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

The EU Council Best Practices document sets out criteria for assessing control of an entity at paragraph 64, as follows:

“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.”

The application of these criteria is expanded on at paragraph 67, which includes the following examples (said to be non-exhaustive) of circumstances that may indicate that a designated person has control:

“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.”

The criteria at paragraph 64 are similar to the equivalent explanation in the Syria FAQ document:

“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.”

The criteria set out in the Syria FAQ document were endorsed in both the 2020 Opinion and the 2021 Opinion, which also commented on the similarity between these criteria and those set out in the Best Practices document.

The most relevant criterion in each is (e) – essentially, de facto control. This falls to be considered in the light of the circumstances highlighted at (d) and (e) of paragraph 67 of the Best Practices guidance. Both of these are present:

In the light of the shared addresses in Cyprus of Linetrust PTC and AIM Capital, and Mr Noble’s evidence that the Dubai offices of AIM Capital and EuroChem, and Mr Melnichenko’s personal office, are all in the same complex, criterion (f) in the Syria FAQ document is also of some relevance.

The decision of the European Court of Justice in HTTS Hanseatic Trade Trust & Shipping GmbH v Council Case C-123/18P is, once again, also helpful. At [75], it confirms that no legal relationship is required for control – i.e., de facto control is sufficient:

“[75] …the General Court did not err in law when it held that a company may be classified as a ‘company owned or controlled by another entity’ where the latter is in a situation in which it is able to influence the decisions of the company concerned, even in the absence of any legal tie between the two economic entities, or any link in terms of ownership or equity participation”.

At [77], the Court then equiparated acting under the control of a person and acting on behalf of that person.

In some cases, analysing control in this context may be complex. For example, in Litasco SA v Der Mond Oil & Gas Africa SA [2023] EWHC 2866 (Comm), Foxton J had to consider whether a Russian company could be said to be under the control of President Putin, if the company is one that he is able to direct in principle, but is one that he may never in fact have heard of or troubled himself with. Foxton J suggested at [70] that what was required under the relevant provision (in his case, the UK sanctions in respect of Russia – the Russia (Sanctions) (EU Exit) (Amendment) Regulations 2019) is existing influence by the designated person over the entity. In Hellard & Ors v OJSC Rossiysky Kredit Bank [2024] EWHC 1783 (Ch), this led the Judge (Mr Nicholas Thompsell) to set out at [76] a taxonomy of control, breaking it down into four types of actual/present de jure/de facto control.

I found the judgments in these cases interesting. However, no such complexity arises here. It is clear that, despite the corporate structure that I have set out, and despite the involvement of the Firstline Trust, Mr Melnichenko had actual control over the EuroChem group prior to March 2022; he continued to exercise actual control over the group as a whole in the course of the decisions involved in the restructuring that followed in 2022/2023; and, at least in Russia (and probably in relation to the UAE EuroChem companies), I have no doubt that he continues to exercise actual control. I do not imagine that he does so on a daily basis or by direct contact (except, possibly, with senior individuals at MCC EuroChem such as Mr Vanyushin). However, I am certain that, like Mr Beloborodov, EuroChem employees in Russia continue to regard Mr Melnichenko as the man at the top, to whom they are ultimately answerable. Indeed, it is not clear to whom the senior managers and/or directors of MCC EuroChem are answerable, if not to Mr Melnichenko.

The position is different in relation to EuroChem AG and its subsidiaries in the EU. The firewall measures that have been implemented appear to mean that Mr Melnichenko does not control this part of the EuroChem group. In this regard, I note that the Consolidated FAQ document states on p. 31 (in the answer to question 9 on that page):

“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.”

This is a case where, following the implementation of EuroChem AG’s firewall measures, neither Mr Melnichenko nor Mrs Melnichenko has control over the group as a whole. However, I am satisfied that Mr Melnichenko retained and still has control over MCC EuroChem, and (therefore) over the companies below it in the group ownership structure.