English High Court decision on EU sanctions and contract enforcement

In a notable judgment handed down by Mr Justice Bright on 31 July 2025 in LLC EuroChem North-West 2 & Ors v Société Générale S.A. & Ors [2025] EWHC 1938 (Comm), the English High Court addressed the enforceability of on-demand bonds in the context of EU sanctions.

The case revolved around six English-law governed bonds issued between 2020-21 by Société Générale and ING in favour of EuroChem, a Russian-affiliated entity. EuroChem claimed payment under the bonds following the termination of contract for a fertiliser plant project in Kingisepp, Russia. However, the banks refused to pay on the grounds that the beneficiary was owned or controlled by Mr Andrey Melnichenko, thereby subject to the EU asset freeze under Regulation (EU) No 269/2014.

Ownership and control: broad interpretation of sanctions law

In a detailed ruling, Bright J held that asset-freeze rules must be given a purposive interpretation: ownership and control are to be construed expansively, so as to include indirect structures such as discretionary trusts. In particular, he found that Mr Melnichenko retained de facto control over the trust that nominally held EuroChem and that Mrs Melnichenko was effectively his “mere proxy.” Consequently, the bonds were rendered unenforceable, as payment would constitute making funds “available for the benefit” of a designated person.

The judgment also addressed the pivotal concept of the place of performance of the English-law bonds. Applying the rule in Ralli Bros v Compagnie Générale Transatlantique, the court found that, in the circumstances, the demand for payment would occur in an EU member state, triggering the illegality defence and public-policy bar to enforcement.

Strategic impact on sanctions compliance and bond litigation

From a practical perspective, the decision marks a key precedent in how English courts will engage with EU sanctions law in the context of English-governed financial instruments. As the first substantial UK ruling of its kind, the case signals that issuers and beneficiaries should conduct rigorous sanctions risk analysis when structuring bonds or guarantees linked to entities with Russian connections.

Moreover, the case underscores that English law will not override EU sanctions measures via technical corporate or trust structures — the court was clear that substance will be preferred over form. Bright J’s observations on disclosure, witness evidence and confidentiality conventions in this case (including adverse inferences for non-cooperation) further illuminate the robust evidential expectations in such litigation.

How Gherson can assist

The Gherson team have years of experience advising on compliance matters, including sanctions. We regularly advise clients on sanctions rules and regulations and can assist companies with developing policies and systems aimed at preventing sanctions risks.

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