Blocking Statutes, Force Majeure and the Limits of Legislative Protection

[Vatsal and Mayank are students at National Academy of Legal Studies and Research.]

Blocking-statutes are a peculiar legal response to foreign-sanctions. Broadly speaking, they prohibit domestic-persons from complying with specified foreign-sanctions and deny legal recognition to certain foreign-measures. The EU Blocking-Regulation and recently China's Blocking Rules are among the prominent examples. While they are designed to insulate domestic actors from the effects of foreign sanctions, subsequent sections suggest, they often end up protecting the legal order of the state more effectively than the economic operators (EOs).

Recent discussions (see here and here) surrounding a potential Indian blocking-statute have focused largely on their suitability. This debate risks overlooking a more grounded question of what is realistically-achievable. Comparatively, the EU and Chinese models seek to protect domestic EOs from sanctions-related disruption, yet often do so by imposing additional obligations upon those very actors. They create legal rights and remedies, but cannot always address the underlying commercial realities that make sanctions effective.

Firstly, the piece considers the principal limitations of blocking-statutes and the underlying assumptions. Secondly, by examining the anti-sanctions statute through the lens of force majeure, this article exposes its limitations. Finally, it considers the broader framework that may be required if a blocking-statute is to provide meaningful protection rather than symbolic resistance.

What a Blocking-Statute is Not

The conventional justification for blocking statutes is that foreign sanctions project regulatory power beyond the territory of the sanctioning state, requiring a domestic response to preserve regulatory autonomy. That justification, however, is not entirely convincing. As Hemler argues, extraterritorial sanctions may produce commercial effects abroad without amounting to an exercise of enforcement jurisdiction within another state's territory. The stronger justification for a blocking statute therefore lies in managing regulatory conflict and mitigating the impact of foreign sanctions on domestic economic operators.

Even viewed through this lens, however, blocking statutes face important limitations. The European experience demonstrates that many of the burdens created by a blocking regime ultimately fall upon the very firms it seeks to protect. One example is the notification obligation found in several blocking regimes, requiring EOs to inform domestic authorities whenever foreign sanctions affect their commercial interests or contractual relationships. While regulators rely on such reporting to monitor sanctions-related disruptions, reporting rates in the EU have remained low.

China has adopted a stricter approach by penalising non-compliance with reporting obligations. While such measures may improve reporting, they also risk compelling firms to disclose conduct that may later be relied upon as evidence of sanctions compliance. Criminal enforcement further raises difficult questions concerning the right against self-incrimination, mens rea, evidentiary burdens and standards of proof.

Further, the Court of Justice's decision in Bank Melli v. Telekom (Bank Melli) illustrates a a tension inherent in any blocking-statute. The case concerned a European EO that found itself caught between competing legal obligations: compliance with US sanctions risked liability under the Blocking Regulation, while compliance with the Regulation threatened its access to US markets and financial systems. Recognising this conflict, the court accepted that the application of the Regulation could not be divorced from commercial realities. It therefore left room for proportionality review [see paras 90-92], something that was not a part of the otherwise rigidly worded EU-regulation. The proportionality standard suggests that the courts are “required to assess whether those first-mentioned sanctions are liable to entail disproportionate effects for that undertaking in the light of the objectives” of the blocking regulation. 

The practical value of these safeguards, however, should not be overstated. The court treated an operator's failure to seek a Commission authorisation under Article 5(2) as relevant to the proportionality assessment. In practice, this requires firms to disclose the very sanctions-related conduct that may later form the basis of a compliance allegation, tying the route to relief to the same reporting framework that raises concerns of self-incrimination.

Bank Melli is significant for a broader reason. It recognises that while blocking statutes seek to protect economic operators, they also require those very operators to bear the costs of conflicting legal regimes.

This concern is also reflected in clawback provisions, which permit recovery of damages from a counterparty that terminates or refuses to perform a commercial relationship in compliance with foreign sanctions. Although intended to deter sanctions-compliance by attaching civil liability, their practical effectiveness remains uncertain, with relatively little litigation clarifying their scope or operation.

Force Majeure Clauses

A force majeure clause (FMC) governs an event an event or effect that can be neither anticipated nor controlled and includes both the acts of nature and acts of people. FMC is a standard clause in contracts absolving parties of contractual-liability when an extraordinary event or circumstance beyond the control of the parties, usually termed as force majeure event (FME) occurs, even post due-diligence.

Under common law, a FME generally arises where an unforeseeable, uncontrollable event, not caused by either party, renders contractual performance impossible. Civil law adopts a broadly similar approach. On that basis, a foreign sanction may arguably constitute an indirect, non-natural FME where it is external to the parties, beyond their control, and, where it makes performance legally or practically impossible, fundamentally altering the contractual position between them.

In Phosphate Company Limited, the seller invoked FMC, arguing that US sanctions on Iranian banking transactions prevented performance of its contractual obligation to supply Iranian sulphur. The Calcutta High Court rejected this defence, holding that the sanctions neither created a legal prohibition nor rendered performance impossible. Relying on evidence from the US Office of Foreign Assets Control, the court found that the performance between non-US entities remained legally permissible and accordingly non-avoidable.

Arguably, absent an express contractual carve-out, sanctions are likely to constitute a FME only where they directly render performance illegal or impossible, rather than merely more onerous or commercially inconvenient. This approach is reflected in Ram Kumar v. PC Roy & Company (India) Limited, where continuing governmental restrictions made contractual performance impossible despite expectations that they would be lifted.

Ultimately, while blocking statutes may compel parties to disregard foreign sanctions, they neither (a) alter the contractual obligations voluntarily assumed between private parties nor (b) insulate parties from the contractual liability that non-compliance with those sanctions may subsequently trigger. They therefore create a regulatory double-bind insofar compliance with the blocking statute may itself expose a party to contractual breach, while compliance with the contract may violate the blocking statute. This illustrates the limits of legislative intervention into private contractual autonomy.

International Position Qua Force Majeure

Internationally, courts have adopted different approaches to force majeure. While some focus solely on whether the triggering event occurred, others undertake an arguably thicker inquiry into its commercial impact on the affected party's ability to perform, distinguishing commercial inability from mere inconvenience. Consequently, the burden of proof varies across jurisdictions, with standards such as unreasonableness, onerousness, and impracticability used to assess whether performance remains viable. Since commercial certainty requires contracts to be honoured except in exceptional circumstances, FMCs are the preferred mechanism for allocating such risks, as they represent the parties' agreed allocation of risk rather than mandatory rules of public policy.

Recently, in Mur Shipping BV v. RTI Ltd, US sanctions imposed on Rusal, the majority owner of the charterer, created anticipated difficulties in making freight payments in US dollars under a contract of affreightment. The shipowner invoked an FMC, arguing sanction-restrictions on monetary transfers as preventing contractual-performance. The UK Supreme Court reversed the Court of Appeal and held that Mur could rely on the FMC. Although the charterer offered to pay in euros instead of US dollars, bear the conversion costs, and ensure Mur received the same economic value, the court held that reasonable endeavours did not require accepting a different mode of contractual performance.

Accordingly, in the sanctions context, basis the decision, it may be argued that the regulatory intervention (blocking-statute) may constrain contractual performance, but it cannot reallocate the negotiated contractual risk. While blocking statutes may compel or prohibit particular conduct, they typically neither rewrite the parties' bargain nor insulate them from the consequences that a breach of contractual or regulatory compliance may itself trigger.

Conclusion: Beyond the Blocking-Statute

Blocking statutes cannot neutralise the underlying conditions that give foreign sanctions their commercial force. The reported decline in European trade and investment with Iran following the re-imposition of US sanctions, despite the EU Blocking Regulation, illustrates this limitation. A blocking statute cannot compel access to foreign banking infrastructure, dollar-clearing networks, international insurance markets or overseas consumer markets.

Unsurprisingly, blocking statutes have increasingly been supplemented by other regulatory instruments. China's Blocking Rules operate alongside: (1) the Unreliable Entity List, which allows Chinese authorities to designate foreign entities considered harmful to Chinese commercial interests and impose trade, investment and market-access restrictions; and (2) the Anti-Foreign Sanctions Law, which authorises retaliatory measures against persons involved in the formulation or enforcement of foreign sanctions. These instruments address broader forms of economic coercion rather than merely prohibiting sanctions compliance by domestic actors.

A similar distinction exists in Europe. While the Blocking Regulation seeks to protect private EOs, the EU Anti-Coercion Instrument addresses economic pressure directed at the Union itself. The CJEU's judgment in Bank Melli similarly recognised that protecting the Union's legal order was the Regulation's primary objective, with the interests of private EOs remaining secondary. The Blocking Regulation must therefore ultimately be judged by how effectively it protects those private commercial interests.

India's inquiry, therefore, is not whether a blocking statute is desirable, but whether the expectations placed upon it correspond to the functions it is capable of performing. A blocking statute may mitigate regulatory conflict and offer limited protection to EOs, but it cannot constitute a complete response to sanctions-related vulnerability, particularly where existing contractual mechanisms, such as force majeure, already allocate part of that risk.