There is no protection from future financial sanctions... or is there?

Sanctions caused - and continue to cause! - so much uncertainty. With global politics in an all-time turbulent flux, that uncertainty is magnified even further: where have they been lifted? Who is still on the list? Is this an exempted payment? Could they be put back on the list? ... so many questions.

Ultimately, and unfortunately for us, the answers to those questions are at the mercy of the politicians. We have no idea if or when they will be lifted in designated countries, or whether even more will be imposed. It seems that we can't do anything to protect ourselves from it. Or can we?

The shipping industry has always been particularly skilled at adapting to the global business and political trends and has, to date, done well in avoiding the sanctions fines of which many banks have been a victim. These adaptations include the evolution of the BIMCO sanctions clause, which protects Owners from being contractually obliged under a charterparty to complying with sanctioned employment orders. But what about where the parties to the contracts, themselves, become sanctioned?

Yes, there are certain exemptions granted by governments for existing contracts. But those exemptions are limited and - in any event - would you really want to be caught up in a battle to work out whether you are protected or not?

We had a query from a member which related to exactly that. They were looking to contract with a service provider - one that had been rather controversial in the past, and even found themselves on widely applicable sanctions list. There were fantastic commercial reasons as to why that member wanted to contract with that specific service provider. The service provider is no longer on the sanctions list, but - as the member rightly worried - what happens if they are put back on the list? What, if anything, could the member do to protect themselves?

The answer is: a carefully worded sanctions clause. Most of the industry clauses - including the BIMCO sanctions clause - do not apply to this situation, so this is where some creativity is needed.

It is possible to draft a clause whereby it is an expressed condition of the contract that neither of the parties will be subject to financial sanctions. Breach of that clause would entitle the innocent party to terminate the contract and claim damages. Alternatively, a termination provision could be included whereby if one party becomes subject to financial sanctions then the contract immediately terminates and all contractual obligations cease.

Under English law, these options should provide an escape route for members in this situation. But, if you have any doubt, feel free to contact us and we will do what we can to help.

Staff Author