Introduction

The Supreme Court ruled in the Shvidler v Secretary of State for Foreign, Commonwealth and Development Affairs(“Shvidler”) and Dalston Projects Ltd and Others v Secretary of State for Transport (“Dalston”). In a majority decision, the Supreme Court dismissed the appeals and upheld the decision of the Transport Secretary and Foreign Secretary.

Facts of the Case and Legal Framework

Mr Eugene Shvidler appealed to challenge his designation under the Russia (Sanctions) (EU Exit) Regulations 2019. His designation on 24 March 2022, following the Russian invasion of Ukraine, was based on the association and financial benefit he had with Roman Abramovich, who had a known association with President Putin and was the former director of a mining company, Evraz plc. His designation has meant it is criminal to engage with him in a private or commercial capacity, with limited exceptions.

In Dalston, the appellants sought to challenge the detention of a superyacht, the  Phi, under the same 2019 Regulations as Mr Shvidler. It was detained on the grounds that it was owned, controlled, or run by someone affiliated with Russia, Mr Naumenko. Mr Naumenko was not designated, nor was there evidence of his connection with President Putin, his inner circle, or Russian politics. Since the yacht was detained, the appellants have been prevented from earning income from it.

The challenges were brought under Part 79 of the Civil Procedure Rules, which allows for the review of sanctions. The issue was the potential infringement of ECHR rights and whether there were interferences. The Court applied the four-stage test from  Bank Mellat:

• Was the objective sufficiently important for limiting a fundamental right?

• Was the measure rationally connected to that aim?

• Could a less restrictive alternative have been used?

• Did the sanction fairly balance the rights of the individual and the interests of the community?

Court’s Decision

The majority found that the sanctions pursued a legitimate and vital aim: to deter Russian aggression. Indirect economic pressure can contribute towards this. The broad margin of appreciation given to Ministers entitled them to make such decisions. This was true of both the detention of the  Phi and the designation of Mr Shvidler.

Lord Leggatt dissented from the “Orwellian” asset freeze with regard to Mr Shvidler, finding that the designation lacked sufficiency and specificity. As a result, the asset freeze was a personal hardship and impinged on fundamental rights. His agreement with the  Dalston  appeal, however, shows his acceptance of deference to Parliament and that Ministers are better qualified to make these decisions.

Justification

With regard to the legitimate aim aspect, neither of the appellants denied the aim. The Russia-Ukraine war provided clear justification. When discussing the rational connection, the Supreme Court was satisfied that the link between the  Phi  and Russian aggression was established, with money made potentially reaching the Russian economy.

The less intrusive means test received one paragraph of consideration. Neither appellant could point to less intrusive means, so the Court concluded there were none.

Finally, the fair balance test led the Court to acknowledge the drastic and substantial impact of the worldwide asset freeze on Mr Shvidler. The Supreme Court recognised, however, that sanctions must cause some harm to those who are subject to them.  

Proportionality, Reassessed

The Court sought to clarify the approach to assessing proportionality, how a first instance court should review decisions, and how appellate courts should review decisions by an executive or first instance court. In a unanimous part of the judgment, Lord Sales and Lady Rose said:

A first instance court assessing an authority’s decisions does not become the primary decision-maker, instead exercising a secondary reviewing function where the executive is the primary decision-maker. 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 Stage IV of the Bank Mellat test. The relevant context for this balance includes the importance of the right, the degree of interference, and the extent to which the courts are more or less well placed to adjudicate. This final aspect depends on institutional expertise and democratic accountability.  

When discussing sanctions, the Secretaries of State have special constitutional responsibilities and superior institutional competence to assess whether sanctions serve some useful purpose in containing Russia’s actions, which was the aim in this situation. As such, they are given a wide margin of appreciation in their judgments. This margin of appreciation applies not only to the reasons the Ministers gave when they made the decisions, but also to additional or clarified reasons presented later (such as during a first-instance hearing).

When addressing appellate courts and their assessment of proportionality, the appellate courts are not to retry the test but to determine whether the lower court’s proportionality assessment was wrong. Two approaches were identified: the first reviews whether the decision was reasonable (the “Review Approach”), placing emphasis on the dispute-resolution effect of the first instance. The second is the court’s own assessment of the measure taken (the “Fresh Determination Approach”), where the appellate court forms its own opinions on the proportionality of a measure.

The Supreme Court gave guidance for which approach would be best in which situations. The review approach is more appropriate for one-off decisions, based on well-established law and principles. The fresh determination approach is more appropriate for the opposite scenario, such as new legislative regimes with significance for society.

Wider Implications and Concluding Thoughts

This ruling consolidates the approach the UK has taken to sanctions: one of legal robustness and deference to the executive. It underscores the evidentiary basis for designations, the structured arguments under Part 79, proportionality principles, and outlines the clear risks to those who associate with designated individuals.

This is likely to have a deterrent effect on challenges to sanctions designations in the UK in the future. However, court action is a secondary form of redress, the primary being a request for revocation of designation. As more individuals are designated, this could result in more proportionality claims where a new “fresh determination” approach is needed.

The review of proportionality re-examined how courts should approach and interact with cases which use it, but ultimately the Supreme Court recognised the need for ministerial discretion and deferred to it.

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