_when sanctions meet arbitration
How economic measures are reshaping the boundaries of international dispute resolution
Economic sanctions have become one of the most influential forces shaping modern international arbitration. Once viewed purely as instruments of foreign policy, sanctions now directly affect the arbitrability of disputes, access to justice, and the enforcement of arbitral awards under the New York Convention.
Their growing reach has blurred the boundaries between state sovereignty, party autonomy, and due process, forcing tribunals and practitioners to navigate an increasingly complex legal landscape. Whether imposed unilaterally or multilaterally, sanctions challenge arbitration’s promise of neutrality and predictability, two of its defining strengths.
In this note, we explore how sanctions complicate arbitral proceedings and why their impact matters not only for the parties involved but also for the credibility of arbitration as a global dispute resolution mechanism.
Arbitrability
Arbitrability refers to the fundamental question of whether a particular type of dispute is capable of being resolved through arbitration rather than through the domestic courts. In practical terms, it determines whether the subject matter of a dispute falls within the exclusive jurisdiction of national courts under the applicable domestic legal framework. If a dispute is deemed non-arbitrable, the arbitral tribunal lacks jurisdiction to hear the case, and the matter must be brought before the competent domestic courts.
National laws may impose restrictions on arbitrability either by reference to the capacity of the parties or the nature of the dispute. The former, known as subjective arbitrability, concerns the legal capacity of certain entities, such as States or State-owned entities, to enter into arbitration agreements. Due to public policy considerations, such entities may either be prohibited from submitting disputes to arbitration or may require specific governmental authorisation to do so. The latter, referred to as objective arbitrability, limits arbitration based on the subject matter of the dispute. Issues involving sensitive matters of public policy—such as criminal law, family law, insolvency, or the exercise of sovereign powers—are often reserved exclusively for domestic courts.
However, the increasing intersection between international arbitration and economic sanctions has complicated the traditional boundaries of arbitrability. While sanctions may raise issues of public policy and compliance with mandatory rules, they should not automatically be construed as excluding disputes from the scope of arbitration. Treating sanctions as a categorical bar to arbitrability risks undermining the fundamental principle of party autonomy and the effectiveness of arbitration as a neutral dispute resolution mechanism. Instead, arbitral tribunals must carefully examine whether the dispute, despite involving sanctioned entities or transactions, remains arbitrable under both ratione materiae (subject matter) and ratione personae (parties involved) principles. This nuanced assessment ensures that sanctions-related disputes are not unjustifiably removed from the arbitral sphere merely due to the presence of restrictive measures, but are evaluated in light of their legal substance and the objectives of the applicable sanctions regime.
Right to be heard
Sanctions-related restrictions can significantly affect a party’s ability to participate effectively in arbitral proceedings, thereby engaging the fundamental principle of the right to be heard and the broader concept of equality of arms. Measures such as prohibitions on hiring legal counsel, transferring funds to pay arbitration fees or costs, or making payments to arbitrators may, in practice, prevent a sanctioned party from presenting its case adequately. Such impediments risk undermining procedural fairness and the legitimacy of the arbitral process. Accordingly, arbitral tribunals must ensure that sanctions do not deprive a party of a genuine opportunity to be heard or to secure proper legal representation. Where necessary, tribunals and administering institutions may engage with competent authorities to obtain specific licences or exemptions that enable the sanctioned party to participate meaningfully in the proceedings. This balanced approach reconciles the objectives of sanctions enforcement with the fundamental principles of due process and procedural equality that underpin international arbitration.
Enforcement
The enforcement of arbitral awards involving sanctioned parties or transactions presents one of the most complex intersections between international arbitration and sanctions law. National courts have adopted divergent approaches when applying public policy defenses under Articles V(2)(a) and (b) of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. These provisions allow a court to refuse recognition or enforcement of an award if (a) the subject matter of the dispute is not capable of settlement by arbitration under the law of that country (non-arbitrability), or (b) if recognition or enforcement would be contrary to the forum’s public policy.
While some jurisdictions adopt a pro-enforcement bias, emphasizing the Convention’s objective of facilitating the free circulation of arbitral awards and limiting the scope of public policy exceptions, others accord primacy to sanctions compliance as an expression of mandatory national or supranational policy. Courts in the latter group often interpret sanctions-related restrictions as part of their international public policy, thereby refusing to enforce awards that would contravene those measures.
This divergence has led to fragmented and unpredictable outcomes in cross-border enforcement. For instance, certain European courts have sought to reconcile the principles of party autonomy and access to justice with the binding nature of EU sanctions, whereas other jurisdictions have prioritized sanctions enforcement even at the expense of arbitral finality. Consequently, the enforcement landscape remains uncertain, with outcomes largely dependent on the seat of arbitration, the jurisdiction of enforcement, and the applicable sanctions regime.
Why it matters
The growing fragmentation in the treatment of sanctions within international arbitration has far-reaching implications that extend beyond the interests of the immediate parties. It undermines both predictability and consistency, two essential qualities that have long sustained arbitration’s legitimacy as a neutral and reliable mechanism for resolving cross-border disputes. When arbitral tribunals and national courts adopt divergent approaches, particularly with respect to arbitrability, due process rights, and enforcement, the resulting uncertainty weakens confidence in the arbitral system as a whole.
For the parties directly affected, this inconsistency can translate into an unequal ability to pursue or defend claims. Sanctions may restrict access to legal representation, hinder the payment of arbitral costs, or obstruct the enforcement of awards, effectively depriving sanctioned entities of meaningful access to justice. This situation risks creating a two-tiered system of international dispute resolution—one where unsanctioned actors can rely on arbitration’s procedural efficiency and neutrality, and another where sanctioned parties face practical and legal barriers that render arbitration illusory.
At a systemic level, continued restrictions on access to justice for sanctioned entities threaten to erode the credibility and universality of international arbitration. Arbitration derives its legitimacy from its promise of neutrality, fairness, and independence from national political or economic agendas. If sanctions regimes, whether unilateral or multilateral, begin to dictate who can arbitrate, which disputes may proceed, and which awards may be enforced, the perception of arbitration as a depoliticized and autonomous system of justice will be compromised.
In this sense, reconciling sanctions compliance with the preservation of due process and enforceability is not merely a procedural concern, it is a structural necessity for maintaining arbitration’s role as a cornerstone of international commerce and investment.
Conclusion
Sanctions are here to stay — and so is arbitration. The real question is how the two can coexist without undermining each other. As sanctions increasingly influence who can arbitrate, what can be arbitrated, and which awards can be enforced, the arbitration community faces a defining challenge: to uphold due process and procedural equality while remaining compliant with evolving regulatory regimes.
To preserve arbitration’s legitimacy as a neutral and predictable forum, tribunals, institutions, and national courts must strive for coherence rather than fragmentation. A balanced approach , one that respects sanctions but does not allow them to become instruments of denial of justice, is essential.
Ultimately, safeguarding fairness and access to justice in sanctions-related disputes is not just about protecting individual parties; it is about reinforcing arbitration’s credibility as a cornerstone of international commerce and the rule of law.
Contact:
Dr. Samira Mohsenpour, Lawyer (IR)
Damon Rahimi Moghaddam, Specialist lawyer for International Commercial law., Partner