The Office for Financial Sanctions Implementation ("OFSI") has issued a second general licence with respect to the Russia and Belarus sanctions regimes for the payment of legal fees (INT/2023/2954852, "the New Licence"), following the expiry of the one issued on 28 October 2022 (INT/2022/2252300, "the Old Licence").
Whilst the Old Licence was a welcome step when issued, significant uncertainty arose from various ambiguities in its drafting.
The New Licence addresses some of these ambiguities but leaves others outstanding. It also implements UK government policy on Strategic Litigation Against Public Participation ("SLAPPs") by excluding legal services that relate to claims for defamation or malicious falsehood.
Structure of the New Licence
Subject to certain conditions, the New Licence permits lawyers to receive payments from and make payments on behalf of clients who are designated under the Russia and Belarus sanctions regimes, without the need to obtain any further specific licence.
As was the case with the Old Licence, the New Licence is split into two parts: one concerning legal work carried out in satisfaction of an obligation entered into prior to designation (Part A) and one concerning legal work not carried out in satisfaction of such an obligation (Part B). Each part has a separate cap on the amounts that may be paid. Part B also imposes limits on hourly rates that may be charged by solicitors and barristers.
The primary purpose of the New Licence is to respond to continuing volumes of applications for specific licences relating to legal fees. However, the OFSI has also taken the opportunity to resolve two points of uncertainty that arose from the wording of the Old Licence.
The first related to whether the Old Licence applied in circumstances where the caps had not been exceeded but it was estimated that they would be exceeded in due course. In VTB Commodities Trading DAC v JSC Antipinsky Refinery  EWHC 2795 (Comm), handed down shortly after the issuing of the Old Licence, Foxton J considered (paragraph 31(vi)) that the wording of the Old Licence (paragraph 7 of its Part A and paragraph 6 of its Part B) was such that it did not apply at all where it was anticipated that the cap will be exceeded, rather than simply not applying to any excess. The New Licence makes no reference to estimates, and provides clearly (paragraph 6 of its Part A and paragraph 5 of its Part B) that it does apply before the caps are in fact exceeded. This is a welcome clarification. Whilst Foxton J's reading was a reasonable one on the wording of the Old Licence, the result was surprising; it was arguably disproportionate for a specific licence to be necessary where a cap has not yet been exceeded, merely because it was estimated that it would be in the future. The OFSI suggests in its blog post accompanying the New Licence that it had intended the Old Licence to have the same meaning as the New Licence in this regard.
The second related to the circumstances in which the separate caps in Parts A and B could be combined. There was no text in the Old Licence providing explicitly for this, but the OFSI blog post accompanying that licence stated:
".[the] two caps can also be combined, meaning if work is undertaken for a designated person that involves fees for legal work carried out in satisfaction of a prior obligation (£500,000 limit) and work commenced post-designation (£500,000 limit), up to £1 million (inc. VAT) could be paid."
Foxton J in VTB (paragraph 39) queried whether this passage meant that two separate £500,000 caps (totalling £1 million) were available (a) where work was done under the same retainer pre- and post-designation, or (b) where work was done for the same client in respect of two different matters. In his view (paragraph 40), the better interpretation was that such "doubling up" was not possible for work done under the same retainer pre- and post-designation. The New Licence incorporates explicit text providing that the caps can be "used in conjunction.if the provision of Legal Services commenced before the DP was designated and continued after designation" (paragraph 7 of its opening part). In case it was necessary, the OFSI blog post accompanying the New Licence also clarifies, using an illustrative example, that two separate caps are available where work is done for the same client in respect of two different matters, but with the condition (set out explicitly in the New Licence in paragraph 7.3 of its opening part) that Part A is only used to pay for "individual matters within the Legal Services" that were commenced pre-designation. Again, this is a welcome clarification, and the OFSI suggests in its blog post accompanying the New Licence that it had intended these means of combining caps to be available under the Old Licence.
Some of the areas of uncertainty identified by Foxton J in VTB have not been resolved.
Foxton J noted (paragraph 31(vii)) that it was unclear under the Old Licence whether multiple caps were available where a law firm or barrister undertook different, or separate but related, matters for the same client. However, he considered it clear at least that work done pursuant to a single letter of engagement would attract a single cap. The wording in the Old Licence on which Foxton J based his observations (the definition of "Legal Services", paragraph 5 of its Part A, and paragraph 4 of its Part B), is reproduced in the New Licence (the equivalent definition of "Legal Services", paragraph 4 of its Part A, and paragraph 3 of its Part B) without material changes. Whilst the reference in the New Licence to "individual matters within the Legal Services" (see above) would assist a judge in identifying the best interpretation, it would not be determinative.
Foxton J also noted (paragraph 34) that it was unclear under the Old Licence whether fees for a barrister instructed after designation by solicitors acting under a pre-designation engagement would fall under Part A or Part B. This issue is not addressed in the New Licence.
Finally, Foxton J noted (paragraph 35) that, under Part B of the Old Licence, there was no explanation of how barristers' brief fees or contingent fees are to be treated. The New Licence does not address these issues either.
Whilst the Old Licence applied to "legal services.in relation to any matter", the New Licence applies to "legal services.in relation to any matter except a claim for defamation or malicious falsehood".
This should be read with the OFSI blog post accompanying the New Licence. It refers to recently stated UK government policy that, in light of concerns over SLAPPs, it would not be appropriate for a legal fees general licence to cover claims for defamation and similar cases. Under the policy, the OFSI will consider applications for specific licences in relation to such cases but take a presumption that such applications will be rejected. It remains to be seen whether such applications will be considered favourably when they raise no SLAPPs concerns.
The New Licence going forward
It appears likely that, in the near future, the Russia and Belarus sanctions regimes will remain expansive, and persons designated under the regimes will have complex legal needs. It would be unsurprising if, when the New Licence expires in October 2023, a similar general licence were issued, with further provisions to respond to clarity and policy concerns.
Click here to access the judgment of Foxton J in VTB.
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