Shvidler v Secretary of State for Foreign, Commonwealth and Development Affairs; Dalston Projects Ltd and others v Secretary of State for Transport

The Supreme Court’s judgment is set to become the leading authority on the UK’s Russian sanctions regime and on the approach to proportionality review at first instance and by appellate courts.

The facts in brief

In Shvidler, the appellant, Mr Eugene Shvidler, sought to challenge his designation by the Foreign Secretary under the Russia (Sanctions) (EU Exit) Regulations 2019 (the “2019 Regulations”). Mr Shvidler, who is a British citizen, was designated on 24 March 2022, a month after Russia invaded Ukraine, on the basis that he was associated with an “involved person” (Mr Abramovich), he had obtained a financial benefit from Mr Abramovich through that business relationship, and because of his involvement in Evraz plc, a Russian company in the extractives sector: [91], [96]. The effect of his designation was to freeze his assets worldwide and make it a criminal offence for other people to deal with him in either a private or commercial capacity, subject to a few exceptions: [3].

In Dalston, the appellants sought to challenge the decision taken by the Transport Secretary on 28 March 2022 to detain a superyacht, the “Phi”, under the 2019 Regulations. The Phi was detained on the grounds that it was owned, controlled or operated by a person connected with Russia, namely Mr Naumenko. Mr Naumenko himself was not designated, and there was no evidence that Mr Naumenko had engaged in any sort of political activity in Russia or had any connection with President Putin or his inner circle: [60]. Since its detention the Phi has been moored in London, during which time Mr Naumenko and the other appellants say they have been prevented from earning substantial income from chartering the yacht: [4].

The decision

The proper approach to proportionality and proportionality review by appellate courts

In a unanimous part of the judgment, [fn 1] the Supreme Court clarified the approach to assessing proportionality that a first instance court should apply when reviewing a decision of the executive and that an appellate cout should apply when reviewing the decision of a first instance court. Lord Sales and Lady Rose’s judgment repays careful reading. By way of overview:

(1) A first instance court’s task is to assess the proportionality of a public authority’s decision for itself, but it does not become the primary decision-maker in the full sense of that term. The court will have regard to and may afford a measure of respect to the balance of rights and interests struck by the public authority when assessing whether stage (iv) of the test in Bank Mellatt v HM Treasury (No 2) [2014] AC 700 is satisfied. The context relevant to determining the measure of respect to the balance of rights and interests struck by a public authority will include the importance of the right, the degree of interference and the extent to which the courts are more or less well placed to adjudicate, on grounds of relative institutional expertise and democratic accountability: [120]-[125].

(2) In the context of sanctions, the Foreign Secretary and Transport Secretary have special constitutional responsibilities and superior institutional competence to assess whether the sanctions imposed serve some useful purpose in responding to and containing Russia’s actions, such that they should be afforded a wide margin of appreciation in making their judgments: [126]-[130]. The Ministers were entitled to that margin of appreciation in respect of the reasons filed at the time of the first instance hearing of the challenges brought against their decisions, not just the reasons which were formulated at the time the decisions were made: [131]-[141].

(3) As to the approach of an appellate court: when a first instance court has made an assessment of proportionality, the question for an appellate court is whether that assessment is ‘wrong’: [146]. In making that assessment, the appellate court may confine itself to reviewing whether the first instance court’s assessment was arrived at on the basis of a proper self-direction as to the test and whether the result arrived at was reasonable (the “review approach”) or make its own fresh assessment of the measure in question (the “fresh determination approach”). The approach to be applied is justified by the context: [142]-[144].

(4) The Supreme Court gave guidance as to which approach may be appropriate in a particular case (at [142]-[165]), while warning that it was “difficult and potentially misleading to lay down hard and fast categories”: [159]. A paradigm example of where the review approach is appropriate is a one-off decision of a judge or an official which depends entirely on the application of well-established law and principles to the facts of the individual case, whilst the fresh determination approach would be appropriate in a case involving the first consideration at appellate level of a new legislative regime of general application, especially one with considerable significance for society: [160] (and see also [147]).

Application of the proportionality analysis

Turning to the proper approach to proportionality in the decisions under appeal, the Supreme Court unanimously held that the fresh determination approach was appropriate in both appeals.

The majority found that the decisions in both appeals were lawful and proportionate. They held as follows with respect to each stage of the proportionality analysis:

(1) Legitimate aim: The aim of limiting and deterring Russian aggression in Ukraine was one of the most vital aims the UK government has been called upon to pursue in recent years: [173].

(2) Rational connection: The majority recognised that if a measure is directed to promoting a very important public interest, a less direct connection between the measure and aim may be sufficient. Further, in the sanctions context it was inherently difficult for the Government and the court to assess what factors may or may not exert influence on the Russian government: [174]-[180]. With that in mind, the majority had “no doubt” there was a rational connection between the detention of the Phi and the aims of the 2019 Regulations: [194]. The designation of Mr Shvidler also contributed to the cumulative effectiveness of the Russian sanctions regime: [195]-[201].

(3) Less intrusive means: There were no less intrusive means which could have been used, and counsel for the appellants could point to none: [203].

(4) Fair balance: The majority held that the assessment of fair balance in both Dalston and Shvidler was “straightforward”: [205], [213]. In Dalston, Mr Naumenko had lost the use of his yacht and some income, but the fact that those costs were imposed was central to the point of the detaining the Phi: [207]. In Shvidler, the majority recognised the effect of the asset freeze on Mr Shvidler was “drastic”, but sanctions had to be severe if they were to be effective. Further, the OFSI licensing system was a “safety valve”: [210]-[213].

Lord Leggatt gave a dissenting judgment in the Shvidler appeal, principally concerning the margin of appreciation to be afforded to the executive when a measure restricts individual liberties ([255]-[256]), which informed his conclusion on rational connection (at [300]-[319]). He would have declared the decision in Shvidler disproportionate and unlawful: [324].

The decision in Dalston was unanimous: Lord Leggatt agreed that the designation of the Phi was lawful. In reaching that conclusion the court also dismissed a ground of appeal alleging that the decision to detain the Phi had not properly stated the grounds on which it was being detained: [225]-[235].

The Secretary of State for Foreign, Commonwealth and Development Affairs was represented by Sir James Eadie KC, Jason Pobjoy KC, and Rayan Fakhoury.

The Secretary of State for Transport was represented by Sir James Eadie KC, Jason Pobjoy KC, Emmeline Plews and Tom Watret.

The judgment can be found here.

The press summary can be found here.

[fn 1] Lord Leggatt agreed with the majority’s explanation of the proper approach, but dissented on the application of the test in the Shvidler appeal.