Iranian Bank anti-terrorism restrictions order upheld

15 June 2010 by

Bank Mellat v HM Treasury [2010] EWHC 1332(QB) Miity J 25/5/2010 – read judgment

A challenge to the imposition of a Financial Restrictions Order on an Iranian Bank alleged to have supported Iran’s nuclear program has been dismissed as the order was not considered disproportionate in the light of the importance of the public interested protected.

The order, which directed that anyone in the UK financial sector must not enter into or continue to participate in business with Bank Mellat, was maintained despite the Court of Appeal’s refusal to allow the government to rely upon secret evidence in order to prove the bank’s links with the nuclear program (see Court of Appeal launches offensive against secret justice with three linked judgments).

In October 2009 the Treasury had made a Direction contained in the Financial Restrictions (Iran) Order 2009, which was made pursuant to the Counter-Terrorism Act 2008 Sch.7. The Direction prohibited all persons operating in the financial sector from entering or participating in any transaction or business relationship with Bank Mellat.

The basis of the Direction was that the claimant bank “continued to engage in a pattern of conduct which supported and facilitated Iran’s proliferation-sensitive activities, that nuclear-related companies received funds from M, and that a company with alleged connections with other nuclear-related companies conducted business using Bank Mellat”. The claimant challenged the Direction on two grounds, one procedural and one substantial.

  1. Procedural: the Treasury was required by domestic law and by the procedural requirements of Article 1 Protocol 1 and Article 6(1) ECHR to give the bank an opportunity to make representations before making the Order.
  2. 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.

In the procedural challenge, the claimant bank relied 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.

Order was lawful

The Order was procedurally and substantively lawful and the bank’s challenge to it was dismissed.

As for the procedural challenge, the judge found that the bank’s right to make representations was indirect and was at the stage at which Parliament considered whether or not to affirm the Order. Nothing in the legislation contained a provision for the opportunity for affected persons to make representations.

As for the submission that Article 1 Protocol 1 requires that an opportunity should have been given to the bank to make prior representations, Mitting J observed that “the short and sufficient answer” to that proposition is to be found in paragraph 45 of the judgment of the Strasbourg Court in Jokela v Finland [2003] 37 EHRR 26 :

Although Article 1 of Protocol 1 contains no explicit procedural requirement, the proceedings at issue must also afford the individual a reasonable opportunity of putting his or her case to the responsible authorities for the purpose of effectively challenging the measures interfering with the rights guaranteed by this provision. In ascertaining whether this provision has been satisfied a comprehensive view must be taken of the applicable procedures”.

In this case, Section 63 of the Counter-Terrorism Act 2008 was the means by which the bank was afforded a reasonable opportunity of effectively challenging the measures contained in the Order, and it was under 63 that this claim was made. In the alternative – if that analysis was wrong – the judge found that the decision to make and affirm the Order must be part of a process of determination of the bank’s civil rights of the kind analysed by Lord Clyde in R (Alconbury) Ltd v Secretary of State for the Environment [2003] 2 AC 295 in paragraphs 145 to 160.

A “hybrid procedure” such as the one behind the present Order, involving executive decision-making determining the bank’s civil rights, subject to later challenge before a court, could be compatible with Article 6(1).  The procedure laid down in CPR Part 79, adapted to accommodate the bank’s rights under Article 6(1) is adequate to give effect to those rights.

Development of nuclear weapons was significant threat

As for the substantive challenge, the judge accepted that the Treasury reasonably believed that the development of nuclear weapons or the doing of anything facilitating their development by Iran posed and poses a significant threat to the national interests of the United Kingdom. The lawfulness of the Order accordingly turned on the question whether the requirements imposed by it are proportionate, having regard to the risk posed to the national interests of the United Kingdom. Mitty J surveyed the various tests for proportionality, articulated in the common law (by Lord Clyde in de Freitas v Permanent Secretary of Ministry of Agriculture, Fisheries, Lands and Housing [1991] 1 AC 69; in Strasbourg (Sporrong & Lönnroth v Sweden [1982] 5 EHRR 35) and James v United Kingdom [1986] 8EHRR 123. The ECJ test for proportionality is laid out in Bosphorus Hava Yollari Turizm ve Ticaretas v Minister for Transport, Energy and Communications, Ireland & the Attorney General Case [1996] ECR-I 3953 C-84/95(a case concerning detention of a Yugoslav owned airport during the conflict in Bosnia-Herzogovina) at paras 22-23:

Any measure imposing sanctions has, by definition, consequences which affect the right to property and the freedom to pursue a trade or business, thereby causing harm to persons who are in no way responsible for the situation which led to the adoption of the sanctions.

Moreover, the importance of the aims pursued by the regulation at issue is such as to justify negative consequences, even of a substantial nature, for some operators.

From these formulations the judge concluded that when very important public interests are in play, interference in private rights well beyond the minimum necessary to safeguard those interests may be proportionate. In relation to the facts of this case, he found that cutting off an Iranian bank with an international presence from one of the principal financial markets in which such business may be transacted was clearly rationally connected to the inhibition of the development of nuclear weapons:

In my opinion, the risk of very great harm to vital national interests justifies the imposition of a severe and costly inhibition on the business of the bank which will entail long-term damage to its goodwill in the United Kingdom. However the test is phrased – fair balance, reasonable relationship of proportionality, justified or not manifestly unreasonable – I am satisfied that it is fulfilled.(para 20)

COMMENT:

One of the curious aspects of the history of this litigation is that it concerned the controversial “closed material procedure“, which allows certain evidence to be kept from the public and sometimes a defendant,on grounds of national security.

We have posted earlier on this and related “closed material” cases.  As we noted, in Bank Mellat v HM Treasury [2010] EWCA Civ 483, the Court of Appeal ordered that disclosure by the Treasury had to be sufficient to enable the bank to give sufficient instructions not merely to deny, but actually to refute the essential allegations relied on by the Treasury to justify the making and continuance of the Direction.

The European Convention on Human Rights 1950 art.6(1) applied in all its force, and it followed from the reasoning of the Strasbourg Court in A v United Kingdom (2009) 49 EHRR as interpreted by the House of Lords in Secretary of State for the Home Department v F (2009) UKHL 28, (2009) 3 WLR 74 that the Treasury was obliged to afford the claimant bank sufficient disclosure to enable it to give effective instructions about the essential allegations made against it.

However it does not appear from the determination of the substantive issues in this judgement that any greater disclosure was made to the claimant bank.

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