Shanghai Maritime Court Rules Extraterritorial Sanctions Cannot Excuse Carrier’s Breach

Shanghai Maritime Court Clarifies Joint Liability of Multinational Shipping Entities and Standardizes Trial Rules for Maritime Disputes Involving Extraterritorial Sanctions

A Hong Kong trading company, acting as the shipper, entrusted a Singapore shipping company to transport a batch of mechanical and electrical equipment from Shanghai to a Southeast Asian port. The contract stipulated that the carrier would issue clean bills of lading and release goods against original bills of lading. After loading and departure, the Singaporean carrier refused to issue bills of lading on the ground that the Hong Kong shipper was listed on a unilateral sanctions list of a foreign state. Upon the cargo’s arrival at the transit port, the carrier shipped all goods back to Shanghai without the shipper’s consent, causing multiple losses including cargo depreciation, warehousing and detention charges, and breach-of-contract damages to downstream buyers. The Singapore shipping company wholly owns a Chinese subsidiary, which handled all domestic procedures including booking, terminal coordination and document communication. Having failed to resolve the matter through negotiations, the Hong Kong company filed a lawsuit with the Shanghai Maritime Court, demanding the Singapore carrier and its Chinese subsidiary to jointly compensate over RMB 4.99 million for cargo depreciation, warehousing, detention and third-party breach losses. The two defendants jointly defended that backhaul was a necessary measure to evade sanctions risks and constituted a statutory exemption, and filed a counterclaim for over RMB 500,000 in container detention fees.

Three typical practical difficulties exist in foreign-related cross-border maritime disputes. First, the division of rights and liabilities between overseas parent shipping companies and their domestic branches remains ambiguous, with no unified judicial guidance on whether they bear joint liability for maritime breaches. Second, carriers often invoke extraterritorial unilateral sanctions to evade transportation and delivery obligations, while the judicial boundary distinguishing legitimate risk mitigation and unlawful breach of contract is unclear. Third, such cases involve overlapping claims for cargo damage, port detention fees, third-party liquidated damages and container usage charges, leading to complex sorting of facts and allocation of liabilities.

The collegial panel conducted layered factual verification and judicial reasoning in accordance with the Maritime Law, the Law on Application of Law to Foreign-related Civil Relations and the Anti-Foreign Sanctions Law. First, the Singapore shipping company was the contractual carrier under the sea carriage contract, and its Chinese subsidiary fully participated in domestic transportation procedures; the two parties constituted joint performing parties and shall bear joint and several liability for breach losses. Second, unilateral foreign sanctions are discriminatory extraterritorial restrictive measures. Chinese law prohibits market entities from complying with such unilateral measures, so the carrier had no right to refuse delivery of goods against bills of lading. The unauthorized backhaul constituted fundamental breach of contract, and the exemption defense was rejected. Third, the court calculated total compensation covering all actual losses including cargo depreciation, warehousing, detention fees and third-party liquidated damages, and dismissed the carrier’s counterclaim for container detention fees. The first-instance judgment ordered the two defendants to jointly compensate all economic losses of the Hong Kong company. Dissatisfied with the ruling, both domestic and foreign defendants filed an appeal, which was dismissed by the Shanghai Higher People’s Court. Full compensation was paid by the defendants after the judgment took effect.