EU sanctions against Russia and advance payments: what about reimbursement if delivery is no longer permitted?

Has your company received an advance payment, but are you no longer permitted to deliver due to EU sanctions? In that case, a refund is not automatically guaranteed. A recent opinion by the Advocate General of the Court of Justice in the Reibel case makes it clear that a Russian counterparty may not be able to reclaim an advance payment if delivery has been prevented by EU sanctions. The full judgment of the Court is yet to be issued, and may contain a deviation from the Advocate General’s opinion; however, for businesses this means, in any event, that refunding the advance payment may have consequences under sanctions law. A degree of caution is advised. 

The issue of refunds 

Suppose a European company has sold goods to a Russian party, or to a distributor who ultimately supplies Russian customers, and the customer has already paid in advance. A new package of sanctions then comes into force, as a result of which delivery to the Russian party is no longer permitted. The company then finds itself in a bind: it has received the advance payment but is subsequently not permitted to deliver the goods. Is the business then obliged to reimburse this amount? 

The ‘no-claims’ clause 

Following the Russian invasion of Ukraine in 2022, the EU imposed several rounds of sanctions against Russia. To protect parties required to comply with the sanctions from claims by the other party arising from non-performance, EU Regulation 833/2014 contains a so-called ‘no-claims’ provision. In practice, however, a debate has arisen as to whether a claim for the repayment of an advance payment falls under this no-claims provision and thus precludes repayment.  

Various supervisory authorities are adopting a cautious, broad approach. The Maltese and German supervisory authorities have taken the view that reimbursement of an advance payment may, under certain circumstances, be contrary to Article 11. The Dutch supervisory authority also appears to endorse this approach.  

How does recent case law view the reimbursement of an advance payment? 

The picture in case law is less clear-cut. In recent cases, the Amsterdam District Court has ruled that claims for repayment may fall within the scope of Article 11. In a recent opinion of the European Court of Justice, the Advocatein the Ciekuri-Shishki case that a sanctioned party must be prevented from enforcing, through the courts, a right the exercise of which would contravene the sanctions, but that this does not preclude the application of Article 11 outside the context of legal proceedings. In another recent opinion in the Reibel case, the Advocate General ruled that a claim for repayment of that advance payment falls under the no-claims provision.  

If the Court of Justice ultimately follows the Advocate General’s line of reasoning – which is not always the case – this would mean that it is legally established that a Russian party cannot enforce repayment of an advance payment. In doing so, the Court would be following the positions of the European supervisory authorities.  

Practical conclusions 

At present, our advice to businesses is to exercise extreme caution regarding the repayment of advance payments to sanctioned Russian parties. Until a full judgment has been delivered by the Court of Justice, it is not yet possible to say with certainty whether such repayment of an advance payment constitutes a breach of the no-claims clause, but at this stage it certainly appears to be the case.  

We will keep you informed of further developments.  

See also: EU sanctions and claims for damages: can a Russian party claim compensation for non-delivery?