Update on economic sanctions: enforceability of awards in frozen assets

Newsletter 02/2023 - Announcements


In the new year, economic sanctions imposed on Russia continue to be an issue of concern for international arbitration. Individuals or companies whose contracts contain arbitration clauses or who intend to use arbitration clauses in the future, counsel to parties, arbitrators, and arbitral institutions such as the DIS are directly confronted with the effects of economic sanctions. However, the fast pace set by the European Union with regard to new measures or the extension of existing ones also has its side effects on international arbitration, which are not always reasonable.

Last year, the DIS already reached out, together with other institutions (SCC, VIAC, FAI, CAM, ASA), to the European Commission regarding the scope of Article 5aa of Regulation (EU) 833/2014, which had established a comprehensive prohibition on business and transactions with listed entities and potentially severely restricting arbitration proceedings, as these require multiple transactions by the parties. The European Union reacted to the concerns expressed by the institutions and, with Regulation (EU) 2022/1269, limited the previously introduced Article 5aa with the newly created paragraph 3 lit. g). Accordingly, transactions that are necessary for granting access to judicial, administrative or arbitration proceedings are no longer subject to the comprehensive prohibition that had previously been stated.

This year, the DIS, again jointly with the above mentioned fellow arbitral institutions, addressed the issue of enforceability of awards in frozen assets by a joint statement to the European Commission dated 10 January 2023.

The reason for this statement is Article 2 in conjunction with Article 5 (1) lit. a) of Regulation (EU) 269/2014. The former orders freezing of all funds and economic resources belonging to persons or companies listed in Annex I of the Regulation. The latter provides for an exemption in the form of an administrative authorisation if those funds or resources are subject of an arbitral decision rendered prior to date on which the person or company was included in the sanctions list included in Annex I of the Regulation.

That is problematic for two reasons. Firstly, because it entails an unequal treatment between arbitration and judicial proceedings in Article 5 (1) lit. a). In case of judicial decisions, there is a possibility of administrative authorization for the release of frozen funds even if the decision is made after the person or company has been included in Annex I of the Regulation. Secondly, it bears a significant risk of a factual obstacle to the enforcement of arbitral awards. The number of directly listed persons and companies has significantly increased to over 1,400. In addition, persons and companies who are connected with listed entities also fall under these sanctions. As a result, there. The DIS has drawn the attention of the European Commission to this issue and has once more asked for clarification.

The DIS will continue to monitor developments in the area of economic sanctions with regard to their nature, scope and objectives and provide information on any new developments here.

Daniel Henry Gerl


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