Boris Mints v PJSC National Bank Trust
| Jurisdiction | England & Wales |
| Judge | Sir Julian Flaux C,Lord Justice Popplewell,Lord Justice Newey |
| Judgment Date | 06 October 2023 |
| Neutral Citation | [2023] EWCA Civ 1132 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: CA-2023-000464 |
[2023] EWCA Civ 1132
Sir Julian Flaux CHANCELLOR OF THE HIGH COURT
Lord Justice Newey
and
Lord Justice Popplewell
Case No: CA-2023-000464
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (KB)
COCKERILL J
Royal Courts of Justice
Strand, London, WC2A 2LL
Laurence Rabinowitz KC, Simon Paul and Niranjan Venkatesan (instructed by Enyo Law LLP) for the Appellants
Nathan Pillow KC, David Davies KC and Bibek Mukherjee (instructed by Steptoe & Johnson UK LLP) for the Respondents
Hearing dates: 3, 4, 5 and 6 July 2023
Approved Judgment
This judgment was handed down remotely at 10.30am on Friday 6 October 2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives
Introduction
This appeal arises out of the Russian invasion of Ukraine on 24 February 2022 and concerns the effect of the UK sanctions regime, particularly the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”) and the Russia (Sanctions) (EU Exit) Regulations 2019 (“the Regulations”) on ongoing litigation in the Commercial Court commenced in June 2019, in which the claimant banks claim against the appellants (who are the first to fourth defendants to that claim) some US$850 million, on the basis that they conspired with representatives of the claimant banks to enter into uncommercial transactions with companies connected with the appellants by which loans were replaced with worthless or near worthless bonds. Freezing orders were obtained against the appellants. The litigation is complex and had been progressing towards trial when the invasion took place.
The two central features of the UK sanctions regime are that first, all the assets of a designated person are frozen, which means no person may deal in them, the second is that no person may make available any assets to a designated person. To do either is a criminal offence. Four days after the invasion, the Secretary of State sanctioned the second claimant on the basis of being satisfied that it is “supporting and obtaining a benefit from the Government of Russia”. President Vladimir Putin is also sanctioned, as is Ms Elena Nabiullina, the governor of the Central Bank of Russia. However, the first claimant (“NBT”) which is a 99% owned subsidiary of the Central Bank of Russia is not sanctioned as such, but the appellants' case before the judge and before this Court is that it is subject to the same asset freeze as the second claimant because it is “owned or controlled” within the meaning of Regulation 7 of the Regulations by at least two designated persons, namely Mr Putin and Ms Nabiullina. The appellants contend that the extension of the sanctions to NBT makes sense, since any recoveries it makes in these proceedings will be paid to the Central Bank which is required under Russian law to transfer 75% of its profits to the federal budget of the Russian Federation.
The application before the judge and this appeal raise three important issues as to the meaning and effect of the sanctions regime:
(1) Can a judgment be lawfully entered for a designated person by the English court following a trial at which it has been established that the designated person has a valid cause of action? (the entry of judgment issue);
(2) In circumstances where the Office of Financial Sanctions Implementation (“OFSI”) can license the payment of a designated person's own legal costs, can OFSI also license (i) the payment by a designated person of an adverse costs order; (ii) the satisfaction by a designated person of an order for security for costs; (iii) the payment by a designated person of damages pursuant to a cross-undertaking in an injunction and (iv) the payment of a costs order in favour of a designated person? (the licensing issue);
(3) Does a designated person “control” an entity within the meaning of Regulation 7 where the entity is not a personal asset of the designated person but the designated person is able to exert influence over it by virtue of the political office that he or she holds at the relevant time? (the control issue).
The history and current status of the UK sanctions regime
I propose to set out first some of the history of the sanctions regime and the current provisions of relevance. The background to the current regime is the scheme of sanctions introduced by the United Nations and continued by the European Union. The modern law of sanctions derives from UN Security Council Resolution 1267 dated 15 October 1999 in the context of the War on Terror of which the target was the Taliban, Al Qaida and similar terrorist groups. That Resolution included both the asset freeze and bar on dealing which are the central features of the current regime. Subsequent resolutions of the Security Council have required members to freeze assets of entities designated by the Sanctions Committee.
Initially the UK gave effect to the UN Resolutions by orders made under section 1 of the United Nations Act 1946, but in 2010 in Ahmed v HM Treasury (Nos. 1 and 2) (“ Ahmed”) [2010] 2 AC 534, the Supreme Court upheld a challenge to such orders because they deprived designated persons of an effective judicial remedy and quashed the orders as ultra vires the 1946 Act. The UK then implemented the UN resolutions through EU Regulations starting with Council Regulation 881/2002. That Regulation was adopted to implement UN Resolution 1390 and it used the same language to identify what was to be frozen: “funds and economic resources” which has remained the standard wording across EU sanctions regulations.
The EU adopted Council Regulation 269/2014 (“the 2014 EU Regulation”) in response to the Russian invasion of Crimea. Recital (6) provides:
“This Regulation respects the fundamental rights and observes the principles recognised in particular by the Charter of Fundamental Rights of the European Union and in particular the right to an effective remedy and to a fair trial and the right to the protection of personal data. This Regulation should be applied in accordance with those rights and principles.”
Article 2 set out the core principles:
“1. All funds and economic resources belonging to, owned, held or controlled by any natural persons or natural or legal persons, entities or bodies associated with them as listed in Annex I shall be frozen.
2. No funds or economic resources shall be made available, directly or indirectly, to or for the benefit of natural persons or natural or legal persons, entities or bodies associated with them listed in Annex I.”
There was a derogation in Article 5 in respect of judicial decisions and arbitral awards:
“1. By way of derogation from Article 2, the competent authorities of the Member States may authorise the release of certain frozen funds or economic resources, if the following conditions are met:
(a) the funds or economic resources are subject to an arbitral decision rendered prior to the date on which the natural or legal person, entity or body referred to in Article 2 was included in Annex I, or of a judicial or administrative decision rendered in the Union, or a judicial decision enforceable in the Member State concerned, prior to or after that date;
(b) the funds or economic resources will be used exclusively to satisfy claims secured by such a decision or recognised as valid in such a decision, within the limits set by applicable laws and regulations governing the rights of persons having such claims…”
Article 7 provides:
“1. Article 2(2) shall not prevent the crediting of the frozen accounts by financial or credit institutions that receive funds transferred by third parties onto the account of a listed natural or legal person, entity or body, provided that any additions to such accounts will also be frozen. The financial or credit institution shall inform the relevant competent authority about any such transaction without delay.
2. Article 2(2) shall not apply to the addition to frozen accounts of:
(a) interest or other earnings on those accounts;
(b) payments due under contracts, agreements or obligations that were concluded or arose before the date on which the natural or legal person, entity or body referred to in Article 2 has been included in Annex I; or
(c) payments due under judicial, administrative or arbitral decisions rendered in a Member State or enforceable in the Member State concerned;
provided that any such interest, other earnings and payments are frozen in accordance with Article 2(1).”
The UK gave effect to the 2014 EU Regulation by the Ukraine (European Union Financial Sanctions) (No.2) Regulations 2014 (“the 2014 Regulations”). Following Brexit, the UK needed a new sanctions regime to implement the UN sanctions and impose its own regime. This was contained in SAMLA. The judge notes in [45] of her judgment that the basic intention was to continue the approach adopted via the UN and the EU saying:
“The Explanatory Notes state that the legislation contains “ the powers that the UK will need to carry on implementing sanctions as it currently does”. It is therefore apparent from this that the basic intention was to continue the approach adopted via the UN and EU. That theme of continuity can also be seen in an answer to a Parliamentary question on the Regulations which states in terms that “the instrument transposes existing EU sanctions regimes; it does not add to or amend them. The process has been to transpose as identically as possible the EU regimes into what will be our law when we leave.””
However, as the judge also noted at [46], there is an issue as to...
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