Court of Appeal found that the first instance judge had fallen into error whilst applying the construction he had correctly identified.

The judge had lost sight of the question he had set himself. Although he had correctly identified the relevant issue as being whether Owners had formed a reasonable judgement about their exposure to a risk of sanctions liability, his analysis turned to a different question: whether Owners had made a reasonable determination that Mr Gutseriev's control of Neftisa continued as a matter of fact. Those are not the same question and conflating them produced the wrong outcome.

The Court of Appeal had no difficulty concluding that Owners' refusal was objectively reasonable. Mr Gutseriev had, until recently, been the majority beneficial owner and effective controller of Neftisa. The supposed transfer of that interest had taken place in immediate proximity to his designation, in favour of a brother who was both a close family member and a long-standing business associate, for no evident consideration, and in the presence of commentary expressly questioning whether the transaction was genuine. Taken together, those circumstances were capable of generating a legitimate and reasonable concern that a “restructuring” had been used to preserve Mr Gutseriev's effective interest in the company without disturbing formal legal title.

The Court of Appeal then considered whether the package of materials furnished by Charterers substantially changed the picture. It concluded that it did not. The Neftisa letter offered an assertion without independent support. The legal opinions were expressed to be conditional on factual premises that none of the lawyers had independently verified, and the underlying reality of control was in each case explicitly identified as a question that remained open. As Foxton LJ observed, the materials provided by Charterers "essentially rest on assumptions originating from a source which could not have offered an independent perspective on the reality of any transfer of control".

Accordingly, the appeal was allowed.

Comments

The Court of Appeal's decision provides helpful guidance on the threshold a shipowner must clear before it can properly decline to follow voyage orders under a sanctions clause expressed by reference to "reasonable judgement" and “exposure” to sanctions. Whilst the outcome of the appeal is likely to be welcomed by shipowners, who regularly have to make judgment calls based on incomplete evidence, it is important to bear in mind that the meaning of any sanctions clause (which are often bespoke) will depend on the precise wording and the commercial context. The safest course of action for an owner wishing to ensure that all that is required to refuse orders is to reasonably judge that there is a real risk of sanctions (rather than a breach of sanctions) is to include clear words to that effect.