High Court Finds UK Sanctions Do Not Preclude Entry Of Judgments In Favour Of Russian Sanctioned Parties

• Author: Rupert Lewis, Susannah Cogman, Ajay Malhotra, Maura McIntosh and Alexander Gridasov
• Law Firm: Herbert Smith Freehills
• Published date: 22 February 2023

The High Court has considered the impact of the UK sanctions against Russia on various aspects of litigation involving a sanctioned party: PJSC National Bank Trust v Mints[2023] EWHC 118 (Comm).

The judgment raises important questions of law with wide implications for litigation involving sanctioned entities. The court's key finding was that the UK sanctions do not prevent the English court from entering judgment on a pre-existing (ie pre-sanctions) claim brought by the sanctioned person. There is no need for a licence from the Office of Financial Sanctions Implementation ("OFSI") in order to enter judgment. OFSI can, however, license a sanctioned party 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, which means that ongoing proceedings involving a sanctioned party do not necessarily prejudice the non-sanctioned party.

As part of an interesting obiter discussion of what constitutes "ownership" or "control" for the purposes of the UK sanctions regulations, the court expressed the view that this does not include control by virtue of a sanctioned person's political office, as opposed to personally (including through a trust structure) or (potentially) via a corporate officeholding.

In view of the importance of the issues raised, the judge gave permission to appeal the judgment to the Court of Appeal.

We discuss the UK sanctions regime in further detail in our previous blog post. You can also follow the latest developments in the sanctions space here.

Background

The litigation arises out of the claims by the Russian National Bank Trust ("NBT") and Bank Otkritie ("Otkritie") for USD 850 million. The claimants allege that the defendants conspired with representatives of the claimants to enter into uncommercial transactions with companies connected with the defendants, by which loans were replaced by worthless or near worthless bonds. The claimants obtained freezing orders against some of the defendants.

The litigation was progressing towards trial at the time when Russia invaded Ukraine. Shortly after the invasion, the UK Government imposed asset freeze restrictions against Otkritie and added it to the Consolidated List of Financial Sanctions Targets (the "List") maintained by OFSI, making Otkritie a "Designated Person". NBT has not been added to the List.

As discussed on our previous blog post, the Designated Persons added to the List are the primary targets of the asset freezes. Importantly, the asset freeze restrictions also extend to entities owned or controlled, directly or indirectly, by a Designated Person. The asset freeze restrictions are subject to certain listed exceptions, and acts which would otherwise breach the restrictions may be licensed by OFSI.

The defendants...