The Implications of Article 11 of Regulation 833/2014 on International Arbitration in the EU
Roman Zykov (Mansors)
The Russian Arbitration Association (“RAA”) has submitted an amicus curiae brief to the Court of Justice of the European Union (“CJEU”) concerning the interpretation of Article 11 of Regulation 833/2014. This regulation, part of the EU's restrictive measures, aims to limit financial and economic transactions with Russia. The case in question, Reibel Case C-802/24, originates from a dispute between NV Reibel Global Solutions Building (Belgium) and JSC VO Stankoimport (Russia) and was referred to the CJEU by the Svea Court of Appeal in Sweden. The amicus brief highlights critical legal issues regarding the application of Article 11 to arbitration, the recognition and enforcement of arbitral awards, and the broader impact on international arbitration. This post provides a summary of the amicus curiae brief, its objectives and possible consequences of a broad interpretation of Article 11 of Regulation 833/2014.
Understanding Article 11 of Regulation 833/2014
Article 11 of Regulation 833/2014 contains a "no-claims" provision, which prohibits the satisfaction of claims made by Russian entities in connection with contracts or transactions affected by the EU sanctions. This provision raises fundamental questions about its scope, applicability to arbitration, and potential consequences for the setting aside and enforcement of arbitral awards.
Historically, similar "no-claims" provisions have been included in various EU regulations (Article 12 of Regulation 747/2014, concerning Sudan; Article 17 of Regulation 2016/44, concerning Libya; Article 13 of Regulation 2022/2309 concerning Haiti) implementing United Nations Security Council (UNSC) resolutions. However, Regulation 833/2014 was enacted independently of any UNSC directive, making its legal basis different from the earlier sanctions regimes. This distinction is crucial in assessing the proportionality and legality of its restrictions because it is not based on the universally recognized prohibitions imposed by the UNSC.
The interpretation of Article 11 is a matter of significant debate. Two competing views emerge:
Narrow Interpretation: Article 11 applies exclusively to judicial proceedings within the EU and does not extend to arbitration. Even if it does apply to arbitration, it only affects the enforcement of arbitral awards rather than the arbitration process itself. This view aligns with the principle of party autonomy in arbitration and ensures legal certainty.
Broad Interpretation: Article 11 extends to arbitration, effectively barring arbitrators from adjudicating claims involving Russian parties. This interpretation could discourage international businesses from selecting EU Member States as seats for arbitration, fearing that arbitration agreements may be unenforceable due to EU sanctions.
Impact on International Arbitration
If a broad interpretation of Article 11 prevails, it would have far-reaching negative consequences for the EU’s arbitration landscape. Several key risks include:
First, parties to new commercial contracts will be reluctant to agree to arbitrate in the EU. This also applies to commercial contracts with no Russian connection due to the uncertainty over which countries might be subject to EU sanctions in the future and which mandatory rules therefore will apply to their contracts. This creates a chilling effect, as parties may choose non-EU seats simply to avoid the possibility of encountering the consequences entailed by application of Article 11;
Second, parties to new commercial contracts, including non-Russian parties, may be hesitant to subject their contracts to the substantive laws of EU Member States. This is because Article 11 could be interpreted as a mandatory provision of national laws within Member States, creating potential legal uncertainties. This could lead to a decline in the use of the laws of the EU countries as the governing law for international contracts, further undermining the EU's influence in international commerce;
Third, in newly initiated arbitral proceedings, including those outside the EU, parties may avoid appointing EU nationals as arbitrators, mediators, experts, or legal counsel, fearing that they could apply Article 11 as a mandatory and overriding provision of law. This concern stems from Article 13, which extends the application of Regulation 833/2014 to any individual, inside or outside the EU, who is a national of an EU Member State.
Finally, in arbitrations already in progress with a legal seat in the EU, parties and tribunals may be inclined to relocate the legal seat to a non-EU jurisdiction to avoid potential complications arising from the EU regulations. Such relocations would be costly and disruptive and would further undermine the EU's reputation as a stable and predictable arbitration seat.
Enforcement and Recognition of Arbitral Awards
One of the most contentious aspects of the case before the CJEU is whether arbitral awards in favor of Russian parties can be enforced in the EU. The New York Convention provides that enforcement may be refused if it contradicts public policy of the country where it is sought. However, the interpretation of what constitutes public policy varies among the EU Member States. Courts in some EU countries have refused to enforce awards involving Russian entities, citing fundamental principles of national law (Rosneft v Petrohim International Carriers). Others have granted enforcement, indicating a lack of uniformity in judicial practice (The Czech Republic 20 Cdo 136/2023-362).
The RAA’s amicus brief suggests that, while enforcement proceedings may be allowed, the actual execution of payment to a sanctioned entity may be blocked. For illustration purposes, this distinction is recognized in non-EU jurisdictions, in cases such as PJSC National Bank Trust v Mints, underscores that the prohibition in Article 11 applies to the actual satisfaction of claims rather than recognition of awards.
Battle of Sanctions and Countersanctions
Parallel to the EU's restrictive measures, Russian courts have asserted jurisdiction over disputes involving sanctioned entities. Articles 248.1 and 248.2 of the Russian Arbitrazh (Commercial) Procedure Code grant Russian courts exclusive jurisdiction over disputes where international arbitration is deemed inaccessible due to sanctions (see discussion here and here). Russian courts have been issuing anti-suit injunctions (“ASI”) to prevent proceedings in foreign jurisdictions. Non-compliance with such injunctions can lead to severe financial penalties (see discussion here).
In response, the EU enacted the 14th and 15th sanctions packages, which prohibit the enforcement of Russian court judgments issued under the Lugovoy Law in EU jurisdictions, further escalating the legal standoff between Russian and EU courts.
The EU restrictions however have little or no impact on the Russian parties with no assets in Europe, likewise Russian restrictions have little or no impact on the European parties with no assets in Russia. Therefore, the effectiveness of both measures is questionable if there are no assets in the jurisdiction to enforce against. However, if there are assets in the jurisdiction, there may be a situation with competing ASI.
Policy Considerations for the CJEU
As the CJEU deliberates on the interpretation of Article 11, it must balance several critical factors:
First, while the EU has an interest in ensuring that its sanctions are not circumvented, it must balance it against the need to uphold the rule of law and access to justice. Although ensuring its sanctions-related concerns, the EU risks losing trust as the forum where commercial parties can enforce their contractual rights and its attractiveness for international arbitration. As noted above, a broad interpretation of Article 11 would reduce the number of arbitration agreements to the European arbitration centres, would reduce the use of EU Member States national laws as governing laws in commercial contracts, and would increase hesitation for appointment of EU nationals as arbitrators among other concerns.
Second, an overly broad interpretation of Article 11 could be seen as expropriation under international investment law, leading to ISDS claims against the EU Member States. This may occur if Article 11 is construed to prevent the enforcement of arbitral awards or the restitution of advance payments, resulting in the deprivation of assets belonging to Russian investors. Also, if a Russian company invested in an EU project and paid a substantial advance, and Article 11 is interpreted to prevent the recovery of that advance due to sanctions, this could be viewed as an expropriation of the investment. The fair and equitable treatment standard, which is found in most BITs, requires states to act in a transparent, non-discriminatory, and reasonable manner. A broad interpretation of Article 11 could be seen as violating this standard and imposing discriminatory measures that unfairly target Russian investors.
Third, the lack of consistency between the Member States’ courts regarding the enforcement of arbitral awards calls for a harmonized judicial approach by the CJEU. As noted above, the Member States case law differs on various relevant issues, such as, for example, public policy. The objective of the CJEU would be to analyze different existing approaches and select the most appropriate one.
Conclusion
The interpretation of Article 11 of Regulation 833/2014 by the CJEU will have profound implications for international arbitration, access to justice, and the broader legal framework governing economic sanctions. A narrow interpretation would preserve the EU’s role as a leading arbitration jurisdiction while ensuring compliance with sanctions. Conversely, a broad interpretation risks undermining fundamental legal principles, discouraging investment, and shifting arbitration away from the EU.
As geopolitical tensions continue to shape legal frameworks, the CJEU’s preliminary ruling in the Reibel case will serve as a landmark decision, influencing how economic sanctions interact with international arbitration and contractual obligations. The challenge lies in striking a balance between enforcing sanctions and upholding the principles of legal certainty and fair dispute resolution.
As the Statute of the Court of Justice of the European Union (Article 23), has limitations regarding third-party interventions in the preliminary ruling procedure before the CJEU it is yet to be seen whether the RAA amicus brief will reach the EU judiciary and make any difference. Nevertheless, the valuable insights in the brief would certainly contribute meaningfully to the CJEU’s deliberations.
