The Return of Advance Payments to Russian Parties – A Ground for Setting Aside Arbitral Awards?

EU sanctions against Russia prohibit EU companies from supplying certain goods to Russian entities, for which the latter have often already made advance payments. As a result, there has been a noticeable increase in claims filed by Russian parties for the repayment of advance payments.

Since supply agreements between EU and Russian parties often contain arbitration clauses for enforcement reasons, such claims are often filed in arbitration. In this context, arbitral tribunals are increasingly required to interpret the so-called no claims clause included in Art 11 of Council Regulation (EU) No. 833/2014 (“Sanctions Regulation”).

Art 11(1) of the Sanctions Regulation stipulates as follows:

“No claims in connection with any contract or transaction the performance of which has been affected, directly or indirectly, in whole or in part, by the measures imposed under this Regulation, including claims for indemnity or any other claim of this type [...], shall be satisfied, if they are made by […] (b) any other Russian person, entity or body […]”.

It is undisputed (see, e.g., also here) that the no claims clause prohibits the satisfaction of damage claims brought by Russian parties for non-performance of a sanctioned contract.

The wording of Art 11 raises the question of whether it also prohibits claims for the repayment of advance payments. German and Maltese public bodies interpret Art 11 as covering such claims. This interpretation was recently endorsed by the Higher Regional Court of Stuttgart, which denied recognition of an award ordering the repayment of an advance payment, relying on the FAQs of the German Federal Ministry for Economic Affairs prepared in consultation “with the relevant unit at the European Commission”. Likewise, the District Court of Amsterdam decided that a claim for the repayment of an advance payment is prohibited under Art 11. In contrast, certain scholars have taken the opposite view (see, e.g., here and here). Case law from the European Court of Justice (“ECJ”) and the General Court of the EU (“GCEU”) on this question is currently lacking.

In November 2024, the Svea Court of Appeal (“SCA”) (NV Reibel vs. JSC VO Stankoimport, Case No. C-802/24) requested the ECJ to render a preliminary ruling on the interpretation of Art 11. Notably, the Regional Court of Mainz also referred the question to the ECJ last year (Sprocure LLC vs. Aero VIM GmbH, Case No. C-290/25).

In contrast to previous Kluwer Arbitration coverage already touching upon Art 11 Sanctions Regulation (see, e.g., here), this article specifically focuses on the SCA’s referral to the ECJ and, beyond reporting on the referral, attempts to answer whether Art 11 in fact allows the repayment of an advance payment to a Russian party or not and the consequences of an arbitral award ordering such return.

This article is structured as follows: After briefly outlining the background of the Reibel case (A.), the authors discuss two of the three questions raised by the SCA: whether Art 11 prohibits the repayment of advance payments (B.) and whether the Sanctions Regulation forms part of European public policy, thereby allowing annulment/refusal of enforcement of an award which violates Art 11 (C.). This article will not address the question of whether parties can settle sanctions-related claims, as well as the issue of arbitrability (the third question) (for a discussion, see, e.g., here).

A. Background of the SCA’s Case

The underlying arbitration concerned a Belgian supplier that contracted with a Russian importer for the supply of certain goods to Russia. The contract was subject to Swedish law. After a Belgian authority refused to issue an export licence due to EU sanctions, the Russian importer terminated the contract and initiated ad-hoc arbitration in Sweden, seeking, amongst others, repayment of the advance payment.

The arbitral tribunal found, amongst others, that Art 11 did not prohibit such a claim and ordered the Belgian company to repay the advance. During subsequent set-aside proceedings, the SCA referred three questions to the ECJ, including whether the no claims clause contained in Art 11 covers claims for the repayment of advance payments, including interest in respect of goods that were never supplied on account of EU sanctions.

B. Does Art 11 of the Sanctions Regulation Prohibit the Repayment of Advance Payments?

To resolve this question, one has to look at how the ECJ interprets EU law. In this regard, the ECJ usually considers not only the wording of a provision but also its purpose to ensure its practical effectiveness (effet utile).

In the past, the ECJ has interpreted provisions of the Sanctions Regulation broadly to ensure that sanctions encompass all necessary ‘acts’, particularly to prevent circumvention.

In general, the wording of Art 11 would allow it to be interpreted as covering claims for the repayment of advance payments, given that the list of claims in the clause is introduced by the term “including”. Considering the ECJ’s past case law, however, the ECJ will likely not decide based on the provision’s wording alone but also assess the objective and purpose of sanctions (effet utile) when interpreting Art 11. EU sanctions are a concrete means to uphold EU values like human dignity, the rule of law, and human rights (Question A.1.5 Commission Consolidated FAQs). The Sanctions Regulation, as pointed out in its recitals, was adopted within a political context (see, e.g., also District Court of Amsterdam, Case No. C/13/743546 / HA ZA 23‑1114). Its provisions, including Art 11, were imposed by the EU in its efforts to promote a peaceful settlement of the Ukraine crisis. Therefore, the overarching objective of the economic sanctions is to induce Russia to end the Ukraine war (Questions A.1.5 and A.1.6 Commission Consolidated FAQs). The ECJ will have to determine to what extent a prohibition on advance repayments will contribute to this overall (political) purpose.

In Rosneft, the GCEU had to assess the proportionality of Art 11 and held, amongst others, that the no claims clause of Art 11 intends to prevent an entity targeted by the restrictive measures (a) from procuring performance of a prohibited transaction, contract or service or (b) from obtaining a remedy under civil law for non-performance of such transactions, contracts or services. This decision was subsequently confirmed by the ECJ.

In the present case, the Swedish tribunal relied on Rosneft to conclude that the repayment of an advance does not aim at procuring the performance of a prohibited transaction but “to put the Parties back in their initial position prior to the conclusion of the Contract” (“status quo ante”). Hence, the tribunal decided that repayment of the advance payment was not prohibited by Art 11. The SCA generally agreed that the finding in Rosneft would suggest that only claims that aim for the performance of a prohibited transaction are prohibited by Art 11. However, the SCA raised concerns as to whether the ECJ fully concurred with the GCEU’s finding regarding the purpose and scope of Art 11 or whether the ECJ merely agreed with the proportionality assessment.

Similarly to the Swedish tribunal, some scholars suggest that Art 11 should not apply to advance payments because retaining an advance would unduly benefit the European party (see, e.g., here). However, this overlooks that advances are typically paid for manufacturing contracts rather than simple sales contracts. European exporters will often have used advance payments to cover production costs or may have declined other orders before the contract became affected by EU sanctions. Complying with EU sanctions (i.e., non-performance of the sanctioned contract) might often cause direct financial losses to the European party. Hence, returning an advance payment does not necessarily always restore the status quo ante. Moreover, if repayment of an advance is only prohibited until the EU sanctions are lifted, it remains debatable whether the European party is unjustly enriched by temporarily retaining the advance (see also the decision of the Higher Regional Court of Stuttgart finding that the advance is repayable once the EU sanctions are lifted).

Taking all this into account, including the Sanctions Regulation’s political aim and Art 11’s broad wording, it would not come as a surprise if the ECJ, like several national courts, concludes that advance repayments to Russian parties are prohibited.

C. Incorrect Decision on Art 11 Ground for Annulment and Refusal of Enforcement?

The SCA also referred to the question of whether the Sanctions Regulation forms part of European public policy.

An answer to this is important since EU member-states' national courts reviewing arbitral awards on their compliance with national public policy must also consider EU law provisions of this type.

Case law exists with respect to European antitrust law and consumer protection law. In these cases, the ECJ particularly considered the purpose, function, and the status of the provisions when deciding on their status (see, e.g., here in more detail).

In this vein, the SCA questioned whether the Sanctions Regulation is part of EU public policy, in particular, because it was imposed as part of the EU’s external action to preserve peace and international security.

Considering this, namely that the Sanctions Regulation was adopted by the Council based on Art 215 TFEU within the EU’s Common Foreign and Security Policy framework and pursues upholding fundamental EU values, its provisions are likely part of EU public policy.

Consequently, an arbitral award that incorrectly interprets the no claims clause could be subject to annulment or refusal of enforcement under the New York Convention.

D. Conclusion

It remains to be seen whether the ECJ will adopt the approach endorsed by several national bodies and courts or uphold the interpretation of the Swedish arbitral tribunal underlying the SCA’s case.

In the forthcoming months, tribunals and parties should therefore direct close attention to Luxembourg.