“3.1 The Owner may from time to time make a written demand upon the Issuer stating that a contractor has defaulted in its obligations under a contract with respect to the advance payment or has failed to make any payment in accordance with a contract and the amount claimed by the Owner. This demand shall be sent to the Issuer through the Owner's bank which shall confirm that demand was signed by authorized signatories. 3.2 The Issuer shall immediately but in any case not later than four (4) business days upon receipt of any such compliant demand pay to the Owner the amount or amounts demanded up to the maximum sum. … 4.2 The Issuer is not entitled to rely on any defenses or claims which may be available to a contractor under a contract. 4.3 Any demand made by the Owner in accordance with clause 3 and any sum or sums stated in such demand shall be conclusive evidence that such sum or sums are properly due and payable to the Owner under this bond. … 6. Continuity and discharge of the bond The Issuer confirms that: (a) Its obligations under this bond shall be irrevocable and primary. (b) this bond shall come into force on the date hereof and shall remain in full force and effect until the earlier of: (i) 16.09.2023, or (ii) the date on which the owner notifies the issuer of repayment in full of the advance payment by EP Contractor to Owner, when this bond shall cease to have effect save in connection with any demand notified to the Issuer on or prior to the said date. … 9. Assignment 9.1 The Owner may assign, charge or transfer this Bond to: (a) any of the following parties: EuroChem MCC or EuroChem Group AG to whom rights, obligations and benefits under the Contracts have been assigned by Owner, without Issuer’s consent and provided that at the time of the assignment, charge or transfer such action would not cause Issuer to be in breach of any restrictions imposed by sanctions laws or regulations issued by the Republic of Italy, European Union, the United Kingdom…, and/or (b) any other person or entity to whom the rights, obligations and benefits under the Contracts have been assigned by Owner, subject to Issuer’s consent, such consent not to be unreasonably withheld, conditioned or delayed. Once the Financing Agreement will be closed, we will check the list of Financiers and upon Issuer’s approval, an amendment will be issued, including them in the list of approved assignees sub a) and sub the below paragraph. The Owner may assign the proceeds arising from the possible drawdown of this Bond to any of the following parties: EuroChem MCC or EuroChem Group AG without the consent of Issuer, remaining understood that any request of payment to the possible assignee shall be executed by Issuer provided that such action would not cause Issuer to be in breach of any restrictions imposed by sanctions laws or regulations issued by the Republic of Italy, European Union the United Kingdom...” … 10. Notice Any notice or other communication to be given, served or made under this bond: (a) shall be written in English and shall be delivered by hand, and/or by registered mail/express courier with return receipt to: (i) the Issuer at: Societe Generale Paris GTPS/GPS/OPE/TRA/GAR Immeuble Cristallia 189, Rue D'Aubervilliers 75886 Paris Cedex 18 France Attention: International Guarantees Dept (ii) the Owner at: EuroChem North-West-2 Limited Liability Company Building 7, Central Lane, Industrial Area 'Phosphorit', Bolshelutskoe Rural Settlement, Kingisepp Municipal District, The Leningrad Region, 188452, Russian Federation Attention: Ilya Beloborodov, Executive Director or to such other address as a party may specify from time to time by notice to the other party, … 11. Governing law This bond, and any non-contractual obligations arising out or in connection with this bond, shall be governed by and construed in accordance with the laws of England and Wales. Each party irrevocably submits to the exclusive jurisdiction of the courts of England with regard to all matters arising from or in connection with this bond and agrees that a judgment on any proceedings brought in the courts of England shall be conclusive and binding upon them and may be enforced in the courts of any other jurisdiction.”
“(c) Payment is to be made at the branch or office of the guarantor or counter-guarantor that issued the guarantee or counter-guarantee or such other place as may be indicated in that guarantee or counter-guarantee (“place for payment”).”
“Andrey Igorevich MELNICHENKO is a Russian industrialist owning major fertiliser producer EuroChem Group and coal company SUEK. A. Melnichenko belongs to the most influential circle of Russian businesspeople with close connections to the Russian Government. He is therefore involved in economic sectors providing a substantial source of revenue to the Government of the Russian Federation, which is responsible for the annexation of Crimea and the destabilisation of Ukraine. On24 February 2022 , in the aftermath of the initial stages of Russian aggression against Ukraine, Andrey Igorevich MELNICHENKO, along with other 36 businesspeople, met with President Vladimir Putin and other members of the Russian government to discuss the impact of the course of action in the wake of Western sanctions. The fact that he was invited to attend this meeting shows that he is a member of the closest circle of Vladimir Putin and that he is supporting or implementing actions or policies which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine, as well as stability and security in Ukraine. It also shows that he is one of the leading businesspersons involved in economic sectors providing a substantial source of revenue to the Government of Russia, which is responsible for annexation of Crimea and destabilisation of Ukraine.”
“Andrey Melnichenko is a Russian industrialist who continues to control major fertiliser producer EuroChem Group and coal company SUEK. On9 March 2022 , Melnichenko transferred his interests in SUEK and EuroChem Group to his spouse, Aleksandra Melnichenko. He continues to benefit from the wealth he transferred to his wife. His wealth has increased very considerably in recent years. Andrey Melnichenko belongs to the most influential circle of Russian businesspersons with close connections to the Russian government, as is evident from his involvement with the Russian Union of Industrialists and Entrepreneurs, where he holds the position of member of the Bureau of the Board and is the Chairman of the Committee on Climate Policy and Carbon Regulation. On24 February 2022 , in the aftermath of the initial stages of Russia’s war of aggression against Ukraine, Andrey Melnichenko, along with 36 other businesspersons, met with the President of the Russian Federation, Vladimir Putin, and other members of the Russian government to discuss the impact of the course of action in the wake of Western sanctions, thus exemplifying his importance as a leading businessperson in Russia. Moreover, he was among the leading Russian businesspersons who participated in the congress of the Russian Union of Industrialists and Entrepreneurs in March 2023, where the President of the Russian Federation, Vladimir Putin, gave a speech and urged billionaires to put ‘patriotism before profit’. In April 2024, Melnichenko also participated in the congress of the Russian Union of Industrialists and Entrepreneurs, where the President of the Russian Federation, Vladimir Putin, gave a speech, discussing the cooperation between the Russian state and leading companies of the country. Those elements show that he is a leading businessperson as well as a businessperson involved in economic sectors providing a substantial source of revenue to the Government of Russia, which is responsible for the annexation of Crimea and the destabilisation of Ukraine.”
“Aleksandra Melnichenko is the wife of Andrey Melnichenko, a Russian industrialist who transferred his effective ownership and benefit of the major fertiliser producer EuroChem Group and the coal company SUEK to her on9 March 2022 . Aleksandra Melnichenko takes advantage of the fortune and benefits from the wealth of her husband. In March 2022, Aleksandra Melnichenko replaced her husband as the beneficial owner of Firstline Trust, managed by Linetrust PTC Ltd, a company which represents the ultimate owner of EuroChem Group. Therefore, she is an immediate family member benefitting from her husband Andrey Melnichenko and linked to him by common financial interests.”
“… we are unable to honour the claim due to the presence of international sanctions directly impacting the transaction. Paying under the above-mentioned claim will indeed constitute a breach of these international sanctions.”
“Our decision is prompted by the need to comply with mandatory EU sanctions restrictions, as further clarified below. By means of such further clarification we firstly note that it recently became apparent to ING that one of the contracting parties of whom certain services and contractual obligations vis-A-vis EuroChem which are covered by the Bond, Tecnimont SpA ('Tecnimont'), strongly disputes the legality of your claim as they deem it '(..) abusive, improper and fails to comply with the express terms of the Bond'. We furthermore understand that Tecnimont 'has not(actually) defaulted in its obligations under a Contract (as this term is defined in the Bond) and/or has failed to make any payment in accordance with a contract', yet they were in fact (shortly summarized) 'entitled to suspend the provision of the (respective services): (...) to the extent that performance of (all or part of) the Services by Contractor(s) in accordance with (the) Contract(s) would cause Contractor(s) to be in breach of any restrictions imposed by embargo or sanctions laws or regulations issued by (inter alia) European Union. In this context, reference is made to EU sanctions restrictions under: (i) Council Regulation (EU) 833/2014 (as amended from to time: ''Reg. 833/2014''), and (ii) Council Implementing Regulation (EU) 878/2022, implementing Regulation (EU) No. 269/2014 (''Reg. 269/2014, collectively with Reg. 833/2014: ''EU Sanctions Regulations''). Lastly, we understand that the legal counsel of Tecnimont has informed you accordingly, thereby explaining their position that ''there is no basis for EuroChem to assert that MT Russia and/or Tecnimont have defaulted or failed to make a payment under a Contract'', and the suspension of their services under the respective contract(s) with EuroChem serves the purpose of acting in compliance with EU Sanctions Regulations. As you may appreciate, ING is given this situation currently not in the position to grant your claim under the Bond. From a EU sanctions perspective, reference is not only made to the restrictions and legal provisions under the EU Sanctions Regulations which formed the basis for Tecnimont to suspend their services under the respective contract(s), but also to article 11 of both EU Sanctions Regulations, (shortly summarized) prescribing that ING shall not satisfy any claims that are made in connection with any contract or transaction, the performance of which has been affected, directly or indirectly, in whole or in part, by the measures imposed under the respective EU Sanctions Regulation, in the view of ING including your claim under the Bond.”
“The Firstline Trust provides under Clause 5.1 that "Any Beneficiary (not being a minor) may by deed declare irrevocably that he shall cease to be a Beneficiary". Mr. M being the sole Beneficiary of the Firstline Trust informed the trustees on the 8th of March 2022 about his resignation. Upon his resignation, Mrs. M is automatically appointed as protector and Beneficiary of the Trust.”
“The Claimants are not in a position to assess the nature of the relationship between Mr and Mrs Melnichenko. In any case, the allegation goes nowhere…”
“12. Is EuroChem NW2 a legal person associated with owned and/or controlled… by Mr and/or Mrs Melnichenko?”
“2 Assignment of Proceeds With effect from the date of this Deed: (a) the Assignor hereby assigns to the Assignee the Assignor’s proceeds arisen from possible drawdown of the Bonds, including benefits, interests, rights and claims in and to the Claimed Amounts and the Assignee hereby agrees to accept such assignment from the Assignor; and (b) the Assignee shall have all the rights and benefits of a beneficiary with respect to the Claimed Amounts, the Assignee shall have the right to seek enforcement with respect to the Claimed Amounts and pursue all claims and demands (future or existing) whatsoever arising out of or in this respect as if references to the Assignor in the Bonds in this part had been references to the Assignee from the date of issuance of the relevant Bond.”
“2 Consideration under Deed of Assignment 2.1 The Parties hereby agree that, as equivalent consideration for the assignment pursuant to Clause 2 of the Deed of Assignment (which sufficiency the Parties hereby acknowledge), the Assignee undertakes to pay to the Assignor the fixed amount of USD 62,358,000.00 (sixty two million three hundred fifty eight thousand US dollars (being an agreed equivalent to EUR 60,000,000.00 (sixty million Euro) based on the European Central Bank Euro Foreign Exchange Reference Rates as of 23.12.2024) (the “Consideration”). The Parties agree that such Consideration reflects the risks, prospects and costs of the court proceedings and potential enforcements of the assigned proceeds in a balanced way. 2.2 The Consideration shall be payable to the Assignor at any date at the Assignee’s discretion but in any event not later than within 1 (one) year from the date of this Side Letter and, in any event, only after the following conditions have been met: (a) The Assignee becoming a party to the Proceedings; (b) all the necessary Governmental Authority approvals are obtained if required for such payment; and 2.3 The Parties agree that payment of the Consideration shall be made strictly from funds of the Assignee which do not constitute any proceeds from the Bonds. 2.4 If the Conditions set out in Clause 2.2. herein are not met within 1 (one) year from the date hereof, the Parties shall agree in good faith further course of action, including any necessary amendments to the Deed of Assignment and this Side Letter. 2.5 The Assignor undertakes that any amounts received by it as the Consideration will be used solely for the purposes of financing its capital expenditure under the Project. The Assignee shall be entitled to monitor and verify the application of any amount received by the Assignor under or pursuant to the Deed of Assignment and this Side Letter by carrying out audit, as notified to the Assignor in advance, and the Assignor shall cooperate with the Assignee and provide the Assignee, upon request, with such documents, information and assistance necessary for such audit. 2.6 The Assignor shall not directly or indirectly provide, transfer, loan, allow access to or otherwise make available any amounts received by it under or pursuant to the Deed of Assignment and this Side Letter to any Sanctions Restricted Person in violation of the applicable laws, including, but not limited to Sanctions Laws. 2.7 All payments within the Consideration shall be made in Euro or in any other currency as may be agreed by the Parties. 2.8 The Parties shall jointly use their best efforts for the purposes of the Assignee becoming the party to the Proceedings as soon as possible after the date hereof. 3 Reversal of Deed of Assignment in Certain Circumstances 3.1 Each of the Assignee or the Assignor shall have the right to require that the other Party enters into a Deed to reverse the Assignment by a written request in the event that the Assignee does not become a party to the Proceedings within 8 (eight) months from the date hereof and/or in the event that a Court of competent jurisdiction (specifically the English Court) issues a final and binding judgment determining that the Assignment is unlawful and/or void. 3.2 The Assignor shall have the right to require the Assignee to transfer back to it the rights transferred by the Deed of Assignment by giving written notice to the Assignee in the event that the English court refuses to enter judgment in favour of the Assignee in respect of the claims against the Banks under the Proceedings. 3.3 In the event of either Party giving notice under clause 3.1 or of the Assignor giving written notice under clause 3.2 hereof, the Parties shall enter into a further deed re-assigning the rights constituting the subject matter of the Deed of Assignment to the Assignor and the Assignor shall pay to the Assignee the Consideration actually received from the Assignee (if any) and the Assignor shall become the sole and beneficial owner of all such rights.”
“33.20 An assignment of the proceeds of a guarantee is to be distinguished from the transfer of the guarantee itself. When the guarantee itself is transferred… the transferee replaces the transferor as beneficiary, and it is the transferee as the new beneficiary that is entitled to present any future demand. By contrast, in the case of an assignment of the proceeds, there is no contractual relationship between the assignee and the guarantor whose engagement is solely with the assignor, so that the demand and the statement of breach have to be presented by or on behalf of the assignor. The sole effect of the assignment, if agreed to by the guarantor, is that the proceeds, instead of being paid to the assignor, have to be paid to the assignee. Accordingly, the assignee cannot collect until the guarantor has received a complying demand from the assignor. If the assignor fails to present a complying demand prior to the expiry of the guarantee, the assignee has no claim against the guarantor and it has to rely on whatever is available under the applicable law against the assignor. 33.21 An assignment of proceeds also differs from a novation in that the assignee acquires its rights subject to any claims and defences that would have been available against the assignor and subject to rights of set-off as arising under the applicable law. This typically relates to set-off in respect of cross-claims by the debtor (the guarantor) against the assignor arising prior to the guarantor’s receipt of notice of assignment of closely connected to the claim on the guarantee.”
“Article 2 1. All funds and economic resources belonging to, owned, held or controlled by any natural or legal persons, entities or bodies, or natural or legal persons, entities or bodies associated with them, as listed in Annex I, 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, or natural or legal persons, entities or bodies associated with them, as listed in Annex I.”
“… after having determined that such funds or economic resources are necessary for the purchase, import or transport of agricultural and food products, including wheat and fertilisers.”
“Sanctions are an important foreign policy and national security tool. They are restrictive measures, which are designed to be temporary and can be used to coerce a change in behaviour, to constrain behaviour, or to communicate a clear political message to other countries or persons … The UK and its international partners have also imposed and implemented sanctions in situations where the UN has chosen not to act … Often this has involved close cooperation between the EU …”
“[908] The proper approach to expert evidence of foreign law has been helpfully summarised recently in see Deutsche Bank AG London v Comune di Busto Arsizio[2021] EWHC 2706 (Comm) at [104]-[108] (Cockerill J) and Banca Intesa Sanpaolo SpA v Comune di Venezia[2022] EWHC 2586 (Comm) at [120]-[127] (Foxton J). Extracting some of the key principles derived from those authorities, I bear in mind and apply throughout this judgment the following principles in particular: a. The Court is not entitled to construe a foreign code itself; it is the function of the expert witness to interpret its legal effect. b. The task for the English court is to evaluate the expert evidence of foreign law and to predict the likely decision of the highest court in the relevant foreign system of law, rather than imposing his/her personal views as to what the foreign law should be, or allowing the expert to press upon the English judge his personal views of what the foreign law might be. c. This Court may decide what conclusion a foreign court would reach on a developing area of law but it is not, however, seeking to make findings which go beyond the present state of foreign law and to anticipate a rational development of it. d. The more senior the court which gives the relevant court decision, or the greater the number of foreign court decisions to a particular effect, the more difficult it will be for the English court to conclude that, nonetheless, those decisions do not reflect the law of the relevant jurisdiction. e. If there is a clear decision of the highest foreign court on the issue of foreign law, other evidence will carry little weight against it. That is generally so even if the decisions are unworkable in commercial practice or their reasoning illogical or inconsistent. When it falls to an English court to ascertain the content of foreign law, that means the law with whatever imperfections, policy-orientated determinations and impracticalities it manifests.”
“EU Best Practices are non-binding recommendations reflecting the common understanding by the Member States and the Commission of certain provisions of EU restrictive measures, which aim to promote uniform implementation. The Commission’s interpretative role is limited to provisions of EU law. Consequently, the Commission’s assessment will not concern the interpretation of the EU Best Practices, but the relevant provisions of the Regulation only.”
“… in order to give a comprehensive reply to the question asked by the national court, it must be stressed that the measures in question cannot therefore be regarded as having no legal effect. The national courts are bound to take recommendations into consideration in order to decide disputes submitted to them, in particular where they cast light on the interpretation of national measures adopted in order to implement them or where they are designed to supplement binding Community provisions.” (3) See also Judgment15 July 2021 Fédération Bancaire Française v Autorité de Contrôle Prudentiel et de RésolutionCase C-911/19 (ECLI:EU:C:2021:599), at [66]-[71], discussing guidelines published by the European Banking Authority: “[66] By its third question, the referring court asks, in essence, whether the contested guidelines are valid in the light of the provisions of Regulation No 1093/2010 establishing the EBA’s powers. [67] Since it is apparent from Regulation No 1093/2010 that the EU legislature has precisely delineated the EBA’s power to issue guidelines, on the basis of objective criteria, the exercise of that power must be amenable to stringent judicial review in the light of those objective criteria (see, to that effect, judgment of22 January 2014 , United Kingdom v Parliament and Council, C-270/12, EU:C:2014:18, paragraphs 41 and 53). [68] The fact that the contested guidelines do not produce any binding legal effects, as is apparent from paragraphs 39 to 49 above, is not such as to affect the scope of that review. [69] As was observed in paragraphs 43 and 48 of this judgment, the issuance by the EBA of the contested guidelines is intended to exert a power of exhortation and persuasion on the competent authorities and on financial institutions, since those authorities and those institutions must make every effort to comply with those guidelines and those authorities must indicate whether they comply or intend to comply with those guidelines and, if that is not the case, state the reasons for their position. [70] In particular, such guidelines may lead the competent authorities to adopt, like the APCR in the case at issue in the main proceedings, acts of national law exhorting financial institutions to alter their practices significantly or to take account, as the Advocate General noted in point 51 of his Opinion, of compliance with EBA Guidelines when examining the individual situation of those institutions. [71] It is also for the national courts to take into consideration EBA Guidelines in order to resolve the disputes submitted to them, in particular when those guidelines are, like the contested guidelines, intended to supplement binding provisions of European Union law (see, to that effect, judgments of13 December 1989 , Grimaldi, C-322/88, EU:C:1989:646, paragraph 18, and of25 March 2021 , Balgarska Narodna Banka, C-501/18, EU:C:2021:249, paragraph 80).”
“… in the absence of results within a limited timeframe the Union will decide on additional measures, such as travel bans, asset freezes and the cancellation of the EU-Russia summit.”
“[51] It should be noted that the prohibition laid down in that provision on making funds or economic resources available to any person on the list of persons targeted by the restrictive measures is framed in particularly broad terms, as evidenced by the use of the words ‘directly or indirectly’, and therefore encompasses all the acts necessary under the applicable national law if that person is in fact to obtain full power of disposal in relation to the funds or economic resources concerned (see, to that effect, judgments of11 October 2007 , Möllendorf and Möllendorf-Niehuus, C-117/06, EU:C:2007:596, paragraphs 50 and 51; of29 June 2010 , E and F, C-550/09, EU:C:2010:382, paragraphs 66 and 74, and of21 December 2011 , Afrasiabi and Others, C-72/11, EU:C:2011:874, paragraphs 39 and 40). [52] The broad and unambiguous terms of that provision apply to any mode of making available an economic resource and therefore also to any act which flows from the execution of a contract imposing mutual obligations and which has been agreed in exchange for payment of pecuniary consideration (judgment of11 October 2007 , Möllendorf and Möllendorf-Niehuus, C-117/06, EU:C:2007:596, paragraph 56).”
“68. If the ownership or control is established…, 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 concept of making funds or economic resources available indirectly to or for the benefit of a designated person refers to a situation in which funds are made available to a person or entity who or which is directly or indirectly owned or controlled by a listed entity. There is a footnote to this text, citing the ECJ Judgment13 March 2012 Melli Bank v Council, C-380/09P (EU:C:2012:137). I am not sure that this decision provides support for the proposition in the text, but I nevertheless accept the correctness of the answer to question 9. … If ownership or control is established on the basis of appropriate due diligence, the making available of funds or economic resources to non-designated 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, that the funds or economic resources concerned will not be used by or be for the benefit of that designated person or entity.”
“As generally parent companies exercise control and direction over the activities of their subsidiaries, in the Commission’s view, once control by a designated person over a non-designated entity is determined, it can be presumed that the control also extends to the subsidiaries and the assets of the non-designated entity. This presumption can be rebutted on a case-by-case basis by the EU Subsidiary, if it can demonstrate that some or all of its assets are outside the control of the parent entity, or that the latter is, in fact, not controlled by the designated person. It follows that making funds or economic resources available to such a subsidiary would amount to making them indirectly available to the designated person, unless it can be reasonably determined, on a case-by-case basis using a risk-based approach, taking into account all the relevant circumstances, that the funds or economic resources concerned will not be used by or be for the benefit of that designated person.”
“[62]… in order for funds to be regarded as being made indirectly available to a person whose name is on the list…, it must be possible for those funds to be passed on to that person or for that person to have the ability to dispose of them, in the light, inter alia, of the existence of financial or legal links between the beneficiary of the funds and such a person.”
“If a designated person has control over an entity, there is a rebuttable presumption that the control extends to all assets owned by the latter. Such assets must be frozen. Otherwise, designated persons could circumvent the asset freeze imposed on them by continuing to have access to funds or economic resources through the non-designated third parties that they control. In a similar vein, the making available of funds or economic resources to a non-designated entity, which [is] controlled by a designated person, amounts to making them indirectly available to the latter.”
“Ownership When assessing whether a legal person or entity is owned by another person or entity, the relevant criterion is the possession, directly or indirectly of all or almost all of the share capital. Where the share capital is entirely owned by the listed entity, this will suffice to establish ownership and this applies even if there are intermediary companies. In instances where there is a lesser shareholding, it will be necessary to examine the factual situation to see whether there is control.”
“[69] The use by Regulation No 961/2010 of the terms “owned” and “controlled” reflects the need to enable the Council to adopt executive measures against all persons, entities or bodies linked to companies involved in nuclear proliferation. It follows that the ownership or control may be direct or indirect. If that link had to be established solely on the basis of the direct ownership or control of those persons, the measures could be circumvented by numerous contractual or de facto possibilities of control, possibilities which would confer on a company opportunities to exert influence over other entities that are as extensive as in the case of direct ownership or control. [70] Thus, as the General Court pointed out in para 55 of the judgment under appeal, the concept of a company owned or controlled does not have, in the area of restrictive measures, the same meaning as it generally has in company law, where it serves to ascertain the commercial liability of a company which is legally subject to the control, as regards decision-making, of another commercial entity. [71] In para 56 of the judgment under appeal, the General Court held that, in the context of assessing the legality of a restrictive measure, what is contemplated by that concept is a situation in which the natural or legal person involved in nuclear proliferation is able to influence the commercial decisions of another person with which it has a commercial relationship, even in the absence of any legal tie between the two economic entities, or any link in terms of ownership or equity participation.”
“[70] In the present case, it should be noted that the trust FirstLine Trust was created, as the applicant acknowledges, in order to protect and safeguard his substantial wealth. It is common ground that, in 2006, the applicant transferred to the trustees of that trust all his shares in SUEK and EuroChem which enabled him to control those two companies, and that he became the first beneficiary of the trust. Thus, between 2006 and8 March 2022 , the applicant was both the settlor and the first beneficiary of FirstLine Trust which is, according to Annex A.10 produced by the applicant, the owner, through two companies established in Cyprus, of a portfolio of majority shareholdings in EuroChem and SUEK. [71] Therefore, by setting up the trust and designating himself as its beneficiary, the applicant retained, through the companies and intermediate structures referred to in paragraph 70 above, economic interests in EuroChem and SUEK. The fact that the appellant used an intermediate legal structure, such as a trust, is not such as to prevent it from being regarded as the holder of the shareholdings managed by that trust for the purposes of the application of criterion (g). It follows that it may be considered that the applicant, in his capacity as settlor and beneficiary of FirstLine Trust, continued to hold, from an economic point of view, shareholdings in EuroChem and SUEK.” “[73] Therefore, since the applicant was the settlor and beneficiary of the trust which manages his shareholdings in EuroChem and SUEK, the Council did not make an error of assessment in considering, in the grounds for the initial acts, that he was the owner of those two companies.”
“[107] Moreover, it is apparent from the analysis set out in that document that the concept of ownership in a formal sense is discussed, without considering whether the fact that the applicant was designated as the first beneficiary of the trust may indicate that his economic interests in the companies concerned remain.”
“63. The criterion to be taken into account when assessing whether a legal person or entity is owned by another person or entity is the possession of 50% or more of the proprietary rights of an entity or having majority interest in it. If this criterion is satisfied, it is considered that the legal person or entity is owned by another person or entity.”
“[182] In the example of an unscrupulous person seeking to use a discretionary trust to protect assets from creditors, a trust which includes a role for that unscrupulous person as a protector with very wide powers of veto and to remove and appoint trustees may perhaps achieve the desired result. The unscrupulous person is only a discretionary beneficiary and so can truly state to a court that they do not hold any of the assets beneficially. However consider a protector who is not a fiduciary. In the capacity of such a protector, the unscrupulous person can prevent the trustees from distributing the money to anyone but himself (or herself) and can remove recalcitrant trustees who fail to do his or her bidding and replace them with trustees willing to do what the unscrupulous person wants. Viewed in that way, perhaps the discretionary trust is not really a discretionary trust at all; the unscrupulous person has retained effective control of the assets or at least can recover that control whenever they like. That is the claimants’ case on the facts.”
“64. 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: a. having the right or exercising the power to appoint or remove a majority of the members of the administrative, management or supervisory body of such legal person or entity; b. having appointed solely as a result of the exercise of one's voting rights a majority of the members of the administrative, management or supervisory bodies of a legal person or entity who have held office during the present and previous financial year; c. controlling alone, pursuant to an agreement with other shareholders in or members of a legal person or entity, a majority of shareholders' or members' voting rights in that legal person or entity; 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 or 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, de facto, exercise the right to exercise a dominant influence referred to in point (d), without being the holder of that right [footnote: including, for example, by means of a front company]; f. having the right to use all or part of the assets of a legal person or entity; g. managing the business of a legal person or entity on a unified basis, while publishing consolidated accounts; h. sharing jointly and severally the financial liabilities of a legal person or entity, or guaranteeing them.”
“d) Use of front persons • A new owner is closely connected to the designated previous owner, e.g. a family member or former employee/business partner, and, possibly, the sale price was too low or otherwise abnormal, or • The entity has an advisor (or a board of advisors) with ultimate decision power over the activity of the entity, even though from the title or function this does not seem self-evident, or • There is a written agreement from which it is clear that a non-shareholder or a shareholder with minor shareholdings is given the authority to solely decide on the business of the entity, or • The persons who are supposed to be in charge of an entity have their decisions made by designated persons. e) Use of trusts, shell companies and limited liability companies • An entity is part of a needlessly complex corporate structure, potentially involving entities such as shell companies, limited liability companies and/or trusts linked to a designated person. Some of these entities were set up or changed their identity shortly before or after (if allowed by the relevant Council Regulations) the adoption of the sanctions regime or the person’s designation, and/or have no credible business activity. • One or several trusts are used as receiver(s) of assets from an entity owned or controlled by a designated person. The management of the trusts involves professionals from the jurisdiction where the trusts was/were formed.”
“Control 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, it is necessary to carry out a factual assessment of all the organisational, structural and economic links between the two undertakings/entities. The determining factor is whether the listed entity is able to and effectively asserts a decisive influence over the conduct of the other entity in question. Whilst a significant shareholding is one factor that may suggest control, there is no minimum threshold. Even a minority shareholding may be sufficient if it is allied to rights greater than those normally granted to minority shareholders and if ‘consistent legal or economic indicia’ show that the listed entity is in fact influencing the other entity. The indicia of decisive influence include: a. the power to appoint or remove a majority of the members of the administrative, management or supervisory body of such legal person or entity; b. using all or part of the assets of a legal person or entity; c. sharing jointly and severally the financial liabilities of a legal person or entity, or guaranteeing them; d. having influence as regards corporate strategy, operational policy, business plans, investment, capacity, provision of finance, human resources and legal matters; e. putting in place or maintaining mechanisms to monitor the commercial conduct of the legal person or entity; f. other indicia such as sharing a business address or using the same name which could cause third parties to have the impression that the two entities are in fact part of the same undertaking.”
“If control of the listed person over the group as a whole is determined, then the conclusion can extend to all subsidiaries within the group. If control of the listed person was determined over a single entity in the group (e.g. the listed entity), then this would impact its own subsidiaries, but not other subsidiaries in the wider group.”
“The question whether EuroChem is controlled by the applicant within the meaning of Article 2 of Decision 2014/145, as amended, and Article 2 of Regulation No 269/2014, as amended, does not form part of the subject matter of the case, since the examination of that question falls, in particular, to the competent authorities of the Member States when they are called upon to rule on whether or not to order the freezing of that company’s funds and economic resources.” (2) In EuroChem v Council T-1111/23, the Court stated at [56]: “… the fact that a legal person or an entity is owned, held or controlled by a person whose name is included on the lists at issue must be established, in the case of the freezing of funds and economic resources, by the authorities of the Member States…”
“If a firewall is not effectively established, the presumption is not rebutted and the NCA must not grant an authorisation to release the entity’s assets frozen. In addition, in the event of non-compliance with the firewall commitments, the entity and the relevant individuals must be held accountable according to Member State penalties applicable to infringements of the provisions of the relevant EU Regulation.” (2) On p. 5: “For the sake of clarity and to avoid adverse effects, the NCA where the ‘owned or controlled’ entity is incorporated should be the one in charge of creating and/or monitoring the implementation of the firewall.” (3) On p. 6: “As set out in section 2.2 (b), an operator that sets up a firewall may resort to an external third party, such as an auditor, to implement and/or certify the effectiveness of the changes to the entity’s corporate governance. In addition, a Member State must also organise an authentication process by which it would recognise the removal of control. In this case, an NCA must carry out the necessary checks to guarantee that the letter and spirit of this guidance have been respected. The NCA should also receive assurance that the designated person is no longer involved in the entity, for example by written statements from senior management. A Member State may condition the authentication of a firewall upon the conduct of an external audit. In this case, the NCA should have the possibility to engage directly with the auditor to carry out its authentication and access all audit and corporate documents. The NCA may amend the scope of the audit as appropriate and reserve its right to refuse recognition where the auditor was not suitable or competent to perform such a mission. Once the compliance of the firewall is established, the NCA must issue an official written confirmation. This document can be circulated by the entity as necessary to other Member States or any relevant party.”
“Legal persons considered to be owned or controlled by a sanctioned natural or legal person On the basis of the information available at the date of transmission/publication of this call for vigilance, the Directorate General of the Treasury points out for the purposes of application of Regulation (EU) No 269/2014 of17 March 2014 that the legal persons referred to below are considered to be owned or controlled by a sanctioned natural or legal person. … Entities reported as owned or controlled by natural or legal persons sanctioned under Regulation (EU) No 269/2014 of17 March 2014 as of the date of this due diligence call Legal person owned or controlled Sanctioned natural or legal person(s) in a position of control or ownership EuroChem Group AG and its subsidiary EuroChem Agro France MELNICHENKO Andrey lgorevich MELNICHENKO Aleksandra Making funds or economic resources available to entities identified under this call for vigilance will in principle be considered as indirectly making funds or economic resources available to the sanctioned natural or legal persons who own or control them. Nevertheless, under certain conditions expressly listed in Regulation 269/2014, accompanying measures (authorisations to unfreeze and make available) may make it possible to use some of the frozen assets with the authorisation of the Treasury Directorate-General. It is also recalled that frozen bank accounts may continue to be credited. Setting up a monitoring system If they can reasonably demonstrate, on a case-by-case basis and risk-based approach, taking into account all the circumstances, that the funds or economic resources in question will not be used by or for the benefit of a sanctioned person, the entities reported under this alert may request the establishment of a monitoring mechanism from the Treasury Directorate-General (sanctions-russie@dgtresor.gouv.fr). The addressees of this call for vigilance may make this possibility known to the entities concerned”
“There is no evidence at this stage that EuroChem Group AG and its subsidiary EuroChem Agro France SAS are neither owned nor controlled by Mr. and Mrs. Melnichenko, persons subject to an asset freeze measure under the amended EU Regulation 269/2014.”
“It is not apparent to Société Générale that any of those derogations would apply to the current situation. Nevertheless, Société Générale wishes to be certain of the position and therefore formally requests that the DGT considers whether there is a basis for granting Société Générale a licence to pay EuroChem NW in all of the circumstances described above and, if so, to grant the relevant licence.”
“No derogation on the basis of Regulation 2014/269 is applicable to Société Générale's payments to [EuroChem NW2]. [EuroChem NW2’s] situation prevents indeed funds or economic resources from being made available for its benefit as this would have the consequence of indirectly making these funds available to a designated person, namely Mr and Mrs Melnichenko.”
“The issue is not only that of the restrictive measures against the Russian subsidiary of EuroChem because of its situation vis-à-vis Mr. and Mrs. Melnichenko, but also because under Articles 11 of Regulations 269/2014 and 833/2014 it is impossible to make such a payment.”
“… the undersigned Committee is of the opinion that: - the funds and economic resources of the LLC EuroChem North-West 2 entity, including the guarantees in question, should be subject to the sanction of the freezing of funds, as they are directly attributable to the two above-mentioned sanctioned persons, and for the same reason, there is a prohibition on making funds or economic resources available to the entity itself within the meaning of paragraphs I and 2, respectively, of Article 2 of Regulation (EU) No 269/2014. - SG Milan is prohibited, pursuant to Articles 2-ter(2)(b), 3-ter(2)(b), 2-duodecies(2)(b) and 3(2) of Regulation (EU) No 833/2014, from complying with the guarantees, and in any event from directly or indirectly providing financing or financial assistance to LLC EuroChem Northwest 2 and from making any payments thereunder, including with a view to the suspension of the performance of the underlying contracts; and in general, it is not possible for SG Milan to take LLC EuroChem NorthWest 2's request further pursuant to Article 11 of Regulation (EU) No 833/2014. - None of the derogations provided for under Regulation (EU) No 269/2014 and Regulation (EU) No 833/2014 are available for the payment of the above-mentioned guarantees.”
“… the' Committee's view is that: - the funds and economic resources of the entity EuroChem North-West. Z including the ING bond, must be subject to the sanction of the freezing of funds, insofar as directly linked to the two sanctioned persons mentioned above. For the same reason a prohibition applies to the making available of funds or economic resources to the same entity under, respectively, paragraph 1 and 2 of Article 2 of Regulation (EU) No. 269/2014. - The bank is prohibited, under Articles 2b(2)(b), 3b(2)(4), 21(2)(b) and 3(2) of Regulation (EU) No. 833/1014, from complying with the INC.. Bond, and in any case from providing financing or financial assistance directly or indirectly to LLC EuroChem North-West 2 and from instructing any payment in this context„ also in light of the suspension of the performance of the Tender Contracts and the assignment and the related pledge to Sberbank Europe AG and Sberbank Russia. In general, it is not possible for your bank to act upon any request from EuroChem North-West 2 under Article 11 of Regulation (EU)No. 833/2014.”
“The Committee is aware of the existence of the "firewalls" recognized to EuroChem group companies in other countries, which are already provided for in the Commission's Guidance of29 November 2023 , and takes this into account when examining applications for exemption authorizations to unfreeze funds. With regard to ENW2's right to receive the countervalue of the guarantees, backed by specific counter-guarantees, provided by several banking intermediaries and recently transferred to the parent company EAG, the Committee confirms the opinion already expressed in its note of30 July 2024 referred to above. It should be noted that the funds and economic resources of ENW2 are still frozen pursuant to Article 2 of Regulation (EU) No. 269/2014 and that Article 11 of Regulation (EU) No. 833/2014 prohibits the fulfilment of obligations arising from any contract that has been affected, directly or indirectly, by the restrictive measures.”
“We have coordinated the sanctioning status of EuroChem Group AG (Switzerland) and its companies with the Ministry of Economic Affairs and Climate Policy (EZK). The Ministry of Economic Affairs and Climate Policy confirms that these entities are not directly or indirectly owned by, or controlled by, sanctioned persons. As a result, payments to these entities do not qualify as the indirect provision of funds to sanctioned persons, and the freezing obligation does not apply to these entities. For example, in the view of the Ministry of Economic Affairs and Climate Policy, there is sufficient distance between these entities and the sanctioned persons mentioned in your request to conclude that no exemption is required under EU sanctions for payments to these entities or release of their assets. This position may change if the authorities of Cyprus come to different conclusions with regard to the ownership and control structure of the EuroChem group, or if further guidance from the European Commission so requires. The foregoing applies to acts under Dutch jurisdiction and does not affect the fact that authorities in other EU Member States may assess the sanction status of the entities in question differently. It is ING's responsibility to follow the instructions of the local competent sanctioning authorities in each Member State.”
“In the email message of13 December 2022 below, we shared information about the sanction status of EuroChem Group AG (Switzerland) and companies that fall under it, as coordinated with the Ministry of Economic Affairs and Climate Policy (EZK) at the time. It states that '[t]his position may change if the authorities of Cyprus come to different conclusions with regard to the ownership and control structure of the EuroChem group'. In the meantime, the Cyprus authorities have come to different conclusions. This means that the vision in our email below no longer applies. We are consulting with the Ministry of Economic Affairs and Climate Policy about the consequences for our view on the sanction status of the aforementioned companies. We will inform you about the outcome of this consultation.”
“[50] The general rule in civil litigation is that they who assert must prove. So, where a given allegation, whether affirmative or negative, forms an essential part of a party’s case, the burden of proving such allegation to the civil standard of proof rests on that party at all times. …”
“If, at the time of the assessment, there are reasonable grounds to believe that certain assets “belong to” or are “controlled by” the listed person, even if they are nominally owned by someone else, then these assets must be frozen under Article 2(1).”
“[41] The question whether an adverse inference may be drawn from the absence of a witness is sometimes treated as a matter governed by legal criteria, for which the decision of the Court of Appeal in Wisniewski v Central Manchester Health Authority [1998] PIQR P324 is often cited as authority. Without intending to disparage the sensible statements made in that case, I think there is a risk of making overly legal and technical what really is or ought to be just a matter of ordinary rationality. So far as possible, tribunals should be free to draw, or to decline to draw, inferences from the facts of the case before them using their common sense without the need to consult law books when doing so. Whether any positive significance should be attached to the fact that a person has not given evidence depends entirely on the context and particular circumstances. Relevant considerations will naturally include such matters as whether the witness was available to give evidence, what relevant evidence it is reasonable to expect that the witness would have been able to give, what other relevant evidence there was bearing on the point(s) on which the witness could potentially have given relevant evidence, and the significance of those points in the context of the case as a whole. All these matters are inter-related and how these and any other relevant considerations should be assessed cannot be encapsulated in a set of legal rules.”
“… any move, transfer, alteration, use of, access to, or dealing with funds in any way that would result in any change in their volume, amount, location, ownership, possession, character, destination or any other change that would enable the funds to be used…”
“4. All funds and economic resources belonging to, or owned, held or controlled by the following on16th September 2011 : (a) Libyan Investment Authority … and located outside Libya on that date shall remain frozen.” … and located outside Libya on that date shall remain frozen.”
“The effect of Article 5 of Regulation (EU) No. 204/211 15. Mr. Swift Q.C. submitted that the key to a proper understanding of Regulation (EU) No. 204/2011, as amended by Regulation (EU) No. 965/2011, lay in the Security Council Resolutions to which they were intended to give effect. He submitted that paragraph 17 of Resolution 1970 (2011) dealt separately with assets of two kinds: funds and economic resources owned or controlled by Libyan persons and entities and funds and economic resources that might be made available to such persons or entities. That distinction was reflected in article 5 of the Regulations as originally adopted, which drew a distinction between the freezing of funds and economic resources belonging to the LIA in article 5(1) and the prohibition in article 5(2) on making funds or economic resources available to it. The freezing of assets was, however, subject to the provisions of paragraph 20 of the resolution, which permitted payments into frozen accounts of sums due in respect of obligations that had arisen before the date on which the accounts became frozen, provided that they remained frozen in accordance with the resolution. That provision, he submitted, was reflected in article 9 of the Regulations and its effect was to allow Mr. Maud to make payment under the guarantee, provided the money was paid into a frozen account. The relaxation of the sanctions in relation to the LIA in September 2011 limited their effect to maintaining the freeze only on those assets which it owned outside Libya at the date of the resolution, but even those remained frozen subject to the provisions of paragraph 20. In Mr. Swift's submission, following its amendment by Regulation (EU) No. 965/2011, Regulation (EU) No. 204/2011 as a whole was to be construed in a way that gave effect to the Security Council resolutions. 16. Mr. Maclean Q.C. submitted that the language of article 5(4) was clear: all funds belonging to the LIA on16th September 2011 and located outside Libya on that date were to remain frozen. For this purpose, by virtue of article 1(a) "funds" included the guarantee given by Mr. Maud and by virtue of article 1(b) "frozen" meant that any form of dealing with the guarantee which would enable the funds to be used was prohibited. Payment of the guarantee was a form of dealing with it and was the most obvious way of enabling the funds to be used. Article 9 of the Regulation could be disregarded; it no longer had any effect as far as the LIA was concerned, because the LIA was no longer subject to the provisions of articles 5(1) or 5(2). 17. I think there is little doubt that the successive EU Regulations were intended to reflect and give effect to the Security Council resolutions rather than to establish a parallel but independent regime of a potentially more extensive nature. That appears clearly from the recitals to the Regulations themselves. Accordingly, I think they must be construed as far as possible compatibly with the Security Council resolutions. The purpose behind those resolutions is clear from their terms: Resolution 1970/2011 was intended to freeze economic assets owned by certain Libyan persons and entities and to prevent new economic assets from being made available to them. But even that all-embracing regime was subject to certain exceptions, the most important of which for present purposes was that contained in paragraph 20, which permitted the payment of frozen debts into frozen bank accounts, thus substituting one form of frozen asset for another. The relaxation of sanctions following the overthrow of Colonel Gaddafi's regime was intended to allow the LIA to deal with assets outside Libya acquired after16th September 2011 and to allow it to obtain new assets free of sanctions. It would have been very surprising if the Security Council had intended at the same time to tighten the sanctions insofar as they applied to assets which remained frozen, and the terms of Resolution 2009 (2011) make it clear that it did not. In my view Regulation (EU) No. 204/2011 as amended must be construed with that in mind. 18. I can see the force of Mr. Maclean's argument that paying a debt involves dealing with the chose in action in a way that enables the funds it represents to be used, but in my view the Regulations must be read and understood as a coherent whole against the background of the Security Council Resolutions. The extensive definition of "funds" and the expression "freezing of funds" in article 1 makes it easy to elide the difference between the asset and the funds into which it can be turned. Mr. Swift submitted that, under the Regulation in its original form, enabling the LIA to deal with the guarantee, for example, by way of assignment, would have contravened article 5(1), whereas paying the debt due under it would have involved making funds available to the LIA, contrary to article 5(2). I think that that is right. Article 1(a) is concerned with dealing with the asset itself, in this case the guarantee, which could be discounted or used as security in order to obtain new funds. Paying the debt is not dealing with the instrument itself in any real sense; it is simply performing the obligation to which it gives rise. That can be seen as providing funds which are otherwise not available to the recipient. 19. This approach to the construction of article 1(a) may appear rather technical, but paragraph 20 of Resolution 1970 (2011) and article 9(1)(b) of the Regulation in my view point clearly to that conclusion. The two limbs of paragraph 17 are reflected in articles 5(1) and 5(2) of Regulation (EU) No. 204/2011, but article 9, which reflects paragraph 20, states in terms that it provides an exception to article 5(2), not article 5(1). It follows, therefore, that the payment of debts arising under obligations which came into existence before sanctions were imposed is to be regarded as falling within article 5(2) and thus as making new funds available rather than dealing with existing assets. That in turn strongly suggests that debts arising under frozen assets continue to be recoverable, although they no longer need to be paid into frozen accounts, and that the correct understanding of article 5(4) is that the payment of debts due under obligations such as the guarantee in this case does not involve dealing with the obligation but represents the provision of new or additional funds. 20. That interpretation of the Regulation is reinforced by two further considerations. First, it is apparent from the recitals to Resolution 2009 (2011) that the Security Council intended to relax the sanctions regime to enable the Libyan people to have the benefit of most of the assets to which it had previously related. It is not surprising, therefore, that the funds frozen at the date of that resolution should remain frozen, and thus incapable of being alienated, but that LIA should be allowed to obtain payment of sums due under them without restriction. Second, the argument put forward on behalf of Mr. Maud proves too much, since, if it were correct, it would make it impossible for any payments to be recovered under paragraph 20 of Resolution 1970 (2011) and article 9(1)(b) of Regulation (EU) No. 204/2011 by any party which remained subject to article 5(2). That can hardly have been the intention of the Security Council or the EU Council of Ministers. 21. The judge thought that the expressions "funds" and "economic resources" had to be given the same meaning wherever they appeared in articles 5(1), 5(2) and 5(4). With that I respectfully agree. However, she also considered that payment under the guarantee would amount to an alteration which would result in a change of character that would enable it to be used. There, with respect, I think she went wrong, confusing "funds" in the sense of the guarantee with "funds" in the sense of the proceeds of payment. She appears to have thought that the limited scope of article 9(1)(b) was to be explained by an error on the part of the draftsman in failing to state expressly that article 9 as a whole provided an exception to article 5(1) as well as article 5(2), but for the reasons I have given I do not think that can be correct.”
“Article 11 1. No claims in connection with any contract or transaction the performance of which has been affected, directly or indirectly, in whole or in part, by the measures imposed under this Regulation, including claims for indemnity or any other claim of this type, such as a claim for compensation or a claim under a guarantee, notably a claim for extension or payment of a bond, guarantee or indemnity, particularly a financial guarantee or financial indemnity, of whatever form, shall be satisfied, if they are made by: (a) legal persons, entities or bodies listed in the Annexes to this Regulation or legal persons, entities or bodies established outside the Union whose proprietary rights are directly or indirectly owned for more than 50 % by them; (b) any other Russian person, entity or body; (c) any person, entity or body acting through or on behalf of one of the persons, entities or bodies referred to in points (a) or (b) of this paragraph. 2. In any proceedings for the enforcement of a claim, the onus of proving that satisfying the claim is not prohibited by paragraph 1 shall be on the person seeking the enforcement of that claim.”
“31. The basic principles are well established, and I take them, with all due deference and some adjustment, from PP’s skeleton argument. (i) On-demand bonds (and similar instruments) are the “life-blood of international commerce” (Harbottle v NatWest[1978] QB 146 at 155); they are to be treated as “an autonomous contract, independent of disputes between the seller and the buyer as to their relative entitlements pursuant to the different contract between themselves” (Wuhan Guoyu Logistics Group Co Ltd v Emporiki Bank of Greece SA [2014] 1 All ER (Comm) 870 (CA) at [21]. (ii) Liability under the bond is separate from liability under the underlying contract: Edward Owen v Barclays Bank [1978] Q.B. 159 at 171 (per Lord Denning MR): “A bank which gives a performance guarantee … is not concerned in the least with the relations between the supplier and the customer; nor with the question whether the supplier has performed his contracted obligation or not; nor with the question whether the supplier is in default or not. The bank must pay according to its guarantee, on demand, if so stipulated, without proof or conditions.” (iii)Any lack of correlation between payment made under an on-demand bond and liability in the underlying contractual relationship is a matter for resolution between the parties to that relationship, not for the bond issuer and beneficiary: “By agreeing to provide a bond which is payable on demand, a party agrees that the bond may be called pending resolution of any dispute with the counterparty beneficiary. He thereby agrees to assume the risk of payment being made notwithstanding that he can subsequently establish in litigation or arbitration that the dispute is to be resolved in his favour”: Ouais Group v. Saipem[2013] EWHC 990 (Comm) at [45]. (iv)The only exception to the rule in Edward Owen in relation to contractual obligations as between the beneficiary and issuer of an on-demand bond is “when there is a clear fraud of which the bank has notice” (Lord Denning MR again, at 171). Accordingly: a. The issuer is required to plead and prove dishonesty on the part of the beneficiary, or absence of any good-faith belief that the relevant amount is due. An honest but mistaken belief will not suffice: see AES-3C v. Credit Agricole[2011] BLR 249 (TCC) at [48], nor will the fact that the underlying contractual claim is contested: see Wuhan Guoyu at [21]. b. Fraud alone does not do; the bond issuer must have notice of the fraud at the time of the demand. As Tomlinson LJ said in Wuhan Guoyu at [22]: “It is critical to the efficacy of these financial arrangements that as between beneficiary and bank the position crystallises as at presentation of documents or demand as the case may be, and that it is only in the case of fraudulent presentation or demand by the beneficiary that the bank can resist payment against an apparently conforming presentation or demand.” (v) The rule in Edward Owen and the status of the fraud exception as the sole defence as between issuer and beneficiary was reiterated by the Court of Appeal in National Infrastructure v. Banco Santander [2018] 1 All ER (Comm) 156 at [17] to [19]. In that case Longmore LJ made it plain that a defence will only exist where: “‘the only realistic inference is that [the claimant] could not honestly have believed in the validity of its demands’ (the emphasis is mine but none the less crucial for that).” (vi) In the context of on-demand bonds, in applying the summary judgment test, “the Court must be mindful of the principle that banks … need particularly cogent evidence to establish the fraud exception”: Banco Santander, Longmore LJ at [22] quoting Teare J in Enka Insaat Ve Sanayi AS v Banca Popolare Dell’ Alto Adige SpA[2009] EWHC 2410 at [25].” a. The issuer is required to plead and prove dishonesty on the part of the beneficiary, or absence of any good-faith belief that the relevant amount is due. An honest but mistaken belief will not suffice: see AES-3C v. Credit Agricole[2011] BLR 249 (TCC) at [48], nor will the fact that the underlying contractual claim is contested: see Wuhan Guoyu at [21]. b. Fraud alone does not do; the bond issuer must have notice of the fraud at the time of the demand. As Tomlinson LJ said in Wuhan Guoyu at [22]: “It is critical to the efficacy of these financial arrangements that as between beneficiary and bank the position crystallises as at presentation of documents or demand as the case may be, and that it is only in the case of fraudulent presentation or demand by the beneficiary that the bank can resist payment against an apparently conforming presentation or demand.”
“Put differently: could the performance of the Banks’ obligations to pay under the Bonds be affected by non-performance under the Contracts, whether on the basis of sanctions compliance or not? The answer is ‘no’. That is the nature of on-demand bonds: it goes to their basic function of security unconnected to the performance of the underlying contract; and it is what distinguishes them from a guarantee.”
“[55] The words “in connection with” are broad. As Rix LJ said in Campbell v Conoco (UK) Ltd [2003] 1 All ER (Comm) 35 at para 19, the words in connection with “… are widely regarded as being as wide a connecting link as one can commonly come across”
“[61] However, it is important to understand what the scope of the principle is. Obligations under letters of credit are autonomous in the sense that they do not depend on whether the beneficiary has a claim on the underlying contract financed by the credit, or (for a confirming bank) on the position of the issuing bank. So in this case, for example, payment under the LCs depended on an asserted default under the leases and not on whether there was in fact a relevant default. But that does not mean that the factual reality of a connection with the leases can be ignored. That connection undoubtedly exists, and indeed is recognised in the reference in article 4(a) to the “contract on which [the letter of credit] may be based”
“… a contract (whether lawful by its governing law or not) [is], in general, invalid in so far as the performance of it [is] unlawful by the law of the country where the contract [is] to be performed.”
“[105] The Ralli Bros principle is well-established. It is a limited exception to the general principle that the enforceability of a contract governed by English law is determined without reference to illegality under any other law. The exception applies where contractual performance necessarily requires an act to be done in a place where it would be unlawful to carry it out: see for example Dana Gas PJSC v Dana Gas Sukuk Ltd[2018] 1 Lloyd’s Rep 177 at [79] per Leggatt J and Banco San Juan Internacional Inc v Petróleos de Venezuela SA [2021] 2 All ER (Comm) 590 (“Banco San Juan”) at [62], [77] and [79] per Cockerill J. [106] A distinction has been drawn in the case law between situations where performance is illegal in the jurisdiction where performance must take place, where the principle applies, and cases where the illegality relates to a preparatory step to performance, or “equipping to perform”: Banco San Juan at [80]–[83], where the illegality does not excuse non-performance.Further, it is not in dispute that a party will not be excused if performance would be legal if a licence was obtained, unless that party shows that they either made reasonable efforts to obtain a licence or that any such efforts would have been in vain because a licence would have been refused.”
“In my judgment, the matter should be approached in the following way. Until a demand was made, Barclays was under no actual liability to SOF. Its liability was only a potential liability. When the demand was made, in conformity with the terms of the Letter of Guarantee, Barclays' potential liability crystallised into an actual liability. That liability, absent any contractual term as to the place of payment, was to make payment at the place where the demand was made and where the liability crystallised. The fact that SOF, in its demand, requested that payment should be made into a stipulated account at a Romanian bank was simply an administrative, or mechanical, request, and not a contractual requirement. It would have been perfectly possible for SOF to have stipulated for payment in Romania, but it did not do so. While it is true that, in English law, a debtor is under an obligation to seek out his creditor in order to make payment of his debt, so that Barclays was underan obligation to seek out SOF, that obligation has little to do with the place of payment under a document such as the Letter of Guarantee.”
“… the presumption must be that matters connected with the performance by the banker of his contract under a commercial credit are to be regulated by the law prevailing at the place of performance, i.e. the law of the territory in which the seller’s draft is presented to the banker for acceptance or payment.”
“[56] It has been suggested (obiter) that a contract which is valid by the governing law of the forum, English law, or in this case, Hong Kong law, may be refused enforcement if it has been 'performed in such a way that one party (or both parties) commits a legal wrong': Barros Mattos Jnr v MacDaniels Ltd[2004] EWHC 1188 ,[2005] 1 WLR 247 , [30] (Laddie J). But, …, this obiter suggestion states the principle much too widely. [57] There may nevertheless be cases in which a sufficiently serious breach of foreign law which reflects important policies of the foreign state or separate law district may be such that it would be contrary to public policy to enforce a contract. But there is no basis in authority or principle for holding that every breach of foreign law would come into this category.”
“[77]The rule in Ralli Bros… provides that an obligation under an English law contract is invalid and unenforceable, or suspended in the case of a payment obligation, insofar as the contract requires performance in a place where it is unlawful under the law of that required place of performance.”