Will Potential LatAm Sanctions to Russia or Russian Entities Affect Your International Arbitration?

Author: Reed Smith LLP

In response to the dilemma in Ukraine, several countries in Latin America have denounced Russia’s invasion of Ukraine including Argentina, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, Guatemala, and Uruguay, among others. Other countries, including Australia, Canada, Japan, New Zealand, South Korea, Switzerland, Taiwan, the UK, and the United States have formally imposed a series of sanctions against Russia, Russian entities, and Russian individuals. These sanctions could affect international arbitrations in various ways.

The merits of the dispute. Economic sanctions could possibly render performance under a contract with a Russian entity or individual that has been sanctioned impossible or commercially impracticable. Thus, the effects of international sanctions could invoke the legal doctrines of impracticability, force majeure, impossibility, frustration of purpose, or hardship.

The seat and forum of the dispute. If the seat or the forum of the arbitration is in a territory that has sanctioned the Russian party, the Russian party may need to seek a license to be able to even enter the country much less be able to use its courts for the request of interim measures or other resources at the seat of the arbitration.

Payment of institutional fees and the award. Sanctions could also affect the payment of the award or institutional fees. Sanctions could create a situation where banks are blocking/freezing any payment where a payee or payer is a sanctioned entity. This could mean being prohibited from paying under the arbitral award or being able to remit payment for the institutional fees.

The appointment of an arbitrator, expert or law firm. International sanctions could affect the appointment of an arbitrator, expert, or law firm, as it could be argued that an arbitral award may facilitate a “significant” transaction with a sanctioned entity that is prohibited by U.S. sanctions.

Consequently, if the Latin American countries that have denounced Russia begin imposing formal sanctions against Russian entities and parties, your LatAm dispute or your contracting party may involve a sanctioned entity, you may need to look to see if any of these issues may affect your dispute and find alternative ways to combat them.