Executive summary
China’s Anti-Foreign Sanctions Law (AFSL) is moving from statute books to courtrooms – with significant implications for international businesses. On 24 June 2026, the Supreme People’s Court published its 2025 Maritime Typical Cases, featuring the first binding judgment applying the AFSL to reject a foreign counterparty’s sanctions-based defence. This ruling, alongside an earlier Nanjing Maritime Court case that reached settlement following pre-litigation asset preservation, establishes clear litigation pathways for Chinese entities affected by foreign unilateral sanctions. The bottom line for international businesses: contractual provisions that excuse performance based on foreign sanctions compliance may be unenforceable under PRC law; and Chinese courts have demonstrated a willingness to assert jurisdiction over sanctions-related disputes – even where offshore arbitration or governing law clauses exist.
Background: The Anti-Foreign Sanctions Law framework
China enacted the AFSL on 10 June 2021 as its primary legislative response to foreign sanctions regimes. The AFSL authorises the Ministry of Commerce (MOFCOM), under Articles 3 and 4, to designate organisations and individuals that – directly or indirectly – participate in formulating, deciding, or implementing discriminatory restrictive measures against Chinese citizens and organisations, or that interfere in China’s internal affairs in violation of international law. Critically for international businesses, Article 12 of the AFSL grants injured parties the right to file lawsuits in PRC courts against any entity that implements or assists in implementing discriminatory foreign restrictive measures.
To date, MOFCOM has designated approximately 171 foreign entities for countermeasures, spanning arms sales to Taiwan, Xinjiang- and Tibet-related measures, Russia-related sanctions, Section 301 investigations, and FCC actions against Chinese entities. More significantly for commercial parties, Chinese plaintiffs have begun pursuing private litigation under Article 12. A recent maritime case – published by the PRC Supreme Court on 24 June 2026 as one of the top Maritime Typical Cases of 2025 – demonstrates how PRC courts are applying Article 12 in practice.
Landmark case: Hong Kong Shipper v. Singapore Carrier
The facts
In Hong Kong Shipper v. Singapore Carrier (Case No. (2023) Hu 72 Min Chu No. 1936), the dispute arose from events beginning in October 2022, when a Hong Kong company (the Shipper) booked cargo space with a Singapore shipping company through its China subsidiary (together, the Carrier) to transport electronic products worth over RMB 4.99 million (approximately US$685,000 or €687,625) from Shanghai to Manzanillo, Panama. After receiving and loading the cargo, the Carrier refused to issue bills of lading on the grounds that the Shipper and/or its affiliated company had been placed on a third country’s sanctions list. The Carrier subsequently refused to deliver the cargo upon arrival at the destination.The Shipper applied to the Shanghai Maritime Court (the Court) for a pre-action maritime injunction compelling the Carrier to issue bills of lading. While that application was pending, the Carrier, without the Shipper’s consent, returned the cargo to Shanghai. The Shipper then filed suit claiming damages exceeding RMB 4.99 million plus interest. The Carrier counterclaimed for container demurrage losses of over RMB 500,000.
The ruling
The Court held that the Carrier’s refusal to fulfil its transport obligations and unilateral return of cargo to Shanghai constituted fundamental breaches of contract. On the choice of law issue, the Court found that the Carrier’s standard clause providing for Singapore governing law – printed on the reverse of bills of lading and on the Carrier’s website – was not binding on the Shipper because the Carrier failed to explain or provide reasonable notice of the clause. Notably, the Court added that even if the governing law clause was binding, Article 12 of the AFSL would still apply under PRC conflict of laws rules (specifically, Article 4 of the PRC Law on Application of Laws to Foreign-Related Civil Relations) because Article 12 of the AFSL is a mandatory provision of PRC law.
The Court ruled that the Carrier’s refusal to perform out of concern for secondary sanctions exposure constituted “assisting in the implementation” of foreign discriminatory restrictive measures against Chinese enterprises, violating Article 12 of the AFSL. Accordingly, the Carrier had no lawful basis to exclude or reduce liability for its fundamental breach. The Court awarded the Shipper RMB 4.99 million plus interest and dismissed the Carrier’s counterclaim in its entirety.
The precedential effect.
This case establishes a rule that unilateral foreign sanctions against Chinese citizens or entities cannot be relied upon as a lawful basis for refusing to perform contractual obligations under PRC law. Given that this case was endorsed by the PRC Supreme Court as an exemplar case, other courts across the country are likely to interpret and apply Article 12 of the AFSL similarly in cases where Chinese parties are impacted by foreign sanctions.
What’s next: Proposed Supreme Court judicial interpretations
In a report issued on 14 March 2026, the PRC Supreme Court announced plans to develop judicial interpretations on the application of the AFSL, the PRC Foreign State Immunity Law, and other related statutes. The stated objective is to strengthen judicial mechanisms for “anti-sanction, anti-interference, and anti-long-arm jurisdiction” measures to safeguard national sovereignty, security, and development interests, and to protect China’s overseas interests. International businesses should anticipate more detailed guidance on how PRC courts will adjudicate AFSL claims in the near term.
Implications for international businesses
China’s increasingly active enforcement of the AFSL goes beyond legislative signalling and adds another dimension to an already complex compliance landscape. International businesses with operations in China, Chinese counterparties, or supply chains with a China nexus may increasingly need to navigate circumstances in which measures taken in response to the laws or regulatory expectations of one jurisdiction create legal or commercial risks in another. Companies may face potential liability in China for actions taken to comply with U.S., EU, or other foreign sanctions or export control requirements targeting Chinese entities, while potentially facing enforcement risk abroad if they fail to comply with those same restrictions. These tensions are particularly acute in shipping and logistics, energy, technology, and other trade-intensive sectors. Two features of this challenge deserve particular attention.
First, regional structures and foreign governing law may not provide insulation. Multinational groups may choose to manage China-connected transactions through regional hubs such as Singapore and structure contracts under non-PRC governing law. However, neither measure will necessarily shield against the application of the AFSL where the underlying transaction, counterparty, or performance has a sufficient nexus to China and a PRC court asserts jurisdiction.
Second, contractual provisions may not provide a complete solution to competing regulatory requirements. Companies commonly rely on robust sanctions clauses that permit them to suspend or terminate performance where continuing a transaction would expose them to foreign regulatory risks. Companies should now consider whether those provisions remain effective in managing risk where exercising a contractual right could itself attract liability under PRC law.
Taken together, these developments underscore the need for a coordinated, cross-border approach to navigating an increasingly complex – and at times irreconcilable – set of obligations. Before taking action in relation to a China-connected transaction, businesses need to understand both the consequences of proceeding under applicable U.S., EU, or other foreign sanctions or export control requirements, and the potential consequences under PRC law of declining to proceed. Neither analysis should be conducted in isolation.
Against this backdrop, businesses should consider the following:
- Monitor AFSL developments. Track judicial decisions and administrative enforcement actions under the AFSL, particularly PRC Supreme Court publications and MOFCOM designations that could affect your business or counterparties.
- Review sanctions and related clauses. Assess whether standard contractual provisions that excuse performance based on sanctions compliance could be held unenforceable by a PRC court. Consider alternative risk allocation mechanisms or carve-outs for PRC-nexus transactions.
- Update sanctions compliance protocols. Review internal policies to map possible conflicts of law and address conflicting compliance requirements across jurisdictions. Develop clear escalation and decision-making frameworks for scenarios where foreign sanctions compliance could trigger AFSL liability.
- Assess dispute resolution provisions. Recognise that offshore arbitration clauses and foreign governing law provisions may not insulate your company from PRC court jurisdiction in AFSL-related disputes. Consider the implications for dispute resolution strategy in contracts with Chinese counterparties.
- Evaluate asset exposure. Chinese courts have demonstrated willingness to issue pre-action preservation orders in AFSL-related cases. Assess the potential exposure of assets within PRC jurisdiction and develop contingency plans and risk mitigation measures accordingly.
- Consider the broader regulatory environment. The AFSL does not operate in isolation. It sits within a rapidly expanding suite of Chinese regulations with extraterritorial reach that compound the compliance challenge for international businesses. These include recent regulations restricting supply chain due diligence (Order 834), countering foreign extraterritorial jurisdiction (Order 835), and tightening outbound investment controls (Order 837).
Client Alert 2026-193