BL-2017-000665 - [2025] EWHC 2909 (Ch)

The argument in relation to sanctions was advanced on behalf of Mr Bogolyubov, although it was adopted by Mr Haydon for Mr Kolomoisky without further development. Accordingly, when I describe what was said on behalf of Mr Bogolyubov it should also be taken to apply to Mr Kolomoisky as well.

It is not in issue that, since 12 February 2025, Mr Bogolyubov has been subject to sanctions ordered by the President of Ukraine pursuant to a decision of the National Security and Defence Council made under the Ukrainian Law on Sanctions of August 2014. The expert evidence was that these sanctions are of indefinite duration and their effects include asset freezing, prevention of capital withdrawal from Ukraine, suspension of performance of economic and financial obligations, and a prohibition on concluding transactions with the sanctioned person. Mr Bogolyubov explained that challenges to the lawfulness of the sanctions to which he is subject are ongoing. Mr Bogolyubov also explained in some detail in his evidence that the sanctions ordered against him form part of the hostile economic and political environment to which he is currently subject in Ukraine.

It is also common ground that, although Ukrainian law provides that any transaction entered into in breach of the sanctions is null and void (see Article 228 as referred to at [972] of the Judgment), it does not yet back these sanctions with criminal penalties. However, it seems that there is at least one bill currently being progressed through the Verkhovna Rada (the Ukrainian legislature) which would, if enacted, impose criminal liability for deliberate breach and circumvention of sanctions. Mr Bogolyubov submitted that there is at least a real risk that any breach of the sanctions to which he is subject will be criminalised within a matter of weeks.

Initially Mr Bogolyubov expressed concern that, if he took steps to deal with his assets (both in Ukraine and elsewhere) so as to fund payment of the judgment debt or fund his appeal he might be acting in breach of the sanctions. This way of putting his case has changed in circumstances which I shall come to shortly, such that the focus has shifted to a submission that he would suffer irremediable prejudice if a stay is not granted because there is a material risk that the sanctions, and the possibility of their extension, mean that the Bank may not be able to return funds to him if the Judgment or costs orders are reversed on appeal.

Mr Bogolyubov contended that there can be no real dispute that sanctions could apply to prevent a return of assets (or their proceeds) if the relevant assets were held inside Ukraine and he relied on NBU Regulation No 65, which prohibits a Ukrainian bank from carrying out any transaction that breaches, facilitates, or may facilitate the breach or circumvention of restrictions imposed by sanctions. The Bank did not accept that this was the case, because its position was that transfers made in the context of enforcement of judgments were not caught by the sanctions and it relied on a letter from the NBU dated 15 June 2022 (the “NBU Letter”) to that effect.

However, Mr Anderson KC said that the Bank’s position on this aspect of the argument was really only advanced for completeness because the principal ground for saying that sanctions did not give rise to irremediable prejudice to the Individual Defendants was that they have no extraterritorial effect. I shall come back to the enforcement argument a little later in this judgment.

The Bank’s primary position was that the sanctions have no extraterritorial effect unless and until a mechanism is put in place, via international cooperation, for their enforcement abroad. It said that for the Individual Defendants not to accept that is the case exposes a tension with the fact that Mr Bogolyubov continues to make payments to Enyo, counsel, Mr Marchukov, Primecap (although another issue has recently arisen in relation to Primecap) and the other CSPs. It therefore took the position both that Mr Bogolyubov is free to pay the judgment sum from his assets outside Ukraine and that there is no material risk that the sanctions would prevent the Bank from effecting a return of assets or the proceeds of assets held outside Ukraine if Mr Bogolyubov is successful in his appeal.

Mr Bogolyubov contended that, even if that were to prove to be correct, the risk has to be assessed not just by reference to any present liability in connection with sanctions but also by reference to the risk of unfounded allegations of breach of sanctions being made, given that the mere existence of that risk may well be sufficient to deter parties from dealing with the assets in question out of caution. In support of these submissions, Mr Bogolyubov relied on the following expert evidence from Mr Marchukov:

It was at the root of Mr Bogolyubov’s argument that such case law as there is supports the risk identified in Mr Marchukov’s evidence. In two cases arising out of the same underlying events (resolutions of the Supreme Court dated 14 May 2025 in case No. 320/14459/2 (“Pulp Mill 1”) and dated 26 May 2025 in case No. 160/1038/24 (which together with Pulp Mill 1 I shall call “Pulp Mill”)), Person 2, who was a Russian citizen resident outside Ukraine, was the UBO of an Austrian holding company (Pulp Mill Holding), which itself owned several Ukrainian companies. Person 2 was therefore registered as the UBO of the Ukrainian subsidiaries on the Ukrainian Unified State Register (“USR”). He was the subject of an asset freezing sanction. Under an Austrian-law agreement, ultimate beneficial ownership of Pulp Mill Holding was transferred from Person 2 to an Austrian citizen not subject to sanctions. The intention behind the transfer was circumvention of the sanctions. The transfer agreement and other documentation was then submitted to a private notary in Kyiv and a state registrar in Dnipro to effect the necessary changes to the USR. The Ministry of Justice concluded that the notary and registrar had acted unlawfully, because they had assisted a transaction that was subject to sanctions or had circumvented sanctions, and revoked their rights of access to the USR. Both the notary and the registrar brought proceedings challenging the Ministry of Justice decision.

The transfer itself was contrary to Ukrainian public policy and of no legal effect under the law of Ukraine. The Supreme Court found that, notwithstanding the lack of any specific prohibition on registering a change of UBO involving a sanctioned person, the registration should have been refused under the general rule that the documents submitted contradicted the laws of Ukraine. Mr Morrison stressed the significance of this, submitting that this illustrated that the Ukrainian sanctions have extraterritorial effect at least to the extent that Ukrainian law regarded the transaction relating to Pulp Mill Holdings which was carried out under Austrian law as void.

It was also said on behalf of Mr Bogolyubov that it was not right that the only two conclusions to be derived from Pulp Mill were that an asset freezing sanction had been imposed against Person 2 and that the Austrian law transfer agreement outside Ukraine aimed at circumventing an asset freeze should be refused recognition in Ukraine, i.e., by registration on the USR in Ukraine. The Supreme Court held that a failure to refuse recognition by a Ukrainian registrar and Ukrainian notary amounted to unlawful conduct by those parties and justified the revocation of their licence to access the Ukrainian state registry. It followed, so it was said, that a similar approach may be applied in relation to any individual or entity (such as the Bank) involved in assisting with the return of assets to Mr Bogolyubov if his appeal were to succeed.

Mr Morrison drew particular attention to [51] of Pulp Mill 1, which I should quote in full because it founded a submission that the Supreme Court has decided that the sanctions can apply both where the relevant transaction is abroad and where the relevant assets are located abroad:

“Thus, the application of sanctions based on Law "On Sanctions" is allowed, in particular, in respect of foreign legal entities or individuals. At the same time, taking into account that the content of such sanction as asset freeze pursuant to paragraph 1, part 1, Article 4 of Law "On Sanctions" is not limited to the prohibition on the use and disposal of assets located in Ukraine, such prohibition applies to any property (assets) owned or held by the sanctioned person on the basis of another property right, if such right provides for the possibility of direct or indirect disposal of the relevant property, regardless of the location of the assets.”

However, as Mr Morrison accepted this was then qualified in [55] of Pulp Mill 1 in which the Supreme Court went on as follows:

“Thus, even though the President of Ukraine does not have direct powers to regulate transactions of sanctioned persons abroad, he ensures the implementation of the sanctions policy through the NSDC. Therefore, since Law "On Sanctions" does not limit the effect of sanctions only to assets located in Ukraine, the relevant restrictions may also apply to assets abroad if: 1) they are owned by a sanctioned person; 2) there is a mechanism for the enforcement of sanctions through international cooperation.”

Mr Morrison submitted that an analysis of these two paragraphs identified the crux of the dispute. He asked rhetorically: is it the position that the Ukrainian law of sanctions does not purport to apply to any transaction outside Ukraine unless the assets are owned by a sanctioned person or there is scope for enforcement via a mechanism of international cooperation? Or does the law still purport to prohibit that transaction, but the sanctions will not apply in practice unless one of these two conditions are met because there is no way to prevent it? He accepted that, prior to Pulp Mill, it had been assumed that transactions outside Ukraine were not subject to sanctions, but submitted that the position was now unclear. He said that this was sufficient for his purposes because the material risk of a breach of the Ukrainian sanctions regime, if the proceeds of enforcement were required to be returned to Mr Bogolyubov at the conclusion of any successful appeal, itself causes a real risk of prejudice which weighed heavily in the balance in support of Mr Bogolyubov’s application for a stay. He said that such prejudice could only be avoided if it were to be clear that the Ukrainian sanctions do not apply to transactions outside Ukraine unless one of those two conditions is met.

Although his submission was to the effect that the position was at best ambiguous, the substance of his argument was that the better view is that the sanctions are extraterritorial as a matter of principle, in support of which he also relied on [59] of Pulp Mill 1:

“Thus, the sanctions imposed on a person under Law "On Sanctions" are extraterritorial in nature, meaning that their effect is not limited to the territory of Ukraine. If a person subject to sanctions formalises the alienation of assets in another state, this does not lift the sanction imposed by Ukraine. The asset freeze applies to any property (assets) owned by the sanctioned person or in respect of which such person has any other property right that provides for the possibility of direct or indirect disposal of the relevant property, regardless of the location of the assets.”

The submission that Pulp Mill gave rise to some ambiguity is said to be supported by Mr Marchukov’s evidence to the effect that it remains unclear from the respective statements of the Supreme Court whether Ukrainian sanctions have extraterritorial effect as a matter of Ukrainian law (even if there is no practical means of enforcement) or whether their extraterritorial effect is subject to the preconditions (amongst others) that there is a mechanism for compulsory enforcement through international cooperation. But he fairly accepted that the latter approach was more aligned with the position from which he had started, viz.:

“In general, the territorial effect of a Ukrainian legal act (including the Law on Sanctions) may extend to the entire territory of Ukraine, the relevant administrative-territorial unit(s) or to a specific part thereof. This, logically, places a limitation on the possibility of Ukrainian legal acts (including the Law on Sanctions) being effective outside the territory of Ukraine.”

In further development of his argument based on lack of clarity, Mr Morrison posited three different scenarios. The first is where the transaction relates to assets within Ukraine, the second is where the transaction relates to assets outside Ukraine but an entity in Ukraine would need to be involved in some way by doing something in Ukraine and the third is where the asset, the relevant act and the entity involved are all outside Ukraine. In relation to the second scenario, it was submitted that, as the Bank is incorporated in and managed from Ukraine, is regulated by the NBU, and is owned and controlled by the Ukrainian state, it stands in a similar – or potentially more difficult – position to the notary and registrar in Pulp Mill. If the Bank were ordered to repay any sums paid under it, or to restore any properties or other assets following a successful appeal, the Ukrainian authorities would be likely to rely on the existence of sanctions and the asset freeze as a basis for preventing the Bank from effecting any such return.

It was also said that, even if the immediate transaction was to be effected outside Ukraine, the NBU’s Regulation would prevent the Bank itself (or any other financial institution based or operating in Ukraine) from giving effect to it by taking any steps within Ukraine. It was submitted that Pulp Mill 1 makes clear that any transaction involving the return of assets to Mr Bogolyubov might be considered to circumvent sanctions, thus being unlawful and contrary to Ukrainian law. It followed that any entity or individual in Ukraine was not in a position to cooperate in giving effect to the transaction without facing serious professional, and potentially criminal, consequences.

As to the third scenario, where in theory the assets and all the individuals are outside Ukraine, and the Bank has effectively forgone any involvement in the process because any enforcement proceeds are held outside Ukraine and then re-transferred to Mr Bogolyubov outside Ukraine in the event of any successful appeal, Mr Morrison submitted that there would still at least arguably be a breach of Ukrainian law. He said that there would be difficult issues which arose on how instructions for the re-transfer were to be given. He also submitted that any need to keep the proceeds of enforcement outside Ukraine pending the determination of the Defendants’ applications for permission to appeal (and if granted the appeal itself) is inconsistent with one of the bases on which the Bank opposes the application for a stay: that it needs the funds as soon as reasonably practicable in the broader interests of the state of Ukraine as the Bank’s shareholder, a factor which itself contemplates the domestication of the proceeds to Ukraine.

There were two main elements of Mr Beketov’s evidence in answer to the Defendants’ case on the impact of sanctions. The first was that he did not agree with Mr Marchukov’s view that there would necessarily be a breach or circumvention of sanctions if the agreements and transfer of funds were to take place outside Ukraine, on the basis that in his view sanctions do not have any extraterritorial effect on either the agreement or the transfer. The second is that any return to Mr Bogolyubov would ultimately be made to him in his capacity as a judgment creditor holding an English court order that the Bank return the funds in question. He said that actions taken in furtherance of the enforcement of any such order are not prevented by the sanctions to which Mr Bogolyubov is subject, in support of which he relied on the NBU Letter which related to the application of sanctions to Ukrainian banks and which was said to have “specifically addressed… enforcement proceedings”.

As to the first of these points, Mr Beketov and the Bank relied on the resolution of the Grand Chamber dated 7 November 2024, in case No. 990/184/24, Person 1 v the High Council of Justice. Mr Beketov explained that this case illustrates an established principle that, while for citizens everything not expressly prohibited by law shall be allowed, for state authorities only what is expressly permitted by law shall be allowed. It followed that, in order for sanctions enacted by the executive or legislative authorities of Ukraine to have effect outside the territory of Ukraine, there must be an enabling provision in Ukrainian law expressly authorising those authorities to enact sanctions that have extraterritorial effect and that the instruments enacting those particular sanctions must expressly provide for them to have such effect. In his view there is no such authority. On this aspect of the argument, Mr Marchukov’s evidence was to the same effect: “I certainly do not disagree that Ukrainian legal acts (including the Law on Sanctions) have effect only within the territory of Ukraine.”

The Bank then relied on another decision of the Grand Chamber which was specifically concerned with sanctions, but which was not referred to in either of the Pulp Mill resolutions: resolution of the Grand Chamber dated 13 January 2021 in case No. 9901/405/19, Person 1 (Eidelman) v President of Ukraine (“Eidelman”). As a decision of the Grand Chamber, it is more authoritative than the Pulp Mill resolutions ([818] of the Judgment) and in my view supplies the answer to the Individual Defendants’ submission.

In Eidelman the sanctioned person (Mr Eidelman), who was Moldovan, did not live in Ukraine and had no assets in Ukraine, sought to challenge the sanctions imposed on him by the President of Ukraine in a form similar to those imposed on the Individual Defendants in this case. Part of the argument was concerned with the application of Article 1 of the First Protocol to the ECHR, and the resolution discussed the balancing of the public interest of the state of Ukraine “to control the use of property in the general interest” against Mr Eidelman’s private rights to peaceful possession of his property with which the imposition of the sanctions was said to have interfered.

The Grand Chamber concluded that, in all the circumstances including the fact that the interference with Mr Eidelman’s right to peaceful enjoyment of his property was only a temporary restriction on the possibility of exercising this right in Ukraine, the interference was proportionate to the legitimate aim pursued and did not constitute an excessive burden on him. It also went on (at [63]) to make the following finding:

“Moreover, the plaintiff does not indicate that he has any property on the territory of Ukraine and therefore does not demonstrate the reality of a violation of his right, nor does he specify whether such interference occurred with respect to him at all.”

The Grand Chamber’s conclusion that, because Mr Edelman had no property in Ukraine, he had not demonstrated the “reality of a violation of his rights” and had not shown whether such interference occurred with respect to him “at all” was emphasised in [67] where the Grand Chamber spelt out that the state’s interference in Mr Eidelman’s peaceful possession of his property did not deprive him of the right of ownership but “only temporarily - for a clearly defined period - restricts the possibility of exercising this right in Ukraine”. It follows that it was an essential part of the Grand Chamber’s reasoning that one of the reasons that the sanctions were proportionate was that he had no property in Ukraine, which was the only property to which they could attach. It was not suggested that the form of the sanctions imposed on Mr Eidelman were materially different to the sanctions imposed on the Individual Defendants.

Mr Anderson also submitted that a proper analysis of Pulp Mill demonstrates that those two decisions do not stand for the propositions on which Mr Bogolyubov relies. The foreign element in those cases was the change in beneficial ownership of the Austrian parent of the Ukrainian subsidiaries, but it also amounted to a change in the UBO of the Ukrainian subsidiaries themselves, which was then recorded on the USR in Ukraine. As it was put at [67] of Pulp Mill 1:

“From the analysis of the above provisions, it follows that if the transaction on the alienation of assets was carried out under the laws of a foreign state, it will become legally binding in Ukraine only after the relevant changes are made to the Unified State Register. This means that by entering information on the change of the ultimate beneficial owner of a legal entity into the Unified State Register on the basis of a foreign document on the disposal of assets, Ukraine officially recognises this legal fact, even despite the existing decision of the NSDC to impose sanctions on the previous ultimate beneficial owner.”

The Supreme Court then went on to explain that, since the entry of information into the USR on the change of the UBO of the Ukrainian subsidiaries from a sanctioned person to another person was an official recognition in Ukraine of the relevant facts, the state registrar must refuse to carry out such registration having regard to the purpose of the sanctions. It was said that, if the new UBO of a legal entity is already registered under the laws of a foreign country (in that case Austria), this did not mean that this fact was automatically recognised in Ukraine.

I agree with Mr Anderson that this part of the Supreme Court’s reasoning makes clear that the issue before it was one of recognition. The question was whether the transaction effecting a change in ownership of the Austrian parent should be recognised in Ukraine by recording the change of UBO in the Ukrainian register of Ukrainian companies (i.e., the subsidiaries). The analysis was that the consequences in Ukraine of what had occurred in Austria were incompatible with public order within Ukraine and could not therefore be recognised by a change in the USR in Ukraine.

Mr Anderson therefore submitted that the evidence of Ukrainian law shows that it is only if there is an effect on an asset in Ukraine that the sanctions bite at all. In the Pulp Mill cases, the court was only concerned with the Ukrainian subsidiaries and their UBO. Its interest in the Austrian holding company had nothing to do with the fact that it was an asset outside Ukraine to which the sanctions might have applied – they did not. Its only relevance was that the change of UBO of the Austrian holding company is what had the effect in Ukraine of changing the UBO of the Ukrainian subsidiaries. He said that this situation is quite different from the situation in the current case, if and for so long as the assets enforced against by the Bank remain outside Ukraine and are returned to Mr Bogolyubov outside Ukraine in the event of a successful appeal. In those circumstances there is no need for anything to be recognised in Ukraine and there is no Ukrainian effect on a Ukrainian asset. It followed that the approaches adopted in Pulp Mill simply do not apply.

This conclusion takes its force from the manner in which Mr Beketov deals in his 15^th report with the paragraphs in Pulp Mill 1 relied on by Mr Morrison. I accept Mr Anderson’s submission that his analysis of the Supreme Court’s decision is that sanctions are capable of having extraterritorial effect only where a mechanism for their recognition and enforcement in a particular foreign jurisdiction is put in place through international cooperation. This is spelt out in paragraph [55] and the mandatory nature of Ukraine’s obligation to act only in accordance with international agreements is stressed in paragraph [57]. Nothing that is said in paragraphs [51] and [59] cuts across that qualification when read in the factual context applicable in that case.

In my view, Mr Beketov’s analysis is compelling for the reasons he gives. It is more consistent with the general approach adopted by the law of Ukraine in relation to extraterritoriality and reflects the decisions of the Grand Chamber I have identified. I shall come back to how such risk that this is wrong is proposed to be dealt with, but the final part of the jigsaw is whether there continues to be a risk that any of the assets against which the Bank might enforce if a stay were not to be granted might become subject to sanctions after enforcement by reason of any steps taken by the Bank during the course of the enforcement process, of which a transfer to Ukraine is the most obvious example.

Mr Bogolyubov also submitted that the Bank’s argument that he would be able to receive back assets even within Ukraine does not stand up to scrutiny. It was pointed out that Mr Beketov simply says that he does not agree that a breach or circumvention of sanctions would necessarily occur if the Bank were to return assets to him by agreement. It was also said that the NBU Letter is mere guidance which does not supersede Ukrainian caselaw, that its contents are now out of date (referring as it does to legal instruments which have, themselves, been superseded) and that it is expressly concerned with enforcement against the frozen bank accounts of a sanctioned person. It is said that it therefore provides no support for the proposition that a Ukrainian bank could credit the account of a sanctioned person as part of the unwinding of a wrongful enforcement process, because there is plainly a world of difference between the debiting of a frozen bank account in favour of a non-sanctioned creditor by Ukrainian authorities, and the payment by a Ukrainian bank in favour of a sanctioned entity.

The Bank’s short response to this part of the case was that the point did not arise because there was no question of enforcing against assets in Ukraine or returning Ukrainian assets back to the Individual Defendants in Ukraine. But I was shown two cases which gives some qualified support to the Bank’s position: resolution of the Commercial Court of the Odesa Region dated 21 July 2025 in case No. 916/159/24, MTB Bank and resolution of the Fifth Administrative Court of Appeal dated 6 January 2023 in case No. 420/17341/22, Southern Tobacco Company, the latter of which referred to and adopted what was said in the NBU Letter. Mr Anderson submitted that they confirm that, even if the proceeds of the assets enforced against were in Ukraine, it would be open to the Individual Defendants to sue the Bank for recovery of such proceeds based on any order of the Court of Appeal requiring the Bank to do so, and the existence of sanctions would not be a defence available to the Bank in those circumstances.

I think that there is some substance in that submission and it was supported by the evidence not just of Mr Beketov but also that of Mr Marchukov as well. As Mr Marchukov said:

“This means that, strictly speaking, there are no grounds to suggest that enforcement of judgments (including recognised foreign judgments) in Ukraine against or in favour of sanctioned persons is blocked.”

However, there is no decision of the Supreme Court which confirms that this is the case and, if this were to be the only argument available to the Bank as to why the Individual Defendants would suffer no irremediable prejudice absent a stay, the risk that this is not the law of Ukraine would have weighed slightly more heavily in the balance against the Bank than the argument it has based on the fact that the sanctions have no extraterritorial effect.

In recognition of the potential uncertainty in relation to the application of sanctions, there was a certain amount of correspondence between the parties on the question of how much comfort the Defendants could be given as to the risk of any return to Mr Bogolyubov being a breach of the Ukrainian sanctions regime. This culminated in a letter from Hogan Lovells to Enyo (copied to Fieldfisher) dated 3 October 2025, which gave the following confirmation:

“Pending the dismissal of your client’s application for permission to appeal (or, in the event that permission is granted, pending the outcome of any substantive appeal):

The Defendants’ position was that this was good so far as it went, but it did not deal with an important point which they said mattered and which was then raised in a letter from Enyo dated 5 October: whether the Bank or Hogan Lovells would oppose the court making an order for return of any assets recovered as part of the enforcement process on the grounds that it would require them to act in breach or circumvention of the sanctions to which Mr Bogolyubov is or may in the future become subject. It was submitted that there was no good reason for the Bank not to confirm they would not do so in circumstances in which the Bank’s position was that there was no risk of breach.

In a subsequent letter Hogan Lovells confirmed that what they had said in paragraph 3 of their 3 October letter amounted to an undertaking, and that the Bank was also willing to undertake that it would not seek to sell any Ukrainian assets pending the final determination of the Defendants’ applications for permission to appeal or the dismissal of any substantive appeal for which permission is given. However, in answer to the confirmation sought by Enyo in their 5 October letter, it was said that the Defendants’ position was unreasonable, particularly in circumstances where any substantive appeal is unlikely to be determined for at least a year and potentially much longer. It was pointed out that the Defendants were protected by the fact that the court will make whatever order is appropriate and by the undertaking to hold any proceeds to the further order of the court.

Mr Anderson also confirmed in open court that the Bank’s position is that, as the law stands, sanctions would not prevent the Court of Appeal from making an order for repayment, or the Bank from complying with an order for repayment in the event that the appeal is allowed. He agreed that this position could be explicitly recognised in this judgment. He accepted that the Bank would get short shrift if it sought to mount a sanctions-based opposition to an order to return the proceeds of any enforcement on a successful appeal, in circumstances in which the law in Ukraine remained unchanged.

In all these circumstances, I cannot say that there is no risk at all of a sanctions-related problem of the type relied on by the Defendants, but I do not consider that it has significant weight in the balance when assessing what order best accords with the interests of justice.