UK sanctions focus: High Court judgment roundup

Celestial Aviation Services Limited v UniCredit Bank AG (London Branch) [2023] EWHC 663 (Comm)

Background & Issues

The claimants demanded payment under letters of credit (“LCs”) issued by Sberbank when Russian lessees of their aircraft failed to return them when recalled following the imposition of EU/UK sanctions.  The LCs had been confirmed by the defendant, UniCredit Bank AG (London Branch) (“UniCredit”).  However, UniCredit refused to make payment on the basis that were it to do so, it would be in breach of sanctions against Russia.

Quantum of payment under the LCs was not in dispute, but the bank’s liability necessitated consideration of a range of sanctions issues.  This included whether Regulations 11, 13 and 28 of the UK Russia Regulations prohibited, as alleged by UniCredit, payment under the LCs in the period prior to 13 October 2022.

Judgment

The court found that the making of payment under the LCs was not prohibited.  Critical to this was the finding that UniCredit’s obligation to make payment under the LCs matured prior to the relevant sanctions coming into force – underlining that, consistent with the broader principle that law establishing criminal liability should not have a retroactive effect, the UK Russia Regulations are not to be applied retrospectively.

The court emphasised the importance of adopting a purposive approach to interpreting sanctions legislation, and indicated that it was important to take a "step back” when assessing whether any payment in question contravenes the purpose of the restrictions.

This judgment demonstrates that a court will interpret sanctions in their policy context and will not apply an expansive interpretation of sanctions, even where statutory drafting may be nebulous, unless it is clear that the policy warrants such an approach.  This provides helpful reassurance for the insurance industry since the measures under consideration in this case have draw-across implications for other activities in the sector.

PJSC National Bank Trust & Anor v Boris Mints & Ors [2023] EWHC 118 (Comm)

Background & Issues

This case concerned claimants either directly subject to a UK asset freeze or alleged to be owned or controlled by asset frozen persons.  It was submitted that entry of judgment for the claimants on the causes of action they advanced would be unlawful and that various elements of the procedure in the dispute could not take place without an OFSI licence, albeit that there was no basis on which a licence could be granted.

This, allowing the proceedings to continue while sanctions remained in force would prejudice the defendants because the claimants could not lawfully satisfy adverse costs orders, provide security for costs or pay any damages that may be awarded on their cross-undertaking.

Judgment

The court concluded that it was not prohibited from entering judgment on a sanctioned party’s claim and found as follows:

• A judgment debt is a “fund” within the meaning of the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”), and therefore on the face of it could be caught by the asset freeze restrictions (i.e. on dealing with an asset frozen person’s funds/economic resources or making the same available to or for their benefit).
• Similarly, it was found that the claimants’ cause of action could be an “economic resource” within the meaning set out in SAMLA.  However, it could not realistically be said that the court, in entering judgment, would itself be ”dealing with” economic resources owned, held or controlled by a designated person.  
• The legislator had not demonstrated the requisite level of clarity in intent to preclude an asset frozen person from their fundamental right of access to the court.  As a consequence, judgment could lawfully be entered on the claim.

The court was further required to consider whether OFSI had the power to licence the remaining activities necessary for the case to proceed (i.e. 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), and, in each case, answered in the affirmative.

The court also addressed whether PJSC National Bank Trust (which was not directly designated) could be deemed to be ”controlled” by Vladimir Putin or Elvira Nabiullina (each of whom were designated), and so should be considered as designated.

The court found for the claimants on this, confirming that PJSC National Bank Trust could not be said to be “controlled” by either individual merely by reason of their office or employment within the Russian state apparatus.  Cockerill J commented that there were “powerful ‘real world’ reasons why this is a case for (if necessary) resolving the question by reference to the principle against doubtful penalisation”, and appeared to suggest that it is not the intent for complex investigations to have to be made or evidence gathered, on the basis that the list should set out the persons targeted.

This case is subject to appeal and judgment is awaited, but demonstrates that a court will adopt a focussed approach when assessing whether or not a party is to be treated as being subject to sanctions.  It also demonstrates the importance that courts will place on fundamental rights, including access to justice even in the area of sanctions.

The Hogan Lovells Sanctions team is actively monitoring developments in this area and encourage businesses to get in touch if you have any questions.

Authored by Jamie Rogers, Aleksandar Dukic and Matt Steven