Bank Mellat v HM Treasury

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Thomas of Cwmgiedd, CJ,Lord Justice Lewison,Lord Justice Longmore
Judgment Date10 May 2016
Neutral Citation[2016] EWCA Civ 452
Docket NumberCase No: A3/2015/1691

[2016] EWCA Civ 452

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE COMMERCIAL COURT

The Hon Mr Justice Flaux

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

The Lord Chief Justice of England and Wales

Lord Justice Longmore

and

Lord Justice Lewison

Case No: A3/2015/1691

Between:
Bank Mellat
Respondent
and
HM Treasury
Appellant

Steven Kovats QC, Patrick GoodallQC and Julian Blake (instructed by The Government Legal Department) for the Appellant

Michael Brindle QC, Timothy OttyQC and Amy Rogers (instructed by Zaiwalla & Co) for the Respondent

Hearing date: 1 and 2 March 2016

Lord Thomas of Cwmgiedd, CJ
1

In June 2013 the Supreme Court in Bank Mellat v HM Treasury (No 2) [2013] UKSC 39, [2014] AC 700 decided by a majority that HM Treasury had breached the human rights of Bank Mellat, a large Iranian bank, under Article 1 Protocol 1 (A1P1) of the European Convention on Human Rights. The rights in question were the peaceful enjoyment of its possessions which the Supreme Court held were violated by making an Order in Council, the Financial Restrictions (Iran) Order (the 2009 Order), on 9 October 2009 under s.62 and Schedule 7 of the Counter-Terrorism Act 2008. HM Treasury had made the 2009 Order because it believed that Bank Mellat was engaged in facilitating the development of nuclear weapons by Iran. The majority of the Supreme Court held in essence that the 2009 Order was irrational in its incidence and disproportionate to any contribution it could rationally be expected to make to its objective: see in particular the judgment of Lord Sumption at paragraphs 25–27.

2

The effect of the 2009 Order was, as HM Treasury intended, to shut Bank Mellat out of the UK financial sector. Mitting J, who had initially heard the claim, had found that Bank Mellat had suffered some damage to its possessions. The Supreme Court remitted to the High Court the claim made by Bank Mellat. That claim has been allocated to the Commercial Court and is due for trial in October 2016.

3

Bank Mellat claims that the losses it sustained because it was prevented by the 2009 Order from carrying on its business in the UK amount to $4bn. It advances the claim for that amount under s.8 of the Human Rights Act 1998 ( HRA) on the basis that it has suffered that loss to its possessions as a result of the making of the 2009 Order in breach of its human rights. In determining whether to award damages and in determining the amount of the award, s.8(4) of the HRA requires the court to:

"take into account the principles applied by the European Court of Human Rights in relation to the award of compensation under Article 41 of the Convention."

Article 41 provides:

"If the Court finds that there has been a violation of the Convention or the Protocols thereto, and if the internal law of the High Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party."

The approach to be adopted by the courts of the UK under this provision is set out in R (Greenfield) v SSHD [2005] UKHL 14, [2005] 1 WLR 673 at paragraph 6, Anufrijeva v Southwark LBC [2003] EWCA Civ 1406, [2004] QB 1124 at paragraphs 57–59 and R (Faulkner) v Secretary of State for Justice [2013] UKSC 23, [2013] 2 AC 254 at paragraph 39.

4

Included within Bank Mellat's claim as detailed in the particulars of claim as to quantum are two heads of loss:

i) The loss of 60% of the earnings before tax of Persia International Bank plc (PIB), a company in which Bank Mellat holds 60% of the shares.

ii) Loss of future business.

5

An order was made for the trial of three preliminary issues. They were heard by Flaux J. The first was determined by Flaux J in favour of Bank Mellat in his judgment given on 6 May 2015 [2015] EWHC 1258 (Comm); see paragraphs 2–25 of the judgment. It is not the subject of an appeal. The other two issues can be summarised as follows:

i) Was Bank Mellat entitled as a matter of law to claim directly against HM Treasury 60% of the loss of earnings before tax suffered by PIB?

ii) Was Bank Mellat able to claim loss of future income? The issue as drafted was more complex, but as I explain at paragraph 33 below, Flaux J was right in expressing it in these simpler terms.

Flaux J decided the first of these issues in favour of Bank Mellat (see paragraphs 26–52 of his judgment), but declined to decide the second issue (see paragraphs 53–78).

6

I consider that Flaux J was incorrect in the result on the first issue, but correct on the second issue for the following reasons.

Issue 1: The claim by Bank Mellat for 60% of PIB's loss of earnings before tax.

7

HM Treasury contended that Bank Mellat was not entitled as a matter of law to advance the claim for the loss sustained by it as a shareholder in PIB for its proportion of PIB's loss of earnings for two reasons:

i) PIB was entitled as a matter of the law of England and Wales to claim against HM Treasury under ss.7 and 8 of the HRA as a victim for losses it had itself sustained for breach of its rights under A1P1 caused by the 2009 Order. Bank Mellat as a shareholder could not make a claim as a matter of the law of England and Wales for the loss PIB had suffered. The claim for PIB's loss had to be made by PIB which had a right to bring such a claim against HM Treasury under the applicable legislation.

ii) The position under the law applied by the Strasbourg Court was to the same effect.

HM Treasury had to succeed on both points to defeat this head of claim as a matter of law. Flaux J decided the first of these points in favour of Bank Mellat on the basis that PIB could not itself bring a claim under the applicable legislation for the losses it had sustained as a result of the 2009 Order. Although it was therefore unnecessary to decide the second point, he considered, contrary to the submissions of Bank Mellat, that the Strasbourg court recognised a rule equivalent to the law of England and Wales which would have prevented Bank Mellat bringing a claim had PIB been entitled to claim for the loss it had suffered.

Could PIB make a claim under A1P1 for the losses caused to it by the 2009 Order?

8

The claim advanced by Bank Mellat for 60% of the loss of earnings of PIB was made on the basis that it had standing to bring a claim under s.63 of the Counter-Terrorism Act 2008 and the HRA 1998, whereas PIB, although it had standing to bring a claim under s.63, did not have standing to bring a claim under the HRA.

9

Bank Mellat's claim under s.63 of the Counter-Terrorism Act 2008 was premised on the following provisions:

i) S.63(2) permitted "any person affected" by any decision of HM Treasury in connection with the exercise of its functions under Schedule 7 to apply to the High Court to set aside the decision. S.63(4) provided that if the decision was set aside, then the court could make any order or give any relief as might be made in proceedings for judicial review.

ii) The 2009 Order was a decision under Schedule 7.

iii) Article 4 of the 2009 Order contained the prohibition:

"The Treasury direct that a relevant person must not—

(a) enter into, or

(b) continue to participate in,

Any ransaction or business relationship with a designated person".

iv) Article 2 defined relevant persons as:

"The direction in article 4 is given to all persons operating in the financial sector (referred to in that article as "relevant persons")."

v) Article 3 of the Order provided:

"(1) The direction in article 4 is given in relation to transactions or business relationships with the following persons (referred to in that article as "designated persons")—

(a) Bank Mellat, whose head office is located at No. 327 Taleghani Avenue, Tehran 15817 Iran;

(b) Islamic Republic of Iran Shipping Lines ("IRISL") ….;

(c) a branch of Bank Mellat or IRISL.

(2) In paragraph (1), "branch" means a place of business of a person, other than its head office, which has no legal personality separate from that person, and which carries out directly all or some of the transactions inherent in that person's business."

vi) Once the Supreme Court had decided that the Order could be set aside under the provisions of s.63 of the Counter-Terrorism Act 2008, then the court could under those provisions award such relief as could be given in judicial review. The relief that can be given in judicial review includes damages under the HRA.

vii) Bank Mellat was entitled to damages under the HRA as it had victim status under s.7 of the HRA and could therefore claim just satisfaction under s.8.

10

It was submitted by Bank Mellat that the judge was correct in deciding that PIB could not bring a similar claim, as although it had a right to bring a public law claim under s.63 of the Counter-Terrorism Act 2008, it did not have victim status under s.7 of the HRA which would entitle it to bring a claim under s.8. It was not a victim on the basis that it was not directly affected by the 2009 Order which the Supreme Court had found breached A1P1. The judge had decided (see paragraph 33 of his decision) that PIB was only a victim in a secondary sense as, although PIB was a relevant person under the 2009 Order, that Order was targeted at Bank Mellat and only Bank Mellat had the requisite standing as a victim under s.7 of the HRA and under s.63 of the Counter-Terrorism Act 2008.

11

I cannot accept this submission.

12

In my judgment there can be no doubt that PIB was a relevant person within the meaning of the 2009 Order which defined a relevant person by reference to the definition in paragraphs 4 and 6 of Schedule 7 of the Counter-Terrorism Act 2008. PIB clearly fell within that definition as it was a...

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