R v R

Financial sanctions against a designated person do not generally prevent a court of competent jurisdiction from making a valid order requiring that person to pay money. The sanctions may instead regulate the use of frozen funds to satisfy the order.

An order does not circumvent an asset freeze merely because it selects a lawful payment route outside the sanctions regime. Circumvention requires more than choosing an unusual route which avoids a licence requirement. The court should ask whether the objective is one which the regime seeks to prohibit or control, whether the chosen route itself breaches the regime, and whether the conduct falls within its territorial and personal scope.

The husband and wife were Russian citizens who had divorced in Russia. The wife lived in the United Kingdom with their children and had begun English proceedings for financial relief. Moor J ordered the husband to pay interim maintenance into the wife’s Russian bank account.

The husband was a designated person under Council Regulation (EU) No 269/2014. He appealed on the ground that payment in Russia, followed by remittance to the United Kingdom, circumvented the asset-freezing measures and avoided the need for HM Treasury authorisation.

The central issue was whether the court’s order constituted prohibited circumvention under Article 9 of the EU Regulation or regulation 10(2)(a) of the Ukraine (European Union Financial Sanctions) (No 2) Regulations 2014.

1. The appeal was dismissed. The order requiring payment of interim maintenance into the wife’s Russian account was valid and did not breach Article 9 of Council Regulation (EU) No 269/2014 or regulation 10(2)(a) of the Ukraine (European Union Financial Sanctions) (No 2) Regulations 2014.

2. The Regulations had to be construed as consistent wholes, giving effect to every relevant provision. Article 5 contemplated a valid judicial order followed, where necessary, by an application to the competent authority for permission to use frozen funds. Article 11 similarly distinguished making an order from satisfying a claim. The sanctions therefore regulated satisfaction of an order from frozen assets rather than generally disabling courts from adjudicating rights and making monetary orders.

3. The same construction followed from the right of access to a court under Article 47 of the EU Charter of Fundamental Rights and Freedoms. Clear language would have been required to prevent a person from obtaining an effective judicial determination of maintenance rights. The EU Regulation contained no such language.

4. An order would circumvent the sanctions only if it contained provisions dealing with funds or economic resources and was intended to achieve an unlicensed dealing within the Regulation’s scope. Moor J’s order did not identify particular assets. It merely required payment in Russia. Even an order for payment in the European Union could validly have been made, although funds transferred in compliance might then have been frozen and required Treasury authorisation before use.

5. Briggs LJ further held that choosing an unusual route does not establish circumvention. The court must first identify whether the common objective is one which the regime seeks to prohibit or control. A lawful route to a lawful objective outside the carefully limited territorial scope in Article 17 circumvents nothing. Payment between Russian persons in Russia, using property outside the European Union, was outside that scope unless the conduct involved business or resources within the Union.

6. The court did not determine the full autonomous meaning of “circumvent”, whether transferred funds immediately became the wife’s property, or the precise meaning of “subject to” a judicial decision in Article 5.1(a). Those questions were unnecessary to the disposition.

1. Court of Appeal (Civil Division): The husband’s appeal was dismissed. The court held that Moor J’s order neither breached nor circumvented the applicable sanctions legislation: [2015] EWCA Civ 796.

2. High Court, Family Division: Moor J ordered the husband on 17 October 2014 to pay interim maintenance into the wife’s Russian bank account. He rejected the contention that the sanctions prevented that order. No citation is stated in the judgment.