Briefing

Does the BIMCO time charter sanctions clause protect against future sanctions exposure?

There has been considerable legal commentary on the finding of the Court of Appeal in The Catalan Sea¹ that “reasonable judgment” only requires owners to evidence a reasonable apprehension of a real risk of sanctions exposure, rather than proof. But not all sanctions clauses operate on a “reasonable judgment” basis. Specifically, the BIMCO Sanctions Clause for Time Charter Parties 2020 (the BIMCO Clause) does not factor owners’ reasonable apprehension of a real risk of sanctions exposure, but merely obliges charterers not to give orders which involve a “Sanctioned Party” or a “Sanctioned Activity”.

In the context of the latest wave of sanctions imposed against Cuba (US Executive Order 14404 (the EO)), a recent London arbitration (so far unreported) considered whether owners could refuse orders to Cuba in reliance on the BIMCO Clause, by applying the “reasonable judgment” test from The Catalan Sea despite not having clear evidence that the voyage involve a Sanctioned Party or Sanctioned Activity.

The EO

On 1 May 2026, the EO introduced a sanctions authority targeting Cuba-related activities, under which the US government may designate a person (including a non-US person) who, among other things, operates in one or more specified sectors of the Cuban economy, is owned or controlled by the Government of Cuba, or has materially assisted or provided goods or services to or in support of the Government of Cuba or any person designated pursuant to the EO. Once a person is designated pursuant to the EO, non-US persons and financial institutions dealing with the designated person may themselves face US secondary sanctions exposure.

The key point for the purposes of the BIMCO Clause is that the EO itself does not result in all persons meeting the criteria being automatically designated. Instead, designation of a particular individual or entity requires a further affirmative determination by the US government, and until such a determination is made, there is no sanctions breach by a non-US person. For example, materially assisting or providing goods and services to the Government of Cuba is not actually a breach of sanctions for a non-US person; it only gives rise to a threat of future designation.

This is not an issue restricted to the EO; it applies to many US sanctions regimes which include secondary sanctions risk.

The BIMCO Clause

Sub clause (e) of the BIMCO Clause states:

“Charterers shall not give any orders for the employment of the Vessel which involves a Sanctioned Party or a Sanctioned Activity.”

The BIMCO Clause defines a “Sanctioned Party” as a person “designated” by a sanctioning authority, and a “Sanctioned Activity” as one already “subject to sanctions”.

On a plain reading, these defined terms are triggered by an actual designation or prohibited activity, not by the possibility that dealing with a counterparty or conducting an activity might lead to future designation.

Cuba specific difficulties

There is no centralised corporate registry in Cuba, equivalent to Companies House in England and Wales. Whilst it is fair to assume that many entities in a communist state are ultimately linked to the relevant government, that is not necessarily the case. Even amongst government entities there can be changes of ownership between different ministries. It is also possible that many individuals operating within Cuba do not want to publicly reveal beneficial ownership details of entities and assets. Identifying the beneficial ownership of any entity (e.g. a port operator or the owner of a berth) to determine whether it is a Sanctioned Party can therefore be difficult.

The arbitration

In the context of a time trip charter, the dispute concerned whether or not owners could reject an order to discharge at Mariel, Cuba in reliance on sub clause (e) of the BIMCO Clause, and whether charterers were then in breach for failing to give alternative orders within 48 hours under sub clause (f). Owners had concerns that the consignee and/or the port operator were sanctioned entities under the EO, and argued that discharging and delivering the cargo at Mariel exposed owners to sanctions.

The tribunal ultimately accepted that there was a critical distinction between the BIMCO Clause and the bespoke sanctions clause considered by the Court of Appeal in The Catalan Sea.

The clause in The Catalan Sea gave the owners wide discretion to refuse employment orders which “in the reasonable judgement of the owners, is prohibited by sanctions or will expose the owners, the vessel or its managers, crew, the vessel’s insurers or reinsurers to sanctions”.

As noted above, the BIMCO Clause imposes narrower obligations on charterers which are tied specifically to the involvement of an actual Sanctioned Party or Sanctioned Activity, i.e. a party or activity that is already sanctioned. The Tribunal agreed that a perception of risk or theoretical risk of future designation does not fall within the BIMCO Clause.

Owners’ attempts to rely on the BIMCO Clause therefore failed on two grounds:

Owners did not have any clear evidence that the consignee or port operator were Sanctioned Parties (i.e. actually designated). Comments from unidentified sources were not enough. The burden of proof was on owners to show the port operator or consignee were designated and therefore that charterers were in breach of sub-clause (e); and
The BIMCO Clause did not cover the risk of future designation under the EO.

Takeaways

Parties should not assume that all sanctions clauses operate on the basis that they only require evidence of a risk of exposure to sanctions. The BIMCO Clause is an example of a significantly more restrictive clause responding only to the involvement of actual sanctioned parties and activities.
The BIMCO Clause does not assist owners where they can point only to US secondary sanctions exposure, such as under the EO, which merely gives rise to a risk of future designation (as opposed to instances where a party or activity has already been designated). When the terms of the charter are being negotiated, owners should carefully consider whether the BIMCO Clause should be amended to account for this risk.
Assessing sanctions risks in Cuba is not always straightforward because there is no centralised company directory where details of beneficial ownership can be found. This is not a new development or unique to Cuba; many nations have limited disclosure obligations on beneficial ownership. Again, parties should take this into account when considering the appropriate sanctions clause for their charterparty, i.e. should it respond only to the involvement of sanctioned parties/activities or does it need to be widened to include a risk of exposure to sanctions?
If owners do not want to take the sanctions risk of trading to places such as Cuba, they should exclude such destinations from the trading limits prior to fixing.

William Gidman and Marianna Moysiadi acted for the successful charterers, with assistance from Daniel Martin and Richard Soyoye in HFW’s Sanctions team.

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