The Swedish Court of Appeal (Court) has requested a preliminary ruling from the Court of Justice of the European Union (CJEU) to clarify the effect and scope of Russia-related sanctions. The anticipated ruling by the CJEU will have important implications for the arbitrability of disputes affected by Russia-related sanctions.
Arbitral tribunal finds the dispute arbitrable
In 2015, JSC VO Stankoimport (Stankoimport), a Russian buyer, and NV Reibel (Reibel), a Belgian seller, concluded a contract over the supply of goods. The contract was governed by Swedish law and contained an arbitration clause with a Swedish seat.
Stankoimport prepaid part of the contract price to Reibel. In March 2017, a Belgian authority refused to issue a license for Reibel to export the goods to Stankoimport, finding that exporting the goods would violate European Union (EU) sanctions. An appeal by Reibel to the Belgian Conseil d'État was unsuccessful.
Following Reibel's failure to deliver the goods, Stankoimport initiated arbitration proceedings against Reibel for breach of contract. The tribunal ordered Reibel to repay the advance payment made by Stankoimport plus interest.
Reibel requested the Court to set the award aside.
Swedish Court of Appeal requests a preliminary ruling from the CJEU and questions the arbitrability of the claim
The Court has requested a preliminary ruling from the CJEU on three issues relating to Art. 11(1) of Council Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia's actions destabilizing the situation in Ukraine (the Regulation).
Under Art. 11(1) of the Regulation, "no claims" by a Russian company may be satisfied "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 [the] Regulation [...]". This provision was introduced in the original version of the Regulation in 2014 and has remained in force to date. Its purpose is to ensure that the effectiveness of the Regulation is not undermined by any private law remedies, thereby protecting European parties from negative consequences for complying with the EU sanctions regime. As the Court notes, previous CJEU rulings suggest a broad interpretation of the provision.
First, the Court asks the CJEU a question which goes to the arbitrability of the claim under Swedish law, i.e. whether the claim is capable of settlement by arbitration. Under Swedish law, the arbitrability of a claim hinges on the preliminary question whether the parties are free to agree to settle a claim. If the parties are free to agree to settle a claim, then the claim is arbitrable. The Court therefore asks whether the Regulation precludes parties from settling claims which may not be granted under Art. 11(1) of the Regulation and whether related settlement agreements are void. The Court notes that neither the Regulation nor Swedish law provide for any civil penalties, such as nullity, for breaches of the provisions of the Regulation. However, the Court reasons, to be given reasonable effect, the Regulation arguably calls for there to be civil law effects between parties.
Second, the Court asks the CJEU whether any national court hearing an application for setting aside or annulment of an arbitral award must, of its own motion, scrutinize the compatibility of the tribunal's decision with the Regulation and, in case it finds that the tribunal's legal approach was contrary to it, set aside or annul the award (which, from a Swedish law perspective, would be possible if the violation the Regulation was contrary to EU public policy).
Third, to assess if the award violated Article 11(1) of the Regulation (and thereby potentially EU public policy), the Court asks whether the granting of claims for the refund of an advance payment for goods never delivered due to measures under the Regulation and interest on such a claim, are precluded by the Regulation.
Commentary
The Court's application for a preliminary ruling, which should be viewed against the background of an increasingly complex EU sanctions regime in relation to Russia, raises a host of interesting questions concerning the interplay between the Regulation and arbitration, highlighting the continuing uncertainty relating to its key provisions.
The application highlights two particularly interesting questions in the context of international arbitration, both of which have the potential to significantly impact related disputes:
- Arbitrability: The concept of arbitrability does not follow a universal definition. The approach of Swedish law, looking at the question whether the parties are free to agree to settle the claim, however, is largely consistent with that of many other countries (e.g. Italy and France). Should the CJEU determine that parties cannot settle claims which may not be granted under Art. 11(1) of the Regulation, effectively rendering disputes non-arbitrable in many jurisdictions, it would introduce considerable uncertainty to potential disputes. Such disputes may then need to be resolved in state courts instead.
- Public policy challenge: Arbitral awards are not generally subject to a review on their merits. However, it is well-settled in most jurisdictions that an arbitral award may be set aside or annulled if it violates a limited number of fundamental public policies or mandatory laws. Whether Art. 11(1), or the Regulation more broadly, qualifies as such a fundamental public policy (as has been ruled in other areas of EU law, such as competition law), merits clarification by the CJEU. The implications of a decision on this matter are significant. A "yes" from the CJEU could open a pathway for challenging a number of arbitral awards affected by the Regulation.
Despite a recent reform of the Rules of Procedure of the CJEU and the General Court aimed at reducing some of the workload of the CJEU, a preliminary ruling of the CJEU is not expected before the spring of 2026.
Judgment: NV Reibel v. JSC VO Stankoimport (C-802/24)
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