Recognition and Enforcement of Foreign Court (Arbitral) Decisions and the Examination of Civil Disputes in National Courts
THE AUTHORS:
Simona Budreikaitė, Associate Partner at Ellex Valiunas
Tadas Varapnickas, Associate Partner at Ellex Valiunas
Ieva Gruzdytė-Mačiuginė, Associate at Ellex Valiunas
With the expansion of the EU sanctions regime, questions increasingly arise regarding its impact on commercial relationships. In the practice of Lithuanian courts, the influence of sanctions on such relationships manifests itself in two main aspects. First, the significance of sanctions is assessed when deciding on the recognition and enforcement of foreign court (arbitral) decisions in Lithuania. Second, their significance is assessed in civil cases examined on the merits by Lithuanian courts, where the subject matter of the dispute is related to sanctions or one of the parties to the dispute is a sanctioned entity.
The Impact of the EU Sanctions Regime on the Recognition and Enforcement of Foreign Court (Arbitral) Decisions in Lithuania
Judgments rendered by courts of EU Member States in commercial matters are automatically enforceable in Lithuania, whereas judgments rendered outside the EU, as well as foreign arbitral awards, may be enforced in Lithuania only after they are recognized by the Lithuanian Court of Appeal. The conditions and procedure for the recognition and enforcement of foreign court and arbitral decisions are governed by international treaties and the provisions of the Lithuanian Code of Civil Procedure. For example, the conditions for the recognition, refusal of recognition, and enforcement of foreign arbitral awards are set out in the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), which entered into force in respect of Lithuania on 12 June 1995. The procedure for the recognition and enforcement of foreign arbitral awards is also governed by the Law on Commercial Arbitration of the Republic of Lithuania.
When assessing the recognition of foreign court or arbitral decisions in the context of sanctions, the provisions of the Law on International Sanctions of the Republic of Lithuania are also relevant. According to Article 4(1)–(2) of this law, all natural and legal persons must comply with international sanctions implemented in Lithuania. This means that actions required under the sanctions regime implemented in Lithuania must be taken and/or any actions must be refrained from where they would result in non-compliance with or circumvention of restrictions and obligations imposed by such sanctions.
Lithuanian court practice follows the position that a foreign court or arbitral decision cannot be recognized and enforced if its enforcement would be contrary to the applicable sanctions regime. This position is based on the fact that generally recognized principles of international law, as well as EU legal acts, with which Lithuania undertook to comply upon accession to the EU, form an integral part of the Lithuanian legal system, and the fundamental principles enshrined therein constitute elements of public order (Ruling of the Lithuanian Court of Appeal, 28 June 2024, Civil case No e2T-54-912/2024). The purpose of public order is to protect the fundamental, vital interests of the state and society, i.e., the concept of public order encompasses the fundamental principles on which the legal system and the functioning of the state and society are based. A violation of public order is recognized where the recognition and enforcement of a foreign court decision would be contrary to the fundamental legal principles and moral norms enshrined in the Constitution and recognized internationally (Ruling of the Supreme Court of Lithuania, 29 February 2024, Civil case no. 3K-3-35-823/2024).
When addressing the recognition and enforcement of a foreign court decision where restrictive measures (sanctions) are imposed on the respective state, the Supreme Court of Lithuania (“SCL”) has clarified that restrictive measures applied at the EU level fall within the scope of the public order exception and may serve as grounds for refusing legal assistance under the relevant provision of a bilateral international treaty. The mere fact that a person is not formally included in sanctions lists does not mean that the sanctions regime will not apply to that person – a listed person may stand behind it de facto. For this reason, courts must assess the ownership structure of the relevant entity, the persons exercising decision-making powers, the distribution of profits, etc. Such information is provided by the parties to the proceedings, and where necessary, the court may itself request information from competent authorities, including Lithuanian institutions and the European Commission.
The SCL has also noted that its case law does not establish a rule whereby recognition of a foreign court decision should be refused solely because the applicant is an entity of a sanctioned state and a taxpayer of that state. The provision of legal assistance to such entities is linked in SCL case law to the need to ensure the effectiveness of sanctions, with the selection of specific measures depending on the factual situation, which may change. When deciding on the recognition of decisions of courts of states subject to sanctions, Lithuanian courts have a duty to take measures to prevent sanctions from being circumvented through entities formally not included in sanctions lists but controlled by sanctioned persons. When assessing recognition of a foreign court (arbitral) decision in the context of sanctions, the court also evaluates whether sanctions apply to the applicant, whether it is owned or controlled by persons included in EU sanctions lists (Ruling of the Lithuanian Court of Appeal, 28 June 2024, Civil case No e2T-54-912/2024).
Lithuanian practice also provides specific examples where the sanctions regime served as grounds for refusing recognition of foreign court or arbitral decisions, for example:
- a Lithuanian court also refused to recognize and enforce a decision of the Moscow City Arbitration Court, whereby a bankrupt Russian company was awarded a contractual debt from a company established in Lithuania. The court held that recognition and enforcement would be contrary to public policy, fundamental legal principles and moral norms recognized internationally, taking into account that the applicant and its ultimate beneficiaries were taxpayers of the Russian Federation, the bilateral legal assistance treaty with Russia had been denounced, and the Russian Federation was subject to extensive sanctions.
- a Lithuanian court also refused to recognize and enforce a decision of the Moscow City Arbitration Court, whereby a bankrupt Russian company was awarded a contractual debt from a company established in Lithuania. The court held that recognition and enforcement would be contrary to public policy, fundamental legal principles and moral norms recognized internationally, taking into account that the applicant and its ultimate beneficiaries were taxpayers of the Russian Federation, the bilateral legal assistance treaty with Russia had been denounced, and the Russian Federation was subject to extensive sanctions.
The Significance of EU Sanctions in the Examination of Civil Disputes before Lithuanian Courts
The EU sanctions regime also has direct relevance in the examination of civil disputes concerning contractual obligations before Lithuanian courts.
The SCL has clarified that each entity must independently (irrespective of the position of competent Lithuanian authorities) assess potential links of its business partner, client or other counterparty with sanctioned persons and decide whether legal relations may be continued. The obligation to perform contracts concluded before the application of EU sanctions changes from the moment such sanctions are imposed. This may result, for example, in a contract for the supply of goods or services, where one party is affected by sanctions, being regarded as unenforceable during the period of sanctions, meaning that claims for supply or payment cannot be satisfied. However, the non-satisfaction of a claim does not eliminate the claim itself – once sanctions are lifted or it is established that they do not apply to a particular entity, the claim may be brought again.
Furthermore, Lithuanian courts have emphasized that decisions of authorities implementing international sanctions, such as the Financial Crime Investigation Service, to apply restrictive measures (freezing of funds and assets) impose an obligation on the counterparty of the sanctioned person to suspend the performance of its obligations for the entire duration of the sanctions (Ruling of the Lithuanian Court of Appeal, 27 May 2025, Civil case No. e2A-199-854/2025).
Thus, Lithuanian case law confirms that, first, in the context of sanctions, a contracting party has an active duty to assess its counterparty’s links to sanctioned persons. Second, sanctions may result in the temporary non-performance of contracts and prevent the satisfaction of related claims in court; however, such restrictions apply only for the duration of the sanctions and do not eliminate the underlying claim itself.
ABOUT THE AUTHORS
Simona Budreikaitė is an Associate Partner in the Dispute Resolution team at Ellex, based in Vilnius, and an attorney-at-law admitted in Lithuania. She specializes in national and international dispute resolution before arbitral tribunals and state courts, with a particular focus on the energy and infrastructure sectors, corporate and shareholder conflicts, D&O liability, trade secret protection, and unfair competition. Her experience in international arbitration includes proceedings governed by SCC, ICC, UNCITRAL, and VCCA rules, as well as proceedings before national courts for the recognition and enforcement of foreign arbitral awards. She also advises on investment arbitration matters, with experience from the pre-arbitration stage through to the arbitration proceedings.
Tadas Varapnickas is an Associate Partner, attorney-at-law in the Dispute Resolution team at Ellex in Vilnius specializing in both international arbitration and domestic litigation. He has accumulated valuable experience in representing clients in complex arbitration cases under the regulations of SCC, ICC, LCIA, Vilnius Court of Commercial Arbitration, UNUM and other arbitration institutions. He is also an assistant professor at the Vilnius University Faculty of Law, author (and co-author) of various scientific publications, and general editor of the only arbitration-related journal in Lithuania “Arbitration. Law and Practice”. In 2018, Tadas was elected as the lecturer of the year at the Vilnius University Faculty of Law.
Ieva Gruzdytė-Mačiuginė is an Associate in the Dispute Resolution team at Ellex, based in Vilnius, Lithuania. She advises and represents clients in complex commercial disputes before state courts and arbitral tribunals. Her practice covers a broad range of commercial litigation and arbitration matters, including contractual, corporate and cross-border disputes, as well as construction disputes.
*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.
