EU Court annuls EU freezing orders on Iranian bank – and Wikileaks again

30 January 2013 by David Hart KC

Bank Mellat v Council of the European Union (supported by EU Commission), EU General Court, 29 January 2013 read judgment

In October 2009, Bank Mellat, an Iranian bank, was effectively excluded from the UK financial market by an Order made by the Treasury, on the basis that it had or might provide banking services to those involved in Iran’s nuclear effort. The Bank challenged the Order, and the challenge failed in the Court of Appeal, albeit with a dissent from Elias LJ: see Rosalind English’s post and read judgment.  The Bank’s appeal to the Supreme Court is due to be heard in March 2013; it raises some fascinating issues about common law unfairness, Article 6, and the right to property under A1P1 , given that the Bank was not told of the intention to make the Order prior to its making. 

The current case concerns an EU set of measures initiated in 2010, which led to the freezing the Bank’s assets on essentially the same grounds, namely involvement with the Iranian nuclear effort. And the EU General Court (i.e. the first instance court)  has just annulled the measures – for lack of reasons, lack of respect for the rights of the defence, and for manifest error. So keep an eye on these two parallel cases, in the Supreme Court and in the EU Court of Justice on appeal from this decision.

The EU Council and Commission ran, with the greatest respect to them, an extraordinary preliminary point. The Bank sought to rely on fundamental rights protections and guarantees. Oh no, said the EU, it cannot do that, because the Bank is an emanation of a foreign non-EU state. The EU institutions relied on two connected non-sequiturs before the Court, in their claims that this mattered

(1) Governments cannot go to Strasbourg as victims, ergo they cannot complain of rights abuses in EU Courts and

(2) Governments guarantee rights in their own territories, and therefore cannot complain of infringements elsewhere.

So if this were right, it would follow that even if the EU had ridden roughshod in freezing the Bank’s assets, the Bank could do or say nothing about it. Fortunately, not least for the rule of law, the General Court had little time for this argument.

Now to the points of substance. At [49] the Court summarised the purpose of giving reasons in EU law:

first, to provide the person concerned with sufficient information to make it possible to determine whether the measure is well founded or whether it is vitiated by an error which may permit its validity to be contested before the Courts of the European Union and, secondly, to enable the latter to review the lawfulness of that measure. The obligation to state reasons therefore constitutes an essential principle of European Union law which may be derogated from only for compelling reasons. The statement of reasons must therefore in principle be notified to the person concerned at the same time as the act adversely affecting him, for failure to state the reasons cannot be remedied by the fact that the person concerned learns the reasons for the act during the proceedings before the Courts of the European Union (see, to that effect, Case T-390/08 Bank Melli Iran v Council [2009] ECR II-3967, paragraph 80 and case-law cited).

The reasons in fact given by the Council were pretty bald. To give two examples, they stated that the Bank “engages in a pattern of conduct with supports and facilitates Iran’s nuclear and ballistic missiles programme” without saying what conduct was being referred to; and they said that the Bank had facilitated the movement of millions of dollars for the nuclear programme, without identifying the transactions in question. In short, in these and other respects, the Council  provided no evidence to the Bank to which the Bank could sensibly respond.

Errors of substance were also made. One reason originally given was that the Bank was a state-owned bank.  This was wrong. It was a merger of 10 private banks; the Iranian Government exercises voting rights over 20% of the shares in the Bank – according to the evidence in the UK proceedings. As the Court indicated, this error suggested that no checking of the information provided to the EU had been carried out. Allegations were made that the Bank acted for the Iranian Atomic Energy Agency, but even some time later in these proceedings, the Council could produce no evidence or information in support of this allegation. In this regard there are certain similarities between this case and the Fulmen case on which I posted in March 2012

What led to the making of the Order? The Bank made its view clear at [98], though this was not accepted by the Court. Diplomatic cables which had been Wikleaked showed that member states were subject to pressure from the US Government to ensure that these measures were adopted. This , said the Bank, cast doubt on the lawfulness of the measures and the procedures underlying them. The Court said it did not follow that the Council which adopted the measures was affected by any pressure exerted on member states.

As I have said, it is highly likely that this case will go further in Europe. But it stands as a salutary reminder that decisions such as these capable of paralysing a major economic institution cannot be taken on somebody’s say-so. The EU has to provide evidence and proper reasons to justify its action.

Robert Wastell from 1 Crown Office Row is junior counsel for HM Treasury in the forthcoming Supreme Court hearing. He played no part in the writing of this post.

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