Impact of Russian Sanctions on International Arbitration – An update

With respect to access to international arbitration, EU, UK and US sanctions regime may present challenges where a party to an arbitration is specifically designated under one of these sanctions regimes: in such case, a specific licence may be required to either (i) participate to the arbitration in any capacity (counsel, tribunal member, administering institution) and/or (ii) access any funds belonging to the sanctioned party. It is nevertheless notable that these limitations only affect specifically designated sanctioned parties, and do not contain a general prohibition on the representation of Russian parties in contentious matters, including arbitration.

As regards the resolution of disputes, sanctions may have a significant impact on a party's ability to comply with its contractual obligations: in such cases, parties may attempt to rely on a force majeure clause (or, in the absence of a specific clause, invoke frustration) to excuse their non-performance. However, a party's ability to rely on such a clause will depend on its specific wording, and notably whether it includes sanctions as a trigger. For instance, the 2020 ICC model force majeure clause lists sanctions as a "presumed force majeure event": in such a case, a party may argue that the burden of proof is reversed, with the counterparty having to show that the event does not qualify as force majeure. Against this background, it is notable that most sanctions regimes (including the EU and UK) include "no claims" and/or "no liability" provisions seeking to shield their nationals from claims and/or liability arising from contracts the performance of which has been affected by the sanctions (see, for instance, Council Regulation No. 833/2014, Art. 11.1).

Finally, sanctions may also affect the ability to enforce arbitral awards: while there is no absolute consensus on the question, enforcement of an award in breach of a sanctions regime may be denied on the grounds that it violates public policy (Art. V(2)(b) of the New-York Convention). With respect to enforcement of an award against a specifically sanctioned party, a licence from the competent sanctions authority to secure payments from a sanctioned person's frozen assets or blocked accounts will be required in the US and EU. In this regard, it is worth to note that under the EU sanctions regime, the release of frozen funds will be authorized only where the arbitration award was rendered "prior to the date on which the sanctioned person was designated" (Council Regulation No. 269/2014, Art. 5.1(a)). 

Authored by Melissa Ordonez and Lucas Aubry.

This article was originally published in the Legal Industry Review.