Dalston Projects Ltd v The Secretary of State for Transport
| Jurisdiction | England & Wales |
| Judge | Sir Ross Cranston |
| Judgment Date | 21 July 2023 |
| Neutral Citation | [2023] EWHC 1885 (Admin) |
| Court | King's Bench Division (Administrative Court) |
| Docket Number | Case No: CO/1160/2023 |
[2023] EWHC 1885 (Admin)
Sir Ross Cranston sitting as a High Court judge
Case No: CO/1160/2023
IN THE HIGH COURT OF JUSTICE
KING'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Nigel Giffin KC and John Bethell (instructed by JAFFA & CO) for the Claimants
Jason Pobjoy and Emmeline Plews (instructed by GOVERNMENT LEGAL DEPARTMENT) for the Defendant
Hearing dates: 13–14 July 2023
Approved Judgment
This judgment was handed down remotely at 10.30am on 21 July 2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives
INTRODUCTION
The background to these proceedings is the Russian invasion of Ukraine in February 2022. The claim concerns the lawfulness of the Secretary of State's decision pursuant to the Russia (Sanctions) (EU Exit) Regulations 2019 to detain a 58.5m luxury motor yacht, the MY Phi, which is beneficially owned by a wealthy Russian businessman. In their challenge to the decision, the claimants contend that the Secretary of State acted for an improper purpose under the regulations, as well as in breach of the European Convention on Human Rights, specifically because the detention is a disproportionate interference with their property rights. In a supporting role to these grounds are various challenges on conventional public law grounds.
The matter comes to this court because the Russia (Sanctions) (EU Exit) Regulations 2019 (“the Sanctions Regulations”) are made under the Sanctions and Anti-Money Laundering Act 2018, and section 38 of that Act enables those like the claimants affected by a decision under the regulations to apply to the High Court for it to be set aside. In considering an application section 38(4) states that the court is to apply the principles of judicial review. If a decision to set aside is made, the section goes on to provide that the court may grant the remedies available in judicial review.
BACKGROUND
The parties and the vessel
The second and main claimant is Mr Naumenko, a Russian businessman and beneficial owner of the MY Phi. On his account his wealth has arisen from business activity, undertaken over the period since the end of communism in the Soviet Union. He was a senior operational manager and minority shareholder in an investment bank established in 1991 which he sold in 2012; a regional manager and minority shareholder in an asset management company also founded in 1991; and one of the original owners of a construction and development company, privatised in the mid-1990s, and subsequently involved in many major projects in the Ural region.
There is no evidence that Mr Naumenko holds any political or administrative position in Russia or has ever engaged in any sort of political activity. Nor is there any evidence that he has ever had any connection with President Putin or his circle. He has not been “designated” under Part 2 of the Sanctions Regulations. The evidence is that the Foreign, Commonwealth and Development Office (“FCDO”) has specifically considered and rejected a designation in his case.
Although there is no witness statement from Mr Naumenko, there are two witness statements from Sir Ian Seymour Collett Bt, a superyacht consultant at Ward & McKenzie (Yacht Consultants) Ltd, which are yacht surveyors, project managers, and legal consultants. Sir Ian had provided Mr Naumenko with general consultancy services since 2015 in relation to the Phi and Mr Naumenko's other superyachts, the MY Aurelia, now sold, and the Phi's sister vessel, the MY Phi Phantom. In one of his witness statements Sir Ian recounts answers which Mr Naumenko gave to questions he put to him about his businesses and wealth.
The first claimant, Dalston Projects Limited (“Dalston”), is a special purpose vehicle incorporated in St Kitts and Nevis and current owner of the Phi. The third claimant is the Maltese company to whose ownership the vessel would have transferred so as to be owned by an EU-domiciled entity.
The defendant is the Secretary of State for Transport (“the Secretary of State”) who exercised the power under Part 6 of the Sanctions Regulations to detain the Phi. There were two witness statements on behalf of the Secretary of State from Mr James Driver. Mr Driver is a Deputy Director in the department's transport security directorate and Head of the Maritime Security Division. He has responsibility for policy relating to the security of UK ports and British-flagged shipping.
As to the MY Phi (“the vessel”) itself, it was moored at South Dock in the West India & Millwall Docks in London in December 2021 and remains there. London was her first port of arrival following her delivery as a newly built vessel by the Royal Huisman Shipyard in the Netherlands. She came to London partly for tax reasons (she was to be onward exported into the EU), and partly at the invitation of a British magazine to participate in the World Superyacht Awards. Following that winter stopover, she was due to leave London for Malta on 28 March 2022, followed by post-delivery warranty works in Mallorca, and a chartering season in the Mediterranean.
Detention direction, 28 March 2022
The Russian invasion of Ukraine escalated on 24 February 2022. In the second week of March 2022 the Department for Transport (“DfT” or “the Department”) began making enquiries about the ownership of the vessel, apparently because the National Crime Agency (“NCA”) had been asked to investigate opportunities to consider large yachts. The vessel was identified as connected with Russia along with Mr Naumenko's beneficial ownership. Ministerial submissions of 13 March and 24 March had highlighted [the vessel] as a “ship of interest.”
On the evening of 28 March 2022 officials of the DfT put up a submission for personal consideration by the Secretary of State, then the Rt Hon Grant Shapps MP. The submission asked Mr Shapps to consider certain specified evidence, as well as material about legal risk, and to decide whether he wished to exercise his powers to detain the vessel. If so, he was requested to sign the relevant documents.
The submission summarised the evidence for saying that the power to detain existed in that the vessel was owned by Mr Naumenko, who lived in Ekaterinburg, Russia. The public sector equality duty was mentioned at paragraph 14 and the public interest in “strong action in the present crisis”. There was reference to an agreed press briefing strategy in paragraph 15. The submission did not make any recommendation one way or another as to whether the power of detention should be exercised:
“Under regulation 57D (1) of the Regulations, you have the power to issue a Detention Direction, if you so wish.” (bold type in original)
The evidence presented in Annex C to the submission set out how the preconditions for the exercise of the power were satisfied. The invoice from the Dutch shipyard showed the value of the ship for customs purposes as over €44 million. There was also a letter from the NCA which expressed the belief that Mr Naumenko also owned the Phi Phantom, the Phi's sister vessel.
Mr Shapps reviewed the submission and agreed to detain the vessel. The “read-out” from his private office recorded his comment “that it is most certainly both in the public interest to detain this ship and to publicise the fact of its detention”. Mr Shapps signed The Phi (Russia (Sanctions) (EU Exit) Regulations 2019) Direction 2022 (“the detention direction”). It contains a detention direction (paragraph 3) and a movement direction (paragraph 4). At paragraph 5 the detention direction stated:
“The Phi is being detained on the grounds that it is owned, controlled or operated by [Mr Naumenko], a person connected with Russia.”
A footnote to paragraph 5 referred to the definitions of “person connected with Russia”, “owned” and “controlled”, contained in the Sanctions Regulations.
The detention direction was delivered by the NCA to the Master of the vessel, Captain Booth, at South Dock the following morning, 29 March 2022. Mr Shapps visited the dock afterwards. Mr Shapps' department prepared a communications plan for him. The key messages were:
“The UK is taking decisive action to maintain the pressure on Russia and further demonstrate the Government's action to support this effort against Russia's illegal war.
The NCA, Border Force, and the DfT have worked closely together with international law enforcement networks to investigate ownership of vessels and apply sanctions against those benefitting from Russian connections.”
At South Dock Mr Shapps conducted a number of interviews with the media, and filmed a TikTok video of himself which was then posted to social media. While standing on the quayside next to the vessel and referring to its detention Mr Shapps said: “It's a yacht which belongs to a Russian oligarch, friends of Putin.” Mr Shapps' remarks were widely reported by media organisations. Mr Shapps told ITN News that the owner was an “oligarch” who had “made their money through their association with President Putin whilst he is going into Ukraine”. The BBC reported that: “Transport Secretary Grant Shapps said the individual was not currently sanctioned but had close connections to Russian President Vladimir Putin” and quoted him as saying that “People who have benefited from [Mr Putin's] regime cannot benefit from sailing around London and the UK in ships like this”.
Later that day Sir Ian Collett of Ward & McKenzie asked the department by e-mail for “a formal response as to why the Secretary of State has felt it necessary to issue the Direction and to detain the vessel.”
There was a response from the department the...
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