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Case Study:
The English Commercial Court’s ruling in the EuroChem litigation (EuroChem v Societe Generale & Ors [2025] EWHC 1938 (Comm)) represents a landmark shift in how English law-governed contractsinteract with foreign sanctions regimes. The decision underscores a "purposive" judicial approach that may prioritise the legality of performance in foreign jurisdictions over the strict contractual terms of English law.
The Jurisdictional Divergence: A Regulatory Map
A primary challenge for global compliance teams is thefundamental disagreement between the UK, US, and EU regarding the"control" of EuroChem Group AG.
United Kingdom (OFSI) OFSI’s October 2024 notice describes Mr. Melnichenko as having "previously" controlled the entity. No current asset freeze applies.
United States (OFAC) FAQ 1074 explicitly states EuroChem is not 50%+ owned by a blocked person. GL 6B further authorizes fertiliser-related trade.
European Union (EC) Annex I (as of Sept 2023) asserts Mr. Melnichenko "continues to control" the group and benefit from wealth transfers to his wife.
The Judgment: LLC EuroChem North-West-2 v Societe Generale
Despite the bonds being governed by English Law, the court held they were unenforceable. This finding rests on two primary legal pillars:
The Ralli Bros Principle
The court applied the established rule from Ralli Brothers v Compañia Naviera Sota y Aznar, which provides that English courts will not enforce a contractual obligation if performance would be illegal under the laws of the place of performance.
The Nexus: The bonds required payment in France and Italy (where the banks' branches were located).
The Conflict: Because the EU considers EuroChem to be under the "control" of a designated person, payment in those jurisdictions would constitute a criminal breach of EU sanctions.
2. Public Policy and "Control"
Beyond the technicality of performance, Mr. Justice Bright conducted a granular analysis of "control" looking past formal trust resignations and ownership transfers.
Substance over Form: The court found that Mr. Melnichenko retained effective control, dismissing "compliance firewalls" as insufficient to decouple the entity from its founder’s influence.
Judicial Purposivism: The court signaled a willingness to incorporate foreign sanctions into English public policy considerations, effectively creating a "shadow" sanctions regime for contracts with cross-border touchpoints.
Strategic Implications for Counterparties
The EuroChem judgment introduces a "performance risk" that cannot be mitigated solely by selecting English law as the governing jurisdiction.
- Place of Performance Audits: Legal teams must scrutinise not just who they are paying, but where the payment is contractually due. If payment triggers a branch in an EU jurisdiction, the "Ralli Bros" principle may render the contract voidable by the payer.
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- The Control Standard: The English court’s definition of "control" is moving closer to the EU’s broader, more aggressive interpretation, diverging from the more formalistic "ownership" tests traditionally favoured by OFSI and OFAC
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- Contractual Drafting: New on-demand bonds and guarantees should include explicit Alternative Performance clauses, allowing for payment in neutral jurisdictions (e.g., Switzerland or the UK) to circumvent local illegality triggers.
Conclusion
While the UK regulatory stance on EuroChem remains unchanged as of May 2026, the EuroChem judgment has effectively "exported" EU sanctions into the English courtroom.
Next Step: Would you like Dransfield Partners toconduct a "Contractual Nexus Review" of your current performancebonds to identify if "Place of Performance" clauses expose your firmto the Ralli Bros illegality trap?
