German court denies Russian arbitral award recognition on the basis of EU sanctions

Russia’s measures against so-called “unfriendly states” and consecutive sanctions packages from the EU, amongst others, have led to the long-term suspension or termination of numerous contracts involving sanctioned Russian entities. With years having gone by since the launch of Russia’s full-scale invasion of Ukraine in February 2022, European companies are now increasingly facing arbitral awards or judgments resulting from their efforts to wind down cross-border contractual relationships governed by Russian law and subject to Russia-seated arbitration.

A German court decision has recently shed light on the prospects of such Russian arbitral awards being recognised and enforced by Russian parties against European entities in the EU. By order dated 13 May 2025, the Higher Regional Court of Stuttgart refused to recognise an award rendered by a Moscow-seated tribunal in an arbitration governed by Russian law and administered by the International Commercial Arbitration Court (ICAC / MKAS) of the Russian Chamber of Commerce and Industry. The Court held that recognition and enforcement would violate EU sanctions and, by extension, fundamental principles of German public policy (ordre public). To the authors’ knowledge, this is the first publicly reported decision of a member state court to this effect. The decision thus warrants a close look:

• Background: The dispute arose from a contract for the supply of certain technical equipment between a German supplier and a Russian purchaser. Before the contract was fully performed, the German supplier decided to exit the Russian market, and the Russian purchaser declared the contract partially terminated. The German supplier had received advance payments for which the Russian purchaser sought reimbursement in the MKAS arbitration. Whilst the German supplier did not participate in the proceedings, the Russian purchaser prevailed and obtained an award requiring the German supplier to repay certain amounts.
• Grounds for the Court’s refusal: The Court considered that recognition and enforcement would violate German public policy arising from the EU sanctions regime. Specifically, the Court determined that the machinery in question fell under Annex XXIII of Regulation (EU) No 833/2014 (Regulation), which prohibits inter alia the supply of goods that could contribute to strengthening Russia’s industrial capabilities. The Court went on to state that the repayment of advance payments for undelivered goods was prohibited under Article 11(1)(b) of the Regulation, as such claims were connected with transactions “the performance of which has been affected, directly or indirectly, in whole or in part, by the measures imposed under [the] Regulation”.
• Interpretation of “Status Quo Ante”: The Court also addressed the argument that a repayment would merely restore the “status quo ante” (ie, the state before the sanctions). It sided with the updated guidance from the former German Federal Ministry for Economic Affairs and Climate Action (BMWK), which, after consultation with the EU Commission, clarified that even mere repayments are prohibited if they relate to sanctioned transactions.
• Temporary or permanent prohibition: The Court noted that given the current sanction regime the award could not be recognised “at present” [derzeit]. The Court acknowledged that the sanctions may be fully lifted at some point in the future, with effect also for existing claims and awards. However, the Court recognised that the prohibition of repayment under Article 11(1)(b) of the Regulation was intended to be permanent, despite any possible abrogation of the relevant sanctions in the future. 
• Other grounds under the New York Convention: The Court rejected various other grounds invoked by the German supplier to oppose recognition and enforcement, including alleged doubts as to the tribunal’s independence and impartiality and alleged violations of the German supplier’s right to be heard. This was, in part, due to the German supplier’s choice not to participate in the arbitration, by which it had waived a large part of those grounds.

This decision is a strong signal that German courts will rigorously apply the public policy exception under the New York Convention when an award mandates performance that would violate EU restrictive measures. However, given the German supplier’s waiver of potential further grounds to oppose recognition and enforcement under the New York Convention, the order provides only limited insight on the willingness of enforcement courts in the EU to review other potential public policy violations, such as where due process is in doubt or Russian blocking statutes intended to neutralise sanctions interfere with EU public policy. It largely remains to be seen how courts will deal with challenges to the recognition and enforcement of awards based on such substantive or procedural public policy violations.

The order marks a new chapter in the German Courts’ evolving jurisprudence in relation to disputes involving sanctioned Russian parties. Earlier landmark rulings dealt with jurisdictional conflicts, where German courts took proactive steps to block claims brought by sanctioned Russian entities before Russian courts—in clear breach of existing arbitration agreements (see our series on sanctioned Russian parties breaching arbitration agreements (Parts I / II / III). The Stuttgart court’s decision now moves beyond questions of jurisdiction, as the Moscow-seated arbitration was conducted in line with the parties’ arbitration agreement.