On 31 July 2025, Mr Justice Bright handed down judgment in the case of LLC EuroChem North-West-2 and ors v Société Générale S.A and ors [2025] EWHC 1938 (Comm), making significant findings on the application of EU sanctions laws and consequent enforceability of contracts governed by English law.

The background

The claim concerned six on-demand bonds worth €280m, each governed by English law, issued between 2020 and 2021 by the First to Third Defendants (“SocGen”) and the Fourth to Fifith Defendants (“ING”) in favour of the First Claimant (“NW2”) in relation to the construction of a fertiliser plant in Kingisepp, Russia.

On 9 March 2022 the founder of the EuroChem group, Andrey Melnichenko, was designated under Council Regulation (EU) No. 269/2014 (the “Regulation”), which stipulated, at Article 2, that funds “owned, held or controlled” by a designated person were frozen (Article 2(1)) and that they should not be made available for the benefit of anyone so designated (Article 2(2)). His wife, Aleksandra Melnichenko, was later designated by the EU on 3 June 2022. For a long time, Mr Melnichenko was the sole discretionary beneficiary of a trust that ultimately owned the Claimants. However, in March 2022, shortly before his designation, he purported to resign and his wife became the sole discretionary beneficiary in his stead.

Following the contractor for the plant refusing to continue work on the basis of sanctions, NW2 made demands under the bonds for payment, however, the banks declined to pay on the basis that to do so would be illegal under EU sanctions.

On 23 December 2024, NW2 purported to assign the proceeds of the bonds to the Second Claimant, a Swiss entity in the Eurochem group (“AG”).

NW2 and AG thereafter brought claims in England for payment under the bonds, claiming that they were not sanctioned as they were not owned or controlled by the Melnichenkos for the purposes of the Regulation. In defending the claim, the banks advanced a positive case that the bonds were frozen as a result of pre-existing determinations by the relevant authorities and, in any event, under Article 2(1) and that payment would make funds available for the benefit of the Melnichenkos. As such, payment would be illegal and contrary to the Ralli Bros principle, alternatively as a matter of public policy.

The decision

In a detailed judgment, Bright J found in favour of the banks on effectively all the key issues.

As to ownership, Mr Melnichenko was held to be the owner of the trust property. In reaching this conclusion Bright J considered in particular that a purposive and wide approach should be employed to interpret the Regulation such that it “includes things held by or through (say) a… trustee” ([240]) and that it prohibited funds being made available to an entity owned or controlled by a designated person, unless not used for their benefit ([258]). In that context, he concluded that a beneficiary under a discretionary trust is the owner of the trust assets (alternatively, is the person to whom they belong or is their holder) for the purposes of EU sanctions law (notwithstanding ongoing ECJ references on this point), even if that would not be the case under English or Bermudian (the law of the trust) law (see [278]). Additionally, in the circumstances, Mrs Melnichenko was found to be Mr Melnichenko’s proxy and, accordingly, that he ceased to be a discretionary trustee in March 2022 made “no real difference to the ownership structure” ([174]-[175]). In any event, following the Pugachev line of authority, it was held that the trust was not really a discretionary trust, Bright J going as far as to characterise Mr Melnichenko as “unscrupulous” in light of his purported retirement from the trust being simply a manoeuvre to retain control, and thus affirming his view that Mr Melnichenko retained ownership of the trust assets ([290]).

As to control, Bright J found that Mr Melnichenko retained control over NW2 ([303]), though the fact of “firewall measures” having been implemented at AG meant neither Melnichenko had control over that element of the group ([305]). However, in the event, the assignment of the bonds to AG was found to have no effect.

As a consequence of those findings, Bright J concluded that the bonds were unenforceable either under the Ralli Bros rule or as a matter of public policy.

Under the rule in Ralli Bros illegality in the place of performance of an English law governed contract will render that contract unenforceable. Here, in circumstances where the Claimants were found to be sanctioned under EU law, and where the place of performance of the bonds was held to be the relevant EU member state where the demand had to be made, the rule was engaged ([458]).

As to public policy, Bright J held that, as a result of the seriousness of the EU law in issue, its purpose, the strict enforcement of it and its precise alignment with UK policy on the same issues, this pointed to the great significance that should be attached to comity on the facts of the case and, should it have proven necessary, he would have also found for the banks on this basis.

Discussion

The judgment is notable for its detailed analysis of the role of English courts in enforcing EU sanctions law, in particular the finding that relevant national authorities’ decisions as to the application of such laws are binding, the nature of discretionary trusts in the sanctions context, the place of performance of demand bonds and analogous instruments and the rationale for engaging the public policy defence. It will be interesting to see how the legal principles it has grappled with may come under scrutiny in the near future and, if there is to be one, the outcome of any appeal.

Of further note, in particular to practitioners, is the extensive criticism Bright J saw fit to make of the Claimants’ approach to disclosure, detailed in a coda at [498], including the excessive reliance on confidentiality clubs and use of redactions, and the failure to call relevant witnesses which meant the court was prepared to draw adverse inferences (albeit they were not material to the outcome) ([367]).

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