The recent case of Shvidler v Secretary of State for Foreign, Commonwealth and Development Affairs [2023] EWHC 2121 (Admin) provides a helpful example as to how the High Court decides on cases where the Claimant challenges the lawfulness of a decision by the Foreign Secretary (FS) to designate a person under the Russian sanctions regime.
The Shvidler Case Background
The Claimant was a UK‐US dual national. In 1989 he moved from the former Soviet Union to the USA. In 2004, he moved to the UK, where he settled. He had a number of very substantial business interests and was considerably wealthy.
He had never been a Russian citizen and had not visited Russia since 2007.
On 24 March 2022 the Claimant was designated by the FS pursuant to regulation 5 of the Russia (Sanctions) (EU Exit) Regulations 2019 (the 2019 Regulations), made under section 1 of the Sanctions and Anti‐Money Laundering Act 2018 (SAMLA). The FS made the decision to designate the Claimant on the basis that there were reasonable grounds to suspect that he was an “involved person”.
On 11 November 2022, the grounds for the Claimant’s designation were varied following a Ministerial review. The basis for his designation was as follows:
- There were reasonable grounds to suspect that the Claimant was associated with Mr Roman Abramovich (an associated person) who is, or has been, involved in obtaining a benefit from, or supporting, the Russian Government, and
- There were reasonable grounds to suspect that the Claimant himself participated in obtaining a benefit from, or supporting, the Russian Government through working as a non-executive director of Evraz plc, an entity carrying on business in sectors of strategic significance to the Kremlin.
The designation resulted in a worldwide freezing order over all the Claimant’s assets. His children were immediately excluded from their public schools, and he had to move to the US where he relied on friends for financial maintenance. His ability to conduct business was “destroyed” and his ex-wife found it difficult to access banking facilities.
The Claimant argued that the designation amounted to disproportionate interference in his rights under the European Convention on Human Rights (ECHR), specifically Article 8 (right to private and family life) and Protocol 1 Article 1 (right to enjoy property peacefully).
Key Statute Laws Relevant to the Shvidler Case
The power to make sanctions regulations is contained in section 1 of SALMA.
Regulation 6 of the 2019 Regulations states that the Secretary of State may not designate a person unless they have reasonable grounds to suspect the person is an “involved person”.
“Involved person” is defined in Regulation 6(2) as a person who:
- is or has been involved in—
- destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty or independence of Ukraine, or
- obtaining a benefit from or supporting the Russian Government,
2. is owned or controlled directly or indirectly by a person who is or has been so involved in the above, or
3. is acting on behalf of or at the direction of a person who is or has been so involved, or
4. is a member of, or associated with, a person who is or has been so involved.
Regulation 6(3) provides that a person is “involved in destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty or independence of Ukraine” if
- the person is responsible for, engages in, provides support for, or promotes any policy or action which destabilises Ukraine or undermines or threatens the territorial integrity, sovereignty or independence of Ukraine
- the person provides financial services, or makes available funds, economic resources, goods or technology, that could contribute to destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty or independence of Ukraine;
- the person provides financial services, or makes available funds, economic resources, goods or technology, to –- a person who is responsible for a policy or action which falls within sub-paragraph (a), or
– a person who provides financial services, or makes available funds, economic resources, goods or technology, as mentioned in sub paragraph (b); - the person obstructs the work of international organisations in Ukraine;
- the person conducts business with a separatist group in the Donbas region;
- the person is a relevant person trading or operating in [non-government controlled Ukrainian territory];
- the person assists the contravention or circumvention of a relevant provision
The Court’s decision
Mr Justice Garnham referred to Lord Sumption’s test for proportionality set out in the Supreme Court case of Bank Mellat v HM Treasury (No 2) [2013] UKSC 39. When answering the question of whether a measure is proportionate, the Court must consider:
- Whether the objective of the measure being imposed is sufficiently important to justify the limitation of a fundamental right,
- Is the measure rationally connected to the objective,
- Could a less intrusive measure have been used, and
- Whether, having regard to the above and the severity of the consequences, a fair balance has been struck between the rights of the individual and the interests of the community.
In evaluating the evidence presented by both sides, Mr Justice Garnham concluded that the test in Bank Mellat was satisfied. There was no doubt that the Claimant was a long term friend and business associate of Mr Abramovich. He was appointed Vice-President for Finance and then President of Sibneft, a company owned by Mr Abramovich between 1996 and 2005.
The Claimant was also one of Mr Abramovich’s two nominee directors on the board of Evraz, a role for which he was paid $204,000 per year in the period 2013-2021. For these reasons, both grounds for the designations were ruled to be well founded.
A rational connection between making the Claimant a designated person and the objective of the sanction regime was also found. Mr Justice Garnham stated that the evidence reviewed by the FS when he made the decision to designate the Claimant justified the conclusion made by the FS that Mr Abramovich had a continuing relationship of trust and confidence with President Putin. Regarding the ability of the Claimant to influence Mr Abramovich, the Court stated:
“As a matter of common experience, an individual may more readily act when it is at the request, or in the interests, of his friends and colleagues than when it is only in his own interests. In any event, the availability of a more direct means of putting pressure on Mr Abramovich does not undermine the value of additional pressure provided by the Claimant.”
The Court rejected the Claimant’s argument that sanctions cannot be imposed for past acts, now regarded as objectionable and that he had done everything possible to withdraw from his association with the Russian Government and denounce the invasion of Ukraine. Mr Justice Garnham said that a sanctions regime is likely to be backward looking, concentrating on past behaviour that was not considered unlawful at the time.
Furthermore, the 2019 Regulations refer expressly to past conduct as providing the ground for designation. To be effective, sanctions need to send messages to the designated person, and others in a similar position, that the conduct in question is unacceptable.
On the issue of whether or not alternative measures could have been applied to the Claimant, Mr Justice Garnham deferred to the FS, stating that “the relative benefits, disadvantages and effectiveness of different measures taken in pursuit of foreign policy objectives is not one on which the Court can second-guess the Foreign Office.”
Finally, in considering whether a fair balance had been struck, the Court concluded that the FS had had full regard of the impact sanctions would have on the Claimant and his family. Although they suffered economic loss and inconvenience, neither their life nor freedom was threatened. In addition, the Claimant had not been permanently deprived of his property. The deprivation was only for as long as he remained a designated person.
The Judicial Review was therefore dismissed. The Claimant has said he will appeal the decision.
Comment
This case highlights the high hurdles a Claimant must jump to succeed in a Judicial Review application concerning the Russian sanctions regime. Mr Justice Garnham concluded that the Court could review the reasonableness of the Secretary of State’s analysis in deciding to make someone a designated person; however, it is clear that any unreasonableness or disproportionality would not be something the Courts would readily find.
Given the difficulty of succeeding in a Judicial Review challenge in sanctions cases, it is vital to instruct a legal team that has experience in this area of law.
To discuss any points raised in this article, please call us on +44 (0) 203972 8469 or email us at mail@eldwicklaw.com.
Note: The points in this article reflect sanctions in place at the time of writing, 12 October 2023. This article does not constitute legal advice. For further information, please contact our London office.
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