Earlier this week, the UK's highest court delivered a landmark decision in the combined appeals of Shvidler v Secretary of State for Foreign, Commonwealth and Development Affairs and Dalston Projects Ltd & Ors v Secretary of State for Transport. These appeals challenged the proportionality of UK sanctions imposed on individuals and entities in connection with Russia's actions in Ukraine under the Sanctions and Anti-Money Laundering Act 2018 (the SAMLA), the Russia (Sanctions) (EU Exit) Regulations 2019 (the Regulations) and other instruments.
Overview of the Decision
The central issue in the cases was whether the designation of Mr Shvidler under the Regulations, and related asset freezes and restrictions on property and business activities (including the detention of a superyacht owned by Dalston Projects), were proportionate interferences with the affected rights.
In dismissing both appeals and upholding the proportionality (and thus legality) of the decisions, the Supreme Court canvassed various issues relevant to judicial oversight of sanctions regimes. Two aspects of the decision are of particular note.
- First, the Court clarified that, while courts must make their own assessments of proportionality, a "wide margin of appreciation" should be given to the executive's decisions about the imposition of sanctions on individuals. This was said to be primarily because of the constitutional responsibility of the executive for the conduct of foreign affairs and its "superior institutional competence" in this field.
However, in a strong dissent (on the Shvidler appeal only), Lord Leggatt emphasised the need for adequate recognition of the role which the courts are called on to play, under the constitution, in protecting individual liberties. His Lordship cautioned that giving "a wide margin of appreciation" to the views of ministers and government officials cannot be taken too far, and said that courts are failing in their duty if they simply rubber-stamp assertions made by the executive to justify invading individual liberties without subjecting those assertions to critical scrutiny.
2. Second, the Court considered the proper approach to be adopted by an appellate court to an assessment of proportionality in this context. Specifically, it considered whether an appellate court is required to make its own fresh assessment of the proportionality of the measure in question, or whether its role is confined to considering whether the first instance court applied the correct test and arrived at a reasonable result. Departing from the approach taken in the Court of Appeal, the Supreme Court emphasised the need for flexibility and held that the right approach depends on the circumstances of the case. For instance, a fresh assessment is likely to be appropriate in cases where the decision will provide guidance for other cases or where the subject matter has major social or political significance.
In his dissenting judgment, Lord Leggatt concluded that the restrictions on Mr Shvidler were "unjust and disproportionate" and that he would allow his appeal. Describing certain arguments in support of the designation as "Orwellian", His Lordship said that he did "not consider the reasons relied on by the government come close to justifying such a drastic curtailment of his liberty".
Relevance to the Cayman Islands
As a British Overseas Territory, the sanctions regime in force in the Cayman Islands largely mirrors that imposed in the UK. In particular, the SAMLA and associated regulations are extended to the Cayman Islands through Orders in Council made by the Privy Council. As to sanctions relating to Russia specifically, the Regulations are extended to the Cayman Islands pursuant to the Russia (Sanctions) (Overseas Territories) Order 2020 (as amended).
The Supreme Court's decision therefore provides highly relevant guidance as to how the Grand Court of the Cayman Islands would likely approach questions concerning the UK's Russian sanctions regime (and sanctions regimes more broadly), should it be asked to determine similar challenges in future. The UK Supreme Court is made up of the same judges that make up the panel for the Judicial Committee of the Privy Council (i.e. Cayman's highest appellate court).
Key Takeaways
Some important takeaways from the decision for legal and compliance professionals navigating the Cayman Islands sanctions regime are as follows.
- Robust Risk Management: Cayman-based financial institutions, trust companies, and other service providers should continue to exercise robust due diligence and sanctions screening, particularly in relation to high-net-worth clients with Russian connections or assets potentially subject to UK/EU sanctions. The decision confirms that enforcement action including asset freezes will be upheld where proportionate and rationally connected to the underlying policy objective, even if they significantly curtail liberty.
- Licensing and Compliance: References throughout the judgment to the role of the Office of Financial Sanctions Implementation highlights the critical role of licensing regimes in mitigating the harshest effects of sanctions. It is important that licensing processes are accessible, efficient, and responsive to legitimate requests for access to frozen assets (e.g. for basic needs or legal expenses). Compliance professionals should be familiar with the scope and limitations of such licences as a key resource in their toolkit.
- Judicial Review and the Margin of Appreciation: When considering and advising on the prospects of challenging a designation, asset freeze or other sanctions-related restriction, it is important to bear in mind the "wide margin of appreciation" supported by the majority. The Grand Court may therefore show significant deference to decisions of the competent authorities (despite the strongly worded and forceful arguments from Lord Leggatt in dissent), particularly where the relevant sanctions have been imposed in response to international crises.
- Proportionality and Human Rights Considerations: The decision underscores the importance of proportionality and human rights considerations in the application of sanctions. When faced with similar questions, we expect Cayman authorities and courts to apply a similar four-stage proportionality analysis adopted in the judgment, including careful consideration of whether a "fair balance" has been struck between the rights of the individual and the interests of the community.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
