'Crippling Putin': Shvidler challenge fails

In August, Eugene Shvidler, a dual US and British citizen, lost a legal bid in the High Court to overturn the sanctions imposed on him. His challenge may have set a precedent for the 1,600 individuals currently sanctioned by the Foreign Office for their connections to the Russian government.

Shvidler was placed on the list in March 2022 for being a ‘business partner of Roman Abramovich, with whom Shvidler has maintained a close relationship for decades and from whom he has obtained financial benefit. Shvidler is therefore associated with a person who is involved in obtaining a benefit from or supporting the Government of Russia’. The benefit Shvidler is said to have obtained arises from his position as non-executive director of Evraz plc, a Russian steel business, of which Abramovich owns a controlling stake.

Shvidler claimed he did not derive a financial benefit from his relationship with Abramovich, has no relationship with Putin or Russian politics and has not been to Russia since 2007. He claimed sanctions destroyed his ability to conduct business and forced his children out of their British schools. Shvidler claimed that his inclusion on the sanctions list was ‘discriminatory’, as only the directors of Evraz with Russian names have been included.

The case raised knotty questions about how the UK balances the objectives of its sanctions regime, to effectively financially cripple Putin, with the rights of individuals and the principles of the rule of law.

Shvidler challenged the sanctions on two grounds. First, that the designation constituted a disproportionate interference with his rights under Article 8 (right to privacy) and Article 1 Protocol 1 (right to peaceful enjoyment of property) European Convention on Human Rights (ECHR). Second, that the UK government had exercised its discretion in a discriminatory manner in breach of Article 14 (right to enjoyment of rights and freedoms set out in the convention) ECHR.

The secretary of state has the power to impose sanctions on individuals in relation to Russia if:

1. there are reasonable grounds to suspect that the individual has been (or is owned/controlled/directed by or a member of) a person involved in destabilising or undermining the independence of Ukraine, or obtaining a benefit from or supporting the Russian government; and
2. she considers that sanctions would be appropriate in respect of achieving the purpose of encouraging Russia to cease its actions in Ukraine and of being likely to have a significant effect on the sanctioned person.

‘Obtaining a benefit’ includes the carrying on of business as an entity affiliated with, of economic significance to, or in a sector of strategic significance for, the Russian government, or controlling or working as a director of an entity affiliated with the Russian government.

The case raised the question of how wide the British government can cast its sanctions net. On the one hand, there is a need for sanctions to be effective. On the other, Shvidler’s challenge demonstrated the inherent risk for the government should it cast the net too wide.

Mr Justice Garnham recognised that foreign policy is a matter of executive judgement where ‘special weight’ should be accorded to the government’s assessment.  

He relied on the Bank Mellat case, which formulated a test of objective proportionality where fundamental rights are pleaded:

1. whether the objective of the measure is sufficiently important to justify the limitation of a protected right;
2. whether the measure is rationally connected to the objective;
3. whether a less intrusive measure could have been used; and
4. whether, having regard to these matters and to the severity of the consequences, a fair balance has been struck between the rights of the individual and the interests of the community.

Mr Justice Garnham noted that in applying the Bank Mellat test in cases involving foreign policy, the court must not assume the role of the primary decision-maker on the exercise of or determination of policy, and must instead recognise the constitutional competence of the secretary of state on matters of foreign affairs.

Although the court remains well-positioned to analyse whether the measure against a claimant is rationally connected to its objective, in determining whether the measure taken strikes a fair balance between the rights infringement and its likely benefit, foreign policy objectives are of the ‘highest order and weigh heavily in the scales’.

The court noted that Shvidler’s designation, although severe, is temporary and simply deprives him the use of his property for the period thought necessary, rather than permanently.

The court dismissed both grounds of challenge by Shvidler, labelling Shvidler’s arguments on discrimination ‘hopeless’.

Principles of justice mean it is important that those subject to the sanctions regime retain the right to legal representation and to challenge and hold to account the mechanisms that oppose them. However, there is a tension between the legal mechanism and the inherently political element to the sanctions regime.

In July this year, sanctions were dropped against Russia-born businessman Oleg Tinkov following submissions to the government where he argued the UK had sanctioned him in error. Tinkov had renounced his Russian citizenship in 2022 in protest at the war in Ukraine. He is the most prominent Russian to have successfully challenged western sanctions.

Any optimism other sanctioned individuals may have gained from the Tinkov decision will be dampened by the Shvidler decision and the development is significant for other sanctioned individuals who may be considering their own position. It is, however, understood that the decision may be subject to an appeal.

Mark Jones is a partner with the dispute resolution team, and Richard Milford is an associate with the citizenship and immigration team, at Payne Hicks Beach