Crimea and contract sanctions: a major step backwards?

The crisis in Crimea has led to EU economic sanctions listing Russian individuals involved in Russia’s bid to absorb the peninsula.

The aim is to force Russia to change course. Germany’s Chancellor Merkel is reported as saying that the EU has listed different individuals to the US because the EU is bound by the requirement that the listed individuals “have something to do with Crimea”. 

A recent Foreign and Commonwealth Office (FCO) consultation would like to add a new weapon to the sanctions armoury. Contract sanctions would prohibit UK courts from enforcing contracts entered into with “a targeted regime”.  Does this mean that all contracts with country X would be denied enforcement?  If so, this would be a major step backwards from the concept of targeted sanctions.

If the proposal is not intended to apply to all contracts with a specified country, there must be a process of listing of persons or commodities. Such a process would surely have to be aligned with current EU listings. 

But if the proposal is to list individuals or state entities whose contracts are not to be enforced in the UK, it is questionable whether the proposal would add to existing sanctions. Courts and arbitral tribunals are already banned by EU sanctions from making available directly or indirectly economic resources to or for the benefit of listed persons. In addition, courts have a duty of sincere cooperation to achieve the object of EU sanctions which provides a public policy argument for not enforcing awards under the New York Convention.

There is also the potential adverse impact on dispute resolution in London. The message would be that London is partially closed to new business. Those conceivably affected now or in the future would simply omit London jurisdiction/arbitration clauses.  Recent events have shown that the limits of what is conceivable must be broadly drawn. This effect might be mitigated if all or most major dispute resolution centres joined the proposed sanctions but it seems unrealistic to expect emerging centres to permit their governments to sign up.

Rather than seeking to develop a new weapon, the FCO should be working at EU level to develop robust governance for existing EU sanctions. ‘Targeting’ is a very relative concept for persons added to the list who can often obtain little or no evidence as to the basis of their listing.  Listing is the legal equivalent of a drone strike, removing rights of movement and access to funds without any judicial process. 

The EU distributor of a third country airline whose business is destroyed by a listing of the airline or the third country national whose children are ejected from English schools for non-payment of fees are entitled to know that listings will only be made where fully justified by evidence linking the listed person to clearly stated policy objectives. Each successful challenge to a listing is a miscarriage of justice and a breach by the EU of international law. It is only through setting a good example that the EU retains the moral authority to enforce international law and therefore to achieve the objects which sanctions seek to serve.

Hugh Mercer QC, Essex Court Chambers