Facts
Parties and court: The complainant, [A.] Holding S.A. (hereinafter: plaintiff), a Panamanian company, appealed the judgment of the Commercial Court of the Canton of Zurich of 16 November 2020. The respondent, Bank Julius Bär & Co. AG (hereinafter: Bank), had refused to execute the plaintiff’s instructions to repay a loan of USD 160 million. The Federal Supreme Court ruled on 6 August 2021.
Facts of the case:
Banking relationship and loan: On 6 August 2013, the plaintiff opened an account and custody relationship with the Bank. At the same time, the parties signed a Credit Agreement and a General Pledge and Assignment Agreement. The Bank granted the plaintiff a loan of USD 160 million, secured by securities worth approximately USD 465 million. At the time of account opening, the plaintiff stated that the assets were economically attributable to Viktor Vekselberg. The structure of the [A.] Group showed a complex ownership and beneficiary structure with its seat in Panama and the British Virgin Islands.
US sanctions: Following Russia’s annexation of Crimea, the US imposed sanctions against Russia in 2014 (so-called Ukraine Executive Orders). In 2017, the Countering America's Adversaries Through Sanctions Act (CAATSA) was enacted, which adopted these sanctions and expanded them to include secondary sanctions. Secondary sanctions targeted foreign financial institutions that wilfully conducted “significant transactions” for so-called Specially Designated Nationals and Blocked Persons (SDN). On 6 April 2018, Viktor Vekselberg, but not the plaintiff, was listed as an SDN on the OFAC sanctions list.
Instructions and refusal: On 24 April 2018, the plaintiff instructed the Bank to sell part of the USD securities and use the proceeds to repay the loan. The Bank refused to execute the instructions, as Viktor Vekselberg, the plaintiff’s beneficial owner, was on the OFAC sanctions list. Instead, the Bank converted the loan into an overdraft facility and debited the account with a negative balance of USD 160,061,368.20. The Bank demanded that the plaintiff cover the shortfall; otherwise, the [B.] shares would be realised. An application for interim measures by the plaintiff led to a super-provisional order of the Zurich Commercial Court prohibiting the realisation of the shares until the main proceedings were decided.
Action and judgment of the lower court: The plaintiff sued for performance of the instructions, repayment of the negative balance, surrender of dividends and coupons, and release of the blocked assets. The Zurich Commercial Court dismissed the action with costs on 16 November 2020. It held that the plaintiff had to be treated as a sanctioned person since Viktor Vekselberg was its beneficial owner. Executing the instructions would violate US sanctions, exposing the Bank to secondary sanctions. Moreover, the Bank was contractually and supervisory lawfully entitled to refuse performance.
Appeal to the Federal Supreme Court: The plaintiff alleged violations of Art. 154 et seq. PILA, Art. 1(1) EmbA, Art. 397 CO and other provisions. It argued that the lower court had unlawfully applied US sanctions law, arbitrarily interpreted the “significant transaction” criteria and violated its right to be heard. The Bank requested that the appeal be dismissed with costs.
Considerations
1. Admissibility of the appeal The Federal Supreme Court first examined the formal requirements of the appeal. It found that the appeal was sufficiently substantiated and that the grounds for appeal met the requirements of Art. 42(2) FSCA. The complainant had substantiated the legal violations of the lower court and addressed its reasoning. The lower court’s findings of fact were binding on the Federal Supreme Court, as there were no obvious arbitrariness.
2. Applicability of US sanctions law The plaintiff contested that US sanctions law applied to it. It argued that the lower court had violated Art. 16(1) PILA by ignoring Panamanian foundation law and instead applying US law. The Federal Supreme Court rejected this. The lower court had interpreted the concept of “interest in property” under US law and found that Viktor Vekselberg was the plaintiff’s beneficial owner. This was consistent with the broad US concept, which covers any ownership right, directly CO indirectly. The plaintiff had itself acknowledged that Viktor Vekselberg was its beneficial owner and had confirmed this in proceedings before the Swiss Takeover Commission. The application of US sanctions law was therefore not arbitrary.
3. Blocking of assets and secondary sanctions The lower court had found that the plaintiff’s assets denominated in USD were blocked by the OFAC sanctions. The Bank could not realise them, as any transaction in USD would use US financial market infrastructure and thus violate primary sanctions. Moreover, the Bank faced secondary sanctions, as the transactions requested by the plaintiff were “significant” within the meaning of CAATSA. The plaintiff disputed this, arguing that the transactions could be executed without a US element (e.g. by self-dealing). The Federal Supreme Court rejected this. The plaintiff had explicitly requested the sale of the securities, which would necessarily result in a payment in USD. This involved a US element, and the Bank was entitled to refuse performance. The lower court had not arbitrarily applied the criteria for “significant transactions”. The amounts…