Robert Pollock Hill, partner at Rosling King’s Dispute Resolution Group examines the ruling in the case of PJSC Trust National Bank & Anor, and assesses its implications.
In the case of PJSC Trust National Bank & Anor v Mints & Ors (EWHC 118) the Russian sanctions regime and interpretation of it in UK litigation where the claimant was a designated person in terms of the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”) and the Russia Sanctions (EU Exit) Regulations 2019 (“RSR”), were examined.
Case Summary
In June 2019 the Russian claimant banks, PJSC – National Bank Trust and PJSC – Bank Otkritie (‘C1’ and ‘C2’), filed proceedings claiming $850 million in damages from a group of Russian businessmen (“D1 to D4”) on the grounds that they conspired to force the banks into noncommercial transactions.
C2 was added to the UK’s sanctions list shortly after the Russian invasion of Ukraine.
All assets or economic resources belonging to a designated individual are frozen and can’t be accessed by anyone. A designated person cannot be given assets or economic resources. It is illegal to do any of these things.
D1-D4 requested that the High Court stay the proceedings and release them from the various undertakings they had made in relation to freezing orders that were made against them, on the grounds that:
- It would be illegal under the RSR to enter a judgment that would make funds available to designated persons.
- The defendants would not be able to satisfy an order for costs in favour of C1 and C2, because doing so would have the same effect as making money available to a person who has violated the RSR.
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The RSR had the effect that sanctioned parties were prohibited from:
- Paying the costs of an order;
- Providing security to costs;
- Paying damages for a cross undertaking is not permitted under the RSR because it would be ‘dealing with frozen assets’. Such actions do not fall into the list of prescribed reasons for obtaining a licence and are therefore not allowed.
- D1-D4 argued that C1 should be treated as a sanctioned organization, even though it had not been explicitly designated. This was because the entity was “owned or controlled” by two persons designated in the RSR; Mr Vladimir Putin as President of the Russian Federation as well as Ms Elvira Nabibullina as Governor of the Russian Central Bank.
- D1-D4 argued that continuing the proceedings would cause them serious harm and therefore the proceedings should not be continued.
All assets or economic resources belonging to a person designated are frozen and can’t be accessed by anyone.
The Decision
Mrs Justice Cockerill dismissed each of these arguments and D1-D4’s application. She concluded that entry of judgments in favour of sanctioned entities is not illegal. SAMLA, and the RSR, were meant to curtail certain fundamental rights, such as the peaceful enjoyment of one’s property, but they did not curtail any other fundamental rights, including the right to access the court, because of the lack of clarity in their wording. If a party had the right to access a court, it was also entitled to take its case all the way to a judgement.
Cockerill J acknowledged that, when certain provisions of SAMLA or RSR were read in isolation, it could be argued that it would be illegal to enter judgment for C1 and C2, but it could also be argued that entering judgement would not be illegal. The principle of legality, however, compelled Cockerill J to answer that a judgment could be entered for a sanctioned party and that a licence was not required from the Office for Sanctions Implementation.
The Judge held, that the payment of an adverse cost order by a sanctioned party while prima facsimile in violation of the RSR was licensable, under paragraph 3 Schedule 5 of RSR which states that a licence can be granted to allow the payment of reasonable fees and expenses related to the provision of legal costs.
Cockerill J. in particular:
- There was nothing in paragraph 3 which limited the possibility of a license to the fees charged by the lawyers of the party designated;
- The legislators knew that adverse costs were a common and necessary part of litigation.
- There was no reason for a sanctioned organization to not be allowed to pay negative costs if the result would be to reduce rather than increase its assets.
- The OFSI Guidance stated clearly that adverse cost payments could be licensed on this basis;
- OFSI issued a license to C1 and C2 allowing them to pay an adverse cost order.
The same reasons were used to determine that the payment of security for costs by the sanctioned claimant was also licensable in accordance with paragraph 3 of Schedule 5.
Cockerill J. also found that the paragraph 3 of Schedule 5, as written, is sufficiently broad to cover not only the payment by sanctioned parties of their costs but also the payment in their favor. She argued that a favorable costs order did not benefit the designated party, but rather put them in the same situation they would have been in had the other side not taken the wrong position. If these payments were not licensable it would allow abusive behavior by non-designated litigants who could make unjustified applications against the person designated without being threatened with actual consequences.
The court ruled that the payment of security for costs by the sanctioned claimant was also licensable pursuant to paragraph 3 of Schedule 5 RSR.
The Judge held that a payment of damages for cross undertakings made in support of an order to freeze assets is licensable under Schedule 5 paragraph 5. Although acknowledging that damages could be paid as a result of a claimant’s cross undertaking, this only occurred after a thorough investigation by the court. She also noted that anyone involved in such a claim would probably consider it to be out of the ordinary, and not a routine or ordinary cost. She noted that OFSI was unlikely to refuse a license for payment of damages if they were awarded by an English Court decision and reduced the assets of the designated person.
The RSR did not apply to C1 because it was not under the control of either Ms Nabiullina or Mr Putin. Cockerill J, while the control issue is no longer relevant, given her earlier decisions, considered, tentatively, that control as defined by the RSR probably included control exercised as an employee, corporate officer or by a person in a public or political position. If this were to be the situation, major institutions would be sanctioned by a sidewind. They would not be aware of the sanction or be able to challenge it under section 38 [of the SAMLA].
Commentary
Ms Justice Cockerill has granted permission to appeal. This appeal is scheduled to be heard at the beginning of July 2023. The judgment, regardless of its outcome, provides a clear and detailed analysis of the sanctions law framework and how it is applied in litigations where the claimant falls under the RSR.
The decision shows (to the relief both of sanctioned and of non-sanctioned parties) that, while the SAMLA, and the RSR, undoubtedly have an impact on litigation when a party has been subject to sanctions they are not meant to act as a bar for access to English Courts or to prevent the progression of ongoing litigation, or to prohibit the entry judgment after trial.
Robert Pollock Hill, Partner
55 Ludgate Hills, London EC4M7JW, UK
Tel: +44 02072 468027
Robert Pollock Hillhas over 15 years of experience in advising on shipping and commercial disputes, both before the English High Court as well as in arbitration. Robert has also acted as an arbitrator under the LMAA rules, LCIA rules and UNCITRAL Rules in relation to a number of charterparty disputes and other contract disputes.
Rosling LLP is a law firm based in London that specializes in serving financial institutions, corporations and individuals.