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First Binding Decision on UK Sanctions ‘Control Test’
The issue of whether a non-sanctioned company is subject to a freezing order because a designated person who has been sanctioned under the Russia Sanctions Regulations ‘controls’ the entity has recently received a binding court decision in Litasco SA v Der Mond Oil and Gas Africa SA & Locafrique Holdings SA [2023] EWHC 2866 (Comm) (“Litasco SA”).

Sitting in the High Court, Mr Justice Foxton found a middle ground between the narrow test suggested in the High Court case of PJSC National Bank Trust and another v Mints and others [2023] EWHC 118 (Comm) (“Mints”) and the broad test proposed by the Court of Appeal in the subsequent appeal of the aforementioned decision.

Facts of Litasco SA v Der Mond Oil and Gas Africa SA & Locafrique Holdings SA

Litasco SA, a Swiss oil marketing and trading company wholly owned by the Russian oil company Lukoil PJSC, sought a summary judgment against Der Mond Oil and Gas Africa SA, along with its parent company, Locafrique Holdings SA, The dispute arose from a contract entered into in April 2021 between Litasco SA and Der Mond, where Litasco SA agreed to supply Nigerian crude oil to Der Mond. An addendum on 7 November 2022, modified the contract’s obligations. Der Mond faced allegations of failing to meet certain payment obligations, leading Litasco SA to issuing proceedings for the outstanding amount.

Der Mond presented several defences, invoking sanctions and force majeure clauses contained in the addendum. Additionally, Der Mond contended that, despite neither Litasco SA nor Lukoil being designated persons under the UK sanctions regime, it was prohibited from making payments to Litasco SA under regulation 12 of the Russia Sanctions Regulations because Litasco SA should be treated as a designated person due to it being controlled by one or more designated persons, including Mr Alekperov, Lukoil’s founder and CEO until April 2022, and President Vladimer Putin.

The applicable law concerning the UK Sanctions ‘control test’

Regulation 12 of the Russia Sanctions Regulations provides that neither a person nor entity can make funds available directly or indirectly to a designated person, which includes a person owned or controlled, directly or indirectly, by a designated person.

Regulation 7 of the aforementioned regulations addresses the concept of ‘ownership or control.’ Ownership criteria are met if a designated person holds over 50% of the shares or voting rights or has the authority to appoint or remove most of the board of directors. An entity is considered to be controlled by a designated person if, considering all circumstances, it is reasonable to expect that the designated person could ensure the entity’s affairs are conducted according to their wishes.

In a recent article, we discussed the obiter comments concerning what constituted ‘control’ made by Mrs Justice Cockerill in Mints. The Judge concluded the Claimants, two state-owned Russian banks, were not owned or controlled by a designated person within the meaning of Regulation 7, because control is not established under Regulation 7 where a designated person controls an entity through a political office which they hold.

However, on appeal, Sir Julian Flaux, Chancellor of the High Court (sitting in the Court of Appeal), again in obiter comments, deemed ‘control’ to be a much wider concept than that provided by Mrs Justice Cockerill’s reasoning:

i) By excluding control arising from a political office, the Judge [Mrs Justice Cockerill, sitting in the High Court] had put “an impermissible gloss on the language of the Regulation because of a concern on her part that, if the appellants were correct about the construction of the Regulation, the consequence might well be that every company in Russia was ‘controlled’ by Mr Putin and hence subject to sanctions.”

ii) “If, as may well be the case, that is a consequence of giving Regulation 7 its correct meaning, then the remedy is not for the judge to put a gloss on the language to avoid that consequence, but for the executive and Parliament to amend the wording of the Regulations to avoid such a consequence.”

iii) The relevant language “is not concerned with ownership, but with influence or control” and “is apt to cover the case of a designated person who, for whatever reason, is able to exercise control over another company irrespective of whether the designated person has an ownership interest in the other company, economic or otherwise.”

iv) “The provision does not have any limit as to the means or mechanism by which a designated person is able to achieve the result of control, that the affairs of the company are conducted in accordance with his wishes”.

By virtue of the above, the Court of Appeal appeared to interpret ‘control’ extremely broadly and acknowledged that under such an interpretation, President Vladimir Putin could be deemed to control everything in Russia.

The High Court decision in Litasco

Mr Justice Foxton determined that Mr Alekperov did not exert control over Litasco SA for several reasons, namely:
1. first, Mr Alekperov resigned from Lukoil’s board soon after facing sanctions;
2. his ownership stake in Lukoil was limited to 8.5%, falling short of a controlling interest; and
3. the defendants failed to present any evidence indicating that Mr Alekperov maintained control over Lukoil.
In dealing with the question of whether Litasco SA and Lukoil were controlled by the Russian President, Mr Justice Foxton distinguished Mints on the grounds that in that particular case, the bank in question was owned by the Central Bank of Russia which was “an organ of the Russian state”. In the case before him, the Defendant provided no evidence to show that Litasco SA was owned by the Russian state.

Mr Justice Foxton directed his attention to whether “making funds available to Litasco SA amounts to making funds indirectly available to President Putin.” He concluded that “the issue of control has, as its central focus, the ability of the designated person to control the use of the funds made available.” In addition, to have ‘control’ the Russian President would have to have “an existing influence” over the company, not merely the ability to gain control sometime in the future.

Given the above test, the Court deemed it was “wholly improbable” that any funds made to the Defendant would be made available to President Putin as it was likely that the President had no idea of Lukoil or Litasco SA’s existence.

Final words

Litasco SA is the first binding decision to provide a test as to what constitutes ‘control’ under the Russia Sanctions Regulations. It strikes a middle ground between the High Court and Court of Appeal comments in Mints, concluding that whether a designated person has ‘control’ of an entity must be decided on a case by case basis and the key question is whether or not the designated person exercises control on a routine basis. Therefore, the test is a subjective, practical test, rather than an objective, abstract one.

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, 27 November 2023. This article does not constitute legal advice. For further information, please contact our London office.
November 27, 2023
How The Court Decides On Sanction Judicial Review Challenges
Introduction

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:
1. 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
2. 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:
1. 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
1. 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
2. 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;
3. 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);
4. the person obstructs the work of international organisations in Ukraine;
5. the person conducts business with a separatist group in the Donbas region;
6. the person is a relevant person trading or operating in [non-government controlled Ukrainian territory];
7. 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:
1. Whether the objective of the measure being imposed is sufficiently important to justify the limitation of a fundamental right,
2. Is the measure rationally connected to the objective,
3. Could a less intrusive measure have been used, and
4. 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.

Comments on Judicial Review Applications

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.
October 18, 2023
Legal Insights: A Recap of the English Law Week in Central Asia

The English Law Week in Central Asia, running from September 15th to 21st, brought together law professionals and students in a unique event spanning Tashkent, Almaty, and Astana.

The event marked a significant moment of sharing and exploring various aspects of English law and its intersection with Central Asian legal contexts.

Here is an overview of the event:

Kick-off in Tashkent

The week started at Westminster International University in Tashkent, focusing on sanctions, particularly looking at recent changes and challenges.

In-depth discussions moderated by Gani Abaidildinov on international disputes and arbitral awards provided a solid foundation for understanding and navigating the complexities of legal frameworks in international contexts.

International arbitration was another key focus of the the event, with Rashid Gaissin moderating the conversation.

In-Depth Discussions in Almaty

Moving to De Montfort University in Almaty, the dialogues shifted towards exploring shareholder and corporate governance disputes under English and AIFC law.

The sessions offered a unique blend of theoretical knowledge and practical insights, especially regarding unfair prejudice petitions in Kazakhstan, creating a robust learning environment.

During the event, Rashid Gaissin, partner at Eldwick Law, facilitated the discussion on the complex terrains of cross-border legal frameworks and asset management.

Wrapping Up in Astana

The final leg at Wyndham Garden Astana delved into commercial contracts and cross-border insolvency in Kazakhstan, moderated once again by Eldwick Law.

These sessions not only provided clarity on the subjects but also opened avenues for future discussions and collaborations among the participants.

English Law Week – Astana

Connecting Traditions and Modernity

English Law Week successfully blended traditional legal principles with modern challenges and approaches.

The engaging discussions between English delegates and local participants, especially local private practices and in-house lawyers, laid the foundation for future international legal collaborations and knowledge exchange.

The event has sewn seeds for future dialogues and collaborations in the legal domain.

The shared discussions and forged connections promise a future of shared knowledge and collaborative efforts among the legal communities of England and Central Asia.

Conclusion

As we reflect on the event, the knowledge shared, connections made, and discussions had, promise a bright future of collaboration and understanding across borders.

Rashid Gaissin, Chairman of the British-Kazakh Law Association and partner at Eldwick Law, took a moment to reflect on the success of the event, embodying a valuable exchange of legal knowledge between the UK and Central Asia.

The week’s triumph has further ignited the association’s commitment to fostering dialogues and connections among the legal communities of Central Asia and the UK.

With an optimistic gaze towards the future, Gaissin revealed exciting plans for the upcoming Kazakh Law Day, scheduled to be held in London in early 2024. This event, much like the English Law Week, promises to be a compelling platform where legal minds converge, explore, and collaborate, continuing the spirit of international legal exchange and cooperation.

October 17, 2023
Kazakhstan Legal Forum 2023

The Kazakhstan Legal Forum 2023, spread across two engaging days, served as a vibrant platform for legal enthusiasts and professionals to delve into the core of modern legal challenges and advancements.

The event, meticulously organised, unfolded a rich array of discussions that spanned from market regulation to the realms of digital law.

The first day saw a lively exchange of ideas around market regulation trends, setting a robust foundation for the discourse that followed.

The spotlight then shifted to corporate law and M&A (Mergers and Acquisitions), where seasoned legal experts dissected the intricacies of corporate legal frameworks and shared invaluable insights on global M&A trends.

Eldwick Law team at Kazakhstan Legal Forum 2023

As the digital wave continues to intertwine with legal frameworks, day two brought forward stimulating discussions on digital law.

The segments on Crypto and blockchain Law, Data Privacy Law, and Online Platforms Law were particularly eye-opening. They not only addressed the legal challenges posed by digital technologies but also explored the evolving legal frameworks catering to the digital age.

A dedicated segment on dispute resolution offered a deep dive into the latest practices and future prospects. Moreover, an insightful discussion on the constitutional court’s challenges provided a glimpse into the judicial system’s heartbeat.

The dialogues around the evolution of the legal profession and the trends in legal education added a layer of depth to the forum’s agenda, underscoring the importance of nurturing a new generation of legal professionals adept at navigating both traditional and modern legal landscapes.

Rashid Gaissin moderated a session on asset recovery, where the new Kazakh Law on Unexplained Wealth was discussed in depth. Abbas Nawrozzadeh, a delegate at the forum, conducted many meetings on white-collar crime, adding valuable insights to the discussions.

The Kazakhstan Legal Forum 2023, through its well-curated segments and expert discussions, not only enriched the legal discourse in Kazakhstan but also set the stage for more engaging and insightful legal dialogues in the future.

As the curtains came down on the forum, the anticipation for the next edition was palpable, reflecting the event’s significant impact on the legal community.

October 14, 2023
Kazakhstan: Understanding The New Law On Asset Recovery
In an attempt to address oligopolistic groups and entities implicated in large-scale corruption, President Kassym-Jomart Tokayev of Kazakhstan has sanctioned a law enabling the return of illegally acquired assets to the state. In addition, amendments have been made to the Code of Administrative Offences, the Tax Code, and the Law on the Prosecutor’s Office.

In this article, we provide detailed guidance on the new asset recovery law and how it may affect Kazakhstan citizens who hold assets inside the country and abroad.

What is the background to the asset recovery law?

In June 2022, the Council of Europe’s Group of States against Corruption published its first evaluation report on Kazakhstan. This followed the political unrest over fuel prices in January 2022, in which 227 people were killed and over 9,900 were arrested.

The report stated that corruption in Kazakhstan was a serious concern; however, it praised the establishment of the Anti-Corruption Agency as a positive development, along with the adoption of dedicated strategies and initiatives with a stronger focus on prevention.

The report also highlighted the need for increased transparency in public administration and decision-making processes, including by instigating meaningful public consultation and improving access to information. The recruitment and promotion of civil servants and officials also needed to be based on merit, and rules on integrity in public service required clarification.

Whistle-blower protection and public procurement processes also needed to be improved, especially given the latter was the area most exposed to corruption.

After the riots, President Tokayev noted that international experts, in particular, KPMG had asserted that in Kazakhstan, 0.001% of the population, or 162 persons, were worth more than $50 million, which equates to around 50% of the total wealth of the population. Furthermore, according to 2018 Credit Suisse data, the top-50 richest businesspersons in Kazakhstan owned 42% of the total wealth of the adult population, or 16% of nominal GDP.

The asset return law is aimed at addressing the above inequalities and recognised corruption practices.

Who does the new asset return law apply to?

Persons holding positions of public responsibility, positions in state legal entities, quasi-public sector entities, as well as those affiliated with them will be affected by the asset return law. For it to apply, a person or entity must have assets in excess of 44 billion tenge, or around USD100 million.

The Authorised Body will establish a new department which will be responsible for collating and analysing information from legal sources, including state departments, concerning the legality of the acquisition of certain assets and the removal of those assets from the country.

If the Authorised Body has ‘reasonable doubts’ that an entity has illegally acquired assets, it will submit proposals to the Commission on Asset Recovery (formed by the Prime Minister from members of Parliament, public figures, members of the Government, first heads of state bodies, and other persons) to include such entities and their affiliates in the relevant Register.

Is ‘reasonable doubt’ defined under the Kazakhstan asset recovery law?

Yes, the new law sets out clear criteria concerning the grounds the Authorised Body can use to infer ‘reasonable doubt’. The criteria include:
- The value of an asset is inconsistent with the amount of legitimate income or other sources of capital enjoyed by the person or entity that purchased the asset.
- The acquisition of assets by a person or its affiliates is more than the established threshold.
- Other grounds established by the asset recovery law.
What should a person or entity do if they are added to the Kazakhstan asset recovery law register?

If a person or entity is added to the register, they have between one and three months to submit an asset declaration affirming that their assets were legally acquired. If they fail to substantiate the legality of the asset, the assets fall under the classification of ‘unexplained origin’. If there is a risk of asset being withdrawn or alienated from Kazakhstan, the Authorised Body can apply to the Court for permission to take preliminary interim measures to prevent the asset being moved or dealt with.

Can a person or entity be forced to return assets to Kazakhstan?

If it is established that the assets have been acquired illegally and removed from the country, they can be returned voluntarily or by compulsion, the latter requiring the Authorised Body to make an application to the Court. Return of the assets may take the form of payment of money, transfer of part or all the assets to Kazakhstan, reimbursement of taxes not received, repayment of income derived from the asset, or compensation if the asset has been damaged.

The asset recovery law sets out policies and procedures for facilitating international co-operation concerning the enforcement of court decisions, exchanges of information, and any other legal engagement required when seeking the return of an asset.

Summary and Legal Advice

Kazakhstan’s new asset recovery law is likely to have far reaching implications for people and entities based inside the country and overseas. If you require legal advice concerning the new law, please do not hesitate to contact our experienced and dual qualified Business Solicitors.

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 the law in place at the time of writing, 15 September 2023. This article does not constitute legal advice. For further information, please contact our London office.
September 25, 2023
UK’s Sanctions Post-Brexit Regimes on Russian Financial Institutions
UK Sanctions Do Not Prevent Access To Justice

In the case of PJSC National Bank Trust and another v Mints and others [2023] EWHC 118 (Comm), the High Court held that UK sanctions in force against Russian banks did not prevent the banks from:
- Lawfully satisfying adverse cost orders,
- Providing security for costs, or
- Paying any damages that might be awarded on cross-undertakings given by the Defendants.
This judgment is important as it is one of the first to consider issues around the post-Brexit UK sanction regimes and the impact these sanctions have on litigation proceedings concerning UK asset freeze targets. In addition, Mrs Justice Cockerill also provided commentary on when an entity is considered ‘owned or controlled’ by a designated person.

Background to the UK Sanctions Case: Russian Banks’ Challenges

The proceedings were brought by two Russian banks for US$850 million. The Claimants, PJSC National Bank Trust (NBT) and PJSC Bank Otkritie Financial Corporation (Otkritie), argued that the Defendants, Otkritie’s former co-founder, Boris Mints, and his sons (among others) conspired with bank representatives to replace loans with worthless bonds.

In 2019, the Claimants obtained worldwide freezing orders against the Defendants, who gave cross-undertakings in damages. The banks were ordered to fortify the cross-undertakings by providing security.

Following Russia’s invasion of Ukraine, the UK Government imposed an asset freeze on Otkritie pursuant to the Russia (Sanctions) (EU Exit) Regulations 2019 (the UK Regulations). As a result, UK persons were prohibited from:
- dealing with funds or economic resources owned, held or controlled by Otkritie; and/or
- making funds or economic resources available to or for the benefit of Otkritie.
The Defendants claimed that NBT was subject to the same asset freeze because it was owned or controlled by at least two designated persons, namely the Russian President (P) and the Governor of the Bank of Russia (N). They sought a stay of proceedings (which had begun prior to the invasion) and for the undertakings against them to be released. This was on the grounds that, any judgment for the Claimants on the causes of action they were arguing would be unlawful as they would be in breach of the sanctions. In addition, some of the interlocutory stages were subject to Treasury licensing requirements, pursuant to the powers of the Office of Financial Sanctions Implementation (OFSI) under the UK Regulations. However, OFSI could not license several standard litigation steps including the satisfaction of adverse costs orders, the provision of security for costs, or the payment of any damages on the Claimants’ cross-undertaking.

Sanctions and Legal Impediments: Key Issues Highlighted

The High Court had three issues to consider, namely:
1. Would a judgment for the Claimants be in breach of sanctions?
2. Could OFSI issue a licence in relation to the satisfaction of adverse costs orders, the provision of security for costs, or the payment of any damages on the Claimants’ cross-undertaking?
3. Is NBT owned and controlled by a designated person and therefore subject to UK sanctions?
The High Court’s decision

Issue one

The Court accepted that a cause of action is an “economic resource” because it could be used to obtain funds or financial assets and goods and services. A judgment debt could also be construed as a “fund” as it puts an obligation on a debtor to pay a sum of money.

Despite this, the Court concluded the entry of a favourable judgment was not caught by the restriction on dealing/making available. The reasoning behind this is that it was not clear that the legislation was designed to prohibit a designated person’s fundamental right to access to justice. This was despite the breadth of the UK Regulation’s wording and Parliament’s intention to allow a certain degree of curtailment of rights.

Issue two

Although OFSI had no power to license the entry of judgment in favour of designated persons no such licence was actually required. However, the High Court concluded that payment of an adverse costs order was licensable under Sch.5 Pt 1 para.3 of the UK Regulations. It therefore followed that OFSI could also issue a licence to permit the payment of security for costs for the purpose of meeting adverse costs orders, to enable the future payment of reasonable professional fees for the provision of legal services.

Regarding the damages on the cross-undertaking, the Court stated that these were not ordinary or routine costs, rather they occur only after an inquiry has been made concerning liability.

“Further it follows logically from where the argument goes elsewhere. How could OFSI refuse a licence when ex hypothesi money is to be paid to someone (a defendant) who is not sanctioned and who is, on this hypothesis, entitled to compensation pursuant to a decision of the English court. This is the more so as the diminution of a designated person’s assets, with no conceivable exchange of value or quid pro quo , would further, rather than undermine, the object and purpose of the Regulations.” para 195

Issue three

The definition of ‘ownership or control’ under the UK Regulations is a contentious one. The UK Regulations state that an entity is owned or controlled directly or indirectly by another person in any of the following circumstances:
- The person holds (directly or indirectly) more than 50% of the shares or voting rights in an entity,
- The person has the right (directly or indirectly) to appoint or remove a majority of the board of directors of the entity; or
- it is reasonable to expect that the person would be able to ensure the affairs of the entity are conducted in accordance with the person’s wishes.
The Claimants’ argued that the UK Regulations should not be interpreted as covering control by reason of office or employment. The Court agreed with this, stating:

“…it does appear to me to be significant that at the drafting level the sanctions were not drafted to take aim directly at the Russian State or its main entities — despite the fact that some earlier sanctions (e.g. against Iran, did do so). It also appears significant that the drafting so far as asset freeze is concerned appears to be primarily (though not exclusively) designed to operate at a personal level…” p 238

Mrs Justice Cockerill went on to conclude:

“It also seems implausible that it was intended that such major entities as banks (or other major entities such as Gazprom) were intended to be sanctioned by a sidewind, in circumstances where they would have no notice of the sanction and be unable themselves to challenge the designation under section 38 of the Act [UK Regulations] .” p 241

Future Implications of Sanctions and Access to Justice

Although Mrs Justice Cockerill’s remarks regarding ‘ownership or control’ were Obiter (meaning they were not essential to the overall decision), her comments indicate that the Courts seem prepared to view the meaning of ‘ownership or control’ narrowly. In addition, the judgment makes clear that sanctioned people and entities should not be denied access to the Court’s justice.

This case is currently being appealed.

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, 07 September 2023. This article does not constitute legal advice. For further information, please contact our London office.
September 12, 2023
Effective Termination of Agreements: Topalsson v Rolls Royce [2023] EWHC 1756 (TCC)
In the Topalsson v Rolls Royce Motor Cars case, the termination of the agreement between Topalsson and Rolls Royce Motor Cars was effectively executed through a second termination notice. The case highlights the precarious nature of entering into a general project development agreement, without identifying, in certain terms, agreed deliverables and delivery deadlines.

Understanding the Case Background

Topalsson, a German software services company specialising in digital data visualization entered into an agreement with Rolls Royce Motor Cars (“RRMC”) for the supply of Future Configurator Landscape for Rolls-Royce’s new Ghost model (the “Agreement”).

The Agreement set out the deliverables as contemplated by the parties and contained the following clauses:
1. “In performing this Agreement the Supplier [Topalsson] shall … complete the Services and deliver the Deliverables on time and in full and by any applicable milestone date or delivery date, if delivery dates or milestones are not specified, within or by any reasonable delivery date or time period that is specified by RRMC.”
2. “Time shall be of the essence regarding any date for delivery by the Supplier of any good or service specified in this agreement and the Completion Date.”
3. “If in the reasonable opinion of RRMC the Supplier fails to perform the Services in accordance with this Agreement or to deliver Deliverables by the applicable delivery dates or milestone dates or if RRMC rejects the Deliverables, without limitation to any other of its rights or remedies, RRMC shall have the following rights: … to terminate this Agreement in whole or part with immediate effect by giving written notice to the Supplier.”
The appendix to the agreement contained a general timeline of the execution of milestones and deliverables which was to be refined at a later stage. A revised implementation plan, containing a detailed breakdown of deliverables and set deadlines for execution was subsequently submitted by Topalsson and approved by RRMC.

Topalsson failed to comply with the deadlines set out in the revised implementation plan.

As a result, RRMC decided to terminate the Agreement and sent Topalsson a termination notice invoking its right to terminate the Agreement on account of Topalsson’s late delivery or lack thereof citing a document entitled “anticipated timeline” which formed a part of the appendix to the Agreement.

Topalsson rejected the termination notice, prompting RRMC to send a second termination notice on the basis of the revised implementation plan.

Topalsson initiated proceedings against RRMC for unlawful termination, claiming lost profits. RRMC counterclaimed for damages on grounds of Topalsson’s delay which it argued amounted to a repudiatory breach of the Agreement.

The Court held that while the first notice to terminate was ineffective, RRMC had effectively terminated the Agreement through its second notice. The court explained that the anticipated timeline failed to specify the day and month on which delivery was to be expected and as such could not be taken to set an actionable deadline. Therefore, RRMC’s first notice was made on erroneous grounds. However, as the revised implementation plan had set out specific dates, the second termination notice was effective.

While mere delay would not necessarily constitute a repudiatory breach, the court held that the Agreement had explicitly provided provision for termination in view of delay and had stressed that time is of the essence. The fact that RRMC’s first notice may have amounted to a repudiatory breach was held to be immaterial in view of Topalsson’s rejection of the notice and affirmation of the Agreement.

Topalsson v Rolls Royce Termination Agreement

In-Depth Case Analysis

Topalsson v Rolls Royce Motor Cars termination agreement raises a number of important issues for consideration.

The case highlights the potential pitfalls when drafting and entering into an agreement for goods or services without spelling out exactly what those goods and services are, and when they are to be delivered.

This issue is most common in software development agreements that operate as a work in progress and through the course of which numerous documents with no outwardly apparent contractual effect are exchanged. Careful consideration of the ultimate object of the Agreement and the terms upon which it shall be delivered is essential.

RRMC managed to narrowly evade committing a repudiatory breach by unlawfully terminating the Agreement through its first notice. The consequences of serving an ineffective notice to terminate your contract can include committing a repudiatory breach yourself, thereby exposing yourself to a claim for damages. By the same token, you should seek proper advice in deciding how to respond to a termination notice.

By choosing to affirm the contract in response to RRMC’s first notice to terminate the Agreement, Topalsson had accepted RRMC’s breach. While, on the facts of the case, Topalsson’s affirmation of the Agreement proved inconsequential, in that it could not prevent RRMC from validly terminating the Agreement through its second termination notice, it may prove decisive in circumstances where termination could not be validly affected by the party seeking to terminate.

For failure to comply with set timelines to constitute a repudiatory breach, it must be explicitly stated as such. RRMC relied on the fact that the Agreement stated that time was to be of the essence and that delay would empower RRMC to terminate the Agreement with immediate effect. If timely delivery is crucial to you, include it as a clause in your agreement clearly spelling out that delay, no matter how innocent or insignificant would empower you to terminate the agreement.

Key Takeaways for Contract Management and Termination Agreements
- Ensure that deliverables and specific due dates are explicitly set out in your contract.
- Take care when drafting your termination notice to avoid repudiating the contract.
- Seek legal advice when responding to a termination notice to avoid potentially accepting a breach of contract.
- If time is a crucial factor in your agreement, include a provision indicating that time is of the essence.
August 11, 2023
Business Crime | What To Do In A Dawn Raid
Having your business premises or home raided by a legal authority or regulatory body is intimidating and scary.

It is difficult (but not impossible) to prepare for a dawn raid as ‘surprise’ is the entire point of the exercise. But there are several things you can do if you suspect a dawn raid may be conducted and actions you can take while enforcement officers are on site to minimise the impact of the event.

Understanding Dawn Raids in Business Crime Investigations

If an authority such as HMRC, the National Crime Agency (NCA), Competitions and Markets Authority (CMA), Financial Conduct Authority (FCA), or the Serious Fraud Office (SFO) (to name but a few) suspect you or your business has broken the law or breached regulations, they can turn up unannounced and search your workplace.

The aim of a dawn raid is to seize documents and other evidence to use in a legal or regulatory investigation.

Is a warrant needed to conduct a dawn raid?

Yes, the authority undertaking the dawn raid must have a valid warrant which states:
- The premises in which the raid is being conducted.
- The names of those authorised to enter the premises.
- The procedure rules that apply when conducting the raid.
- The scope of the raiding authority’s powers.
Upon entering the premises, the investigation team must present the warrant and explain the remit for the raid.

What can I do to prepare for a dawn raid?

Although the purpose of a dawn raid is to surprise the recipient, if the authority has asked you to provide information or you have been tipped off that a raid may take place, you can prepare for such an eventuality.

The first thing you must do is have key people in place (known as shadowers or the dawn raid response team) to greet the inspection team. They are responsible for following inspectors as they conduct their search, taking notes concerning what evidence is being examined and removed.

Appoint a team leader. Ideally this should be an in-house or external Counsel experienced in business crime and regulatory investigations. The rest of the team should comprise of a senior manager, someone from IT (as the authority will want to access computer files), your compliance officer, and someone from your internal communications department (for example a HR or Marketing Director).

The dawn raid response team needs to undergo training to ensure each person knows what they are accountable for, how to deal with the inspection team, and when to escalate matters.

Remember to include your reception staff in your training programme. They are the first people likely to encounter the inspection team and therefore must be prepared so they do not panic. Reception staff should know to take the inspection team quietly into a room away from customers and other employees. They should then immediately contact the dawn raid team leader or a senior manager who can check the warrant.

Can I delay the inspection team until my Solicitor arrives?

If your dawn raid team leader is an external Solicitor, you can politely ask the inspection team to suspend their remit until your Solicitor arrives. However, they are not legally required to delay as most warrants are only valid for a short duration. If your legal team is enroute to your premises, a member of the inspection team may consent to speaking to them on the phone. If the inspection team start their search before your legal team arrives, your shadowers can begin to take notes but they must fully cooperate with the team and not prevent them from carrying out their remit.

Can I destroy or delete documents/files whilst the inspection team is conducting a dawn raid?

No, any routine destruction of documents must be immediately halted. Alert employees to the presence of inspectors and ensure they understand that no files or documents should be deleted or destroyed during or after the raid. Doing so could amount to a criminal offence.

Can inspectors talk to employees during a dawn raid?

Yes, inspectors can and will talk to various staff members about their role and ask practical questions on the location of documents and certain processes and procedures. However, they cannot interview or interrogate employees and one of your legal team’s tasks is to ensure investigators do not exceed the scope of their powers.

How long does a dawn raid last?

Depending on the size of your organisation, a dawn raid can last anywhere up to three days. Upon leaving the premises, the inspection team may place seals over doors, computers, and perhaps even the entire premises. Breaking these seals, even inadvertently, may be classed as a criminal act. In the past, companies found guilty of such an offence have been fined millions of pounds.

What is the role of a Solicitor in a dawn raid?

Your Solicitor and their team have several key responsibilities during a dawn raid, including:
- Checking and making notes of the warrant and inspection remit.
- Noting and taking copies of all requested documents/files.
- Cross-checking the requested documents/files against the terms of the warrant.
- Checking whether any requested documents/files are legally privileged. If there is a dispute about whether privilege applies, Counsel will ask for the documents to be placed in a sealed envelope until the matter is resolved.
- Being present when employees are questioned and noting down everything that is said in the meeting.
- Advising on what to do after the raid is over and the inspection team has left.
In summary

Preparing for a dawn raid in advance can help ensure none of your employees panic and you can exert some control over the situation. What matters most is having an experienced legal team advising and representing you to ensure the investigative team act lawfully and within the scope of their powers, and that the best interests of you and your organisation are protected.
August 4, 2023
Reciprocity Between English & UAE Courts: Recent Developments in Foreign Judgment Enforcement
Background: Recognition of Foreign Judgments in England & Wales

Enforcement of UAE Court Judgments in the UK

In Lenkor Energy trading v Irfan Iqbal Puri [2020] EWHC 75 (QB), the High Court held that in accordance with the law on recognition of foreign judgments, a decision of a Dubai court of competent jurisdiction is enforceable in the UK, provided the judgment, and not the “underlying transaction upon which the judgment is based” did not offend public policy. On the facts, the Court deemed that enforcement of the Dubai Court judgment in the Lenkor case would not be contrary to public policy. Lenkor was and continues to be significant for it established that enforcement of judgments issued by UAE courts are not contrary to public policy per se, paving the way for the possibility of further enforcement on a case by case basis.

Criteria for UAE Court Judgment Enforcement

Article 85 of UAE Cabinet Resolution No. 57 of 2018 (hereafter referred to as “Article 85”) contains the law on enforcement of foreign judgments. It sets out the following criteria which must be satisfied cumulatively for a foreign judgment to qualify for enforcement in the UAE:

1. Judgments and orders delivered by a court in a foreign country to be executed in the UAE in accordance with the same conditions prescribed in the law of that foreign country for executing judgments and orders issued within the State (Article 85(1)).

2. The courts of the UAE must not have exclusive jurisdiction over the dispute for which the foreign judgment or order was issued and the foreign courts that issued the judgment or order have jurisdiction as prescribed within their own law (Article 85(2)(a)).

3. The judgment or order must be issued by a court in accordance with the law of the country in which it was issued and must be duly ratified (Article 85(2)(b)).

4.The litigants involved in the case in which the foreign judgment was delivered must have been summoned and adequately represented (Article 85(2)(c)).

5. The judgment should have acquired the force of res judicata (Article 85(2)(d)).

6. The judgment does not conflict with any judgment or order issued by a court of the UAE and is not otherwise contrary to public policy or morals (Article 85(2)(e)).

On September 13, 2022, in response to the decision in Lenkor, the UAE Ministry of Justice drafted a directive addressed to Dubai courts in which it opined that the condition of reciprocity set out in Article 85(1) of UAE Cabinet Resolution No. 57 of 2018 had been satisfied by the decision in Lenkor, which arises as precedent within the English common law system and therefore encouraged Dubai courts to find Article 85(1) fulfilled when considering whether to enforce English court judgments or orders.

Recent development: Emirates NBD Bank

Concerns that Lenkor was no more than an isolated decision have been largely addressed by the recent decision in Emirates NBD Bank PJSC v UAE Citizen* and Others [2023] EWHC 1113 (Comm). The case background is as follows:

*At the request of the individual involved, their name has been omitted from this summary.

A citizen of the UAE, who held the position of beneficial owner and director of a Dubai-based company that went into liquidation in September 2014, along with other directors (referred to as “the Guarantors”), provided personal guarantees to Emirates NBD Bank to secure a loan for the company.

During the liquidation process, the Bank initiated legal proceedings in the Dubai Courts against the company and the Guarantors to recover the outstanding amounts. The litigation escalated to the Dubai Court of Cassation, which ruled in favor of the Bank, ordering the Guarantors to pay AED 211.3 million (approximately £47.5 million).

Having been unable to recover the sums due in the UAE, the Bank sought to enforce the Dubai Court’s judgment against the assets in the UK of one of the Guarantors. However, prior to the Dubai Court of First Instance entering judgment against him, this individual transferred his assets to his son while retaining beneficial title, in actions the Bank argued were intended to defraud creditors. The individual contended that the Dubai Court Judgment should not be enforced on the grounds that it violated the rules of natural justice, due to the reliance on a report by an expert appointed by the Dubai Court that referred to a law no longer in effect.

Affirming the Lenkor precedent, the Court held that the Dubai Judgment was enforceable. It rejected the argument to withhold recognition of the Dubai Court judgment on the basis presented, considering the reference to the repealed law merely a “procedural irregularity”. Consequently, the Court issued a monetary judgment against the individual, also finding that the asset transfer to his son was partially executed to defraud creditors.

Analysis on the future of reciprocal enforcement in the UK & the UAE

Emirates NBD Bank is a welcome development providing more certainty with respect to the enforcement of UAE court judgments in England and Wales. In addition to affirming the principle of reciprocity upheld in Lenkor, Emirates NBD Bank suggests that English courts will not readily impeach a foreign judgment on the ground that its enforcement or recognition would be contrary the rules of natural justice. As such, we can expect the trend set by Lenkor to continue in so far as English courts are concerned, giving creditors that have secured judgments in their favor in the UAE the confidence to pursue enforcement in England and Wales.

There is yet to be a case in which a UAE court has either recognised or enforced an English court judgment. While the directive issued by the UAE Ministry of Justice is promising and can signal future symbiotic enforcement in the UAE, the reciprocity established by English courts in Lenkor and Emirates NBD are not on their own sufficient to satisfy Article 85. The conditions for the enforcement of foreign judgments set out in Article 85 are cumulative and may be difficult obstacles to overcome. In addition to the conditions set out in Article 85, UAE courts must consider whether a judgment is contrary to public order, a doctrine enshrined in Article 3 of the UAE Federal Law No. 5 of 1985 on Civil Transactions which provides that a decision or order must not conflict with the fundamental principles of the Shari’ah.

It must also be borne in mind that the UAE is a civil law jurisdiction in which courts are not bound by precedent. Accordingly, while English courts may consider UAE Judgments to be enforceable as a matter of precedent, UAE judges have wider discretion to find otherwise.

As matters stand, there is no bilateral enforcement treaty between the UK and UAE with respect to reciprocal enforcement of court judgments.

Key Takeaways:
- Emirates NBD confirms the decision in Lenkor further affirming the enforceability of UAE court decisions in England and Wales.
- There have been advances across both jurisdictions towards reciprocity.
- Absent a bilateral treaty between the UK and UAE providing for reciprocal enforcement, enforcement of UK court judgments in the UAE will be subject to the criteria set out in Article 85 and the requirement of Shari’ah compliance.
- UAE courts operate within a civil law jurisdiction and therefore have wider discretion to decide on enforceability on a case by case basis.
August 2, 2023
New Defence Available In Russian/Ukraine War Sanctions

On 20 June 2023, the Russia (Sanctions) (EU Exit) (Amendment) (No 2) Regulations 2023 (the Regulations) came into force.

Established under the Sanctions and Anti-Money Laundering Act 2018 (SAMLA), the Regulations amended the Russia (Sanctions) (EU Exit) Regulations 2019 (Russia Regulations) to establish a clearer legislative basis to enable certain assets to remain frozen/immobilised until Russia pays compensation to Ukraine “for damage, loss or injury suffered by Ukraine as a result of Russia’s invasion of Ukraine on or after 24 February 2022.”

Existing finance, shipping, and trade sanctions have also been extended under the Regulations.

The new sanctions relate to non-government controlled Ukrainian territory “the Autonomous Republic of Crimea” and city of Sebastopol and non-government-controlled areas of the Kherson and Zaporizhzhia oblasts (administrative district or region) of Ukraine.

These reflect the changing demographics now under Ukrainian control.

The Regulations introduce a defence to the strict liability offence under section 68(1) of the Customs and Excise Management Act 1979 relating to the prohibition on exportation of certain goods to, or for use in, non-government-controlled areas of the Donetsk, Kherson, Luhansk, and Zaporizhzhia oblasts.

What is the purpose of the Russia (Sanctions) (EU Exit) Regulations 2019?

Before the amendment, the Russia Regulations were for the purposes of ‘encouraging Russia to cease actions destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty, or independence of Ukraine.’
The explanatory memorandum to the Russia Regulations states that they reflect the UK’s position that Russia is fully responsible for the war in Ukraine and the damage caused, including to Ukraine’s critical infrastructure.

The amended sanctions are designed to contribute to the objective of ensuring Russia pays compensation for the damage it has caused.

What is the defence to the strict liability offence under section 68(1) of the Customs and Excise Management Act 1979?

Section 68(1) reads:

68 Offences in relation to exportation of prohibited or restricted goods.

(1) If any goods are—

(a) exported or shipped as stores; or

(b) brought to any place in the United Kingdom for the purpose of being exported or shipped as stores,

and the exportation or shipment is or would be contrary to any prohibition or restriction for the time being in force with respect to those goods under or by virtue of any enactment, the goods shall be liable to forfeiture and the exporter or intending exporter of the goods and any agent of his concerned in the exportation or shipment or intended exportation or shipment shall each be liable on summary conviction to a penalty of three times the value of the goods or [F1level 3 on the standard scale], whichever is the greater.

The defence under the Regulations in relation to section 68(1) is available in circumstances where a person had no knowledge or reasonable cause to suspect that the prohibited goods were destined for the non-government-controlled areas of the Donetsk, Luhansk, Kherson, and Zaporizhzhia oblasts.

What are the anticipated future developments in sanctions against Russia?

In a press release dated 19 June 2023, the British government affirmed its commitment to maintaining sanctions until Russia paid compensation to Ukraine for the damage caused by the Russian invasion.

The statement confirmed that a legislative route was being introduced to ensure frozen Russian assets are donated to Ukraine to help fund reconstruction.
Laws are also anticipated to mandate that “persons and entities in the UK, or UK persons and entities overseas, who are designated under the Russia financial sanctions regime, must disclose assets they hold in the UK.”

Russians who are already subject to sanctions are now able to apply to have their frozen funds released for the express purposes of donating money to support reconstruction in Ukraine.

It is important to note that no relief from sanctions will be offered in exchange for making donations.

Wrapping up

Sanctions involve a complex web of domestic and international law, much of which is beyond the scope of this article. Therefore, it is imperative to check each transaction related to Russia or any other country subject to sanctions individually and seek legal advice as to you and/or your organisation’s legal position.

To discuss any points raised in this article, please call us on +44 (0) 203972 8469 or email wt@eldwicklaw.com

Note: The points in this article reflect sanctions in place at the time of writing, 13^th July 2023. This article does not constitute legal advice. For further information, please contact our office.

July 17, 2023