Balancing Justice and National Security: Enforcing Arbitral Awards with Sanctioned Elements. Episode No. 3

Buckle up!  We are delighted to welcome you back to our closing Episode No. 3, summarising the complexities surrounding enforcing arbitral awards with sanctioned elements.

In the previous episodes, we explored how Ukrainian courts address enforcement when the claimant is a sanctioned entity or when recognition is sought by entities tied to sanctioned counterparties.

Today, we dive into another unique scenario: what happens when sanctions are imposed on the manufacturer of goods linked to the contract underlying the arbitral award? 

The Supreme Court addressed this issue in its landmark Resolution in case No. 824/103/22 dated 22 June 2023.

The case centred around Inkla Trading & Engineering GmbH (Inkla). This Austrian company sought recognition and enforcement of an arbitral award rendered by the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry (ICAC). The award was related to a supply agreement with National Nuclear Energy Generating Company “Energoatom” SE (Energoatom), a Ukrainian state-owned enterprise.

According to the arbitral award, Energoatom was obligated to pay a debt for goods manufactured by Kingisepp Machine-Building Plant LLC (Kingisepp Plant), a sanctioned russian company. Energoatom argued against recognition and enforcement, claiming that the manufacturer’s sanctioned status prevented enforcement of the award.

The Supreme Court made several critical findings in this case.

First, it confirmed that Inkla, as a company incorporated and operating under Austrian law with no ties to russia or belarus, is not affected by Ukrainian sanctions or the moratorium on obligations to russian entities introduced by Resolution No. 187 of the Ukrainian Parliament on 3 March 2022.

Second, the Court established that the goods in question were delivered and cleared through customs in 2019 before sanctions were imposed on Kingisepp Plant and adopted Resolution No. 187.

The Supreme Court further ruled that sanctions imposed on Kingisepp Plant, the manufacturer of the goods, could not serve as grounds to deny recognition and enforcement of the ICAC arbitral award in favour of Inkla.

Consequently, the Supreme Court upheld the Kyiv Court of Appeal’s decision, allowing recognition and enforcement of the award, concluding that the circumstances did not conflict with Ukraine’s public policy, independence, or sovereignty.

This resolution marks a significant step in shaping Ukraine’s approach to balancing its international arbitration commitments with the challenges posed by global sanctions regimes.

We hope you enjoyed staying with us for this three-week journey, revealing significant peculiarities of recognition and enforcement of arbitral awards with sanctioned elements in Ukraine.