UK Russia Sanctions Face Landmark Test At Supreme Court

Law360, London (January 14, 2025, 6:06 PM GMT)—The U.K. sanctions regime faces a major test on Wednesday as billionaire Eugene Shvidler seeks to have his financial restrictions cast off, the first case to challenge Russian sanctions to reach the country’s highest court.

Shvidler’s appeal to the U.K. Supreme Court is set to provide answers to thorny legal questions about the government’s power to sanction individuals and the role of England’s courts in reviewing those decisions.

Francis Bond, a sanctions expert at Macfarlanes LLP, said that the government’s unbroken winning streak in sanctions cases is likely to continue. The case should provide the Foreign Office with an ”extremely broad freedom to go as far as it wishes on sanctions policy.”

”The U.K. government has won every sanctions battle in the courts so far,” Bond said, a record that reaffirms ”the longstanding deference provided by the courts to the government on issues of national security.”

The legal test the court will consider over two days is whether the Court of Appeal adopted the right approach when it held that Shvidler’s designation was a proportionate interference with his rights under Articles 8 and 1 of the European Conviction on Human Rights — his right to a private life under Article 8 and to property.

Shvidler’s lawyers had argued that the measures taken against him had little hope of pressuring the Russian government to act. He had renounced his Russian citizenship after leaving the former Soviet Union in 1998 to move to America. He was given a British visa in 2004 and became a British citizen in 2010. He has five children — all are British.

Unlike other prominent business, Shvidler is not said to have ties to Putin or Russia’s war machine. The government has defended its decision to designate the business based on his friendship with Roman Abramovich, the former owner of Chelsea Football Club in London. Abramovich, who ran companies in strategic sectors in the Russian economy, had appointed Shvidler to leading roles.

But England’s courts have held that there does not have to be a perfect fit between the government’s objections and its means for achieving its goal, ruling that the decision will stand as long as it is not arbitrary.

The Court of Appeal agreed, finding that designations could be judged only on their cumulative effect. There did not need to be a direct connection between a single sanctions designation and its impact on the war in Ukraine.

The government, using powers granted by Parliament, had the authority to freeze the bank accounts and other assets of Shvidler, a British-American, because there was a ”rational connection” between the measures and the U.K.‘s legitimate interests in putting pressure on the Kremlin to end the war, the court held.

Bond added that the court has been clear that designations could be judged only on their cumulative effect, meaning that there does not need to be a direct connection between any single designation and its impact on the war.

”The English courts have, so far, in this case and others, emphasized that the importance of the overall objectives of the sanctions regime — to support the interests of British foreign policy and counter Russia in Ukraine — override such interferences in individual rights, even where the consequences of such interference have been extremely severe for the individuals and businesses affected,” Bond said.

Legal experts say that the findings emphasize two elements: deference for the government, allowing it to exercise its administrative functions in matters of foreign policy, and an active — but limited — role for judges questioning it.

The test applied by the lower courts that is likely to feature in the justices’ debate is on the lawfulness and ”proportionality” of administrative actions taken by the state. It was set down by the Supreme Court in the case of Bank Mellat v. HM Treasury in 2013.

Applying the test in Shvidler’s case, the High Court reasoned that the restrictions to his rights were ”temporary and reversible.” They did not permanently deprive Shvidler of any property and did not ”threaten his life or liberty.”

Leigh Crestohl, a sanctions specialist at Zaiwalla & Co., said that the justices will consider the U.K.‘s sanctions regime for the first time since Brexit, and could look to strike a new balance.

”Should the court take a different view about the object and purpose of the sanctions legislation, or the ‘rational connection’ of applying such Draconian measures to persons who, in layman’s terms, have no influence over Vladimir Putin or Russia’s war aims in Ukraine, then this may rebalance the ‘fair balance’ limb of the Bank Mellat test,” Crestohl said.

The appeals court also reset the process for reviewing designations after the lower court had restricted its role in judicial review, stopping short of conducting its own assessment of whether the designation was proportionate and, instead, simply considering whether the government’s decision was one open to the secretary of state.

Writing for the Court of Appeal, Justice Rabiner Singh found that the court has a bigger role to play, one that called for ”analysis by the court itself.” But the court’s analysis is narrowly constrained, unlike in conventional cases of judicial review, which are ”concerned with the substance of the matter, not the process by which the decision was reached.”

Bond said that, although it is unlikely that the justices will deviate from the judgment, they may place more emphasis on procedural safeguards, particularly where the sanctions affect the rights of U.K. citizens,

Shvidler’s appeal is one of two being considered by the Supreme Court that have been bound together because they raise similar issues.

In the other case, another wealthy Russian, Sergei Naumenko, is contesting the government’s decision to freeze his £38 million ($48 million) custom-built super-yacht, which has been impounded at a dock in London since February 2022.

Unlike Shvidler, Naumenko has never been designated. The transport secretary — Grant Shapps at the time — used his broad powers under the sanctions regime established after Brexit to detain the vessel in what was criticized in court as a publicity stunt.

The courts have stood by the government’s decision, although they later acknowledged its initial reasons for detaining the vessel because Naumenko was a friend of Putin.

The judge at the High Court reasoned that it would have been impossible for Naumenko to accumulate substantial wealth under Russia’s unique economic conditions without loyalty to Putin because of the country’s ”patronage system.”

The Court of Appeal also upheld these findings, concluding that factual errors in the evidence against those sanctions is no reason to lift the measures, provided the outcome is proportional.

Other sanctioned individuals could be encouraged to challenge their designations if the justices rework the rational connection test and find that it was not met in Shvidler’s case, John Bedford, a partner at Dechert LLP, said.

”However, proportionality assessments where human rights issues are engaged are very much likely to depend on the specific facts, and it will also depend on what element of the decision to designate Shvidler the Supreme Court determined was disproportionate,” he said.

But, on the other hand, failure will not prevent more challenges, although it may ”clarify the high bar that potential future challenges need to overcome,” Bedford added.

The U.K. courts have differed on the issue from venues in the European Union. Courts in Europe have, in some cases, lifted sanctions after carefully scrutinizing the evidence underpinning the decisions.

Bond said that, despite the legal setbacks in the U.K., there still appears to be appetite for challenges, partially because of hopes that the courts will follow the path set by the EU.

”In the unlikely event the Supreme Court was to reverse this trend, that would represent a highly significant shift, which would prompt a rethink of the procedure and evidence base for making sanctions designations,” he added.