Where a contract has been affected by the EU sanctions against Russia, Article 11 of Regulation (EU) No 833/2014 prohibits satisfying any claim made by a Russian person or entity in connection with that contract, including a claim for payment or extension of a guarantee or a counter-guarantee. The European bank must therefore not pay, and the party that instructed the guarantee may object to payment. The problem has moved elsewhere: the Russian beneficiary sues before its own courts, which assert jurisdiction and attach whatever they can find in Russia. The Regulation provides a response, Article 11a, which allows the losses suffered in this way to be claimed back in Europe.
A turnkey contractor based in Lyon signed a contract in 2021 with a Russian oil company for the supply of refining equipment, worth 48 million euros. At the customer’s request, a Russian bank issued an advance payment guarantee and a performance guarantee, counter-guaranteed by the contractor’s French bank. In spring 2022, the equipment fell within the export bans of Regulation 833/2014, and delivery became impossible. In 2023, the Russian customer demanded that the guarantees be extended, failing which it would call them. The French bank refused, relying on Article 11. The dispute then changed ground. Six months later, the customer obtained a judgment from the Moscow Arbitrazh Court (the Russian state commercial court) ordering the Russian bank to pay, and the Russian bank then turned against the contractor’s Russian subsidiary, whose accounts were attached.
1. The “no claims” rule of Article 11
Article 11(1) of the Regulation provides that no claim shall be satisfied in connection with any contract or transaction whose performance has been affected, directly or indirectly, in whole or in part, by the measures imposed under the Regulation. The text expressly covers claims for indemnity, compensation or under a guarantee, and in particular claims for the extension or payment of a bond, a guarantee or a counter-guarantee, including a financial guarantee or counter-guarantee, whatever its form.
The prohibition applies where the claim is made by one of three categories of persons: the persons and entities listed in the annexes to the Regulation and the entities established outside the Union that they own by more than 50%; any other Russian person, entity or body; and any person acting through or on behalf of any of them. A Russian bank calling a counter-guarantee from a French bank therefore falls within its scope, as does a Russian customer directly calling a guarantee issued by a European bank.
Two conditions must be met. The contract must have been affected by the measures in the Regulation, which requires a concrete link between the sanctions and the non-performance. A contract that became impossible to perform for another reason, for example a Russian countermeasure or a mere commercial difficulty, is not covered. And the claimant must belong to one of the three categories: a guarantee issued in favour of a Turkish or Emirati beneficiary, with no Russian control, falls outside Article 11 even if the contract is affected.
2. The burden of proof
Article 11(2) reverses the burden of proof: in any proceedings to enforce a claim, it is for the person seeking enforcement to prove that satisfying the claim is not prohibited. A Russian beneficiary wishing to enforce the guarantee before a European court would therefore have to show that the contract was not affected by the sanctions, or that it does not belong to any of the categories concerned.
Do not rely on that alone. For the guarantor bank and the instructing party, good practice is to build a precise file from the outset: references of the applicable measures (customs codes of the goods, articles of the Regulation), a chronology of the non-performance, correspondence with the customer and with the competent authority. That file will be used before the European court, and later in the damages action.
3. Beneficiaries on the sanctions lists
If the beneficiary is itself designated under Regulation (EU) No 269/2014, the problem is of a different kind: its funds and economic resources are frozen, and no payment may be made to it or for its benefit, directly or indirectly. A payment into a frozen account can only be made with an authorisation from the competent national authority, in France the Treasury Directorate General (direction générale du Trésor), in the cases exhaustively listed in the Regulation. The analysis must therefore always start by checking the position of the beneficiary, its bank and their shareholders against the current EU lists (sanctions against Russia: what a French company may still do).
4. The Russian response: Article 248.1 of the Arbitrazh Procedure Code
Since 2020, Articles 248.1 and 248.2 of the Arbitrazh Procedure Code of the Russian Federation have given Russian courts exclusive jurisdiction over disputes involving a person subject to foreign sanctions, even where the contract contains an international arbitration clause, and allow them to issue anti-suit injunctions backed by penalties of up to the amount in dispute. Russian courts obviously disregard Article 11, which they regard as contrary to Russian public policy. That is the trap.
The European company then faces a double bind: it cannot pay in Europe, and it is ordered to pay in Russia. Russian judgments will not be enforced in the Union, since recognising them would amount to satisfying a claim prohibited by Article 11 and would offend public policy. But they can be enforced in Russia, against the assets of the company, its subsidiaries or its bank, and sometimes in third countries that do not apply the EU sanctions and have mutual legal assistance agreements with Russia, which means mapping the group’s assets exposed in those countries before even deciding how to respond to the Russian proceedings, and asking whether it is better to defend there, to challenge jurisdiction and limit the amount, or not to appear so as not to lend legitimacy to a court whose jurisdiction is disputed, while keeping in every case a complete record of the Russian proceedings, the documents served and the decisions handed down, which will later serve to establish before the European court the lack of effective remedy required by Article 11a.
5. Article 11a: recovering in Europe what was lost in Russia
Article 11a gives any national of a Member State and any legal person incorporated under the law of a Member State the right to recover, before the competent courts of a Member State, any damages, direct or indirect, including legal costs, that it or an entity it owns or controls has suffered as a result of claims brought before the courts of third countries by the persons referred to in Article 11, in connection with a contract affected by the sanctions. The condition is that the victim did not have access to an effective remedy before the court concerned. Damages can be recovered from the claimant or from the persons who own or control it.
It is a real weapon, provided the defendant has assets in the Union, which is less and less common for Russian companies but remains possible for some groups, in particular through subsidiaries or receivables. The Regulation has added an Article 11b, which opens a comparable action against those who benefit from Russian measures of temporary administration or seizure of the assets of European companies.
The Lyon contractor brought an action under Article 11a before the Paris Economic Activities Court (tribunal des activités économiques) against the Russian customer and its parent company, which holds a stake in a European company. It obtained a protective attachment over future dividends.
6. What to do now
The subject is not closed. Guarantees issued before 2022 continue to expire, to be extended or to be called. For each of them, you need to check whether the underlying contract was affected by measures under the Regulation, identify the beneficiary and its shareholders, list the group’s assets exposed in Russia and in third countries, and document every exchange. When a call or an extension request is received, the bank’s response must be coordinated with the instructing party, because a poorly reasoned refusal and a wrongful payment both expose whoever took the decision to liability.
Getting assistance
The firm advises companies and their banks on how sanctions apply to guarantees and counter-guarantees, and assists them in damages actions. See our international sanctions page and our article on the abusive call of an on-demand guarantee. For an initial discussion, use the contact page.
Further reading: US discovery and the French Blocking Statute: how to handle a document request.
Frequently asked questions
Can a French bank pay a guarantee called by a Russian beneficiary?
No, if the guaranteed contract has been affected by the sanctions under Regulation (EU) No 833/2014. Article 11 prohibits satisfying any claim for payment or extension of a guarantee or counter-guarantee made by a Russian person or entity.
Who has to prove that the contract was affected by the sanctions?
Article 11(2) places the burden of proof on the party seeking enforcement: it is for the beneficiary to show that its claim is not prohibited.
Does the rule apply to non-Russian beneficiaries?
Not in principle. It covers listed persons and entities, entities they own by more than 50%, any Russian person or entity and anyone acting on their behalf. A beneficiary from a third country with no Russian control is not concerned.
What if a Russian court orders us to pay?
The judgment will not be enforced in the Union, but it can be enforced in Russia and in some third countries. Article 11a allows the loss to be recovered before a European court, against the Russian claimant or those who control it.
Is a demand to “extend or pay” covered?
Yes. Article 11 expressly covers claims for the extension or payment of a guarantee or counter-guarantee, whatever its form.
On the same subject: sanctions against Russia, what a French company may still do, OFAC and extraterritoriality and the bank refuses my documentary credit: what to do?