EU sanctions and commercial arbitration: Advocate General’s Opinion in NV Reibel v JSC VO Stankoimport

Referred to the Court of Justice of the European Union (the “CJEU”) by the Svea Court of Appeal in Stockholm, the case centres on Article 11(1) of Council Regulation (EU) No 833/2014 which imposes extensive financial and trade sanctions with respect to Russia (the “Regulation”). Often referred to as the "No Claims Clause," this provision prohibits the satisfaction of claims connected to contracts affected by EU sanctions when brought by (i) any person listed in the Annexes to the Regulation or any legal person established outside the EU which is, directly or indirectly, owned more than 50% by such persons, (ii) any other Russian person, entity or body; or; (iii) anyone acting through or on behalf of the persons listed in (i) or (ii).

The Opinion, while not binding on the CJEU, offers useful guidance on interpreting this clause and navigating the broader interaction between EU Russia-related sanctions and commercial arbitration.  The Opinion will now be considered by the CJEU which will deliver judgment on the case in due course.

Key points

• Article 11(1) of Regulation does not, in itself, prevent arbitration. It does, however, prevent the satisfaction of a claim falling within Article 11(1), even if the dispute is heard by an arbitral tribunal.
• Article 11(1) is part of EU public policy. As such, a Member State court reviewing an arbitral award must ensure that the tribunal’s application of Article 11(1) is correct. If the award granted is incompatible with Article 11, the court must draw the consequences set under national law, including setting it aside.
• Article 11 precludes the satisfaction of a claim for repayment of an advance payment (plus interest).

Background

On 8 December 2015, NV Reibel (Belgium) (“Reibel”) and JSC VO Stankoimport (Russia) (“Stankoimport”) concluded a contract for the sale and supply of goods by Reibel to Stankoimport (the “Contract”). The contract, which was governed by Swedish law, contained an arbitration agreement (with any arbitration to be seated in Sweden) and stated that EU sanctions against Russia would be neither force majeure nor a release from contractual obligations.

The Belgian authorities subsequently refused to issue an export licence for the goods which they determined were intended for the production of helicopter parts and which were therefore classified as dual-use items. The Regulation prohibited the export of such dual-use items. As a result, Reibel did not deliver the goods under the Contract. It also did not repay the monies which Stankoimport had paid in advance.

Stankoimport commenced arbitration and an arbitration award was made on 5 December 2021 (the “Award”). The Award ordered Reibel to repay Stankoimport the advance payment, plus interest and costs. It, however, dismissed Stankoimport’s compensation claims. The Arbitral Tribunal held that the Award, specifically the repayment of the advanced funds, did not fall within the scope of Article 11(1) of the Regulation as it acted to restore the parties to the position they were in prior to the Contract and did not, therefore, constitute a prohibited claim.  By contrast, the Arbitral Tribunal held that claims for compensation fell within scope of Article 11(1) of the Regulation as Stankoimport was attempting to obtain a financial advantage.  Reibel brought set-aside proceedings before the Svea Court of Appeal which led to the referral to the CJEU and the Opinion.

Questions

In the course of these set-aside proceedings, the Svea Court of Appeal decided to refer three questions to the CJEU, which concerned, in substance, the following:

1. the civil-law effects of Article 11(1) and whether it prevents parties from reaching out-of-court settlement on claims which are prohibited under Article 11(1) of the Regulation; 
2. whether the Regulation comes under EU public policy; and
3. whether Article 11(1) allows satisfaction of a claim for repayment of an advance payment and interest, where performance was prevented by EU restrictive measures.

Opinion

1. Article 11 and out-of-court dispute resolution

Because “out of court settlement” is broad, the Opinion centred on the concept of arbitrability, namely, whether a dispute can be resolved by arbitration at all.  The Advocate General concluded that:

• Article 11(1) prohibits claims by any Russian party for compensation or any other claim of that type on the basis of a contract or transaction affected by the sanctions imposed in the Regulation;
• Article 11(1) prohibits giving effect to, or the satisfaction of, prohibited claims, but does not prohibit bringing such claims before an arbitral tribunal or other forum;
• the Regulation contains anti circumvention safeguards but does not restrict the use of arbitration agreements or require their removal; and
• arbitration awards must always be open to judicial review in order to guarantee compliance with EU public policy.
 
2. EU public policy

The Advocate General concludes that the Regulation “is essential and/or of fundamental importance to the accomplishment of the tasks entrusted to the EU”.  It is noted that Article 11(1) was established in order to protect EU operators from adverse consequences which can arise due to the implementation of sanctions and is a part of EU public policy.  As such, any national court or tribunal must ensure that any action it engages in is in compliance with Article 11 – if it is not, then any award imposed by an arbitral tribunal must be set aside.

 
3. What counts as a “claim” that is “not to be satisfied”

The Advocate General also concluded that Stankoimport’s claim for repayment of the advance it had paid does constitute a “claim” which is not to be satisfied under Article 11(1).   Importantly, the Advocate General concluded that:

• Article 11 is broad and the examples of claims listed therein are not exhaustive;
• As noted above, Article 11(1) was established in order to protect EU operators from adverse consequences which can arise due to the implementation of sanctions;
• Stankoimport is a Russian operator;
• The claim is submitted in connection with the Contract and performance was prevented by the export prohibition on dual-use items. Article 11(1) therefore precludes satisfaction of repayment of the advance plus interest;
• Although there would be adverse effects on Stankoimport’s right to property, a decision could recognise the existence of the claim it has for repayment of the advance, while suspending enforcement, or take the form of declaratory relief protecting the claim. Payment could then follow if, and when, the restrictive measures are lifted.

Practical implications

The Opinion is advisory and not binding on the CJEU. However, if the CJEU follows the reasoning in the Opinion, there will be clear practical implications for EU-connected arbitrations involving Russia parties.  Such arbitrations will need to consider whether the scope of claims is in any way constrained by Article 11(1). Whilst the Opinion concludes that arbitration in and of itself is not prohibited by Article 11, and parties to agreements can bring an arbitration, any claims arising from such proceedings cannot necessarily be satisfied whilst restrictions remain in place.  Awards that grant relief falling within the scope of Article 11 may also be vulnerable to set-aside when it comes to enforcement on the basis that the satisfaction of claims connected to sanctioned contracts could be challenged on public policy grounds. We wait to see the outcome of the CJEU’s decision as to whether the Opinion is adopted.