“Human” rights of Iranian bank in the dock

14 January 2011 by

Bank Mellat v HM Treasury [2011] EWCA Civ 1: read judgment.

Financial restrictions imposed in 2009 on an Iranian Bank which effectively excluded it from the UK financial market did not breach common law or ECHR principles of fairness, said the Court of Appeal on Thursday.

The Counter-Terrorism Act 2008 conferred powers on the Treasury to restrict persons operating in the financial sector from entering or participating in any transaction or business relationship with the appellant Bank Mellat (BM). The Order, which was subject to the affirmative resolution procedure and reviewable on limited grounds (Section 63(2) CTA) was justified by a Ministerial Statement which declared that the direction to cease business would

reduce the risk of the UK financial sector being used, unknowingly or otherwise, to facilitate Iran’s proliferation sensitive activities.

On 20 November 2009 BM issued a claim form in the High Court seeking to have the Order set aside. On 11 June 2010, Mitting J handed down a judgment in which he rejected BM’s challenge to the Order; we report on his judgment here. BM appealed, grouping its grounds of appeal under  substantive and procedural grounds. The central substantive issue was that of proportionality . The principal procedural ground remained the complaint that BM had not opportunity to make representations prior to the making of the Order. The Court of Appeal dismissed the appeal, Elias LJ dissenting in his view that the Treasury had failed to comply with common law procedural fairness as well as the procedural rights implied by Article 1 Protocol 1 and Article 6 ECHR.

Much of the reasoning in the Administrative Court was upheld by the majority but Elias LJ’s dissent brings in to sharp focus some interesting questions arising out of the relationship of procedural justice and executive freedom. The majority differs from the dissenting view principally on the basis of the weight attached to legislative intention;   it is no accident, say Kay and Pitchford LJJ, that the grant of draconian powers deemed to be necessary to combat terrorism is couched in a procedure where judicial supervision is limited.  Where the matter touches on nuclear proliferation, the urgency of interim preventative measures, such as that specifically provided by Parliament in the present case, does not permit of  the application of the normal rules of fair play, whether required by the common law or the ECHR.

1)  Substantive Grounds: Proportionality: What is the proper test?

Mitting J expressed a preference for the Luxembourg formulation for proportionality over that offered by the Strasbourg authorities; ECJ jurisprudence on the point

clearly eschews any proposition that interference … must be no more than [is] necessary to accomplish the objective of a measure taken in the public interest”.

In other words, he considered that “minimum interference” option which forms the third stage of Lord Clyde’s threefold analysis in  de Freitas v  Permanent Secretary of Ministry of Agriculture, Fishing, Lands and Housing (1998)  had no part to play in this case. Kay LJ parted company with him to the extent that he did not think that the minimum interference test had no relevance in assessing proportionality. The question is not always approached on the basis of “doctrinal purity” and it should always be open to a judge to consider whether, notwithstanding the enormity of the aims to be achieved by any given piece of legislation, these should have been pursued by the selection of a “self-evidently less intrusive measure which is no less likely to achieve them.”
The answer, in his view, lay not in the “wholesale rejection” of the minimum interference test but in its “cautious deployment”. In any event, Mitting J found that, even if minimum interference were part of the test, it was satisfied in this case.

The appellants submitted, in respect of Mitting J’s findings on proportionality,

(a) that he had been wrong in his conclusion that the Order was “rationally connected” to the legitimate aim

(b) that the Order was unduly draconian in the light of the need for minimum interference, and

(c) the procedural deficiencies also impact on proportionality
(a) Rational Connection and Proportionality

This part of the appeal was dismissed.  Kay LJ supported Mitting J’s findings on the rational connection between the sanction and the legitimate objective – preventing prolifieration-related transactions. On the basis of what the evidence before the court did establish, “a preventative approach is appropriate”, and a contrary conclusion “would resonate with naivete”.
(b) Unduly draconian

This ground of appeal went to the severe consequences of the Order for BM and the application of the minimum interference test. The Treasury of course had asserted, on making the Order, that less intrusive measures would not have been as effective in addressing the risk posed to the UK. The secrecy with which Iranian banks conduct their business meant that the usual due diligence tests would not supply sufficient information about the transactions involved. The prohibition had to be couched in the wide terms it was, since the Treasury was not in a position to know in advance which transactions might be of proliferation concern.

Again, the majority upheld the Administrative Court’s view that this was a case

in which it is established that the most effective measure is the most intrusive one but that is justified by the very high value of the legitimate aim, namely minimising the risk of very great harm to vital national interests.

(c) Procedural deficiencies indicative of disproportionality

This ground of appeal was also rejected. Section 63(2) of the CTA enables any person affected by a decision granted under the Act to apply to the High Court to set it aside. Like Mitting J, Kay LJ found that this statutory procedure, although encompassing a closed hearing and the deployment of special advocates, meant that there was no procedural deficiency such as to amount to a disproportionate interference with property interests.

Other substantive grounds …

There were two other grounds grouped under the “Substantive” appeal heading: that the Treasury had erred by taking irrelevant considerations into account, and that the Order discriminated against the Bank on grounds of nationality, in breach of Article 14 ECHR. Both arguments were dismissed.  Even though the Treasury overestimated the percentage of the Iranian government’s voting rights in the shares in BM, Kay LJ agreed with Mitting J’s conclusion that this did not vitiate the order.  The Article 14 submission suffered a similar fate. The Order was not made simply because BM was incorporated in Iran – which would have been the sting of the appellant’s allegation – but because there was evidence that it was implicated in proliferation transactions.
2)  Procedural grounds: Fairness

(a) Natural justice at common law

The appellant reiterated the complaint that it had been adversely affected by an administrative decision without having been given an opportunity to make representations on its own behalf, in breach of the common law principles of “natural justice” (a line of authority running 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.)

But natural justice is not all-encompassing; where Parliament has conferred power on the executive, it is not generally for the courts to superimpose additional procedural safeguards (BAPIO v Secretary of State for the Home Department [2007] EWCA Civ 1139 ) (Kay LJ’s own formulation). That case concerned the abolition by the Home Secretary of permit free training for doctors with no right of abode in the UK. There was no established practice of consultation and therefore the court unanimously refused to imply any duty to consult. Because such a duty, were it to be implied, would have to apply across the board, every time a measure that might affect certain interests was proposed, the executive would have to ask whether it was actually going to injure particular interests sufficiently for fairness to require consultation, and, if so, who would entitled to be consulted.  As Sedley LJ put it:

The consequent industry of legal challenges would generate in its turn defensive forms of public administration.

The majority upheld Mitting J’s conclusion view that the provisions of the CTA were intended to exclude such a universal right to consultation. In any event, the affirmative procedure offers designated persons an opportunity to make written representations; this coupled with the statutory right to apply under Article 53 meant that the Order was not vitiated by lack of common law fairness.

Elias LJ did not agree that the affirmative resolution offered sufficient participation; it is a procedure in his view designed to ensure effective political accountability, not a substitute for a fair procedure. He also differed in his interpretation of BAPIO in that he did not find it to be on all fours with the present case, which involved  “a typical act of subordinate legislation laying down rules which affect a broad and amorphous class or classes of persons.” In his view it was wrong to allow form to dictate substance so as to deny BM the protection of natural justice “simply on grounds that the Order is classified as a legislative act”.

(b) the Procedural Requirement of Article 1 Protocol 1

The parties accepted that there is a procedural requirement of fairness implied by the protection afforded by this Convention right, summarised in Jokelala v Finland [2003] EHRR 26 at para 45.   Reconsideration of this point at appeal did not add anything to Mitting J’s observation that the bank had been afforded reasonable opportunity of effectively challenging the property-infringing measures contained in the order – again, under Section 63.
(c) Right to due process under Article 6

The making of the Order, it was alleged, amounted to a determination of BM’s civil rights and obligations. The appellants relied on a ruling by the House of Lords that even interim measures – such as inclusion of a name on a temporary list – can constitute a “determination” of a “civil right” if the activity affected – such as employment – is time sensitive (R(Wright) v Secretary of State for Health [2009] 1 AC 739, [2009] UKHL 3 )
Not so, said the Court of Appeal. The current case was more akin to asset freezing than situations where people were deprived of employment by the operation of law. The Order could be distinguished from the Wright case in that it was analogous to those preliminary orders with suspensive effect which are commonly obtained in civil proceedings. Like Mitting J, Kay LJ found that in any event the “hybrid” procedure (affirmative resolution administrative; Section 63 right to apply – judicial) satisfied the requirements for proper determination laid down by Lord Clyde in R(Alconbury) Ltd v Secretary of State for the Environment [2003] 2 AC 295
Elias LJ took issue with the view that this matter did not involve a true “dispute” for the purposes of Article 6. There is some uncertainty, even at the Strasbourg level, whether  it is really necessary for an applicant to establish that there is a dispute at all  (Moreira de Azevedo v Portugal (1991) 13 EHRR 721 and Perez v France (2005) 40 EHRR 39 ). But even if it were a prerequisite for Article 6 to apply, it would be “highly unattractive” to accept that there was no dispute, and therefore allow them to “sidestep” the application of Article 6 principles by failing to give notification in circumstances where they plainly could have done so: It “means that the Treasury effectively controls when and how the principles apply.”

In Elias LJ’s judgment it is of no moment whether the initial decision maker is technically subject to Article 6 principles or not. Even if he is not, the procedures will not be Article 6 compliant if there is no satisfactory and fair procedure for the determination of relevant facts “at some stage”.

The thrust of Elias LJ’s dissent is to focus on the reality of the situation rather than its taxonomy in law: if the Order did effectively determine civil rights, it is not to the point to exclude it from the purview of Article 6 simply because it did so for a limited period of time. Conversely, the majority view is to insist on practicability.  Ability to make representations to Parliament as part of the affirmative procedure may be imperfect but it is real. Section 63 provides the means by which directions may be challenged in the High Court. Natural justice both in its common law and ECHR manifestation should be adapted to the requirements of counter-terrorism policy, not the other way around.

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