Key takeaways
Sanctions regulations and arbitration
Restrictive measures may impact enforcement of arbitration award.
Indirectly making funds available
Prohibition applies where there is reasonable risk that sanctioned entity will benefit from funds.
Dominant influence over sanctioned entity
This is fact specific and sufficient evidence must be adduced to prove it.
DNO Yemen AS -v- Petrolin Trading Ltd & others [2026] EUECJ Case C-842/24
This was a reference from the Cour de cassation, France, for a preliminary ruling from the Court of Justice of the European Union (CJEU) on a sanctions-related issue, namely what constitutes ’dominant influence’ or control over a sanctioned entity or individual such that the indirect making of funds or resources available to a non-designated entity runs the risk that those funds or resources will be made available to the designated entity or individual. This was in the context of the enforcement of an ICC arbitration award, which ordered that damages be paid to public entities.
The sanctions regulations in this case related to the Houthi-backed government in the Republic of Yemen, which is not internationally recognised. The circumstances are somewhat unusual because there are two competing governments in Yemen and the award in question required the payment of damages to a government ministry and a state-owned company. The award debtor’s concern was that the legitimate and illegitimate governments had competing influences over the award creditors and, therefore, payment to the public entities might mean that funds were indirectly made available to designated entities or individuals.
The decision is generally relevant, however, both to other sanctions regimes as well as to international arbitration practitioners and users.
The background facts
The dispute arose out of oil and natural gas exploitation and production-sharing agreements (Agreements) between
the Ministry of Oil and Minerals of the Republic of Yemen (Ministry) and Yemen Oil and Gas Corporation (YOGC), a company wholly owned by the State of Yemen, and
DNO Yemen AS (DNO), Petrolin Trading (Petrolin), MOE Oil & Gas Yemen (MOE) and Dove Energy (Dove).
The Agreements incorporated an ICC arbitration clause.
During 2014 and 2015, the Houthi Movement took control of the capital of Yemen, Sana'a, and sought to unseat the Yemeni Government with a governing authority dominated by the Houthis. The international community intervened to support the legitimate Government, which was temporarily seated in Aden. However, there continue to be two opposing governmental structures.
Subsequently, both the UN Security Council and the EU adopted restrictive measures against the assets of persons and entities effectively supporting the Houthi-backed government. The EU sanctions took the form of Regulation No 1352/2014 (Regulation), as subsequently revised and amended.
As a result of these developments, in 2014, DNO, Petrolin, MOE and Dove sought to withdraw from the Agreements. The Ministry and YOGC denied that they were entitled to do so and, in 2015, commenced ICC arbitration proceedings seated in Paris, seeking damages.
By an award dated July 2019, the Tribunal found in favour of the Ministry and YOGC and ordered DNO, Petrolin and MOE to pay damages (Award).
DNO, Petrolin and MOE appealed to the cour d’appel de Paris (Court of Appeal, Paris) arguing that the Award was contrary to international public policy because its enforcement could cause funds to be made indirectly available to the designated persons listed in Annex I of the Regulation within the meaning of Article 2(2) of that Regulation. The concern was that YOGC was believed to be under the control of sanctioned Houthi rebels.
In October 2021, the cour d’appel de Paris dismissed the challenge to the Award. It held that, in order to show an indirect making available of funds to designated parties, it was necessary to establish that the Ministry and YOGC were in fact acting ‘on behalf of, under the control of or on the instructions of’ designated persons and that they intended to use the funds for the benefit of those persons. On the facts and evidence before the cour d’appel, this had not been established.
The Ministry then succeeded in having the Award recognised by the Norwegian Court (DNO being a Norwegian company) and, in November 2023, the Award was held to be enforceable and DNO was ordered to pay the damages due. In December 2023, DNO paid the Ministry the net amount due under the Award. YOGC had assigned its rights in this regard to the Ministry and did not seek to claim any further payment for itself.
DNO and Petrolin sought to appeal the decision of the cour d’appel de Paris to the Cour de cassation (Court of Cassation, France), the highest court in France. The Cour de cassation decided to stay its proceedings and refer the matter to the CJEU for a preliminary ruling
The Regulation
Article 2 of Regulation No 1352/2014 (4) provides:
’1. All funds and economic resources belonging to, owned, held or controlled by any natural or legal person, entity or body as listed in Annex I to this regulation shall be frozen.
2. No funds or economic resources shall be made available, directly or indirectly, to or for the benefit of natural or legal persons, entities or bodies listed in Annex I.’
Article 3(1) of the Regulation provides:
’Annex I shall include natural or legal persons, entities and bodies identified by the Sanctions Committee [of the United Nations Security Council] (6) as engaging in or providing support for acts that threaten the peace, security or stability of Yemen …’
Paragraph 55b of the Guidelines on implementation and evaluation of restrictive measures (sanctions) in the framework of the EU Common Foreign and Security Policy (Guidelines on restrictive measures) provides:
’The criteria to be taken into account when assessing whether a legal person or entity is controlled by another person or entity, alone or pursuant to an agreement with another shareholder or other third party, could include, inter alia …:
…
(d) having the right to exercise a dominant influence over a legal person or entity, pursuant to an agreement entered into with that legal person or entity, or to a provision in its Memorandum [and] Articles of Association, where the law governing that legal person or entity permits its being subject to such agreement or provision;
(e) having the power to exercise the right to exercise a dominant influence referred to in point (d), without being the holder of that right …;
(f) having the right to use all or part of the assets of a legal person or entity;
…
If any of these criteria are satisfied, it is considered that the legal person or entity is controlled by another person or entity, unless the contrary can be established on a case-by-case basis.’
Paragraph 55d of the Guidelines states the following:
’If the ownership or control is established in accordance with the above criteria, the making available of funds or economic resources to non-listed legal persons or entities which are owned or controlled by a listed person or entity will in principle be considered as making them indirectly available to the latter, unless it can be reasonably determined, on a case-by-case basis using a risk-based approach, taking into account all of the relevant circumstances, including the criteria below, that the funds or economic resources concerned will not be used by or be for the benefit of that listed person or entity.’
The referral
The CJEU was asked to consider the following questions:
Whether the prohibition under Article 2(2) on indirectly making funds or economic resources available to a designated entity extended to non-designated entities where designated entities or individuals exerted an influence over the non-designated entity that competed with that of the legitimate government.
Where such a competing influence was established, was there a presumption that the non-designated entities to which funds were paid were controlled by the designated entities? If yes, did that presumption permit evidence to the contrary to be adduced?
Where the evidence adduced was not sufficient to assess who had decisive influence over the entity to which funds were made available, did the mere reasonable risk that designated persons might ultimately benefit from the funds provide a sufficient basis for applying the sanctions?
Advocate General’s opinion
The Opinion of the Advocate General (AG) was delivered in March 2026. AG Opinions are independent non-binding legal assessments provided to assist CJEU judges. These Opinions have persuasive weight and are frequently followed by the CJEU when delivering its decisions.
The AG Opinion:
Article 2(2) may extend to the payment of funds, by reason of the enforcement of an arbitration award, to an entity over which designated persons and a non-designated entity exercise competing influences if those funds may be passed on to designated persons or if designated persons can dispose of the funds.
It is sufficient for the application of Article 2(2) if there is a reasonable risk that designated persons will benefit from all or part of the funds paid to a non-designated entity, by reason of the enforcement of an arbitration award.
In the context of annulling an arbitration award, where there is a competing influence, there is no presumption that the designated entity controls the public entity. However, where the evidence indicates that there is a reasonable risk that designated entities will benefit from funds made available to a non-designated entity, it is for the latter to demonstrate to the requisite legal standard that there is in fact no such risk.
The CJEU decision
The CJEU delivered its judgment on 15 October 2026. It held as follows:
Article 2(2) of Regulation No 1352/2014 should be interpreted as meaning that making funds available to a non-designated public entity, in order to enforce an arbitration award, may constitute making funds indirectly available to designated entities or persons, where those designated persons or entities or bodies claim to have the power to control or instruct the entity receiving the funds and are in a position to actually obtain those funds. This is irrespective of whether or not they do in fact exercise that power.
The prohibition applies where it can be established, on the basis of objective material evidence, that there is a risk that designated persons or entities will benefit from all or part of the funds intended for a non-sanctioned entity, provided that the probability of that risk materialising is sufficiently significant to justify that prohibition, taking into account all the circumstances of the particular case and relevant factors, such as action that may be taken to prevent the designated entities or persons from accessing those funds.
Designated persons or entities or bodies are not to be presumed to control a public entity to which funds have been made available in order to enforce an arbitration award where there is a competing influence, in this case the legitimate Government of the Republic of Yemen that claims to assert control over that public entity.
The competent national court must assess, on the basis of a sufficiently specific, precise and consistent set of indicia, the risk that those funds will benefit designated persons or entities.
In that context, the lack of cooperation by the legitimate Government of the Republic of Yemen with designated persons or entities or bodies cannot be sufficient to exclude such a risk, as that government and the public entity concerned must show that they have taken specific measures which are actually capable of preventing that risk from materialising.
The matter will now, therefore, go back to the Cour de cassation to decide the relevant issues on the basis of the CJEU’s findings. It will be interesting to see what it concludes.
However, as highlighted by the CJEU, evidence capable of showing that designated entities or persons have means at their disposal for obtaining the funds made available to the public entity will not normally be available to a private individual unrelated to that entity. There is also likely to be some difficulty in obtaining more specific evidence in a State currently experiencing a civil war.
Comment
This is not the only case in which a dispute involving sanctions and arbitration has been referred to the CJEU for a ruling.
In NV Reibel -v- JSC VO Stankoimport (C-802/24), a dispute arising out of a contract for the sale and supply of goods (which were classified as ’dual-use items’) between a Belgian company and a Russian buyer, no export licences were forthcoming from the Belgian authorities due to sanctions against Russia. The Russian buyer obtained a Swedish arbitration award that ordered the Belgian company to refund the advance payments made.
The Belgian company sought to have the award set aside. The Svea Court of Appeal in Stockholm stayed the proceedings and referred the matter to the CJEU for a ruling on whether referring to arbitration claims that have been impacted by sanctions is contrary to public policy.
The AG’s Opinion (delivered in late February 2026) is that there is no prohibition on submitting to arbitration claims that may not be satisfied due to sanctions regulations. However, the arbitral tribunal must comply with sanctions regulations and a failure to do so is contrary to public policy that can lead to the award being set aside. In this case, the regulations precluded the satisfaction of a claim for repayment of an advance.
The CJEU decision in this case is pending and is likely to have important implications for companies involved in international trade and arbitration with sanctioned parties.
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