Sanctions do not obstruct access to the Courts
In PJSC National Bank Trust and another v Boris Mints and others  EWHC 118 (Comm) Mrs Justice Cockerill DBE found that the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”,) and the regulations (the “Regulations”) made under it, do not prevent the progress of claims by Russian parties nor does it prohibit the court from entering judgments in relation to a sanctioned person. This decision will be of interest to those bringing or defending claims involving sanctioned Russian parties.
National Bank Trust and Otkritie Bank (the “Banks”) brought proceedings in June 2019 against the co-founder of Otkritie, Boris Mints. The Banks accused Mints (and his sons and other former bank executives) of embezzling hundreds of millions of dollars from the Banks by entering into uncommercial transactions with connected companies.
Otkritie Bank was sanctioned following Russia’s invasion of Ukraine. Its assets were frozen. Under the Regulations, a person must not deal with funds or economic resources of a person subject to an asset freeze (or make funds or economic resources available to or for the benefit of such persons).
The Defendants applied to stay proceedings and be released from undertakings in relation to freezing orders already obtained against them. They argued that the claims against them could not progress while the sanctions were in place as it would be illegal for the Court to enter any judgment in favour of the Banks. They claimed the judgment would contravene the Regulations by making funds available to persons subject to an asset freeze. The Court had to consider a number of questions, including:
- Do the causes of action advanced constitute “funds or economic resources”?
- If judgment is entered on those causes of action, would the judgment debt constitute “funds or economic resources” for the purposes of the Regulations?
- If so, does the act of entering judgment amount either to
- a dealing in funds or economic resources; or
- making available funds or economic resources?
- Is the Court a “person” to whom the Russia Regulations apply?
- And, what Cockerill J described as the main question: is it clear from the evidence (including both broad and narrow questions) that Parliament intended to make inroads on the right of access to the Courts?
The Judge held that entry of a judgment is not prohibited by the Regulations. Cockerill J reviewed the development of sanctions rules in the United Kingdom. She considered that the legislature's intention had never been to prevent the entry of judgment. Although a judgment debt is on its face a “fund” under SAMLA, s.60(1) and therefore capable of being caught by Regulations 11 (Asset-freeze in relation to designated persons) and 12 (Making funds available to designated person), a cause of action is an “economic resource” only, as defined by SAMLA, s. 60(2). It cannot be realistically said that the Court is ‘dealing with’ that resource within Regulation 11(5) by entering judgment and would therefore be caught by the prohibition against that conduct. Lawmakers did not intend to deviate from “the fundamental right of access to the court” for determination of rights outside designation.
The Office for Sanctions Implementation (“OFSI”) can license the remainder of the acts. Cockerill J noted that OFSI had granted specific licences to enable the payment of the claimants' legal fees on five occasions (whilst noting that OFSI's views were not determinative but demonstrated its belief that the case could continue to trial). She said it would make no sense to allow some parts of litigation to progress only for the overall progression to be stymied by a bar on other parts. She found that OFSI has power to license such acts as payment of adverse costs, security costs and damages, but there is no power to license the entry of judgment because it is not necessary.
Commentary: Persons subject to asset freezes are not precluded from accessing the Court (nor are they immune from suit). At the heart of Cockerill J’s decision is the principle that sanctions regulations do not bar the Courts from lawfully entering judgments in relation to designated persons: there is a right of access to the Courts. While it may be necessary to obtain a licence from OFSI to enforce a judgment against the assets of a person subject to a freeze, or to take payment following a costs order, judicial consideration of a cause of action by or against a sanctioned person is free from such an impediment. It is worth noting that permission to appeal has been granted. Despite Cockerill J stating that the Claimants had a “comfortable win” she gave permission to appeal against the decision in view of the “real possibility” that something might “shift the argument a few points.” Firms facing sanctioned persons in litigation would be wise to watch the appeal closely.
Marianne Davey (Associate) and Michael Munk (Managing Associate), Jane Larner (Counsel) in London