EU Sanctions Meet International Commercial Arbitration (Again): Lithuanian Court Reference in Axpo Nordic

On 22 September 2025, the Court of Appeal of Lithuania (“Court”) rendered a decision to refer for a preliminary ruling to the Court of Justice of the European Union (“CJEU”) in a dispute involving the recognition and enforcement of an arbitral award rendered by an arbitral tribunal seated outside of the European Union (“EU”), which explicitly refused to apply EU sanctions law (in particular, Regulation 269/2014) and awarded costs from a person under restrictive measures. This case is pending before the CJEU as case No C-635/25 (“Axpo Nordic”).

Context

This decision comes just after the CJEU judgement of 1 August 2025 in case No C-6­­­00/23 (“RFC Seraing”), which has already come under some criticism (Kubo, 2025). In RFC Seraing, possibly limited to sports arbitration, the CJEU once again signaled its position on arbitration, considering it acceptable “in principle” except for intra-EU investment arbitration, referring to it as “strictly prohibited” (para. 79; see also Landolt, 2025). CJEU was explicit that arbitral awards must be subject to a judicial review to “ensure observance” of interpretation, application and legal classification of EU law forming EU public policy based on “facts as established and assessed by the arbitration body” (paras. 83 and 86).

CJEU will soon be considering another request for preliminary ruling from Svea Court of Appeal in case No C-802/24 (“Reibel”), rendered in a dispute where a Belgian company that initiated set-aside proceedings of an arbitral award in favor of a former counterpart, a Russian company. In Reibel, the arbitral tribunal granted a monetary claim, concluding that the repayment of an advance payment falls outside Art. 11 of Regulation 833/2014. Svea Court of Appeal sought guidance on the interpretation of this provision, doubting the arbitrability of the dispute and compatibility of the arbitral award with EU public policy. Some have already been alarmed that the CJEU judgment in Reibel “can have far-reaching effects” (Mark, 2025).

Now Axpo Nordic may give further room for the CJEU to establish its position on EU sanctions and international commercial arbitration seated outside of the EU.

Details of Axpo Nordic

Axpo Nordic relates to a dispute between a Norwegian company, Axpo Nordic AS (“Axpo”), and a Lithuanian company, AB Inter Rao Lietuva (“IRL”), who entered into a contract governing financial electricity swap transactions, a type of derivatives contract designed to hedge risks arising from electricity trading. The agreement was governed by Norwegian law and provided for ad hoc arbitration in Oslo under Norwegian arbitration law. In April 2022, Lithuania’s sanctions authority imposed restrictive measures against IRL for ties to a sanctioned person under Regulation 269/2014, and in June, Axpo unilaterally terminated the contract, invoicing IRL with a claim of around EUR 12 million.

In 2023, IRL commenced ad hoc arbitration against Axpo. In 202,5 the arbitral tribunal granted Axpo’s declaratory relief for debt and awarded Axpo arbitration costs. IRL applied to the Court of Appeal of Lithuania seeking refusal of recognition and enforcement of the award, followed by Axpo’s request for recognition and enforcement of the part concerning the awarded arbitration costs from IRL.

The Reference of the Court in Axpo Nordic

The Court of Appeal of Lithuania referred four questions to the CJEU.

• Questions No. 1 and 2: Does the recognition and enforcement of such an arbitral award fall within the scope of the exemption granted under a derogation of a competent authority
  • which allows a payment for expenses related to legal services (Art. 4(1)(b) of Regulation 269/2014) (Question No. 1)?
  • which allows a payment from a person under restrictive measures that is due under a contract concluded before restrictive measures were applied against this person (Art. 6(1) of Regulation 269/2014) (Question No. 2)?
• Question No. 3: Does the asset freezing under Art. 2 of Regulation 269/2014 prohibit the recognition and enforcement of an arbitral award rendered by an arbitral tribunal outside of the EU, which expressly refused to apply the provisions of Regulation 269/2014? And does Regulation 269/2014 form a part of EU public policy?
• Question No. 4: If so, can a national court of a Member State refuse the recognition and enforcement of such an arbitral award, where the arbitral tribunal has refused to comply with the provisions of Regulation 269/2014?

These questions can be divided into two parts. The first two questions relate to the overall derogation (licensing) system under EU sanctions law in the context of recognition and enforcement of arbitral awards. The rest of the inquiry relates to a fundamental question of EU public policy.

Licensing and Payments From Frozen Assets

The Court begins its inquiry by questioning if the arbitration costs awarded in this case can qualify as “expenses associated with the provision of legal services” in the sense of Art. 4(1)(b) of Regulation 269/2014. This provision is one of the few exceptions to the asset freeze placed under Art. 2 of Regulation 269/2014. If it does fall under this exemption, then payment could be made with a derogation (license) of a competent authority. Likewise, if this falls outside it, no payment can be made from IRL to Axpo.

With the second question, the Court continues to inquire if a decision to recognise and enforce such an arbitral award already triggers the Art. 6(1) of Regulation 269/2014. In particular, whether a judicial decision on recognition and enforcement of an arbitral award is a derogation (license) for payment, or should the competent authority provide a separate derogation (license) for the payment under the judicial decision. The Court provides this question because Axpo seeks arbitration costs awarded after the application of restrictive measures against IRL, seemingly falling outside of Art. 6(1) that applies to pre-sanctioning obligations.

For this reason, the Court considers that these costs are “a claim for the recognition or enforcement, including by the procedure of exequatur, of […] an arbitration award“ in the sense of Art. 1(a)(v). The Court continues to read Art. 6(1) in conjunction with Art. 5(1)(b), questioning whether the recognition and enforcement of such an arbitral award creates a judicially recognised claim, which in principle could be satisfied from frozen assets, subject to subsequent derogation (license). In such a way, the Court seemingly seeks to bypass the temporal issue of the exemption for payment of arbitration costs that arose after sanctioning.

EU Public Policy

The central question of reference for preliminary ruling seems to be contained in the third question about EU public policy. The Court refers this case to the CJEU with an explicit concern: should an arbitral award, rendered by a tribunal seated outside of the EU, which refused to apply provisions of Regulation 269/2014 establishing EU sanctions, be granted final and binding effect within the EU?

In effect, CJEU is asked to provide answers.

• Is Regulation 269/2014 part of EU public policy?
• If so, is such an arbitral award as described contrary to the EU public policy?
• If so, should such an arbitral award be refused recognition and enforcement in an EU Member State?

There should be little doubt that Regulation 269/2014 forms part of EU public policy. Regulation 269/2014 was adopted as part of the EU Common Foreign and Security Policy, implementing restrictive measures against actions that breach EU fundamental values in Arts. 2 and 3 of TEU and principles in Arts. 21 of TEU. At least to my personal belief, these “principles and provisions of primary or secondary EU law […] are essential to the legal order established by the Treaties or are of fundamental importance for the accomplishment of the tasks entrusted to the European Union” (RFC Seraing para. 87). In another context, CJEU has already referred to restrictive measures as “restrictions justified by objectives of public interest pursued by the European Union” (Rosneft case No C-72/15 para. 148). Notably, if the CJEU rules in such a way, the judgment in Axpo Nordic will add to the judgments in Eco Swiss (case No C-126/97) and Mostaza Claro (case No C-168/05) cases, expanding the notion of EU public policy.

Furthermore, if CJEU rules that Regulation 269/2014 is part of EU public policy, CJEU will have to consider if an arbitral award, where an arbitral tribunal seated outside of EU explicitly refused to apply Arts. 2 and 10 of Regulation 269/2014, commanding an asset freezing of a sanctioned person and establishing an exemption from liability for compliance with sanctions, is contrary to EU public policy. First and foremost, this question might invite the CJEU to revisit the extent of judicial review of arbitral awards (RFC Seraing paras. 83 and 86).

Not only that, the CJEU might have to confirm the extraterritorial effect of EU sanctions, at least for non-EU seated ad hoc arbitrations, as in the present case. Axpo Nordic case involved one party incorporated and constituted under the law of a Member State, IRL, (Art. 17(d) of Regulation 269/2014) or even both parties, if Axpo is found to have done any business within EU (Art. 17(e) of Regulation 269/2014), rendering Regulation 269/2014 applicable to the dispute. In such light, the Oslo-seated tribunal could be seen as having bypassed the freezing of assets, which includes freezing of derivatives contracts (e.g., Art. 1(g)(iii) of Regulation 269/2014), by refusing to apply EU sanctions law and ruling under Norwegian law.

Last but not least, the final question might invite the CJEU to clarify its opinion about the relationship between indirect judicial review of arbitral awards based on EU law and the review of arbitral awards under the New York Convention. In RFC Seraing, CJEU’s position on this matter has already been criticised as “unclear”, creating a risk of conflicting decisions and a threat to the finality of arbitral awards rendered by tribunals seated outside of the EU (Kubo, 2025).

What’s After these Questions: Implications

The Axpo Nordic judgment can test how far the boundaries of EU public policy extend in international commercial arbitration. If EU sanctions are recognised as a fundamental part of the EU’s legal order with an extraterritorial reach, the effects will extend beyond the EU and will have ramifications for multiple actors. Arbitral tribunals seated outside of the EU may have to consider the application of EU sanctions law. The national courts of EU Member States will be invited to engage in ex officio review of the compliance of arbitral awards with EU sanctions law. Parties and their counsels will need to integrate sanctions compliance into their dispute resolution strategy.