What challenges do sanctions pose in international arbitration?
James Freeman: Sanctions are an issue across our practice in a way that we just didn’t see five years ago. One needs to think about the impact of sanctions across the entire life cycle of an arbitration.
As a starting point, I would note that there is sometimes a misconception that arbitration (or other dispute resolution) is impossible when a sanctioned party is involved. This is not the case. Sanction regimes generally recognize the fundamental necessity of access to justice (including arbitration), and licenses to allow sanctioned parties to pay legal and arbitral fees are generally available.
Jennifer Younan: There are a few challenges I could point to but let me highlight two that I think are particularly significant in practice: the heightened strategic considerations around the choice of seat and the selection of arbitrators.
The choice of seat has always been an important decision in drafting an arbitration agreement, but it has taken on heightened importance in sanctions-related disputes. We increasingly see parties disagreeing on what constitutes a “neutral” seat. This raises interesting questions for parties seeking to agree upon a seat at the outset, given how rapidly the geopolitical landscape can shift. What seems neutral today may not remain so in five or ten years’ time when a dispute actually arises.
Similarly, we have seen an increased risk of challenges to arbitrators—or indeed, refusals to agree on the appointment of a particular candidate—based on real or perceived affiliations with certain states, or the expression of views on legal or political issues. This can limit the pool of available arbitrators and delay the constitution of tribunals.
In practice, how are sanctions mapped onto traditional contract law concepts?
James Freeman: One of the most interesting lessons from the new wave of sanctions-related cases has related to the tension (at least under some laws) between sanctions and the traditional contract law concepts which excuse contractual performance on the basis of illegality. One’s first reaction might be that sanctions must surely excuse a party from paying money to a sanctioned counterparty or from performing a contract with it. But the analysis can be a lot more complex and will depend on the applicable law, the contractual terms and the facts.
Often the first consideration is whether sanctions trigger a force majeure clause. From a common law perspective, this will depend on the specific terms of the clause and the measure. Sanctions are not always identified expressly as a force majeure event although unsurprisingly this is becoming more common.
Where performance of an English law contract has become illegal (e.g., because it breaches UK sanctions legislation), the contract is unenforceable. However, this assumes that sanctions do indeed make performance illegal: it would not be illegal if a license could be obtained. The English courts have often taken quite a hard line in requiring parties to prove that they have tried to obtain a license, or alternatively that a license application would be hopeless.
In contrast, foreign illegality (e.g., where an English law contract breaches EU sanctions) does not necessarily excuse non-performance of an English law obligation, unless the contract has become illegal at the place of performance (under Ralli Bros). This can be at odds with the practical reality that sanctions may require non-performance, regardless of the contract law position.
Parties sometimes also consider the availability of frustration. But for English law frustration to apply, the question is whether the relevant measure renders contractual performance impossible or radically different to what was contemplated. This is a stiff test that is rarely met, even in a sanctions context.
Jennifer Younan: In civil law systems, such as France, a party will similarly first examine relevant contractual provisions. However, even where a contract is silent, a party may still rely on statutory mechanisms of force majeure and imprévision (the civil law equivalent of hardship), which can provide important relief in sanctions-affected situations.
In France, force majeure may excuse non-performance where sanctions are (i) beyond the party’s control, (ii) unforeseeable at the time of contracting, and (iii) render performance objectively impossible.
Interestingly, French courts have held that a party targeted by an asset-freeze cannot invoke force majeure; however, a non-sanctioned counterparty is likely to be able to do so. Where impossibility is temporary, the performance of the contract is suspended and, if the delay extends beyond a certain period, the other party may elect to terminate the contract; where impossibility is permanent, the contract is discharged automatically.
Where sanctions significantly disrupt the contract’s economic equilibrium without making performance impossible, a party may invoke imprévision to seek renegotiation and, failing that, judicial adaptation or termination of a contract—provided the contract was entered into after 2016 and this remedy has not been contractually excluded.
This remedy is especially relevant in what I would call “sanctions-adjacent” situations: where compliance burdens or supply-chain disruptions materially increase performance costs without actually preventing performance. Think, for example, of a European supplier whose logistics costs triple because it must now route shipments around sanctioned territories, or where due diligence requirements become so onerous that they fundamentally alter the economics of the deal.
However, practitioners should pay close attention to when contracts were concluded and whether imprévision has been carved out, as many sophisticated commercial agreements drafted after the 2016 reforms expressly exclude this remedy.
What does a robust sanctions clause look like in an international commercial contract?
James Freeman: Sanctions clauses were more of a “nice to have” before 2022. That is no longer the case. And clauses have now been stress-tested in litigation and arbitration, so we are better informed about what a robust sanctions clause looks like.
Most critically, the clause should define the scope of sanctions it covers. Disputes typically arise as to the applicability of a relevant sanctions regulation to the contract in dispute. This includes addressing whether the clause covers only primary sanctions that directly bind the parties, or also secondary sanctions—such as U.S. secondary sanctions that create penalty risks for non-US persons.
The potential pitfalls of insufficiently comprehensive drafting can be seen from Lamesa Investments v. Cynergy Bank. In that case, the English Court of Appeal considered a standard clause providing that Cynergy would not be in breach of its payment obligations if it could show it had not paid “in order to comply with any mandatory provision of law, regulation or order of any court of competent jurisdiction.”
The question was whether this captured non-payment to comply with U.S. secondary sanctions legislation, which did not directly bind the bank but created a penalty risk. The court held that the clause did cover U.S. secondary sanctions, reasoning that “one of the risks facing international banks” was “the problem of dealing with the prospect of US secondary sanctions.” While the bank was successful, this was only the case after hard-fought litigation; more express drafting might have avoided this.
In addition, a robust sanctions clause should ideally address:
- the specific sanctioning jurisdictions whose measures will trigger the clause
- the types of sanctions measures covered, including asset freezes, trade restrictions, and sectoral sanctions
- the consequences of sanctions applying, including whether performance is suspended, excused, or triggers termination rights
- procedures for notification when a party becomes aware of potential sanctions impacts and
- mitigation obligations, including efforts to obtain licenses or authorizations.
Advice on the drafting of such clauses has become part of the support that we dispute lawyers now offer to our clients and transactional colleagues.
Could you describe some of sanctions-related investment disputes that you have seen emerge in recent years?
Jennifer Younan: The most prominent category involves claims brought by sanctioned entities or individuals against sanctioning states. In practice, these disputes have predominantly arisen in connection with measures imposed following Russia’s invasion of Ukraine and the majority concern asset freezing measures.
To give you a sense of the scale we are dealing with, according to a December 2025 report, there are now 24 publicly known sanctions-related ISDS claims against both EU and non-EU countries, with the aggregate quantum amounting to approximately USD62 billion. To place that figure in perspective, it is not far removed from the nearly USD70bn that the European Union has provided in military assistance to Ukraine since the commencement of hostilities. So these are not trivial amounts—they represent a very significant potential liability for sanctioning states.
Many of these claims are brought under bilateral investment treaties between Russia and the sanctioning state, a number of which date back to the late 1980s and early 1990s. These treaties were negotiated in a very different geopolitical context, and it is fair to say that the drafters did not anticipate the treaties being invoked to challenge sanctions imposed in response to military aggression.
Whether that framework is well-suited to adjudicating such claims—which engage fundamental questions of foreign policy and international security—is a question that states and tribunals are now grappling with in real time.
What do you consider will be the most hotly contested issues in these cases?
Jennifer Younan: Most of these cases are in their early stages, but I would highlight two in particular.
The first is a threshold question of jurisdiction. Many of these claims are brought under older bilateral investment treaties concluded with the Soviet Union, which contain restrictive dispute resolution clauses.
In a number of cases, those clauses limit the scope of investor-state arbitration to disputes concerning the amount of compensation payable in the event of an expropriation. That raises an immediate and fundamental question: can an arbitral tribunal even entertain the claims being advanced by claimants in those cases? This is a point that respondent states are very much alive to, and it could prove dispositive in a number of cases.
The second concerns the merits, and specifically whether the measures at issue—which in most cases take the form of asset freezes—are capable of amounting to an expropriation at all. Asset freezes are, at least in principle, temporary and reversible. So, there is an open question as to whether such measures can properly be characterized as a taking for the purposes of an expropriation clause, or whether they fall short of that threshold.
There is also a further dimension to all of this, and that concerns how the substantive protections afforded by the treaty interact with the State’s state’s regulatory powers, particularly in the context of collective security responses.
Taken together, these issues go to the very heart of whether these claims are viable, and the way in which tribunals resolve them will be closely watched by practitioners and states alike.
What challenges can arise when enforcing an award rendered in a dispute arising from, or connected to, sanctions?
Jennifer Younan: There are several aspects to this question, and it is an area where we are seeing increasing complexity in practice given the public law nature of sanctions and the intersection of national, supranational and international law.
Parties may seek to challenge or resist the recognition and enforcement of awards in sanctions-related disputes on various grounds. Non-arbitrability is one such basis, with parties contending that sanctions-related disputes fall outside the scope of matters capable of resolution by arbitration.
Public policy offers another potential avenue, with parties arguing that sanctions constitute part of the public policy of the enforcing state and thus a valid ground for denying recognition and enforcement. The position on these grounds continues to develop, and we are watching the latest developments closely. The Reibel v. Stankoimport case before the ECJ is a good example of how courts are grappling with these issues at the highest levels.
James Freeman: Sanctions may also pose challenges to enforcement.
An award debtor that is subject to sanctions where enforcement is sought will typically have its assets and economic resources frozen. This will prevent enforcement unless a license is obtained from the relevant authorities so that the assets or funds can be released to satisfy the award.
On the flip side, it would be difficult for a sanctioned award creditor to enforce an award, since this would be unlawful in jurisdictions where the award creditor is sanctioned. However, it may be possible to enforce the award elsewhere. The counterparty should be aware of this risk and ask that any award against it is only due and payable once relevant licenses have been obtained.
For all the difficulties that may arise, recognition in particular can be valuable in sanctions-related cases. Once an award is recognized it can serve as a valuable bar to recognition of a competing court judgment that purports to determine the same issues (such as the many Russian judgments rendered under Article 248.1 of the Russian Arbitrazh Procedural Code, which Russian parties are now trying to enforce around the world). There may be strategic value in obtaining recognition of an arbitral award in multiple jurisdictions where the assets of the award debtor are located.
The firm has extensive experience in anti-suit injunctions arising from sanctions and counter-sanctions contexts. What has been the most interesting aspect of litigating these matters? Looking forward, do you anticipate further such disputes?
James Freeman: The most interesting aspect of litigating these matters has been witnessing the collision between two opposing legal philosophies playing out in real time across multiple jurisdictions.
On the one hand, we have Western courts upholding the validity of negotiated arbitration agreements. These disputes have provided an opportunity for the English courts to demonstrate their willingness to issue orders in support of arbitration, including in foreign-seated cases where the sole connection to England was that the applicable contract was governed by English law (as illustrated by the RusChemAlliance saga that was litigated all the way to the UK Supreme Court). On the other hand, Russian courts have taken the position that the imposition of sanctions itself can render such agreements inoperative.
This clash raises a practical question: when will an anti-suit injunction actually be effective?
An ASI may not achieve its intended effect where the counterparty is determined not to comply—and, in Russian cases, may seek and likely obtain its own retaliatory ASI. Such orders are unlikely to carry much credence outside Russia, but they may nonetheless have significant consequences: penalties for non-compliance can be astronomical, and this may prove decisive for a company with significant assets in Russia.
Yet in other cases, an anti-suit injunction remains a powerful deterrent. Where a counterparty or its officers have a connection to the UK jurisdiction, the threat of contempt proceedings provides real teeth. Equally, many businesses—particularly those with international operations or reputational concerns—will choose to comply with the ruling of a respected common law court.
This article forms part of our Arbitration Agenda review of 2026 trends.
