Sanctions Clause

What it does

A sanctions clause addresses the risk that performing the charter, or a particular order or voyage under it, would breach trade sanctions, embargoes, or similar restrictions imposed by relevant authorities. It typically entitles a party to refuse to comply with an order, or to decline to proceed to a port or carry a cargo, where doing so would expose it to sanctions, and it allocates the consequences of such a refusal.

The clause also protects against the legal and financial fallout of sanctions exposure, addressing matters such as the right to discharge or refuse cargo, the treatment of payments that sanctions might block, and indemnities for losses caused by a counterparty's sanctioned status or conduct. Because sanctions regimes change and can apply to parties, cargoes, vessels, and destinations, the clause is drafted to operate across a shifting legal landscape.

Commercial effect

The clause allocates a significant and growing compliance risk. Sanctions breaches can carry severe penalties and reputational damage, so the ability to refuse a sanctioned order or voyage without being in breach of the charter is commercially essential. The clause determines who bears the consequences when sanctions disrupt performance, including delay, diversion, and blocked payments.

Because sanctions can attach to counterparties, cargoes, flags, and destinations, the clause interacts with the war-risks, payment, and employment provisions and with each party's own compliance obligations. Its breadth and the balance it strikes between a right to refuse and the duty to perform are commercially important, since an over-broad clause can be used to escape an inconvenient voyage while too narrow a clause leaves a party exposed.

Owner's perspective

The owner wants the right to refuse any order or voyage that would expose it, the ship, or the crew to sanctions, together with protection against a charterer or cargo that turns out to be sanctioned. It treats sanctions compliance as non-negotiable and relies on the clause to avoid being forced into a breach by the charterer's employment decisions.

The owner also wants indemnity and cost protection where sanctions disrupt performance through no fault of its own, and clarity on payments that sanctions might block. It negotiates the clause to ensure it can decline sanctioned business and recover the consequences, while keeping the right to refuse tied to genuine sanctions exposure rather than a pretext to avoid an unwanted voyage.

Charterer's perspective

The charterer accepts the need for sanctions protection but wants the right to refuse confined to real sanctions exposure, so that it is not used to escape an otherwise lawful and inconvenient voyage. It is conscious that an over-broad sanctions clause can disrupt legitimate trade, and it wants the triggers and the evidence required for a refusal to be reasonable and clear.

The charterer also wants its own protections, including against an owner or vessel that becomes sanctioned, and clarity on how sanctions affect payments and performance on its side. It negotiates the sanctions clause to balance compliance with the certainty it needs to perform its trades, aligning it with the war-risks, payment, and employment provisions so the allocation of sanctions risk is even-handed.

Negotiation points

• What sanctions exposure entitles a party to refuse an order, voyage, or cargo.
• The evidence and reasonableness required before a refusal on sanctions grounds.
• Indemnities and cost allocation where sanctions disrupt performance.
• The treatment of payments that sanctions may block, and each party's compliance duties.

Common variations

• A clause allowing refusal of any order exposing a party to sanctions.
• A sanctions clause based on a recognised standard provision.
• A clause with mutual protections against a counterparty becoming sanctioned.
• A provision addressing blocked or delayed payments under sanctions.