UK Weighing Decisions After Court Ruling on Designation of Certain Russian Companies

The U.K. Foreign, Commonwealth & Development Office released a statement after a Court of Appeal decision relating to how the U.K. government may sanction a Russian entity based on what parties can exert control over it. The agency said it is "carefully considering" the decision's impact, specifically the decision that PJSC National Bank is controlled by sanctioned parties due to their political office (see 2301310028).

The opinion said British sanctions regulations may allow for the sanctioning of entities who can be controlled by a sanctioned party even though the designated party does not have a controlling interest in the firm.

FCDO said it "would look to designate a public body where possible when designating a public official if FCDO [decided] that the relevant official was exercising control over the public body." The U.K. government will make no presumption that a private entity based or incorporated in Russia is enough to show that the relevant official controls that entity, it said. The government said it is "exploring the options available ... in clarifying this position further."

The decision, Boris Mints & Ors v. PJSC National Bank Trust & Anor, comes from a case in which claimant banks are vying for $850 million on the grounds that four individuals conspired with representatives of the claimant banks "to enter into uncommercial transactions" with companies linked to the four individuals. These transactions involved loans that were replaced with "worthless or near worthless bonds." After the lawsuit was filed, PJSC Bank Otkritie Financial Corp., one of the claimants, was sanctioned by the U.K. government related to Russia's invasion of Ukraine.

The trial court dismissed the four individuals' application for a stay, presenting the issue of whether English courts can enter judgment on a sanctioned party's claim and, if not, whether it would be appropriate to stay the proceedings until the sanctioned party was no longer subject to the restrictions. The case also asked whether the Office of Financial Sanctions Implementation could license the payment of an adverse costs order, order for security for costs, payment of damages or payment of a costs order by a sanctioned party, and whether the first claimant is also subject to the Russia sanctions regime even though it is not designated on the grounds that it is "owned or controlled" by at least two designated individuals.

The Court of Appeal said entry of judgment in the case was not barred under the sanctions regime since the judgment does not "make funds available," adding that those three words are not enough to strip the court of its ability to enter judgment on a valid cause of action. The court also noted that a claimant does not "deal with" an economic resource by using a lawsuit to obtain judgment because there is no "exchange" pursuant to the sanctions regulations.

The court then ruled that OFSI could license the proposed payments. While the court didn't directly address the issue of whether the second claimant bank, PJSC National Bank, is subject to the sanctions regime, the court did say that the wording of the sanctions regulations "was apt to cover the case of a designated person who, for whatever reason, is able to exercise control over a company, irrespective of whether the designated person has an ownership interest in the other company, economic, or otherwise." As a result, the regulation may not have any limit on the means by which a sanctioned party can "achieve the result of control" of a company's affairs.