A typical no-claims clause of an EU sanctions’ regulation reads 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, such as a claim for compensation or a claim under a guarantee, notably a claim for extension or payment of a bond, guarantee or indemnity, particularly a financial guarantee or financial indemnity, of whatever form, shall be satisfied […]”.
The recent opinion delivered by an ECJ’s Advocate General Biondi in Case C-802/24 Reibel vs Stankoimport proposes a very broad interpretation of this clause which should be of concern even for the persons which are not directly subject to the EU sanctions and consider any such risk as low.
The facts of the case which lead to this opinion may be summarised as follows.
Two companies entered into a contract for the delivery of goods. The performance of such a contract appeared to be restricted by the EU sanctions due to such goods being dual use goods. None of the parties to a contract was directly the target of the sanctions. It is not suggested that any of the parties was aware of the dual-use nature of the goods and/or that their delivery was prohibited.
Following the non-delivery of goods, the buyer issued various claims including: (i) for the repayment of advance payment; (ii) interest on such advance payment; and (iii) damages for failure to deliver goods. The contract provided that disputes would be resolved by arbitration.
The arbitral award made a distinction between: (i) repayment of advance and interest on such advance (where the claims were granted); and (ii) a claim for damages for non-delivery of goods (where the claims were dismissed). The distinction appeared to be based on the analysis of the purpose of the restriction, namely to prohibit only the delivery of dual use goods and not to prohibit the repayment of an advance. As only the former was prohibited, only the claims issued in connection with such a non-delivery were dismissed.
The Advocate General, however, proposed to take a different view and ruled that the “no-claims clause” prohibited also the repayment of an advance as well as any other claims under the contracts. The argument, in essence, is that the clause is drafted broadly. The proposed approach is then that, to the extent a contract is affected by EU sanctions in any way, no claims whatsoever can be enforced under such a contract until the sanctions are lifted. It does not matter when reaching this conclusion either (1) how sanctions affect the contract (e.g., parties, goods, third-parties involved in performance); or (2) what type of claims are issued.
It would be unfortunate if this position is approved by the ECJ in its judgement, because, if approved, it will result in substantial injustices.
We can look at the case at issue to see such an injustice.
First, the claimant was not subject to any blocking sanctions.
Second, it was not suggested that the claimant was somehow attempting to avoid EU restrictions on trade in dual-use goods, i.e., it was an obvious dual-use good where the claimant failed to get an approval. Conversely, the situation was a classical example of sugar being considered a dual use good because in certain mixtures it can produce explosives (just in this case metal was classified as a dual-use good because of its potential to be used for the production of helicopter parts).
Third, no EU sanction prohibits the repayment of an advance back to the claimant (or, indeed, the original receipt of advance by the defendant).
Forth, the ability to retain the advance (potentially indefinitely, especially in case of the defendant’s insolvency) results in an unjustified enrichment of its recipient.
Nevertheless, the opinion is issued and it certainly creates very substantial risks for the parties which may be indirectly affected by sanctions (e.g., by dealing in sanctioned goods, paying through sanctioned banks, etc.), because if the opinion is approved by the ECJ, it will substailly reduce the ability of such parties to enforce their contractual rights within the EU legal system.