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England and Wales High Court (Administrative Court) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Administrative Court) Decisions >> OJSC Rosneft Oil Company,R (On the Application Of) v Her Majesty's Treasury & Ors [2015] EWHC 248 (Admin) (09 February 2015) URL: http://www.bailii.org/ew/cases/EWHC/Admin/2015/248.html Cite as: [2015] EWHC 248 (Admin) |
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QUEEN'S BENCH DIVISION
DIVISIONAL COURT
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
The Queen on the application of OJSC Rosneft Oil Company |
Claimant |
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- and - |
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Her Majesty's Treasury - and - Secretary of State for Business, Innovation & Skills - and - The Financial Conduct Authority |
1st Defendant 2nd Defendant 3rd Defendant |
____________________
Tim Ward QC, Gerry Facenna and Julianne Morrison (instructed by The Treasury Solicitor) for the 1st and 2nd Defendants
Sonia Tolaney QC and Jamie McClelland (instructed by Kingsley Napley) for the 3rd Defendant
Hearing dates: 27th and 29th January 2015
____________________
Crown Copyright ©
Mr Justice Green:
A. Introduction
"(7) In addition, the Council recalled the previous commitments by the European Council and expressed readiness to introduce without delay a package of further significant restrictive measures if full and immediate cooperation from Russia on the abovementioned demands failed to materialise. The Council requested the Commission and the EEAS to finalise their preparatory work on possible targeted measures and to present by 24 July proposals for taking action, including on access to capital markets, defence, dual-use goods, and sensitive technologies, including in the energy sector.
(8) In view of the gravity of the situation, the Council considers it appropriate to take restrictive measures in response to Russia's actions destabilising the situation in Ukraine.
(9) In this context, it is appropriate to prohibit transactions in or the provision of financing or investment services or dealing in new bonds or equity or similar financial instruments with a maturity exceeding 90 days issued by State-owned Russian financial institutions, excluding Russia-based institutions with international status established by intergovernmental agreements with Russia as one of the shareholders. These prohibitions do not affect the granting of loans to or by those state-owned Russian financial institutions independently of their maturity.
(10) In addition, Member States should prohibit the sale, supply, transfer or export to Russia of arms and related material of all types. The procurement from Russia of arms and related material of all types should also be prohibited.
(11) Furthermore, the sale, supply, transfer or export of dual-use items for military use or to military end-users in Russia should be prohibited. This prohibition should not affect the exports of dual-use goods and technology, including for aeronautics and for the space industry, for non-military use and/or for non-military end-users.
(12) The sale, supply, transfer or export of certain sensitive goods and technology should be prohibited when they are destined for deep water oil exploration and production, arctic oil exploration and production or shale oil projects".
"Article 3
1. A prior authorisation shall be required for the sale, supply, transfer or export, directly or indirectly, of technologies as listed in Annex II, whether or not originating in the Union, to any natural or legal person, entity or body in Russia or in any other country, if such equipment or technology is for use in Russia.
2. …
3. Annex II shall include certain technologies suited to the oil industry for use in deep water oil exploration and production, Arctic oil exploration and production, or shale oil projects in Russia.
4. …
5. The competent authorities shall not grant any authorisations for any sale, supply, transfer or export of the technologies included in Annex II, if they have reasonable grounds to determine that the sale, supply, transfer or export of the technologies is for projects pertaining to deep water oil exploration and production, Arctic oil exploration and production, or shale oil projects in Russia".
"[I]t is appropriate to extend the prohibition in relation to certain financial instruments. Additional restrictions on access to the capital market should be imposed in relation to … certain Russian entities whose main business is the sale or transportation of oil".
"1. A prior authorisation shall be required for the sale, supply, transfer or export, directly or indirectly, of items as listed in Annex II, whether or not originating in the Union, to any natural or legal person, entity or body in Russia, including its Exclusive Economic Zone and Continental Shelf or in any other State, if such items are for use in Russia, including its Exclusive Economic Zone and Continental Shelf.
2. For all sales, supplies, transfers or exports for which an authorisation is required under this Article, such authorisation shall be granted by the competent authorities of the Member State where the exporter is established and shall be in accordance with the detailed rules laid down in Article 11 of Regulation (EC) No 428/2009. The authorisation shall be valid throughout the Union.
3. Annex II shall include certain items suited to the following categories of exploration and production projects in Russia, including its Exclusive Economic Zone and Continental Shelf:
(a) oil exploration and production in waters deeper than 150 metres;
(b) oil exploration and production in the offshore area north of the Arctic Circle; or
(c) projects that have the potential to produce oil from resources located in shale formations by way of hydraulic fracturing; it does not apply to exploration and production through shale formations to locate or extract oil from non-shale reservoirs.
4. Exporters shall supply the competent authorities with all relevant information required for their application for an export authorisation.
5. The competent authorities shall not grant any authorisation for any sale, supply, transfer or export of the items included in Annex II, if they have reasonable grounds to determine that the sale, supply, transfer or export of the items are destined for any of the categories of exploration and production projects referred to in paragraph 3.
The competent authorities may, however, grant an authorisation where the sale, supply, transfer or export concerns the execution of an obligation arising from a contract concluded before 1 August 2014, or ancillary contracts necessary for the execution of such a contract.
The competent authorities may also grant an authorisation where the sale, supply, transfer or export of the items is necessary for the urgent prevention or mitigation of an event likely to have a serious and significant impact on human health and safety or the environment. In duly justified cases of emergency, the sale, supply, transfer or export may proceed without prior authorisation, provided that the exporter notifies the competent authority within five working days after the sale, supply, transfer or export has taken place, providing detail about the relevant justification for the sale, supply, transfer or export without prior authorisation".
"1. It shall be prohibited to provide, directly or indirectly, associated services necessary for the following categories of exploration and production projects in Russia, including its Exclusive Economic Zone and Continental Shelf:
(a) oil exploration and production in waters deeper than 150 metres;
(b) oil exploration and production in the offshore area north of the Arctic Circle; or
(c) projects that have the potential to produce oil from resources located in shale formations by way of hydraulic fracturing; it does not apply to exploration and production through shale formations to locate or extract oil from non-shale reservoirs.
For the purpose of this paragraph, associated services shall mean:
(i) drilling;
(ii) well testing;
(iii) logging and completion services;
(iv) supply of specialised floating vessels.
2. The prohibitions in paragraph 1 shall be without prejudice to the execution of an obligation arising from a contract or a framework agreement concluded before 12 September 2014 or ancillary contracts necessary for the execution of such a contract.
3. The prohibitions in paragraph 1 shall not apply where the services in question are necessary for the urgent prevention or mitigation of an event likely to have a serious and significant impact on human health and safety or the environment.
The service provider shall notify the competent authority within five working days of any activity undertaken pursuant to this paragraph, providing detail about the relevant justification for the sale, supply, transfer or export".
"3. The provision of the following shall be subject to an authorisation from the competent authority concerned:
(a) technical assistance or brokering services related to items listed in Annex II and to the provision, manufacture, maintenance and use of those items, directly or indirectly, to any natural or legal person, entity or body in Russia, including its Exclusive Economic Zone and Continental Shelf or, if such assistance concerns items for use in Russia, including its Exclusive Economic Zone and Continental Shelf, to any person, entity or body in any other State;
(b) financing or financial assistance related to items referred to in Annex II, including in particular grants, loans and export credit insurance, for any sale, supply, transfer or export of those items, or for any provision of related technical assistance, directly or indirectly, to any natural or legal person, entity or body in Russia, including its Exclusive Economic Zone and Continental Shelf or, if such assistance concerns items for use in Russia, including its Exclusive Economic Zone and Continental Shelf, to any person, entity or body in any other State.
In duly justified cases of emergency referred to in Article 3(5), the provision of services referred to in this paragraph may proceed without prior authorisation, on condition that the provider notifies the competent authority within five working days after the provision of services".
"Article 5
1. It shall be prohibited to directly or indirectly purchase, sell, provide investment services for or assistance in the issuance of, or otherwise deal with transferable securities and money-market instruments with a maturity exceeding 90 days, issued after 1 August 2014 to 12 September 2014, or with a maturity exceeding 30 days, issued after 12 September 2014 by:
(a) a major credit institution, or other major institution having an explicit mandate to promote competitiveness of the Russian economy, its diversification and encouragement of investment, established in Russia with over 50 % public ownership or control as of 1 August 2014, as listed in Annex III; or
(b) a legal person, entity or body established outside the Union whose proprietary rights are directly or indirectly owned for more than 50 % by an entity listed in Annex III; or
(c) a legal person, entity or body acting on behalf or at the direction of an entity referred to in point (b) of this paragraph or listed in Annex III.
2. It shall be prohibited to directly or indirectly purchase, sell, provide investment services for or assistance in the issuance of, or otherwise deal with transferable securities and money-market instruments with a maturity exceeding 30 days, issued after 12 September 2014 by:
(a) a legal person, entity or body established in Russia predominantly engaged and with major activities in the conception, production, sales or export of military equipment or services, as listed in Annex V, except legal persons, entities or bodies active in the space or the nuclear energy sectors;
(b) a legal person, entity or body established in Russia, which are publicly controlled or with over 50 % public ownership and having estimated total assets of over 1 trillion Russian Roubles and whose estimated revenues originate for at least 50 % from the sale or transportation of crude oil or petroleum products, as listed in Annex VI;
(c) a legal person, entity or body established outside the Union whose proprietary rights are directly or indirectly owned for more than 50 % by an entity listed in point (a) or (b) of this paragraph; or
(d) a legal person, entity or body acting on behalf or at the direction of an entity referred to in point (a), (b) or (c) of this paragraph.
3. It shall be prohibited to directly or indirectly make or be part of any arrangement to make new loans or credit with a maturity exceeding 30 days to any legal person, entity or body referred to in paragraph 1 or 2, after 12 September 2014 except for loans or credit that have a specific and documented objective to provide financing for non-prohibited imports or exports of goods and non-financial services between the Union and Russia or for loans that have a specific and documented objective to provide emergency funding to meet solvency and liquidity criteria for legal persons established in the Union, whose proprietary rights are owned for more than 50 % by any entity referred to in Annex III".
B. The questions referred to the Court of Justice of the European Union
"6. There has been discussion of the meaning of "financing or financial assistance" in relevant EU working groups. It is clear from this that some other Member States have interpreted the phrase more narrowly than the UK, so that in their view financing/financial assistance does not include payment processing services. This appears to be because they consider that "financing or financial assistance" implies an active and intentional act by the bank, whereas when processing a payment the bank does not itself act to provide finance but instead plays a more passive, facilitating, role.
7. The terms "financing or financial assistance", have not, to the best of my knowledge, ever been defined either at UN or EU-level. For example, the EU "Guidelines on implementation and evaluation of restrictive measures (sanctions) in the framework of the EU common foreign and security policy" (Council document ST 11205/12, 15 June 2012,…say, at paragraph 66, in respect of financing/financial assistance related to arms embargoes only that "a ban on financing of or providing financial assistance for arms exports could strengthen the arms embargo".
8. However, on 16 December 2014 the European Commission published "Commission Guidance Notes on the implementation of certain provisions of Regulation (EU) No 833/2014", (Commission document C(2014) 9950 final,… At paragraph 1 on page 2 is the following question and answer:
"Q. Do the provision of payment services and issuance of letters of guarantee/credit constitute financial assistance in the sense of Articles 2 and 4, and are therefore prohibited for the goods and technology subject to a ban?
A. Yes. In accordance with Article 4, payment services and issuance of letters of guarantees/credit constitute financial assistance and are prohibited when linked to the underlying commercial transaction subject to a ban under Article 2".
9. It is not clear why there is only a reference to financial assistance under Article 4 linked to a commercial transaction subject to a ban under Article 2, since financial assistance is a term that also appears in Article 2a and in Articles 4(1)(b) (linked to the prohibition on the sale, supply etc, of goods and technology listed in the Common Military List) and 4(3)(b) (linked to a commercial transaction subject to restriction under Article 3) of Regulation 833/2014. I note that the second paragraph of the introduction to the Guidance on page 1 states that: "This guidance note is conceived in a form of answers to certain questions that have been brought to the Commission's attention. Should further questions arise, the Commission may revise or extend the questions and answers provided". It may be the case that the question was put to the Commission only in the context of the restrictions under Article 2".
C. The questions relating to the validity of the EU Regulation and the UK implementing measures: Questions 1 and 2(a), (b)
"Article 99
Nothing in this Agreement shall prevent a Party from taking any measures:
1. which it considers necessary for the protection of its essential security interests:
…
(d) in the event of serious internal disturbances affecting the maintenance of law and order, in time of war or serious international tension constituting threat of war or in order to carry out obligations it has accepted for the purpose of maintaining peace and international security…".
"The Court of Justice of the European Union shall include the Court of Justice, the General Court and specialised courts. It shall ensure that in the interpretation and application of the Treaties the law is observed.
Member States shall provide remedies sufficient to ensure effective legal protection in the fields covered by Union law".
D. The questions relating to the principle of legal certainty: Questions 2(b) and 3(c)
"…is satisfied where the individual can know from the wording of the relevant provision…and, if need be, with the assistance of the courts' interpretation of it, what acts and omissions will make him criminally liable".
(Paragraph [29]).
"31. As the Court has already had occasion to note, it is a logical consequence of the principle that laws must be of general application that the wording of statutes is not always precise. One of the standard techniques of regulation by rules is to use general categorisations as opposed to exhaustive lists. The need to avoid excessive rigidity and to keep pace with changing circumstances means that many laws are inevitably couched in terms which, to a greater or lesser extent, are vague. The interpretation and application of such enactments depends on practice…".
"A law may still satisfy the requirement of foreseeability even if the person concerned has to take appropriate legal advice to assess, to a degree that is reasonable in the circumstances, the consequences which a given action may entail…This is particularly true in relation to persons carrying on a professional activity, who are used to having to proceed with a high degree of caution when pursuing their occupation. They can on this account be expected to take special care in assessing the risks that such activity entails. With the benefit of appropriate legal advice, Mr Cantoni, who was, moreover, the manager of a supermarket, should have appreciated at the material time that, in the view of the line of case-law stemming from the Court of Cassation and from some of the lower courts, he ran a real risk of prosecution for unlawful sale of medicinal products".
E. The questions relating to the meaning of "financial assistance": Question 3(a)
F. The questions relating to the effect of the provisions concerning global depository receipts: Question 3(b)
G. Conclusion
IN THE HIGH COURT OF JUSTICE Claim No. 5379/2014
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
LORD JUSTICE BEATSON & MR JUSTICE GREEN
B E T W E E N :
Claimant
Defendants
ORDER FOR REFERENCE PURSUANT TO ARTICLE 267 OF THE TREATY ON THE FUNCTIONING OF THE EUROPEAN UNION |
UPON the Claimant's claim for judicial review dated 20 November 2014
AND UPON hearing Leading and Junior Counsel for the Claimant, the First and Second Defendant, and the Third Defendant on 27 January 2015 and 29 January 2015.
AND UPON the Court in the judgment (the Judgment), to which this Order forms a part, deciding that in order to enable it to give final judgment in this case it is necessary to resolve questions concerning the interpretation of European Union law and the validity of certain EU acts and that it is appropriate to request the Court of Justice of the European Union to give a preliminary ruling thereon.
IT IS ORDERED THAT:
1. Permission to apply for judicial review on all the grounds in the Claim Form, including those added by amendment applications made on 26 January 2015 and 29 January 2015 (each being in respect of the Decision, as defined below), is granted.
2. Pursuant to CPR 68.2 the questions set out in the Schedule hereto, concerning the jurisdiction of the Court of Justice and the interpretation and validity of:
i. Council Decision 2014/512/CFSP of 31 July 2014 concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine, as amended by Council Decision 2014/659/CFSP and Council Decision 2014/872/CFSP (collectively, "the Decision"); and
ii. Council Regulation (EU) No.833/2014 of 31 July 2014 concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine, as amended by Regulation (EU) No.960/2014 and Regulation (EU) No.1290/2014 (collectively, "the EU Regulation")
be referred to the Court of Justice for a preliminary ruling in accordance with Article 267 of the Treaty on the Functioning of the European Union ("TFEU").
3.. The proceedings be stayed until the Court of Justice has given a preliminary ruling on the questions referred or until further order.
4.. Costs reserved.
5.. Liberty to apply.
Questions referred to the Court of Justice
The questions referred concern Council Decision 2014/512/CFSP, as amended by Council Decision 2014/659/CFSP and Council Decision 2014/872/CFSP (collectively, "the Decision") and Regulation (EU) No.833/2014, as amended by Regulation (EU) No.960/2014 and Regulation (EU) No.1290/2014 (collectively, "the EU Regulation"). They are the following:
1.. On 31 July 2014, the EU Council adopted Decision 2014/512/CFSP and Regulation (EU) No.833/2014 in response to Russia's actions destabilising the situation in Ukraine. Decision 2014/512/CFSP and Regulation (EU) No.833/2014 imposed a range of sanctions on various Russian industries. Recital (2) of Regulation No. 833/2014 stated: "It is … considered appropriate to apply additional restrictive measures with a view to increasing the costs of Russia's actions to undermine Ukraine's territorial integrity, sovereignty and independence and to promoting a peaceful settlement of the crisis…"
2.. Council Decision 2014/512/CFSP was subsequently amended by Council Decision 2014/659/CFSP on 8 September 2014, and Regulation (EU) No.833/2014 was amended on the same date by Regulation (EU) No.960/2014, which came into force on 12 September 2014. Recital (4) of Decision 2014/659/CFSP stated, "In view of the gravity of the situation, the Council considers it appropriate to take further restrictive measures in response to Russia's actions destabilising the situation in Ukraine." On 4 December 2014, the EU Council adopted Decision 2014/872/CFSP ("the Second Amending Decision") and Regulation (EU) No.1290/2014 ("the Second Amending Regulation"). Recital (3) of the Second Amending Decision stated that, "The Council considers it necessary to clarify certain provisions."
3.. The relevant prohibitions in the EU Regulation and Decision are:
3.1. The prohibition on the sale, supply, transfer or export of products listed in Annex II of the EU Regulation without an authorisation (Article 4(1) of the Decision; Article 3 of the EU Regulation);
3.2. The prohibition on the provision of various specified services for "oil exploration and production in waters deeper than 150 metres", "oil exploration and production in the offshore area north of the Arctic Circle", and "projects that have the potential to produce oil from resources located in shale formations by way of hydraulic fracturing…" (Article 4a of the Decision; Article 3a of the EU Regulation);
3.3. The prohibition on the provision of "technical assistance or other services" and "financing or financial assistance", without authorisation, in relation to Annex II technologies provided to a Russian person or entity or for use in Russia (Article 4(2) of the Decision; Article 4 of the EU Regulation);
3.4. The prohibition on directly or indirectly purchasing, selling, providing investment services for, or assistance in the issuance of, or otherwise dealing with "transferable securities" or "money market instruments" with a maturity exceeding 30 days issued after 12 September 2014 by an entity listed in Annex VI of the EU Regulation (Article 1(2) and Annexe III of the Decision, Article 5(2) and Annex VI of the EU Regulation);
3.5. The prohibition on directly or indirectly making or being part of any arrangement to make new loans or credit with a maturity exceeding 30 days to any person listed in Annex VI after 12 September 2014, subject to an exception for loans with a specific and documented objective to provide financing for non-prohibited imports or exports of goods and non-financial services between the Union and Russia, and for loans that have a specific and documented objective to provide emergency funding to meet solvency and liquidity criteria for legal persons established in the Union (Article 1(2) of the Decision, Article 5(3) of the EU Regulation); and
3.6. The prohibition of claims in connection with any contract or transaction, the performance of which has been affected, directly or indirectly, in whole or in part, by measures imposed under the EU Regulation (Article 7 of the Decision, Article 11 of the EU Regulation).
4.. Article 8 of the EU Regulation requires Member States to lay down effective, proportionate and dissuasive penalties applicable to infringements of the EU Regulation.
5.. GDRs are certificates representing ownership of a certain number of a company's shares. Because those certificates are transferable, they constitute free-standing securities which can be listed and traded within the EU capital market independently from the underlying shares, which may be separately listed in a foreign market. GDRs are often issued by depositaries pursuant to deposit agreements formed between those depositaries and the issuers of the underlying shares.
Procedural Background
6.. Rosneft lodged an application for the annulment of, inter alia, the Regulation Oil Sector Provisions, the Regulation Securities and Lending Provisions and the Decision Securities and Lending Provisions ("the Annulment Application"), pursuant to Article 263 and 275 TFEU at the General Court of the European Union on 9 October 2014, in conjunction with a request for an expedited hearing. The request for an expedited hearing was refused by a decision communicated to Rosneft on 13 November 2014.
7.. On 20 November 2014, Rosneft issued proceedings, in the High Court of England and Wales, for judicial review against the Defendants ("the Domestic Proceedings"). These proceedings, as amended, raised the following issues:
7.1. The legality, as a matter of English domestic law, of the Second Defendant's decision to introduce domestic delegated legislation that criminalized a breach of Article 3a of the EU Regulation, on the basis that such a decision contravened the principle that any criminal offence must be defined with a high level of clarity.
7.2. The legality of delegated legislation introduced by the First and Second Defendants, on the basis that the Decision and the EU Regulation which the legislation purported to implement were themselves invalid.
7.3. The guidance issued by the Second Defendant, regarding the meaning of "financial assistance" as used in the EU Regulation, and statements made by the Third Defendant, in which it expressed its expectation that new GDRs would not be issued in light of the EU Regulation's prohibition on the issue of "transferable securities".
7.4. The meaning of the terms shale" and "waters deeper than 150 metres" in Article 4 of the Decision and Article 3 and 3a of the EU Regulation.
8.. In a judgment dated 27 November 2014, the High Court refused Rosneft's application for interim relief to prevent the coming into force of national legislation criminalising the breach of Article 3a of the EU Regulation.
9.. For the reasons set out in the Judgment the High Court has decided that there is sufficient doubt as to the validity of the EU Regulation and Decision, that applying the principles in C-314/85 Foto-Frost v Hauptzollamt Lubeck-Ost [1987] ECR 4199), the Court should refer the above questions to the Court of Justice concerning the validity of the Decision and Regulation. The Court has also decided to refer the issues of interpretation concerning those measures.
Submissions relating to Question 1
10.. Question 1 asks whether the Court of Justice has jurisdiction to rule on the validity of the Decision on a preliminary reference pursuant to Article 267 TFEU.
Claimant's submissions (in summary form)
11.. Having regard to Article 19(1) TEU, Article 47 EUCFR, Article 275, second paragraph, TFEU and Article 40 TEU, Rosneft contends that the Court of Justice has jurisdiction to give a preliminary ruling under Article 267 TFEU on the validity of both the Oil Sector Provisions and the Securities and Lending Provisions of the Decision. The Court has jurisdiction under Article 275, second subparagraph, TFEU to verify whether the Decision affects the application of the procedures and powers of the institutions under the TFEU contrary to Article 40 TEU. Furthermore, in the absence of such jurisdiction, Rosneft would be denied an effective remedy against national criminal and other measures giving effect to the Decision. Even if the Court of Justice were to find that the Regulation is invalid, Member States would be bound under Article 29 TEU to give effect to the Decision unless it were also held to be invalid.
Defendants' submissions (in summary form)
12.. The Court of Justice has no jurisdiction to rule on the validity of the Decision on a preliminary reference pursuant to Article 267 TFEU, having regard to the terms of Article 24 TEU and Article 275 TFEU; any such claim must be brought by direct action and must satisfy the requirements of Article 263(4) TFEU. These proceedings are not monitoring compliance with Article 40 TEU: they are in substance a direct attack on the validity of the Decision and may only be brought pursuant to Article 263(4) TFEU.
Submissions relating to Question 2a) and b)
13.. In summary Questions 2(a) and (b) asks whether the Relevant Measures in the EU Regulation and, to the extent that the Court has jurisdiction, the Decision are invalid and then, if they are valid, whether certain of the prohibitions are formulated with sufficient clarity lawfully to form the basis of criminal penalties.
Claimant's submissions (in summary form)
The Relevant Measures breach the Partnership and Co-operation Agreement with Russia ("the Partnership Agreement")
14.. The Partnership Agreement has been held by the CJEU to have direct effect and can be relied upon by individual litigants to contest the validity of acts of the EU institutions. The Securities and Lending Provisions are contrary to Article 52 of the Partnership Agreement, which provides for the free movement of payments and capital movements between the Russian Federation and the EU. The Oil Sector Provisions also contravene the Partnership Agreement in numerous respects. Specifically, the Oil Sector Provisions contravene:
14.1. Articles 10 of the Partnership Agreement, by which the EU agreed to accord to the Russian Federation most-favoured nation status, as described in Article I, paragraph 1 of the General Agreement on Tariffs and Trade;
14.2. Article 12 of the Partnership Agreement, which requires that each party to the Partnership Agreement provide for freedom of transit through its territory of goods originating in the customs territory or destined for the customs territory of the other party; and
14.3. Article 15 of the Partnership Agreement, which provides that goods originating in the Russian Federation and the Community shall be imported into the other party free of quantitative restrictions.
15.. Moreover, none of the Relevant Measures could be said to fall within or be proportionate to the narrow exceptions set out in Article 19 and Article 99(1) of the Partnership Agreement, concerning "public security" and "essential security interests" respectively. They do not in any way relate to goods or services having any military connection whatsoever.
The Relevant Measures contravene the duty to give reasons, infringe the right to a fair hearing and infringe the right to effective judicial protection
16.. The Relevant Measures fail to provide reasons sufficient to permit review of legality, as is required by Article 296 TFEU. No explanation has been given as to how the sanctions imposed will further the aim of the EU Regulation, the selection criteria used to choose the industries targeted, or what the desired consequences are for actors in the industries targeted. Moreover, despite repeated requests on behalf of Rosneft, the Council has refused to provide access to any information or documents which shed light on the reasoning adopted by the Council. These failings amount to an infringement of the (closely linked) principles of the obligation to state reasons, the right to a fair hearing and the right to effective judicial protection. The importance of the duty to state reasons, and the close links between this duty and the right to a fair hearing and principle of effective judicial protection, were explained by the General Court in Case T-228/02 People's Mojahedin Organisation of Iran v Council [2006] ECR II-04665, ¶80 and ¶89.
17.. The provision of adequate reasons is particularly important in relation to the Relevant Measures, which target particular persons or categories of trader and were adopted by the Council under the special procedure laid down by Article 215 TFEU, in derogation from the general principles of free trade and investment laid down by the TFEU and legislation adopted thereunder. Moreover, the Council was not giving effect to any international commitments but acted autonomously and selected the targeted sectors without explanation.
The Oil Sector Provisions are contrary to the principle of equal treatment and constitute a misuse of powers
18.. The Council's failure to advance any reasons for the Relevant Measures also leads to a breach of the principle of equal treatment, which prohibits comparable situations from being treated differently unless such treatment is objectively justified (see, for instance, Case T-390/08 Bank Melli Iran v Council [2009] ECR II-03967, ¶56 et seq). In the present case, there is no evidence that the businesses affected are in any different position to any other business that is economically important to the Russian Federation. In particular, the targeted businesses have no particular connection to the events in Ukraine.
19.. The absence of any proper explanation for the Relevant Measures also leaves the Council vulnerable to the criticism that (at least part of) the purpose of the Relevant Measures was to serve an ulterior aim, such as enabling the EU to obtain a competitive advantage in relation to the sectors concerned. The Relevant Measures are therefore also invalid on the further ground that they entail a misuse of powers.
The Relevant Measures are disproportionate, encroach upon the Union's legislative competences and breach Rosneft's fundamental rights
20.. The Council had no competence to adopt, or could not lawfully adopt, the Oil Sector Provisions, because they are not (or have not shown to be) proportionate to the stated general aim of the Decision and the EU Regulation. According to the CJEU's settled case-law, an EU act which prohibits economic activity must be proportionate to the aim of the measure (see, e.g. R v Minister of Agriculture, Fisheries and Food ex parte Fedesa ...C-331/88) [1990] ECR I-4023, ¶13). Moreover, as a consequence of their lack of proportionality, the Relevant Measures encroach upon the Union's legislative competences under the common commercial policy and constitute an impermissible interference with Rosneft's freedom to conduct a business and right to property.
21.. In particular, Rosneft submits that:
21.1. The Relevant Measures do not disclose a rational connection between the aims of the Decision and the means for giving effect thereto. The CJEU has consistently required that a person targeted by sanctions should have a sufficient connection with the third country regime and/or the aims pursued by the measure taken. Businesses in a sector with no stated or other particular connection to events in Ukraine cannot properly be targeted simply because the sector is economically important to Russia.
21.2. The Relevant Measures go beyond what is necessary to achieve their stated general aim. Where there is a choice between several appropriate measures, recourse must be had to the least onerous: Case T-8/11 Bank Kargoshaei and Others v Council and Commission (16 September 2013) ECLI:EU:T:2013:470, ¶171. The Council has failed to demonstrate that the Relevant Measures are the least onerous means of pursuing the objective in question, nor that alternative, less restrictive means have been considered and rejected or are exhausted.
21.3. The Relevant Measures lack overall proportionality, impairing the "substance" or "essential content" of Rosneft's right to conduct a business and right to property (see e.g. Case C-548/09 Bank Melli Iran v Council [2011] ECR I-11381 ECLI:EU:C:2011:735). In considering whether measures are proportionate, the Court will take account of why a particular industry has been targeted: see Case C-348/12 Council of the European Union v Manufacturing Support & Procurement Kala Naft Co.,Tehran, ¶12. The Relevant Measures target the Russian oil industry for no better reason than to cause economic harm to the Russian Federation.
21.4. Article 11 of the EU Regulation, which sanctions the actual or de facto destruction of Rosneft's existing property rights (or far reaching consequences therein), also constitutes a disproportionate interference with Rosneft's right to property.
The EU Regulation fails to give proper effect to the Decision
22.. The EU Regulation does not give proper effect to the provisions of the Decision in material respects. In particular, Article 3(5) of the EU Regulation is inconsistent with Article 4(4) of the Decision. Whereas Article 4(4) confers no discretion on Member States to decide whether to grant an authorisation with respect to a contract concluded before 1 August 2014, Article 3(5) purports to authorise Member States to decide at their discretion whether to permit the supply in question pursuant to the contract.
The Oil Sector Provisions (together with Article 8 of the EU Regulation) contravene the principle of legal certainty and legality of criminal offences
23.. In its Annulment Application, Rosneft challenged the meaning of the terms "deep water", "arctic", and "shale oil project". By the Second Amending Regulation, those terms were, to some extent, expanded in their definitions. However, a large degree of uncertainty remains in two areas. First, the test of "waters deeper than 150 metres" is unclear in the context of sophisticated oil exploration and production. Secondly, uncertainty remains as to the definition of "shale" as there is no consensus, in the geological or any other industry, as to what "shale" even is. That uncertainty has not been remedied by the Second Amending Decision and/or the Second Amending Regulation. Moreover, there is as yet no case-law that can assist Rosneft's lawyers, the domestic court, or the CJEU in determining their proper meaning. This is particularly objectionable where effect is given to Article 8 of the EU Regulation by way of criminal sanctions. In these circumstances, the terms "deep water" and "shale" offend against both the EU principle of legal certainty and legality of criminal offences.
24.. Moreover, the CJEU has held that the principle of legality of criminal offences may preclude the retroactive application of a new interpretation of a rule establishing a criminal offence. This is particularly true if the interpretation was not reasonably foreseeable at the time: see Dansk Rorindustri and Others v Commission (Joined Cases C-189/02 P, C-202/02 P, C-205/02 P to C-208/02 P and C-213/02 P [2005] ECR I-05425, ¶¶217-219 and AC-Treuhand AG v Commission (T-99/04) [2008] ECR II-0151, ¶142. Rosneft therefore submits in the alternative that if Article 8 of the EU Regulation is held to be valid, it would nonetheless be contrary to the principle of legal certainty and nulla poena sine lega certa for a Member State to impose criminal penalties pursuant to that provision, before the scope of the relevant offence has been clarified by the CJEU.
Defendants' submissions (in summary form)
25.. The First and Second Defendants submit, in summary, as follows:
25.1. To the extent that the Partnership and Co-operation Agreement with Russia is relevant, the Relevant Measures do not breach that Agreement having regard, in particular, to Article 99 of the Agreement which provides that the Agreement does not prevent a party from taking measures which it considers necessary for the protection of its essential security interests, in specified circumstances. Moreover, neither the General Agreement on Trade Tariffs or other World Trade Organization treaties are capable of conferring rights that individuals may invoke before the courts to challenge an EU measure: see case C21/72 International Fruit ECLI:EU:C:1972:115 at §27; Article XXI of GATT 1947 also contains an applicable security exception in any event;
25.2. The Relevant Measures state the reasons on which they are based, in conformity with Article 296 TFEU. They accordingly do not infringe the Claimant's procedural rights. Nor are they contrary to the principle of equal treatment: any difference in treatment is objectively justified by the aim of the Relevant Measures, namely to "increase the costs of Russia's actions to undermine Ukraine's territorial integrity, sovereignty and independence and to promoting a peaceful settlement of the crisis": recital 2 to the EU Regulation. There is also no basis for the suggestion that the aim of the measures was to enable the EU to obtain a competitive advantage;
25.3. The Relevant Measures are proportionate to, and rationally connected to, the stated aims of the Decision and the Regulation and do not involve any violation of Rosneft's fundamental rights;
25.4. The Regulation gives proper effect to the Decision, having regard to the discretion given to the Council to adopt "necessary measures" under Article 215 TFEU;
25.5. The Oil Sector Provisions are sufficiently clear as to satisfy the requirements of foreseeability and legal certainty, having regard in particular to the principles reflected in the case law of the European Court of Human Rights ; see, in particular, Cantoni v France (Application no. 17862/91, judgment of 11 November 1996) at §35, referred to by the Court of Justice, in case C-189/02 P Dansk Rørindustri v Commission ECLI:EU:C:2005:408 at §219. That case law makes clear that only reasonable, rather than absolute, certainty is required. A law may still satisfy the requirement of foreseeability even if the person concerned has to take appropriate legal advice to assess, to a degree that is reasonable in the circumstances, the consequences which a given action may entail, and may be required to take special care in assessing the risks that a particular activity entails; and
25.6. As to question 2b) EU law does not require that the Member States await clarificatory rulings from the Court of Justice before implementing criminal penalties pursuant to Article 8 of the EU Regulation.
Question 3– Points of Interpretation
26.. In the event that the Court of Justice holds any of the relevant prohibitions in the Relevant Measures to be valid, the Court is also asked to address the questions of interpretation set out in Questions 3a), 3b) and 3c).
Claimant's Submissions (in summary)
27.. Regarding Question 3a), Rosneft disagrees with the Second Defendant's contention that the term encompasses the processing of payments. Rosneft submits that the term financing and financial assistance should be read together and understood to mean the provision of funding and associated services.
28.. Regarding Question 3b), Rosneft submits that this prohibition does not affect the issue of GDRs after 12 September 2014 in respect of shares that were issued before 12 September 2014. The purpose of the restriction is to prohibit targeted entities' ability to access capital markets. Prohibiting the issue of GDRs in respect of pre-existing shares would not do this; rather, it would penalize third-party shareholders, who would be deprived of the opportunity to offer their shares for sale in the form of a GDR.
29.. Regarding Question 3c), Rosneft submits, as noted above, that the terms "shale" and "waters deeper than 150 metres" are so uncertain as to contravene the principles of legal certainty and legality of criminal offences. Alternatively, at the very least, the meaning of these terms is unclear and the Court of Justice should provide guidance on the interpretation of these terms. It is submitted for this purpose that the meaning of "shale" is kerogen-containing deposits, predominantly of clay composition (those with the portion of any clay minerals in excess of 35%) that do not contain fluid oil. As regards "waters deeper than 150 metres", the United Kingdom considers that it is the depth of the drilling platform that is determinative, irrespective of the depth of the water over the location of the oil, and irrespective of whether extended reach drilling technology is used. However, the Court of Justice should itself, if possible, give its own EU law autonomous interpretation to these terms.
Defendants' submissions (in summary)
30.. The First and Second Defendant submit, in summary, that:
30.1. the term "financial assistance" in Article 4(3) of the EU Regulation includes the processing of a payment by a bank or other financial institution. Such an interpretation is in accordance with the Commission's Guidance Note on the implementation of certain provisions of Regulation (EU) No 833/2014. There is no basis to read that term narrowly as Rosneft contends;
30.2. the terms of Article 4 of the Decision and Article 3 and 3a of the EU Regulation, and in particular the meaning of the terms "waters deeper than 150 metres" and "projects that have the potential to produce oil from resources located in shale formations by way of hydraulic fracturing" is sufficiently clear to satisfy the requirements of legal certainty. To the extent that there may be cases of genuine uncertainty, it is for the national authorities to apply the terms of the legislation to the specific facts of each case. It is neither necessary nor appropriate for the Court to provide a precise geological definition of the term "shale" in the context of these proceedings. There is no basis to define "shale" as narrowly as the Claimant contends. In any event, the relevant concept is "shale formation" as opposed to "shale".
31.. Regarding Question 3b) the Third Defendant submits that on its plain terms Article 5(2)(b)-(d) of the EU Regulation prohibits the issuing of, or other dealings with, GDRs which are issued after 12 September 2014 under a deposit agreement with a sanctioned entity, whether or not they are in respect of shares issued before or after that date. The EU Commission has already expressed its unequivocal view that this is indeed the correct construction of Article 5 (Commission Notice, C(2014) 9950 final, Q&A No. 22). The EU Regulation expressly includes GDRs within the definition of the "transferable securities" that are made subject to restrictive measures. Article 5 furthers the EU Regulation's policy objective of putting pressure on the Russian Government, a policy which is clearly stated in Recital (2) of the EU Regulation and Recital (6) of Regulation (EU) No.960/2014. Article 5(2)(b)-(d) obstructs Rosneft's access to the EU capital market, which is contrary to Rosneft's interests (and therefore those of its majority shareholder, the Russian state), and (amongst other things) prevents the Russian state from converting its shares into GDRs in the EU capital market.