French supreme court asks CJEU to clarify scope of sanctions

William Brillat-Capello of Pinsent Masons in Paris highlighted that the Court of Justice of the EU (CJEU) has been asked to interpret the scope of EU sanctions regulations relating to Yemen in a case arising from the courts in France, where oil companies have been trying to obtain annulment of a damages award made against them in an ICC arbitration.

“The answers that the CJEU will provide will not be limited to Yemen sanctions and could impact any situation where the EU has taken sanctions to prevent the indirect benefit of funds or economic resources to individuals subject to sanctions, like in the regimes currently in place against Iran or Russia,” Brillat-Capello said. “In the current turmoil of international affairs, with the growing issue of sanctions aimed at helping to restore the sovereignty of legitimate governments in territories subject to conflicting sovereignties, this could impact more and more jurisdictions.”

The EU Yemen sanctions regulations provide that no funds or economic resources shall be made available, directly or indirectly, to or for the benefit of certain individuals – including leading figures within the Houthi rebels group which has been fighting the incumbent government in Yemen, challenging their sovereignty and thus the operation of the country’s oil and gas resources.

DNO Yemen SA (DNO), Petrolin Trading Limited (Petrolin), and Moe Oil & Gas Yemen Limited (Moe Oil) are concerned that, in making payment of the damages they are liable for to the Yemeni Ministry of Oil and Minerals and the Yemeni state-owned Yemen Oil & Gas Corporation (YOGC), they could be in breach of the Regulation in question. They have expressed concern that YOGC is under the control or instruction of sanctioned Houthi rebels and not the legitimate government which is not subject to sanctions.

At an earlier stage of proceedings, the Paris Court of Appeal rejected the oil companies’ case, considering that there was no evidence that either the Ministry of Oil and Minerals or YOGC acted under the control or on the instructions of individuals covered by the sanctions.

However, the companies have taken their case to the Court of Cassation, the highest private law court in France, which has now decided to refer three questions on the interpretation of EU law-based sanctions to the CJEU, to help it resolve the dispute before it.

The questions essentially ask how broadly the concept of the indirect availability of funds or economic resources, under the EU Yemen sanctions regulations, is to be construed.

Specifically, the CJEU has been asked whether the concept would cover payments to entities that are not covered by the sanctions if it is established that the individuals concerned by the sanctions exert, within these entities, a competing influence with that of the legitimate government that is not subject to the sanctions regime – and, if so, whether that would mean those entities could be presumed to be controlled by the sanctioned individuals.

The CJEU has also been asked to clarify whether the mere reasonable risk that funds made available to public entities could ultimately benefit sanctioned individuals is enough on its own to trigger the application of sanctions in cases where the evidence produced before the courts is not sufficiently clear to assess whether those individuals exert decisive influence over the entities.

Brillat-Capello said the Court of Cassation’s referral has been followed by a further referral to the CJEU on matters relating the EU’s Russian sanctions regime that arise from an arbitration. That referral has been made from Sweden and concerns the extent to which a prohibition on sanctions targets from raising claims in relation to contracts or transactions impacted by the operation of sanctions applies to the settlement of such claims, according to Global Arbitration Review.

Sanctions law expert Stacy Keen of Pinsent Masons said UK government departments have jointly published guidance aimed at clarifying the circumstances in which sanctioned public officials, including Russian president Vladimir Putin, should be considered as ‘exercising control’ over public or private entities. 

The guidance, issued by the Foreign, Commonwealth and Development Office (FCDO) and Office of Financial Sanctions Implementation (OFSI), follows a controversial decision by the Court of Appeal in London in which it observed, among other matters, that two state-owned Russian banks could be deemed to be "owned or controlled directly or indirectly" by Putin – a ‘designated person’ for the purposes of the UK Russian sanctions regulations. An appeal of that decision is currently pending before the UK Supreme Court.

The guidance gives comfort that the relevant UK government bodies do not intend for sanctions measures targeting public officials to prohibit routine transactions with public bodies including, for example, payment of taxes, import duties and public utility services.