“When Screening Tools Mislead: A Case Study in Sanctions Risk”

The case Tonzip Maritime Ltd v 2RIVERS Pte Ltd [2025] EWHC 2036 (Comm) is a significant decision from the English Commercial Court that reshapes how sanctions risk is assessed in maritime contracts.

Background

• Tonzip Maritime Ltd chartered the vessel 'Catalan Sea' to 2Rivers Pte Ltd (formerly Coral Energy) for a voyage from Russia to the Mediterranean.
• The cargo was to be loaded from Neftisa, a Russian company allegedly linked to Mikhail Gutseriev, a UK- and EU-sanctioned individual.
• Tonzip refused to load the cargo, citing sanctions risk based on Refinitiv/World-Check reports suggesting Gutseriev’s past control of Neftisa.
• 2Rivers disputed this, providing legal opinions and documents indicating Gutseriev no longer controlled Neftisa.

Key Issues

• The central issue was whether Tonzip’s refusal to load the cargo was reasonable under the EPS Sanctions Clause, which allowed the shipowner to reject orders that, in its 'reasonable judgment', would expose it to sanctions.
• The case examined the validity of relying on automated screening tools and the standard of evidence required to justify sanctions-related contract termination.

Court’s Decision

• The Commercial Court held that Tonzip’s decision was unreasonable and speculative.
• The shipowner relied too heavily on automated screening tools without critically assessing contradictory evidence.
• The judge emphasised the need for objective reasonableness and contemporaneous evidence.
• Tonzip’s termination of the charterparty was deemed wrongful, and 2Rivers’ counterclaim succeeded.

Compliance Lessons

• Automated screening tools are helpful but not conclusive; decisions must be supported by corroborated evidence.
  - Objective reasonableness is required when invoking sanctions clauses.
  - Contemporaneous and reliable evidence is essential.
  - Legal advice and documentation should be robust and well-supported.
  - Speculative concerns are insufficient to justify contract termination.
  - Misuse of sanctions clauses can result in liability for breach and damages.

Here's a summary of the case and the key sanctions compliance lessons it offers:

Case Summary

1. Parties: Tonzip Maritime Ltd (shipowner) and 2Rivers Pte Ltd (charterer, formerly Coral Energy).
2. Vessel: Catalan Sea, chartered for a voyage from Russia to the Mediterranean.
3. Cargo: Oil shipped by Neftisa, a Russian company previously associated with Mikhail Gutseriev, a sanctioned individual under UK and EU regimes.
4. Issue: Tonzip refused to load the cargo, citing sanctions risk based on Refinitiv/World-Check reports linking Neftisa to Gutseriev. 2Rivers disputed this and provided legal opinions and corporate documents suggesting Gutseriev no longer controlled Neftisa.
5. Clause in Question: The EPS Sanctions Clause allowed Tonzip to refuse orders that would expose it to sanctions, based on its "reasonable judgment".

Court's Findings

1. The court held that Tonzip’s refusal to load the cargo was not objectively reasonable.
2. Tonzip relied heavily on automated screening tools (Refinitiv/World-Check) without critically assessing contradictory evidence.
3. The judge emphasised that speculation is not enough—there must be positive evidence of control or ownership by a sanctioned individual.
4. The burden of proof did not shift to 2Rivers because Tonzip failed to establish a prima facie case of sanctions exposure.
5. The court dismissed Tonzip’s claim and upheld 2Rivers’ counterclaim for US\$233,600 plus interest

Sanctions Compliance Lessons

1. Automated Tools ≠ Final Word
1. Tools like Refinitiv/World-Check are helpful but not conclusive.
2. Decisions must be supported by critical analysis and corroborating evidence.
2. Objective Reasonableness Standard
1. A party invoking a sanctions clause must show that a reasonable person in their position would have concluded there was a real risk of sanctions exposure.
3. Contemporaneous Evidence Matters
1. Courts will assess what was available at the time of the decision. Later evidence (e.g., ECJ rulings) may not justify earlier actions.
4. Legal Opinions Must Be Robust
1. Opinions based on assumptions or lacking verification carry limited weight. Parties should seek clear, well-supported legal advice.
5. Risk of Wrongful Termination
1. Terminating a contract based on unsubstantiated sanctions concerns can lead to liability for breach and damages.
6. Interpretation of Sanctions Clauses
1. Clauses limiting performance rights are interpreted contra proferentem—against the party seeking to rely on them.
7. Burden of Proof Dynamics
1. The burden shifts only if a prima facie case of sanctions risk is established. Without it, the terminating party bears full responsibility.

Practical Takeaways for Compliance Teams

1. Use multiple sources for due diligence.
2. Document decision-making thoroughly.
3. Train teams on the limitations of screening tools.
4. Engage legal counsel early when sanctions concerns arise.
5. Avoid knee-jerk reactions to red flags—assess the full context.

Sanctions Risk Assessment Checklist

1. Initial Screening

• Conduct automated screening (e.g., Refinitiv, World-Check).
• Identify any red flags (e.g., ownership links, control, affiliations).

2. Verification of Red Flags

• Review corporate structure and ownership documents.
• Seek independent legal opinions on ownership/control.
• Check for recent changes in ownership or management.
• Confirm whether the individual/entity is currently listed under applicable sanctions regimes (UK, EU, US, UN).

3. Evidence Collection

• Gather contemporaneous evidence supporting or refuting sanctions exposure.
• Document sources and timestamps of all evidence.
• Assess the reliability and credibility of each source.

4. Legal Review

• Consult internal or external legal counsel.
• Evaluate the risk of breach under applicable sanctions laws.
• Review relevant contract clauses (e.g., sanctions, force majeure).

5. Risk Evaluation

• Assess the likelihood of sanctions enforcement.
• Consider reputational, financial, and operational risks.
• Determine if the risk is speculative or substantiated.

6. Decision-Making

• Apply an objective reasonableness standard.
• Ensure decisions are not based solely on automated tools.
• Document rationale for any refusal or termination of contract.

7. Communication

• Inform counterparties of concerns and request clarifications.
• Share findings and allow for rebuttal or additional evidence.

8. Documentation

• Maintain a complete audit trail of the assessment process.
• Record all communications, decisions, and supporting materials.

References

Terminating a charterparty based on sanctions concerns - the devil is in the details. https://www.penningtonslaw.com/news-publications/latest-news/2025/terminating-a-charterparty-based-on-sanctions-concerns-the-devil-really-is-in-the-detail

Court decision reshapes sanctions risk assessment for shipowners https://www.wr.no/en/news/court-decision-reshapes-sanctions-risk-assessment-for-shipowners

UK High Court judgment on ownership & control & charterparty sanctions ... https://globalsanctions.com/2025/08/uk-high-court-judgment-on-ownership-control-charterparty-sanctions-clause-tonzip-maritime/