Breaking through the jurisdiction of the long arm, the first infringement lawsuit against foreign sanctions shines a bright sword
Recently, the results of the "Top 10 Cases of 2025 to Promote the Rule of Law in the New Era" publicity campaign jointly organized by the Supreme People's Court and other institutions were officially announced, and the first infringement lawsuit against foreign sanctions in China was successfully selected. As the first infringement lawsuit filed in China under Article 12 of the Anti Foreign Sanctions Law, this case was successfully settled through mediation. It not only marks a crucial step for the Anti Foreign Sanctions Law to officially implement legal provisions into judicial practice, but also clarifies the key information that assisting in the implementation of discriminatory restrictive measures outside the jurisdiction can constitute infringement, providing important reference for Chinese enterprises to cope with the "long arm jurisdiction" of foreign unilateral sanctions.
39 day efficient resolution of disputes
In 2023, a Chinese marine engineering company (hereinafter referred to as the "Chinese company") signed a shipbuilding subcontract with European S Marine Equipment Company (hereinafter referred to as the "foreign company"), agreeing that the Chinese company would be responsible for constructing the equipment modules of the foreign company's offshore floating production and storage vessel, with a contract amount of approximately 19.45 million US dollars. Both parties agree that the dispute resolution method shall be overseas arbitration, and foreign laws shall apply.
On June 7, 2024, the Chinese company completed the module construction and ship assembly as agreed. But soon after, a third country added Chinese companies to the sanctions list. The foreign company suspended the payment of the remaining $11.86 million and cut off communication channels on the grounds of implementing the administrative order of third country economic sanctions.
In order to defend its legitimate rights and interests, the Chinese company has applied to the Nanjing Maritime Court for pre litigation detention of the vessel involved in the case. On September 18, 2024, the Nanjing Maritime Court ruled to detain the vessel involved in the case. On October 11th, the Chinese company filed a lawsuit with the Nanjing Maritime Court in accordance with Article 12 of the Anti Foreign Sanctions Law, demanding that the foreign company compensate more than 86 million yuan. After the court filed the case, the foreign company applied to a third country for payment permission and paid a counter guarantee of 99.743 million yuan to release the detention.
Under the organization of the Nanjing Maritime Court, the foreign company voluntarily abandoned overseas arbitration. Within just 39 days, both parties reached an agreement on the payment of ship construction funds, exchange rates and performance methods, and the obligation to deliver relevant certificates. On November 19th, the court issued a civil mediation agreement and, based on the application of the Chinese company, transferred the settlement funds from the counter guarantee deposit to the Chinese company through the execution procedure.
Mediation between both parties achieves efficient and substantive resolution of disputes, avoiding potential complex international judicial conflicts and adverse effects of unilateral foreign sanctions, which is of great significance in foreign-related judicial practice.
Expand the path of infringement relief
Article 12 of the Anti Foreign Sanctions Law stipulates that no organization or individual shall implement or assist in the implementation of discriminatory restrictive measures taken by foreign countries against Chinese citizens and organizations. If organizations or individuals violate the provisions of the preceding paragraph and infringe upon the legitimate rights and interests of Chinese citizens or organizations, Chinese citizens or organizations may file a lawsuit with the people's court in accordance with the law, demanding that they stop the infringement and compensate for losses.
Chen Weidong, Executive Vice President of the Institute of Foreign Rule of Law at the University of International Business and Economics, stated in an interview with the Legal Person that this case successfully broke through the contractual provisions of overseas arbitration and foreign applicable law. In traditional international business practice, foreign companies often use arbitration clauses and foreign laws as firewalls to evade Chinese legal jurisdiction. In this case, even though the contract stipulates that the dispute resolution method is overseas arbitration and foreign laws apply, the court has classified the case as an infringement dispute by determining that assisting in the execution of foreign unilateral sanctions constitutes a violation of the rights and interests of Chinese enterprises. The case is no longer a simple contract breach dispute, and the injured party can file an infringement lawsuit based on Article 12 of the Anti Foreign Sanctions Law
According to Chinese law, if the place of infringement (the place where the result occurred) is in China, Chinese courts have jurisdiction. This establishes the judicial jurisdiction of Chinese courts over sanction related cases, which is essentially a powerful judicial weapon against foreign 'long arm jurisdiction'. Chen Weidong believes that this case sends a clear signal to the international community: Chinese companies have the right to protect their rights through the Chinese judicial system when they suffer losses due to foreign business partners implementing foreign government sanctions, and foreign unilateral sanctions cannot become a 'talisman' for foreign business partners to be exempt from liability.
Chen Yanhong, founding director of the New Financial Law Research Center at North China Electric Power University and senior partner of Beijing Deheheng Law Firm, believes that this case establishes an independent infringement relief path independent of contractual relationships and has exemplary value for similar cases. This case has been confirmed through judicial procedures that domestic market entities in China can seek tort relief through civil litigation in accordance with the Anti Foreign Sanctions Law when they are subject to improper restrictions caused by unilateral foreign sanctions in legitimate cross-border transactions
Chen Weidong stated that this case confirms the feasible approach of implementing the Anti Foreign Sanctions Law with public enforcement as the main mechanism and private enforcement as a supplement. Counter sanctions mainly rely on the public execution of national administrative agencies, that is, the relevant departments of the State Council decide and implement countermeasures, such as prohibiting imports and exports, freezing assets, refusing visas, etc. This model has deterrent power, but there may be lagging and insufficient targeting when dealing with specific commercial contract disputes, making it difficult to timely remedy the risks or losses suffered by specific enterprises in specific transactions. In this case, the Chinese company directly invoked Article 12 of the Anti Foreign Sanctions Law to file a civil lawsuit, which is a typical manifestation of the private enforcement mechanism. Chen Weidong said, "Private enforcement has lowered the initiative of counter sanctions to market entities, allowing victimized enterprises to use domestic judicial channels to directly sue foreign trading partners who cooperate with foreign sanctions and demand compensation for losses. This mechanism improves the response speed and accuracy of counter sanctions, and forms an effective supplement to the national public enforcement force
The unique value of Article 12
The efficient resolution of the conflict in this case cannot be achieved without the precise measures and proactive actions of the Nanjing Maritime Court. In response to the Chinese company's application for ship detention, the court flexibly applied the "live detention" measure in accordance with the Maritime Litigation Special Procedure Law - allowing the ship to continue to be rebuilt on its original location while strictly restricting its departure from port. Chen Weidong believes that this measure not only preserves the creditor's rights, allowing Chinese companies to take the initiative in negotiations, but also avoids delays in construction schedules and obstacles to international financing caused by "dead detention", forcing foreign companies to make a rational choice between "huge commercial losses caused by long-term vessel detention" and "applying for payment permits", and restart dialogue.
After filing the case, the court clarified to the foreign company that assisting in the enforcement of unilateral foreign sanctions under Chinese jurisdiction may constitute legal liability for infringement. Afterwards, the foreign company voluntarily abandoned arbitration. After obtaining payment permission from a third country, the foreign company paid a counter guarantee to the court account to release the detention. The two parties entered the mediation stage and quickly reached a mediation agreement. The mediation agreement not only resolved the current dispute, but also stipulated that potential disputes in the future would be under the jurisdiction of the Nanjing Maritime Court and subject to Chinese law.
This case fully embodies the game strategy of using litigation to promote negotiations, and fully demonstrates the leverage function and unique game value of Article 12 of the Anti Foreign Sanctions Law in leveraging negotiations, "said Chen Weidong.
Liu Rundong, equity partner of Beijing Deheheng Law Firm, further interpreted the scope of rights protection under the Anti Foreign Sanctions Law based on practical cases. He pointed out that the legislation of this law fully considered the practice of rights relief and rights protection, and set the basis of the right to sue as tort liability. Therefore, even if the two parties have not established a clear legal contractual relationship, the injured party can still file a lawsuit based on Article 12 of the law. For example, if a foreign enterprise stops purchasing clothing made from Chinese crops, in addition to the clothing manufacturer being able to sue the foreign enterprise based on the contract between the two parties, farmers who supply raw materials to the clothing manufacturer can also sue based on this clause if they can provide evidence to prove that the foreign enterprise has violated the law and infringed, and protect their legitimate rights and interests in accordance with the law
In addition, Chen Weidong believes that foreign companies ultimately fulfill their contractual obligations by applying for payment permits from third countries, which also provides a feasible compliance path for relevant foreign companies. In specific circumstances, foreign companies may fulfill their contractual obligations to Chinese partners by legally applying for sanctions exemptions or licenses, provided that they do not violate relevant foreign sanctions orders
Effectively respond to cross-border sanctions
This case provides valuable insights for Chinese enterprises to cope with cross-border sanctions and prevent foreign business risks.
In practice, some enterprises still have many misconceptions in their response. Liu Rundong believes that in the pre prevention stage, some foreign trade enterprises lack systematic understanding of the relevant regulations and disposal processes of sanctions, have not established corresponding compliance systems, and even generally have a mentality of "sanctions have nothing to do with themselves". In fact, all foreign trade enterprises should pay close attention to matters related to export control and sanctions, and prioritize risk prevention and control
During the control phase, when the Ministry of Commerce, Customs and other relevant authorities, as well as banks, insurance companies, ports and other institutions, issue risk warnings, some companies do not actively investigate the risks, but instead attempt to evade them through evasive means and blindly promote transactions with a mentality of luck. For example, some companies deliberately erase or grind off product nameplates and design complex transaction paths to avoid sanctions in order to sell goods to high-risk countries overseas, thinking that they will not be discovered without direct transactions. Liu Rundong believes that in fact, such evasion behavior is not concealed. Shortly after the delivery of the relevant goods, the third country will grasp the situation and even carry out "phishing law enforcement" to obtain evidence, which will ultimately lead to more serious consequences.
In the post relief stage, some companies passively respond, either feeling helpless and giving up relief, or passively accepting losses such as frozen funds as established facts, ignoring legal remedies, resulting in many recoverable losses that cannot be recovered in the end. Liu Rundong said, "In fact, disputes involving sanctions are not without the possibility of relief. Whether it is the administrative relief procedures of the third country itself, such as clarification, licensing, and unfreezing, or through dispute resolution methods such as litigation and arbitration, as well as relying on the increasingly mature official assistance guidance system provided by various levels of government in China, effective relief can be obtained. Especially in cases involving frozen funds, more than half of the cases can be unfrozen through legal means
Chen Yanhong gave specific suggestions: After encountering relevant risks, enterprises should promptly retain evidence, complete contracts, communication records, performance vouchers and other materials; Timely evaluate the effectiveness, performance status, and claimed rights of the contract; Seek professional legal advice as soon as possible to determine whether temporary relief measures such as preservation can be applied for; Simultaneously issuing a formal written letter in accordance with the law to express one's position, laying a solid foundation for subsequent litigation or mediation.
It is worth noting that this case has formed a processing mode combining "pre litigation preservation+ship detention+cross-border counter guarantee+court mediation", which is replicable in similar maritime and foreign-related cases. Chen Yanhong believes that these measures are based on China's existing civil and maritime litigation systems, in line with procedural law and judicial practice, and can provide important reference for the handling of cross-border transaction disputes such as ships, equipment, and engineering. When applied specifically, enterprises can make adjustments based on the actual situation of the case subject matter, property type, transaction structure, etc., and form dispute resolution solutions that are suitable for individual cases.
In terms of foreign-related contract design, Chen Yanhong suggested that Chinese companies can improve the terms from multiple aspects and enhance their risk prevention capabilities. In terms of legal application and jurisdiction clauses, priority should be given to stipulating the application of Chinese laws, which should be under the jurisdiction of Chinese courts or arbitration institutions to improve the predictability of dispute resolution; In terms of relevant restrictive measures, it is necessary to clearly distinguish between legitimate compliance requirements and undue external pressure, and avoid simply including unreasonable extraterritorial restrictions in the scope of exemption; In terms of force majeure clauses, the applicable circumstances and burden of proof should be clearly defined to prevent foreign parties from arbitrarily citing the clause as a reason for breach. At the same time, notification, negotiation, and risk sharing mechanisms can be set up in the contract to clarify the handling process for one party in case of improper intervention, and to incorporate risk allocation and relief paths into the contract as much as possible, strengthening the protection of one's own rights.