On 24 June 2026, on the eve of World Maritime Day, the Supreme People’s Court of China (“SPC”) released its 2025 national maritime trial model cases. Among them, the case of Hong Kong Mou Company (“Shipper”) v. Singapore Mou Shipping Company (“Carrier”) and a Shipping (China) Company (“China Company”), a dispute over a contract of carriage of goods by sea heard by the Shanghai Maritime Court (Case No.: (2023) Hu 72 Min Chu No. 1936), is the first instance in which a Chinese court has held, by way of a judgment, that the Anti-Foreign Sanctions Law of the People’s Republic of China (“Anti-Foreign Sanctions Law”) has mandatory application. The core holding of the judgment is that unilateral foreign sanctions against China cannot serve as a defense for non-performance of contractual obligations. The establishment of this rule marks the proactive construction by Chinese judicial authorities, through judicial decisions, of a legal defense against foreign “long-arm jurisdiction”.
Facts and Holding
In October 2022, the Shipper engaged the Carrier to transport a shipment of electronic products valued at approximately RMB 4.99 million (approximately US$ 736,500) from the Port of Shanghai to Manzanillo, Panama. After taking delivery of the goods and loading them on board the vessel, the Carrier refused to issue a bill of lading on the ground that the Shipper had been placed on a sanctions list by a certain country, and further refused to deliver the goods upon arrival at the destination port. The Shipper applied to the Shanghai Maritime Court for a maritime mandatory order compelling the Carrier to issue the bill of lading. After the Shanghai Maritime Court issued the mandatory order, the Carrier issued the bill of lading pursuant to the order, but during the pendency of the mandatory order proceedings, unilaterally returned the cargo to the Port of Shanghai. The Shipper then brought a claim for damages in the amount of RMB 4.99 million (approximately US$ 736,500) plus interest; the Carrier filed a counterclaim for container detention charges in excess of RMB 500,000 (approximately US$ 73,800).
The Shanghai Maritime Court held that the Carrier had committed a fundamental breach of contract. The Court, applying Article 4 of the Law of the People’s Republic of China on the Application of Laws to Foreign-related Civil Relations (“Law on the Application of Laws to Foreign-related Civil Relations”), determined that the mandatory provisions of the Anti-Foreign Sanctions Law prevail over the parties’ agreement and apply directly. Under Article 12 of that Law, no organization or individual may execute or assist in the execution of discriminatory restrictive measures imposed by foreign States against Chinese citizens or organizations. The Carrier’s refusal to perform its obligations out of “concern about being implicated by a foreign country’s discriminatory restrictive measures” was, in essence, still an act of assisting in the execution of foreign discriminatory measures and could not constitute a lawful ground for exemption from or mitigation of liability for breach of contract. The Shipper’s refusal to take delivery of the cargo after it had been unlawfully returned was an exercise of its rights and did not constitute a breach of the duty to mitigate damages; the Carrier’s claim for container detention charges lacked factual and legal basis. Accordingly, the Shanghai Maritime Court ordered the Carrier to compensate the Shipper for the loss of the value of the cargo in the amount of RMB 4.99 million (approximately US$ 736,500) plus interest and dismissed all counterclaims. No party appealed, and the first-instance judgment became final and binding.
The Court’s Reasoning for Treating the Anti-Foreign Sanctions Law as “Directly Applicable Law”
The central issue in this case was whether the Carrier could rely on compliance with foreign sanctions as a ground for exemption from or mitigation of its liability for breach of contract. The Shanghai Maritime Court applied Article 12 of the Anti-Foreign Sanctions Law directly through Article 4 of the Law on the Application of Laws to Foreign-related Civil Relations, applying the following reasoning:
1. Article 4 of the Law on the Application of Laws to Foreign-related Civil Relations provides that where a PRC law contains mandatory provisions on foreign-related civil relations, such mandatory provisions shall apply directly.
2. Article 8 of the Interpretation (I) of the SPC on Several Issues Concerning the Application of the Law of the People’s Republic of China on the Application of Laws to Foreign-related Civil Relations (2020 Revision) (“Judicial Interpretation I”) further provides that provisions involving China’s social public interests, which cannot be excluded by agreement of the parties and apply directly to foreign-related civil relations without the need for referral through choice-of-law rules, constitute mandatory provisions; the enumerated categories include protection of workers’ rights, food or public health safety, environmental safety, financial security such as foreign exchange controls, anti-monopoly and anti-dumping, with a catch-all provision for “other circumstances that shall be recognized as mandatory provisions”.
3. Article 12 of the Anti-Foreign Sanctions Law falls within this category of mandatory provisions — it serves the normative purpose of safeguarding national sovereignty and the public interest, providing that no organization or individual may execute or assist in the execution of foreign discriminatory restrictive measures. The Court, through the catch-all provision in Article 8 of the Judicial Interpretation I, brought the mandatory provisions of the Anti-Foreign Sanctions Law within the scope of “directly applicable law” (i.e., overriding mandatory provisions in private international law).
Accordingly, regardless of the governing law chosen in the contract of carriage, and regardless of whether the contract contains sanctions-related clauses on exemption, termination or refusal of performance, the Anti-Foreign Sanctions Law, as a mandatory provision of PRC law (i.e., “directly applicable law” or “overriding mandatory provisions” in private international law), applies directly.
The legal reasoning in this case is consistent with the jurisprudence underlying the EU Blocking Regulation (Council Regulation (EC) No 2271/96). The core elements of the EU Blocking Regulation include: the prohibition on compliance (Article 5(1)), under which EU natural and legal persons may not comply with the foreign laws listed in the Annex; the exemption mechanism (Article 5(2)), under which the European Commission may authorize compliance in whole or in part where non-compliance would seriously damage the interests of the EU or its operators; private rights of action, allowing those who suffer loss as a result of the application of foreign sanctions to claim damages; and the non-recognition of foreign judgments, refusing recognition and enforcement of foreign judgments based on the laws listed in the Annex.
Comparative Analysis of the US-EU-China Sanctions Legal Framework
The US economic sanctions regime is structured around the dual pillars of primary sanctions and secondary sanctions. Primary sanctions target transactions with a US nexus — involving US persons, the US financial system, the US dollar, or US-origin goods — and violations expose parties to substantial fines and even criminal liability. Secondary sanctions target transactions between non-US persons without a US nexus and sanctioned parties. Violators may be placed on the Specially Designated Nationals and Blocked Persons List, with their assets frozen and US dollar account transactions restricted.
The EU has applied the Blocking Regulation to counter the extraterritorial application of foreign laws since 1996, initially targeting US sanctions against Cuba, Iran and Libya. Following the US withdrawal from the Joint Comprehensive Plan of Action in 2018, the EU updated the Annex to the Regulation to include the re-imposed Iran sanctions. Recent developments in the EU blocking regime include in 2025, the European Parliament called for the activation of the blocking statute to protect judges of the International Criminal Court from US sanctions; Spain also formally requested the European Commission to activate the blocking statute immediately. However, whether the EU will actually activate the blocking statute in practice often depends on a calculus of political will and economic interests — a tension that likewise presents a continuing challenge for China’s anti-sanctions judicial practice.
China’s anti-sanctions legal framework consists of multiple layers. The Anti-Foreign Sanctions Law is a comprehensive anti-sanctions statute combining both countermeasures and blocking functions. The Rules on Counteracting the Improper Extraterritorial Application of Foreign Laws and Measures are a specialized blocking statute drawing on the experience of the EU. The Provisions on the Implementation of the Anti-Foreign Sanctions Law of the People’s Republic of China further elaborate on countermeasures, blocking obligations and exemption procedures. Compared with other blocking statutes internationally, the distinguishing feature of China’s regime lies in its equal emphasis on countermeasures and blocking: it both counteracts “outwardly” (through sanctions lists and countermeasures) and blocks “inwardly” (by prohibiting compliance with foreign discriminatory measures and conferring private rights of action).
Conclusion
The core rule established by this case is of general application: in cross-border contracts involving China, unilateral foreign sanctions cannot serve as a lawful defense for non-performance of contractual obligations. Whether a carrier, bank, insurer or other contracting party, refusal to perform on the ground of “complying with foreign sanctions” may be found by a Chinese court to constitute a breach of contract or even a tort.
Facts and Holding
In October 2022, the Shipper engaged the Carrier to transport a shipment of electronic products valued at approximately RMB 4.99 million (approximately US$ 736,500) from the Port of Shanghai to Manzanillo, Panama. After taking delivery of the goods and loading them on board the vessel, the Carrier refused to issue a bill of lading on the ground that the Shipper had been placed on a sanctions list by a certain country, and further refused to deliver the goods upon arrival at the destination port. The Shipper applied to the Shanghai Maritime Court for a maritime mandatory order compelling the Carrier to issue the bill of lading. After the Shanghai Maritime Court issued the mandatory order, the Carrier issued the bill of lading pursuant to the order, but during the pendency of the mandatory order proceedings, unilaterally returned the cargo to the Port of Shanghai. The Shipper then brought a claim for damages in the amount of RMB 4.99 million (approximately US$ 736,500) plus interest; the Carrier filed a counterclaim for container detention charges in excess of RMB 500,000 (approximately US$ 73,800).
The Shanghai Maritime Court held that the Carrier had committed a fundamental breach of contract. The Court, applying Article 4 of the Law of the People’s Republic of China on the Application of Laws to Foreign-related Civil Relations (“Law on the Application of Laws to Foreign-related Civil Relations”), determined that the mandatory provisions of the Anti-Foreign Sanctions Law prevail over the parties’ agreement and apply directly. Under Article 12 of that Law, no organization or individual may execute or assist in the execution of discriminatory restrictive measures imposed by foreign States against Chinese citizens or organizations. The Carrier’s refusal to perform its obligations out of “concern about being implicated by a foreign country’s discriminatory restrictive measures” was, in essence, still an act of assisting in the execution of foreign discriminatory measures and could not constitute a lawful ground for exemption from or mitigation of liability for breach of contract. The Shipper’s refusal to take delivery of the cargo after it had been unlawfully returned was an exercise of its rights and did not constitute a breach of the duty to mitigate damages; the Carrier’s claim for container detention charges lacked factual and legal basis. Accordingly, the Shanghai Maritime Court ordered the Carrier to compensate the Shipper for the loss of the value of the cargo in the amount of RMB 4.99 million (approximately US$ 736,500) plus interest and dismissed all counterclaims. No party appealed, and the first-instance judgment became final and binding.
The Court’s Reasoning for Treating the Anti-Foreign Sanctions Law as “Directly Applicable Law”
The central issue in this case was whether the Carrier could rely on compliance with foreign sanctions as a ground for exemption from or mitigation of its liability for breach of contract. The Shanghai Maritime Court applied Article 12 of the Anti-Foreign Sanctions Law directly through Article 4 of the Law on the Application of Laws to Foreign-related Civil Relations, applying the following reasoning:
1. Article 4 of the Law on the Application of Laws to Foreign-related Civil Relations provides that where a PRC law contains mandatory provisions on foreign-related civil relations, such mandatory provisions shall apply directly.
2. Article 8 of the Interpretation (I) of the SPC on Several Issues Concerning the Application of the Law of the People’s Republic of China on the Application of Laws to Foreign-related Civil Relations (2020 Revision) (“Judicial Interpretation I”) further provides that provisions involving China’s social public interests, which cannot be excluded by agreement of the parties and apply directly to foreign-related civil relations without the need for referral through choice-of-law rules, constitute mandatory provisions; the enumerated categories include protection of workers’ rights, food or public health safety, environmental safety, financial security such as foreign exchange controls, anti-monopoly and anti-dumping, with a catch-all provision for “other circumstances that shall be recognized as mandatory provisions”.
3. Article 12 of the Anti-Foreign Sanctions Law falls within this category of mandatory provisions — it serves the normative purpose of safeguarding national sovereignty and the public interest, providing that no organization or individual may execute or assist in the execution of foreign discriminatory restrictive measures. The Court, through the catch-all provision in Article 8 of the Judicial Interpretation I, brought the mandatory provisions of the Anti-Foreign Sanctions Law within the scope of “directly applicable law” (i.e., overriding mandatory provisions in private international law).
Accordingly, regardless of the governing law chosen in the contract of carriage, and regardless of whether the contract contains sanctions-related clauses on exemption, termination or refusal of performance, the Anti-Foreign Sanctions Law, as a mandatory provision of PRC law (i.e., “directly applicable law” or “overriding mandatory provisions” in private international law), applies directly.
The legal reasoning in this case is consistent with the jurisprudence underlying the EU Blocking Regulation (Council Regulation (EC) No 2271/96). The core elements of the EU Blocking Regulation include: the prohibition on compliance (Article 5(1)), under which EU natural and legal persons may not comply with the foreign laws listed in the Annex; the exemption mechanism (Article 5(2)), under which the European Commission may authorize compliance in whole or in part where non-compliance would seriously damage the interests of the EU or its operators; private rights of action, allowing those who suffer loss as a result of the application of foreign sanctions to claim damages; and the non-recognition of foreign judgments, refusing recognition and enforcement of foreign judgments based on the laws listed in the Annex.
Comparative Analysis of the US-EU-China Sanctions Legal Framework
The US economic sanctions regime is structured around the dual pillars of primary sanctions and secondary sanctions. Primary sanctions target transactions with a US nexus — involving US persons, the US financial system, the US dollar, or US-origin goods — and violations expose parties to substantial fines and even criminal liability. Secondary sanctions target transactions between non-US persons without a US nexus and sanctioned parties. Violators may be placed on the Specially Designated Nationals and Blocked Persons List, with their assets frozen and US dollar account transactions restricted.
The EU has applied the Blocking Regulation to counter the extraterritorial application of foreign laws since 1996, initially targeting US sanctions against Cuba, Iran and Libya. Following the US withdrawal from the Joint Comprehensive Plan of Action in 2018, the EU updated the Annex to the Regulation to include the re-imposed Iran sanctions. Recent developments in the EU blocking regime include in 2025, the European Parliament called for the activation of the blocking statute to protect judges of the International Criminal Court from US sanctions; Spain also formally requested the European Commission to activate the blocking statute immediately. However, whether the EU will actually activate the blocking statute in practice often depends on a calculus of political will and economic interests — a tension that likewise presents a continuing challenge for China’s anti-sanctions judicial practice.
China’s anti-sanctions legal framework consists of multiple layers. The Anti-Foreign Sanctions Law is a comprehensive anti-sanctions statute combining both countermeasures and blocking functions. The Rules on Counteracting the Improper Extraterritorial Application of Foreign Laws and Measures are a specialized blocking statute drawing on the experience of the EU. The Provisions on the Implementation of the Anti-Foreign Sanctions Law of the People’s Republic of China further elaborate on countermeasures, blocking obligations and exemption procedures. Compared with other blocking statutes internationally, the distinguishing feature of China’s regime lies in its equal emphasis on countermeasures and blocking: it both counteracts “outwardly” (through sanctions lists and countermeasures) and blocks “inwardly” (by prohibiting compliance with foreign discriminatory measures and conferring private rights of action).
Conclusion
The core rule established by this case is of general application: in cross-border contracts involving China, unilateral foreign sanctions cannot serve as a lawful defense for non-performance of contractual obligations. Whether a carrier, bank, insurer or other contracting party, refusal to perform on the ground of “complying with foreign sanctions” may be found by a Chinese court to constitute a breach of contract or even a tort.