Court of Appeal confirms judgments can be entered in favour of Russian sanctioned parties but leaves uncertainty in relation to the "ownership and control" test

The Court of Appeal has confirmed that UK sanctions do not preclude the entry of judgments in favour of Russian sanctioned parties: Mints v PJSC National Bank Trust [2023] EWCA Civ 1132.

The court also held that the Office of Financial Sanctions Implementation (0FSI) is entitled to license a sanctioned party to pay an adverse costs order, security for costs or damages on a cross-undertaking in damages. It can also licence payment of a costs order in favour of a sanctioned party.

Significantly, although obiter (in light of the findings summarised above), the court also considered the “ownership and control” test under the UK sanctions regime, which sets out the circumstances in which companies which are not themselves designated persons must be treated as subject to asset freeze restrictions on the basis of their ownership or control by such persons. The court concluded that, contrary to the High Court’s finding, there was no carve-out to the ownership and control test for control exercised through political office and, accordingly, it could be said that Mr Vladimir Putin (Russian President and a designated person) may be deemed to control “everything in Russia” for the purposes of the regulations.

Although obiter, the court’s comments on this issue will plainly give rise to additional uncertainty for UK businesses dealing with Russian counterparties, particularly state-owned entities and government bodies (as well as businesses in other jurisdictions where UK sanctions have been imposed on political organisations and leaders).

It is unlikely that the UK government can have intended for all Russian companies to become subject to restrictions by virtue of Mr Putin’s designation, in circumstances where only 160 businesses were listed as designated at the time of the first instance decision, and a Foreign Office press release issued at the time of the designation of the governor of the Central Bank of Russia, Ms Elvira Nabiullina, stated that the government did not consider that she controls the Central Bank of Russia for the purposes of the sanctions regime. In addition, although the court heard submissions on the interpretation of the relevant regulation, it was not asked to determine whether Mr Putin does in fact control every company in Russia and the court cannot be taken to have made a factual finding in these terms.

Nonetheless, it would likely provide clarity if the government would review the wording of the regulations in order to make its intentions clear.  In the meantime, clarification from OFSI as to the basis on which it will (or will not) take enforcement action based on this theory of control is likely to be welcomed by the market.

For a more detailed analysis of this decision, please see our Litigation Notes blog post.

Note: In January 2024, the Supreme Court granted permission to appeal.