Julian Clark Global Senior Partner
Sanctioned entities have fundamental right of access to English courts
PJSC National Bank Trust & another v. Boris Mints & others  EWHC 118 (Comm)
This Commercial Court decision will be of interest to those who have commercial dealings with counterparties that may be subject to or affected by international sanctions against Russia and Russian entities and individuals following the invasion of Ukraine in February 2022. This is particularly so for those who are already, or may yet become, involved in English Court proceedings with such entities.
The Court has found that the UK sanctions regime does not deny sanctioned entities the right to access the English courts in circumstances where their disputes are subject to the English Court’s jurisdiction and they have a good arguable claim.
In coming to this decision, the Court usefully summarised the applicable sanctions regulations and considered the scope of the licencing regime implemented by the UK Office of Foreign Sanctions (OFSI).
The background facts
In June 2019, the claimants commenced claims against the defendants, seeking damages in the sum of about US$850 million. The claimants contended that the defendants conspired with representatives of the claimant banks 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 but, before trial, Russia invaded Ukraine.
As a result, the second claimant, Bank Okritie, was designated as a sanctioned entity by the UK authorities. Its assets were frozen and dealings in them prohibited.
Consequently, the defendants argued that:
- it would be unlawful for the Court to enter judgment for the claimants.
- various interlocutory stages could not be completed at all because they required a licence and no such licence could or would be granted.
- allowing the proceedings to continue while sanctions remained in force would cause them serious prejudice because the sanctions would prevent the claimants from satisfying any adverse costs orders, providing security for costs or paying any damages that might be awarded on their cross-undertaking in relation to the freezing order.
The defendants, therefore, sought a stay of the proceedings and to be released from their undertakings.
The sanctions and licencing regimes
Of particular relevance were the provisions of the Sanctions and Anti-Money Laundering Act 2018, together with the regulations made under it in respect of Russia, namely the Russia (Sanctions) (EU Exit) Regulations 2019.
In essence, the sanctions make it a criminal offence to deal with the funds or economic resources of a designated person or to make funds or economic resources available to or for the benefit of a designated person. The prohibitions extend to entities that are owned or controlled directly or indirectly by a designated person. However, the OFSI (which is part of the UK Treasury Department) has a discretion to license certain specified activities that would otherwise be in breach of the Regulations.
The Commercial Court decision
The key issue was whether the Court could enter judgment in favour of the claimants in the event that its claims were upheld. This was not expressly prohibited by the Regulations. The Court, therefore, concluded that it could. While the Regulations were intended to curtail the rights of designated entities to a certain degree, it would have required very clear wording to “interfere with core judicial functions in this way.” Here, there was no clear derogation from the right of access to the English courts. Furthermore, there would be no sense in allowing designated entities to pursue litigation (as they were entitled to do) if they could not subsequently obtain judgment if they were successful.
The Court went on to find that payment of an adverse costs order was licensable. The OFSI's General Guidance expressly stated that a party may be given a licence to pay security for adverse costs. By implication, therefore, a licence actually to pay that liability could be issued and, in fact, OFSI had already issued such a licence in respect of an adverse costs order previously issued by the Court. Consequently,it made obvious sense that OFSI could also issue a licence to permit the payment of security for costs for the very purpose of meeting such adverse costs orders. Finally, a licence could also be issued in respect of payment of damages pursuant to the cross-undertaking.
Given the significance of the issues raised in the current sanctions climate, the Court granted leave to appeal. In the meantime, pending the Court of Appeal decision, it is clear that the English Court will not permit defendants to use sanctions as a means of escaping liability for their wrongs.
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