The Supreme Court upheld the Ministry of Justice’s position: transactions entered into to circumvent sanctions violate public policy and are void

In connection with the aforementioned dispute, E.S. Mining Company Limited filed a claim against Novel Prom LLC, Korosten Quarry JSC, Korosten Mining Company LLC, and third parties: the Ministry of Justice, the Security Service of Ukraine, and the Office of the Prosecutor General, seeking to invalidate the agreement dated 15 04.2024 No. 15/04/24-1 (Agreement 1) for the sale and purchase of subsoil use rights (granted by Special Subsoil Use Permit No. 634 dated 16.09.1996, hereinafter — the Special Permit), concluded between Novel Prom LLC and Korosten Quarry JSC, and to declare null and void the agreement dated 22 October 2024 (hereinafter — Agreement 2) for the sale and purchase of subsoil use rights granted by the Special Permit, concluded between Novel Prom LLC and Korosten Mining Company LLC.

The claim is based on the illegality of the disputed agreements concerning the alienation of the Special Permit belonging to Korosten Quarry JSC of the Special Permit, since the conclusion of the said agreements has suspended the business activities of Korosten Quarry JSC, and Agreement 1 itself was concluded without obtaining the consent of the Claimant as the ultimate beneficial owner of Korosten Quarry JSC with controlling voting rights.

What was particularly interesting in this case was that sanctions imposed by the National Security and Defence Council (NSDC) were applied to the Plaintiff’s sole shareholder (Smartdixi Limited), as well as to its ultimate beneficial owner (I.V. Naumets) and directly to the Plaintiff itself as the majority shareholder of Korosten Quarry JSC.

The Ministry of Justice’s position in this case was based, in particular, on the following circumstances:

- the extension to the assets/property of Korosten Quarry JSC of the sanctions restrictions imposed by the NSDC’s decision on its majority shareholder and ultimate beneficial owner;

- the absence of any impact of the temporary nature of the sanctions on their ability to ensure public order in Ukraine;

- the violation of public order by the contested transactions, since the purpose of such transactions is their final outcome, which all parties to the transactions wished to achieve, namely the removal of the asset sold under the contested contracts from the scope of the sanctions, which knowingly contradicts the interests of the state and society.

The court rulings in this case (in particular, those of the Supreme Court) are based on the nullity of the disputed transactions under Agreements 1 and 2, due to their being carried out in breach of public policy. In particular, the Supreme Court concluded that a transaction which violates public policy, with the application of the consequences provided for in Part 3 of Article 228 of the Civil Code of Ukraine, may also include a transaction concluded in breach of the provisions of the Law of Ukraine ‘On Sanctions’.

The final outcome of the proceedings in this case is the forfeiture of the Special Permit to the State of Ukraine; the recovery of UAH 2,100,000 from Novel Prom LLC to the State of Ukraine; and the recovery of UAH 1,000,000 from Korosten Quarry JSC to the State of Ukraine.

Also worthy of note is the conclusion regarding the Supreme Court’s assessment of the procedural conduct of Korosten Mining Company LLC (the ultimate acquirer of the Special Permit under the Agreements), which consists of an abuse of procedural rights with the aim of changing the territorial jurisdiction of this case in order to influence or artificially alter the composition of the court. As a result, the obstacles to the continuation of proceedings in this case, as defined in the second and third parts of Article 7 of the Code of Commercial Procedure of Ukraine, were found to be non-existent, without the case being transferred to the Commercial Court of Dnipropetrovsk Region for consideration within the framework of case No. 904/139/25 concerning the bankruptcy of Korosten Mining Company LLC.

The Ministry of Justice is grateful to its colleagues at the Security Service of Ukraine and the Office of the Prosecutor General for their joint efforts in countering attempts to remove the assets of sanctioned individuals from the scope of sanctions.

Source: Ministry of Justice of Ukraine