Court of Appeal rules in favor of The Secretary of State for Transport; finding the High Court’s decision to M/Y PHI’s seizure lawful
Dalston Projects Limited and others (appellants) v The Secretary of State for Transport (respondent)
Not the denouement her owner, captain, crew, and spectators hoped for, the 60-meter motor yacht Phi will continue to be indefinitely detained in London. After the latest round of several legal battles in battles in the United Kingdom, the Court of Appeal dismissed the appeal set forth by the yacht’s owner that challenged the legality of the High Court’s July 2023 decision. The ruling, released on February 27th, 2024, crystallizes the Court’s stance on the detention of the vessel and reaffirms the aims of the government in the role of the vessel in regards to the invasion of Ukraine.
The motor yacht is built by Dutch shipyard Royal Huisman for Russian businessman Sergio Numyenko. She was delivered in 2021, after which made her way to London for an awards showcase. Her time docked in London coincided with the Russian invasion of Ukraine. Pursuant to the invasion, countries including the US, EU, and UK began to impose sanctions on Russian individuals with the aim of pressuring Russia to cease sanctions destabilizing Ukraine or undermining or threatening its territorial integrity. While the owner behind Phi was never placed under any sanctions list, then Secretary of State for Transport Grant Shapps ordered for the yacht to be detained under the amended EU Russia Regulations Act 2019. A move complemented by Mr. Shapps himself visiting the yacht down at Canary Wharf, standing in front of her with filming a video stating that this was a message to “Putin and his cronies”. The owner of the yacht was not known at the time, although later disclosed to the Transport Department.
The full history of Phi’s legal battles with the government of the United Kingdom can be read in last month’s issue.
Court of Appeal Hearing
The issue that Sir Geoffrey Vos, Lord Justice Singh, and Lady Whipple had to reconcile with was if the High Court’s decision to keep Phi detained was lawful. During the High Court proceedings in July 2023, Sir Ross Cranston ruled that Mr. Shapp’s decision to detain Phi was in fact deemed lawful. The High Court judge found that although the detention intercepted Mr. Naumenko’s property rights under the European Convention on Human Rights. there was no violation, but the decision to detain the yacht was a legitimate aim in the public interest.
To argue the case, the claimants presented six grounds of appeal. Four based on public law grounds [2.3.4.5], one ground on proportionality under Article 1 Protocol 1 (“A1P1“) of the European Convention on Human Rights (“ECHR“)[1], and one ground on conversion [6]. The grounds are stated in the order given during the Court hearing.
Ground 2 – Proper Purpose
What is it? Proper Purpose is a doctrine that states the duty of directors to act within the scope of the power granted by the articles of association. In other terms, only exercise powers to which they conferred.
At the time of the yacht’s detention in March 2022, “Mr. Shapps relied on the [amended] Russia (Sanctions) (EU Exit) Regulations 2019, made under the Sanctions & Anti Money Laundering Act 2018. Section 57C(1)(b) of the 2019 Regulation states that a mere connection with Russia in any way would constitute a detention. There in the High Court ruling, the Judge found that the justification of being “connected to Russia” is sufficient to permit the detention. Before the Appealte Court, therefore, the appellants argue the High Court Judges’ decision to find the detention of Phi sufficient merely due to the owner’s Russian nationality is unjust.
Precedent Relied on: Padfield Principle [Padfield v Minister of Agriculture, Fisheries and Food [1968] UKHL 1] – In this case, the Minister of Agriculture was found to have acted for an improper purpose. exercising his powers to avoid any “political embarrassment”.
Why the Court rejected this ground: The Appellate Court found that the terms of the legislation under which Mr. Shapps relied, Russia (Sanctions) (EU Exit) Regulations 2019, are clear. The Judges are of the view that the discretionary power exercised was not under improper purpose, as Mr. Naumenko’s connection to Russia will suffice due to his residential status being there. Under Ground 1, which will be discussed below, the Judges elaborate more on the circumstances of Mr. Naumenko and how his “connection to Russia” allowed him to attain his current wealth. The judgment on Ground 1 corresponds to this Ground.
Ground 4 – Taking into account irrelevant considerations in the First Detention Decision in March 2022
What happened? In the March 2022 detentions, the remarks made by Mr. Shapps broadcasted message included the description of Mr. Naumenko being an “oligarch” who had “made their money through their association with President Putin whilst he is going into Ukraine”. In the July 2023 High Court hearing, the claimants contended this is an unevidenced claim. The High Court dismissed this ground as Sir Ross Cranston deemed the statement said by Mr. Shapps in 2022 “excusable political hyperbole”.
Why the Court rejected this ground: Ultimately, the Appellate Court found it wrong to call Mr’. Shapps statement “Excusable Hyperbole” by Sir Cranton. Despite this acknowledgment, the Appellate Court believes that the High Court Judge remains right in his decision to dismiss the ground. No public law error vitiates the decision, concluding that there is nothing substantive in this complaint.
Ground 3 – Failure to state the grounds for the original detention
One of the issues that the court had to reconcile with is whether the detention direction provided proper grounds for the detention of the vessel. Under this ground, the appellants give rise to the Transport Department’s failure to comply with the express requirements of Russia (Sanctions) (EU Exit) Regulations 2019 Sections 57(5)(c) and (d). The requirements include The department did not state the grounds for why the ship was detained.
Precedent Relied on: R v South Gloucestershire Appeals Committee, ex parte C [2000]. The appellate court gave light to this case in a more prominent capacity than the High Court during the July 2023 hearing. The case involves a dispute over a planning decision regarding the building of a bungalow for a disabled person made by the South Gloucestershire Appeals Committee. The court held that the Appeals Committee did not properly consider the claimant’s disability in making the decision. While this case was taken into consideration by the Appellate Court in relation to Phi, the Court found that the decision of this case needs to be seen in its context.
Why the Court rejected this ground: Although the Appellate Court has given this ground more priority than the High Court, the judges felt that the Direction in this case was sufficient in stating the grounds of detention. The Appellate Court shared the view of the High Court, in regards to Ex Parte C, where Sir Cranston believed “the statutory scheme here does not require the giving of reasons.”
Ground 5 – the nature of the April 2022 decision was that it was a “holding measure”
On April 11th, 2022, a further ministerial submission was made by Mr. Robert Courts MP stating the detention of Phi should be maintained until further evidence is collected.
In the July 2023 hearing, the claimants contended that this holding measure was no longer pursuing a legitimate aim and had become disproportionate. The defendants went on to add that the proportionality terms of this justification were impaired as there was no rational connection to the aims of the sanctions regulation to find a balance between community and individual rights.
Why the Court rejected this ground: Much of this Ground concerned the semantics of MR. Court’s statement. the Appellate Court was in agreement with Sir Cranton that there is an undue emphasis placed on the words of Mr. Courts, and further reaffirming that the statement made was interpreted to say that the evidence collected would not only be from the side of the Transport Department, however, it is an opportunity for Mr. Naumenko to present evidence as well. The Courts referred to the letter delivered on May 26 2022 by the Appellants as materilzation of the statement made.
Ground 1 – Proportionality under A1P1
Protocol 1 Article 1 of the the European Convention on Human Rights provides that Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
The grounds of this appeal concerned a ruling made by the High Court Judge which deemed the detention of the vessel proportionate, albeit that Mr. Naumenko had “no proximate responsibility for the events around Ukraine, and could not have been said to have assisted the Russian regime”. The main test of proportionality the Court relied on concerned “the extent to which the decision will contribute to the overall objective needs to be balanced against the benefit to the general interests of the community.”
Precedent used: Bank Mellat v HM Treasury (No 2) [2013] UKSC 39; [2014]. In this case, the Court asked if the sanctioning of a single Iranian bank was logically capable of having a material effect on the Iranian nuclear program when other banks were not being sanctioned. After this case was brought to the attention of the Appellate court, Lord Justice Singh asked, if there were ten ships in the UK waters and the Secretary of State only detained the Phi, this analogy would be more relevant. In the Ruling, the Court found Bank Mellat incomparable with the case of Phi. This is because Phi was the only Russian ship present in London at the time. of the invasion, with the view of other ships facing the same imprisonment as Phi had any been present at the time.
There are two main elements to this ground that the Appellate Court had to contend with. if the detention of Phi was proportionate to the legitimate aim pursued. And is the detention in pursuit of a legitimate aim in the public interest?
For the former, the Court considered if the proportionality assessment by Sir Cranton was “wrong”. When assessing if Mr. Naumenko’s right to enjoyment is interfered with the Courts found that the context of the vessel is a luxury motor yacht must be taken into account. Although there is a violation of Mr. Naumenko’s enjoyment, the Court rejected this ground on the basis of his normal daily life not being affected in a way that experiencing hardship would. Therefore, the Appellate Court found Sir Cranston’s judgment to be right. As for the argument put forward of Mr. Naumenko having no affiliation with the Putin regime, the Court ruled his wealth was a product of tacit acceptance, benefiting from the Putin regime. This ties into limbs two and four of the Bank Mellat test and if the means adopted (wealth accumulated) had a “rational connection” to the end game.
Ground 6 – Conversion
What is conversion? – In public law conversion is known as an unauthorized act of exercising dominion or control over someone else’s property, which deprives the rightful owner of their property rights.
In this case, the appellants contend that, by the detainment of his vessel, Mr. Naumenko is deprived of his property. The unlawful detention intercepts Mr. Naumenko’s right to enjoy the property in its intended way.
Why the Court rejected this ground: dismissed since previous grounds have been rejected. Ground 6, in relation to conversion, will only rise in the case of the appeal succeeding. During the hearing, the Master of the rolls argues that conversion must take place at a certain time, giving the analogy of stealing one’s book “If I come in your house and steal a book from your bookshelf I commit I convert that book when I take it off the shelf”. In the case of Phi, the vessel was not taken anywhere, but rather imprisoned.
Comment –
The Appellate Court has made its ruling. The absence of Mr. Naumenko in the UK sanctions list certainly throws a wrench certainly adds a more complicated layer in determining the fate of this case, however, the Judges are in the view that this was not of relevance in the grand scheme of the UK’s plans in detaining the Phi. It is a translucent ruling, in my opinion, which will allow the government to focus on putting pressure on Russia as this war escalates. What stood out to me in this Hearing, is the omission of mentioning the status of Mr. Naumenko’s other yachts. While the Courts acknowledged Mr. Naumenko owning other vessels, it was in the context of assessing the violation of his rights under the ECHR. No assertation was made as to why his other vessels are free to roam the EU and beyond. Perhaps the Appealants felt it was not of necessity in this case. More on this issue below.
What happens now?
If one had to adumbrate, as Mr. Naumenko has exhausted all possible legal remedies. to challenge the legality of his motor yacht’s detention, the Appealants would take their case to the UK Supreme Court. According to Bloomberg, Mr. Eugene Shivdler, whose Court of Appeal hearing took place alongside Mr. Naumenko, plans to take the Judge’s ruling to the U.K Supreme Court. To do so, they must obtain permission from the Supreme Court. An “appeals committee” comprised of three Supreme Court justices shall then determine if the appeal raises an arguable question of law.