China’s Anti-Foreign Sanctions Law: First judicial confirmation of mandatory application in cross-border shipping dispute

A recent judgment of the Shanghai Maritime Court marks a significant development in China's sanctions and conflict-of-laws landscape.  As highlighted in the commentary of both the Shanghai Maritime Court and the Supreme People’s Court, which presented this judgment as a model maritime case in June 2026, this is the first time a Chinese court has expressly confirmed the mandatory application of the Anti-Foreign Sanctions Law (AFSL).  

The case concerns the shipment of electronic goods by a Hong Kong company from Shanghai to Panama via a Singapore shipping company.  The Shanghai Maritime Court held that as a result of the mandatory application of the AFSL, the carrier could not rely on concerns over US sanctions exposure arising from the Hong Kong company as a basis for refusing to perform the shipping contract.

The judgment provides valuable insight into how Chinese courts may approach disputes involving parties that are subject to foreign sanctions measures, where their counterparties seek to justify non-performance of contractual obligations based on concerns over foreign sanctions exposure.

The judgment also demonstrates the growing practical significance of the AFSL in commercial disputes with a foreign element.  Companies involved in cross-border trade, shipping, finance and supply-chain activities should carefully assess potential conflicts between foreign sanctions requirements and Chinese countermeasures laws when structuring transactions and managing contractual risk. 

Background

China enacted the AFSL in June 2021 and supplemental regulations in March 2025 (collectively, AFSL regime) as part of a broader framework of laws and regulations designed to counter the extraterritorial application of foreign laws and sanctions measures.

The AFSL regime provides China with legal tools to respond to, among other things, what it characterises as discriminatory restrictive measures imposed by foreign states against Chinese citizens and organisations.  For example, Article 12 of the AFSL and Article 17 of the supplemental regulations provide that no organisation or individual (regardless of location) may implement or assist in implementing discriminatory restrictive measures imposed by foreign states against Chinese citizens or organisations.  Infringing entities and their related parties may be added to a counter list and be subject to a variety of countermeasures.

The number of organisations and individuals subject to China's countermeasures under the AFSL regime has increased significantly in recent years.  The introduction of the supplemental regulations in March 2025, together with a noticeable increase in enforcement activity, signals China's intention to make greater use of the AFSL regime to protect its sovereignty, security and development interests, particularly in the context of rising geopolitical tensions, as well as tariffs and other trade-related issues.

Factual overview and the court’s decision

The dispute arose from a contract for the carriage of goods by sea.  In October 2022, a Hong Kong shipper arranged for the transport of electronic goods worth approximately RMB 5 million from Shanghai to Manzanillo, Panama.  After receiving and loading the goods for shipment, the carrier, a Singapore shipping company, concluded that the transaction presented sanctions-related concerns.  It refused to issue a bill of lading and did not deliver the goods upon arrival at the destination port, on the grounds that the Hong Kong shipper was the subject of US sanctions measures and that delivery of the goods could expose it to sanctions risk.

The shipper sought a maritime injunction from the Shanghai Maritime Court to require the carrier to issue a bill of lading.  Although the carrier did subsequently issue a bill of lading pursuant to the injunction, it had unilaterally arranged for the goods to be shipped back from Panama to Shanghai during the injunction proceedings.  The shipper therefore commenced substantive proceedings seeking compensation for the value of the cargo plus interest, while the carrier counterclaimed for container detention and related charges, alleging that the shipper had not taken delivery of the returned goods in Shanghai in a timely manner.

The Shanghai Maritime Court found in favour of the shipper and ordered the carrier to compensate for the full cargo value of approximately RMB 5 million plus interest.  The carrier's counterclaim was dismissed.  The judgment became final as no appeal was filed. 

Notable aspects of the court decision from an AFSL perspective

AFSL has mandatory application to foreign-related civil relations

The carrier argued that Singapore law should govern the dispute pursuant to standard-form provisions contained in the bill of lading.  The court rejected that argument, finding that the relevant provisions had not been properly incorporated and that Chinese law was the law most closely connected to the dispute.

Most significantly, the court held that the AFSL constituted a mandatory provision of Chinese law and therefore applied regardless of the parties' choice of law.  According to Article 4 of the Law on the Application of Laws to Foreign-Related Civil Relations, the mandatory provisions of the AFSL took precedence over the parties' agreement and applied directly to this case.  The court commented that the carrier’s insistence on the application of Singapore law was an attempt to prevent the AFSL from being applied in this case.

Concerns over foreign sanctions exposure cannot excuse or mitigate contractual liability in light of AFSL

The court acknowledged that the carrier's refusal to perform the shipping contract and its decision to return the goods were motivated by concerns about US sanctions exposure.  The court nevertheless held that such conduct amounted, in substance, to implementing (or assisting in the implementation of) foreign discriminatory restrictive measures against a Chinese organisation, constituting a breach of Article 12 of the AFSL.

The court therefore rejected the carrier's argument that sanctions-related concerns could excuse or mitigate contractual liability.  Concerns about foreign sanctions exposure cannot, as a matter of Chinese law, constitute a lawful basis for refusing contractual performance where doing so would contravene the AFSL. 

Key takeaways

The significance of the decision extends beyond the maritime context.

• Firstly, the case represents the clearest judicial statement to date of the mandatory application of the AFSL in private commercial disputes.  The judgment establishes that foreign unilateral sanctions cannot be relied upon as a defence for the non-performance of contractual obligations owed to Chinese parties.
   
• Secondly, the judgment illustrates the increasingly direct legal tension that multinational businesses may face between foreign sanctions regimes and Chinese countermeasures legislation.  Companies operating internationally may find themselves exposed to conflicting legal obligations.
   
• Thirdly, the court adopted a broad view of what may constitute implementing (or assisting in the implementation of) foreign discriminatory restrictive measures.  The carrier was not itself enforcing foreign sanctions pursuant to a legal order, but rather acting out of concern that it could become exposed to US sanctions penalties.  Nonetheless, the court considered that this conduct fell within the scope of Article 12 of the AFSL.
   
• Finally, the decision signals a willingness by Chinese courts to use the AFSL proactively to protect Chinese commercial interests and to counter the extraterritorial effects of foreign sanctions policies. This aligns with official commentary on the case, which emphasised the role of the judgment in safeguarding supply-chain stability, protecting Chinese enterprises engaged in cross-border business, resisting the cross-border extension of foreign discriminatory restrictive measures, as well as safeguarding China’s sovereignty, security and development interests more broadly.