How UK Supreme Court May Assess Russia Sanctions Cases

In January, the U.K. Supreme Court heard two appeals under the Sanctions and Anti- Money Laundering Act 2018, those of Dalston Projects Ltd. v. Secretary of State for Transport and Shvidler v. Secretary of State for Foreign Affairs.[1]

The appeals are the Supreme Court’s first consideration of challenges to sanctions under the U.K.‘s post-Brexit framework, and since its landmark decision in Bank Mellat v. HM Treasury in 2014, which articulated the test to determine the proportionality of a measure.[2]

These appeals arise out of the U.K.‘s Russia sanctions regime and follow several lower court judgments rejecting challenges to sanctions designations. Central to these cases is the assessment of the compatibility of sanctions measures with rights under the European Convention on Human Rights, and their proportionality in light of the Bank Mellat decision. Guidance from the Supreme Court on these important issues will have a significant impact on future sanctions cases.

This article discusses the issues raised that are likely to be considered by the U.K. Supreme Court in the future in relation to proportionality assessments in sanctions challenges.

In the Shvidler case, a British citizen, Eugene Schvidler, was designated by the secretary of state for the Foreign, Commonwealth and Development Office, and made subject to an asset freeze. This was primarily on the indirect basis of his being associated with another designated person, the oligarch Roman Abramovich.

Background

The Dalston Projects case involved a different sanction, the detention in Canary Wharf of a £38 million ($49.2 million), 58-meter superyacht. Although its owner, Sergei Naumenko, who lived in Russia, was not individually designated due to a lack of evidence linking him to the Russian regime, the secretary of state for transport issued a so-called detention direction under powers relating to ships.

This measure requires only that a ship in the U.K. is ”owned, controlled, chartered or operated” by a person ”connected with Russia,” which broadly includes any person who regularly resides there.[3]

In both cases, the sanctions were challenged, among other things, as disproportionate interferences with rights within the European Convention on Human Rights, emphasizing the lack of a ”rational connection” between the sanction and its underlying objective.

In Dalston Projects, the sanction was challenged on the basis that indefinite detention of the yacht was based only on a ”generic” argument that wealthy Russians were presumptively the beneficiaries of patronage from the Russian regime or able to influence it.

However, Naumenko was not involved in politics in Russia, and had sold his businesses interests a decade earlier. Then-High Court Judge Ross Cranston nevertheless found that Naumenko’s wealth and Russian residence made him ”the sort of individual economic actor” contemplated by the sanction.[4]

Significantly, Cranston found that the government does not need to demonstrate the efficacy of each individual detention or designation to support a rational connection. Rather, it is a matter of executive discretion whether a particular sanction, when ”coupled with other measures,” is apposite in the pursuit of the U.K.‘s foreign policy.[5]

In his challenge, Shvidler argued the lack of a rational connection: As somebody without any direct political influence in Russia, and who had already taken steps to distance himself from Abramovich and the war in Ukraine, his designation would not contribute to attaining the measure’s objective.

At first instance, High Court Judge Neil Garnham upheld the sanction, noting that these are ”essentially matters of executive judgment based on the secretary of state’s institutional expertise.” The government was therefore entitled to ”considerable respect” in ”the identification of levers of pressure by which to influence Russian decision-making.”[6]

In rejecting arguments concerning the ”fair balance,” the judge considered the reasoning in Dalston Projects about the cumulative effect of all measures imposed to be equally relevant to that limb of the test.

In addressing Dalston Projects first, the Court of Appeal examined the first instance judge’s proportionality assessment and upheld it. Regarding Shvidler, the trial judge was found to have erred in reviewing the secretary of state’s assessment on traditional judicial review grounds. The Court of Appeal conducted its own proportionality assessment and rejected the challenge.

Principal Issues

The Supreme Court is likely to deal with two issues that will be noteworthy for future sanctions cases engaging rights under the European Convention on Human Rights. The first relates to the appellate review of a lower court’s proportionality assessment, while the second deals with the Bank Mellat test, particularly in applying the ”rational connection” and ”fair balance” limbs.

The Standard of Review

In a lengthy preface, the Court of Appeal addressed this issue by reference to the Supreme Court’s earlier pronouncements in Re B and Abortion Services in 2013,[7] and although unlikely to influence the outcome of these appeals, this will be important for future challenges under the Sanctions and Anti-Money Laundering Act.

Sanctions cases pose an initial challenge of categorization, which will dictate the intensity of judicial scrutiny of a proportionality assessment. Although these cases may appear to depend on particular facts, they also at the same time present legal issues of general application. The issue is whether it is appropriate for the appellate court to conduct its own proportionality assessment, or whether it will defer to the lower court’s assessment, unless it is deemed ”wrong.”

The Court of Appeal placed these appeals within the category of cases where a first-instance court carried out a proportionality assessment based on the facts of an individual case. Therefore, intervention was deemed appropriate only if the first instance judge’s proportionality assessment was ”wrong” according to the methodology of Re B. It was clear from the hearing that the Supreme Court justices were concerned about the implications this issue may have as a matter of policy, given the spectrum of proportionality situations that come before the courts.

It seems artificial to consider sanctions designations under the Sanctions and Anti-Money Laundering Act as one off administrative decisions depending on unique facts. These appeals themselves demonstrate common issues of principle. Moreover, since March 2022, the government has made thousands of designations. It can be supposed that issues of sanctions policy and implementation may apply across many cases.

Applying Bank Mellat

It is hoped that the Supreme Court will comment on particular points of interest in relation to the second and fourth limbs of the Bank Mellat test, which were the focus of challenges in both appeals.

In relation to rational connection, the court is likely to address whether measures can be viewed cumulatively to find a rational connection. In looking at the Court of Appeal’s hypothetical of 100detained ships to dismiss as absurd a potential argument by one shipowner that the detention of their ship would be ineffective, the court may in fact see two issues.

First, is it legitimate to look beyond the individual challenged sanction, to all other sanctions measures applied? Second, is it a purely quantitative, or also a qualitative assessment? What if 99 of the ships in the example were oil tankers, each contributing vast financial resources to Russia’s war effort, does this make it rational to detain a small runabout as the last ship in the flotilla? The court may be concerned that a purely quantitative approach might dilute the rational connection requirement.

There are a few further related issues. In Bank Mellat, Justice Jonathan Sumption contemplated an ”exacting analysis of the factual case advanced in defense of the measure,”[8] whereas, the reasons advanced to establish a rational connection in these cases are vague and amorphous, such as to send a ”signal,” ”change behavior,” or apply ”levers of pressure,” etc. The more broadly the objectives are defined, the greater the risk of interference with the European Convention on Human Rights.

The Supreme Court may also comment in this regard on the appropriate limits of ”institutional competence,” and deference. These were not cases, like Bank Mellat, with closed intelligence- based evidence. Should the results of open-source research about the nature of Russia’s economy or political patronage and loyalty be unimpeachable merely because it was conducted in a cubicle in Whitehall?

Finally, how to weigh factors in the fair balance limb could benefit from elucidation by the Supreme Court. An asset freeze is a severe and open-ended sanction not only on the target, but family members.

Nevertheless, courts have accepted this intentional infliction of hardship as being necessary in order for sanctions measures to be effective. Indeed, so much weight is given to matters of policy and the collective interest that, on the current state of the authorities, it is unclear how an applicant might ever prevail. High Court Judge Sara Cockerill eloquently expressed this point in Khan v. Secretary of State for Foreign Affairs in 2024, imagining only an extreme scenario where the designated person is effectively ”un-personed,” resulting in starvation and ultimately risk of death.[9]

Similarly, in the Shvidler case, Judge Garnham’s observation that the sanctions ”do not threaten [Shvidler’s] life or liberty” equally suggests that only the most egregious curtailment of liberty would tip the balance.[10]

Unfortunately, it is unclear how, if at all, the Court of Appeal struck the balance in the Shvidler case. The Supreme Court may likewise find this aspect of the judgment unsatisfactory and provide some guidance for future sanctions cases as to how the so-called right balance should be struck in cases under the regulations.

Conclusion

The court’s judgment on these issues will undoubtedly influence how future challenges are shaped and, depending on the result, affect parties’ enthusiasm to challenge sanctions on similar grounds.

It is also possible that the Supreme Court may challenge assumptions and approaches that have underpinned previous sanctions designation decisions. In that eventuality, the government may need to review its approach to designations and the quality of the evidence on which it relies.

This may lead to an increase in applications to the secretary of state under Section 23 of the Sanctions and Anti Money Laundering Act, to reconsider earlier designations or eventual challenges.

[1] Dalston Projects Ltd & Ors v. Secretary of State for Transport ; Shvidler v. Secretary of

State for Foreign, Commonwealth and Development Affairs [2024] 1 W.L.R 3327 (CA); [2024]

EWCA Civ. 172, affirming in the result Dalston Projects Ltd & Ors v. Secretary of State for

Transport [2023] EWHC 1885 (Admin) (”Dalston Projects”) and Shvidler v. Secretary of State for

Foreign, Commonwealth and Development Affairs [2023] EWHC 2121 (Admin) (”Shvidler”).

[2] Bank Mellat v. HM Treasury of the test at para 74.

(No. 2) [2014] AC 700. See Lord Reed’s four-limb formulation

[3] Russia (Sanctions) (EU Exit) Regulations 2019, SI 2019/855, Regulation 57D.

[4] At paragraph 84.

[5] At paragraph 86.

[6] At paragraph 116.

[7] In Re B (A Child) (Care Proceedings: Threshold Criteria) B”); In Re Abortion Services (Safe Access Zones) (Northern Ireland) Bill [2013] 1 W.L.R. 1911 (”In Re

[2023] AC 505.

[8]Bank Mellat at para 20

[9] Khan v The Secretary of State for Foreign, Commonwealth and Development Affairs

[2024] EWHC 361 (Admin), aff’d [2025] EWCA Civ 41, at paragraph 152.

[10] At paragraph 141.