(Court of Appeal, Arden, Ryder, Briggs LJJ, 24 July 2015)
Financial remedies – EU Regulation 269/14 – Whether the court was prevented from making an order for maintenance due to the sanctions imposed on the husband The husband’s appeal from a decision finding that the sanctions imposed upon him pursuant to EU Regulation 269/14 did not prevent him from paying maintenance to the wife was dismissed.
The Russian husband and wife were divorced in Russia. Thereafter the husband remained there while the wife lived in the UK. The husband was made subject to sanctions imposed under Council Regulation 269/2014 which caused his assets within the EU to be frozen.
The competent authority held that the Regulation did not prevent the husband from transferring money held in Russia into the wife's Russian account and then the wife transferring money into the UK. An order for spousal maintenance was made. The husband appealed. It fell to be determined whether the court had jurisdiction to make an order to payment of maintenance into an account in Russia with a Russian bank with regard to Arts 5 and 9 of the EU Regulation, and regs 3 and 10(2)(a) of the Ukraine (European Union Financial Sanctions) (No 2) Regulations 2014, SI 2014/693 (the UK Regulations).
The appeal was dismissed. Each set of regulations had to be construed as a consistent whole and in a way which enabled all the articles or regulations in question to have effect so far as possible. Art 5 of the Regulation permitted a valid court order to deal with funds, otherwise it would be pointless for the Regulation to empower the competent authority to authorise the use of frozen funds to meet it. The Regulation made a clear distinction between making an order for the payment of a sum of money and enforcing such an order. Both sets of regulations should be construed consistently with the EU fundamental right to effective judicial protection.
The court order would only breach Art 9 of the Regulation if it continued provisions which dealt with funds which had also been intended to achieve a dealing with funds within the scope of the Regulation without the licence of the competent authority.
It would be contrary to the wife's fundamental right of access to the court to prevent her from obtaining a valid and effective decision of the court in a Member State as to the maintenance to which she had been entitled, unless that right had been clearly excluded by the Regulation. There was no express provision removing her right and the court could not read in such a provision. The order contained no provision dealing with funds which had also been intended to achieve dealing with funds within the scope of the Regulation without the licence of the competent authority. It merely provided for the payment of funds by the husband to a Russian bank. There was no breach of Art 9 of the Regulation.
Neutral Citation Number:  EWCA Civ 796
Case No: B6/2014/3621
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
Mr Justice Moor FD14F00348
Royal Courts of Justice
Date: Friday 24th July 2015
LADY JUSTICE ARDEN
LORD JUSTICE RYDER
LORD JUSTICE BRIGGS
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(Transcript of the Handed Down Judgment of WordWave International Limited Trading as DTI 165 Fleet Street, London EC4A 2DY Tel No: 020 7404 1400, Fax No: 020 7831 8838 Official Shorthand Writers to the Court)
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Lord Pannick QC, Simon Webster and Maya Lester (instructed by Charles Russell Speechly LLP) for the Appellant
Jonathan Swift QC and Alexander Chandler (instructed by Alexiou Fisher Phillips) for the Respondent
Hearing date: 23 June 2015
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LADY JUSTICE ARDEN
:Issue - does the order of Moor J against the appellant husband to pay in Russia interim maintenance to his wife unlawfully circumvent prohibitions in Ukrainian sanctions legislation to which the husband is subject?
This appeal raises a short but important point of law about whether the court can make an order for payment by a husband (“the Husband”) in favour of his former wife (“the Wife”) of interim maintenance into an account in Russia with a Russian bank. Both the Husband and the Wife are Russian citizens: the Husband lives in Russia and the Wife in the UK. The order of Moor J dated 17 October 2014, now under appeal by the Husband, provides for the payment of maintenance by the Husband into the Wife’s account in a Russian bank in Russia: as the Wife lives in the UK, she will clearly need to remit those monies to the UK. The Husband is subject to sanctions imposed by Council Regulation (EU) No 269/2014 (“the EU Regulation”). He is named in a schedule which was later adopted to those Regulations for reasons there given. The primary effect of the EU Regulation is that his assets are “frozen” in the EU: that means that no-one can “deal” with them in the EU and a person within the EU cannot participate in his dealing with them: it is that primary effect which gives rise to the issue on this appeal. The Husband is also subject to a travel ban within the European Union. He has challenged both the assets freeze and the travel ban in the General Court of the European Union but those proceedings are unlikely to be resolved for some eighteen months or so. We are not concerned either with the travel ban or the challenge in the General Court.
The form and scope of any sanctions of this kind is a matter for political decision. As will be apparent from this judgment, the EU Regulation imposes highly focussed sanctions. They are still capable of being effective, but they are not all-embracing.
The Husband and the Wife were divorced in Russia in 2013. They have children for whom the Wife is the primary carer. She has commenced proceedings for a financial settlement in this jurisdiction. Those proceedings are due to be tried in February 2016. The interim maintenance is for the support of the Wife and the children before the final order is made. We are not concerned with the amount of interim maintenance as that was settled by the judge and there is no appeal on that point.
In most respects the EU Regulation is directly enforceable. However, certain matters, particularly criminal offences, require domestic regulations and in the case of the UK these are the Ukraine (European Union Financial Sanctions) (No 2) Regulations 2014 (2014 No. 693), (“the UK Regulations”). The EU Regulation has primacy over the UK Regulations and that means that UK Regulations must be interpreted so as to be consistent with the EU Regulation.
The EU Regulation requires each member to nominate a “competent authority”, which is able to give releases in certain circumstances. HM Treasury is the competent authority nominated by the UK. By letter dated 18 September 2014 HM Treasury confirmed to the Wife’s solicitors that the EU Regulation did not prevent the Husband from transferring money in Russia into her Russian account and that the Wife was free to transfer money from her Russian account to the United Kingdom.
Before the judge, the Husband submitted that it was not open to the court to make an order for interim maintenance in Russia. The UK Regulations did not contain any provision enabling him to do so.
The Husband also argued before the judge that, if the Husband paid maintenance to his wife voluntarily, that payment was permitted but not if the court was to order him to do so.Moor J's reasons for his order
Moor J rejected the Husband’s submissions. The Husband could not contravene the EU Regulation by doing what HM Treasury had said he could do. Furthermore, the judge was not impressed by the argument that the banks involved would contravene the EU Regulation. If the banks were caught, that was a matter which had not concerned HM Treasury.
The judge accepted the Wife’s submission that her Husband’s money would cease to be his when transferred to her account and that meant that they would no longer then be frozen. That was a matter for the bank. There had been no difficulty in the Husband making payments for the children’s maintenance to date.The scheme of the Regulations
The EU Regulation consists of a number of recitals followed by operative provisions called “Articles”. The recitals set out the recent history of the violation of Ukrainian sovereignty and territorial integrity by the Russian Federation.
These sanctions were originally imposed on 17 March 2014. They have since been extended for a further six months expiring in December 2015.
The scheme of the EU Regulation is not to impose sanctions on any foreign state or to expropriate any assets of a person subject to sanctions (a “designated person”) but to prevent such a person from using his EU assets so long as the sanctions legislation is in force. Taking the key articles in turn, they essentially provide as follows:
- Article 2 freezes all funds and economic resources of a designated person: it does this by prohibiting all use of such assets for or for the benefit of a person (“a designated person”) listed in the Annex to the Regulations. Article 2 is necessarily subject to Article 17.
- Articles 4 and 5 create exceptions to the prohibitions, principally where the “competent authority” (as defined in Article 1) authorises the release of funds. In the UK, the competent authority is HM Treasury.
- Article 9, on which this appeal turns, contains an anti-avoidance provision: it prohibits a person from participating in activities which circumvent Article 2.
- Article 11 prevents the designated person from enforcing certain contractual claims.
- Article 17 imposes personal and territorial limits on the prohibitions.
As I have already explained, a principal purpose of the UK Regulations is to create statutory offences and defences to match the prohibitions and exceptions from the prohibitions in the EU Regulation. The UK Regulations apply more narrowly than the EU Regulation, but do not apply to (say) the acts of a Russian bank in Russia (see UK Regulation 1(2)). For ease of reference, I have set out in the Annex to this judgment a table showing the provisions of the EU Regulation most relevant to the issue on this appeal, with the corresponding UK Regulations.
There are two matters which the appellant properly accepts and which are common ground. First, Lord Pannick QC, for the Husband accepts that, if HM Treasury grants an authorisation under Article 5 of the EU Regulation, there can be no violation of Article 9 of the EU Regulation. Second, Lord Pannick accepts that there would be no dealing in the funds of a designated person for the purposes of Regulation 2 of the UK Regulations if the funds were transferred between bank accounts in Russia.Husband: Order 'circumvents' the Article 2 prohibition
The essence of Lord Pannick’s argument for the Husband is that the order of Moor J under appeal involves a circumvention of a prohibition. By ordering payment in Russia so that the Wife can bring the funds into the EU free from the asset freeze imposed on the Husband, the court is participating in a circumvention of the prohibition in Article 2. Had the order provided for payment in London, the funds would be frozen and the parties would need to obtain a licence from HM Treasury. The judge is participating in the avoidance of a restriction on the movement of funds in London to which the receiving bank would otherwise be subject. I would add that, even if the parties expected to obtain that licence, an order for payment in London would at least prevent a payment to the Wife being made simultaneously, so that if nothing else parties in this position obtain this advantage from an order for payment in Russia rather than London. The appellant did not submit that he had that expectation and, on circulation of these judgments in draft, stated that he was doubtful whether a licence would be granted to the extent of the interim maintenance ordered by the judge. That point, however, does not affect the hypothetical point that I am making about the parties obtaining at minimum an advantage in terms of timing. In contrast to the appellant, the respondent's case was that it would be odd if maintenance could not be paid. We are not in a position to determine whether a licence would be granted in the circumstances of this case.
Lord Pannick’s argument is deeply rooted in Articles 2, 9 and 17 of the EU Regulation. Lord Pannick amplifies his argument as follows. There would have been a contravention in this case if the court ordered the Husband to pay the Wife interim maintenance in London and funds were sent by a Russian bank to a UK bank and then transferred to the Wife. This, he submits, follows from the breadth of the word “deal” as set out in Regulation 3 of the UK Regulations. There would be a breach of the prohibition on dealing even if the funds were frozen on receipt into the Wife’s account. He submits that a bank which receives funds which the Husband transfers into the EU must freeze the funds on arrival in the EU (see Articles 2 and 17(e) of the EU Regulation).
On Lord Pannick’s submission, a person “circumvents” a prohibition for the purposes of Article 9 of the EU Regulation if he takes steps which he would not normally take with the object or effect of avoiding the restrictions in the EU Regulation. He submits that this is the effect of the jurisprudence of the Court of Justice of the EU (“the CJEU”) but he candidly accepts that the authorities are not very helpful. They deal with circumvention in very general terms. He refers to Case C-72/11 at Afrasiabi
at paragraphs 11, 12, 33(2) and (3) and 60 to 63. There the court emphasised that a prohibition against circumvention was designed to have teeth and to prevent a person from getting round a prohibition. Lord Pannick also relies on the recent case of Case C-585/13P Europäisch-Iranische Handelsbank AG v Council of the European Union
Lord Pannick submits that the order under appeal amounted to circumvention of the prohibition in Article 9 because, when the court made this order, its thinking was that it could not achieve the objective of ordering payment within the United Kingdom. Before the Husband was made subject to the EU Regulation, the parties had contemplated that the Husband would be ordered to make a payment to the Wife’s EU bank account. So the court had to make an order which it would not normally make to avoid the prohibition. There was a circumvention because the object and effect of the order as made was to prevent the funds of the husband from being frozen in the UK, where the Wife is living.
Moreover Lord Pannick submits that it is always for the court and not HM Treasury to interpret the Regulations. That submission is plainly correct. Lord Pannick goes on to submit that the judge should not have relied on the opinion of HM Treasury in its letter of 18 September 2014. In any event, the letter of HM Treasury was written before the judge made his order and did not purport to express an opinion on the legality of the judge’s order.Wife: making of court order is outside the prohibition
Like taking an axe to a tree, Mr Jonathan Swift QC, for the Wife, challenges the basic proposition on which Lord Pannick’s submission is based. The basic proposition underlying Lord Pannick’s submission is that in the circumstances he postulated the court’s order has, as its object and result, a circumvention of the prohibition on dealing in Regulation 3 of the UK Regulations. The need to obtain Treasury consent is avoided (and, for the purposes of this submission, Mr Swift is prepared to accept, contrary to his submission below which the judge accepted, that the funds of the Husband will be frozen if paid into the Wife’s EU bank account). In this case, however, submits Mr Swift, the court’s order does not itself transfer funds and therefore it cannot amount to a dealing with funds contrary to that Regulation. By contrast, a bank would breach the prohibition in Regulation 3 if it dealt with those funds in any way. The fact that the court’s order does not deal with funds has two consequences. First, it must mean that the order is itself a valid or effective order. Second it must follow that the court order is not itself a circumvention.
There may be cases (not this case) where a court order attaches funds or assets of a designated person. The order would in that instance “deal” with funds. Mr Swift submits that Article 5 anticipates that a court may make a valid and effective decision even in that case as the competent authority (that is, in the UK, HM Treasury) could then authorise the use of those funds for the purpose of making a payment required to be made under the court order. If the competent authority gave its authority, the bank would, by virtue of Regulation 3(3), be outside the prohibition on dealing in the Husband’s funds in Regulation 3. On this basis, again, there would be no circumvention.
Mr Swift submits that, on the true interpretation of the EU Regulation and the UK Regulations, the making of a court order against a designated person for payment of a sum of money must accordingly be outside the prohibitions on dealing with the frozen funds. He submits that it is unrealistic to construe Article 9 of the EU Regulation without regard to the scope of the Regulation as a whole. Moreover, there was no point prohibiting the making of court orders because frozen funds could not be used to satisfy them in any event unless the competent authority gave a licence.
Mr Swift further submits that the EU Regulation draws a distinction between making a court order and enforcing a court order. Article 5 recognises two separate stages: it acknowledges that court orders may be made at any time, even when sanctions are in place, and it addresses the possible use of frozen funds to pay them. By contrast, Article 11 prevents certain claims of the designated person being “satisfied”: where a court order is made that must mean that the order will not be enforced at the instance of the designated person. He submits that this underlines the point that the EU Regulation does not prevent the making of a court order for the payment of money.Husband: Article 5 is inapplicable
In response to this argument, Lord Pannick submits that Article 5(1) is not relevant. First, it was not the basis of the order which the judge made. Second, Article 5 is a narrow provision which applies only when the relevant judicial decision is determining the ownership of funds or economic resources, for example whether they are held on trust. He derives this interpretation from the words “subject to” in Article 5.Discussion and conclusion: circumvention does not include making court order in the UK against the husband to pay interim in Russia to the wife
In my judgment, there are two guiding principles relevant to the determination of this case. The first guiding principle is that each set of Regulations must be construed as a consistent whole and in a way in which enables all the Articles or Regulations in question to have effect. As Mr Swift submits, the basic premise of Article 5 of the EU Regulation is that there can be a valid court order, even if it deals with funds, because otherwise it would be pointless for that Regulation to empower the competent authority to authorise the use of frozen funds to meet it. Furthermore, as he submits, the EU Regulation makes a distinction between making an order for the payment of a sum of money and the enforcing of such an order. As explained above, this distinction is evident from the structure of Article 5 and use of language (“satisfied”) in Article 11.
The UK Regulations do not transpose Article 11, and this failure provides a measure of further support for the proposition that what is prohibited is not the making of a court order but the satisfaction of claims. At that latter stage a licence from HM Treasury would be required under UK Regulation 9. There was no need to transpose Article 11 if Parliament was content that the making of a court order for the payment of money should not be caught by the measures in the Regulations.
Moreover, even if HM Treasury did not give a licence in a particular case, the person entitled to the court order would be entitled to enforce it when sanctions came to an end. It would be disproportionate for the EU legislature to invalidate the court order and therefore deprive him of that possibility. Mr Swift’s interpretation avoids that result, which is an additional reason for preferring it.
The second guiding principle is that both sets of Regulations should so far as possible be construed consistently with the EU fundamental right to effective judicial protection. The right to effective judicial protection is conferred by Article 47 of the EU Charter of Fundamental Rights and Freedoms, and includes the right of access to court. It would be contrary to the Wife’s fundamental right of access to court to prevent her from obtaining the valid and effective decision of the court in a Member State as to the maintenance to which she was entitled, unless that right was clearly taken away by the EU Regulation. There is no reason for the EU Regulation to take away the Wife’s right since funds and economic resources to which the EU and UK Regulations apply (see Article 17 and Regulation 1(2)) cannot be used for meeting the order unless the competent authority gives its permission for using those assets. There is no express provision which takes away her right. For the reasons given the court cannot in my judgment read in such a provision.
It follows that the making of a court order would only circumvent the EU Regulation for the purposes of Article 9 if the order itself contained provisions which dealt with funds or economic resources and which were also intended to achieve a dealing with funds or economic resources within the scope of the EU Regulation without the licence of HM Treasury. The order in this case contains no such provisions since it does not require any particular funds of the Husband to be used for discharging it. It merely provides for the payment by the Husband of monies to a Russian bank in Russia. Even if the order had provided for payment in the EU, the making of the order would still not have been prohibited, and so there cannot be said to be a circumvention of a prohibition. An order for payment into an EU bank account would simply have meant that the funds paid by the Husband in performance of the order would (on the basis on which Mr Swift argued this issue) have been frozen on receipt so that a licence from HM Treasury was required for her to be able to use them.
Lord Pannick submits that Article 5 does not apply in this case. The fact that the judge did not invoke it does not matter as the question is whether his order was right in law. The more important point is that Mr Swift’s submission is in my judgment the right approach to interpretation of the EU and UK Regulations even if Article 5.1(a) does not apply in this case. The competent authority can only authorise the use of funds or economic resources of a designated person if certain conditions are met. Where a court order has been made, the relevant condition is that the funds are “subject to” the court order.
Lord Pannick submits that those words indicate that the funds or economic resources must be held on a trust or some similar concept. In my judgment, it is difficult to extract the idea of a trust or similar concept out of the words “subject to…a judicial … decision”, which is the material phrase used in Article 5 of the EU Regulation. (Those words are not replicated in the UK Regulations since the power of HM Treasury is not subject to express limitations in those Regulations.) Moreover, if those words limited Article 5 to trusts and some similar concept, it is difficult to see why Article 5.1(b) was included since this condition would almost always be satisfied by Article 5.1(a).
Be that as it may, since there has been no suggestion during the hearing that the Husband will not pay the maintenance he has been ordered to pay in Russia, it is unnecessary to resolve what the words “subject to” in Article 5.1(a) mean. The fact remains that the two stage process (court order followed by an application to the competent authority) envisaged by Article 5.1 is one of the factors that leads me to conclude that in the context of that Article the making of a court order for the payment of money is a self-standing valid and effective act. To construe the Regulations as a consistent whole that interpretation must apply to court orders for all the purposes of the Regulations unless the Regulations otherwise provide, which they do not.
It follows that the court may make valid and effective orders for the payment of money by a designated person, and a court order to make a payment in Russia cannot constitute a circumvention of any prohibition (where the order does not itself contain provisions which both deal with funds or economic resources and are intended to achieve a dealing with funds or economic resources to which Article 17 applies without a licence from HM Treasury) since the order could in those circumstances equally have required the payment of money in the UK without itself infringing Regulation 3.
On this basis, there is no breach of Article 9 of the EU Regulation or Regulation 10(2)(a) of the UK Regulations as a result of the order of Moor J of 17 October 2014. There cannot be a circumvention of a measure by adopting a means which the EU Regulation permits.
It is, therefore, unnecessary to undertake a comprehensive analysis of the meaning of the word “circumvent” in Article 9 or Regulation 10. I would be reluctant to express a final view on this point because Mr Swift made no submissions on its meaning other than to say that it would depend on the facts of the case whether there had been a circumvention, and we were not taken to the extensive line of authorities on which Afrasiabi and Europäisch-Iranische Handelsbank are based. We would also have to consider the purposes sought to be achieved by the EU Regulation and whether it was, for instance, also one of its purposes that a designated person should not have unrestricted access to banking facilities within the EU, whether for personal or business purposes.
It is likewise unnecessary to express any view on Mr Swift’s alternative submission that, once the Husband gave instructions for a transfer of funds to his Wife’s account, the funds ceased to be his in law and became those of his wife. Lord Pannick pointed out that, if Mr Swift’s alternative submission were correct, the Husband could pay funds into an EU bank account in all manner of other circumstances, which might drive a coach and horses through the EU Regulation. Moreover, Mr Swift did not support his submission by referring the court to any authority; nor did he explain whether the extended definition of economic resources had any impact in this situation.
For all these reasons, I would dismiss the appeal. 
I have read the judgment of Briggs LJ. He has come to same conclusions as I have and therefore I agree with his judgment.
Annex to the Judgment of Arden LJ
Table showing material provisions of the EU Regulation and the corresponding provisions of the UK regulations
Lord Justice Ryder
|EU Regulation (Readers may find it easier to read Articles 2 and 17 first, and leave the definitions in Article 1 to the end||UK Regulations (definitions are shown at the end)|
|Article 1. For the purpose of the Regulation, the following definitions apply: (c) 'competent authorities' means the competent authorities of the Member States as identified on the websites listed in Annex II; (d) 'economic resources' means assets of every kind, whether tangible or intangible, movable or immovable, which are not funds but may be used to obtain funds, goods or services; (e) 'freezing of economic resources' means preventing the use of economic resources to obtain funds, goods or services in any way including, but not limited to, by selling, hiring or mortgaging them; (f) 'freezing of funds' means preventing any move, transfer, alteration, use of, access to, or dealing with funds in any way that would result in any change in their volume, amount, location, ownership, possession, character, destination or any other change that would enable the funds to be used, including portfolio management; (g) 'funds' means financial assets and benefits of every kind, including, but not limited to: i) cash ... ii) ... balances on accounts ...||2(1) In these Regulations: ... 'designated person' means a person, entity or body listed in Annex 1 to [the EU Regulation]; ...|
|Article 2. 1. All funds and economic resources belonging to, owned, held or controlled by any natural or legal person, entity or body as listed in Annex I shall be frozen. 2. No funds or economic resources shall be made available, directly or indirectly, to or for the benefit of natural or legal persons, entities or bodies listed in Annex I.||3 -- (1) A person ('P') must not deal with funds or economic resources belonging to, or owned, held or controlled by, a designated person if P knows, or has reasonable cause to suspect, that P is dealing with such funds or economic resources. (2) In paragraph (1) 'deal with' means: (a) in relation to funds--(i) use, alter, move, allow access to or transfer, (ii) deal with the funds in any other way that would result in any change in volume, amount, location, ownership, possession, character or destination, or (iii) make any other change that would enable use, including portfolio management; and (b) in relation to economic resources, exchange, or use in exchange, for funds, goods or services. (3) Paragraph (1) us subject to Regulation 9. Licences 9 -- (1) The prohibitions in regulations 3 to 7 do not apply to anything done under the authority of a licence granted by HM Treasury ...|
|[Article 4 of the EU Regulations enables the competent authority to authorise release of frozen funds or resources for certain purposes, including satisfying the basic needs of natural or legal persons. Article 5 of the EU Regulation sets out a wider power of the competent authorities to authorise release of frozen funds and resources if certain conditions are met, which include the making of a court order.] Article 5 (1) By way of derogation from Article 2, the competent authorities of the Member States may authorise the release of certain frozen funds or economic resources, if the following conditions are met: (a) the funds or economic resources are subject to an arbitral decision rendered prior to the date on which the natural or legal person, entity or body referred to in Article 2 was included in Annex I, or of a judicial or administrative decision rendered in the Union, or a judicial decision enforceable in the Member State concerned, prior to or after that date; (b) the funds or economic resources will be used exclusively to satisfy claims secured by such a decision or recognised as valid in such a decision, within the limits set by applicable laws and regulations governing the rights of persons having such claims; (c) the decision is not for the benefit of a natural or legal person, entity or body listed in Annex I; and recognition of the decision is not contrary to public policy in the Member State concerned. (2) The Member State concerned shall inform the other Member States and the Commission of any authorisation granted under paragraph 1.|
|Article 9 It shall be prohibited to participate, knowingly and intentionally, in activities the object or effect of which is to circumvent the measures referred to in Article 2.||Contravention and circumvention of prohibitions 10 -- (1) A person who contravenes any of the prohibitions in regulations 3 to 7 commits an offence. (2) A person commits an offence who intentionally participates in activities knowing that the object or effect of them is (whether directly or indirectly) -- (a) to circumvent any of the prohibitions in regulations 3 to 7; or (b) to enable or facilitate the contravention of any such prohibition|
|Article 11 prohibits the enforcement by a designated person or any contractual claim. It is sufficient to set out paragraph (1) of this Article: Article 11 (1) No claims in connection with any contract or transaction the performance of which has been affected, directly or indirectly, in whole or in part, by the measures imposed under this Regulation, including claims for indemnity or any other claim of this type, such as a claim for compensation or a claim under a guarantee, particularly a claim for extension or payment of a bond, guarantee or indemnity, particularly a financial guarantee or financial indemnity, of whatever form, shall be satisfied, if they are made by: (a) designated natural or legal persons, entities or bodies listed in Annex I; (b) any natural or legal person, entity or body acting through or on behalf of one of the persons, entities or bodies referred to in point (a) ...|
|Article 17 This Regulation shall apply: (a) within the territory of the Union, including its airspace; (b) on board any aircraft or any vessel under the jurisdiction of a Member State; (c) to any person inside or outside the territory of the Union who is a national of a Member State; (d) to any legal person, entity or body, inside or outside the territory of the Union, which is incorporated or constituted under the law of a Member State; (d) to any legal person, entity or body in respect of any business done in whole or in part within the Union.||Regulation 1 (2) An offence under these Regulations may be committed by conduct wholly or partly outside the United Kingdom by -- (a) a UK national, or (b) incorporated or constituted under the law of any part of the United Kingdom.|
I agree with my Lady that this appeal should be dismissed for the reasons that she gives. I have had the advantage of reading in draft the concurring judgment of my Lord with which I also agree. In light of the slight difference in emphasis between my Lady and my Lord, I will add a few remarks of my own simply to clarify my reasoning.
The misunderstanding at the heart of this appeal is that what was ordered by the court below was ‘abnormal’ as distinct from a ‘normal’ route for the provision of interim maintenance as a financial remedy. I can find nothing in the judgment of Moor J nor in the wording of the order that exhibits an abnormality unless it be said that the family courts of England and Wales do not have as part of their approach to remedies the power to make orders identifying assets where so ever those assets may be held by a party. It was no part of Lord Pannick’s case that the family courts are restricted in that way and I would hazard a guess that it would surprise the judges of the Family Division of the High Court to be told that their powers do not extend to the use of available assets in the way contemplated in this case, absent the sanctions regime.
I entirely accept that the purpose of the EU Regulation is to prevent designated people (of whom the Husband is one) from using their funds and economic resources in the EU for so long as the sanctions regime is in force unless the permission of HM Treasury as the competent authority has been obtained for that use. Likewise, the EU Regulation prohibits the participation in activities which circumvent the prohibition on use, but that is not what happened in this case.
The order that was made had the object of providing interim maintenance for the Wife. It was an order of a court of competent jurisdiction in whose jurisdiction the parties had acquiesced. The order was made in accordance with settled principles derived from the statutory scheme and binding authority. No-one suggests otherwise. The lawfulness of the order by reference to the statutory scheme is not in issue. The object and effect was not to avoid the sanctions regime but to make financial provision for the family. I agree with my Lord that it is no part of the sanctions regime to prevent judges in the EU from making regular orders in favour of persons who are entitled to seek the court’s determination of an issue within the competence of that court. Neither the EU Regulation nor the UK Regulations purport to have that effect.
Furthermore, the factual position that I have described does not depend on the autonomous meaning of ‘circumvention’ but is rooted in what the judge did and his reasons for doing it. The court did not deal with or participate in any dealing with frozen funds. The order was a regular and proper order that was capable of being put into effect without such dealing.
I agree with my Lady that Article 5 of the EU Regulation contemplates valid and effective orders being made by a court in respect of funds that are restricted. Such an order is not invalidated and it is not a circumvention to make such an order albeit that the competent authority must give permission for the use of the funds that is contemplated for the order to be effective. If that is not a circumvention, then an equivalent order that identifies the use of funds that are not restricted cannot without more be a circumvention.Lord Justice Briggs
I agree that this appeal should be dismissed. I also agree with my Lady’s analysis, to the effect that it is implicit in Article 5 of the EU Regulation that it is not part of the objectives or purposes of the sanctions regime which it creates that the courts of Member States should be inhibited in making orders within the scope of their jurisdictional powers requiring scheduled persons to make payments, even out of frozen funds and, a fortiori, where the order does not specify the funds from which the scheduled person must make the payment. Thus the Judge could have ordered the Husband to pay the Wife in England, but payment could not then have been achieved in compliance with that order without authorization from HM Treasury, because the necessary funds would have become frozen when they notionally (or electronically) crossed the border into the EU: see Article 17 (a). I make no assumption that, after such an order, HM Treasury would either have granted or withheld authorization. No such order has been made, and no authorization has been sought to comply with any such order.
It was, by the same token, competent to the Judge to order the Husband to pay the Wife in Russia, and HM Treasury appears to have expressed the view that, at any rate, a purely voluntary payment of that kind would not require its authorization, on the understandable if perhaps slightly over-simplified basis that the Husband’s Russian funds are not frozen by the sanctions regime. The working assumption of the parties appears to be that the fact that the Husband’s payment would not be voluntary if made pursuant to an order to that effect would make no difference to the absence of any need to obtain Treasury authority.
My understanding of the gravamen of the Husband’s case on this appeal is that, by departing from a “normal” route for the ordering of interim maintenance, namely payment in England which would, if permissible at all, at least require Treasury authority, in favour of an “abnormal” route, namely payment in Russia which would not require such authority, the Judge has done something the object or effect of which was to circumvent the measures referred to in Article 2, contrary to the prohibition of circumvention in Article 9. 
I am for my part apprehensive that Mr Swift’s ‘axe to a tree’ submission, recorded and accepted by my Lady, may not entirely meet that objection, or not at least without further analysis. The argument is that because the Judge could without breach of the EU Regulation have ordered payment in England, his decision to order payment instead in Russia cannot begin to qualify as a circumvention. That may be right, but Lord Pannick’s circumvention argument does not seem to me necessarily to involve the proposition that an order of the first type (pay in England) would have itself been unlawful or invalid as a breach of the EU regulation. The circumvention which is alleged may arise because the effect of the judge’s order is to avoid (to use a neutral word) the need for compliance with it to be preceded by the obtaining of Treasury authority, which is an aspect of the process by which the Article 2 measures are maintained and moderated to accommodate special circumstances.
I have therefore found it necessary to set out in my own words an analysis of the meaning of ‘circumvent’ in Article 9, although I gratefully adopt my Lady’s analysis of the implications of Article 5 as my starting point. It does indeed show that it is no part of the purpose of the sanctions regime enacted by the EU Regulation or, more particularly, the “measures referred to in Article 2” that EU judges should not be able to make orders for payment of interim maintenance, or any other orders, against scheduled persons, for the purpose of vindicating the rights of persons entitled to seek their assistance.
The starting point for my analysis of the meaning of the circumvention prohibition in Article 9 must be to understand what are the measures referred to in Article 2. It states in apparently very broad terms that all funds and economic resources of scheduled persons shall be frozen, and that no funds or economic resources may be made available, directly or indirectly, to them or for their benefit. Literally interpreted without regard to its context, and bearing in mind that most of the scheduled persons are based outside the EU, Article 2 might appear at first sight to be an extraordinarily exorbitant exercise of international jurisdiction, freezing in rem funds and economic resources anywhere in the world, including Russia, and prohibiting in personam conduct anywhere in the world also including Russia, by anyone, regardless of their connection, if any , with the EU.
Recourse to Article 17 rapidly dispels that misimpression. It contains a carefully modulated description of the limited territorial effect of the Regulation as a whole, including Article 2, similar in some respects to the Babanaft provisos routinely applied by the English courts to international freezing injunctions, so as to prevent them having exorbitant effect outside the court’s territorial jurisdiction. Article 17 must of course be given an independent EU interpretation, unfettered by English notions of comity or English rules of private international law. The relevant territory is that of the EU Member States as a whole rather than England and Wales, but it still excludes Russia.
For present purposes, the definition of the territorial scope of the EU Regulation in Article 17 is reasonably clear. It applies
(a) within the territory of the Union,
(b) in relation to certain aircraft and vessels,
(c) to individuals wherever they may be if they are nationals of Member States,
(d) to persons of any kind incorporated there or under Member States’ law, and
(e) to any person wherever situate in respect of business done, in whole or in part in the Union.
Thus, by a process of elimination, neither the EU Regulation nor the measures referred to in Article 2 apply to the conduct of non-EU nationals or bodies outside the Union in relation to property outside the Union, unless that conduct consists of business done, in whole or in part, within the Union. It is simply not part of the purpose of the EU Regulation to prohibit or regulate conduct of that kind. Thus the payment of interim maintenance by a divorced Russian husband to his divorced Russian wife in Russia is outwith the scope or regulatory purpose of the sanctions regime created by the EU Regulation, unless it is effected by conduct, or with the use of funds or economic resources, within the Union.
By the same token, for all the reasons given by my Lady, it is no part of the scope or purpose of the EU Regulation to prohibit or regulate the making by EU judges of orders which they have jurisdiction to make about interim maintenance, or any other orders vindicating or protecting the rights of those entitled to seek their aid.
I agree with Lord Pannick that little of value is to be obtained from the few EU authorities about the meaning of ‘circumvent’ where used in other EU measures. Plainly it is used for the purposes of ensuring that the regulatory regime to which it relates is not evaded, and may in appropriate circumstances need to be liberally interpreted where necessary to vindicate the EU principle of effectiveness. The temptation to equate circumvention with evasion rather than avoidance where that dichotomy is applied for example in England in relation to tax must be vigorously resisted.
Lord Pannick would have it that wherever the ‘normal’ route to an objective would involve the breach of a prohibition in a regulatory regime, then the deliberate choice of an ‘abnormal’ route to the same objective which would not do so must involve a circumvention of that prohibition. By the same token he would argue that where the ‘normal’ route would bring a course of conduct within the regulatory regime because, here, compliance with an order for payment in England would require Treasury authority whereas an ‘abnormal’ order for payment in Russia would not, then there is also a circumvention, not of a prohibition but of regulatory control by a prescribed process for the obtaining of authority.
Superficially attractive though that submission is, I emphatically disagree with it. The starting point must be to ask whether the common objective sought to be achieved by the so-called normal and abnormal routes is itself one which the relevant regulatory regime seeks to prohibit or control. If it is, then the conclusion that the abnormal route is a circumvention may easily follow. If it is not, then the so-called abnormal route is (if, as here, not itself a breach of the regulatory regime) merely a lawful route to a lawful objective which circumvents nothing. It is merely the result of a sensible choice between a lawful and unlawful route to a common lawful objective. One may and should take care to avoid breaking the law, but that does not mean that avoidance is a circumvention of it.
Let me illustrate this by reference to an example analysed during the hearing, deliberately far removed from the present facts. A judge is being asked (perhaps unusually) to direct the specific performance by a reluctant but uniquely qualified carrier of a contract for the carriage of an exceptionally wide and heavy load from London to York. The ‘normal’ route is to use the M1 motorway, not least because of the virtual absence of roundabouts. While formulating his order (including using night time to avoid creating traffic jams) the judge is told that there is a weak bridge on the M1 which has just been protected by a temporary weight restriction, below that of the heavy load. So he rewrites his order requiring use of the A1. He has chosen an abnormal route so as to avoid breach of the weight restriction. But no one would say that he has circumvented it. Why? Because it is no part of the purpose of the weight restriction to prevent heavy loads being carried from London to York. The judge has simply chosen a lawful and regulation-free route to a lawful objective, and avoided one which would have required the driver to break the law.
In my judgment the same principled analysis leads to the same result in the present case. The EU Regulation does not without more have as part of its purposes the prohibition or even regulation of the payment of maintenance by scheduled Russian persons to their Russian wives, even if the wife lives within the Union, still less to prohibit or regulate the exercise by EU judges of such jurisdiction as they may have to compel payment of such maintenance. Its purposes, and the “measures referred to in Article 2” do extend to prohibit or, after a court order, regulate by Treasury licence, the payment of such maintenance, voluntarily or pursuant to a court order if, but only if, the Husband’s conduct (and that of any bank asked to assist) falls within the carefully modulated boundaries set by Article 17. Payment to the Wife in England would fall within those boundaries. Payment to her in Russia would not.
In my judgment therefore, all that the Judge did by ordering payment in Russia was to achieve a lawful objective, namely the court enforced payment of interim maintenance, by a lawful route, namely an order for payment to the Wife in Russia, none of which was either prohibited or regulated by the EU Regulation (or, for good measure by the UK Regulations) either as a whole, as a matter of purpose, or by the measures referred to in Article 2. There cannot therefore have been a circumvention of those measures within the meaning of Article 9.
The contrary argument, favoured by Lord Pannick, would seem to me to go a long way to undermine and distort the careful circumscribing of the scope of the EU Regulation in Article 17. It would mean that, by virtue of Article 9, conduct plainly outwith the scope of the EU Regulation could be said to fall within it, wherever that conduct was not the ‘normal’ way of achieving its lawful objective. Thus, it might be thought that the ‘normal’ way for a husband to maintain his English resident wife would be to do so by paying an allowance into her English bank account. Therefore a voluntary payment by the Husband into her Russian bank account would be ‘abnormal’ and therefore a prohibited circumvention. But it is common ground that the EU Regulation does not prohibit or regulate such payments, because they are outside its scope. Bearing in mind that the court is not itself in any way prohibited or regulated in making orders for maintenance, I cannot understand why the fact that the payment in Russia is to be made pursuant to a court order should make any difference. Either way the circumvention argument seems to me to be an illegitimate attempt to extend the scope of the EU regulation beyond its carefully modulated boundaries.
None of this risks driving a coach and horses through the sanctions regime constituted by the EU and UK Regulations. My analysis is strictly limited to the making of, and compliance with, court orders. The principle of effectiveness which must underlie any interpretation of the EU Regulation is not in any way undermined. By contrast the circumvention argument put forward by Lord Pannick would risk considerably extending the scope of the criminal offences which the UK Regulation builds onto the sanctions regime, by reference to an interpretation of circumvention based upon an ultimately subjective and uncertain notion of that which is, or is not, ‘normal’.
For those reasons, as well as those given by my Lady, I would dismiss this appeal.