Shipping carriers seek protection from Western sanctions against Chinese customers

Shipping operators are seeking Chinese companies to include clauses in their contracts that would provide them with protection in the event of Western sanctions on Beijing. As stated on the rights of anonymity newspaper Financial Times, representatives of four law firms representing the interests of the owners of cargo ships, cargo carriers will be more protected from losses and violation of the law if the terms of the contract provide for the possibility of terminating it when sanctions are imposed.

According to the FT, shipping companies were not prepared for the large-scale consequences of the military conflict in Ukraine – sanctions, closer control of the sector by regulators, banks and insurance companies. And now, carriers do not exclude the possibility that, against the backdrop of worsening relations between the United States and China, even tougher sanctions may be imposed on China. According to Clyde & Co lawyer Patrick Murphy, “China is on an even larger scale more important to the trading system (than Russia.— FT) — and if sanctions are imposed on him, it will be very difficult.” The lawyer believes that such a possibility cannot be ruled out, and therefore “we must be prepared for this.”

Previously, contracts with Chinese shipbuilders, leasing companies or ship charter traders included a clause allowing shipowners to cancel a deal if it violated the law. However, as experts note, this provision does not always apply to sanctions. “Sanctions are usually introduced unexpectedly. And then the parties to the agreement are faced with a choice: either act according to the law and violate the contract, or fulfill the contract and violate the law,” explains HFW lawyer Daniel Martin. Meanwhile, it is very difficult to get the Chinese side to include such a provision in the contract. According to one of the lawyers, Chinese shipbuilding companies “are often semi-state, and the Chinese government does not like all this.” In some cases, carriers have had to make certain concessions to get their way, including paying larger advances or guaranteeing compensation in the event that a contract is terminated due to sanctions.

Alena Miklashevskaya

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