Key takeaways
Actions outside of contractual terms will be invalid
English courts will not reallocate risk or re-engineer contractual terms because sanctions make performance harder.
Post-2022 drafting gaps
For loans or contracts entered prior to 2022, contractual parties should consider amendments to take account of sanctions laws and implications.
Sanctions and English Court proceedings
The English Court has reconfirmed that it will not allow defendants to use sanctions laws as a reason to avoid contractual obligations or court orders.
E.M.I.S. Finance BV -v- ICU Trading Ltd & others [2025] EWHC 3232 (Comm)
In Celestial Aviation Trading Ireland Ltd & others -v- Volga-Dnepr Logistics BV [2025] EWHC 1156 (Comm), the Court dismissed an argument by a defendant guarantor that it was prevented by sanctions from complying with a court order to make interim payments in respect of amounts being claimed under the guarantee. The Court made it clear that it would not allow parties to avoid their contractual obligations or to disregard court orders by using sanctions as an excuse. For further details, please see: Interim payment order unchanged in sanctions case | Hill Dickinson
In this case, sanctions were the initiating factor of a dispute regarding who had the right to appoint and remove a Trustee under loan participation notes (Loan Notes). However, the need to do so only arose because the original Trustee decided it could no longer act due to EU sanctions in relation to Russia. The dispute is, therefore, of wider relevance as it highlights the way in which international sanctions continue to impact the performance of otherwise legitimate contractual obligations and the approach that the English Court takes in such cases – within the specific context of financing documentation.
The background facts
The parties
The claimant, EMIS Finance BV (EMIS) is a special purpose vehicle incorporated in the Netherlands. EMIS is used for multiple transactions, pursuant to which loan credit is extended to borrowers. In turn, that credit is financed by the issuance of loan participation notes, including the Loan Notes which formed the subject of this dispute.
The first defendant, ICU Trading Ltd (ICU) is a BVI investment firm with an established strategy of acquiring positions in distressed debt, including in particular Ukrainian distressed assets.
The second and third defendants, GLAS SSL and GLAS Trustees, are both incorporated in England and Wales and are part of the GLAS group of companies, which provides professional trustee and agency services worldwide.
Loan Notes
In brief, in 2007, EMIS issued 10 series of LPNs used to finance loans to borrowers. The contractual documents in respect of Series 26 and 31 were governed by English law and subject to the exclusive jurisdiction of the courts of England and Wales. ICU held 42% by value of the total amount issued of the Series 26 Notes, and 52% of the Series 31 Notes.
EMIS on-lent the issue proceeds under loan agreements, with the ultimate borrower being a Cypriot company, ABH Ukraine Limited (ABHU), which was owned by a Luxembourg company, ABH Holdings S.A. (ABHH).
ABHU invested the loan proceeds into various commercial assets in Ukraine, in particular JSC Alfa-Bank (Ukraine), now called Sense Bank. From 2009 to 2018, ABHU was a majority shareholder in Sense Bank, and from 2019 to 2023 it held a significant minority shareholding. ABHH is a member of the Alfa Group, whose beneficial owners include Russian businessmen who are subject to UK and other sanctions.
EMIS assigned the benefit of the EMIS/ABHU loan agreements to the Bank New York Mellon (BNYM) Trustees by way of security. If there was an event of default by ABHU, the Trustee was entitled to enforce the security and therefore enforce the loan agreements directly against ABHU, on behalf of the Noteholders.
Russian invasion of Ukraine and subsequent events
Following the Russian invasion of Ukraine in February 2022, the National Bank of Ukraine imposed restrictions which EMIS alleged significantly impaired Sense Bank's ability to generate revenue. In July 2023, Sense Bank was expropriated by the Ukrainian government by nationalisation without compensation. As a result, ABHU was said to be unable to repay the sums EMIS had lent it. ABHU stopped making payments to EMIS in 2022, and EMIS stopped making payments under the Loan Notes. These events gave rise to Events of Default under the EMIS/ABHU loan agreements, making the loans immediately due and payable.
In May 2022, the BNYM Trustees stated that they were no longer prepared or able to take certain actions in respect of the Loan Notes due to concerns about EU sanctions.
ICU contended, however, that EMIS was taking various steps designed to limit any potential enforcement action, including by a proposed restructuring of the Loan Notes, and had also failed to exercise its own (purported) power to appoint a replacement Trustee.
Restructuring
In March 2025, seven of the Loan Notes were restructured by extraordinary resolution of the Noteholders. As regarded the Series 26 and 31 Notes, the Noteholders disagreed on whether they should be restructured and so no such resolution was passed. EMIS retained the right to pursue action against ABHU under the relevant loan agreements but had not yet done so.
A dispute arose as to who should be appointed the new Trustee in respect of the Series 26 and 31 Notes and whether the Noteholders had the power to remove and appoint Trustees. In July 2025, ICU proposed Extraordinary Resolutions in relation to each series of the Loan Notes primarily to have BNYM Trustee removed as Trustee and Principal Paying Agent (PPA) and to have GLAS Trustees appointed as the new Trustee. If passed, the draft resolutions would have immediate effect.
The parties subsequently agreed that ICU would take no steps in relation to the appointment of a Trustee pending a decision from the Court on whether the Noteholders had the power to appoint or remove the Trustee.
The Commercial Court decision
Having considered and construed the relevant contractual provisions, the Court concluded that only EMIS, as the Issuer of the Notes, could appoint a new Trustee. The Noteholders’ powers, exercisable by Extraordinary Resolution, were limited to approving a proposed new Trustee and removing a Trustee.
There was practical merit in the Issuer having the ability to appoint the same Trustee for the various series of Loan Notes, to help ensure consistency of approach. There was, therefore, nothing commercially surprising in not giving Noteholders control over the identity of the Trustee, notwithstanding that a Trustee was expected to protect the Noteholders’ interests - leaving sanctions risk with the Noteholders and reaffirming that commercial and sanctions practicality is irrelevant unless contractually provided for.
The Court highlighted that the contractual terms provided that the Trustee had to be a trust corporation and sanctions motivated attempts to re-engineer control of debt structures would fail if the contractual terms do not expressly permit such actions.
Comment
It is not only the English Courts that are being asked to address how international sanctions interact with parties’ obligations and how they impact party performance. Arbitral institutions are also facing sanctions-related disputes.
In this case, for example, investor state arbitration is ongoing. EMIS has initiated ICSID proceedings against Ukraine under a Netherlands-Ukraine bilateral investment treaty, alleging unlawful expropriation of Sense Bank and breaches of the BIT’s fair treatment provisions. EMIS is reported to be claiming about US$400 million.
ABHH has also initiated ICSID arbitration against Ukraine under a Belgium/Luxembourg-Ukraine BIT, making similar allegation to those of EMIS. ABHH has brought the proceedings in its capacity as ultimate owner of ABHH.
