Effects of EU sanctions on international contracts in course of performance
EU sanctions adopted against a third country, like Russia, Iran or others, aim to safeguard the public interest of the EU. These sanctions and their legal effects are mandatory, which means that their provisions cannot be derogated from by agreement.
Under a sanctions' regime, local authorities refuse to grant export licenses to the sancitoned country. Local banks may also freeze money transfers. Besides, very often EU sanctions prevent an entity targeted by the restrictive measures at issue from being able to procure performance of a prohibited transaction or contract.
What fate is reserved for contracts in progress at the time of the introduction of sanctions?
EU Regulations prevent targeted entities from taking 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 sanctioning measures. This provision does not prohibit legal proceedings initiated to make the “claim”. It merely prohibits the “satisfaction” of such "claims”.
Contracts affected by sanctions could be submitted to judciail or arbitral review, but the judge would have limited powers. It could order reimbursement of advance payments made before the introduction of sanctions. But it could not order to pay contractual penalties because it cannot satisfy a claim which seeks to draw financial consequences from the non-performance of a prohibited contract.
We assist you in the legal proceedings arising from the effect of sanctions on your undergoing contracts. Feel free to contact us for further information.
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