When sanctions freeze the contract: who bears the loss?

When EU sanctions make it unlawful to perform a contract, someone has to absorb the cost. Over the past year, Lithuanian courts have given a fairly clear answer as to who that is. In an article for the International Bar Association’s Litigation Committee Newsletter, Justinas Jarusevičius examines this line of case law and its implications for businesses dealing with counterparties exposed to sanctions.

Performance itself is frozen

The starting point is the Supreme Court of Lithuania’s ruling of 27 June 2024 in the Vydmantai wind park case. The wind farm operator, treated as controlled by a person designated under Regulation (EU) No 269/2014, sued its electricity buyer for payment after the buyer suspended their power purchase agreement.

The Supreme Court interpreted the freezing of funds and economic resources broadly and held that a contract concluded before the measures took effect cannot be performed while they apply. This extends even to payment for electricity actually delivered after the sanctions took effect. The claim is not extinguished, however, and can be brought again once the sanctions are lifted.

Losses lie where they fall

In March 2025, the Court of Appeal of Lithuania addressed the reverse situation. After Inter RAO Lietuva was found to be controlled by a designated person and could no longer supply electricity, two of its former customers, ORLEN Lietuva and Roquette Amilina, sued for the higher cost of replacement supply, claiming approximately EUR 7.9 million and EUR 6.1 million respectively.

Both claims were dismissed in full. The court reasoned that the Law on International Sanctions required the parties to terminate or suspend their contracts, so ceasing performance was the only lawful course of action. Without an unlawful act, there could be no civil liability. Importantly, the statutory exemption from liability protects every party to the contract, not only the sanctioned one.

An unresolved question: blanket immunity or force majeure?

The two appellate panels reached the same result by different routes. In ORLEN, the court treated Article 7(4) of the Law on International Sanctions as excluding civil liability altogether. Two weeks later, in Amilina, a different panel required proof of the conditions of force majeure, which it found satisfied.

The Supreme Court declined to accept ORLEN’s appeal and saw no need for a preliminary reference to the Court of Justice of the European Union. The appellate rulings are therefore final, but the doctrinal question remains open.

What this means in practice

If the law will not reallocate sanctions risk, the contract must. Parties should consider:

• sanctions-triggered termination and suspension clauses;
• pricing arrangements that survive a counterparty’s designation;
• supply structures that avoid concentrating risk in a single exposed entity.

Read the full article on the IBA website.