In brief:
- The Supreme Court has rejected arguments that UK sanctions interfere with the human rights of sanctioned parties, concluding that sanctions pursue a legitimate and vital aim which can outweigh certain human rights. The appellants, Mr Shvidler and Dalston Projects Ltd, both subject to UK sanctions under the Russia (Sanctions) (EU Exit) Regulations 2019, argued that the sanctions disproportionately interfered with their right to private life and property.
- The Court found that, despite the severe impact on Mr Shvidler and the economic loss to Dalston Projects, a fair balance had been struck between individual rights and the public interest. The decision reinforces the view that it is extremely difficult for any individual or entity to have their designation set aside without the support of the UK Government.
Background and issues:
The Supreme Court recently gave judgment on an appeal involving two separate parties, Eugene Shvidler, a former non-executive director of Russian mining company Evraz plc with connections to Roman Abramovich, and Dalston Projects Ltd, which owns the superyacht M/Y Phi, the ultimate beneficial owner of which, Sergei Naumenko, was described as a “friend of Putin”. Both Shvidler and Dalston Projects are subject to UK sanctions via designation under the Russia (Sanctions) (EU Exit) Regulations 2019, as part of the UK's policy to apply pressure on Russia to end its war against Ukraine.
Mr Shvidler and Dalston Projects challenged their designation on grounds that it disproportionately interfered with their private lives under Article 8 of the European Convention on Human Rights, and their right to property under Article 1 of the First Protocol to the Convention. The M/Y Phi had been detained in the London Docks since 2022, preventing it from earning an income from chartering. Mr Shvidler's assets were frozen globally, making it a criminal offence for him to use his own funds or for others to deal with him (save for limited exceptions) and resulting in his two youngest children being excluded from their schools.
Application of the fresh assessment approach to proportionality
Applying the four-limbed proportionality test set out in Bank Mellat v HM Treasury (No 2) [2013] UKSC 39, the Supreme Court dismissed both appeals as follows:
- Legitimate aim: the sanctions pursued a sufficiently important objective - limiting and deterring Russian aggression in Ukraine is one of the UK Government's key foreign policies;
- Rational connection: there was a rational link between the measures (detaining the yacht and freezing assets) and their aims (to cause discontent against the Russian regime and create negative consequences to associating with the Russian government and individuals closely aligned with it, such as Roman Abramovich). The importance of the policy measure meant that a less direct connection with achieving it was sufficient, as there was a rational contribution to the cumulative effect of all sanctions measures;
- Less intrusive means: the appellants could not show there were less restrictive alternatives available; and
- Fair balance: despite the significant impact on Mr Shvidler and his family, the measures struck a fair balance in view of the importance of the UK's public policy aims. In connection with Dalston Projects' appeal, Mr Naumenko was only limited in the use of a luxury asset, and he was able to shoulder the cost of maintaining the vessel. The court accepted that sanctions need to be severe and open-ended in order to be effective.
Lord Leggatt's dissent
Lord Leggatt gave a powerful dissenting judgment in respect of Mr Shvidler's appeal, arguing that there was no rational link between freezing Mr Shvidler’s assets and the aims of the sanctions. Mr Shvidler is not a Russian citizen, was not said to have links with the Russian government and has publicly opposed the war. Lord Leggatt criticised the Government’s "flimsy reasons" for such a serious restriction and warned that granting the "wide margin of appreciation" permitted by the majority judgment risked courts simply rubber-stamping executive decisions without proper scrutiny. His was, however, a lone voice.
Impact on the sanctions landscape
This decision reinforces the prevailing position that it is near impossible for sanctioned individuals and entities to successfully challenge a designation through the UK courts, absent the UK Government's support. It therefore seems likely that most sanctioned individuals will need to wait for UK policy to change - or for meaningful steps towards a ceasefire in Ukraine - before they see their designations revisited. This decision further emphasises the importance of companies and individuals ensuring compliance with global sanctions regimes, or risking designation themselves for an indefinite period, which can result in devastating and far-reaching financial and reputational consequences.