Following a hearing on 3-6 July 2023, the Court of Appeal (Flaux C, Newey and Popplewell LJJ) in PJSC National Bank Trust & anor v Mints & ors  EWCA Civ 1132 dismissed an appeal by the first to fourth defendants against the decision of Cockerill J (at  EWHC 118 (Comm)) in respect of various issues relating to the effect of sanctions on the ability of a sanctioned person to pursue litigation before the English Courts.
The litigation arises out of claims by the claimant banks for US$850m on the basis of allegations that certain of the defendants conspired with representatives of the claimant banks to enter into uncommercial transactions with companies connected to the relevant defendants, whereby loans were replaced with what the claimants contend were worthless or near worthless bonds. In 2019, The claimants had also obtained undertakings from some of the defendants equivalent to freezing orders.
After the litigation had commenced, the second claimant, Bank Otkritie, was put on the sanctioned list by the UK Government and thus became a ‘designated person’ under the sanctions regime arising out of the Sanctions and Money Laundering Act 2018 and regulations made under it (the Russia (Sanctions) (EU Exit) Regulations 2019 (the ‘Regulations’)).
The first instance decision had dismissed D1-D4’s applications for a stay of the proceedings and release from their undertakings. There were three sets of issues on appeal:
- The ‘stay issue’: whether the Court can lawfully enter judgment on a designated person’s claim and if not, whether it would be appropriate to stay the proceedings indefinitely until the designated person was no longer on the sanctions list;
- The ‘licensing issues’: whether it is possible for OFSI to license (i) the payment of an adverse costs order by a designated person, (ii) the satisfaction of an order for security for costs by a designated person, (iii) the payment of any damages by a designated person that might be awarded in respect of the cross-undertakings in damages and/or (iv) the payment of a costs order in favour of a designated person.
- The ‘control issue’: whether the first claimant is also subject to the sanctions regime even though it is not listed as a designated person, on the basis that it is in fact ‘owned or controlled’ for the purposes of Regulation 7 by at least two designated persons, Vladimir Putin, the President of the Russian Federation and Ms Elvira Nabiullina, the Governor of the Russian Central Bank.
On the stay issue, the Court of Appeal held that:
- The entry of judgment was not prohibited under Regulation 12 because the entry of judgment does not “make funds available” and/or those words were not apt to describe the exercise by the Court of one of its prime judicial functions in administering justice; namely, the entering of judgment on a valid cause of action (at -).
- A claimant does not “deal with” an economic resource by using its cause of action to obtain judgment because there is no “exchange” within the meaning of Regulation 11(5). Further, the Court itself was not in breach of Regulation 11(5) because the words “dealing with” are not apt to describe the exercise by the court of its judicial function in entering judgment on a valid cause of action.
- Although not necessary for its decision, the Court of Appeal was “firmly of the view” that, even if D1-D4 were correct that entry of a money judgment was prohibited, it would not be appropriate to grant a stay of the proceedings either now or at any stage up to and including the trial; and further, it would be possible for the court to enter a declaratory judgment or judgment on liability with issues of quantum deferred. Neither course would be contrary to the prohibition on circumvention in Regulation 19 (at -).
As to the licensing issues, the Court of Appeal held (at -) that OFSI could license all the matters referred to above.
The control issue therefore did not arise. Nevertheless, the Court addressed it briefly and considered that the first claimant was controlled within the meaning of Regulation 7 by Mr Putin and/or Ms Nabiullina. As to this, the Court held that:
- The wording of Regulation 7(2) 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 (at ).
- The wording of Regulation 7(4) was in wide terms and the use of the words, “in all the circumstances” and “by whatever means” makes it clear that the provision does not have any limit as to the means or mechanism by which a designated person is (or would if they chose to be) able to achieve the result of control of the affairs of the company.
- Although the first instance judge had been concerned that if D1-D4 had been right, the consequence might well be that every company in Russia was “controlled” by Mr Putin and hence subject to sanctions, the remedy was not for the judge to put a gloss on the language contained in Regulation 7, but rather it was for the executive and Parliament to amend the wording of the Regulations to avoid that consequence (at ).
Thus, although the Court would have found for D1-D4 on the control issue had it arisen, since they were unsuccessful on the first two issues, the Court of Appeal dismissed D1-D4’s appeal.
A copy of the judgment is available here.