Bank Mellat v HM Treasury (No. 1)

Heard on 19, 20 and 21 March 2013

Lord Neuberger(with whomLady Hale, Lord Clarke, Lord SumptionandLord Carnwathagree)

This judgment is concerned with two connected questions:

A closed material procedure involves the production of material which is so confidential and sensitive that it requires the court not only to sit in private, but to sit in a closed hearing (ie a hearing at which the court considers the material and hears submissions about it without one of the parties to the appeal seeing the material or being present), and to contemplate giving a partly closed judgment (ie a judgment part of which will not be seen by one of the parties).

The idea of a court hearing evidence or argument in private is contrary to the principle of open justice, which is fundamental to the dispensation of justice in a modern, democratic society. However, it has long been accepted that, in rare cases, a court has inherent power to receive evidence and argument in a hearing from which the public and the press are excluded, and that it can even give a judgment which is only available to the parties. Such a course may only be taken (i) if it is strictly necessary to have a private hearing in order to achieve justice between the parties, and, (ii) if the degree of privacy is kept to an absolute minimum – see, for instance A v Independent News & Media Ltd [2010] EWCA Civ 343, [2010] 1 WLR 2262, and JIH v News Group Newspapers Ltd [2011] EWCA Civ 42, [2011] 1 WLR 1645. Examples of such cases include litigation where children are involved, where threatened breaches of privacy are being alleged, and where commercially valuable secret information is in issue.

Even more fundamental to any justice system in a modern, democratic society is the principle of natural justice, whose most important aspect is that every party has a right to know the full case against him, and the right to test and challenge that case fully. A closed hearing is therefore even more offensive to fundamental principle than a private hearing. At least a private hearing cannot be said, of itself, to give rise to inequality or even unfairness as between the parties. But that cannot be said of an arrangement where the court can look at evidence or hear arguments on behalf of one party without the other party ("the excluded party") knowing, or being able to test, the contents of that evidence and those arguments ("the closed material"), or even being able to see all the reasons why the court reached its conclusions.

In Al Rawi v Security Service [2012] 1 AC 531, Lord Dyson made it clear that, although "the open justice principle may be abrogated if justice cannot otherwise be achieved" (para 27), the common law would in no circumstances permit a closed material procedure. As he went on to say at [2012] 1 AC 531, para 35, having explained that, in this connection, there was no difference between civil and criminal proceedings:

"[T]he right to be confronted by one's accusers is such a fundamental element of the common law right to a fair trial that the court cannot abrogate it in the exercise of its inherent power. Only Parliament can do that".

The effect of the Strasbourg Court's decisions in Chahal v United Kingdom (1996) 23 EHRR 413 and A and others v United Kingdom [2009] ECHR 301 is that Article 6 of the European Convention on Human Rights ("Article 6", which confers the right of access to the courts) is not infringed by a closed material procedure, provided that appropriate conditions are met. Those conditions, in very summary terms, would normally include the court being satisfied that (i) for weighty reasons, such as national security, the material has to be kept secret from the excluded party as well as the public, (ii) a hearing to determine the issues between the parties could not fairly go ahead without the material being shown to the judge, (iii) a summary, which is both sufficiently informative and as full as the circumstances permit, of all the closed material has been made available to the excluded party, and (iv) an independent advocate, who has seen all the material, is able to challenge the need for the procedure, and, if there is a closed hearing, is present throughout to test the accuracy and relevance of the material and to make submissions about it.

The importance of the requirement that a proper summary, or gist, of the closed material be provided is apparent from the decision of the House of Lords in Secretary of State for the Home Department v AF (No 3) [2009] UKHL 28, [2010] 2 AC 269. At para 59, Lord Phillips said that an excluded party "must be given sufficient information about the allegations against him to enable him to give effective instructions in relation to those allegations", and that this need not include "the detail or the sources of the evidence forming the basis of the allegations". As he went on to explain:

"Where, however, the open material consists purely of general assertions and the case against the [excluded party] is based solely or to a decisive degree on closed materials the requirements of a fair trial will not be satisfied, however cogent the case based on the closed materials may be."

The nature and functions of a special advocate are discussed in Al Rawi [2012] 1 AC 531, by Lord Dyson, paras 36–37, and by Lord Kerr, para 94. As Lord Dyson said, the use of special advocates has "limitations", despite the fact that the rule-makers and the judges have done their best to ensure that they are given all the facilities that they need, and despite the fact that the Treasury Solicitor has ensured (to the credit of the Government) that they are of consistently high quality.

In a number of statutes, Parliament has stipulated that, in certain limited and specified circumstances, a closed material procedure may, indeed must, be adopted by the courts. Of course, it is open to any party affected by such legislation to contend that, in one respect or another, its provisions, or the ways in which they are being applied, infringe Article 6. However, subject to that, and save maybe in an extreme case, the courts are obliged to apply the law in this area, as in any other area, as laid down in statute by Parliament.

The statute in question in this case is the Counter-Terrorism Act 2008 ("the 2008 Act"), which, as its name suggests, is concerned with enabling steps to be taken to prevent terrorist financing and the proliferation of nuclear weapons, and thereby to improve the security of citizens of the United Kingdom. The particular provisions which apply in the present case are in Parts 5 and 6 of the 2008 Act. The first relevant provision is section 62, which is in Part 5 and "confer[s] powers on the Treasury to act against terrorist financing, money laundering and certain other activities" in accordance with Schedule 7.

Paragraphs 1(4), 3(1) and 4(1) of Schedule 7 to the 2008 Act permit the Treasury to "give a direction" to any "credit or financial institution", if "the Treasury reasonably believes" that "the development or production of nuclear …. weapons in [a] country … poses a significant risk to the national interests of the United Kingdom". According to paras 9 and 13 of the schedule, such a direction may "require" the person on whom it is served "not to enter into or to continue to participate in … a specified description of transactions or business relationships with a designated person".Paragraph 14 requires any such direction to be approved by affirmative resolution of Parliament.

Pursuant to these provisions, on 9 October 2009, the Treasury made the order the subject of these proceedings, the Financial Restrictions (Iran) Order 2009 ("the 2009 Order"), which, three days later, was laid before Parliament, where it was approved. The 2009 Order, which was in force for a year, directed "all persons operating in the financial sector" not to "enter into, or … continue to participate in, any transaction or business relationship" with two companies, one of which was Bank Mellat ("the Bank"), or any branch of either of those two companies.

The Bank is a large Iranian bank, with some 1800 branches and nearly 20 million customers, mostly in Iran, but also in other countries, including the United Kingdom. In 2009, prior to the 2009 Order, it was issuing letters of credit in an aggregate sum of over US$11bn, of which around 25% arose out of business transacted in this country. It has a 60% owned subsidiary bank incorporated and carrying on business here, which was at all material times regulated by the Financial Services Authority. The Order effectively shut down the United Kingdom operations of the Bank and its subsidiary, and it is said to have damaged the Bank's reputation and goodwill both in this country and...