Facts
The case concerns Inter Rao Lietuva, a Lithuanian company active in the importation and supply of electricity in Lithuania. The Lithuanian authorities froze its funds and economic resources on the basis of Article 2(1) of Decision 2014/145/CFSP and Article 2(1) of Regulation No 269/2014, taking the view that the company was owned or controlled by persons connected with the Russian Federation who were subject to European Union restrictive measures.
The company challenged that measure before the Lithuanian courts. The dispute led the Supreme Administrative Court of Lithuania to refer several questions to the Court of Justice for a preliminary ruling concerning the right to good administration, the scope of judicial review, and the standard of proof required to establish that a non-listed entity is owned or controlled by a designated person.
The right to good administration and the scope of judicial review
The first two questions enabled the Court to reiterate certain established principles from its case-law. In particular, it confirmed that national authorities may implement the EU sanctions regime while respecting the rights guaranteed by the Charter of Fundamental Rights of the European Union. In that regard, it reaffirmed that the right to be heard is not absolute and may be postponed on grounds of effectiveness in the implementation of freezing measures. That particularity disappears, however, where pre-existing measures are in place and there is no risk of circumvention.
Another useful reminder concerns the requirements governing judicial review of restrictive measures adopted by the Council, which apply mutatis mutandis to national measures implementing those sanctions. Accordingly, the national court must verify the statement of reasons for the decision, the accuracy of the facts relied upon, the absence of a manifest error of assessment, compliance with procedural rules and the absence of misuse of powers on the part of the authority concerned. By contrast, it is not for the national court to re-examine the existence of a threat to national security or the considerations underlying the adoption of the EU restrictive measures.
The concept of control within the meaning of Article 2(1) of Regulation No 269/2014
The principal contribution of the judgment lies in the clarifications it provides regarding the demonstration of an ownership or control relationship capable of justifying the freezing of the assets of a non-listed entity.
In that respect, the Court recalls that a freezing measure must be based on a sufficiently solid factual basis. This requires verification of the facts alleged in the statement of reasons underpinning the contested measure. Judicial review cannot be limited to an abstract assessment of the plausibility of the reasons relied upon. Those reasons must be substantiated by objective and sufficiently solid evidence. Furthermore, that evidence must be assessed as a whole and in the light of the context in which it arises.
Particularly noteworthy is the Court’s express reference to the EU Best Practices for the effective implementation of restrictive measures (hereafter the “Best Practices”). Although those Best Practices are not binding and the criteria they contain are not exhaustive, the Court considered them to provide a relevant analytical framework for assessing the existence of ownership or control within the meaning of Article 2(1) of Regulation No 269/2014.
The Court also confirmed the approach previously adopted in EM System (C‑84/24), according to which a shareholding of 50% or more held by a listed person gives rise to a presumption that the entity belongs to that person. In principle, that presumption justifies the freezing of the funds and economic resources of the entity concerned.
The Best Practices identify several indicators of control, such as the ability to use a company’s assets, manage its activities or exercise decisive influence over its decisions. Where such a body of evidence exists, the entity concerned is presumed to be controlled by the designated person unless the contrary is established. The Court nevertheless stressed that those criteria are merely indicative. In another case, Trotsenko (T‑459/24), the General Court held that a minority shareholding of 31% may enable the exercise of dominant influence in light of the significance of that shareholding, the ownership structure of the company concerned and the arrangements governing decision-making.
In any event, control must be understood as any ability to exert concrete and effective influence over the choices of a legal person, including where such influence is exercised indirectly or informally.
In the present case, the freezing of Inter Rao Lietuva’s assets was based on the proposition that the company was indirectly controlled by the President of the Russian Federation. The FNTT (the Lithuanian authority responsible for the implementation and supervision of sanctions) argued that Inter Rao Lietuva was 51% owned by the Finnish company Rao Nordic, which was itself wholly owned by the Russian company Inter Rao, whose principal shareholders were undertakings indirectly controlled by the Russian State.
The Court nevertheless considered that such a chain of shareholdings is insufficient, in itself, to establish control within the meaning of Article 2(1) of Regulation No 269/2014. It is for the national court to determine, on the basis of objective, specific and sufficiently solid evidence, whether the President of the Russian Federation is capable of exerting concrete and effective influence over the decisions of Inter Rao Lietuva, even in the absence of any legal relationship, ownership interest or direct shareholding in the company’s capital. In that regard, the Court expressly rejected the proposition that the “autocratic and oligarchic nature” of the Russian regime is, by itself, sufficient to establish such control.
As the Advocate General observed, that circumstance may be taken into account as an element of context but cannot substitute for concrete evidence demonstrating real and effective influence over the company concerned.
At the same time, the Court did not exclude consideration of contextual indicators. It noted that the presence of Russian State-owned enterprises in the ownership chain of Inter Rao Lietuva, the strategic role occupied by Inter Rao in the Russian energy sector, and the influence that may be exercised over those State-owned enterprises could constitute relevant factors when assessing the existence of control. Nevertheless, where the measure is challenged, it remains for the authority that imposed the asset freeze to establish the validity of the grounds relied upon, namely the existence of the alleged control, and not for the person concerned to prove the contrary.
In practice, the judgment encourages economic operators not to focus solely on ownership structures when assessing whether a non-listed entity is controlled (or not) by a designated person. The analysis must examine the reality of the control exercised by looking for concrete indicators such as voting rights, veto rights, powers to appoint or remove members of the administrative, management or supervisory bodies, the ability to manage assets, shareholders’ agreements and any other rights or powers capable of conferring dominant influence.
In cases involving indirect ownership structures, each link in the chain must be assessed separately. The majority ownership of one entity by another may establish the latter’s influence over the former, but it does not, without additional evidence, ipso facto attribute that control to a designated person higher up the chain. It must still be demonstrated that the designated person is, in practice, capable of influencing the decisions of the entity concerned, whether directly or through the companies that control it.
Similarly, an entity that may be regarded as owned or controlled by a designated person would be well advised to maintain a record evidencing its effective decision-making autonomy. Such documentation may include its articles of association, shareholders’ agreements or governance arrangements, minutes of meetings, procedures governing the appointment and removal of directors, banking mandates, and similar documents.
In short, any documents evidencing actual operational practices may prove relevant. What matters is that those documents do not merely describe a formal separation of legal personalities, but rather enable verification of who takes decisions, who is capable of blocking them, who gives instructions and who ultimately controls the assets.
Authors:
- Laurent Cloquet, Associate Partner at Monard Law
- William Ibberson, Junior Associate at Monard Law
