China’s Court Takes Expansive View in Applying the Anti-Foreign Sanctions Law, Overriding Contractual Choice of Foreign Law

In June 2026, China’s Supreme People’s Court (the “Supreme Court”) published a decision of the Shanghai Maritime Court (the “Court”) applying the Anti-Foreign Sanctions Law (the AFSL) that awarded contractual damages for losses caused by the implementation of U.S. export controls against a Chinese entity.[1] The Court held that a Singaporean shipping carrier violated the AFSL by refusing to perform a shipping contract with a Hong Kong company to transport products manufactured by a Chinese entity on the Bureau of Industry and Security (BIS) Entity List, citing U.S. export control compliance concerns.[2]

The decision is significant because the Court adopted an expansive approach to the AFSL’s reach. Even though both contracting parties were non-PRC entities and the contract specified Singapore governing law, the Court held that the AFSL mandatorily governs disputes arising from the implementation of unilateral foreign export controls against a PRC entity, and the parties cannot contract around the AFSL’s applicability.

Summary of the Case[3]

The Parties. The plaintiff, Hikvision International Co., Limited (“Hikvision Hong Kong”), is a Hong Kong subsidiary of Hangzhou Hikvision Digital Technology Co., Ltd. (“Hikvision Hangzhou”), one of the world’s largest manufacturers of video-surveillance equipment. Hikvision Hangzhou is on the BIS’s Entity List, which requires a BIS license for exports, reexports, or transfers of items subject to the Export Administration Regulations to Hikvision Hangzhou.[4] Hikvision Hong Kong was not subject to U.S. export controls at all times relevant to this case. The defendants are Ocean Network Express entities based in Shanghai and Singapore (collectively, the “Defendants”), which provide international shipping services.[5]

The Shipping Contract and Key Clauses. In October 2022, Hikvision Hong Kong entered into a shipping contract with the Singapore Defendant to transport surveillance equipment manufactured by Hikvision Hangzhou to Panama. The bills of lading[6] contained three clauses central to the dispute: (1) Singapore law governs the contract (the “Governing Law Clause”), (2) disputes should be submitted to the Singapore High Court (the “Jurisdiction Clause”), and (3) the carrier may return the cargo “in the event of risks or adverse consequences” associated with the shipment (the “Hardship Clause”).

The Dispute. In October 2022, while the cargo was en route, Hikvision Hong Kong represented to the Defendants that Hikvision Hangzhou’s products were not subject to U.S. export controls. After the cargo arrived in Panama in November 2022, the Singapore Defendant requested that Hikvision Hong Kong provide additional end-user and end-destination information to evaluate U.S. export control and sanctions risks under its internal compliance policy. Hikvision Hong Kong disclosed only that certain products were destined for Venezuela and Nicaragua but refused to provide further details.

The Defendants’ internal trade compliance program considered the shipment as a high-risk transaction and mandated a return of the cargo for two reasons: (1) Hikvision Hangzhou was on the Entity List, and (2) the two destinations (Venezuela and Nicaragua) were high-risk countries under U.S. sanctions law, and the Defendants could not resolve sanctions risks due to Hikvision Hong Kong’s refusal to disclose end-user information. In June 2023, the Defendants unilaterally returned the shipment to Shanghai, invoking the Hardship Clause and asserting that potential non-compliance with U.S. export controls and sanctions could expose them to regulatory risks.

Hikvision Hong Kong refused the returned shipment and, in October 2023, sued the Defendants for breach of contract in the Court, seeking the full value of the shipment. During evidence examination, Hikvision Hong Kong further asserted that the Defendants’ actions violated the AFSL because the return of cargo was driven by compliance with U.S. export control rules targeting a PRC entity (i.e., Hikvision Hangzhou).

The Court’s Holdings. The Court rejected the Defendants’ two defenses: that Singapore law governed the dispute and that U.S. export control compliance justified the non-performance. The Court awarded Hikvision Hong Kong the full shipment value plus interest. Its key holdings were as follows:

• The AFSL overrides foreign choice-of-law clauses. The Court held that even if the parties had validly agreed that Singapore law governs the contract, the AFSL would supersede that contractual arrangement to the extent a party implemented, or assisted in implementing, unilateral foreign export controls against a PRC entity.[7] The Court underscored that compliance with U.S. sanctions and export controls is not a defense for breach of contract under the AFSL.[8]
• A court could award AFSL-based damages in a civil suit even where the sanctioned PRC entity is not a plaintiff or party to the disputed contract. The shipping contract was between Hikvision Hong Kong (a Hong Kong company) and the Defendants. Nevertheless, the Court held that because the Defendants’ non-performance was motivated by U.S. export controls targeting Hikvision Hangzhou (a PRC entity), the AFSL applied, even though the sanctioned PRC entity was not a plaintiff or did not have a contractual relationship with the Defendants.

Key Takeaways

1. Parties Cannot Contract Around the AFSL. A contractual provision specifying a foreign governing law does not preclude the application of the AFSL in civil actions arising from unilateral foreign restrictions (e.g., sanctions, export controls) against PRC entities. Multinational companies should not assume that foreign choice-of-law clauses will insulate them from AFSL exposure. This holding carries particular weight because the Supreme Court endorsed this principle through its publication highlighting the Court’s judgment, which lends the holding significant weight as a reference for future cases.
2. The AFSL May Override Standard Dispute Resolution Clauses. In November 2024, the Nanjing Maritime Court asserted in a separate case that it had jurisdiction over contractual disputes under the AFSL, notwithstanding an arbitration clause stipulating Singapore as the arbitration venue (see our alert). Read together, these two decisions indicate that a Chinese court may set aside standard dispute resolution clauses—including both arbitration provisions and foreign governing-law provisions—where a contract party’s breach is attributed to unilateral foreign restrictions against a PRC entity. Multinationals should reassess the extent to which they can rely on dispute resolution clauses to manage sanctions-related risks when contracting with PRC entities.
3. A Sanctioned PRC Entity Could Create AFSL Risk in a Civil Suit Even If It Is Not a Direct Party to the Disputed Transaction or a Plaintiff in the Suit. The AFSL broadly prohibits implementation of foreign sanctions, export controls, and similar laws that specifically target PRC persons. This is the first publicly disclosed court case where the sanctioned PRC entity at issue—Hikvision Hangzhou—was not a plaintiff to the suit or a contractual party to the disputed transaction. Nonetheless, the court relied on the defendants’ implementation of U.S. export controls against Hikvision Hangzhou as the basis to award AFSL damages to its subsidiary, Hikvision Hong Kong. Companies should be aware of this risk when making compliance assessments not just when dealing with PRC counterparties but also when dealing with Hong Kong and overseas entities where a sanctioned PRC entity is an affiliate or proximally upstream/downstream in the supply chain.

As further explained in the Terms/Notices linked below, the information provided herein is not legal advice. Any information concerning the People’s Republic of China (PRC) is not an opinion on, determination on, or certification of the application of PRC law. We are not licensed to practice PRC law.

[1] See https://www.court.gov.cn/zixun/xiangqing/503641.html.

[2] See https://wenshu.court.gov.cn/website/wenshu/181107ANFZ0BXSK4/index.html?docId=SSXpFOf4N9mRSyqQo7bT1Ohz0CMHl4cD19spjNPzNsqGpH+0t4Soup/dgBYosE2gKvt/0MLxM7M2X5mg4/gFzmuYYncDDsQ+P7O5lV6ctiS2LOILS2Rx1tCvhrgzoxkz.

[3] The Court anonymized the parties in the published judgment. Certain information is obtained from multiple publicly available resources.

[4] Hikvision Hangzhou is also on OFAC’s Non-SDN Chinese Military-Industrial Complex Companies List, which prohibits U.S. persons from trading or holding its publicly traded securities or derivatives. Additionally, in November 2022, the U.S. Federal Communications Commission prohibited new authorizations of importing Hikvision’s telecommunication and video surveillance equipment into the United States for the use of public safety and national security purposes. This prohibition applied to both Hikvision entities.

[5] The China Defendant, Ocean Network Express (China) Ltd., accepted the booking as agent of its Singapore parent, Ocean Network Express Pte. Ltd. (the “Singapore Defendant”).

[6] The bills of lading were issued under the Court’s order after the Singapore Defendant initially withheld them over export control concerns. It is unclear from the Court opinion whether the parties signed a separate shipping agreement.

[7] The Court cited Article 4 of PRC's Choice of Law Statute (Law of the People’s Republic of China on the Application of Laws to Foreign-Related Civil Relations), which provides that mandatory provisions of PRC law on foreign-related civil relations apply directly.

[8] The Court separately found that Governing Law and Jurisdiction Clauses at issue were boilerplate terms not specifically negotiated or agreed to by the parties, and it invalidated them on that independent basis. The Court did not identify the statutes establishing its jurisdiction, as this may have been addressed in the earlier opinion rejecting the Defendants’ jurisdictional objection (which is not publicly available).