On 27 January 2023, Mrs Justice Cockerill handed down a judgment dismissing an application for a stay and discharge of undertakings in lieu of a worldwide freezing injunction made in light of the impact of the Russia (Sanctions) (EU Exit) Regulations 2019 (“the Regulations”), the sanctions imposed by the UK government in response to the conflict in the Ukraine. The judgment represents the most extensive consideration of the Russia sanctions regime and addresses important issues concerning the interaction between that regime and ongoing litigation involving sanctioned persons.
The claimants in these proceedings are two state-owned Russian banks, who have quantified their claims at US$850 million. The Second Claimant, Bank Otkritie, is a designated person under the Regulations. The First Claimant, NBT, has not been designated, but the First to Fourth Defendants contended that it is nonetheless caught by the sanctions because it is owned or controlled by one or more designated persons within the meaning of Regulation 7, namely Vladimir Putin, the President of the Russian Federation, and Elvira Nabiullina, the Governor of the Central Bank of Russia. It was common ground that NBT is 99% owned by the Central Bank of Russia, which in turn is required by Russian law to pass 75% of its profits to the Russian Federal Budget.
The First to Fourth Defendants applied for a stay of the proceedings and discharge of return date undertakings, on grounds that (1) the entry of a money judgment in favour of a sanctioned person is unlawful under the Regulations, (2) other litigation steps such as payment of adverse and favourable costs orders, payment of security for costs and payment of damages pursuant to a cross-undertaking are also unlawful, (3) there is no licensing ground under the Regulations by which such acts can be authorised by the Office of Sanctions Implementation (“OFSI”), and (4) this would result in substantial prejudice to the First to Fourth Defendants if the litigation were to continue or if the undertakings were to remain in force.
In a 54-page judgment, Mrs Justice Cockerill found that the entry of a money judgment in favour of a designated person is not unlawful, and that although the other litigation related steps were prima facie unlawful, they could be licensed under the “reasonable expenses associated with the provision of legal services” licensing ground, or (in the case of payment of damages pursuant to a cross-undertaking) the “extraordinary expenses” licensing ground. If the issue had arisen, Mrs Justice Cockerill would have held that control under Regulation 7 does not include control exercised by virtue of political office, with the result that NBT is not owned or controlled by a designated person.
Accordingly, Mrs Justice Cockerill dismissed the application for a stay and discharge of the return date undertakings. However, Mrs Justice Cockerill granted permission to appeal to the Court of Appeal to the First to Fourth Defendants, holding that the appeal had a real prospect of success and that there was some other compelling reason why permission should be granted, in light of the significance of the issues.
Simon Paul (with Laurence Rabinowitz KC and Niranjan Venkatesan) acted for the Second and Third Defendants, instructed by Jonathan Brook of Enyo Law.
The judgment ( EWHC 118 (Comm)) is available here.