Analysis
3 May 2023

The impact of international sanctions in international litigation and arbitration

International sanctions, which are political, diplomatic and public international law measures also impact commercial relationships. Navacelle summarizes their consequences on international litigations and arbitrations.

 

International sanctions, which are coercive measures aimed at bringing about political change, are accordingly foreign policy instruments affecting public international law and international inter-state relations.[1] They also often have an economic aspect, and thus have important consequences for the commercial and contractual relations of economic agents – this is the case, for example, of the recent sanctions taken against Russia by the European Union or the United States.[2] As such, they add complexity to transnational disputes, by disrupting contract performance and dispute resolution.

International sanctions may thus affect the performance of contractual obligations and add legal uncertainty to the relationship between the contracting parties. A party may indeed attempt to rely on sanctions to terminate a contract or to justify breaches of its obligations, for example by arguing that the contract is unlawful[3] or by relying on the notion of frustration[4] or force majeure.[5] The effect of sanctions is not, however, absolute and is limited to the parties who are directly affected by them: thus, sanctions taken by a country cannot affect the performance of a contract which has no connection with that country[6] and a party targeted by a sanction measure cannot rely on it to characterize force majeure, as it is not external.[7]

Once the dispute has materialized, as second issue is whether there are any bars on initiating legal action. However, the sanctions’ regimes generally allow for legal representation, including for parties targeted by them.[8]

Third, sanctions can render the recognition of judgments more complex in case of violation of international public policy.[9] In this respect, case law has made it clear that United Nations and European Union sanctions form part of French international public policy.[10] The judges therefore control that the foreign decision to be recognized, in particular arbitration awards, complies with such sanctions, insofar as they are applicable to the dispute, in order to control the inclusion of this decision into French legal order.

Finally, international sanctions may occur at the stage of enforcement itself. Assets that are affected by international sanctions, or held by persons targeted by sanctions, may be frozen, so that they become unavailable.[11]

Restrictive measures imposed by international sanctions may affect the entire commercial relationship. In this sense, they constitute a risk to be taken into account by impacted economic operators, from the moment the contract is concluded, but also in the event of possible litigation resulting from the termination or breach of contract due to the existence of these sanctions.

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