Fortenova Grupa D.D. v LLC Shushary Holding & Ors

Equity will protect a chargor’s right to redeem where sanctions prevent payment directly to the secured creditor. The court may direct payment of the redemption money into court and order the release of security, including security over assets situated abroad, where the relevant instruments are governed by English law. The secured creditor’s inability to obtain immediate payment does not justify refusing redemption.

Where a contract provides for default interest following failure to pay, a party does not incur default interest during a period when payment to the creditor is unlawful because of sanctions. In such circumstances, the obligation is suspended rather than breached. Default may arise only if non-payment continues after lawful performance becomes possible.

Fortenova Grupa d.d. issued senior secured loan notes governed by English law. Approximately €400 million of the notes were held by LLC Shushary Holding, a subsidiary of VTB Bank, which was subject to sanctions. Those sanctions prevented Fortenova from paying sums due to Shushary or the relevant VTB accounts.

Fortenova sought expedited relief to redeem the notes before maturity by paying the redemption money into court, thereby enabling release of the security and a proposed refinancing. It also sought a declaration that default interest was not payable while sanctions prevented payment. The central issues were whether payment into court was an available method of redemption and whether non-payment caused by sanctions triggered contractual default interest.

1. Redemption. The claim was granted. Equity protects the right to redeem and will fashion an effective remedy where payment in the contractually specified manner is prevented. That remedy may include directing payment of the redemption sums into court and providing for release of the security.
2. The fact that payment into court might leave Shushary unable to access the money for a substantial period did not justify refusing relief. The court had to proceed on the basis that the sanctions authorities would perform their functions according to law. Otherwise, the security would become practically irredeemable because of sanctions.
3. The location of secured assets abroad did not affect Fortenova’s right to redeem. The transaction documents were governed by English law and the English courts could direct the relevant parties to take the steps necessary to release the security, including overseas security.
4. The order appropriately permitted Shushary to apply for payment out of the funds, supported by evidence that payment would be lawful and compatible with applicable sanctions. Payment into court was therefore the proper and practical course where no lawful alternative account had been identified.
5. Default interest. Clause 10.4 of the Subscription Agreement provided for interest on an amount unpaid on its due date. Properly construed, it did not impose default interest where Fortenova was willing and able to pay but was legally prevented from paying Shushary by sanctions. The non-payment did not reveal a deterioration in Fortenova’s financial position or increased credit risk.
6. The wartime bills-of-exchange authorities supported the analogous principle that a debtor is not in default where performance would be unlawful. The obligation is suspended while lawful performance is impossible, and default arises only if non-performance continues after performance becomes legally possible. The alternative penalty argument therefore did not need to be decided.