[2025] EWHC 2036 (Comm)

In Mints v PJSC National Bank Trust referred to at paragraph 84 above, the Court of Appeal considered the submission of Mr Rabinowitz KC for the Appellantsat [112] that the definition of control in Regulation 7(4) is:

“apt to cover the case of a 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.”

Sir Julian Flaux C, with whom Popplewell and Newey LJJ agreed, went on to hold at [229] that:

“… the use of the words: “having regard to all the circumstances” and “by whatever means” makes it clear that the provision does not have any limit as to the means or mechanism by which a designated person is able to achieve the result of control, that the affairs of the company are conducted in accordance with his wishes. Mr Rabinowitz's description of regulation 7(4) as applying when the designated person “calls the shots” is an apt one” [emphasis added].

The Litasco case referred to above, is strongly relied upon by the Defendant. There Foxton J considered the argument that a buyer of crude oil was entitled to refuse to pay sums alleged to be due under a deed of payment by virtue of a sanctions clause in the underlying sale contract. The seller itself was not sanctioned, but the buyer argued that it was subject to control in the relevant sense by a sanctioned individual, Mr Alekperov, and therefore to be treated as if it were sanctioned.

The judge considered whether there was an arguable sanctions defence, which meant applying the control test in the Russia equivalent of the UK Regulations, and specifically the provision for control to be established where it was “reasonable, having regard to all the circumstances, to expect that P would (if P chose to) be able, in most cases or in significant respects, by whatever means and whether directly or indirectly, to achieve the result that affairs of C are conducted in accordance with P’s wishes”.

At [63] the judge stated that:

He therefore concluded that at [64]:

“The evidence before me does not, therefore, establish a triable case that Mr Alekperov controls Litasco. The Defendants’ contentions to the contrary are pure speculation, which may explain why their Defence was amended to replace what was once a positive case of such control with a non-admission.”

At [74] Foxton J also considered the control test in Regulation 7(4) and stated:

“I believe the better interpretation of reg 7(4) is that it is concerned with an existing influence of a designated person over a relevant affair of the company … not a state of affairs which a designated person is in a position to bring about. Were matters otherwise, it would follow that President Putin was arguably in control, for reg 7(4) purposes, of companies of whose existence he was wholly ignorant, and whose affairs were conducted on a routine basis without any thought of him.”

Hellard v. OJSC Rossiysky [2024] EWHC 1783 (Ch), Mr Nicholas Thompsell, sitting as a Deputy Judge of the High Court, examined Foxton J’s decision and his interpretation of Regulation 7(4) referred to above. Mr Coldrick suggested that the Deputy Judge cast doubt on the validity of the analysis conducted, but as Mr Shirley pointed out, at [74] he stated that the language of Regulation 7(4) was “readily reconcilable” with the approach taken by Foxton J in Litasco and indeed cited it with approval at [90]-[91].

Further at [76], the Deputy Judge considered four types of control that might be established in relation to the UK Sanctions Laws:

I accept Mr Shirley’s submission that the Claimant appears to rest its case on de facto, present or future, rather than de jure control.

In the Hellard case, at [77], the Judge said:

“ii)

Actual present de facto control is demonstrated by pointing to circumstances where the putative controller has exercised a decisive influence to control what is happening. There is reasonable cause to suspect it exists where there is reasonable cause to suspect that such events may have occurred. …

iv)

Potential future de facto control requires some particular feature leading one to believe that the putative controller could, if he or she wished, exercise control in some manner otherwise than by the exercise of a legal right or legal power. It is difficult to conceive a manner in which this can be demonstrated since by definition that feature will not be the existence of a legal right or legal power and, as the control has not yet been exercised, it will be difficult to point to circumstances to establish this.”

As the Deputy Judge noted at [91]:

“The decision in Litasco is clearly correct when one considers these matters and it does not depend on interpreting Regulation 7(4) in the teeth of its express wording as applying only to existing, rather than possible future de facto control. It is not that the court should ignore the words "if P chose to" in Regulation 7(4). It is that these words cannot be thought to apply if P has no present means of controlling the person in question without the cooperation of others and/or would face penalties or undesirable consequences in obtaining such control.”

Vneshprombank LLC v. Bedzhamov [2024] EWHC 1048 (Ch) was a decision of Cockerill J and Master Kaye, which was heavily relied upon by Mr Coldrick. At their conclusion at [129], the Judges concluded that, were it necessary to do so, they would conclude that, despite the share transfer in the company under consideration and its sale to a third party, there was reasonable cause to suspect that the company was owned or controlled by a designated person or designated persons within the meaning of Regulations 5-6 of the Russia (Sanctions) (EU Exit) Regulations 2019. Their reasoning is set out at [125]-[128], in particular my attention was drawn to the reference at [125]:

“multiple overlapping indications which suggest that the transfer and sale were not arms’ length transactions.”.

It is to be noted that these conclusions were reached despite written declarations from the designated persons concerned that they had no control.

At [113] the Judges set out what they describe as “some uncontentious relevant law” on the subject of the test of “reasonable cause to suspect”:

“

(1)

The test imports an objective element requiring an evidential foundation. R v Lane and Letts [2018] UKSC 36 at [22] and [24], identifying the objective nature of the standard in the context of the terrorist financing offence in s.17 of the Terrorism Act 2000;

(2)

It must be fact-based and genuinely reasonable. R (Ahmed) v HM Treasury [2009] 3 WLR 25, [135] (Sedley LJ);

(3)

It requires that on the available information, a reasonable person would, not might or could, suspect that in e.g., a Regulation 11 case, a person whose funds or economic resources are dealt with is a designated person within the meaning of the Regulations. R v Lane and Letts [24]; R (Ahmed) v HM Treasury [136] where Sedley LJ described the ‘may be’ test as “on any rational view, a bridge too far”;

(4)

the question whether there are reasonable grounds to suspect must be

considered in the round, in a fair-minded review which takes into account all relevant information including undermining material and initial suspicions may be dispelled by information or evidence which undermines what might otherwise be reasonable grounds. National Crime Agency v Baker & Ors [2020] EWHC 822 (Admin) (Lang J);

(5)

It is necessary to guard against making unreliable assumptions and to exercise caution in treating complexity of corporate structures as grounds for suspicion. NCA v Baker [95]-[100];

(6)

The accuracy and credibility of the sources of evidence relied upon should be evaluated and verified, although such evidence is not limited to that which would be admissible in court. LLC Synesis v Secretary of State for Foreign, Commonwealth and Development Affairs [2023] EWHC 541 (Admin) (Jay J)at [73] “the Court will normally expect that at least some recognition has been given to its inherent quality”;