Superyachts and sanctions: the Supreme Court upholds the detention of Phi

Insight

14.08.2025

On 29 July 2025, the Supreme Court unanimously ruled in the case of Dalston Projects Ltd and others v Secretary of State for Transport that the detention of the luxury yacht M/Y Phi (Phi) was lawful and proportionate.

The judgment considers important questions about the operation of the United Kingdom sanctions regime introduced to inflict pressure on Russia to end the war in Ukraine, including the proportionality of decision-making and the right to interfere with a sanctioned person’s (or entity’s) rights under the European Human Rights Convention (as incorporated into UK law by the Human Rights Act 1998).

Background

The 58.5 metre superyacht has been the subject of a highly publicised legal battle since 28 March 2022, when the then Secretary of State, Grant Shapps, publicly (via handheld livestream) detained Phi at the West India & Millwall Docks in London.

London was her first port of arrival following delivery as a newly built vessel valued at over €44 million. Phi came to London partly for tax reasons (as she was to be onward exported into the EU) and partly at the invitation of a British magazine to participate in the World Superyacht Awards. She was due to leave London for Malta on the date of her detention, and ownership was ultimately intended to be transferred to a Maltese company.

The legal owner of Phi is Dalston Projects (a St Kitts and Nevis registered company), but the ultimate beneficial owner is Sergei Naumenko, a wealthy Russian citizen and businessman. Naumenko is not sanctioned by the UK and there is no evidence that he (i) holds any political or administrative role in Russia, (ii) engaged in any political activity, or (iii) ever had any connection with President Putin or his circle.

Nevertheless, at the time of Phi’s detention, Shapps erroneously commented that he “will not stand by whilst Putin’s cronies are allowed to sail around the world in these kinds of yachts and people in Ukraine are suffering” and invoked UK sanctions law (Russia (Sanctions) (EU Exit) Regulations 2019) to detain the yacht.

The owner has lost substantial income from chartering Phi out during the spring and summer Mediterranean sailing season (expected to be between €450,000 and €650,000 per week for seven months of the year). The captain has also reported material degradation to the vessel, caused by exposure to building rubble and aviation fuel, not to mention the impact of trespassers. Whilst licences have previously been granted to carry out works on the yacht, attempts to relocate the vessel to Southampton have failed, and the yacht has now lost its classification to go to sea (making it uninsurable). Despite the prohibition on movement, the mooring fees have also remained the owner’s responsibility, totalling approximately £9,500 per month. Detention does not amount to “conversion” or unlawful appropriation; the yacht remains privately owned.

High Court and Court of Appeal

Dalston Projects formally challenged the detention of Phi under the Sanctions and Anti-Money Laundering Act 2018 on 27 March 2023 and applied for the detention directive to be set aside on the basis that:

it was for an improper purpose (ie as a publicity stunt to show that the UK was taking a tough stance on Russia, rather than for the purpose of disrupting Russia’s maritime trade/ preventing income for Russia); and
it was an unlawful interference with his right to peaceful enjoyment of his property under ECHR Protocol 1 Article 1, and as it is unlawful for a public authority to act in a way which is incompatible with a Convention right.

Both the High Court and the Court of Appeal preserved the Transport Secretary’s broad margin of discretion, finding:

that the power to detain vessels was not limited to detentions which would disrupt Russian shipping or inhibit Russian trade;
that the detention of Phi met the legitimate aim of the UK government of sanctioning Russia (notwithstanding Phi being a leisure craft, and Naumenko himself being unsanctioned); and
that any interference with Naumenko’s right to peaceful enjoyment of his property was proportionate on the basis that there was no less intrusive means of achieving the legitimate aim (and was therefore lawful).

The Court of Appeal was critical of Shapps’ false statements regarding Naumenko’s alleged “friendship” with Putin but ultimately held that this did not impact their decision to uphold the ruling that the detention was lawful.

Appeal to the Supreme Court

The appeal to the UK Supreme Court focused on the approach to determine the proportionality of the sanctions imposed and, specifically:

whether the detention of Phi pursued a legitimate aim;
whether there was a rational connection between the detention and the legitimate aim;
whether the legitimate aim could have been achieved by a less intrusive means than the detention of Phi; and
whether a fair balance was struck by the detention between the interests of Dalston Projects and the interests of the community.

The Supreme Court decision

The Supreme Court accepted that whilst there had been an interference with Naumenko’s human rights, the detention of Phi was proportionate and within the broad discretion permitted. The Government had authority to detain assets “connected to Russia” under the Russia (Sanctions) (EU Exit) Regulations 2019 and the important wider context of the Government’s efforts to respond to and contain Russia’s invasion of Ukraine outweighed the impact of the interference with Phi’s use, sale or movement.

It was confirmed that when assessing proportionality, an appellate court can either: (i) conduct a review of the first instance judges’ decision and overrule it if there is an identifiable flaw in the reasoning which undermines the conclusion and if satisfied, uphold the decision (even if the appellate judge would have reached a different view); or (ii) conduct a fresh determination of the proportionality of the measure, which is what happened in Dalston. The Supreme Court therefore considered questions (1)-(4) as set out above and upheld the detention was lawful (reaffirming the case of Bank Mellat v HM Treasury (No2) [2013]).

Particularly interesting is how the Court linked the legitimate aim of putting pressure on Russia to stop the invasion of Ukraine to the detention of Phi. The Court accepted that there is no political link between Naumenko and the Russian Government, but considered that “the economic link is straightforward”, stating that:

“The very considerable income that Mr Naumenko claims that he could earn by chartering out the Phi to other wealthy people is likely to make its way to Russia. It would be spent there by Mr Naumenko and his family to invest in or buy goods and services from Russian businesses and to maintain his luxury lifestyle. In this way it would be used to contribute to the Russian economy…”

The Court also emphasised that harming the interests of the wealthy elite in Russia may put pressure on the regime in Russia – and that such a conclusion is therefore a rational one for the Department for Transport to have arrived at.

As to the balance of interests? Despite the costs incurred by Phi’s detention (for example, in mooring fees, damage, and loss of charter income), the Court was entirely unsympathetic, noting that “there is nothing in the evidence to suggest that Mr Naumenko is unable to absorb these costs with ease”, mirroring the Court of Appeal’s conclusion that there was no financial hardship in the detention of a luxury superyacht.

Impact

The ruling sets a precedent for future asset detentions under UK sanctions, especially involving high-value luxury items. The case of Phi was heard jointly with the case of Shvidler, involving a Russian individual’s personal assets being frozen worldwide, confirming that the test for proportionality and the emphasis on broad discretion applies outside of the luxury assets sector.

The judgment clarifies that the scope of enforcement in UK sanctions can readily go beyond direct sanctions lists; even if the ultimate beneficial owner of an asset is not directly sanctioned, their being linked to a sanctioned country/regime and the asset being seen as generating value for the regime (even indirectly) can be sufficient. In reaching this conclusion, the Supreme Court has emphasised and preserved a large degree of ministerial discretion when enforcing sanctions. The Court looked beyond formal ownership, considering economic control and benefit, illustrating that layered ownership structures will not necessarily protect assets from sanctions enforcement.

Whilst all domestic avenues of legal challenge are now exhausted, it remains to be seen whether the case will progress to the European Court of Human Rights.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.