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

The Bonds fall within the definition of “funds” in Article 1(g)(v), and in any event fall within the definition of “economic resources”.

Subject to the Assignment, the Bonds are funds/economic resources that belong to or are owned, held or controlled by EuroChem NW2. EuroChem NW2 is contractual counterparty and named Beneficiary. It is the direct owner of the bundle of rights and obligations bound up in the Bonds, which it and only it can exercise.

EuroChem NW2 itself belongs to or is owned, held or controlled by Mr Melnichenko.

It follows that the Bonds are subject to the asset-freezing provided for in Article 2(1) – whether “freezing of funds”, defined in Article 1(f) or “freezing of economic resources” defined in Article 1(e).

On the basis that the Bonds are “funds”, so that the relevant definition is that in Article 1(f), it follows that the relevant NCAs, and the Banks, must prevent:

“… 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…”

Each of EuroChem NW2’s demands under the Bonds was a “use” and/or an “access to” and/or a “dealing with” the relevant Bonds, on the part of EuroChem NW2. In any event, for the Banks to proceed on the basis of any of the demands would have been an “alteration” and/or “use of” and/or “dealing with” the Bonds. It follows that Article 2(1), by freezing the Bonds, prevented the Banks from proceeding on the basis of the demands.

Above all, it prevented the Banks from paying pursuant to the demands, or even agreeing to do so. It is difficult to conceive a more dramatic “alteration” to the Bonds than paying under them. Payment would extinguish all the primary rights and obligations that the Bonds comprise. It would also be a “use of” the Bonds or a “dealing with” them.

Furthermore, the Claimants’ focus only on the act of payment is not, in my view, appropriate. Even acting on a valid demand by receiving the demand, accepting it and agreeing to pay, must, in my view, be prohibited by Article 2(1) and the definition of “freezing of funds”. This is thrown into very sharp relief by the Assignment, in this case, which is carefully drafted not as an assignment of the Bonds, but as an assignment of their “proceeds”. Proceeds come into existence as the result of a process. Before a demand is made by EuroChem NW2, then honoured by the Bank, there are no “proceeds”.

Furthermore, it is important that, by the combination of Article 1(g)(v) and Article 1(f), performance bonds have been deliberately included as funds that must be frozen. These provisions have to be interpreted purposively. Freezing a performance bond must mean prohibiting the course of events that would normally be followed in relation to a performance bond if it were not frozen – i.e., for the beneficiary to make a valid demand, and for the bank to honour it.