Bank Mellat v HM Treasury (No 2)

JurisdictionEngland & Wales
CourtSupreme Court
JudgeLord Reed,Lord Kerr,Lord Neuberger,Lord Hope,Lord Carnwath,Lord Dyson,Lord Sumption,Lady Hale,Lord Clarke
Judgment Date19 Jun 2013
Neutral Citation[2013] UKSC 39

[2013] UKSC 39

THE SUPREME COURT

Trinity Term

On appeal from: [2011] EWCA Civ 1

Before

Lord Neuberger, President

Lord Hope, Deputy President

Lady Hale

Lord Kerr

Lord Clarke

Lord Dyson

Lord Sumption

Lord Reed

Lord Carnwath

Bank Mellat
(Appellant)
and
Her Majesty's Treasury (No. 2)
(Respondent)

Appellant

Michael Brindle QC

Amy Rogers

Dr Gunnar Beck

(Instructed by Zaiwalla and Co)

Special Advocates

Martin Chamberlain QC

Melanie Plimmer

(Instructed by Special Advocates Support Office)

Intervener

Nicholas Vineall QC

(Instructed by Zaiwalla and Co)

Respondent

Jonathan Swift QC

Tim Eicke QC

Robert Wastell

(Instructed by Treasury Solicitors)

Advocate to the Court

Robin Tam QC

(Instructed by Treasury Solicitors)

Heard on 19, 20 and 21 March 2013

Lord Sumption (with whom Lady Hale, Lord Kerr, and Lord Clarke agree in whole; Lord Neuberger and Lord Dyson agree only on the procedural grounds, Lord Carnwath only on the substantive grounds)

Introduction
1

This appeal is about measures taken by H.M. Treasury to restrict access to the United Kingdom's financial markets by a major Iranian commercial bank, Bank Mellat, on the account of its alleged connection with Iran's nuclear weapons and ballistic missile programmes.

2

The proliferation of nuclear weapons is an international issue of great importance to the security of the United Kingdom and the international community. For a number of years, Iran has had a major industrial programme which the United Kingdom, along with the rest of the international community, believes to be directed to the development of the technical capability to produce nuclear weapons and to the improvement of its ballistic missile capabilities. Between 2006 and 2008 the United Nations Security Council adopted a number of resolutions under Article 41 of the United Nations Charter, which deals with threats to international peace and security. Security Council Resolution 1737 (2006) called on Iran to suspend various proliferation-sensitive nuclear activities, and called on states to take measures to control the trade in certain critical materials, components, equipment and services. Paragraph 12 of this Resolution also required states to freeze the assets in their national territory of a number of persons or organisations identified in Annex I as being involved in Iran's nuclear and ballistic missile programmes. Resolution 1747 (2007) extended these provisions to a number of additional persons and organisations identified in Annex I to the new resolution. These included entities providing ancillary services to Iran's nuclear and armaments industries, among them two banks. Security Council Resolution 1803 (2008) strengthened the measures required by Resolutions 1737 and 1747. In relation to the provision of banking and other financial services to support Iran's weapons programmes, the new resolution called upon all states to

"exercise vigilance over the activities of financial institutions in their territories with all banks domiciled in Iran, in particular with Bank Melli and Bank Saderat, and their branches and subsidiaries abroad, in order to avoid such activities contributing to the proliferation sensitive nuclear activities, or to the development of nuclear weapon delivery systems."

3

There are two principal legislative instruments available to the United Kingdom government for the purpose of restricting the operations in the United Kingdom of Iranian financial institutions associated with the country's nuclear and ballistic missiles programmes. The first, which is not directly in point in these proceedings but is an important part of the background, is the Iran (Financial Sanctions) Order 2007 SI 2007/281. This is an Order in Council made under section 1 of the United Nations Act 1946, which gives effect to the asset freeze provisions of Security Council Resolutions 1737 and 1747. Article 6 of the Order freezes the assets in the United Kingdom of the entities identified in Annex I of those resolutions.

4

The second, which is the instrument directly relevant to the present appeal, is Section 62 of the Counter-Terrorism Act 2008, which gives effect to Schedule 7. Schedule 7 is not exclusively concerned with Iran or with nuclear proliferation. It empowers the Treasury to make a direction by statutory instrument in situations specified in paragraph 1, involving three categories of "risk" associated with a foreign country outside the European Economic Area. The relevant categories of risk are those arising from terrorist financing, money laundering and nuclear proliferation. The risk of nuclear proliferation is dealt with in paragraph 1(4), which imposes a statutory condition that

"(4) …the Treasury reasonably believe that

the development or production of nuclear, radiological, biological or chemical weapons in the country, or the doing in the country of anything that facilitates the development or production of any such weapons, poses a significant risk to the national interests of the United Kingdom."

5

If the conditions in paragraph 1 as to the existence of a relevant risk are satisfied, the Treasury may give a direction to one or more persons "operating in the financial sector" (essentially credit and financial institutions) regulating their dealings with any "designated person". A "designated person" includes any person carrying on business in or resident or incorporated in the foreign country in question: see paragraph 9(1). The direction may require the financial institutions to whom it is addressed to exercise an enhanced customer due diligence so as to obtain information about the designated person and those of its activities which contribute to the risk (paragraph 10). It may require enhanced monitoring (paragraph 11) or systematic reporting (paragraph 12) to the same end. But the most draconian provision is paragraph 13, which provides that the direction may require those to whom it is addressed "not to enter into or continue to participate in… any transaction or business relationship with a designated person." Under paragraph 16(4), any direction made in the exercise of these powers expires a year after it is made. A direction made under Schedule 7 must be contained in an order: see paragraph 14(1). By section 96, any order under the Act must be made by statutory instrument.

6

It will be apparent that for designated persons with a substantial business in the United Kingdom, especially if they are banks, the exercise of the power conferred by paragraph 13 will have extremely serious and possibly irreversible consequences. The Act provides three relevant safeguards against the unwarranted use of this power. First, under Schedule 7, paragraph 14(2), if the direction contains requirements of a kind mentioned in paragraph 13 of Schedule 7 (limiting or ceasing business with a designated person) it must be laid before Parliament after being made and unless approved by affirmative resolution within 28 days will cease to have effect at the end of that period. Second, Schedule 7, paragraph 9(6) provides that the requirements imposed by a direction must be proportionate having regard, in the case within paragraph 1(4) to the risk referred to in that paragraph. This means the risk to the national interests of the United Kingdom presented by the development of nuclear weapons, radiological, biological or chemical weapons in the foreign country. Third, section 63 of the Act provides a special procedure by which a person affected by any "decision" of the Treasury, including a decision under Schedule 7, may apply to the High Court to set it aside, applying the principles applicable on an application for judicial review.

7

On 9 October 2009 the Treasury made an order, the Financial Restrictions (Iran) Order 2009 SI 2009/2725, which came into force three days later on 12 October. It was made under Schedule 7, paragraph 13 of the Act and required all persons operating in the financial sector not to enter into or to continue to participate in any transaction or business relationship with Bank Mellat or any of its branches or with a shipping line called IRISL. The direction was laid before Parliament on 12 October 2009. It was approved by the Delegated Legislation Committee of the House of Commons on 28 October and by the Grand Committee of the House of Lords on 2 November.

8

Under Schedule 7, paragraph 16(4), the direction expired automatically after a year, on 8 October 2010. By that time it had been effectively superseded by the extension to Bank Mellat of a general asset freeze under EU legislation, which occurred on 26 July 2010. On 29 January 2013, however, the application of the EU measures to Bank Mellat was annulled by the General Court, primarily on the ground of the insufficiency of the stated reasons for it. This decision is currently under appeal to the Court of Justice of the European Union and is suspended pending that appeal. Subject to that, there are no restrictions on Bank Mellat's business currently in force.

9

The object of the direction, as the Treasury acknowledges, was to shut the Bank out of the UK financial sector, and that has been its effect. Before the direction, the Bank had a substantial international business, much of it international trade finance transacted through London. In the year to March 2009, it issued letters of credit with an aggregate value of about US$11 billion, of which about a quarter represents letters of credit in respect of business transacted through the United Kingdom. The Bank's own estimate of its revenue losses is about US$25 million a year. In addition, the Bank has been prevented from drawing on 183 million euros of call and time deposits with its part-owned subsidiary in London. Important banking relationships have been lost to other banks. The judge found that since the direction, the bank has been unable to make profitable use...

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