Personal Sanctions: Supreme Court Case Law Analyzed by Kostiantyn Pilkov

How do personal sanctions relate to arbitration? Back in 2020, the Commercial Cassation Court within the Supreme Court in the case of invalidating a contract as contrary to public interests and public order due to the fact that it was concluded under sanctions, ruled that the issue of invalidating a contract containing arbitration clauses should be considered by an arbitration court.

Judge of the Grand Chamber of the Supreme Court Kostiantyn Pilkov emphasized this pro-arbitration approach of the judiciary during his speech at the IX International Arbitration Readings in memory of Academician I. H. Pobirchenko. In his report, the judge focused on the Supreme Court’s case law on the use of personal sanctions.

In considering this new category of disputes, the court often has to turn to the experience of other countries. As Kostiantyn Pilkov pointed out, the sanctions (at least those that were appealed to the Supreme Court) were not aimed at modifying the behaviour of the sanctioned person, as, for example, sanctions in the United States, the primary purpose of which is sanctions pressure. Unlike the United States (whose sanctions are aimed primarily at establishing the rule of law and democracy, protecting human rights in the world), Ukraine faced the need to protect its own interests on its soil. Nor are sanctions an instrument of punishment.

Commenting on the essence of the sanctions, the Grand Chamber of the Supreme Court stated: despite a certain external (not essential) similarity, sanctions in the understanding of the Law of Ukraine "On Sanctions" are not a type (form, means, mechanism) of liability, since the actions upon the implementation of which they are applied to the subject who committed them do not contain signs of an unlawful (in most cases, volitional) violation of the prohibitions defined by the relevant legislation, for the qualification of which it is necessary to establish the elements of an offence (act). This is stated in the resolution of the Grand Chamber of the Supreme Court dated July 7, 2022 in case No. 9901/348/21 (proceedings No. 11-7заі22).

"In this resolution, the Grand Chamber of the Supreme Court most fully outlined its attitude towards sanctions, although this case does not concern an appeal against sanctions, but an attempt by a person to oblige the President of Ukraine to apply sanctions," noted the speaker. Analyzing the resolution further, he focused on the historical context, which is stated as follows: in the conditions of the armed conflict and under the threat of the loss of Ukrainian statehood, there was an objective need to urgently, effectively and harshly respond to existing and potential threats from the aggressor country in order to protect national interests, state security, sovereignty and territorial integrity of Ukraine. In addition, the resolution of the Grand Chamber of the Supreme Court refers to the purpose of the Law of Ukraine "On Sanctions". In particular, attention is focused on the fact that the Law is not a law-enforcement regulation, and this is of particular importance in cases where an individual wishes to protect his interest.

Kostiantyn Pilkov stressed that the court of Ukraine recognized its jurisdiction on the issue of sanctions, and this was in line with international case law. For example, the EU Court of Justice in the case of "Kadi v. Commission" regarding EU sanctions (No. T-85/09) and the European Court of Human Rights in the case of "Al-Dulimi and Montana Management Inc vs. Switzerland" regarding measures to apply UNSC sanctions (application No. 5809/08) noted the need for judicial control in this area.

According to the judge of the SC Grand Chamber, the sanctioned persons, who are experiencing the result of the application of sanctions, have now become more active, although the restrictive measures were introduced earlier. The Code of Administrative Proceedings of Ukraine limits the period for appealing acts on the application of sanctions to 6 months. The Supreme Court has developed a category of cases relating to the statute of limitations on applying to the court. When considering such cases, the Grand Chamber of the Supreme Court presumes that the person is aware of the imposition of sanctions against him, therefore, when appealing the decree, the "reference point" is the decision on the introduction of sanctions, and not the further actions of the bodies that implement them. At the same time, the principle of transparency laid down in the Law of Ukraine "On Sanctions" is implemented in the fact that the Decree of the President of Ukraine on the application of personal sanctions is promptly promulgated.

Kostiantyn Pilkov shared that the most difficult thing was to consider the sanctions case on the merits, when the court had to comment on the measure, the standard of interference in the discretion of the authority that applied sanctions. At the same time, it should be taken into account that the Code of Administrative Proceedings of Ukraine places the burden of substantiating the legality of adopting the contested act on the authority. It was the search for answers to these questions that necessitated the study of foreign experience.

The Grand Chamber of the Supreme Court recognized that the court did not interfere with the implementation of the President of Ukraine’s discretion, while at the same time checking compliance with its limits and the procedure for applying sanctions. If we resort to the rhetoric of the ECtHR, then this approach uses the standard of non-admission of arbitrariness (in fact, the ECtHR understands arbitrariness as a violation of the boundaries of discretion and a gross violation of the procedure), the criteria of proportionality and necessity in a democratic society.

Another important position of the SC Grand Chamber is that a claim for the lifting of sanctions applied to another person is not an effective mechanism for protecting one's own interests. That is, a third party cannot protect its interests in cooperation with a sanctioned person by lifting sanctions from this person. The SC Grand Chamber also presumes that the sanctioned person is aware that there are grounds for imposing a sanction on him. Such an approach is typical of many foreign jurisdictions.

There are cases when sanctions are lifted from a person. In such a case, according to Kostiantyn Pilkov, further appeals against the sanctions are unfounded, and the court closes the proceedings in the case.

The IX International Arbitration Readings in memory of Academician I. H. Pobirchenko, traditionally organized by the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry, took place on November 4, 2022. This year's readings were devoted to arbitration in Ukraine in the new security situation.