First Ontario Court Decision to Interpret Sanctions Against Russia Provides Guidance on “Deemed Control”

In CLR Invest Ltd. v. Kondratiev, 2026 ONSC 3832, the Ontario Superior Court of Justice (Commercial List) (Court) delivered the first Ontario decision to apply Canada’s sanctions regime under the Special Economic Measures (Russia) Regulations (Russia Regulations). 

The Court dismissed a claim of oppression against an Ontario corporation for suspending the director appointment rights of a shareholder owned by three senior officials of a designated entity.

The decision is the third civil case to apply the Russia Regulations in Canada and the first to consider the “deemed control” test in relation to an entity that is not owned by a designated entity.

The Parties

UCT Research and Development Inc. (UCT) was an Ontario corporation developing a blood test to detect cancer.

The applicant, CLR Invest Ltd. (CLR), was a Maltese corporation that acquired a minority stake in UCT prior to Russia’s full-scale invasion of Ukraine and sanctions being imposed.

CLR was beneficially owned by three senior officials of RESO Garantia (RESO), a Russian entity added to Schedule 1 of the Russia Regulations in February 2024. RESO was, in turn, owned by Sergei Sarkisov, another designated person sanctioned in 2024. 

CLR itself was not listed under the Russia Regulations. Neither RESO nor Sarkisov themselves owned shares in CLR (although there was evidence that Sarkisov provided funding behind CLR).

The “Deemed Control” Test

It is prohibited to deal or facilitate transactions in property owned, held or controlled by or on behalf of a person listed on Schedule 1 of the Russia Regulations (a designated person), unless a permit is issued by the Minister of Foreign Affairs.

Under subsection 2.1(2) of the Special Economic Measures Act (SEMA), an entity that is not listed is deemed to be controlled by a designated person if: 

1. the person holds, directly or indirectly, 50% or more of the shares or ownership interests in the entity or 50% or more of the voting rights in the entity;
2. the person is able, directly or indirectly, to change the composition or powers of the entity’s board of directors; or
3. it is reasonable to conclude, having regard to all the circumstances, that the person is able, directly or indirectly and through any means, to direct the entity’s activities.

The previous leading case on the interpretation of “control,” Angophora v. Ovsyankin, was decided before section 2.1 of SEMA was enacted. 

The Dispute

In July 2025, CLR tried to appoint Dmitry Rakovshchik, the President of RESO and one of CLR’s principals, to the board of UCT. 

UCT suspended CLR’s appointment rights and issued enhanced sanctions due diligence requests, consistent with Global Affairs Canada Guidance, out of concern that it was reasonable to conclude that CLR was controlled by senior executives of RESO. 

CLR brought an oppression claim against UCT and several shareholders for (among other things) refusing to appoint CLR’s director. CLR took the position that it was not controlled by RESO.

On June 30, 2026, the Court dismissed CLR’s oppression claim against UCT and its shareholders, noting the “considerable evidence creating concern that CLR is or should be caught under SEMA and the Russian Regulations.”

The Court ordered a buyout of CLR’s shares based on the valuation advanced by UCT. The Court further made the buyout order conditional on a sanctions permit decision by Global Affairs Canada, stating, “no payment is to be made pending that determination.”

The Court’s Application of the Deemed Control Test

The Court noted that the “deemed control” test in section 2.1(2)(c) of SEMA is broader than the “control in fact” test articulated in Angophora. 

The test is not demonstrated “control in fact,” but whether it is “reasonable to conclude,” having regard to all the circumstances, a person is able to direct an entity’s activities, directly or indirectly and through any means. 

On the facts, the Court found:

• “Suffice to say that there is more than ample evidence in this record showing ongoing ties between CLR’s principals and RESO and, more than that, demonstrating ongoing leadership roles in RESO by at least two of the three CLR principals.”
• There were numerous “red flags” listed in Global Affairs Canada guidance pointing to sanctions concerns in this case.
• Among other things, Rakovshchik “currently remains RESO’s President” and “continues to have a RESO email account,” and Igor Cherkashin (another CLR principal) “continues to do work for RESO.”
• “There is considerably more evidence in the record showing CLR’s principals’ ties with RESO and their continued occupation of prominent executive positions there.”
• There was “a real issue about the sanctions applying to CLR,” and UCT’s concerns “were in no way frivolous or meritless.”

Key Takeaways

The decision provides important guidance on the interpretation of the “deemed control” test and the role of Global Affairs Canada guidance in informing the expectations of Canadian businesses.

Blakes acted for the successful respondents in defending against the oppression application.

For further information about any aspect of this bulletin, please contact Brady Gordon or any other member of our Commercial Litigation or International Trade groups.