PJSC National Bank Trust v Boris Mints
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Cockerill |
| Judgment Date | 27 January 2023 |
| Neutral Citation | [2023] EWHC 118 (Comm) |
| Docket Number | Case No: CL-2019-000412 CL-2020-000432 |
| Year | 2023 |
| Court | King's Bench Division (Commercial Court) |
[2023] EWHC 118 (Comm)
Mrs Justice Cockerill
Case No: CL-2019-000412
and
CL-2020-000432
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
KING'S BENCH DIVISION
COMMERCIAL COURT
7 Rolls Building
Fetter Lane
London
EC4A 1NL
Nathan Pillow KC, David Davies KC, and Bibek Mukherjee (instructed by Steptoe & Johnson UK LLP) for the Claimant
Philip Edey KC and Sarah Tresman (instructed by Quinn Emanuel Urquhart & Sullivan LLP UK) for the First & Fourth Defendant
Laurence Rabinowitz KC, Simon Paul and Niranjan Venkatesan (instructed by Enyo LawLLP) for the Second & Third Defendant
Tom Leary (instructed by Kennedys) for the Sixth Defendant
Victoria Windle KC (instructed by Brown Rudnick) for the Seventh Defendant
John Machell KC & James Knott (instructed by Bird & Bird LLP) for the Ninth Defendant
Hearing dates: 13,14,15, 16 December 2022
APPROVED JUDGMENT
I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic. This judgment was handed down in remotely by the judge and circulated to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be Friday 27 January 2023 at 10:30am.
INTRODUCTION
The current applications arise out of the situation created by the Russian invasion of Ukraine. They call into question the effects of that event on litigation in the Commercial Court. While the issues are raised in the context of this case, there are implications for a number of other pieces of litigation. The applications are brought by the First to Fourth Defendants, and supported by the Sixth Defendant, and throughout this judgment a reference to “the Defendants” is a reference to those Defendants, unless the context otherwise requires.
The litigation in this case was commenced in June 2019. The Claimants claim some US$850 million from some of the Defendants on the basis that the Defendants conspired with representatives of the Claimant banks to enter into uncommercial transactions with companies connected with the Defendants by which loans were replaced by worthless or near worthless bonds. They obtained freezing orders against some of the Defendants. The litigation, which is complex and hard fought, was progressing towards trial at the time of the invasion.
As is well known, one response of the UK Government to that invasion was to introduce a range of sanctions. The sanctions regime in the UK has two central features. The first is that all the assets of a designated person are frozen. This means that no person may deal in them. The second is that no person may make available any assets to a designated person. To do either of these things is a criminal offence.
Very early on in the timeline, the Secretary of State sanctioned Bank Otkritie, the Second Claimant. In so doing, the Secretary of State was satisfied that Bank Otkritie is “ supporting and obtaining a benefit from the Government of Russia”. Bank Otkritie is thus a “designated person” to use the language of the legislation. Its assets are frozen and dealings in them are prohibited.
On the First to Fourth Defendants' case, NBT, the First Claimant, is also subject to the same asset freeze because it is “ owned or controlled” (within the meaning of the relevant regulations) by at least two designated persons, Mr Vladimir Putin, the President of Russia and Ms Elvira Nabiullina, the governor of the Central Bank of Russia, of which NBT is a 99% owned subsidiary. Mr Putin was sanctioned a day after the invasion. Ms Nabiullina was also sanctioned by the Secretary of State, rather further down the timeline. The First to Fourth Defendants say that the extension of the sanctions to NBT makes sense in that any recoveries NBT may make in these proceedings will thus be paid to the Central Bank, which is in turn required by law to transfer 75% of its profits directly to the federal budget of the Russian Federation.
Further the Second and Third Defendants submit that the entry of any judgment for the Claimants on the causes of action they advance would in fact be unlawful and that various interlocutory stages cannot be completed at all because they cannot be completed without a licence, and there is no relevant licensing ground. Specifically it is said that allowing these proceedings to continue while sanctions remain in force would cause serious prejudice to the Defendants because the Claimants cannot lawfully satisfy adverse costs orders, provide security for costs or pay any damages that may be awarded on their cross-undertaking.
The Defendants therefore seek a stay of the proceedings and release from the undertakings which they have given the Court in connection with the freezing orders obtained against them.
There are thus two main issues. The first is as to the effect of sanctions on the litigation, given that at least one of the Claimants is a sanctioned person. The second is really about whether that question applies to only one of the Claimants, or to both.
The first issue then breaks down into four sub-issues. The first three relate to the ability of a sanctioned claimant to:
i) Pay an adverse costs order;
ii) Satisfy an order for security for costs; and
iii) Pay damages awarded in respect of the cross-undertaking in damages.
The fourth sub-issue however concerns the Court itself. The question is whether the Court could properly enter judgment on the sanctioned Claimant's claim. The centre of gravity of the argument before me relates to this point. I will therefore deal with this issue first.
The case has (of course) been notably well argued. However the best efforts of a number of talented teams for the various defendants cannot disguise the answer which must be given here. For the reasons set out below it is that:
i) Judgment can lawfully be entered and is not a licensable activity;
ii) OFSI can license the remainder of the acts in question;
iii) Payment to the Claimants of a Favourable Costs Order is licensable;
iv) The Control Issue does not arise, but is answered in favour of the Claimants.
I will deal with the reasoning by which I reach these conclusions under the following headings:
AN OVERVIEW OF THE UK SANCTIONS REGIME
| Introduction | 3 |
| An overview of the UK Sanctions Regime | 5 |
| The pre-2018 Sanctions Regime | 6 |
| 11 | |
| The Regulations | 12 |
| The Legal Backdrop: statutory interpretation | 15 |
| Sanctions Issues | 19 |
| Can judgment lawfully be entered? | 19 |
| Is a cause of action or judgment debt a fund or an economic resource? | 26 |
| Entering judgment: “dealing” with a fund? | 28 |
| The wording: conclusions | 30 |
| Other supportive matters | 31 |
| Article 6 ECHR | 34 |
| Other matters | 34 |
| Is there power to license the prohibited acts? | 34 |
| Entry of judgment | 35 |
| Adverse costs orders | 35 |
| Security for Costs | 38 |
| Damages of the cross-undertaking | 39 |
| Conclusion | 40 |
| Control: Is NBT owned or controlled by a designated person? | 40 |
| The Background | 41 |
| The ambit of sanctions | 41 |
| Ownership and Control within the Act and the Regulations | 43 |
| The position of Mr Putin and Ms Nabiullina | 44 |
| Relevant legal principles | 45 |
| The Submissions | 46 |
| Discussion | 47 |
| Other matters | 51 |
| The Costs/Sanctions Issues | 51 |
| Matters agreed/stood over | 54 |
| Conclusion | 54 |
The current regime is to be found in the Sanctions and Anti-Money Laundering Act 2018 and regulations made under it. However that legislation is very far from coming into being independently or against the backdrop of a blank slate. Both parties to different extents pray in aid the fact that it represents the continuation of a scheme of sanctions which originated first with the United Nations, and was then picked up by the EU.
The Claimant and the Defendants were agreed that in broad terms the UK statute and regulations should be seen as consistent with that history and that ethos (though there are points where the Defendants would say that there has now been a deliberate parting of the ways). It follows that the old law in the form of the UN resolutions and EU Regulations is part of the background against which the 2018 Act falls to be construed.
This has an impact on the approach to construction and how that feeds into the basic legal common ground, which is that I am endeavouring to ascertain the intention of the legislator.
The pre-2018 Sanctions Regime
The modern law relating to sanctions derives from UN Security Council Resolution 1267 dated 15 October 1999. It thus originates in a different conflict to that which is now in focus. Then the target was the War on Terror. Its focus was the Taliban, Al-Qaida and similar groups. Since then sanctions have been deployed (inter alia) against Russian persons and entities in relation to the invasion of Crimea, and now Ukraine.
Resolution 1267 introduced both the asset freeze and bar on dealing which are hallmarks of the current legislation. It required member states to freeze funds and other financial resources and to prohibit anyone from making available funds and financial resources to designated persons.
There is a clear statement of intent, on which the Defendants relied, at its heart:
“The purpose of the assets freeze is to deny listed individuals, groups, undertakings and entities the means to support terrorism. To...
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