Bank Mellat v HM Treasury
| Jurisdiction | England & Wales |
| Judgment Date | 11 June 2010 |
| Neutral Citation | [2010] EWHC 1332 (QB) |
| Docket Number | Case No: PTA/57/2009 |
| Court | Queen's Bench Division |
| Date | 11 June 2010 |
[2010] EWHC 1332 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Before: The Honourable Mr Justice Mitting
Case No: PTA/57/2009
Jonathan Crow QC and Amy Rogers (instructed by Stephenson Harwood) for the Claimant
Jonathan Swift QC and Robert Wastell (instructed by the Treasury Solicitor's Department) for the Defendant
Martin Chamberlain and Melanie Plimmer (instructed by the Special Advocates Support Office) Special Advocates
Hearing dates: 24 and 25 May 2010
The Hon. Mr Justice Mitting :
Background
On 9 October 2009 Her Majesty's Treasury made the Financial Restrictions (Iran) Order 2009 SI 2009 No 2725 in the exercise of powers conferred by Schedule 7 to the Counter-Terrorism Act 2008. The Order was laid before Parliament at 10am on 12 October and came into force at 10.30am on that date. A written Ministerial Statement by the Exchequer Secretary to the Treasury was laid before both Houses of Parliament at the same time. The Order directed that all persons operating in the UK financial sector (“relevant persons”) must not enter into or continue to participate in any transaction or business relationship with Bank Mellat and Islamic Republic of Iran Shipping Lines (“designated persons”), with immediate effect. Because the direction contained a requirement that relevant persons ceased business with designated persons, it was required, by paragraph 14 of Schedule 7 to the 2008 Act, to be subject to the affirmative resolution procedure within 28 days. The Order was approved by the Commons Committee on Delegated Legislation on 28 October 2009 and by the House of Lords Standing Committee on 2 November 2009. Unless revoked, it lasts for one year.
Section 63(2) permits any person affected by the decision of the Treasury to make the Order to apply to the High Court to set it aside. Bank Mellat is such a person. By a claim form issued on 20 November 2009 the bank applied to set the decision aside. It is one of Iran's largest privately owned commercial banks. It has some 1800 branches in Iran, Turkey and South Korea and holds some 33 million accounts for over 19 million customers. It has subsidiaries in Malaysia and Armenia and a 60% owned subsidiary, Persia International Bank plc. (PIB), in the United Kingdom. The Treasury initially believed that 80% of the voting rights of the shares in the bank were exercised, or capable of being exercised, by the Iranian Government: see paragraph 75 of the further revised witness statement of James Robertson, head of the Financial Crime Team in the International Finance Directorate of the Treasury. This is disputed by the bank. Younes Hormozi, an executive director of the bank, who has made four witness statements for the purpose of these proceedings, has explained that the Iranian Government only exercised voting rights over its 20% share holding – shortly to be reduced to 15%, as a result of a capital raising exercise – and does not seek to interfere in or influence the commercial activities of the bank. I accept Mr Hormozi's explanation. A significant part of the business of the bank is international trade finance. As Mr Hormozi explained in paragraph 65 of his third witness statement, in the year to March 2009, it issued letters of credit with an aggregate value of about USD 11 billion. Of this total, about 25% (2 billion euros) appear to have been issued in respect of business transacted through the United Kingdom: Mr Hormozi explained in paragraph 19 of his first witness statement that PIB was the advising/negotiating/reimbursing bank on letters of credit issued by the bank for 1.98 billion euros in the 2008 financial year and 0.97 billion euros in the first 6 months of the 2009 financial year. In the financial year to March 2010, the aggregate value of letters of credit issued by the bank fell to USD 6 billion. I accept Mr Hormozi's belief, expressed in paragraph 65 of his third witness statement, that a substantial contribution to the decline in this class of business has been the impact of the Order. Unsurprisingly, this has caused a loss in revenue to the bank, put by Mr Hormozi at USD 25 million. Paragraph 17 of Schedule 7 to the 2008 Act permits the Treasury to grant a licence to exempt Acts specified in the licence from the requirement that relevant persons cease business with the bank. Since the Order was made, a number of licences have been granted, but only to permit relevant persons to fulfil existing contracts with the bank. None have been granted for new business. The Order has also had the effect of preventing the bank from drawing 183 million euros in call and time deposit accounts at PIB. In this respect, the Order has had the same effect as an asset freeze. The effect of the Order has been that which was intended: to shut the bank out of the UK financial sector. There has been some debate about the extent of the impact on the bank's business. Mr Swift QC for the Treasury has submitted that much of the impact of the Order could have been mitigated by conducting replacement business in other markets. Mr Hormozi states that there has been significant reputational damage to the bank and that others, not directly affected by the Order, such as Reuters Dealing Services have withdrawn vital services from the bank outside the UK. Mr Swift has also submitted that the impact upon the bank's “possessions”, for the purposes of Article 1 of the First Protocol to the ECHR (A1P1), has not been as great as the total impact upon its business. That may, in principle be right, but the effect has none the less been significant: since 12 October 2009, the bank has been unable to make profitable use of the goodwill which it has established in the United Kingdom – undoubtedly a possession for the purposes of A1P1. Accordingly, it has not been entitled to the peaceful enjoyment of that possession. It is unnecessary for me to determine the precise extent to which the bank's enjoyment of its possessions and its business have been affected by the Order. On any view, the effect has been substantial and suffices to require all of the bank's challenges to the Order to be addressed and determined.
The grounds of challenge
The bank's principal grounds of challenge, though superficially manifold, can be distilled into two:
i) Procedural: the Treasury was required by domestic law and by the procedural requirements of A1P1 and Article 6(1) ECHR to give the bank an opportunity to make representations before making the Order.
ii) Substantive: the Order was unlawful, because the statutory conditions for a direction requiring relevant persons to cease business with the bank were not fulfilled and/or because it is incompatible with the bank's rights under A1P1 and so unlawful under section 6 of the Human Rights Act 1998.
Mr Crow QC also challenged the rationality of the Order, but as I explain below, I consider that this challenge falls within and adds nothing to the challenge to the lawfulness of the order.
The procedural challenge
Schedule 7 to the 2008 Act permits the Treasury to give a direction under the Schedule if one of three conditions is met in relation to a country. Paragraph 1(4) prescribes the third condition:
“The third condition is that the Treasury reasonably believe that –
(a) the development of production of nuclear, radiological, biological or chemical weapons in the country, or
(b) the doing in the country of anything that facilitates the development of production of any such weapons,
poses a significant risk to the national interests of the United Kingdom”.
Under paragraph 3(1)(c) a direction may be given to all persons operating in the UK financial sector. Paragraph 9 permits a direction to impose requirements in relation to transactions or business relationships with the government of the country or persons carrying on business or resident or incorporated in the country or all of them. Paragraphs 10–13 contain an escalating list of requirements: enhanced due diligence, ongoing monitoring, systematic reporting and limiting or ceasing business. Paragraph 14 requires that an order containing a requirement limiting or ceasing business must be laid before Parliament after being made and be approved under the affirmative resolution procedure within 28 days. If not so approved, it then ceases to have effect. Section 63(2) permits any person affected by the decision to make an Order under Schedule 7 to apply to the High Court to set aside the decision. In determining whether or not to set the decision aside, the Court must apply the principles applicable on an application for judicial review: section 63(3). Chapter 2 of Part 6 contains detailed enabling provisions for the procedure by which the application is to be determined.
Mr Crow relies on a long line of authority, from Cooper v Wandsworth Board of Works [1863] 14 CB (NS) 180 to R v Secretary of State for the Home Department ex parte Doody [1994] 1 AC 531, to assert the well established principle that natural justice will in many cases require that a person likely to be adversely affected by an administrative decision must be given an opportunity to make representations on his own behalf before it is made. He submits that, on the facts of this case, there was not such a degree of urgency, nor any need to pre-empt avoidance action by the bank as would justify making the Order without giving the bank the opportunity of making representations beforehand. In paragraph 90 of his witness statement, Mr Robertson opines that it would not have been appropriate to do so, because it would have given the bank the opportunity to re-arrange business relationships or transactions within the UK to avoid or lessen the impact of the Order. I am unconvinced by Mr Robertson's reasoning: if the bank could have taken avoidance action before...
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