Swiss Federal Supreme Court rules that sanctions suspend enforcement of arbitral awards

Swiss Federal Supreme Court rules that sanctions suspend enforcement of arbitral awards

Can a sanctioned creditor still enforce an arbitral award in Switzerland? In a landmark ruling, the Swiss Federal Supreme Court has answered: not yet, but the claim lives on.

The issue

Article 15(1)(2) of the Ordinance on Measures Connected with the Situation in Ukraine dated 4 March 2022 ("Ukraine Ordinance") prohibits payments to creditors that are owned by, or under the direct or indirect control of, the following persons or entities: (a) those listed in Annex 8 of the Ukraine Ordinance; (b) those acting on behalf of or at the direction of those listed in Annex 8; or (c) those owned or controlled by persons or entities covered under (a) or (b).

In decision 4A_305/2025 dated 13 March 2026, the Swiss Federal Supreme Court addressed the question of what consequence this sanction-related payment prohibition has on the exequatur of foreign arbitral awards. 

Background

The case arose from an LCIA arbitration. A company incorporated under Angolan law sought to enforce a costs award against a Swiss-domiciled respondent. The creditor was owned to 41% by a Russian entity listed in Annex 8 of the Ukraine Ordinance. The cantonal appellate court refused enforcement, holding that the debt had been extinguished through legal impossibility pursuant to Article 119 of the Swiss Code of Obligations (CO). The creditor appealed.

Key findings

Suspension rather than extinction of the claim

The Swiss Federal Supreme Court held that allowing enforcement against a sanctioned creditor would create an irreconcilable inconsistency within the Swiss legal system and that, therefore, sanctions must have an effect on enforcement rights. In this context, the Court held that the payment prohibition under Article 15(2) of the Ukraine Ordinance constituted a statutory payment deferral within the meaning of Article 81(1) of the Swiss Debt Enforcement and Bankruptcy Act (DBA). Hence, the Court considered the claim of the sanctioned creditor to remain alive but unenforceable for as long as the sanctions applied. This solution preserves the creditor's position by interrupting limitation periods while shielding the debtor from accruing default interest during the suspension.

Overriding mandatory law

The Swiss Federal Supreme Court further established that Article 15(2) of the Ukraine Ordinance constituted an overriding mandatory provision within the meaning of Article 18 of the Swiss Private International Law Act (PILA). Consequently, the payment prohibition applied irrespective of the law governing the underlying contractual relationship, meaning that foreign arbitral awards cannot circumvent Swiss sanctions through choice-of-law clauses.

Control assessed on a substance-over-form basis

The Swiss Federal Supreme Court's ruling provides important guidance on how courts should evaluate whether an entity is "controlled" by a sanctioned person within the meaning of Article 15(1) of the Ukraine Ordinance. The Court clarified that the criteria set out in SECO's interpretive guidance are non-exhaustive and non-binding. Courts therefore enjoy broad discretion and may assess control based on economic substance, considering all elements pointing de facto to control by the sanctioned person. A minority shareholding by a sanctioned person is an indication of control when combined with other elements suggesting key influence over the creditor's management.  This can materialise, if associated individuals are placed in key management roles. In general, elements pointing to a tight bond between the creditor and the sanctioned minority shareholder—or a management of the creditor's affairs on a unified basis involving the sanctioned minority shareholder—may be sufficient to ascertain control within the meaning of Article 15(1). Importantly, indicia of control are sufficient. There is no need to have hard proof of such control through formal corporate documents such as bylaws granting preferential voting rights to the shareholder, shareholder agreements incorporating control elements of the sanctioned shareholder, etc. The assessment of control focuses on elements that indicate that factually the centre of power of the creditor gravitates around the sanctioned person.

Ex officio review of sanctions compliance

In a notable departure from ordinary enforcement procedure, the Swiss Federal Supreme Court ruled that judges must examine compliance with the Ukraine Ordinance, and, thus, the applicability of a payment deferral objection against enforcement (Article 81(1) DBA) ex officio. The mandatory nature of sanctions legislation overrides the adversarial principle ordinarily governing Swiss debt enforcement proceedings. Going further still, the Court held that Swiss courts may of their own motion consider any fact relevant to determining whether a creditor is controlled by a sanctioned person pursuant to Article 15(1) of the Ukraine Ordinance. Notably, the Court did not consider related unannounced court-led fact-finding to be incompatible with the parties' right to be heard.

Practical implications

This decision has significant consequences for cross-border enforcement in Switzerland:

• Creditors with a nexus to sanctioned persons should expect and anticipate in their briefs proactive judicial scrutiny of ownership and control structures, even absent a sanctions defence raised by the debtor.
• Debtors gain protection from enforcement where payment would violate sanctions law.
• Companies subject, directly or indirectly, to Swiss sanctions should review their corporate structures and assess whether pending claims may be affected.

For more information, contact your CMS client partner or the CMS experts who contributed to this article.