By Alistair Bridges, Special Counsel and Sophie Cleveland, Partner

The High Court of Australia handed down its decision in Deripaska v the Minister for Foreign Affairs, marking the first instance in which Australia’s highest court has considered Australia’s autonomous sanctions regime. In particular, answering the question of whether the Autonomous Sanctions Regulations 2011 (ASR) were so unconstitutional that they should be rendered unconstitutional.

What are sanctions laws?

Australia has two forms of sanctions regime. The first is those imposed under the Charter of the United Nations Act 1945 (COTUNA). Australia, as a Member of the United Nations, is required to accept and carry out decisions of the United Nations Security Council.[1] These include measures “not involving the use of armed force” in response to threats to the peace, breaches of the peace, or acts of aggression.[2] These measures are more commonly referred to as sanctions. COTUNA crates a framework through which Australia can implement these sanctions within Australian law.

Australia also imposes sanctions autonomously, under the ASA. These are measures that Australia may impose on its own accord, in respect to matters of international concern. It is this form of sanctions that were relevant to the Deripaska decision. Specifically, sanctions imposed in response to Russia’s invasion of Ukraine.

ASA creates a stratified framework through which autonomous sanctions may be imposed. Firstly, it allows the Governor General to make regulations that impose restrictions subject to Australia’s jurisdiction. These include restrictions on dealing with assets, supply, sale or transfer of goods, procurement of goods and services, and the provision of indemnities.[3] These are generally included in the Autonomous Sanctions Regulations 2011 (ASR). The ASR then provides the Minister for Foreign Affairs (the Minister) additional powers to impose certain of these prohibitions on a more targeted basis, via the creation of various legislative instruments.

Are the Regulations Constitutional?

Under the ASR, the Minister has various powers to “designate” individuals and entities. One consequence of a designation is that the designated party is subject to asset freezing rules, set out in r 14 and 15 of the ASR. These are far reaching rules that broadly prohibit:

• making an asset available (directly or indirectly) to, or for the benefit of, a designated person or entity; and
• dealing with assets that are owned or controlled by a designated person or entity.

Assets, in this respect, are defined broadly, to include, “any kind of property of any kind, whether tangible or intangible, moveable or immoveable, however acquired…”

Mr Deripaska, a designated individual, argued that these rules would effectively bar him from seeking legal representation in Australia, as, on the plain language of the regulations, any lawyer would both need to make assets available to, and deal with assets owned or controlled by Mr Deripaska, in contravention of the asset freezing rules.

The crux of the issue is what flows from that.

• Before the High Court, both the Federal Court and the Full Federal Court had concluded that this meant that this meant that the ASR was required to be read down, consistent with s 15A of the Acts Interpretation Act 1901 and s 13(1)(a) of the Legislation Act 2003, so as not to exceed the Commonwealth’s legislative power.
• The appellant argued that the Regulations were unconstitutional as they impinged on the entrenched minimum provision of judicial review set by s 75(v) of the Constitution. Further, they argued that reading down the regulation was not possible, so the ASR should be treated as invalid.

Ultimately, the High Court agreed with the interpretation adopted by the primary judge and the Full Court.

Sanctions are broad and apply broadly

The take home message is that sanctions prohibitions are broad and do apply broadly. For example, absent high level legal analysis, the language of the asset freezing regulations indicate that they apply to “any kind of property” and in relation to transactions through the interposition of corporate entities that are owned or controlled by the designated person, or in which the designated person has a financial interest. In Alumina and Bauxite Company Ltd v Queensland Alumina Ltd the Federal Court found a designated person’s ultimate interest of 12.58% in an unsanctioned entity was sufficient to capture dealings with that unsanctioned entity.[4]

There are real consequences to non-compliance with a sanctions law. Under the ASA, a body corporate can be fined up to 3 times the value of the transaction, or 10,000 penalty units. At present the consolidated list that the Department of Foreign Affairs and Trade maintains lists approximately 8,800 designated entities and individuals [5], so there are many opportunities for unintended non-compliance.

The answer to this risk is due diligence. The ASA allows bodies corporate the opportunity to prove they took reasonable precautions, and exercised due diligence, to avoid contravening a sanctions law, in answer to any alleged contravention. This is, of course, something that needs to be done proactively; simply hoping for the best will not suffice.

 

[1] Article 25

[2] Articles 39 and 41.

[3] ASA Art 10(1)

[4] [2024] FCA 43, para 91

[5] Consolidated List | Australian Government Department of Foreign Affairs and Trade