The effect of Russian sanctions on international arbitration

8 July 2024

The effect of sanctions on international arbitration proceedings is a multifaceted issue which parties encounter with increasing frequency. In a recently published article in the Singapore Arbitration Journal, Paul Sandosham and Tess Forge from the Singapore Litigation and Dispute Resolution team discuss the interplay between Russian sanctions and the arbitration of cross-border disputes.

In a recently published article in the Singapore Arbitration Journal, Paul Sandosham and Tess Forge from the Singapore Litigation and Dispute Resolution team discuss the interplay between Russian sanctions and the arbitration of cross-border disputes.
The article analyses the multifaceted impact of Russian sanctions on international disputes, including: (i) an overview of economic sanctions on Russia; (ii) the arbitrability of disputes impacted by Russian sanctions; (iii) protections from liability available under statute and contract; (iv) how arbitral institutions deal with Russian sanctioned parties; (v) anti-arbitration injunctions under the Russian Commercial Procedure Code; (vi) the enforcement of arbitral awards against sanctioned Russian parties; and (vii) investment arbitration and Russian sanctions.

The current sanctions regime against Russia is unprecedented, complex and multi-sectoral, comprising:

sector-specific sanctions on banks/financial services, energy and industrial companies;
a broad range of financial-related restrictions;
restrictions on investments in Russia, Crimea/Sevastopol and non-government-controlled areas of Ukraine;
import/export restrictions; and
oil price cap sanctions.

Not only must parties with potential Russian exposure be alive to the applicable sanctions regime when doing business, but they must also be aware of the unique challenges presented by the arbitration of disputes involving sanctions or sanctioned counterparties.

At the contractual level, companies who may seek to extricate themselves from contracts with sanctioned counterparties to avoid potential consequences of dealing with sanctioned entities, may find themselves faced with a dispute on that contract and the effect (for instance) of statutory protections from liability under contract or bespoke sanctions clauses.

Issues may also arise concerning the arbitrability of the dispute. Whilst the prevailing view in most jurisdictions (certainly most common-law jurisdictions) is that disputes involving sanctioned parties are arbitrable, the extent of the impact depends on a wide range of factors including the specific sanctions regime in play, the nationality and location of the parties, arbitrator and witnesses, the arbitral institution, the seat and place of arbitration, and the location of the subject matter in dispute.

The flow of funds to and from sanctioned entities also poses challenges to the smooth administration of international arbitrations and the issuance of awards. Arbitrators, arbitral institutions and non-sanctioned counterparties must carefully consider applicable sanctions regimes when taking key steps in an arbitration which could cause sanctions' breaches, such as (i) providing arbitration services to a sanctioned party; (ii) receiving payment of arbitral fees and deposits from sanctioned parties; or (iii) issuing an arbitral award in favour of a sanctioned party. Arbitrators may be unwilling or legally unable to act in disputes involving sanctioned parties (for example, due to the nationality and place of residence of the arbitrator).

The enforcement of an arbitral award sought against or by a sanctioned Russian party in a state that imposes or recognises those very sanctions raises competing public interest considerations between, on the one hand, enforcing sanctions imposed and, on the other hand, enforcing the arbitral award against the sanctioned Russian party.

These challenges arise against the complexities of measures implemented in Russia which grant the Russian courts power to take jurisdiction over sanctions-related disputes and grant anti-suit injunctions against parallel proceedings abroad.

As sanctions increasingly become the tool of choice to respond to geopolitical challenges, the issues discussed in the article demonstrate the many complications which can and will continue to arise in relation to arbitration proceedings, due to the imposition of sanctions on Russia.