Sanctions as a Bar to Enforcement: Switzerland’s Federal Supreme Court Weighs In

The impact of Russia-related sanctions on the enforcement of arbitral awards has previously been considered by courts across a number of jurisdictions, including the EU (see the discussion on the Blog here), the US (see here and here), and Russia itself (see here).

In a new ruling dated 13 March 2026 (published on 15 April 2026), the Swiss Federal Supreme Court (“FSC”) has now entered the debate. Rather than confirming the lower court’s more drastic finding that the claim had been permanently extinguished, the FSC merely held that Switzerland’s sanctions against Russia temporarily bar the enforcement of an award rendered in favour of a sanctioned entity. This post sets out the key findings of the FSC’s decision (A.) before critically examining the ruling and placing it in the broader context of decisions rendered in the EU (B.).

A.     The Decision of the Swiss Federal Supreme Court

Background

The claimant, an Angolan diamond mining company (“A”), had obtained an LCIA award in the amount of CHF 368,000 against another company (“B”). Following an asset freeze in Switzerland and B’s refusal to pay, A applied for enforcement of the award before the Aarau District Court, which initially granted the application.

The Aargau Cantonal Court reversed on appeal. It held that A was controlled by a sanctioned Russian company within the meaning of Switzerland’s Ordinance on Measures Related to the Situation in Ukraine of 4 March 2022 (“Ukraine Ordinance”), and that any payment to A would therefore violate the prohibition to provide funds to sanctioned entities (Article 15(2) of the Ukraine Ordinance). The Cantonal Court further reasoned that, in light of the ongoing war of Russia against Ukraine, the impossibility of paying the award was of indefinite duration. On that basis, the Court concluded that A’s claim had been permanently extinguished pursuant to Article 119 of the Swiss Code of Obligations (dealing with impossibility of performance). A, in turn, appealed to the FSC.

The Federal Supreme Court’s Key Holdings

Sanctions preclude enforcement of arbitral awards. The FSC accepted the Cantonal Court’s factual finding that A was a sanctioned entity. It confirmed that the prohibition on making funds available to such entities extends to the enforcement of arbitral awards. While Article 15(2ter) of the Ukraine Ordinance provides that payments arising from arbitral awards may be credited to a frozen account of a sanctioned entity, the FSC noted that this exception is designed for the benefit of financial institutions passively receiving funds into a frozen account. It expressed doubts as to whether the exception would also permit a debtor to actively transfer funds into a frozen account. In any event, the FSC held that the exception could not be read as entitling A to seek direct payment from B through enforcement proceedings in Switzerland.

Sanctions as mandatory overriding provisions. The FSC went on to consider the character of Switzerland’s sanctions against Russia under Swiss private international law. It noted that the sanctions were enacted with a view to inducing Russia to cease its internationally unlawful conduct, thereby serving a mandatory foreign policy objective of Switzerland. In light of this, the FSC concluded that the relevant provisions of the Ukraine Ordinance constituted mandatory overriding norms, applicable regardless of the law governing the underlying claim – which was English law in the case at hand.

Statutory deferral, not extinguishment. The FSC then analysed the effect of the sanctions on the claim underlying the award. It first noted that the Swiss sanctions regime itself provided no guidance on this question. The FSC subsequently proceeded on the implicit assumption that substantive Swiss private law governs the sanctions’ effect on the claim. Turning to the relevant provisions, the FSC did not determine whether the Cantonal Court had erred in finding that A’s claim had been permanently extinguished. Rather, it merely held that for so long as the sanctions remain in force, A is precluded from seeking performance of its claim. The FSC characterised this effect as a statutory deferral of the claim. According to the FSC’s decision, this gives rise to two significant consequences under Swiss private law. First, the statutory deferral has the effect of suspending the limitation period applicable to the claim. Second, the debtor is relieved of its obligation to pay default interest for the duration of the deferral.

Ex officio consideration of sanctions. Given the mandatory nature of the sanctions, the FSC further held that the statutory deferral of A’s claim must be considered ex officio in Swiss enforcement proceedings. The FSC acknowledged that this sits uneasily with the Swiss debt enforcement statute, which places the burden of proving any deferral of the claim on the debtor.

B.     Discussion of the Decision

Situating the Decision within the Swiss Enforcement Framework

A useful starting point for analysing the FSC’s decision is to situate it within the Swiss enforcement framework. Where a debtor opposes the enforcement of a foreign award, the creditor must seek an enforcement order from the competent Swiss court. In the absence of a prior assessment by another Swiss authority, that court will determine whether any obstacles to recognition and enforcement exist under the New York Convention (“NYC”). In addition to the grounds set out in Article V of the NYC, Swiss enforcement courts will also entertain certain objections that may arise after the award had been rendered. These objections are confined to three grounds: (1) that the claim has ceased to exist (e.g., through payment), (2) that the creditor has granted the debtor a deferral of payment, or (3) that the claim has become time-barred.

The Cantonal Court had, quite drastically, concluded that the claim had ceased to exist under Swiss private law due to the applicable sanctions. The FSC took a more measured approach by construing the effect of the sanctions as a mere deferral of the claim under Swiss law. The motivation behind the FSC’s reasoning was that under Swiss private law, a deferral will prevent the claim from becoming time-barred and the creditor will not have to pay default interest until the sanctions are lifted.

Critical Observations

Although the Cantonal Court and the FSC arrived at different conclusions, both assumed that substantive Swiss law governs the sanctions’ effect on the claim. The FSC’s decision suggests that this holds true even where the claim is subject to foreign law. That proposition, however, is open to criticism. Indeed, the question of whether a claim has ceased to exist, been deferred, or become time-barred must be determined by reference to the law governing the substance of the claim (as confirmed by prior FSC case law). Even if the sanctions are characterised as mandatory overriding provisions, their further effects – such as on limitation periods or default interest – should still be assessed under the law governing the claim itself.

The FSC’s approach raises an additional difficulty, in that it departs from the established adversarial nature of the Swiss enforcement proceedings. In fact, as acknowledged by the FSC, the enforcement statute does not contemplate an ex officio consideration of a deferral of payment.

Lastly, the approach chosen by the FSC potentially gives rise to tensions with the narrow scope of the substantive review of awards at the enforcement stage mandated by the NYC. Indeed, allowing enforcement courts to consider overriding mandatory norms – generally seen in Switzerland as going beyond public policy at the enforcement stage (see the FSC case law) – risks effectively broadening the scope of an award’s substantive review in future cases.

Suggestions for an Alternative Approach

In light of the foregoing, it is submitted that the coherent and arguably more straightforward solution would have been for the FSC to deny the enforcement of the award based on public policy considerations within the meaning of Article V(2)(b) of the NYC. While this would have equally barred the award’s enforcement, it would have appropriately left questions relating to the sanctions’ further effects to the law applicable to the substance of the claim.

Additionally, had the FSC relied on public policy considerations, it could have also avoided disregarding the statutory allocation of the burden to prove a deferral of the claim. Indeed, the NYC expressly provides that issues of public policy may be considered ex officio by the court in which enforcement is sought.

Finally, the approach suggested here would have been consistent with the route taken by several courts in the EU and the EU’s Advocate General, all of whom deemed the EU’s sanctions against Russia to form part of public policy in the sense of Article V(2)(b) of the NYC (see here and here). Given that Switzerland’s sanctions against Russia are almost identical to those adopted by the EU, the EU’s approach could have meaningfully informed the manner in which Swiss courts handle the sanctions issue at the enforcement stage.