Originally from The American Review of International Arbitration

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The impact of sanctions on international arbitration and the subsequent utilization of non-arbitrability and public policy reservation clauses to evade recognition and enforcement of foreign arbitral awards has become a significant focal point, particularly in the Commonwealth of Independent States (CIS), including Russia, Ukraine, and Kazakhstan. These countries serve as compelling case studies to illustrate the broader implications of sanctions on arbitration practices. In light of Russia’s military action in Ukraine, there has been a heightened urgency for precise alternative dispute resolution mechanisms to ensure an equitable regime for foreign investments within the CIS market. Russia has implemented a distinct approach allowing individuals or entities facing foreign sanctions to bypass arbitration clauses and bring their disputes before the Russian State Arbitrazh (commercial) Courts. Recent judicial decisions in Russia indicate that exposure to foreign sanctions can render arbitration agreements unenforceable. Ukrainian jurisprudence has seen courts associating sanctions matters with the notion of public policy. These courts have recognized the sanctions regime as a basis for refusing recognition and enforcement. Kazakhstan has established an offshore financial center within its borders, operating under a unique common law regime rooted in English common-law principles and standards observed by leading international financial centers. Despite the challenges caused by the current sanctions regime, the Astana International Financial Centre (AIFC) endeavors to cultivate an appealing and investor-friendly environment for various financial activities. This article extensively examines the international regulatory framework for recognizing and enforcing foreign arbitral awards in the context of Russia, Ukraine, and Kazakhstan, using them as illustrative examples to shed light on the most recent challenges faced by parties seeking such recognition and enforcement. It explores substantive and procedural provisions, addresses issues concerning non-arbitrability and the public policy reservation, and discusses the difficulties their international arbitral institutions encounter in the existing sanctions regime. The conclusion emphasizes the imperative need for new approaches to effectively address these challenges and ensure a more precise adherence to international standards in the recognition and enforcement of foreign arbitral awards. Drawing on Russia, Ukraine, and Kazakhstan as case studies, this analysis offers insights into the broader implications of sanctions on international arbitration practices, demonstrating the critical need for legal frameworks to be responsive in addressing contemporary challenges in the global arbitration landscape.

I.            INTRODUCTION

The Russian military action in Ukraine has fostered a climate conducive to controversy and disputes, with the potential for some to be addressed through arbitration.  In this context, precise alternative mechanisms for commercial dispute resolution are essential to protect investments made by foreign investors in the Commonwealth of Independent States (CIS), comprising the Russian Federation, Ukraine, and the Republic of Kazakhstan. Recognizing this need, Kazakhstan’s AIFC aims to serve as an international financial hub and dispute resolution center for the Eurasian Economic Union (EAEU), Central Asia, the Caucasus, Western China, and beyond.  A notable feature of the AIFC is its operation within an autonomous common law framework offering enhanced shareholder and investor protections. 

The legal consequences of international arbitral awards and the subsequent proceedings for contesting or upholding these awards adhere to a clearly defined legal framework within both international and national law.  In all established legal systems, it is evident that international arbitral awards do not serve as mere suggestive recommendations or non-binding “advisory” opinions.  Instead, they represent conclusive and obligatory legal instruments, typically leading to immediate legal consequences and establishing immediate legal rights and duties for the involved parties.  The imposition of international sanctions on Russia following the events in Ukraine in 2014 and 2022 (“International Sanctions”), and the application by Russia of countersanctions (“Russian Countersanctions”), compromises this fundamental arbitration framework.