CL-2022-000456 - [2025] EWHC 1938 (Comm)

I have already noted that, after March 2022, EuroChem NW2 obtained alternative finance from Russian banks. This was by way of a Syndicated Loan Agreement dated 30 December 2020, as amended and restated from time to time, with amongst others (i) VTB Bank (ii) VEB.RF (iii) Otkritie FC Bank (iv) Gazprombank and (v) Sberbank. All these banks except Gazprombank are subject to EU sanctions. (Footnote: ¹⁰) From the outset of the proceedings, the Banks said that it followed that payment to EuroChem NW2 would be used by EuroChem NW2, if not to pass funds to Mr Melnichenko, then to repay the Russian banks. This gave rise to debate between the Claimants and the Banks as to whether the Russian banks would have any rights over or interest in such funds.

The Assignment alters the perspective from which this point must be considered. If the Banks have to pay under the Bonds, the proceeds will not pass to EuroChem NW2 but to EuroChem AG. If the SECO gives the necessary authorisation, there will in due course follow a separate payment by EuroChem AG to EuroChem NW2.

If this happens, that payment will be subject to clause 2.5 of the Side Letter – it will be used by EuroChem NW2 “solely for the purposes of financing its capital expenditure under the Project”. Given the Syndicated Loan Agreement, whose existence was known to both EuroChem NW2 and EuroChem AG when they entered into the Assignment and Side Letter, this means that EuroChem NW2 will use the money to repay the Russian banks.

The question whether the Russian banks would have any right over or interest in the Consideration under the Side Letter therefore has become irrelevant. EuroChem NW2 has a contractual obligation to EuroChem AG to use the Consideration for this sole purpose. It therefore is inevitable that much of it will go to sanctioned Russian banks. It may be thought unlikely that this is something that the SECO would feel able to authorise.

Nevertheless, if, knowing all this, the SECO were to authorise EuroChem AG to pay US$62,358,000 to EuroChem NW2, then for EuroChem AG to do so would not be unlawful. On the basis that this is the only circumstance in which the Consideration will be paid, I do not see that any of this assists the Banks in the context of this action.