On Friday, 6 October 2023 the Court of Appeal handed down judgment in the case of Mints v PJSC National Bank Trust & Anr [2023] EWCA Civ 1132. This judgment is significant and is a key, albeit non-binding, indicator of the UK Courts’ likely approach to the “ownership and control” test under The Russia (Sanctions) (EU Exit) Regulations 2019 (“the Regulations”). Critically, the Court found that “in a very real sense […] Mr Putin could be deemed to control everything in Russia.”

What is the case about?

Before Russia’s invasion of Ukraine in February 2022, two banks, including PJSC National Bank Trust (“NBT”), brought a commercial claim against the Appellants. The UK government designated Vladimir Putin in February 2022 and Elvira Nabiullina, the Governor of the Central Bank of Russia (“CBR”), in September 2022. When Nabiullina was designated, the Foreign, Commonwealth and Development Office (“FCDO”) released a statement saying that they did not consider her to control the CBR. 

In this case, the Appellants contended that NBT is indirectly sanctioned as it is 99% owned by the CBR, which is controlled by Putin and/or Nabiullina.

The ownership and control test is set out at section 7(4) of the Regulations and states that a person (“P”) may be held to control an entity (“C”) if:

it is reasonable, having regard to all the circumstances, to expect that P would (if P chose to) be able, in most cases or in significant respects, by whatever means and whether directly or indirectly, to achieve the result that affairs of C are conducted in accordance with P's wishes

In January 2023, the High Court found that control held through political office fell outside section 7(4), so Putin and Nabiullina did not control the CBR. The Appellants then appealed to the Court of Appeal.

What did the Court of Appeal find?

The Court of Appeal concluded that NBT, and by implication the CBR, is controlled by Putin and/or Nabiullina for the purpose of the UK sanctions regime.  More significantly, the Court stated:

Mr Putin is at the apex of a command economy. In those circumstances […] In a very real sense (and certainly in the sense of Regulation 7(4)) Mr Putin could be deemed to control everything in Russia.” [233]

What is the effect of the judgment?

The Court of Appeal decided the case in favour of the Claimants on their first two grounds of appeal, and consequently the Court’s findings on the third ground (ownership and control) are non-binding. However, the judgment provides the clearest indication yet of how this issue will be approached by courts in the future.

The effect of the Court’s interpretation would be that probably every state-owned entity (“SOE”) and potentially every commercial entity in Russia would be considered indirectly sanctioned under UK law (by virtue of being effectively controlled by Putin).

The Court of Appeal accepted that the consequences of this interpretation are absurd, however it stated that the absurdity arises not from the Court’s interpretation of section 7(4), but from the government’s implementation of the Regulations, specifically its failure to “[think] through the consequences” of designating Putin [233].

The interpretation could also apply to other sanctions regimes. For instance, the statement of reasons for Aleksander Lukashenko’s designation states that he holds “near absolute authority” in Belarus.

What can we expect to happen next?

The FCDO is responsible for the UK’s financial sanctions policy and for managing the sanctions list, whilst the Office for Financial Sanctions Implementation (“OFSI”) is responsible for financial sanctions enforcement.

It is clear that the Court of Appeal’s interpretation of section 7(4) is not what the government intended, as exemplified by the FCFO statement accompanying Nabiullina’s designation as well as the fact that numerous Russian SOEs have been specifically designated since Putin’s designation.

We expect that there will be urgent clarification from the UK government on its view of the judgment and of paragraph 7(4). In the short term this may take the form of a statement from OFSI and in the medium term an amendment to the Regulations.