EU sancitons adopted against a third country, like Russia or Iran or an other one, aim to safeguard the public interest of the EU. These sanctions and legal effects are mandatory.
It means that its provisions cannot be derogated from by agreement.
Under sanctions regime, local authorities refuse to grant the export license to sancitonned country. Local banks may also freeze money transfers.
Usually, EU sanctions prevent an entity targeted by the restrictive measures at issue from being able to procure performance of a prohibited transaction.
What fate should be reserved for contracts in progress at the time of the introduction of sanctions?
EU Regulations prevent targeted entities from legal actions.
For instance, Article 11 of Council (EU) Regulation2022/328 provides:
""1. No claims in connection with any contract or transaction the performance of which has been affected, directly or indirectly, in whole or in part, by the measures imposed under this Regulation, including claims for indemnity or any other claim of this type, such as a claim for compensation or a claim under a guarantee, notably a claim for extension or payment of a bond, guarantee or indemnity, particularly a financial guarantee or financial indemnity, of whatever form, shall be satisfied, if they are made by: (a)legal persons, entities or bodies listed in Annexes III, IV, V,VI, XII or XIII or referred to in point (b) or (c) of Article 5(1), in point (b) or (c) of Article 5(2), in point (c) or (d) of Article 5(3), in point (b) or (c) of Article 5(4) and in point (a), (b) or (c) of Article 5a ;(b)any other Russian person, entity or body;(c)any person, entity or body acting through or on behalf of one of the persons, entities or bodies referred to in points (a) or (b) of this paragraph.
2. In any proceedings for the enforcement of a claim, the onus of proving that satisfying the claim is not prohibited by paragraph 1 shall be on the person seeking the enforcement of that claim.
3. This Article is without prejudice to the right of the persons, entities and bodies referred to in paragraph 1 to judicial review of the legality of the non-performance of contractual obligations in accordance with this Regulation."
This provision prohibits the “satisfaction” of “claims” “in connection with any contract or transaction the performance of which has been affected, directly or indirectly, in whole or in part, by the measures imposed under this Regulation”.
This provision not invalid of such contracts.
This provision does not prohibit the legal proceedings started to make the “claims”. It prohibits the “satisfaction” of such “claims”.
Targeted contracts by sanctions could be submitted for judciail or arbitral review, but the judge would have limited powers. It could order reimbursement of adavnced payments made before the introduction of sanctions. But it could not order to pay contractual penalties because it cannot satisfy a claim which seek to draw financial consequences from the non-performance of a prohibited contract.
Anna Sussarova
Partner