Article 12 of the Anti-Foreign Sanctions Law of the People's Republic of China ("Anti-Foreign Sanctions Law") provides a legal basis for blocking foreign discriminatory restrictive measures and seeking civil remedies for violation of this provision[1]. Until recently, Chinese courts have been cautious in the judicial application of Article 12. Since the law came into effect in 2021, few publicly available judgments have relied on it. The provision has thus largely functioned as a statement of principle, with a primarily declaratory role.

That position is now shifting. Recent cases indicate that Chinese courts have begun to adjudicate disputes arising from foreign discriminatory restrictive measures. Although the number of relevant cases remains limited, these cases span a range of contexts, including contract disputes and corporate control disputes. They suggest that the Anti-Foreign Sanctions Law is moving beyond its declaratory role toward practical application.

This article examines two representative cases to provide an overview of the current judicial practice of Chinese courts in disputes involving foreign sanctions, and offers practical recommendations for foreign entities conducting China-related business.

II. Representative Cases

(I) Case 1: The First Tort Action Under the Anti-Foreign Sanctions Law, Resolved Through Mediation in 39 Days

1. Case Summary

Case Facts: The plaintiff, a Chinese engineering company, and the defendant, a foreign equipment company, entered into a shipbuilding subcontract under which the engineering company agree to build equipment modules for vessels owned by the equipment company. The engineering company completed the work in accordance with the contract, but was subsequently placed on a sanctions list. The equipment company then withheld the outstanding payment of over USD 11.86 million, citing its compliance with sanctions orders. In response, the engineering company filed a lawsuit before the Nanjing Maritime Court based on Article 12 of the Anti-Foreign Sanctions Law and applied for pre-litigation arrest of the vessel.

Result: After the court facilitated settlement discussions and explained the legal consequences of assisting in the implementation of foreign unilateral sanctions, the parties reached a mediation agreement within 39 days. The agreement provided that any subsequent disputes arising from it would be subject to the jurisdiction of the Nanjing Maritime Court and governed by Chinese law.

2. Key Points

This is the first tort action initiated under Article 12 of the Anti-Foreign Sanctions Law. The Nanjing Maritime Court exercised jurisdiction over the case and resolved the dispute through mediation. The case has been included in the People's Court Case Database.

• Use of a "Live Arrest" Mechanism to Minimize Disruption: The Nanjing Maritime Court issued a vessel arrest order and adopted a "live arrest" mechanism, allowing the vessel to remain in place while refitting work continued, thereby avoiding disruption to the shipbuilding schedule and international financing arrangements;

  
  

• Indirect Payment through Court Enforcement Proceedings: The equipment company obtained a license authorizing payment from the relevant U.S. authorities and then secure the release of the vessel from arrests by providing a cash deposit as counter-security to the Nanjing Maritime Court. The court subsequently disbursed funds from the deposit to the engineering company through enforcement proceedings, thereby mitigating the risk of banks blocking or rejecting a direct U.S. dollar remittance between the parties.

(II) Case 2: Unilateral Return of Cargo Results in RMB 4.99 Million in Damages—"Avoiding Sanctions Risks" Is No Excuse

1. Case Summary

Case Facts: The plaintiff, a Hong Kong company, booked cargo space with the defendant, a Singapore company, for the carriage of a consignment of electronic products. The defendant accepted the booking and issued a booking confirmation; the goods were loaded and shipped in the same month. After the goods arrived at the port of destination, the defendant refused to issue the bill of lading and unilaterally shipped the goods back, citing the plaintiff’s inclusion on a foreign sanctions list and that its own potential exposure to sanctions. The court later confirmed that the goods involved had no market within China. The plaintiff alleged that the defendant had breached its obligations under the contract of carriage of goods by sea and sought approximately RMB 4.99 million in damages for the loss of the goods, plus interest.

Result: The court held that the defendant's unilateral suspension of carriage and return of the goods constituted a fundamental breach of contract. It further held that the defendant's refusal to perform its carriage obligations to avoid exposure to foreign sanctions falls within the scope of "executing or assisting in the execution of discriminatory restrictive measures" under Article 12 of the Anti-Foreign Sanctions Law. Avoiding exposure to foreign sanctions cannot justify exempting the defendant from liability for breach of contract or mitigating that liability. Accordingly, the court ordered the defendant to compensate the plaintiff for the loss of the goods amounting to RMB 4.99 million plus interest. Neither party appealed, and the first-instance judgment has taken effect.

2. Key Points

This case is the first in which a Chinese court expressly affirmed the overriding mandatory effect of the Anti-Foreign Sanctions Law in a judgment. It has been selected by the Supreme People's Court as one of its 2025 representative maritime adjudication cases.

• Overriding Mandatory Effect: Article 12 of the Anti-Foreign Sanctions Law is mandatorily applicable in foreign-related civil relations, regardless of the law otherwise chosen by the parties;

  
  

• Compliance with Foreign Sanctions Does Not Excuse Conduct Prohibited by Article 12: Refusing to perform a contract to avoid exposure to foreign sanctions may constitute "executing or assisting in the execution of discriminatory restrictive measures" under Article 12 of the Anti-Foreign Sanctions Law, and evading foreign sanctions risks is not a ground for mitigating or exempting liability for breach of contract;

  
  

• Application of Article 12 in Contract Disputes: This case extends the application beyond tort claims to contractual disputes. It demonstrates that Article 12 of the Anti-Foreign Sanctions Law can serve not only as a legal basis for a tort claim but also as an overriding mandatory rule in determining liability for breach of contract.

III. Characteristics of Anti-Foreign Sanctions Judicial Practice

Taken together, the two representative cases demonstrate the following characteristics of the judicial practice under the Anti-Foreign Sanctions Law:

• Key concepts require further clarification through case-by-case judicial assessment. Given the limited number of cases adjudicated to date, judicial outcomes remain highly uncertain;

  
  

• The relevant provisions constitute overriding mandatory rules. Parties cannot exclude their application through a choice-of-law clause where the dispute falls within their scope.

(I) Key Concepts Require Further Clarification

1. Discriminatory Restrictive Measures

Current laws and regulations do not yet provide a clear definition of "discriminatory restrictive measures", nor prescribe procedures for identifying such measures.

At present, "discriminatory restrictive measures" appear to be identified either by courts through judicial proceedings or by the relevant departments of the State Council through administrative procedures. Courts can independently determine, in individual cases, whether particular measures constitute "discriminatory restrictive measures", without requiring a prior determination by the relevant departments of the State Council.

However, existing judicial practice indicates that courts have yet to develop clear and consistent criteria for identifying such measures, and the relevant judgments provide only limited reasoning on this issue. For example, in Case Two, the court did not further explain why the relevant measures constituted "discriminatory restrictive measures". Instead, when assessing the evidence, it characterized the materials submitted as "sanctions risk screening results and related announcements involving discriminatory restrictive measures taken by foreign countries against Chinese enterprises", and accordingly declined to accord them probative value.

The "discriminatory restrictive measures" considered in judicial practice to date have primarily taken the form of unilateral sanctions measures imposed by foreign countries against Chinese entities, but the concept is not limited to such sanctions. Other forms of restrictive measures that contravene international law and the basic norms governing international relations may also fall within its scope. For example, the restrictions imposed by the relevant foreign authorities on Chinese enterprises’ effective control over overseas enterprises, through administrative orders and judicial measures, may also fall within this category.

2. Execution or Assistance in Execution

Current laws and regulations do not yet provide a clear definition of what constitutes "execution or assistance in execution" either, leaving the courts to interpret the term on a case-by-case basis.

In Case One, the defendant refused to pay the outstanding balance on the grounds of executing a third country's executive order. This represents a relatively typical instance of "execution or assistance in execution". In Case Two, the defendant did not directly invoke foreign sanctions measures but refused to perform the contract based on internal corporate compliance requirements and commercial considerations such as avoiding foreign sanctions risks. The trial judge pointed out in her post-judgment reasoning that, under the criteria for identifying "assistance in execution", an entity’s conduct may constitute such assistance if the entity subjectively seeks to comply with foreign sanctions requirements and avoid sanctions risks, and its conduct objectively helps give effect to foreign sanctions measures within China[2]. An affirmative intention to execute foreign sanctions is not required.

Accordingly, we understand that an enterprise that refuses to perform a contract on the basis of foreign sanctions requirements, internal compliance policies, or related commercial risk assessments, may face legal risks under Article 12 if its conduct objectively helps give effect to foreign sanctions measures within China.

(II) Agreeing to Arbitration Outside China and Choosing Foreign Law Offer Limited Protection against Legal Risks

1. Application of Law: Article 12 of the Anti-Foreign Sanctions Law constitutes an overriding mandatory rule

The court clarified that Article 12 of the Anti-Foreign Sanctions Law constitutes an overriding mandatory rule and applies directly, irrespective of the otherwise applicable law. The fact that a dispute is governed by foreign law therefore does not preclude the application of Article 12.

Accordingly, the parties’ choice of foreign law does not, in itself, exclude the application of Article 12 of the Anti-Foreign Sanctions Law. Where a dispute falls within the scope of Article 12, the Chinese court hearing the dispute may apply this provision notwithstanding the parties’ choice of foreign law, without requiring the parties to agree on the application of Chinese law or actively invoke Article 12.

2. Jurisdiction: An Agreement to Arbitrate Outside China Does Not Necessarily Preclude Proceedings Before a Chinese Court

In Case One, the case report emphasizes that the court lawfully exercised jurisdiction over a tort action involving countermeasures against foreign sanctions.[3] Accordingly, an agreement to arbitrate outside China does not necessarily prevent a Chinese enterprise from bringing a tort action before a Chinese court pursuant to the statutory right of action granted by Article 12(2) of the Anti-Foreign Sanctions Law.

It is worth noting that in this case, although the parties had agreed to arbitration in London, the defendant ultimately voluntarily waived its right to arbitration. The case does not, by itself, establish how a Chinese court would rule on a contested jurisdictional objection based on an agreement to arbitrate outside China, had the defendant raised such an objection.

IV. Takeaways

1. Incorporate Chinese Law Considerations into Corporate Risk Assessment Frameworks

Previously, the judicial application of the Anti-Foreign Sanctions Law has been limited, and the associated risks have remained largely theoretical. Recent cases, however, indicate that relevant provisions are gradually being translated from paper into practice, and enterprises therefore need to reassess these risks and adjust their expectations accordingly. It is necessary for corporate compliance departments to incorporate China's anti-foreign sanctions legal framework into their existing risk assessment systems and make compliance decisions based on a comprehensive consideration of potential risks across various jurisdictions. Enterprises that base their compliance reviews solely on U.S. or EU sanctions rules, without considering the applicable requirements under Chinese law, may expose themselves to contractual or tort liability under Chinese law.

2. Actively Pursue Negotiation and Mediation

As of September 2026, courts had accepted at least four related tort litigation cases, of which one was concluded through mediation, while the remaining three have not yet proceeded to trial or resulted in a publicly available judgment[4]. Due to the absence of any legally effective judgment in tort actions, considerable uncertainty remains regarding the applicable adjudicative standards and likely outcomes.

Once such a dispute arises, foreign enterprises may consider actively seeking to resolve the dispute through negotiation, mediation, or other means, emphasizing that they, too, are affected by the relevant foreign sanctions measures and may suffer economic losses as a result. They should not assume that an agreement to arbitrate outside China or a choice-of-law clause selecting foreign law will, by itself, eliminate their exposure to liability under Chinese law.

3. Manage Risks Proactively

If sanctions risks are not addressed until the contract performance stage, foreign enterprises are likely to face a "dual compliance dilemma": continuing to perform the contract would expose them to sanctions risks under foreign law, while compliance requirements under foreign law do not automatically constitute grounds for mitigating or excluding liability for non-performance of contractual obligations under Chinese law. If an enterprise refuses to perform a valid contract on the grounds of avoiding foreign sanctions, it may be found to have "executed or assisted in the execution of foreign discriminatory restrictive measures" and may consequently incur liability for breach of contract or tort.

It should also be noted that the existing Chinese anti-foreign sanctions legal framework does not provide an exemption mechanism for foreign enterprises that execute or assist in the execution of foreign discriminatory restrictive measures. Once a contract is concluded and the related risks have emerged, the room for remedial measures can be limited.

Foreign enterprises conducting business within China should therefore adopt a proactive approach to risk management. Before entering into a transaction, they should conduct due diligence on the counterparty and its related parties, the end users and end use of the goods, and the nature of the goods themselves, comprehensively assess whether to proceed with the transaction, and design contractual provisions to address the identified risks.

4. Assess Procedural Risks

The risks for foreign enterprises in anti-foreign sanctions litigation arise not only from substantive liabilities, such as damages, but also from procedural measures taken in connection with the proceedings. If a defendant has assets within China that are available for asset preservation, the court may seize, attach, or freeze those assets even before the case proceeds to trial, directly affecting the defendant's ability to use those assets. Furthermore, an arbitration clause generally does not, in itself, preclude pre-litigation preservation. When assessing risks under the Anti-Foreign Sanctions Law, foreign enterprises should therefore consider not only potential substantive liabilities but also the possibility that their assets in China may be subject to judicial measures, and the potential impact of those measures on their production and business operations and negotiating position.

[Notes]

[1] Article 12 of the Anti-Foreign Sanctions Law: No organization or individual may execute or assist in the execution of discriminatory restrictive measures adopted by foreign countries against Chinese citizens and organizations.

Where any organization or individual violates the provision of the preceding paragraph, infringing upon the lawful rights and interests of a Chinese citizen or organization, the Chinese citizen or organization may institute an action in the people's court in accordance with the law to request the organization or individual to cease the infringement and compensate for losses.

[2] Shanghai High People's Court: Carrier Liable for Refusing Delivery and Unauthorized Return of Cargo Citing Foreign Unilateral Sanctions Risk, The Court Has Ruled: https://mp.weixin.qq.com/s/0G2DueTZGGPWVOMQHncuDw

[3] People's Court Case Base: A Marine Engineering Company v. S Equipment Company: Tort Liability Dispute — Resolving International Commercial Disputes Through the "Eastern Approach", Case No. 2025-10-6-504-001: “This case is the first tort action arising from foreign sanctions brought by a party under Article 12 of the Anti-Foreign Sanctions Law since the Law came into force. The Nanjing Maritime Court exercised jurisdiction in accordance with the law and adjudicated the case under the laws of the People's Republic of China.”

[4] See Announcement on Major Litigation of HY Energy Group Co., Ltd., Announcement No. 2026-011, Case No. (2026) Hu 74 Min Chu No. 481
Announcement on Major Litigation of HY Energy Group Co., Ltd., Announcement No. 2026-013, Case No. (2026) Jing 74 Min Chu No. 1157