Key Takeaways
- This judgment clarifies that the UK Government is under no obligation to prove that specific sanctions measures by themselves achieve the purposes for which they are imposed, but rather a cumulative effect will suffice.
- The Supreme Court unanimously clarified that the correct test to be used by a court carrying out a proportionality assessment in these circumstances is that set out in Bank Mellat v HM Treasury (No 2).
- Lord Leggatt disagreed with the decision of the majority in the Shvidler appeal. He argued that the UK Government had failed to show a rational connection between freezing the assets of Mr Shvidler and the objectives of the sanctions regime. In contrast to the judgment of the majority, he concluded the sanctions designation on Mr Shvidler was unlawful and disproportionate.
Introduction
On 29 July 2025, the Supreme Court handed down judgment in the combined appeals in Shvidler v Secretary of State for Foreign, Commonwealth and Development Affairs ('Shvidler')and Dalston Projects Ltd and others v Secretary of State for Transport ('Dalston Projects').1 This highly anticipated judgment is now the leading authority on the UK courts' approach to assessing the proportionality of sanctions designations and is the first time the Supreme Court has considered a sanctions designation challenge under the post-Brexit legislative framework.
The key takeaway from the judgment is how high the bar is for those challenging a sanctions designation. The Supreme Court dismissed both challenges to the respective sanctions designations, albeit there was a forceful dissenting opinion from Lord Leggatt in relation to Shvidler.
Background to Shvidler and Dalston Projects
Eugene Shvidler was designated under the Russia (Sanctions) (EU Exit) Regulations 2019 (the 'Russia Regulations') on 24 March 2022 on account of his association with Roman Abramovich, an 'involved person' whom he had purportedly gained financial benefit from via their business relationship, and his position on the board of Evraz Plc ('Evraz'), a UK company deemed to be of strategic importance to Russia due to its steel manufacturing and mining activities.2 Notably, Mr Shvidler is a UK citizen who emigrated from the former Soviet Union in 1989. It was accepted by the Supreme Court that he has never been a Russian citizen and has not visited Russia since 2007. Since his designation under the Russia Regulations, Mr Shvidler's assets are subject to an asset freeze.3 Given Mr Shvidler is a UK citizen this means he is prevented from dealing with any of his assets wherever they are located.4 By contrast, sanctioned individuals who are non-UK citizens and who are not based in the UK can continue to deal with any assets they hold outside the UK (provided there is no UK nexus to any such dealing).
Dalston Projects Ltd is a UK company which owns the yacht M/Y Phi (the 'Phi'). The Phi is beneficially owned by Russian businessman, Sergei Naumenko, and was detained in the London Docks in March 2022 on the grounds that it was owned, controlled or operated by a person connected with Russia.5 Mr Naumenko himself has never been designated.6 He contends that the detention of the Phi has prevented him from earning substantial income from chartering it.
The appellants challenged the sanctions on the basis that they represent a violation of Article 8 of the European Convention of Human Rights (the 'Convention'), which protects the right to private and family life, and their rights to peaceful enjoyment of personal property under Article 1 of the First Protocol to the Convention.
The fundamental issue in these appeals was whether the interference with the appellants' rights was justified in light of the aims pursued by the UK's sanctions regime. The challenges were dismissed at first instance and subsequently by the Court of Appeal.
The Proportionality Test
The Supreme Court unanimously clarified that the correct test for proportionality to be used by any court carrying out a proportionality assessment is that set out in Bank Mellat v HM Treasury (No 2) ("Bank Mellat").7 This test has four limbs:
- Is the measure's objective sufficiently important to justify the limitation of a fundamental right?
- Is the measure rationally connected to the objective?
- Could a less intrusive measure have been used?
- Having regard to these matters and to the severity of the consequences, has a fair balance been struck between the rights of the individual and the interests of the community?
The Supreme Court clarified that, in the context of a challenge to a ministerial decision, the first instance court should make its own assessment as to whether the action taken pursuant to the decision is 'proportionate, and hence lawful, or not'.8 As such, the first instance court's function should not be seen as a 'secondary, reviewing function, dependent on establishing that the primary decision-maker misdirected itself, or acted irrationally or was guilty of procedural impropriety'.9
They also ruled, overturning the Court of Appeal's approach, that an appellate court considering proportionality can take one of two routes depending on the specific circumstances of the case:
- check the first instance court's assessment to ensure that it was arrived at correctly and that the measure in question is reasonable; or
- make its own 'fresh assessment' of the proportionality of the measure in question.10
The 'fresh assessment' approach would be appropriate in cases where the decision has wider significance. This is likely to be more important in cases where appellate court guidance might be required in relation to a general principle that arises, or where the issues in question have major social or political significance. Both Shvidler and Dalston Projects were deemed to be 'test cases' in relation to the UK's Russian sanctions regime, and so the Supreme Court unanimously agreed that the fresh assessment approach was appropriate.
The Supreme Court's Application of the Proportionality Test
Having applied the four limbs of the Bank Mellat proportionality test to the facts of both Shvidler and Dalston Projects, the Supreme Court found that the sanctions that had been imposed were proportionate, although Lord Leggatt dissented in relation to Shvidler.
- Limb (i) (Legitimate aim): the Supreme Court considered the aim of trying to limit and deter Russian aggression in Ukraine to be 'one of the most vital aims that the UK government has been called upon to pursue in recent years'.11
- Limb (ii) (Rational connection): they also considered that there was a rational connection between the decisions in Shvidler and Dalston Projects and the purpose of the UK's sanctions regime against Russia. In their submissions, the appellants both argued that the likelihood of the sanctions against them having any impact on Russia's war in Ukraine was so small that it could not justify the interference with their rights. The Supreme Court rejected this view, observing that there is no need for the UK Government to show that particular sanctions measures would by themselves achieve the purposes for which they were imposed, but rather that a cumulative effect be felt, and thus that 'some plausible contribution [has been] made'.12
- Limb (iii) (Less intrusive means): it was held that there were no less intrusive measures that the government could have taken to achieve their objectives.
- Limb (iv) (Fair balance): the Supreme Court finally considered whether a fair balance had been struck. In relation to Dalston Projects, it observed that any financial loss sustained by Mr Naumenko in connection with the Phi's detention would have limited impact on him. They agreed with the Court of Appeal that the fact the Phi was a superyacht and that its detention would not lead to financial hardship to Mr Naumenko was relevant. In relation to Shvidler, the Supreme Court noted the 'very drastic' effect of Mr Shvidler's worldwide assets being subject to an asset freeze in light of his position as a UK citizen.13 However, it found that this would not prevent the 'core interests' of Mr Shvidler and his family from being met.14 The court noted that for sanctions to be effective, they must necessarily be severe. Through the Office of Financial Sanctions Implementation's licencing system, Mr Shvidler could apply for permission to use his frozen assets to meet his and his family's basic needs. The judges did however acknowledge that there were some flaws in this system.
Lord Leggatt's Dissenting Judgment
In Shvidler, Lord Leggatt dissented, stating that the government had failed to evidence a rational connection between freezing Mr Shvidler's assets and the objectives of the UK's Russian sanctions regime (i.e.: Limb (ii) of the proportionality test was not satisfied). Leggatt found the measures imposed against Mr Shvidler to be unjust and disproportionate, pointing to Mr Shvidler's limited connections with Russia since 2007 and his British citizenship and the profound impact his designation was having on his private and family life.
Lord Leggatt's dissenting judgment also criticises the evidence put forward by the UK Foreign Commonwealth and Development Office (the 'FCDO') in support of the designation of Mr Shvidler, referring to the opinions expressed by the FCDO witness as 'no more than armchair theories' and one assertion as 'incoherent'. It will be interesting to see what impact (if any) these significant criticisms will have on the future approach of the government when designating individuals.
Looking Forward
It is likely that the Supreme Court's ruling will have a significant deterrent effect on court challenges to sanctions designations in the UK going forward. However, it is prudent to remember that court proceedings are the second step in challenging a sanctions designation, and that individuals can in the first instance request a revocation of their designation.15
It is important to note however that the UK has already designated a vast number of individuals and entities under the Russia Regulations. In doing so, it has covered perhaps the 'most obvious' targets. If it continues to sanction individuals and entities, the justification for selecting specific individuals may become more tangential and open the courts to a more justified swathe of proportionality challenges.
Contributors
The authors would like to thank Trainee Solicitor Nik Sharma for his contributions to this OnPoint.
Footnotes
1 [2025] UKSC 30.
2 Evraz Plc was itself designated pursuant to the Russia Regulations by the UK Government on 5 May 2022.
3 Per Regulation 11 of the Russia Regulations.
4 This is subject to being able to apply for a licence on the basis of certain limited grounds set out in Schedule 5 of the Russia Regulations.
5 Pursuant to Regulations 57C and 57D of the Russia Regulations which allow the Secretary of State to detain or restrict the movement of a ship that is 'owned, controlled, chartered or operated by persons connected with Russia'.
6 He is not subject to an asset freeze. For the purposes of Regulations 57C and 57D, the Secretary of State can detain or restrict the movement of a ship if the owner/controller/operators if a person 'connected with Russia'.
7 [2013] UKSC 39.
8 Paragraph 121.
9 Paragraph 120.
10 Paragraph 142.
11 Paragraph 173.
12 Paragraph 191.
13 Paragraph 210.
14 Paragraph 211.
15 Section 23 of the Sanctions and Anti-Money Laundering Act 2018.
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.
