Introduction
Two parallel actions for annulment have been filed before the European General Court, challenging specific provisions within the European Union’s sanctions framework targeting Russia. Cases T-655/25 and T-640/25 seek to invalidate newly introduced restrictions on the recognition and enforcement of arbitral awards related to EU sanctions measures.
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Legal Framework Under Challenge
The contested provisions are contained within the EU’s sanctions package adopted on 18 July 2025, specifically:
– Article 1, paragraphs (15) and (16) of Council Decision (CFSP) 2025/1495 amending Decision 2014/512/CFSP concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine; and
– Article 1, paragraphs (18), (19) and (20) of Council Regulation (EU) 2025/1494 amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine.
Core Prohibitions and Obligations
The challenged articles establish a comprehensive regime addressing investor-State dispute settlement (ISDS) proceedings initiated against Member States in relation to EU sanctions measures. The provisions institute a categorical prohibition on the recognition, effect, and enforcement of any judicial, arbitral, or administrative decision emanating from proceedings conducted outside the EU, applying specifically to ISDS proceedings challenging sanctions measures adopted within the Russia sanctions framework where such proceedings are invoked by designated sanctioned persons or entities, or by parties under their control. The non-recognition extends equally to requests for investigative assistance, penalties, or punishments flowing from such proceedings, thereby precluding Member States from providing procedural cooperation in support of non-EU ISDS proceedings relating to sanctions.
Complementing this prohibition, a cause of action is created enabling both Member States and the European Union itself to recover damages and legal costs incurred as a consequence of ISDS proceedings challenging EU sanctions measures, with recovery available against sanctioned parties who have initiated, participated in, or sought to enforce ISDS awards or judgments, as well as against their controlling entities.
Jurisdiction for such recovery actions lies with Member State courts, establishing a counterclaim mechanism that operates independently of the underlying arbitration proceedings. Member States are further obligated to raise all available jurisdictional and procedural objections when confronted with applications for recognition and enforcement of ISDS awards rendered against them concerning sanctions-related measures, effectively mandating exhaustion of defensive remedies in enforcement proceedings.
Council Regulation 2025/1494 additionally includes an exceptional jurisdiction clause establishing residual competence for Member State courts to hear damage claims where no court would otherwise possess jurisdiction under EU law or national law, provided a sufficient connection exists with the forum state.
Taken together, these provisions construct an anti-enforcement shield combined with offensive recovery mechanisms targeting ISDS challenges to EU sanctions, effectively insulating Member States from extra-EU arbitral oversight while simultaneously enabling financial recourse against claimants who pursue such proceedings.
Legal Basis Cited for Challenging the EU Measures
The applicants advance eight distinct pleas challenging the legality of the contested provisions. These pleas collectively assert that the measures exceed the EU’s competences, violate fundamental principles of EU law, breach international treaty obligations, and infringe upon fundamental rights protected under the Charter of Fundamental Rights of the European Union and the European Convention on Human Rights.
The applicants contend that the provisions violate the EU’s international treaty commitments by preventing recognition and enforcement of arbitral awards, contrary to obligations under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), particularly Article V(1)(d) concerning procedural standards, and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention), particularly Article 54 requiring binding recognition of awards. This alleged breach extends to the fundamental principle of pacta sunt servanda as codified in Article 26 of the Vienna Convention on the Law of Treaties. Related to this international law dimension, the applicants argue that the measures breach the duty of sincere cooperation enshrined in Article 4(3) of the Treaty on European Union (TEU) by undermining Member States’ ability to fulfill their own international treaty obligations and respect their international commitments.
On questions of competence and legal basis, the applicants challenge the reliance on Article 215 of the Treaty on the Functioning of the European Union (TFEU) as the legal foundation for these measures, asserting that this provision was misapplied and that the contested provisions exceed the scope of permissible economic and financial sanctions against third countries. The applicants further contend that the measures encroach upon the distribution of competences between the EU and Member States, violating exclusive EU competences and the separation between the Common Foreign and Security Policy (CFSP) and other Union competences as established under Articles 2 and 3 TFEU and Article 40 TEU, as well as Regulation (EU) No 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels I bis Regulation).
The applicants invoke violations of fundamental principles of EU law, asserting breach of the principles of legal certainty and protection of legitimate expectations. They argue that investors and parties to arbitration proceedings had reasonable expectations regarding the enforceability of international arbitration awards, expectations that the contested provisions retroactively frustrate. Additionally, the applicants claim incompatibility with the Agreement on Partnership and Cooperation establishing a partnership between the European Communities and their Member States, of one part, and the Russian Federation, of the other part (EU-Russia Partnership and Cooperation Agreement).
Finally, the applicants advance grounds based on fundamental rights protections. They contend that the measures discriminate unlawfully in violation of Articles 20 and 21 of the Charter of Fundamental Rights and Article 14 of the European Convention on Human Rights (ECHR), and that they are disproportionate to their stated objectives. The applicants further assert violations of procedural rights, including the right to be heard, the right to effective judicial protection, the right to a fair trial, and the right to property, as protected by Articles 41(a), 47, 48, and 17 of the Charter, as well as Articles 6 and 13 ECHR and Article 1 of Protocol No. 1 to the ECHR.
Conclusion
Cases T-655/25 and T-640/25 present fundamental questions concerning the EU’s authority to restrict the recognition and enforcement of international arbitral awards, the compatibility of such restrictions with the Union’s international treaty obligations, and the protection of procedural and substantive rights in the context of sanctions enforcement. The proceedings remain at their preliminary stage, with the European General Court yet to issue any substantive rulings on admissibility or the merits of the applicants’ claims.
The outcome of these cases may have significant implications for the intersection of EU sanctions policy, international arbitration, and the rule of law within the Union’s legal order. We will continue to monitor these proceedings and report any further relevant developments as they emerge.