NAVIGATING ARBITRATION IN AN ERA OF EXPANDING SANCTIONS: LEGAL HURDLES AND ENFORCEMENT RISKS

Abstract

Growth in global economic activity has been accompanied by increasing geopolitical issues. In response, economic sanctions may be imposed against a State by one or more countries, thereby affecting cross-border transactions. This article examines the interplay between sanctions and arbitration through three dimensions: (i) their impact on arbitrability, (ii) contractual obligations and the arbitration process, and (iii) their impact on enforceability.
It first analyzes arbitrability, considering the law of the seat, mandatory rules, the principle of separability, and emerging case law on UN, EU, and unilateral sanctions. Next, it examines contractual performance, including sanctions clauses, force majeure, illegality, frustration, and the procedural effects on arbitration. Finally, it explores enforceability, focusing on public policy objections, national practices, EU standards, and other practical challenges from licensing requirements.
The article concludes that while disputes are not automatically rendered inarbitrable by sanctions, the increasing use of sanctions as jurisdictional and public policy tools places structural pressure on the transnational enforcement framework of the New York Convention. Despite uncertainty caused by sanctions, stakeholders, including parties, arbitrators, institutions, and courts, play crucial roles in safeguarding arbitration, which can continue to operate effectively with careful engagement.