December 01, 2020

Public policy against the backdrop of international sanctions regime: Ukrainian court gives a steer on key dimensions

Against the backdrop of international arbitration, the imposition of international sanctions over the parties to the dispute commonly raises a variety of issues. The prevalent topics concern arbitrability of such disputes as well as further enforcement of arbitral awards rendered against the parties under the international sanctions list. To this end, one may consider two possible matters: may arbitrators consider a dispute if sanctions have been imposed on one of the parties, and may the relevant arbitral award be enforced taking into account the legal concept of public policy? Although both questions may result in ambiguous answers, it is widely acknowledged that sanctions, generally, do not serve as an obstacle for an arbitral tribunal to consider a dispute. The dilemma, however, still centres around the possibility of enforcing of such an award.

The recent Ukrainian court practice analyses these issues from different dimensions making it interesting for an international arbitral community to consider. This article concentrates on two major cases recently resolved by the Ukrainian Supreme Court.


Validity of arbitration agreement: applicability of sanctions aspects

Arbitrability of disputes involving international sanctions may be considered from different dimensions. Starting from the legal capacity of the parties to participate in arbitration, authority of arbitrators to consider the disputes that involves parties under a sanctions list and violation of local or international law in this regard, etc. One of the interesting topics that thrust this into the limelight is the Ukrainian Supreme Court judgment addressing aspects of an arbitration clause’s validity in the underlying contract signed between the parties, one of which is under the Ukrainian sanctions list.

The dispute concerned a Czech company, Czechoslovak Export Ltd and Ukrainian counterparty State Enterprise Konotop Aircraft Repair Plant ‘Aviakon’.1 The gist of the dispute went to the question of effect that sanctions may have over an arbitration agreement.

In March 2019, Czechoslovak Export Ltd filed a claim with the Ukrainian court claiming invalidation of the underlaying contract signed between them and Aviakon. The claim was motived by contradiction of such contract on the interests of the Ukrainian State and society overall, violation of the requirements of the decision of the National Security and Defense Council of Ukraine that introduced personal special economic and other restrictive sanctions against Rostec, a Russian industrial conglomerate, that was claimed to be connected to Czechoslovak Export Ltd itself.

Aviakon opposed such claim, raising the defence of lack of jurisdiction of the Ukrainian court to consider the claim, referring such claim to international arbitration under the Rules of the International Commercial Arbitration Court (ICAC) at the Ukrainian Chamber of Commerce and Industry (CCI) based on the arbitration agreement contained in this contract.

Czechoslovak Export substantiated the claim alleging that Ukrainian sanctions imposed upon Rostec, that was connected to Czechoslovak Export Ltd, rendered the contract as contradicting to the public policy of Ukraine and the underlying arbitration agreement, as a result, had to be rendered invalid as such.

The dispute went up to the Supreme Court that made the ultimate decision on the matter and denied Czechoslovak Export Ltd’s claim. Having analysed the issues of separability of the arbitration agreement and effect of sanctions on the arbitration agreement, the Court noted that, while concluding an arbitration clause, the parties usually provide for the referral to arbitration of any disputes, including disputes concerning the validity of the contract itself (unless such disputes are directly excluded from the scope of the arbitration clause). The Court reasoned that, in the future, if a party could refuse arbitration and deny the competence of the arbitrators, citing the invalidity of the contract, the unconscionable party would always use this opportunity to disrupt the arbitration. It should be kept in mind that the principle of autonomy of the arbitration agreement from the main agreement is that the arbitration agreement and the main agreement are considered as two separate agreements, so the invalidity of the agreement may not constitute a ground for automatic invalidity of the arbitration agreement.

Ultimately, the Supreme Court emphasised that since the scope of the arbitration agreement allowed for all categories of disputes to be referred to arbitration (including disputes regarding validity) and Aviakon opposes the Ukrainian court jurisdiction on the dispute – the dispute has to be referred to the ICAC. With that the Supreme Court impliedly made a conclusion that the validity of the arbitration clause due to the operation of sanctions on the parties to the underlying contract is also one of the questions that must be referred to arbitration, rather than resolved by the Ukrainian court.


Public policy of the state v enforceability of arbitral awards

Another celebrated case where the Ukrainian Supreme Court expressed its position on interaction of arbitration and sanctions introduced against the parties to arbitration is Normetimpex (the Russian Federation)v Zaporozhtransformator (Ukraine).The merits of the case concerned recognition and enforcement of an arbitral award rendered by the International Commercial Arbitration Court of the Russian Federation in favour ofNormetimpex on collection of debt fromZaporozhtransformator.2

Normetimpex applied to the Ukrainian court to enforce the arbitral award and coercively collect the debt from Zaporozhtransformator. Zaporozhtransformator asked the court to deny enforcement based on contradiction to the public policy, an argument built upon article V of the New York Convention.3 In particular, Zaporozhtransformator relied on the fact that the arbitral award contradicts public policy since the beneficiaries of Normetimpex are included in the Ukrainian sanctions list that established a regime of freezing their assets in Ukraine and other limitations of their activities in Ukraine (prohibition of capital transfer from Ukraine etc).

The case falls squarely under the strain of sanctions effect, allowing the possibility of the court to enforce the arbitral award if such enforcement somehow intertwines with the sanctions regime. The quandary of the case resided in the premise of the possibility of a capital transfer from Ukraine to the legal entities that have common beneficiaries with the sanctioned entities that, allegedly, contradicted the Ukrainian law provisions applicable in this respect.

While rendering its judgment in the case, the Supreme Court noted that:

‘the legal concept of public order exists to protect the state from foreign arbitral awards that violate the fundamental principles of justice and judiciary in the state. These provisions are designed to establish a legal barrier to decisions taken contrary to the fundamental procedural and substantive principles on which public and state order is based. They are also designed to prevent the possibility of recognizing and authorizing the execution of decisions related to corruption or unacceptable ignorance of arbitrators.’

The court further analysed the issues of the sanctions application. It emphasised that, under Ukrainian law, the sanctions have individual character and the law does not allow for the sanctions to apply to those individuals (entities) that are somehow connected to the sanctions entities. Moreover, attention must be paid to the fact of the beneficial ownership of the entity in question, as in the present case the sanctioned individuals had only minor stakes in Normetimpex and may not per se be acknowledged as its beneficiaries.

Hence, the Supreme Court allowed the enforcement of the award in Ukraine and ruled that the public policy defence does not operate in forestalling the enforcement of the award if the question concerns application of sanctions. This judgment signifies the personal character of sanctions and if an action related to the enforcement of the arbitral award does not involve violation of applicable sanctions regime than there is no valid ground for denial of enforcement of arbitral award in Ukraine.



The abovementioned cases vividly illustrate that the Ukrainian courts are on a guard of ‘pro-arbitration’ stance when confronted with the issues of the impact of sanctions on the validity of an arbitration agreement. The courts will immerse into the analysis of the autonomy of the arbitration agreement and scope of arbitrability of the dispute established by the arbitration agreement itself. If the issue of applicable sanctions lays within the boundaries of the arbitration clause – it will be an arbitral tribunal who is authorised to decide on such issue. Also, the court will explore the causal link in terms of impact of the sanctions that have a personal character on the arbitration clause and will take a restrictive approach if the issue of sanctions concerns a corporate group of the party to the arbitration agreement, rather than such a party itself.



  1. Supreme Court’s ruling in Case No 920/241/19. Available at:

  2. Supreme Court’s judgment in Case No 824/146/19. Available at:

  3. Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958.

This article was first published in the IBA Litigation Committee newsletter in December 2020, and is reproduced by kind permission of the International Bar Association, London, UK. © International Bar Association

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