Introduction

Historically, sanctions affected parts of the world with little ties to Slovak entrepreneurs. However, recent sanctions against Russia and part of Ukraine affect eastern European countries such as Slovakia and their businesspersons. Despite wide debate and interest, sanction regimes are complex and cause much confusion in practice.

International sanctions issued by the European Union and the UN Security Council are implemented in Slovakia through the Act on Enforcement of International Sanctions (289/2016, Coll) (the Sanctions Act). In 2019 the Slovak Ministry of Finance, a public body responsible for the enforcement of international sanctions under the Sanctions Act, issued guidelines on procedures for the effective application of rules on the freezing of financial assets of sanctioned persons (ie, persons on the sanctions lists) in Slovakia.(1) The guidelines answer some practical questions but leave many questions open. One such question concerns enforcement of arbitral awards affected by sanctions – in particular, under what conditions can an award creditor enforce such an award in Slovakia?

Enforcement of awards as exemption from sanction regimes

Many sanctions – including EU Regulations 208/2014,(2) 269/2014,(3) 2016/1686,(4) 881/2002,(5) and 753/2011(6) – mandate Slovak financial institutions and banks to freeze the assets and accounts of sanctioned persons. Under the respective sanctions, a sanctioned person cannot dispose of such frozen funds, including by paying obligations towards a creditor which arose prior to the person becoming sanctioned.

Other sanctions, including EU Regulations 692/2014(7) and 833/2014,(8) prohibit the entering into and carrying out of contracts involving certain countries or regions, groups of persons or certain goods. But these sanctions also prohibit enforcement of awards connected to a contract or transaction whose performance has been affected by such sanctions.

The sanctions give some discretion to states (ie, the Slovak government) to allow some exemptions from the sanction regimes. These exemptions are regulated by Section 13 of the Sanctions Act. In particular, Section 13(2)(f) states that:

The competent government authority may decide to grant an exemption from the sanction regime for sanctioning funds for the enforcement of a decision given in a judicial or alternative procedure concerning the assets or funds of the sanctioned person.

A reading of the Sanctions Act suggests that there is a blank exemption for award creditors to ask and obtain an exemption to enforce their award. However, this is not the case and award creditors must actually overcome several hurdles.

When can an exemption be granted?

The Sanctions Act is silent on the conditions which must be satisfied to obtain an exemption. However, the act must be interpreted in view of the sanctions because the sanctions take precedence over Slovak laws.(9) Notably, only some of the sanctions allow such an exemption – namely, EU Regulations 208/2014, 269/2014 and 2016/1686. EU Regulations 881/2002 and 753/2011 do not include the exemption.

In addition, these sanctions set out when Slovak authorities may allow an exemption – namely, when:(10)

  • an arbitral decision was rendered prior to the date on which the natural or legal person, entity or body was listed as a sanctioned person;
  • the funds or economic resources will be used exclusively to satisfy claims secured by such an award;
  • the award is not for the benefit of a sanctioned person; or
  • recognising the award is not contrary to Slovak public policy.

At the same time, no award in connection with any contract or transaction the performance of which has been affected by the sanctions will be enforced by a sanctioned person.(11) Slovak authorities must apply these conditions even if the Sanctions Act is silent on the matter.

Only awards for pecuniary claims can be enforced under the exemptions. Section 13(2)(f) of the Sanctions Act refers to "sanctioning funds for the enforcement". Therefore, a specific performance (eg, delivery of goods) cannot be enforced under the exemptions.

In summary, if a creditor wishes to enforce an award, it must look into a particular sanction to see whether it allows for the enforcement and under what conditions.

Can award creditors enforce their claims?

Even if an award creditor falls within the exemptions under the sanctions, it may yet face a major issue. Some sanctions state that a person wishing to benefit from the exemptions will address its request to the relevant competent authority of the state. This is a reasonable condition but it was not properly implemented into the Sanctions Act. The Sanctions Act provides that a proceeding on granting of the exemption may be initiated only on a request of the sanctioned person.(12) An award creditor is normally not a sanctioned person. Even if it was, it would not qualify for the above exemptions in the first place. If an award creditor is not a sanctioned person, it cannot initiate the exemption proceeding. The guidelines suggest that Slovak authorities are flexible to accept exemption requests filed by banks and other financial institutions holding the funds of sanctioned persons. However, such approach is not strictly in accordance with the law and a sanctioned person may successfully challenge a request to release funds to satisfy award creditors.

Comment

Unless the Sanctions Act is properly amended, there may be little or no chance for an award creditor to enforce in Slovakia an award affected by the above sanctions, even if the sanctions provide for an option to enforce such award.

Endnotes

(1) Available here.

(2) The EU Regulation Concerning Restrictive Measures Directed Against Certain Persons, Entities and Bodies in View of the Situation in Ukraine (208/2014).

(3) The EU Regulation Concerning Restrictive Measures in Respect of Actions Undermining or Threatening the Territorial Integrity, Sovereignty and Independence of Ukraine (269/2014).

(4) The EU Regulation Imposing Additional Restrictive Measures Directed Against ISIL (Da'esh) and Al-Qaeda and Natural and Legal Persons, Entities or Bodies Associated with Them (2016/1686).

(5) The EU Regulation Imposing Certain Specific Restrictive Measures Directed Against Certain Persons and Entities Associated with Osama bin Laden, the Al-Qaida Network and the Taliban and repealing EU Regulation 467/2001 Prohibiting the Export of Certain Goods and Services to Afghanistan, Strengthening the Flight Ban and Extending the Freeze of Funds and Other Financial Resources in Respect of the Taliban of Afghanistan (881/2002).

(6) The EU Regulation Concerning Restrictive Measures Directed Against Certain Individuals, Groups, Undertakings and Entities in View of the Situation in Afghanistan (753/2011).

(7) The EU Regulation Concerning Restrictive Measures in Response to the Illegal Annexation of Crimea and Sevastopol (692/2014).

(8) The EU Regulation Concerning Restrictive Measures in View of Russia's Actions Destabilising the Situation in Ukraine (833/2014).

(9) Article 7(2) of the Constitution states that "legally binding acts of the European Communities and the European Union take precedence over the laws of the Slovak Republic".

(10) For example, Article 5 of EU Regulation 269/2014, Article 5 of EU Regulation 208/2014 and Article 6 of EU Regulation 2016/1686.

(11) For example, Article 11 of EU Regulation 269/2014 and Article 11 of EU Regulation 833/2014.

(12) Section 13(3) of the Sanctions Act.

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