Abigail Healey explores OFSI’s approach to licence applications in defamation claims, and discusses concerns over access to justice and the right to reputation.
Abigail’s article was published in Solicitors Journal, 9 August 2023, and can be read here.
In a Ministerial Statement dated 30 March 2023 (Written statements – Written questions, answers and statements – UK Parliament), Baroness Penn stated that the UK Government’s view is that, in most cases, the use of frozen funds by a designated person to pay for legal services in defamation (and similar) cases will not be appropriate. On that basis, the Office of Financial Sanctions Implementation (“OFSI”) would, in future, start considering such licence applications from a presumption that they will be rejected.
Reflecting this policy decision, the Russian and Belarussian Legal Services General Licence, which permits sanctioned individuals to pay for legal services up to £500,000 without a specific licence, was also amended so as to no longer authorise the payment of legal services for defamation and malicious falsehood claims.
The Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”) empowers HM Treasury to issue licences which permit activities otherwise prohibited by sanctions, including for the payment of legal fees. Baroness Penn stated that OFSI must balance the fundamental right to legal representation with wider issues, including the aim and purpose of the sanctions.
However, this is not only a question of interfering with the fundamental right to legal representation as all individuals – sanctioned or otherwise – have a right to reputation, encompassed within Article 8 of the European Convention on Human Rights (as enacted by section 1(2) of the Human Rights Act 1998).
In a court ruling last year in the British Virgin Islands concerning the sanctioned Russian bank, VTB, Mr Justice Jack of the Eastern Caribbean Supreme Court stated: “VTB may be a pariah. It is precisely when VTB is stigmatised as a pariah that VTB needs the best endeavours of their legal representatives to advise them. Even pariahs have rights.” Even pariahs have a right to reputation, and they should not be prevented from protecting this by virtue of the Government’s presumptive stance.
This is even more important considering that many individuals have been sanctioned based upon questionable evidence that would not stand up to scrutiny in an English court. When deciding whether to sanction a person under SAMLA and the Russian Regulations, the Secretary of State can cast the net wide in terms of material and information considered, including allegations and hearsay, and ascribe a weight to that information as appropriate. There is no standard of proof imported into the statutory threshold for “reasonable grounds to suspect” and no requirement to make a finding of fact (LLC Synesis v Secretary of State for FCDA  EWCA 541 (Admin)).
As Baroness Penn acknowledged, it should be for the courts to decide whether or not a claim should be permitted to succeed, not the Government. The courts are repeatedly called upon to undertake a balancing exercise between competing rights – including the right to freedom of expression on the one hand and the right to reputation on the other – and they do so based on a careful evaluation of the evidence. They are far better placed to do so than OFSI.
The courts also have extensive case management powers, which would include the early dismissal of proceedings found to be without merit and/or abusive in nature.
The purported justification for the Government’s stance is borne out of a stated intention to prevent so-called Strategic Lawsuits Against Public Participation (“SLAPPs”), with Baroness Penn stating that “our courts and legal system must not be used by those seeking to silence investigations in the public interest”. SLAPPs became a hot topic in light of the situation in Ukraine, with a great deal of focus on claims brought by wealthy Russians. Yet in 2021, there were only 14 SLAPPs cases identified in the UK, which raises questions as to whether this is indeed a widespread problem, or whether it has been blown out of proportion by the media.
In any event, to the extent that Government intervention is considered necessary to control SLAPPs, this should be achieved through legislation, not by the backdoor tactic of refusing OFSI licences. In this regard, it is noteworthy that, to date, the Government’s “anti-SLAPP legislation” consists of recently announced additional provisions in the Economic Crime and Corporate Transparency Bill, that will give defendants greater protection in relation to SLAPPs concerning economic crime.
There are two elements to the definition of a SLAPP in the draft bill. First, it has, or it is intended to have, the effect of restraining freedom of speech. Secondly, the behaviour must be intended to cause the defendant harassment, alarm or distress, expense or any other harm beyond that ordinarily encountered in litigation.
The second limb, by its nature, cannot be satisfied until there has been some form of communication intimating legal action which may be considered abusive. The stance taken by the Government in rejecting licence applications essentially prevents claims from being pursued which, applying the Government’s own test, could not, at the pre-advice stage, constitute a SLAPP.
Given that Baroness Penn has stated that the use of frozen funds in defamation cases would, in most cases, be against the public interest, this also raises crucial questions over whether there is also a public interest in upholding the values of our legal system and society, including access to justice, the fundamental right to legal representation, and the right to privacy and reputation. It is not clear that there should be a presumption in favour of one or the other and this is precisely the balancing exercise with which the English courts routinely grapple.
Although there is a presumption that OFSI will reject licence applications in defamation (and similar) claims, it should be noted that OFSI should still review each individual application on a case-by-case basis and it will be interesting to see whether there are any circumstances in which the presumption is capable of being rebutted. For example, these could potentially include: a claim where there is no arguable public interest defence; a claim in which the defendant is not a journalist, media organisation or activist; and/or cases involving business competitors and trade libel. In some cases, it is possible that the licence applicant may be the defendant in a defamation claim, which surely falls to be treated differently.
It is also not clear what is meant by defamation “and similar” claims. While the General Licence expressly excludes “a claim for defamation or malicious falsehood” from the definition of “Legal Services”, it is not apparent whether OFSI’s approach to specific licence applications is wider than that, and if so, in what respect.
In the event that OFSI refuses to issue a specific licence, OFSI will give written reasons for refusing the application. In such circumstances, the applicant’s options are either: to request that OFSI reviews its decision; to re-apply with new or supplementary evidence; or, to seek a judicial review of the decision. With this in mind, it is possible that starting to consider a licence application from a presumption that it will be rejected may leave OFSI more susceptible to challenge by way of judicial review. While each case would turn on its facts, and the written reasons would need to be considered carefully, it may, for example, give rise to additional arguments concerning procedural fairness and/or unreasonableness.
The presumption that sanctioned individuals should not be permitted to pay for legal services to protect their reputation is a clear challenge to the fundamental right to legal representation and engages the individual’s human rights. It should be for the courts to determine whether a claim can be brought, as opposed to OFSI, and it is unclear as to why there needs to be a special exception to that rule when it comes to defamation (and similar) cases.
Quillon Law ranked in The Legal 500 UK Guide 2024
Quillon Law has been ranked in The Legal 500 UK 2024 guide for ‘Fraud: Civil’, ‘Banking Litigation: Investment and Retail’ and ‘Commercial Litigation: Mid-Market’.
Partner Mark Hastings explores crypto investment fraud in The Times
In light of Lloyds Bank issuing an urgent warning about crypto investment fraud, Partner Mark Hastings discusses how robust regulation and education are key to combating investment scams on social media.
Partner Nicola McKinney comments on the cum-ex trading scandal in City A.M.
In light of a Supreme Court ruling which saw the founder of hedge fund Solo Capital Partners lose a bid to prevent a £1.4bn trial over cum-ex tax trades, Partner Nicola McKinney comments on the wider implications of this case.