‘Hugely Significant’ UK Court Decision Leading to Sanctions Uncertainty, Lawyer Says

A recent ruling by a U.K. appellate court “sent the sanctions legal community into a bit of a tailspin” after it appeared to pave the way for the government to treat every Russian public and private entity as a sanctioned party, said Daniel Martin, a sanctions lawyer with HFW. Although the U.K. has since clarified that its sanctions aren’t necessarily meant to apply to every Russian company, Martin said questions remain, including whether banks now will be even less willing to handle Russia-related transactions, whether U.K. lawyers will continue to be able to participate in Russian-related proceedings, and whether similar logic could apply to U.K. sanctions against other countries.

Martin, speaking during a HFW webinar this week, said the court decision was “hugely significant.” He added: “Certainly, I don't think anyone was expecting the view of the Court of Appeal that was expressed.”

The case, Boris Mints & Ors v. PJSC National Bank Trust & Anor, dealt with the question of how the U.K. government may sanction a Russian entity based on what parties can exert control over it (see 2301310028). A decision this month by the U.K. Court of Appeal said this “control” test should be interpreted broadly, and that because Russian President Vladimir Putin exerts such strong influence over the country, every company in Russia could be deemed to be controlled by Putin, potentially making them subject to sanctions.

Soon after, the U.K. Foreign, Commonwealth and Development Office clarified that the government’s intent is not to treat every Russian company as a sanctioned party (see 2310160019). The FCDO also said it’s “exploring the options available” to provide more guidance.

“Essentially, we have a nonbinding decision of the Court of Appeal, saying that Putin is at the top of the economy and he controls everything,” Martin said, and “equally nonbinding statements of the U.K. government as to what U.K. government policy is.” He said that leaves lawyers and sanctions compliance officers in a “legally interesting position” that could have ramifications for a range of business decisions.

Although nonbinding, the FCDO statement makes it “at least now tolerably clear” that the U.K. doesn’t plan to enforce its sanctions against every company or person doing business with a Russian company, Martin said. “While it's difficult to put abundant weight on a statement of government policy here, that certainly seems to be the view.”

But he also warned the court decision could cause overcompliance, particularly among banks that don’t want to risk violating U.K. sanctions and may begin blocking payments to all Russian entities. As of now, Martin said, he’s still “seeing banks processing those payments,” but that could change.

“I think that is something that will evolve over time,” Martin said. “What we hope to see is more government guidance and clarity provided, and that will reinforce that and give people the comfort they need to continue operating.”

Martin also said the decision raised questions around “lawyers’ ability to act, and more importantly, to get paid.” It could also affect the “ability of arbitrators to be appointed and the ability of the courts to hand down judgments,” he said. “All of those issues will be colored and would have to be seen through the lens of the entity being a Russian entity.”

Despite those questions, he noted the U.K. has a general license in place to authorize certain legal services involving Russia and related transactions (see 2308110018 and 2310250011). “I think it's fair to say that litigation is continuing,” Martin said. “That position is at least clear in terms of the ongoing ability of lawyers to be paid for engaging in litigation services. But again, it’s something that will play out.”

It is, however, unclear whether the appellate court’s decision could apply to other U.K. sanctions regimes, Martin said. He said the country has designated government officials for a “number of other sanctions programs,” and if the U.K. adopts a broad definition of control, “that would have a wider impact than just on Russia.”

The FCDO’s statement “appeared to calm the waters,” Martin said, “but there are still a number of issues that are live.”