Adrian Waterman KC: Mints and others v PJSC National Bank Trust and others


Adrian Waterman KC Commentary:
Mints and others v PJSC National Bank Trust and others

The Court of Appeal has handed down its ruling in Mints and others v PJSC National Bank Trust and others [2023] EWCA Civ 1132. The first instance ruling of Cockerill J ([2023] EWHC 118 (Comm)) has been upheld for essentially the same detailed reasons given by her.

There is one, potentially very important, caveat. Cockerill J provided a tentative, and obiter, ruling as to the meaning of control within Regulation 7(4) of The Russia (Sanctions) (EU Exit) Regulations 2019.  The Court of Appeal held that she was wrong in relation to the issue of control. Having upheld the main parts of her ruling, its ruling too is obiter, but, whilst Sir Julian Flaux C acknowledged this, he said ‘Nonetheless, the control issue having been fully argued, and being of some general significance, I will address it, albeit briefly’ [225]. It is suggested that it is of more than some general significance. It is of considerable general significance.

Regulation 7 reads in its entirety:

7.—(1) A person who is not an individual (“C”) is “owned or controlled directly or indirectly” by another person (“P”) if either of the following two conditions is met (or both are met).

(2) The first condition is that P—

(a) holds directly or indirectly more than 50% of the shares in C,

(b) holds directly or indirectly more than 50% of the voting rights in C, or

(c) holds the right directly or indirectly to appoint or remove a majority of the board of directors of C.

(3) Schedule 1 contains provision applying for the purpose of interpreting paragraph (2).

(4) The second condition is that it is 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.

In short, Cockerill J held that Regulation 7(2) covered ownership and Regulation 7(4) was to be interpreted as a ‘backstopping form of ownership and control’. Among her reasons were the fact that this sanctions regime generally does not provide for sanctioning of those in ‘political office’ and this would be the effect of taking Regulation 7(4) at face value. Flaux C on the other hand said that her conclusion that ‘there was a carve-out from the concept of control for political office, is not borne out by the clear and plain language of the Regulation’ [225]. He adopted the words of the appellants’ counsel that Regulation 7(4) applies when the ‘designated person “calls the shots”’ [229]. He rejected Cockerill J’s conclusion that Regulation 7(2) was about ownership, saying that even it was about ownership and control. He appears [227-228] to have concluded this on the basis of paragraph 9(3)(d) of schedule 1. In short, paragraph 9(3)(d) provides that in evaluating whether A holds sufficient shares or voting rights to cross the 50% threshold of control of C when all or some of those shares or voting rights in C are actually owned by B, the test is whether A has a ‘majority stake’ in B, and, in turn, this is determined, inter alia, by whether A has ‘the right to exercise, or actually exercises, dominant influence or control over’ B.

It is at least arguable that the regulatory definition of whether A has a majority stake in B is not the same as the regulatory definition of whether A has control over C, within the scope of Regulation 7(4). Indeed, if the Regulations had been intended to say this, given that they do say so expressly in relation to A and B (as referred to above), then surely the Regulations would have said so. The logic of the fact that they do not in fact could be said to point towards Cockerill J’s interpretation rather than to Flaux C’s.

There is no doubt that the effect of Flaux C’s interpretation of Regulation 7(4) is incredibly wide-reaching. He himself made this clear when, in response to the submission that the consequences would be ‘absurd’, he said: ‘…it seems to me that the answer to that point is the one which [the Appellants’ counsel] gave, that the absurd consequences arise not from giving the Regulation its clear and wide meaning but from the subsequent designation by the Government of Mr Putin, without having thought through the consequences that, as he put it, Mr Putin is at the apex of a command economy…[I]n a very real sense…,Mr Putin could be deemed to control everything in Russia’.

Finally, Flaux C rejected another of Cockerill J’s reasons for her tentative conclusion; namely, that any other interpretation than the one she settled upon would infringe Article 7’s prohibition of ‘uncertainty’ and ‘the presumption against doubtful penalisation’. Flaux C said that Cockerill J’s conclusion would in fact lead to greater uncertainty than his interpretation.

It is at least arguable that Flaux C’s obiter conclusions are no more compelling than those of Cockerill J, and that interpreting Regulation 7(4) remains legally problematic not because the courts have not adequately sought to analyse it, but because its drafting was so ill-thought through. Moreover, the practical effect of Flaux C’s interpretation is itself highly problematic. Having rejected Cockerill J’s ‘carve-out’ for political office (which it is right to observe is, as he emphasised, not expressly provided for in Regulation 7), Flaux C has effectively brought every entity which could be said to fall within Russia’s ‘command economy’ within the scope of Mr Putin’s (or any other designated senior political figure’s) control for the purposes of Regulation 7(4), unless, perhaps, that entity can demonstrate that they have resisted, or by inference would have resisted, those politicians’ influence.

Are the Regulations really that wide and, arguably, ‘absurd’? If so, the only certainty that is provided is that, for the present, almost every entity which can be said to fall within Russia’s command economy is controlled by Mr Putin and/or other designated political figures.

Whether anyone has the stomach to challenge this obiter ruling remains to be seen, but it is not without its legal and practical problems.