On 27 January 2023, the Commercial Court (Cockerill J) in PJSC National Bank Trust & anor v Mints & ors  EWHC 118 (Comm) ruled on a number of important 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 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 worthless or near worthless bonds. In 2019, The Claimants had also obtained undertakings from some of the Defendants equivalent to freezing orders.
Shortly after Russia’s invasion of Ukraine, the Second Claimant, Bank Otkritie, was put on the sanctioned list by the UK Government and thus became a ‘designated person’. The sanctions regime arises out of the Sanctions and Money Laundering Act 2018 and regulations made under it (with respect to Russia, these are the Russia (Sanctions) (EU Exit) Regulations 2019 (the ‘Regulations’)).
The sanctions regime operates in two main ways: (1) all funds or economic resources of a designated person are frozen, such that a person may not deal with them and (2) no person may make funds or economic resources available to or for the benefit of any designated person. Doing so is a criminal offence. The regime also applies to entities which are ‘owned or controlled’ directly or indirectly by a designated person. HM Treasury, acting through the Office for Sanctions Implementation (‘OFSI’) has a discretion to license certain specified activities which would otherwise contravene the Regulations.
The First to Fourth Defendants (‘D1-D4’) brought applications seeking a stay of the proceedings and a release from the undertakings they gave to the Court on the basis that the effect of the Regulations was that:
- The Court could not lawfully enter judgment on a designated person’s claim;
- It was not possible for a designated person to (i) pay an adverse costs order, (ii) satisfy an order for security for costs and (iii) pay any damages that might be awarded in respect of the cross-undertakings in damages because these would contravene the Regulations and could not be licensed; and
- It was not possible to license the payment of costs orders in favour of a designated person for similar reasons.
D1-D4 also argued that although the First Claimant had not been listed as a designated person, it was in fact ‘owned or controlled’ by at least two designated persons, Mr Vladimir Putin, the President of the Russian Federation and Ms Elvira Nabiullina, the Governor of the Russian Central Bank, such that the sanctions regime applied to both Claimants.
The Court dismissed the applications and held that:
- Judgment can lawfully be entered on a designated person’s claim and is not a licensable activity.
- OFSI can license 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 a cross-undertaking in damages.
- Payment to the Claimant Banks of a favourable costs order is licensable.
- The question of whether the First Claimant was owned or controlled by Mr Putin or Ms Nabiullina therefore did not arise, but even if it had, the Court would have held that it was not ‘owned or controlled’ for the purposes of the Regulations.
In light of the important issues raised, the Commercial Court granted permission to appeal. The judgment is available here.