July 27, 2023

UK High Court upholds detention of superyacht with links to Russia

On July 21, 2023, the High Court of Justice upheld the 2022 decision by the UK Secretary of State for Transport to detain the MY Phi, a superyacht beneficially owned by Russian businessman Sergei Georgievich Naumenko.  The Phi, which had been docked in London since December 2021, was officially detained by the Secretary of State in March 2022 under Russia (Sanctions) (EU Exit) Regulations 2019 (“the Regulations”) only weeks after Russia’s invasion of Ukraine on February 24, 2022.

The claimants – Naumenko, Daulston Projects Limited (the company that currently owns the yacht) and Prism Maritime Limited (the intended owner of the yacht had it been permitted to leave the UK) – challenged the decision to detain the vessel by claiming that the Secretary of State acted for an improper purpose under the Regulations and also violated Article 1 of the First Protocol of the European Convention on Human Rights because the detention disproportionately interfered with the claimants’ property rights.  The general arguments put forth by the claimants were that Naumenko was never designated under the Regulations, and the owners and the vessel had never participated in activities adverse to Ukraine.  The claimants also argued that there was no evidence to suggest that Naumenko held any political or administrative position in Russia or had any connection with Russian President Putin or his inner circle.  They also claimed that the detention was flawed in terms of proportionality between the aim of the Regulations with regards to persons “connected to Russia” and the claimants’ individual right to use the vessel.

The court determined that Naumenko’s designation status had no bearing on the Secretary’s ability to detain a vessel because regulation 57D (1) of the Regulations gives the Secretary broad authority to detain ships “owned, controlled, chartered or operated by persons connected with Russia.”  Because Naumenko resided in Russia and was the ultimate beneficial owner of the vessel, he was considered to be “connected with Russia.”  While the Secretary’s initial conclusion that Naumenko was a “friend of Putin” was incorrect, the Secretary had provided an adequate purpose for maintaining the vessel’s detention.  The Secretary’s purposes for detaining the vessel was its value and Naumenko’s extreme wealth combined with the additional reasoning that Naumenko had clearly derived a benefit from the Russian regime and the message that it sent to others in Naumenko’s position about the implications of Russia’s actions in Ukraine.

The court also held that, while the detention had significantly interfered with Naumenko’s property rights, the detention was temporary and reversible and, while claimants had been deprived of its use, they had maintained control of the vessel.  Furthermore, the court determined that Naumenko’s property interest in this case was balanced proportionately with the public interest served by the Secretary’s implementation of UK foreign policy, which aims to have a broad and deep impact on Russia’s war with Ukraine.  In light of these facts, the court also determined that there had been no conversion of the Phi as a result of the detention.

High Court Judgment