CanArb Week 2026: What To Know About The Canadian Sanctions Regime For International Arbitration Practitioners

CanArb Week 2026 took place earlier this month in Toronto, during which multiple panels addressed arbitration in the era of change. One of the participating organizations, the Toronto Commercial Arbitration Society (TCAS), featured a compelling and timely panel on “Arbitration Challenges Amid Economic Sanctions”. The panel, moderated by Robin Dodokin (Dodokin Law & Conflict Resolution), sparked an interactive discussion concerning the constantly evolving sanctions landscape that has created uncertainty within the practice of arbitration in Canada and across the globe. The panellists, Kevin Nash (LCIA), Geoff Moysa (Omni Bridgeway), and Alison FitzGerald (Bennett Jones LLP), brought diverse perspectives to the topic and demonstrated how sanctions can impact an arbitration at virtually any stage of the procedure: from the composition of the tribunal to the ability of witnesses to appear, the arbitrability of the dispute itself, the continuation or termination of proceedings, and the payment of arbitrators and counsel. This post highlights some of the most pressing issues raised during the panel’s discussion and offers practical guidance for arbitration practitioners addressing sanctions.

Do Arbitrators Fall Within the Legal Services Exception?

Under Canada's updated sanctions regime, the Special Economic Measures (Russia) Regulations contain a general dealing prohibition that restricts transactions involving listed persons or their property. While a non-application clause permits the provision of financial services required for a listed person to obtain legal services in Canada, this exception is crafted narrowly. Additionally, no published guidance exists on the scope of the legal services exception, and no equivalent provision appears in Canada’s other sanctions legislation.

The question then becomes: does an arbitrator sitting on a case involving a listed party fall within the legal services exception? Global Affairs Canada has not taken a position, despite requests for guidance. As one of the panellists put it, “this is a big question mark”. And, the practical consequence is significant. Unlike the United States where civil penalties exist, violation of Canadian sanctions legislation is exclusively a criminal offence. While the enforcement environment is characterised as “low” because of the high threshold for prosecution, complacency would be unwise.

In practice, it appears the legal services exception is generally applied more broadly than its plain language reading would suggest. Until guidance is published, however, Canadian arbitrators should seriously consider seeking a permit or a “no prohibition” letter from Global Affairs Canada before accepting appointments in sanctions-affected cases. 

Canada’s Control Test

Canada’s control test, introduced in 2023, is one of the broadest in the world (see s. 253 of Bill C-47). Global Affairs Canada interprets it to mean that if a listed person can appoint even a single member of an entity’s board, regardless of board size, that person is deemed to control the entity, and the entity’s property is treated as property of the listed person. This expansive interpretation has significant implications for arbitration practitioners: it is no longer sufficient to check whether the parties themselves are subject to sanctions. Instead, arbitrators must consider whether any party is indirectly controlled by a listed person. From a funder’s perspective, ownership interests well below 50% can be enough to decline involvement.

The interpretation of Canada’s control test has yet to be rigorously tested by the courts, and emerging jurisprudence is largely confined to delisting applications before the Federal Court. As a result, practitioners are presently operating on Global Affairs Canada’s informal position (and the uncertainty that it entails). 
 

The Battle of Injunctions

Russia’s Lugovoy law granted the arbitrazh courts jurisdiction over disputes involving sanctioned Russian parties, effectively overriding arbitration agreements (for prior coverage relating to this law, see e.g. here and here). The UniCredit Bank GmbH v RusChemAlliance LLC saga illustrates the consequences. UniCredit obtained an anti-suit injunction from English courts to enforce an ICC arbitration clause, following which RusChem obtained a counter-injunction from the arbitrazh court with a penalty of approximately €250 million. And, since UniCredit had assets in Russia, the counter-injunction proved to be effective, forcing UniCredit to seek variation of its own injunction before the English courts.

Critically, this issue is no longer one-sided. The EU’s 20th sanctions package introduced a parallel mechanism allowing EU nationals to seek anti-suit injunctions from any EU member court, with comparable penalties for non-compliance. A United States congressional bill, if passed, would do the same. While the geopolitical responses are becoming embedded in formal legal frameworks on both sides, the arbitration community is caught in the middle. Practitioners must now factor in the risk that any party with assets in both jurisdictions may face irreconcilable orders.
 

Lessons from Singapore: DRL v DRK

Sanctions can create significant risks to a party’s ability to participate in an arbitration. In this regard, the panel spoke to the Singapore High Court’s decision in DRL v DRK, in which the Court considered the tribunal’s termination of arbitration for impossibility on the basis that international sanctions imposed on the claimant prevented it from paying its lawyers or arbitral fees. In refusing to set the tribunal’s award aside, the Court found that impossibility does not necessarily constitute procedural unfairness and emphasized that the claimant had 29 months to seek funding or assign its claim.

The panel was candid in its observations of the Court’s decision: the reasoning reflects a disconnect with how funding works in practice. A sanctioned party cannot realistically obtain funding from any funder in a jurisdiction where sanctions apply nor assign its claim. 
 

Practical Guidance for Practitioners

The panel highlighted several helpful and concrete takeaways for practitioners navigating the sanctions landscape. 

First, Know Your Client (KYC) obligations have materially increased. Arbitrators should run party names, beneficial owners, and financial institutions through sanctions screening tools before accepting appointments—not merely as a formality, but as a safeguard against criminal liability.

Second, institutional arbitration offers practical advantages over ad hoc arbitration. The LCIA, ICC, and other institutions have developed compliance teams and general licences permitting orderly payment processing. One of the panelists noted that sanctions-affected payments within LCIA cases are common, with 10 to 12 processed weekly. 

Third, drafting can mitigate risk. Waterfall clauses in arbitration agreements providing for alternative institutions are increasingly common, and hybrid arrangements, such as HKIAC administration with a non-EU seat, are being explored. Practitioners should be mindful, however, that waterfall clauses that are not carefully drafted can create years of procedural false starts before the merits are reached.

Finally, sanctions law is complex. The arbitration community has come a considerable distance since 2022. Institutions have developed compliance infrastructure, practitioners have grown more sophisticated in their due diligence, and workarounds have emerged for many practical obstacles. But the law remains unsettled in critical areas. Until governments provide clearer guidance, practitioners must navigate carefully, screen diligently, and seek advice early.

Conclusion

The TCAS panel at CanArb Week 2026 underscored that sanctions have become a feature of the international arbitration landscape, not a temporary disruption. For Canadian practitioners in particular, the combination of a broad control test, the narrow legal services exception, and exclusive criminal liability creates a unique compliance environment. The arbitration community should not wait for legislative clarity, but rather, should develop best practices in real time. Events like CanArb Week play an essential role in that process, bringing together arbitrators, funders, institutions, and counsel to share hard-won insights and anticipate the challenges ahead.