Sanctions: Compelling reasons for case to be tried
A judge is to consider whether a firm of accountants discriminated against a company owned by a non-sanctioned Russian by refusing to take it on as a client.
The ultimate decision could provide valuable guidance to others, such as law firms, faced with similar decisions in the shadow of the sanctions imposed after the invasion of Ukraine by the Russia (Sanctions) (EU Exit) Regulations 2019.
District Judge Avent’s ruling in XTX Markets Technologies Ltd v Mazars – in which he refused XTX’s application for summary judgment – was made last August but has only recently been made public.
The Central London County Court judge held that there were “compelling reasons” why the case should go to trial in any event.
“In my view, the manner in which companies registered in England and Wales, and other firms and organisations subject to the laws of England and Wales, withdrew or curtailed their contractual and other obligations with Russian entities, whether because they may have broken sanctions to have continued in a business or other relationship, or were concerned that they might potentially do so in the future, is likely a matter of public importance insofar as the extent of their liabilities may be determined and how far a defendant, certainly in a discrimination claim, can rely upon schedule 23 and section 44.”
These provide defences – schedule 23 of the Equality Act concerns nationality discrimination where required by law, while section 44 of the Sanctions and Anti-Money Laundering Act 2018 (SAMLA) protects those who may be subject to civil proceedings where there is a reasonable belief that they are acting in compliance with sanctions regulations.
XTX is a member of the UK-headquartered XTX Group, a financial technology trading firm with 200 employees spread around the world.
The group was founded in 2015 by billionaire Dr Alexander Gerko, its ultimate beneficial owner. He has permanently resided and worked in the UK since 2006 and in 2016 he was granted British citizenship.
He also held Russian citizenship but “apparently renounced it” in 2022, the judge recounted.
XTX asserted that neither Dr Gerko nor the group has assets or property in Russia, were not on any global sanctions list and “do not and never have had a connection to or a business interest or relationship with any designated person” on a sanctions list.
It approached Mazars in April 2022 with a view to the accountants undertaking global payroll services, but they refused because of a firm-wide policy not to accept new clients with Russian nationality.
The judge quoted Sunil Samani, the co-head of legal at XTX, telling Mazars: “As you are aware, we are a major global trading firm with relationships with many major banks, brokers and service providers (including major law firms and the Big 4 accounting firms). Not one of them had proposed terminating or refusing services on the basis of nationality.”
In July 2022, XTX issued these proceedings, seeking a declaration that there had been direct discrimination on the grounds of race or nationality.
DJ Avent described the 2019 regulations as “front and centre to the issues in this case”, noting that it was their inherently discriminatory nature, rather than anything that Mazars did, that made Dr Gerko’s nationality an issue.
“Mazars were obligated to comply [with the regulations] upon pain of criminal penalty and quite probably regulatory penalty as well,” he said.
“In other words, it seems arguable to me that they did not single out Dr Gerko, but could not view him without looking through the lens of the 2019 regulations at the same time.”
The judge continued that there was “clearly a triable issue” when it came to interpreting the reasons behind Mazars’ decision not to take on XTX as a client.
“It may have been that Mazars decided not to provide services solely on the basis of the nationality of Dr Gerko alone…
“Alternatively, it may have been for purely commercial reasons, which had nothing at all to do with Dr Gerko’s nationality, that Mazars made their decision.
“At the other end of the range it is possible, and certainly not fanciful, that Mazars looked at and considered the 2019 regulations (which were only engaged because of Dr Gerko’s nationality) and the further likely regulations flagged by the various announcements from the UK government and decided that the potential contract with XTX, or any company with Russian ownership, with all that might entail, was simply not commercially worthwhile or viable.”
Another consideration may have been what sanctions may have been imposed at a later date, DJ Avent said.
“They were being asked to invest and put resources into setting up a new global payroll service for XTX where they would then have to constantly monitor the activities of XTX in each jurisdiction lest for whatever reason they should stray into falling foul of the 2019 regulations or perhaps those in other jurisdictions.”
Further, Mazars “may well have had limited means by which to check, validate or otherwise authenticate” XTX’s claim to have no Russian links.
“Accordingly, I find for the purpose of the summary judgment application that there would likely have been a range of reasons as to why Mazars reached the decision…
“However, in order to determine whether Dr Gerko’s nationality per se (as opposed to the relevance of his nationality by reference to the 2019 regulations) was a significant influence in that decision can, in my view, only be determined after the court has heard all the relevant evidence.”
There was also a triable issue over what the appropriate comparator would be, the judge added.
In a commentary on the case, law firm Womble Bond Dickinson said the case “has potential to be useful in providing businesses with guidance on how to balance obligations under the 2019 regulations with obligations under the Equality Act 2010.
“This could help to better inform businesses on how to navigate due diligence and when reliance can be placed on section 44 of SAMLA.”
Stewarts Law acts for XTX and Taylor Wessing for Mazars.
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