UK Court of Appeal judgment in Bank Otkritie v Mints; UK sanctions don’t prevent civil claim by designated person & control test is broad

In 2019, PJSC National Bank Trust & Bank Otkritie brought proceedings claiming that the defendants conspired with representatives of the banks to enter into uncommercial transactions with companies connected with the defendants by which loans were replaced with worthless or near worthless bonds.

The defendants applied for a stay of proceedings on the grounds that the claimants could not lawfully satisfy adverse costs orders, provide security for costs or pay any damages that might be awarded on their cross undertaking, because the 2^nd claimant, Bank Okritie, was UK sanctioned, and the 1^st claimant was owned or controlled by President Putin or Ms Nabiullina, Governor of the Russian Central Bank.

In January 2023, the High Court (Cockerill J) rejected this application (previous post, judgment).  Today, the Court of Appeal dismissed an appeal against that judgment (judgment, press release), holding that:

• The UK Sanctions Act doesn’t stop a designated person bringing civil proceedings or the court giving a money judgment, therefore there should be no stay of proceedings; the Act does not displace the designated person’s right of access to court and the court system in England & Wales doesn’t have outlaws. The same is true of the EU sanctions regime which the UK intended to continue after Brexit.

• A cause of action is an economic resource but not a fund. A fund comes into existence when the judgment debt is created but the court entering a judgment (as opposed to it being enforced) does not deal with or make funds available to a designated person so is not prohibited.

• OFSI can licence an adverse costs order both for or against a designated person, security for costs, and legal fees of both parties.

• Although the court therefore didn’t need to decide the point, it held that PJSC National Bank Trust is “controlled” by President Putin and/or Ms Nabiullina (Central Bank Governor) within the meaning of the Russia regulations. The judge below had been wrong to say there was a carve-out from the control test for control by political office. If, as a consequence, every company in Russia is deemed to be controlled by Mr Putin and hence sanctioned, the court said that the remedy is for the executive and Parliament to amend the wording of the regulations to avoid that consequence and not to read in words which “are simply not there”. The concept of control covers any designated person who, for whatever reason, is able to exercise control over another company irrespective of whether the designated person has an ownership interest in the other company, economic or otherwise.