06 May 2024
5 min read
#Dispute Resolution & Litigation, #Transport, Shipping & Logistics
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Earlier this year at trial, Tigers Realm Coal Limited (Tigers Realm) noted that without Russia’s coal, they may go out of business. As a result of taking that chance, Tigers Realm has been hit with a Federal Court ruling declaring them to be in breach of Australia’s sanctions regime: Tigers Realm Coal Limited v Commonwealth of Australia [2024] FCA 340.
The decision has broad ramifications for Australian businesses and transporters. Firstly, the decision confirms that Australia’s sanctions regime applies to Australian companies even where the contravening conduct occurs wholly outside of Australia and where the goods weren’t intended for the Australian market. Secondly, the decision clarifies that illegal ‘transport’ of sanctioned goods not only applies to international import or export, but also to domestic transport.
As the Federal Court noted recently in Deripaska v Minister for Foreign Affairs [2024] FCA 62, Australia’s sanctions regime is designed “to influence foreign governments, persons or entities outside Australia in accordance with Australian Government policy… or [prohibit] conduct in or connected with Australia that facilitates the engagement by a person or entity in conduct outside Australia that is contrary to Australian Government Policy”.
The Australian sanctions regime recognises and implements United Nations Security Council sanctions and Australian autonomous sanctions via the Autonomous Sanctions Act 2011 (Cth) and Autonomous Sanctions Regulations 2011 (Cth) (the Sanctions Regulations).
Relevantly, regulation 12A of the Sanctions Regulations prohibits the making of a ‘sanctioned import’. Under the Autonomous Sanctions (Import Sanctioned Goods–Russia) Designation 2022 (Cth), coal and certain fuels made from coal have been so designated.
As per regulation 4A of the Sanctions Regulations, “a person makes a sanctioned import if:
Severe penalties exist for breaching the Australian sanctions regime, the most notable being extended periods of imprisonment for individuals and fines of over $3 million for corporations.
Tigers Realm is an ASX listed Australian company. It is the sole owner of three Russian subsidiaries, which it uses for coal extraction and production on the east coast of Russia. The subsidiaries’ activities include the operation of a mine and port where coal is extracted, transported by truck to port and stockpiled before being loaded onto ships for export.
Notably, this coal was not intended for export to Australia, but was to be sold in the Asian market.
In October 2022, Tigers Realm began discussions with the Department of Foreign Affairs & Trade (DFAT) and the Australian Sanctions Office concerning the extent to which their activities were affected by the Australian sanctions regime.
Following these discussions, in November 2022, Tigers Realm asked DFAT for an indicative assessment (the Indicative Assessment) on whether it might be affected by the regime. In March 2023, DFAT confirmed that Tigers Realm’s operations were “likely to be prohibited by, or subject to authorisation under, regulation 4A”.
Tigers Realm challenged DFAT’s Indicative Assessment in the Federal Court, arguing that the phrase ‘transports’ did not include the movement of coal by their Russian subsidiaries within Russia where that movement was preparatory to export from Russia. In other words, Tigers Realm contended that the link between the transport and importation was missing.
In dismissing Tigers Realm’s challenge, the Court considered the proper construction of the term ‘transports’ in the Sanctions Regulations, holding that:
“It is not in doubt that, read according to its ordinary meaning, the expression ‘transports’ encompasses the activity of the Russian subsidiaries in taking the coal by truck from the mine to the port… [and] the carriage of coal by barge from the shore to the ship”.
Tigers Realms argued that given that the Sanctions Regulations prohibited ‘transport’ in the context of ‘sanctioned imports’, the relevant form of transport that was prohibited was only import transport and not any prior domestic transport or repositioning. However, this argument was rejected with the Court saying:
“‘transports’ is not to be given a meaning that is tied to ‘imports’… simply because it appears as part of the definition of ‘sanctioned import’”.
Tigers Realm also argued that the broad application of the sanctions regime would be draconian, contending that “any Australian citizen, Australian body corporate or Australian-controlled corporation, anywhere in the world, would contravene reg 12A(1) and be liable to prosecution if, without authorisation, it transported Russian coal (or any other import sanctioned goods)”.
The Federal Court rejected this argument, noting that such broad application was indeed the intended effect of the sanctions regime, insofar as:
Despite confirming the broad application of the Australian sanctions regime, the Court did recognise certain limits regarding the meaning of ‘transports’, providing that the mere handling of goods owned by a business, including loading them prior to transport, does not constitute prohibited transport under the regime.
This decision follows an increasing focus on the importance of the Australian sanctions regime to Australian businesses (see in particular our recent articles on the ‘Six things businesses need to know about Australia’s sanctions regime’, as well as regarding the contractual ramifications of sanctions – ‘International sanctions and contracts under Australian law’).
In upholding DFAT’s Indicative Assessment, the Federal Court has provided clear and unambiguous support for the proposition that a broad spectrum of transport activities, including those occurring wholly outside Australia and concerning goods not intended for the Australian market, will be covered by Australia’s sanctions regime.
Going forward, the Commonwealth has indicated that it is considering further compliance activity against Tigers Realm, including a potential prosecution.
This case shows that Australian sanctions authorities are actively monitoring sanctioned activities, including those that occur overseas, and will take enforcement steps to ensure that Australia’s sanctions laws are not breached.
If you have any questions about Australia’s sanctions regime or how it might affect your business, please get in touch with Nathan Cecil from our Transport, Shipping and Logistics team.
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The information in this bulletin is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this bulletin is accurate at the date it is received or that it will continue to be accurate in the future.
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