The King on the application of Mikhail Fridman v HM Treasury
| Jurisdiction | England & Wales |
| Judge | Mr Justice Saini |
| Judgment Date | 26 October 2023 |
| Neutral Citation | [2023] EWHC 2657 (Admin) |
| Court | King's Bench Division (Administrative Court) |
| Docket Number | Case No: CO/1041/2023; AC-2023-LON-000215 |
[2023] EWHC 2657 (Admin)
THE HONOURABLE Mr Justice Saini
Case No: CO/1041/2023; AC-2023-LON-000215
IN THE HIGH COURT OF JUSTICE
KING'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Rachel Barnes KC, Nicholas Yeo and Rachel Scott (instructed by Gherson Solicitors LLP) for the Claimant
Malcolm Birdling, Aarushi Sahore and Sophie Bird (instructed by Government Legal Department) for the Defendant
Hearing dates: 17 October 2023
Approved Judgment
This judgment was handed down in the Royal Courts of Justice at 11.00am on 26 October 2023 and by release to the National Archives.
This judgment is in 9 main parts as follows:
| I. | Overview: | paras. [1]–[12] |
| II. | Legislative Framework: | paras. [13]–[22] |
| III. | OFSI Processes and Guidance: | paras. [23]–[32] |
| IV. | The Amendment Application: | paras. [33]–[48] |
| V. | Approach to review and post-decision evidence: | paras. [49]–[71] |
| VI. | Ground 1: The Management Fee Application: | paras. [72]–[85] |
| VII. | Ground 2: The Ideaworks Application: | paras. [86]–[93] |
| VIII. | Ground 3: The Staff Costs Application: | paras. [94]–[108] |
| IX. | Conclusion: | para. [109] |
I. Overview
The Claimant, Mikhail Fridman (“Mr Fridman”) is a prominent businessman who moved to London in 2013. Mr Fridman is a dual Israeli and Russian citizen of Ukrainian heritage. He was granted indefinite leave to remain in January 2019, and has a family residence at Athlone House, Highgate, London (“Athlone House”). As at the date of the hearing before me, Mr Fridman had left the UK for Israel and had then travelled to Russia. However, he has informed the Court, through his Solicitors, that he intends to return to this country. As a result of the sanctions described in more detail below that return will not be possible because he is an “excluded person” within section 8B of the Immigration Act 1971.
On 15 March 2022, the Secretary of State for Foreign, Commonwealth and Development Affairs (“the Secretary of State”) designated Mr Fridman, in accordance with Regulations 5 and 6 of the Russia (Sanctions) (EU Exit) Regulations 2019/855 (as amended) (the “Russia Regulations”). That designation was made on the basis that Mr Fridman was “associated” with Russian President Vladimir Putin and that he was a “pro-Kremlin Oligarch”. On 19 September 2023, the Secretary of State removed that statement from his reasons for the designation of Mr Fridman. However, he remains designated. In summary, the amended published reasons state (amongst other matters) that Mr Fridman is and/or has been involved in obtaining a benefit from or supporting the Government of Russia by working as a director or equivalent of Alfa Group (and a number of other entities); and that Mr Fridman is and/or has been involved in obtaining a benefit from or supporting the Government of Russia by carrying on business in a sector of strategic significance to the Government of Russia, namely the Russian financial services sector.
The effect of a designation is to “freeze” a person's assets and economic resources. Use of such assets and economic resources can only be made if a licence is obtained from the relevant authority. Mr Fridman's applications for licences have been granted on many occasions, and in substantial amounts (described in more detail below). This claim is concerned with the legality of decisions made on 22 December 2022 to refuse licences to make certain specified other payments.
The Interested Party, Athlone House Limited (“AHL”), a company incorporated under the laws of England and Wales, provides property and household management services for the maintenance and upkeep of Athlone House, and the running of Mr Fridman's private household. Athlone House is at the centre of these proceedings. Mr Fridman bought this property in 2016. Athlone House was built in 1855, with five acres of landscaped garden which are said to have been designed to emulate the palace at Versailles. When he acquired the site, it was derelict and he has restored both the house and gardens at substantial cost. The house is approximately 33,173 square feet in size and also holds Mr Fridman's substantial art collection, which is said to be of cultural significance, and is valued at £44 million.
Mr Fridman's executive assistant, Nigina Zairova (“Ms Zairova”) is the sole director of AHL. On 2 March 2022 Ms Zairova acquired all of AHL's share capital. On 13 April 2022, Ms Zairova was also designated by the Secretary of State under the Russia Regulations, and subjected to an asset freeze. That designation was by reason of her association with Mr Fridman. AHL is not itself subject to any asset freeze or sanctions.
The designation of Mr Fridman under the Russia Regulations (as well as his designation by the EU on 28 February 2022 under Regulation (EU) 269/2014, as amended) is the subject of legal challenges brought by Mr Fridman. The present claim is not concerned with those challenges and I must proceed on the basis that he has been lawfully designated for the reasons given by the Secretary of State. I should however record that Mr Fridman has publicly expressed his opposition to the Russian invasion of Ukraine and condemned the war as a “terrible tragedy”.
The Defendant (“OFSI”), part of His Majesty's Treasury (“HMT”), is responsible for administering the licensing regime under the Russia Regulations. OFSI was set up in 2016 and is a part of HMT. HMT is the competent authority for implementing financial sanctions in the UK. OFSI's role is to ensure that sanctions are understood, implemented and enforced in the UK, and it carries out a range of functions to fulfil this role. These include providing outreach and guidance to assist in the understanding of financial sanctions; having responsibility for making decisions on and issuing licences to financially sanctioned individuals and entities; and ensuring that suspected breaches of financial sanctions are identified and investigated. The Russian sanctions have led to a very substantial increase in OFSI's licensing workload. By the end of 2022/23 it will have received almost 1500 applications, a vast increase in applications compared to previous years.
Following his designation on 22 March 2022, Mr Fridman made a number of applications for, and requests for amendments to, licences under Regulation 64 of the Russia Regulations, to permit him to make payments to various entities. Many of the requests were granted by OFSI. Mr Fridman is now licensed to use funds in respect of the following: his and his dependants' basic needs, utility bills, insurance premiums, legal fees, accountancy fees, various services including construction and maintenance, and certain wages owed to his staff and payments owed to other third parties. For the purpose of licensing payments in relation to Mr Fridman's basic needs, routine holding and maintenance of frozen funds and economic resources, legal fees and prior obligations under Schedule 5 of the Russia Regulations, OFSI has granted permissions in substantial sums (described in more detail below) for one-off payments in respect of arrears and continuing monthly payments, including towards the upkeep of Athlone House. The payments which are the subject of the present claim are on any view relatively modest when compared to these authorised sums which run into several millions.
Before Mr Fridman was designated by the Secretary of State he had entered into a contract (“the service contract”) with AHL. The service contract is dated 2 March 2022 and appointed AHL as the “managing agent” over Athlone House. The service contract obliges Mr Fridman to pay to AHL the following costs: a monthly management fee of £30,000 (para 3.1); “such sums as are requested from time to time within three (3) business days of request, for the purpose of discharging liabilities relating to [Athlone House]” (para 3.2); and to “pay to the Company such sums as are requested from time to time within seven (7) business days of request, for the purpose of paying such professionals and contractors who are engaged or instructed by [AHL] in respect of [Athlone House]” (para 3.3).
As I describe in more detail below, OFSI refused on 22 December 2022 to grant licences for such payments to AHL, as well as a number of other payments. These refusals give rise to the claim before me. Mr Fridman challenges three specific refusals pursuant to section 38(2) of the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”):
(1) OFSI's decision to refuse Mr Fridman's application for a licence in respect of a monthly management fee of £30,000 to be paid to AHL (the “Management Fee Application”);
(2) OFSI's decision to refuse Mr Fridman's application for a licence in respect of a monthly payment of £1,850.00 from AHL to Ideaworks Group Ltd (“Ideaworks”) for internal phonelines, audio and TV equipment (the “Ideaworks Application”); and
(3) OFSI's decision to refuse Mr Fridman's application for a licence in respect of payments to AHL for payment to staff for household-related services (the “Staff Costs Application”).
OFSI's refusal to issue a licence is a “sanctions decision” within the meaning of s.38(1)(d) of SAMLA. As a person affected by that decision, Mr Fridman has applied to the High Court for the decision to be set aside under s.38(2) of SAMLA. The claim is brought under Part 8 of the Civil Procedure Rules (CPR), and is governed by Part 79 of the CPR. Mr Fridman set out his grounds for seeking orders setting aside the decision in a detailed Particulars of Claim served with his Claim Form issued on 21 March 2023.
On 13 October 2023, Mr Fridman applied to amend his Particulars of Claim to advance a number of new grounds. OFSI...
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