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As reported on this blog[1], in 2020 the Russian State Duma adopted the Law No. 171-FZ “to protect the right to access to justice of sanctioned parties.” The law presumes that sanctions adversely affect the position of sanctioned Russian individuals and legal entities in foreign court or arbitral proceedings and create the risk that sanctioned parties will not receive the same level of protection as their opponents. Consequently, Law 171-FZ entitles a sanctioned party to disregard a jurisdiction or arbitration agreement and to ask a Russian state commercial court to decide the dispute. The Russian state commercial courts have exclusive jurisdiction over such a dispute. It is not necessary that the applicant is in fact treated unfairly in the foreign proceedings. For the Supreme Court of the Russian Federation, the imposition of sanctions suffices to render a jurisdiction or arbitration agreement unenforceable.

At first glance, Law 171-FZ may seem to be aimed at ensuring procedural fairness for sanctioned parties. Upon a closer look, however, Law 171-FZ (as applied by the Supreme Court of the Russian Federation) aims at preventing the application of the substantive provisions of the sanctions regime.

From the perspective of the countries which have imposed sanctions upon Russia, the sanctions provisions are justified under international law and constitute overriding mandatory rules which must be applied regardless of the law governing a dispute. At the same time, due process is a fundamental principle of European law.

The question of how to resolve the potential conflict between ensuring sanctioned parties’ procedural rights in court or arbitral proceedings and the need to apply the sanctions regime was intensively discussed in the European Union (“EU”) and in the United Kingdom (“UK”). The conclusion was: access to justice for sanctioned parties must be guaranteed when observing and enforcing sanctions.

1. European Union’s attempt to reconcile the right to access to justice with the sanctions regime

In May 2022, six arbitral institutions, namely

  • the Arbitration Institute of the Stockholm Chamber of Commerce,
  • the Vienna International Arbitration Centre,
  • the Arbitration Institute of the Finland Chamber of Commerce,
  • the Swiss Arbitration Centre,
  • the German Arbitration Institute and
  • the Milan Chamber of Arbitration

asked the European Commission for clarifications on arbitral proceedings involving sanctioned entities. The institutions feared it would be difficult (if not impossible) for lawyers, arbitrators and arbitral institutions in the EU to participate in arbitral proceedings involving sanctioned individuals or entities.

To understand this request for clarification, it is helpful to look at the evolution of the sanctions regime. Initially, following the occupation of Crimea in 2014, Regulation No 833/2014 [2] (“the Regulation”) put a set of restrictive measures upon natural or legal persons, entities, or bodies in Russia. After the full-scale invasion of Ukraine in February 2022, the EU imposed further sanctions packages upon Russia. The fourth sanctions package, established by Regulation 2022/428[3],  inserted Art. 5aa (1) into Regulation No 833/2014. It prohibited to engage directly or indirectly in any transaction with a legal person, entity, or body in or outside of Russia owned or controlled by the Russian Government or the Russian Central Bank.

This broad wording raised concern that the administration of arbitral proceedings could be considered a “transaction” in the meaning of Art. 5aa (1) of the Regulation.

Convinced that arbitration does not per se entail economic activities but constitutes the administration of justice, the arbitral institutions asked the European Commission to answer the following questions[4]:

  • Do arbitration agreements, arbitration proceedings and related legal services fall within or outside the scope of “any transaction” as provided for in the Regulation?
  • Does the Regulation prohibit arbitral institutions from administering pending and/or future arbitration proceedings, involving parties subject to sanctions under the Regulation?
  • Does the Regulation prohibit arbitrators from acting in pending and/or future arbitration proceedings, involving parties subject to sanctions under the Regulation?
  • Does the Regulation prohibit legal counsel from representing parties subject to sanctions under the Regulation?

In response, the EU issued the seventh package of sanctions against Russia on July 21, 2022. Besides several new significant prohibitions concerning exports from Russia, this package clarified the scope of the prohibition in Art. 5aa (1) to engage in transactions with sanctioned entities in the context of arbitral proceedings. The new Art. 5aa (3)(g), inserted into the Regulation by the seventh sanction package, provides that

  • transactions strictly necessary to ensure access to judicial, administrative, or arbitral proceedings in a Member State, as well as
  • transactions for the recognition or enforcement of a judgment or an arbitral award rendered in a Member State

are exempt from the sanctions regime and do not constitute a direct or indirect engagement in a prohibited transaction if such transactions are consistent with the objectives of Regulations No. 833/2014 and No. 269/2014.

Consequently, lawyers may represent sanctioned Russian persons or entities in litigation or arbitration, arbitrators may participate in arbitral proceedings involving sanctioned parties and arbitral institutions may administer such arbitrations within the EU if they observe the substantive provisions of the various packages of sanctions. The clarification reconciles access to justice and due process for sanctioned parties with the respect for the sanctions regime in the EU.

In a Joint Statement, the six arbitral institutions welcomed the clarification as a safeguard for the procedural rule of law which ensures access to justice for all parties to an arbitration agreement.

2. OFSI General Licence – Legal Fees INT/2022/2252300 and OFSI General License – London Court of International Arbitration (LCIA) Arbitration Costs INT/2022/1552576

Like the EU, the UK has introduced large and severe sanctions against Russia. Since February 2022, more than 1200 natural or legal persons were added to the list of designated persons to which the UK sanctions regime applies.

Normally, a designated person subject to a UK asset freeze requires a licence from the Office of Financial Sanctions Implementation (“OFSI”) to use or benefit from any of the funds or economic resources it owns or controls. This includes funds needed for the payment of fees for legal representation.  

OFSI traditionally does not prohibit the provision of legal advice to a designated person under an asset freeze. Thereby, the OFSI acknowledges the importance of a person’s ability to receive legal advice and representation. The payment for such legal services, however, requires an OFSI licence.

In view of the large number of new designations under the sanctions regime, and the correlating increase in the number of those seeking a licence from OFSI for the payment of legal fees, OFSI issued General Licence INT/2022/2252300 to permit the payment of legal fees owed by sanctioned individuals and entities.[5] A UK legal firm or UK Counsel who has provided legal advice to a sanctioned person will therefore not have to wait for an OFSI specific licence before they can receive payment from that designated person, provided that the terms of the general licence are met.

In addition, OFSI issued General Licence INT/2022/1552576, which allows sanctioned persons and companies owned and controlled by sanctioned persons to make payments to the London Court of International Arbitration (“LCIA”) to cover their arbitration costs. General Licence INT/2022/1552576 also permits the LCIA to direct and receive such payments to use them to pay for arbitration costs.[6]

General Licence INT/2022/1552576 does not authorise any act which will result in funds or economic resources being dealt with or made available in breach of the sanctions regime.

3. Practical Consequences

The above shows that the allegation of the Russian Federation that sanctioned persons or entities do not have access to justice and are not treated fairly and equitable in the EU or the UK is not correct. It is, however, true that courts or arbitral tribunals in the EU and the UK will have to apply the sanctions regime as its provisions constitute overriding mandatory rules.

The practical consequences for disputes between a sanctioned person or entity and a person or entity from the EU or the UK will depend on (i) the applicable jurisdiction or arbitration agreement and (ii) the circumstances of the individual case:

  • If the contract provides for litigation or arbitration outside Russia, a Russian claimant will consider whether the respondent has assets in Russia against which a favourable judgment of a Russian commercial court could be enforced. If the foreign respondent only has assets outside Russia, the Russian claimant will probably trigger Law No. 171-FZ only if a Russian judgment is enforceable in the country in which the respondent’s assets are located. Most countries, namely those which have imposed sanctions on Russia, will not recognize judgments of a Russian commercial court based on Law 171-FZ. Similarly, only a Russian respondent without assets outside of Russia will probably attack a contractual jurisdiction or arbitration clause under Law No. 171-FZ. With assets outside Russia, it will be in the best interest of the Russian respondent to defend against the claim in the foreign forum agreed upon with the claimant.
  • If the contract provides for litigation or arbitration in Russia, there is no reason for the Russian party to be concerned about access to justice or unfair treatment. Law 171-FZ is therefore irrelevant. The concerns are reversed: a European party may fear that it will not be treated fairly in Russian proceedings. It can therefore be expected that parties from the EU or the UK will try to avoid litigation or arbitration in Russia.

Laws like Law No. 171-FZ do not exist in the EU or the UK. Nevertheless, general principles of law may provide a way out of the Russian forum. A German court decision rendered in 1992 could serve as a blueprint. The court held that an arbitration clause providing for arbitration in Belgrade could be terminated for cause by a party resident in Slovenia because of the state of war prevailing between Slovenia and Serbia at the time.[7]

Although the EU and the UK are no parties to the war in Ukraine, relations between Russia and the west are very tense and hostile since the beginning of the war. It is reasonable to expect that, due to the strained relations, a party from the EU or the UK may argue that it cannot reasonably be expected to adhere to a jurisdiction or arbitration agreement which provides for litigation or arbitration in Russia where the sanctions regime will not be applied. It may therefore try to terminate such agreement for cause or take the position that such agreement is inoperative under the given circumstances.  

This action may not avoid that litigation or arbitration proceedings will take place in Russia but the recognition and enforcement of a Russian judgment or award in the EU or the UK may fail.

[1] Global Arbitration News, July 27, 2022.

[2] Council Regulation (EU) No 833/2014 of  July 31, 2014.

[3] Council Regulation (EU) No 2022/428 of March 15, 2022 amending Regulation No 833/2014.

[4] Request of SCC to EC of May 3,  2022.

[5] Publication Notice General licence – INT/2022/2252300

[6] Publication Notice General licence – INT/2022/1552576.

[7] District Court Kassel, NJW 1992, 3107.


Jürgen Mark is of counsel in the Düsseldorf office. He practices litigation and domestic and international arbitration, among others, in corporate and post-M&A disputes as well as in major construction projects.


Olena Oliinyk is an intern in the Dispute Resolution Practice Group in the Dusseldorf office. She studied law at Ivan Franko National University of Lviv/Ukraine.