In R. (on the application of Mikhail Fridman) v HM Treasury  EWHC 2657 (Admin) the High Court dismissed all grounds of challenge raised by an individual designated under the sanctions regime. In doing so the court made comments on the proper role of judicial review and evidence in such proceedings, in keeping with the recent trend of insisting on procedural rigour in public law cases.
- The court will be very slow to allow post-decision evidence in a judicial review context, unless it is considering proportionality in the context of a human rights challenge. Such evidence is inconsistent with the proper role of judicial review as only considering the lawfulness of a decision and the process leading up to it.
- The statutory wording in the sanctions legislation makes clear that a licence allowing use of frozen assets can only be granted if certain statutory purposes are fulfilled but does not require a licence to be granted in those circumstances, meaning OFSI has a residual discretion to refuse a licence application even where the statutory tests are made out.
- In the context of the sanctions regime and published guidance making it clear the onus was on the applicant to fulfil relevant criteria, public law principles did not require OFSI to advise an applicant for a licence or make its own inquiries to fill in any evidential gaps.
- From a sanctions perspective, the decision is also of interest in setting out extracts from OFSI’s internal (and previously non-public) guidance regarding its approach to licensing requests made on behalf of “sanctioned oligarchs” under the basic needs licensing ground.
The claimant is a businessman who was “designated” under the sanctions regime which addresses the Russian invasion of Ukraine: the Russia (Sanctions) (EU Exit) Regulations 2019/855 (the “2019 Regulations“) made under s1 of the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA“). SAMLA ss38-40 provide for court review of certain sanctions decisions, and in determining whether a decision should be set aside, the court must apply the principles applicable in judicial review.
Designation results in an asset freeze such that use of the claimant’s assets and resources can only be made by obtaining a licence (or pursuant to an exemption). The claimant had already been granted licences to use what the court described as “substantial sums” for various matters, including his basic needs and payments to third parties such as professional advisers and his own staff, but in these proceedings he challenged the refusal of other applications for licences authorising further payments to third parties. Saini J noted that the payments which formed the subject of the present claim were relatively modest when compared to the existing authorised sums which ran into several millions.
The Office of Financial Sanctions Implementation (“OFSI“) forms part of HM Treasury and is responsible for administering this licensing regime under the 2019 Regulations. Under the statutory regime a licence may only be issued where the application satisfies certain statutory purposes, including meeting basic needs and payment of prior obligations. Any application must provide evidence and demonstrate that all relevant criteria are met. OFSI has issued public guidance concerning the licence application process which notes that detailed evidence is required and the onus is on the applicant. OFSI also had internal guidance concerning licences aimed at meeting basic needs to ensure a consistent approach (the Basic Needs Framework introduced in May 2022, and the Licensing Caseworker’s Guide introduced in September 2022).
The court considered the different licence decisions under challenge and found that OFSI correctly directed itself in law, bearing in mind the purpose of the sanctions regime, and came to lawful and rational conclusions. All grounds of challenge were dismissed.
There was a question as to whether OFSI has an overriding or residual discretion which permits it to refuse a licence even if the relevant statutory purpose test is fulfilled. Saini J considered that it did, based on the statutory language which enables, but does not require, the grant of a licence in those circumstances. He noted however that this residual discretion may be narrower or wider depending on which statutory purpose is in issue, commenting that it may be difficult to rationally exercise the discretion to refuse something which has been assessed as truly a basic need compared to meeting a prior obligation payment. Of course, that discretion is not unbounded but is subject to traditional public law principles, including consistency with the purpose of the legislation and rationality.
Additional late grounds of challenge
The claimant had made an application to amend his claim to advance two new grounds just one working day before the substantive hearing. No good reason was said to have been put forward to explain why the application to amend was made so late. Certain aspects of that application were opposed and all the opposed elements were refused by the court. Saini J emphasised that in both private law and public law cases, the courts are required to have a much greater appreciation of the effects of amendments on the court and other parties than was previously the case, for example an amendment may cause prejudice to another party that cannot be precisely quantified, but which is nonetheless real.
The claimant’s first proposed new ground alleged that the licensing decisions would result in a disproportionate interference with fundamental rights under the Human Rights Act 1998 (“HRA“). The court noted that the 2019 Regulations overall amount to a lawful and proportionate statutory interference with rights, despite this being a draconian regime of freezing assets, in light of the public interest. The question is therefore whether the specific individual decisions being challenged amount to a breach of those rights. To meet the criticism that this point had not previously been pleaded the claimant sought to argue that every case where there is an infringement of public law in a licensing decision amounts to a violation of rights under the HRA. The court did not accept that submission, explaining that even if a licensing decision was based on a misdirection in law or irrational (making it unlawful in traditional public law terms) that does not mean relevant rights have been violated. Such a decision remains “in accordance with law”, which requires certainty, accessibility and a sufficient legal basis in domestic law. To show a disproportionate interference with rights, a claimant must (independently of the public law error) prove with evidence that the result of the decision (for example, not being permitted to make a certain payment), has in fact had a disproportionate impact. Given the extent of the sums already authorised under the claimant’s licences, Saini J took the view that this argument would have no realistic prospect of success.
Secondly the claimant sought to argue that the use of the internal guidance on basic needs was unlawful as an undisclosed policy. Saini J agreed that a policy should be published if it informs discretionary decisions in respect of which the potential object of those decisions has the right to make representations, and where the individual would not otherwise be able to make relevant and targeted representations. However, a public authority is entitled to supplement its published guidance with internal guidance which is not inconsistent with the published policy, as here with the guidance on basic needs. Although this ground was not considered to have sufficient prospects of success, Saini J did recommend that OFSI considers making public its internal guidance as a matter of good administrative practice, whilst still emphasising that the onus is on the applicant to supply all supporting evidence.
In any event the application to advance both additional grounds was refused for case management reasons as being far too late.
During the course of the proceedings the claimant made successive applications to adduce new factual and expert evidence, resulting in the material before the court amounting to nearly 3,000 pages. The court considered that part of the reason for this was the claimant’s view that the court should act as the primary decision-maker in whether the relevant licence applications should be granted. This is not the role of the court under SAMLA. OFSI has the institutional competence to determine licence applications according to the criteria in the 2019 Regulations, a process involving fact-sensitive determinations based on an evaluation of the evidence provided by each applicant. Since SAMLA specifies that the court must apply judicial review principles, that means the rationality of OFSI’s decisions falls to be assessed by reference to the material before the decision maker at the time of the original decision. Generally, evidence in judicial review is used to identify the target decision, the process which led to it, and the material before the decision-maker, in order to establish a public law error in either that target decision or the process leading to it. Post-decision evidence may be admitted where the court has to undertake an objective assessment of proportionality (for example in considering whether there has been a breach of the HRA), but that was not the case here since the late HRA ground was not allowed to proceed.
This basic position on evidence was not altered by the fact that CPR 79 applied to these proceedings, since the provisions concerning adducing evidence there could not alter the judicial review principles the court was directed to apply by primary legislation.
As in public law generally, the court was not here standing in the shoes of the defendant but rather considering whether to set aside the original decision. The court does not have the expertise in the specific area which the particular defendant entrusted with decision making possesses.
It was also relevant that in circumstances where the burden is on the applicant in the licensing application process, some of the late evidence would have been available to the claimant at the time of his original application. The claimant argued that the evidence could have been reasonably available to OFSI if inquiries had been made, relying on the Tameside duty to make inquiries. However under that duty a public authority is not obliged to conduct investigations to identify all potentially relevant material, and a court should not intervene merely because it considers that further inquiries would have been sensible or desirable. It should intervene only if no reasonable authority could have been satisfied on the basis of the inquiries made that it possessed the information necessary for its decision. That was not the case here. Nor did procedural fairness require OFSI to advise the applicant or fill in evidential gaps, bearing in mind the context of the published guidance which made it clear that the onus is on the applicant to satisfy relevant criteria.
Some aspects of this decision turned on the specific wording and purpose of the sanctions regime, and the court certainly seems to have been swayed by the fact that the claimant had already benefitted from licences authorising significant payments despite his assets being frozen. The clarity on OFSI’s role and obligations will be welcomed and should serve as a warning to applicants for licences to ensure they provide full and substantial evidence during the application process. Those applying for licences will also wish to have regard to the internal guidance referred to in the judgment (and it is to be hoped that OFSI takes forward the Court’s suggestion that the full guidance is made public as a matter of good administrative practice). From a sanctions practitioner’s perspective, the confirmation that OFSI has a residual discretion to refuse a licence application even where the statutory tests are made out – but that the extent of this discretion will vary as between licensing grounds – is also of significance.
However the judgment also has wider relevance in emphasising the strict approach the Administrative Court is currently taking to ensuring the confines of judicial review are respected, and insisting on procedural rigour on issues such as late applications and flooding the court with evidence. The court has repeatedly made it clear that such practices are just as likely to be criticised in public law cases as in private law proceedings.