Bank Mellat v HM Treasury

JurisdictionEngland & Wales
CourtCourt of Appeal
JudgeLord Justice Maurice Kay,Lord Justice Sullivan,Lord Justice Elias,Lord Justice Pitchford
Judgment Date13 Jan 2011
Neutral Citation[2011] EWCA Civ 1,[2010] EWCA Civ 483
Docket NumberCase No: T3/2010/1606,T3/2010/0518

[2010] EWCA Civ 483

IN THE HIGH COURT OF JUSTICE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION, ADMINISTRATIVE COURT

The Hon Mr Justice Mitting

Before: The Master of the Rolls

Lord Justice Maurice Kay

and

Lord Justice Sullivan

T3/2010/0518

Case No PTA/57/2009

Between
Bank Mellat
Respondent
and
Her Majesty's Treasury
Appellant

James Eadie QC and Catherine Callaghan (instructed by Treasury Solicitors Department) for the Appellant

Jonathan Crow QC and Amy Rogers (instructed by Stephenson Harwood) for the Respondent

Martin Chamberlain and Melanie Plimmer (instructed by the Special Advocates Support Office) Special Advocates

Andrew Fletcher QC and Peter de Verneuil Smith (instructed by Holman Fenwick & Willan) for the intervening party IRISL made written submissions only

Hearing date: 23 March 2010

Lord Neuberger MR:

1

The primary issue which we have to determine is whether Mitting J was right to conclude that the standard of disclosure required of Her Majesty's Treasury in this case is the same as that required of the Home Secretary, as identified by the House of Lords, in Secretary of State for the Home Department v AF (No 3) [2009] UKHL 28, [2009] 3 WLR 74. That is the point which is raised on this appeal brought by the Treasury; there is a further issue raised by the respondent, Bank Mellat, which ultimately concerns the question whether the Judge applied the requirements correctly in this case.

2

The issues arise out of a direction (“the Direction”) dated 9 October 2009, made by the Treasury, and contained in the Financial Restrictions (Iran) Order 2009, made pursuant to schedule 7 to the Counter-Terrorism Act 2008. Pursuant to section 63 of the 2008 Act, the Bank challenged the Direction by means of an application, to which the provisions of CPR Part 79 apply. The application was met by open and closed evidence and argument from the Treasury, and it became clear that there was an issue between the parties as to the extent of the disclosure required to be made to the Bank by the Treasury.

3

This led to a hearing before Mitting J, which was partly open and partly closed. In his open judgment, given on 24 February 2010, he decided that the Bank was right in its contention that the decision of the Strasbourg Court in A and others v United Kingdom (2009) 49 EHRR 29, as interpreted by the House of Lords in AF (No 3) [2009] 3 WLR 74, applied in this case. Accordingly, the Judge concluded that the Treasury should be required to afford the Bank sufficient disclosure “to ensure that the Bank had the opportunity of giving effective instructions about the essential allegations against it” [2010] EWHC 350 (QB), paragraph 13. The Treasury contends that such a degree of disclosure is, in the circumstances of this case, too generous to the Bank. At a closed hearing, the Judge gave more detailed and specific directions as to the extent of the disclosure required of the Treasury, which the special advocates contend is insufficient; they base their case on the contention that the standard of disclosure ordered by the Judge, far from being too generous to the Bank, did not go far enough.

4

On 23 March, we heard the argument on the appeal in open session, and on the cross-appeal in closed session. We reserved judgment, but indicated that we would give our decision before the end of that term, as we were told that the Bank's application was due to come back before the High Court for further argument at the beginning of the following term, in mid-April. (In fact, as we were subsequently, and properly, informed by counsel for the Bank, that hearing has been postponed, but nothing hangs on that.)

5

Our decision was given on 31 March, to the following effect. On the Treasury's appeal, we ruled that Mitting J was right to conclude that the standard of disclosure described and applied by the House of Lords in AF (No 3) [2009] 3 WLR 74 should be applied in this case, and that he correctly described that standard in the words quoted from his judgment in paragraph 3 above.

6

This meant that the cross-appeal was also dismissed, but, as we said, it did not follow that there was no need for the Treasury to disclose any evidence. We explained that the standard laid down by the Judge required the Treasury's disclosure to be sufficient to enable the Bank to give sufficient instructions not merely to deny, but actually to refute (in so far as that was possible), “the essential allegations” relied on by the Treasury to justify the making and continuance of the direction. As we also stated, the precise extent of the disclosure to be ordered is inevitably fact-specific, and is very much a matter for the first instance judge who is seized of the case, although, of course, an appeal against such an order could succeed if it could be shown that the judge went wrong in principle.

7

These are our reasons for those conclusions.

8

Pursuant to section 62 of the 2008 Act, schedule 7 empowers the Treasury “to act against terrorist financing, money laundering and certain other activities”. Paragraph 1(1) of schedule 7 sets out the circumstances in which the Treasury “may give a direction”, namely, if “one or more of the following conditions are satisfied in relation to a country.” One of those conditions is in paragraph 1(4), which is that the Treasury “reasonably believe” that either (a) “the development of or production of nuclear … weapons in the country”, or (b) “the doing in the country of anything which facilitates the development or production of such weapons” poses “a significant threat to [the UK's] national interests”.

9

Paragraphs 3 and 4 of schedule 7 permit a direction to be given either to “a particular person” or to “all persons”“operating in the financial sector”, provided any such person is “a credit or financial institution”, which is either “a United Kingdom person” or “acting in the course of a business carried on by it in the [UK].” A person in respect of whom a declaration is made is a “designated person”– paragraph 9(3). By paragraphs 9, 13 and 14, a direction can impose various types of restrictions “in relation to transactions or business relationships”, the most extreme of which precludes “all persons”“operating in the financial sector” in the UK from “enter[ing] into or continu[ing] to participate in … any transaction” with a designated person. Such a direction “must be contained in an order made by the Treasury”, which must be laid before, and approved by, each House of Parliament, by virtue of paragraph 14, and, pursuant to paragraph 15, it ceases to have effect after a year. A person who fails to comply with a direction is guilty of an offence (paragraph 30), but the Treasury has power, under paragraph 17, to exempt specified acts from the ambit of a direction.

10

The Treasury made the direction in this case, i.e. the Direction, through the medium of the 2009 Order, on 9 October 2009, and it was laid before Parliament and came into effect three days later. The terms of the Direction prohibited all persons operating in the financial sector from entering into or participating in any transaction or business relationship with the Bank: thus, it was the most wide-ranging direction that could have been made under schedule 7 to the 2008 Act. According to the open evidence of the Treasury, the purpose of the Direction was, as the Judge succinctly put it at [2010] EWHC 350 (QB), paragraph 10, “to hamper Iran's nuclear and ballistic missile programme by shutting out Bank Mellat from the UK financial sector, and, perhaps, by restricting its access to the global financial system as well.”

11

In its evidence, the Treasury said that it believes that the Bank “continues to engage in a pattern of conduct which supports and facilitates Iran's proliferation-sensitive activities”, that “nuclear-related companies continued to receive funds from” the Bank in 2007, and that a company with alleged connections with other, nuclear-related, companies “in spring 2009 … conducted business using [the Bank]”. More detailed evidence was available, and much of it was, and no doubt will be, relied on by the Treasury on a closed basis.

12

The Bank is one of Iran's largest commercial banks, with some 1800 branches in Iran and also in a number of foreign countries. It has a subsidiary in the UK. It strongly denies all the allegations on which the Direction is based, and contends that the Direction is unlawful, alleging that there are no grounds for the Direction, that it infringes the Bank's rights under the European Convention, conflicts with the Treasury's own policy, and that it was introduced in a procedurally unfair way. The Bank also contends that, unsurprisingly, the effect of the Direction is devastating on its business, both because of its direct effect, and because it has prompted other countries into taking similar action against the Bank. Accordingly, on 20 November 2009, the Bank exercised its right, under section 63 of the 2008 Act, to apply to the High Court to set aside the decision to make the Direction.

13

Sections 66 and 67 of the 2008 Act provide for rules of court to be made in relation to applications under section 63, and such rules are now contained in CPR Part 79. As foreshadowed by sections 66 and 67, CPR Part 79 provides for a closed material procedure, with the involvement of special advocates. CPR 79.2 also states that the overriding objective, and any other rule, must be read in such a way as to ensure that “the court will ensure that information is not disclosed contrary to the public interest…”. CPR 79.26(5) and...

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