On August 18, 2023, the UK High Court issued a judgment in the first sanctions designation challenge pursuant to the UK's Russia sanctions regime under Section 38 of the Sanctions and Anti-Money Laundering Act 2018 ("SAMLA"). The challenge was brought by Eugene Shvidler ("Mr. Shvidler"), a UK-US dual national businessman, following an unsuccessful ministerial review in which Mr. Shvidler sought to reverse his UK designation. The High Court rejected the challenge on the grounds that the decision to maintain Mr. Shvidler's designation was proportionate and non-discriminatory. Mr. Justice Garnham's judgment addressed both the threshold for a UK listing and the balance that must be struck between the rights of a designated person and the public interest when assessing a designation decision under Section 38 of SAMLA, points which will have broader relevance to future UK delisting cases.
The UK Designation
Mr. Shvidler was designated in the UK on March 24, 2022. The stated reasons for his designation were his association with Roman Abramovich ("Mr. Abramovich") and his role as a former non-executive director and shareholder of Evraz PLC ("Evraz"), which itself was designated in the UK on May 5, 2022, for carrying on business in sectors of strategic significance to the Government of Russia.
Ministerial Review of the Decision to Designate Mr. Shvidler
On March 31, 2022, representatives of Mr. Shvidler wrote to the Secretary of State requesting the written reasons for his designation. Having sought and received copies of the evidence supporting the original UK designation decision, Mr. Shvidler's representatives formally applied for a ministerial review pursuant to Section 23(1) of SAMLA on July 14, 2022, on the grounds that the basis for his designation was wrong. The decision was taken to uphold the designation and Mr. Shvidler was informed of that outcome on November 11, 2022, and provided with an updated Sanctions Designation Form ("SDF") and Sanctions Designation Form Evidence Pack ("SDFE").
Court Review of the Decision to Maintain Shvidler's Designation
Mr. Shvidler subsequently applied to the High Court to set aside the Secretary of State's decision to maintain his listing pursuant to the procedure under Section 38 of SAMLA. Section 38(4) of SAMLA requires the principles applicable to a judicial review to be applied to the review undertaken by the court. Judicial review proceedings permit a judge to review the way in which a decision has been made, but not the merits of the conclusion that is reached. Traditionally, judicial review can be brought on the basis of three grounds:
- illegality (e.g., the decision maker acted beyond their powers or the decision was taken for an improper purpose);
- irrationality/unreasonableness; or
- procedural impropriety (e.g., bias or restriction of the right to be heard).
Mr. Shvidler asserted that the decision to maintain his designation was unlawful because:
- of the interference with his rights under Article 8 (respect for private and family life, home and correspondence) and Article 1, Protocol 1 ("A1P1") (right to peaceful enjoyment of your property) of the European Convention on Human Rights ("ECHR"); and
- the Secretary of State's exercise of discretion, under SAMLA and/or the Russia (Sanctions) (EU Exit) Regulations 2019 ("Russia Regulations"), was in breach of Articles 8, 14 (prohibition on discrimination) and A1P1 of the ECHR.
In applying the judicial review principles to the facts of Mr. Shvidler's case, Mr. Justice Garnham concluded that Mr. Shvidler's connection with Evraz, a company involved in the extractive sector in Russia, clearly satisfied the definition of an "involved person" within the Russia Regulations. Mr. Justice Garnham also concluded that Mr. Shvidler's nomination and/or remuneration as a director of Evraz (a company directly or indirectly more than 50% owned by Mr. Abramovich by virtue of a joint arrangement between Mr. Abramovich, Alexander Abramov, and Alexander Frolov), amounted to a financial or material benefit obtained from Mr. Abramovich, satisfying this basis of Mr. Shvidler's designation. The amended SDF provided to Mr. Shvidler at the time of his unsuccessful ministerial review also was held to have addressed the issue of the proportionality of the designation in detail. On the issue of unlawful discrimination, Mr. Justice Garnham determined that Mr. Shvidler was not discriminated against by the Secretary of State for being the only former director of Evraz that became a UK designated person because he was of Russian ethnicity. Mr. Justice Garnham stated that it was the cumulative effect of the two grounds relied upon by the Secretary of State; namely, Mr. Shvidler's role with Evraz and association with Mr. Abramovich, that had led to his designation. Mr. Justice Garnham therefore dismissed Mr. Shvidler's challenge on the grounds that the Secretary of State's decision to maintain Mr. Shvidler's designation was not disproportionate or discriminatory.
The judgment addressed a number of points of broader relevance to future delisting challenges concerning the test for UK designation and the standard of review for listing decisions.
Assessing the Appropriateness of Designation Decisions
Noting the test set for proportionality out in Bank Mellat v HM Treasury (No 2)  UKSC 39 (i.e., that a measure is proportionate depending on: (i) whether its objective is sufficiently important to justify the limitation of a fundamental right; (ii) whether it is rationally connected to the objective; (iii) whether a less intrusive measure could have been used; and (iv) whether a fair balance has been struck between the rights of the individual and the interests of the community) ("Bank Mellat Test") requires an exacting analysis of the factual case at hand, Mr. Justice Garnham held that the court may question how far the Secretary of State's evidence supports a designation when analysing the second limb of this test. In the view of Mr. Justice Garnham, this is "not entirely a question of United Kingdom foreign policy on which the Court is unqualified to form a view, nor is it a subject on which the Court should necessarily be slow to interfere on grounds of institutional competence." Mr. Justice Garnham also indicated that the other limbs of the Bank Mellat Test require a similar approach.
When analysing the way in which the Secretary of State arrived at the decision, the court also agreed that "it is not limited to assessing the decision-maker's process, thinking or assessment at the time the relevant decision was made." Therefore, the Secretary of State was entitled to change the explanation for Mr. Shvidler's designation in the Response to the Section 38 application, especially when any subsequent response was intended to expand upon the reasoning contained in the SDF.
Striking a Fair Balance
Mr. Justice Garnham held that, when assessing whether a fair balance has been struck between the consequences of designation for the designated person and the public interest, the relevant question to be asked by the court is "whether the impact of the rights infringement is disproportionate to the likely benefit of the impugned measure." Acknowledging that the Bank Mellat Test affords a certain degree of flexibility, Mr. Justice Garnham agreed with the view expressed by Sir Ross Cranston in Dalston Projects Ltd v The Secretary of State for Transport  EWHC 1885 (Admin) at 80, a case concerning the lawfulness of the detention of a luxury yacht under the Russia Regulations, that "the Secretary of State is granted a broad margin of discretion * * * to decide that the exercise of the sanctions power is needed" as part of pursuing the UK's foreign policy objectives. He also stated that the efficacy of a sanctions regime must be considered holistically and depends "not on the effect of a particular measure directed at a single individual, but on the cumulative effect of all the measures imposed under that regime, together with other types of diplomatic pressure."
When considering whether the Secretary of State showed regard to the impact of the designation on both Mr. Shvidler and his family, Mr. Justice Garnham concluded that the Secretary of State had "conscientious regard" to the impact of the designation given that Mr. Shvidler was in a materially different position compared to the majority of those designated under the Russia Regulations due to his British citizenship and, therefore, was subject to a worldwide asset freeze. Even though there was no finding of fact, on behalf of the Secretary of State, as to how detailed this assessment was, consideration of the fact that Mr. Shvidler is a dual national citizen with British citizenship was sufficient for the court to infer that the Secretary of State had engaged meaningfully with the consequences of the designation for Mr. Shvidler and his family. In reaching that conclusion, Mr. Justice Garnham emphasized that "whilst the effects of designation are serious, and [Mr. Shvidler] and his family have been subjected to enormous inconvenience and no little financial loss, they do not threaten his life or liberty. The effects of designation are temporary and reversible, not fixed and permanent * * * he is simply deprived of the use of [his] property for the period it is thought necessary to maintain the sanctions" and, furthermore, are ameliorated to some extent through licensing.
This reasoning by the court echoes the latitude afforded to the UK government in the Synesis case (discussed in our blog post (here)), in which it was held that the reasonable grounds to suspect criterion for designation does not require a finding of fact. Rather, it requires an assessment or evaluation of the available information and material, with inferences being drawn from all of the circumstances, and the formation of a good faith state of mind at the conclusion of the process.
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