On 9 February 2015, the UK High Court referred a challenge brought by Rosneft by way of judicial review to the Court of Justice of the EU (the “CJEU”).
On 20 November 2014, Rosneft challenged certain measures adopted by the United Kingdom authorities to give effect to aspects of Council Regulation (EU) No 833/2014 as amended by Council Regulation (EU) No 960/2014 and Council Regulation (EU) No 1290/2014 (“Regulation 833”), along with other measures of EU law giving rise to sanctions measures. Following the High Court’s refusal to grant Rosneft’s application to stay the UK’s implementation of the sanctions (See Issue 32 of the Sanctions Alert for further detail), the matter has now been referred to the CJEU by the High Court.
Council Decision 2014/512/CFSP (as amended by Council Decision 2014/659/CFSP and Council Decision 2014/872/CFSP) (“Decision 512”) and Regulation 833 introduced prohibitions on the export of technology to Russian companies for use in deep water or Arctic oil exploration and production or shale oil projects. Decision 512 and Regulation 833 also introduced restrictions on providing “financial assistance” in respect of these exports and prohibited access to certain capital markets by specified Russian companies, including Rosneft. The contested measures include UK statutory instruments, which introduced criminal liability for violating the restrictive measures contained in Regulation 833, as well as guidance concerning the meaning of “financial assistance”.
The High Court referred three questions to the CJEU:
- whether the CJEU has jurisdiction to rule on the validity of a Council decision adopted pursuant to the Common Foreign and Security Policy (“CFSP”) of the EU under the procedures set out in Article 267 of the Treaty on the Functioning of the European Union;
- whether Regulation 833 and Decision 512 are valid and, if so, whether they are sufficiently certain in their meaning. The question of validity includes whether Regulation 833 and Decision 512 breach the Partnership and Cooperation Agreement (“Partnership Agreement”) between the EU and Russia. The Partnership Agreement provides for, amongst other things, the free movement of capital between residents of the EU and Russia and the freedom of transit of goods in the territories of both parties; and
- if Regulation 833 is valid as drafted, the High Court requested guidance on:
- whether the term “financial assistance” includes processing of payments;
- whether Global Depositary Receipts (“GDRs”) issued after 12 September 2014 in respect of shares in sanctioned companies issued before this date are restricted under Regulation 833; and
- the meaning of the terms “shale” and “waters deeper than 150 meters” under Regulation 833.
In referring these questions, the High Court provided its preliminary views on each issue. While these views are not determinative, they nonetheless provide some interesting observations. First, the High Court considered that there was “some force” in Rosneft’s submission that Regulation 833 and Decision 512 may represent a breach of the Partnership Agreement. Second, the High Court strongly indicated that questions relating to CFSP Decisions should be subject to review by the CJEU, in part on human rights grounds, suggesting that EU member state courts may be more willing to send such challenges to the CJEU in the future. Third, the High Court recognised that the scope of the term “financial assistance” is a topic of dispute among EU Member States, and that the UK has taken a wider interpretation of this term than certain other EU Member States. Fourth, the High Court opined that the correct interpretation of Regulation 833 in regards to GDRs is that it prohibits the issuance of any new GDRs relating to securities of sanctioned entities, regardless of whether the underlying securities in question were issued prior to 12 September 2014.
It is notable that Rosneft (and other sanctioned Russian entities) has made a separate application to the CJEU for annulment of Regulation 833 and Decision 512. With this in mind, the High Court recognised that there was a risk that, without a referral, courts in different EU Member States may reach different conclusions on these issues, with such differences already existing in guidance issued by different Member States. Further, the High Court recognised that, by having these questions answered by the CJEU, other Member States and EU institutions would be able to make submissions on these issues. Finally, the High Court also took into account the fact that, as Rosneft’s standing to bring a direct challenge in the CJEU was in dispute, the referral was required to ensure that the CJEU ruled on the merits of Rosneft’s claim.