Edward Thomas & Ors v PJSC National Bank Trust

For the purposes of regulation 7(4) of the Russia (Sanctions) (EU Exit) Regulations 2019, potential power to control an entity is not automatically established by a designated person’s political position. The court must assess all the circumstances and determine whether it is reasonable to expect that the designated person would, if they chose, be able to secure that the entity’s affairs were conducted in accordance with their wishes.

Where the evidence shows that an entity is not presently treated as controlled by a designated person, and there is no evidence of unilateral, penalty-free potential control, the test may not be satisfied. In a fact-dependent sanctions question arising in a bankruptcy, directions under section 303 of the Insolvency Act 1986 may be preferable to a broad declaration. Any protection given to trustees should remain subject to changed circumstances and continuing monitoring.

The joint trustees in bankruptcy of Nikolay Fetisov and Ilya Yurov applied under section 303 of the Insolvency Act 1986 for permission to distribute dividends due to PJSC National Bank Trust, a Russian bank, by paying them into the client account of its solicitors, Steptoe.

The trustees were concerned that NBT might be treated as owned or controlled by designated Russian officials under regulation 7(4) of the Russia (Sanctions) (EU Exit) Regulations 2019, so that the proposed payments could breach the financial sanctions regime. The central issues were whether NBT was controlled by a designated person, whether any exemption applied, and whether the court should provide directions or declaratory relief.

1. Relief granted. The trustees were permitted to distribute NBT’s dividends by electronic transfer to Steptoe’s client account, subject to the specified safeguards and notice to OFSI.
2. Control under regulation 7(4). The court considered all the evidence. NBT was not designated in the UK; OFSI consistently regarded it as not owned or controlled by Mr Putin or Ms Nabiullina; and there was no evidence of present de facto control or of an ability to obtain de facto control unilaterally and without penalty. It was therefore not reasonable, having regard to all the circumstances, to expect that either official would be able to cause NBT’s affairs to be conducted in accordance with their wishes.
3. The Court of Appeal’s observations in PJSC National Bank Trust v Mints concerned the control issue obiter and proceeded on a concession that Mr Putin had actual de facto control of NBT. That concession was not made in the present case, materially reducing the relevance of the Mints decision.
4. Assuming that NBT were controlled by a designated person, payment to Steptoe would indirectly make funds available to NBT and could engage regulation 12. However, regulation 58(5) would provide an exemption because the relevant bankruptcy obligations arose before Mr Putin’s designation on 25 February 2022. The court did not need to decide whether the obligation arose on the Bryan Order or on the bankruptcy orders.
5. The court adopted the principles concerning declaratory relief identified in Rolls Royce PLC v Unite the Union and applied the approach in Hellard v OJSC Rossiysky Kredit Bank. Although the court had jurisdiction to proceed by declaration or section 303 directions, directions were more effective in this fact-dependent case and avoided a broad declaration that no offence was being committed.
6. The trustees were to proceed, pending changed circumstances, on the basis that NBT was not designated and was not owned or controlled by a designated person, but they had to undertake proportionate enhanced monitoring and respond to any new facts, OFSI requirement or relevant court guidance.

First-instance application under section 303 of the Insolvency Act 1986. No prior appellate history of this application was stated in the judgment.