Anchored in law: The UK's Supreme Court upholds Russian sanctions
In a landmark test-case for the UK’s sanctions regime, the Supreme Court (“SC”) has dismissed the appeals of two Russian oligarchs against sanctions and restrictions imposed on them.
The judgment clarifies how the courts should assess the proportionality of the impact of any infringement on human rights as against the aims of the sanctions regime. It also serves as an indication of the difficulties faced by designated parties wishing to challenge their designations, notwithstanding the significant impact on the rights and liberties of the individuals concerned and emphasises the Government’s wide margin of discretion in these decisions.
Background
The judgment concerns two related appeals challenging the lawfulness and proportionality of sanctions imposed under the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”) and the Russia (Sanctions) (EU Exit) Regulations 2019 (the “2019 Regulations”).
Eugene Shvidler (“Mr Shivdler”) and Dalston Projects Ltd (“Dalston”) (together, the “Appellants”) separately challenged the government’s decision to impose sanctions on them as part of the UK’s response to Russia’s invasion of Ukraine. The Appellants argued that the sanctions disproportionately interfere with their private life under Article 8 of the Human Rights Convention and are affecting their rights to property under Article 1 of the First Protocol of the Conventions.
It was accepted by the Government that there has been an interference with the Appellants’ rights that needs to be justified. The issue was whether that interference is justified in light of the aims pursued by the sanctions or whether it is disproportionate and therefore unlawful.
The impact of sanctions on the Appellants is as follows:
- Russian born Mr Shvidler was designated soon after Russian’s invasion of Ukraine, on the grounds that his relationship with Roman Abramovich and connections with Evraz plc made him an “involved person” under Regulation 6 of the 2019 Regulations. He was made subject to a world-wide asset freeze on 24 March 2022, and it became a criminal offence for other people to deal with him in either a private or commercial capacity, subject to a few exceptions. In practice, the designation means that Mr Shvidler’s ability to access his financial and other assets on a daily basis is severely restricted. This, he argues, has had a substantial and detrimental effect of the lives of him and his family, which is unjustified and disproportionate and which should be lifted.
- Dalston is the legal owner of a superyacht, M/Y Phi (the “Phi”) which is beneficially owned by Sergei Naumenko, another Russian businessman. Mr Naumenko is not sanctioned by the UK and it is not claimed that he has any particular connection with Putin. However, the Phi was seized and detained by the UK government in March 2022 under Regs 57C-57I of the 2019 Regulations on the grounds that it was owned, controlled or operated by a person connected with Russia. Dalston and Mr Naumenko claim they have been prevented from earning a substantial income chartering the yacht out and challenged the detention on the grounds that there was no rational connection between that and the aims of the 2019 Regulations.
The Supreme Court’s decision
How to assess proportionality?
The SC first considered the proper approach to be adopted by a court when assessing the proportionality of any interference with a sanctioned person’s or entity’s Convention rights. The SC held that the court could make its “own fresh assessment” of proportionality, providing guidance for later cases or those where the subject matter has major social or political implications.
Were interferences with the Appellants’ rights proportionate?
The SC then analysed the Appellants’ respective cases by reference to the four-stage test for proportionality set out by Lord Sumption in Bank Mellat v HM Treasury (No 2)[1]concluding for each that the interference was proportionate and lawful. It considered:
1. Legitimate Aim: Is the measure’s objective sufficiently important to justify the limitation of a fundamental right?
The SC focused heavily on the Foreign Secretary and Transport Secretary’s evidence on the impact of the war in Ukraine, concluding that “there can be no doubt that the aim of limiting and deterring Russian aggression in Ukraine is one of the most vital aims that the UK Government has been called upon to pursue in recent years”. Notably, neither of the Appellants denied that the 2019 Regulations pursued a legitimate aim.
2. Rational Connection: Is there a rational connection between the measure and the objective?
The SC held that there was a rational connection between the measures imposed on the Appellants and the aim of limiting and deterring Russian aggression in Ukraine. The SC noted the challenges in knowing whether a particular sanctions measure has “worked or is working” but nonetheless deferred to the “informed assessment made by experienced officials” in determining how pressure on the Russian state is exerted: “it is an assessment for which a court is wholly unqualified in constitutional terms and on grounds of relative expertise to substitute its own view”.
In relation to Dalston, the SC were satisfied that an economic link existed between the detention of the Phi and the aim of limiting and deterring Russian aggression, noting that any income received by Dalston/Naumenko for the chartering out of the yacht would “likely” make it to Russia and “contribute to the Russian economy”. The SC was less convinced of a political link between the measure and the aim, given Mr Naumenko has no political role in Russia but found that the fact Mr Naumenko was “a person connected with Russia” was sufficient grounds.
In relation to Mr Shvidler, the SC were satisfied that there was a rational connection between the designation of Mr Shvidler and the aim of the sanction, based on his association with Roman Abramovich, who is closely connected to Putin. The imposition of sanctions on the oligarch contributed to the regime’s “cumulative effect” by sending a “clear signal to people in Mr Shvidler’s position that they would be wise to distance themselves from Russian business now”.
3. Less Intrusive Means: Could the objective be achieved by a less intrusive measure?
This limb of the test received only one paragraph of judicial consideration, as the Appellants could point to no other less intrusive means. Accordingly, the SC concluded that there was no less intrusive measure which could have been used which would not have compromised the achievement of that objective in an unacceptable way.
4. Fair Balance: Has a fair balance been struck between the rights of the individual and the interests of the community?
In relation to Dalston, the SC compared the “major importance of the public policy objective” underpinning the UK’s sanctions regime to the “limited impact” of the sanctions, agreeing with Singh LJ in the Dalston Court of Appeal decision that this consideration was “straightforward”. Mr Naumenko is a very wealthy man, and the detention of the Phi would not have a significant effect on how he lives his life or cause him undue hardship.
The SC acknowledged the “drastic” and “substantial” impact of the world-wide asset freeze on Mr Shvidler and his family. However, the SC said that for the sanctions regime to have any effect, “designation has to hurt those who are subject to it”. The SC noted the practical alternatives available to Mr Shvidler and the availability of OFSI licensing system, offering a “form of safety valve” even if “the luxury lifestyle and expensive education they would otherwise have enjoyed have been disrupted”.
The dissenting judgment
The SC’s decision in relation to Dalston/Naumenko was unanimous. However, in a long and robust judgment, Lord Leggatt disagreed with the majority’s decision that the Foreign Secretary had demonstrated a rational connection between the freezing of Mr Shvidler’s assets and the objective of limiting and deterring Russian aggression in Ukraine.
Lord Leggatt labelled Mr Shvidler’s alleged connections to the Russian government put forward by the Foreign Secretary as “inadequate and lacking credibility”, highlighting that Mr Shvidler is a British citizen who does not live or carry on business in Russia and has never voiced support for Putin or the invasion of Ukraine.
He pointed to the Foreign Secretary’s reasonings behind Mr Shvidler’s designation, describing them as ‘not even plausible’ and ‘armchair theories’ lacking concrete evidence. Rather, he deemed that the Foreign Secretary’s rationale of “signalling to popular audience” the Government’s firm action in tackling Russian aggression was not a legitimate basis for curtailing individual freedom. Sanctioning Mr Shvidler to encourage him to speak out more robustly against Russia was “Orwellian” and, in Lord Leggatt’s view, the reasons did not “come close to justifying such a drastic curtailment of [Mr Shvidler’s] liberty”.
Central to Lord Leggatt’s dissenting judgment was a “profound” disagreement with the majority as to the separation of powers, and the “wide margin of appreciation” afforded to the executive based on their greater institutional competence. He suggested that the SC was “abdicating their responsibility” by deferring to the Foreign Secretary’s own view that a fair balance had been struck, commenting that judicial review is “of little worth”, if the courts are not prepared to protect fundamental individual freedoms.
Some thoughts
It’s difficult to challenge sanctions designations…
That the SC did not overturn the sanctions on the Appellants in this case is not of itself surprising. The decision follows other refusals by the court to overturn sanctions designations.
In January 2025 an appeal by Anzhelika Khan, (a UK national and wife of German Khan, one of the founders of Moscow-headquartered Alfa Group) against the sanctions imposed on her failed before the Court of Appeal (“CA”)[2]. The couple were designated in 2022. Mrs Khan’s first appeal was refused by Cockerill J in February 2024, who held that the UK's sanctions regime relies on “indirect levers and tools of influence" to achieve its aims. The judge also found that Mrs Khan's designation was a “proportionate" interference with her rights and those of her children. Mrs Khan appealed to the Court of Appeal.
Her appeal was refused. The CA did not agree that the UK government should have considered whether her designation would directly affect the Russian government's activity in Ukraine. It said that Mrs Khan had conflated “purpose with efficacy" and that the law “is not concerned with whether the exercise of a discretionary power is 'likely' to further the statutory purpose." The CA also rejected Mrs Khan's argument that the FCDO's decision to designate her was a breach of her rights under article 8 of the ECHR, holding that it had been made under lawful regulations which have a “rational connection with the legitimate aim which it seeks to pursue".
…and just as difficult to challenge licensing decisions
Although the SC pointed to the OFSI licensing system as a “safety valve” to counter the potentially oppressive nature of sanctions, recent decisions would suggest that when hearing challenges on licensing decisions, the courts will similarly defer to the executive’s greater “institutional competence”.
For example, in October 2023 the High Court declined to set aside the refusal by the Office for Financial Sanctions Implementation (OFSI) to grant sanctioned Russian oligarch Mikhail Fridman three licences to enable him to continue to make regular payments for the ongoing upkeep of his London mansion and wages of his household staff.[3]
Saini J noted that applications for licences to permit otherwise sanctioned activity involve assessments which OFSI, as part of HMT, “has the institutional competence to determine… according to the criteria in the [2019 Regulations]”. He accepted OFSI’s assertion that where the effect of granting a licence would be to undermine the policy objectives of the sanctions regime, OFSI may exercise its discretion to refuse a licence, provided that it is exercised rationally.
Sanctions need to be severe to be effective
The SC’s judgment is clear that “sanctions often have to be severe and open-ended if they are to be effective” The SC was ready to acknowledge that the impact on Mr Shvidler personally was “obviously very drastic”, and the effect on his family “substantial”. However, in the SC’s view, this severity is at the core of the measure’s hope of being effective, even if it did acknowledge the difficulty of assessing the impact and effectiveness of sanctions on the legitimate aim of limiting and deterring Russian aggression in Ukraine.
Does the government now hold all the cards?
The majority's decision reflects the SC’s continued deference to the executive in recent public law cases, granting them a "wide margin of appreciation". Legal commentators have observed that this could embolden the UK government to push the UK sanctions regime further, or into tackling other policy areas, like anti-corruption.
Nonetheless, as Lord Leggatt’s powerful dissent highlights, questions of how far government can curtail individual liberties for foreign policy aims “are for the courts to decide”. With a powerful set of facts and supporting evidence, delisting on the grounds of a lack of proportionality might still be possible in principle. However, if the SC’s powers are not engaged by facts such as those in Mr Shvidler’s case, it is difficult to see how any future delisting application would have any prospect of success.
So, although the UK’s sanctions regime has an in-built process by which sanctions may be challenged by designated persons and reviewed by the relevant Minister and, ultimately, by the court, those attempting to have sanctions decisions overturned on proportionality or human rights grounds are likely to be swimming against the tide.
[1] Bank Mellat v HM Treasury (No 2) [2013] UKSC 39 at [20].
[2] Anzhelika Khan v Secretary of State for Foreign, Commonwealth and Development Affairs [2025] EWCA Civ 41
[3] Mikhail Fridman, R (on the application of) v HM Treasury [2023] EWHC 2657 (Admin)
