Sanctions could become a ‘frustrating’ component for all parties involved in Russian arbitration cases, lawyers have been warned.

Speaking to commercial law practitioners during Russian Law Week in London, George Burn, partner at international firm Vinson & Elkins, recalled an International Chamber of Commerce (ICC) arbitration case involving an Iranian state-owned oil trading company, where changes to the sanctions regime in Iran during the course of the case began to create financial difficulties.

‘The ICC itself effectively put the case on hold for… most of two years while it tried to resolve its own sanctions-exposure issues with respect to the receipt of money from not just the Iranian regime but a corporate entity that was listed in EU and US sanctions,’ he said.

Burn’s client won the case, but he said the victory was, to an extent, ‘pyrrhic’ because ‘the delay was so extreme it had a very significant impact on them. And they weren’t from [the] sanctions side of things’.

‘[My client] had done a sanctions-compliant contract with an Iranian party, so in a sense they had exposed themselves to some risk. But the way it changed became a massive issue in the case and it affected everybody in ways that may not have been anticipated at the beginning.’

‘It’s just one example,’ Burn acknowledged, ‘but it is an example which really speaks to the need to bear in mind how this can really act as a frustrating component in the arbitration system in many, many ways.’

Earlier this year the EU imposed sanctions against the Russian Federation ‘in response to the illegal annexation of Crimea and deliberate destabilisation of a neighbouring sovereign country’. 

The US, which also imposed sanctions against Russia, said it would continue to stand by the Ukrainian government until Russia abided by its international obligations. ‘The US is prepared to take additional steps to impose further political and economic costs,’ the US Department of State said.    

Victor Dumler, managing partner of Dumler & Partners in St Petersburg, advised lawyers to treat the issue of sanctions carefully. ‘Legal services are directly connected to justice,’ he said.

Noting the emotional and practical impact sanctions can have on arbitration, he said ‘it is perfectly understandable that foreign companies could be much more reluctant to go to Russia to arbitrate cases because of all these sanction situations’. 

The discussion on the effect of sanctions on arbitration was part of Russian Law Week, held in London this month.

The event was organised by the Bar Council in partnership with the Federal Chamber of Lawyers of the Russian Federation, Moscow Chamber of Advocates, St Petersburg Chamber of Advocates, British Russian Law Association and Anglo-Russian Law Association, to promote legal links and business between the UK and Russia.