BVI – Russia sanctions: Case law digest (March 2023)
We outline below an update of key cases before the BVI courts dealing with the application of the Russian sanctions regime in the BVI, following the invasion of Ukraine in February 2022. We will continue to update this on an on-going basis as and when new and interesting cases come to light.
To recap, the UK (and by extension BVI) sanctions regime is the most comprehensive sanctions regime ever imposed, freezing the assets of over 1,730 individuals and entities and imposing strict financial and trade sanctions covering oil and gas, luxury goods, professional services, immigration, aircraft, and shipping. For more on the rules themselves, please refer to our ongoing blog post on the various packages of UK sanctions on Russia here.
JSC VTB Bank v Sergey Taruta, licence to receive payments from a designated person
In March 2022, weeks following the start of the war and implementation of wide scale sanctions in the UK Overseas Territories, Jack J refused an application by a BVI law firm to come off the record for JSC VTB Bank (VTB Bank), a designated entity. Jack J found that it was incumbent on legal practitioners to apply for a licence to continue acting. Even “pariahs”, according to the judge, "have rights”. In that judgment, Jack J was faced with an application for the discharge of a receivership order made in favour of VTB Bank. The learned Judge held that the receivership order "altered" the judgment debt and therefore any discharge would amount to dealing with funds owned by VTB. Jack J held that it was not possible to lawfully discharge the receivership order, nor to allow the receivers to take steps to get in the assets for VTB. He came to the conclusion that the Governor’s approval would be needed for both actions.
Subsequently, on 7 November 2022, an appeal against Jack J's decision in VTB Bank v Sergey Taruta was heard by the Eastern Caribbean Court of Appeal. VTB Bank was unrepresented following an order from the Court of Appeal giving VTB's BVI legal practitioners permission to come off the record. The Court of Appeal held that the receivership order was an “economic resource” of VTB Bank within the meaning of the sanctions legislation as it was an asset, but only insofar as it would aid VTB Bank in obtaining funds. The receivership order had been stayed since the imposition of sanctions such that the receivers had not started performing their duties under the terms of the order and no action would be taken in the immediate future to further the purpose of the receivership. Accordingly, the order existed “in name only” and its discharge would not result in any funds being obtained by VTB Bank and so would not give rise to a breach of sanctions.
The Court of Appeal also held that the sanctions legislation did not oust the Court’s jurisdiction to exercise its normal functions. Any such ouster would need to be explicitly stated and the Court found that there was nothing in the sanctions legislation which ousts the Court’s jurisdiction to set aside an order unlawfully made or set aside its own order for other good reason.
Alfa-Bank v Kipford, licence to receive payments from a designated person
In order to obtain funds from a designated entity – Alfa Bank, a BVI law firm must apply for a specific licence from the Governor's Office. An application for a licence was made to the Governor on 1 April 2022. Alfa-Bank's London-based leading counsel made an application for a licence to the Office of Financial Sanctions Implementation (OFSI) around the same time. The BVI Governor's Office granted the licence on 28 July 2022. However, when the matter was brought back before the Court on 27 September 2022, OFSI had not yet completed the application of Alfa-Bank's leading counsel due to a delay in the UK.
Harneys acted for the defendant in this case alongside leading King’s Counsel.
In the Matter of the Application of Wesley Arthur Edwards, Changes of receiverships Claim No. BVIHC (COM) 2022/0122
In July 2022 the Applicant requested the transfer of a large number of companies, where he had been appointed as a liquidator or receiver, to another insolvency practitioner. The Applicant had been appointed as the receiver over shares in a number of companies in support of the execution of judgment debts that were obtained by certain designated persons. As relevant to sanctions matters, the BVI Commercial Court under Jack J considered whether a licence was required from the competent authorities in the BVI (the BVI Governor) to permit the transfer of receiverships over assets that were frozen pursuant to Russian sanctions.
As part of its judgment, the Court had to consider whether the transfer of appointment was “dealing” with funds or economic resources, which would be a breach of the OT-Russia Order. Having considered the “substance of the dealings”, the Judge held that there was no commercial dealing where one receiver is merely replaced by another. As such there was no breach of the BVI sanctions regime on Russia and no need for the receiver to obtain a licence from the Governor.
Emmerson International Corporation v Renova Holding Limited & Viktor Vekselberg
On 8 February 2023, the Eastern Caribbean Court of Appeal upheld a June 2019 ruling of Jack J that discharged freezing orders against Viktor Vekselberg and three Renova Group companies. Mr Vekselberg and the Renova Group were designated by OFAC in April 2018. The judgment for this case, involving BVIHCMAP2019/0018 and Emmerson International Corporation v et al BVIHCMAP2019/0020, can be found here.
The case focusses around claims brought by Mikhail Abyzov and companies owned by him against Mr Vekselberg and companies in the Renova Group, seeking to recover the value of contributions made to a joint venture. The Court of Appeal agreed with Jack J that the transfer of shares owned by the Renova Group was carried out in order to mitigate potential liability and not to hinder any legal action.
Our blog post with the updated table on UK sanctions on Russia-Ukraine-Belarus, can be found here.