Bank Mellat and disclosure in closed material proceedings

28 October 2015 by David Hart KC

Bank Mellat v HM Treasury [2015] EWCA Civ 105, 23 October 2015  read judgment

Bank Mellat is an Iranian bank, initially subjected to a 2009 order which prohibited anybody in the UK from dealing with it – until the Supreme Court quashed it:  here, and my posts here and here.  

The Treasury tried again, by orders made in 2011 and 2012 addressed at all Iranian banks, not just Bank Mellat. The EU has now taken over regulation of these banks.

In the current proceedings, the Bank seeks to set the 2011 and 2012 orders aside. These restrictions are, the Treasury says, addressed at the financing of Iran’s nuclear programme, in which all Iranian banks are complicit. Bank Mellat denies this, and the conundrum in the case is how to make sure that the challenge is fairly tried.  Collins J (my post here) thought that the Treasury had not revealed enough about its case, and, in substance, on appeal the CA agreed.

These sanctions cases have their own Closed Material Procedure and provision for Special Advocates. The aim is to make the system Article 6-compliant (insofar as that is possible).

The real issue before the CA was how to apply protections evolved in the context of control orders (A. v. UK, a Strasbourg decision [2009] ECHR 301) and AF No.3  [2010] 2 AC 269) to the present type of case, involving financial restrictions placed upon the banks.

The CA said that the control-order type of protections did read over into the present case, and further that a subsequent decision of Ouseley J (only now reported in a redacted form and attached to the decision of the CA) refusing more disclosure was wrong. The case should be remitted back to the Administrative Court for a fresh determination of the disclosure issues.

The starting point was the judgment of Lord Philips in AF (No.3) at [59] on control orders

 the controlee must be given sufficient information about the allegations against him to enable him to give effective instructions in relation to those allegations. Provided that this requirement is satisfied there can be a fair trial notwithstanding that the controlee is not provided with the detail or the sources of the evidence forming the basis of the allegations. Where, however, the open material consists purely of general assertions and the case against the controlee is based solely or to a decisive degree on closed materials the requirement of a fair trial will not be satisfied, however cogent the case based on the closed materials may be.

The contrary argument of the Treasury was founded in large part on Tariq [2011] UKSC 35. An immigration officer had his security clearance withdrawn and was therefore suspended. The Supreme Court said that a minimum disclosure requirement did not apply in every context – it all depended on the context, and Mr Tariq’s claim did not so require.

So how did a financial restriction order of the sort imposed upon Bank Mellat fit into this spectrum?

It was plain that the AF (No.3) disclosure requirements extended beyond cases involving the liberty of the subject. The CA had no hesitation in concluding that asset-freezing orders would require such disclosure. Whilst restriction orders did not interfere with fundamental rights to the same extent as asset-freezing measures would have done, they were highly restrictive measures with very serious effects, including possibly irreversible consequences. After all, the whole purpose was to shut these banks out of the UK financial sector.

Hence the CA’s conclusion at [25]

 In my judgment, directions in such draconian terms involved sufficiently serious restrictions on Bank Mellat’s freedom of action, and a sufficiently serious impact on its banking business, as to call for the application of the AF (No.3) standard of disclosure in proceedings to challenge the Orders.

The EU issue which had been live before Collins J receded.  The Bank had successfully relied upon the CJEU decision of ZZ (EU citizen refused re-entry to UK after visiting Algeria- judgment here). But in the CA, the primary emphasis of the Bank’s submissions was on Article 6(1), and after winning on this point, it was unnecessary to rule on whether ZZ made any difference. This was because, in the meanwhile, Kiani [2015] EWCA Civ 776 had been decided, to the effect that the ZZ decision was itself context-specific, and that it would be remarkable if ECHR law and EU diverged on this point.

Having decided the Article 6 ground rules, the CA reversed Ouseley J’s order refusing further disclosure. Unsurprisingly, there is not much detail in the open judgment (a separate closed judgment was delivered), though it is plain that there were very limited specific allegations outlined by the Treasury. The Special Advocate pointed that detail must be met with detail, and there must be a real opportunity for rebuttal.

Drawing the threads together, the CA reaffirmed at [34]

If Bank Mellat is not given sufficient disclosure to enable it to give sufficient instructions not merely to deny but to refute (in so far as possible) the essential allegations against it, the fair trial requirements of article 6, as spelled out in AF (No.3), will not be met.

A generalised plea was not good enough, and the CA emphasised that the Treasury had a choice even if ordered to produce more disclosure to comply with its Art.6 obligations. It could simply decide not to rely on the material.

Conclusion

Closed material “creep” has been much criticised.  So it is good to see that the CA requires sufficient standards of information to be provided in the very specific context of restriction orders, rather than enabling the Treasury to hide behind the bland, and hence irrefutable, general allegation.

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