Practical impact of sanctions – what happens to arbitrations involving sanctioned entities? Singapore High Court judgment DRL v DRK [2026] SGHC 32 spotlights this issue.

Practical impact of sanctions – what happens to arbitrations involving sanctioned entities? Singapore High Court judgment DRL v DRK [2026] SGHC 32 spotlights this issue.

In a judgment released on 9 February 2026, the High Court upheld an SIAC arbitral award containing an order terminating the arbitration, on the basis that the arbitration had become “impossible” under Article 32(2)(c) of the UNCITRAL Model Law on International Commercial Arbitration. This decision is particularly relevant for international arbitrations affected by sanctions, payment restrictions, or other external impediments that prevent proceedings from moving forward.

In DRL v DRK [2026] SGHC 32, the Singapore High Court held that Article 32(2)(c) of the Model Law imposes a positive and mandatory obligation on a tribunal to terminate arbitration proceedings where continuation has become impossible. This obligation applies:

•  even where a termination order will cause irremediable prejudice to a party, including where limitation periods may have expired; and
•  even where the impossibility arises from circumstances outside the parties’ control and is not caused by any fault of the prejudiced party.  

Facts of DRL v DRK

The Applicant’s case was that the Respondent owed it a debt in a nine-figure sum, under a contract between them. The contract contained an arbitration agreement requiring parties to resolve all disputes by arbitration in Singapore under the SIAC rules. 

In May 2020, the Applicant commenced the arbitration in Singapore. However, between February and June 2022, several countries imposed sanctions on the Applicant, which froze the Applicant’s financial assets in USA and Singapore, and prevented the Applicant from making or receiving international payments. 

Therefore, the Applicant was unable to pay the necessary SIAC deposits to progress the arbitration or pay its lawyers’ fees. It was also unable to pay the Respondent or receive from the Respondent any sums of money that the Tribunal may order under any final or interlocutory award.

The Applicant was also unable to provide security for the Respondent’s costs of the arbitration. In response to an order for security for costs issued by the Tribunal, the Applicant instead sought a stay of the arbitration for six months, on grounds that it required time to find a third-party prepared to fund its claim against the Respondent, or to find a third party prepared to acquire its claim against the Respondent as assignee. 

The Respondent then applied to terminate the arbitration on the following grounds:

• under Article 32(2)(c) of the Model Law because it had become impossible to continue the arbitration; or, alternatively, 
• because the Applicant had failed to comply with order for security for costs and because a termination order was, in the circumstances, the only realistic way in which the Tribunal could discharge its duty under Rule 19.1 of the SIAC Rules “to ensure the fair, expeditious, economical and final resolution of the [parties’] dispute”.

The Tribunal’s dismissal of the stay application and order to terminate the arbitration

The Tribunal dismissed the Applicant’s stay application, and granted the Respondent’s application to terminate the arbitration. It held that:

•  A stay of a further six months would serve no useful purpose. In the time that had elapsed since the Applicant made the stay application, the Applicant’s position had not improved. The sanctions had not been lifted, and the applicant had failed to find a third-party funder or assignee.
•  The Applicant had failed to adduce any concrete evidence to suggest that its position would improve in the next six months.
•  For these reasons, the Applicant could not comply with its duty as the claimant in the arbitration to prosecute the arbitration as expeditiously as possible. 

What about prejudice caused by the termination?

In its decision to dismiss the Applicant’s application to set aside the Tribunal’s award, the High Court agreed with the Tribunal’s holding that there is no basis in the scheme of Art 32(2)(c) of the Model Law for considering or weighing the prejudice to a party:

•  A tribunal is duty-bound to make a termination order if it finds as a fact that “the continuation of the proceedings has…become… impossible” within the meaning of Art 32(2)(c) of the Model Law.
•  A tribunal is obliged to terminate an arbitration under Art 32(2)(c) of the Model Law even though doing so could cause significant prejudice to a claimant, e.g. where the applicable limitation period had expired.

The High Court observed that the Applicant had 29 months from its first request for a stay until the Tribunal’s termination decision to find a third-party funder or assignee, in order to devise and implement a mechanism to progress the arbitration despite the sanctions. However, there was no evidence that it did so. Even though the material relating to the arbitration was confidential, the Applicant could have disclosed historical material that pre-dated the arbitration to potential third-party funders or assignees to further their engagement (e.g. the contract, transactional documents and correspondence).  

Further, the High Court found that the mere fact that the Applicant was not impecunious and had the ability to make payment was wholly irrelevant, so long as the sanctions prevented the Applicant from effecting the necessary mechanics of payment.

Once it has become impossible for an arbitration to continue, the Applicant is no longer entitled to present its case, and cannot claim that it was not given a reasonable and fair opportunity to do so. 

Commentary and practical takeaways

This case reflects the Singapore High Court’s usual pro-arbitration approach being tempered by the practicality of case management decisions when proceedings can no longer realistically continue. In particular, the judgment provides an important clarification that once the threshold of “impossibility” is met, an arbitral tribunal is required to terminate the arbitration and cannot keep the arbitration alive merely because the termination may be harsh or cause prejudice to one party, even where that party may not be at fault.

Parties should also bear in mind that applications for a stay of proceedings on account of anticipated developments must be supported by specific and concrete evidence. As illustrated by this case, arbitral tribunals are unlikely to be persuaded by general or speculative assertions that sanctions restrictions may be lifted or that circumstances may improve in due course. 

Where sanctions or other payment restrictions are in issue, parties in disputes should quickly assess whether the necessary advances or payments required to advance the dispute can be made in a lawful and practical manner. This includes exploring third-party funding and/or assignment options, and carefully documenting all efforts to progress the case. 

For respondents, this decision confirms that Article 32(2)(c) of the Model Law can be a powerful procedural tool where a claimant is unable to progress an arbitration, regardless of whether the underlying inability arises from the claimant’s own conduct or from external circumstances beyond any party’s control.