Swiss Federal Supreme Court clarifies impact of sanctions on arbitral award enforcement (4A_305/2025)

The Swiss Federal Supreme Court (“SFC”), in the context of debt collection proceedings involving a party controlled by a sanctioned entity, ruled that the enforceability of debt in favor of the enforcing party is suspended due to the prohibition under Article 15(2) of the Federal Ordinance on Measures in Connection with the Situation in Ukraine (“Ukraine Ordinance” [SR 946.231.176.72]). This provision forbids directly or indirectly making funds available to a sanctioned entity.

Key Takeaways

• Claims are suspended, not extinguished. A sanctioned creditor’s claims remain valid, but cannot be enforced while sanctions are in effect. Limitation periods are paused, and debtors are shielded from penalties like default interest.
• Swiss sanctions are overriding mandatory law. Sanctions apply irrespective of the contractual governing law, meaning foreign arbitral awards cannot circumvent them.
• "Control" evaluated based on substance over form. Courts will assess whether a creditor is controlled by a sanctioned person based on factual influence, including situations where minority shareholdings are paired with managerial control. Determining whether a creditor is sanctioned or owned/controlled by a sanctioned individual or entity is a factual inquiry.
• Courts act ex officio. Judges must proactively ensure compliance with sanctions, even if neither party raises the issue. This includes investigating whether creditors are linked to sanctioned individuals or entities.

Case Overview

The Applicant, a limited liability company incorporated under Angolan law, was awarded cost reimbursement in an arbitral decision rendered by the London Court of International Arbitration (“LCIA Award”). Seeking to enforce the LCIA Award in Switzerland, the Applicant initiated debt collection proceedings. However, the Respondent challenged the payment summons issued by the competent debt enforcement authority. In response, the Applicant applied to have the Respondent's objection lifted, arguing that the LCIA Award constituted a definitive entitlement to enforce the payment claim under Article 80 of the Swiss Federal Debt Enforcement and Bankruptcy Act (“DEBA”).

Initially, the Applicant prevailed in the first-instance court. However, this decision was overturned on appeal by the second-instance court. The appellate court concluded that, due to the Ukraine Ordinance, the Respondent’s payment obligation had become legally impossible to fulfill and was therefore extinguished under Article 119 of the Swiss Code of Obligations.

The Applicant subsequently appealed the matter to the SFC, which dismissed the appeal. The SFC reasoned that, while it did not need to definitively decide the issue of impossibility, the Respondent’s obligation to pay was temporarily suspended. The SFC ruled that sanctions under Switzerland’s Ukraine Ordinance (Article 15(2)) result in a statutory suspension of claims owed to sanctioned creditors.

Implications for Companies Affected by Swiss Sanctions

The decision reinforces Switzerland’s commitment to sanctions compliance and has significant implications for cross-border enforcement proceedings. Businesses affected by Swiss sanctions should review their corporate structures and claims to prepare for potential enforcement challenges.