Supreme Court – Measures against Iranian bank unlawful, and the secret hearing ruling

19 June 2013 by

mellatBank Mellat v HM Treasury [2013] UKSC 38 (CMP: see judgment) and 39 (main: see judgment)

Two sets of judgments today from a 9-judge Supreme Court in the Bank Mellat case. The first explains why the Court adopted a secret procedure in the absence of the Bank (i.e. a Closed Material Procedure) but added that the whole palaver in fact added nothing to their knowledge. The second concludes that financial restrictions imposed in 2009 on an Iranian Bank which effectively excluded it from the UK financial market were arbitrary and irrational and were also procedurally unfair. 

The saga started when on 9 October 2009 the Treasury made a direction under Schedule 7 of the Counter-Terrorism Act 2008 requiring all persons operating in the financial sector not to have any commercial dealings with Bank Mellat. The Treasury said that the Bank had connections with Iran’s nuclear and ballistic missile programme.

The main appeal

This had both substantive and procedural elements. As for substance, Bank Mellat said that the direction was irrational, disproportionate and discriminatory; that the Treasury failed to give adequate reasons for making it, and that the Treasury’s reasons were vitiated by irrelevant considerations and mistakes of fact.

As for procedure, the Treasury had failed to give it the opportunity to make representations before making the direction. Although it had no express statutory right to such an opportunity, it contended that such an opportunity was required at common law or by Article 6 (right to a fair trial) and Article 1, Protocol 1 (right to peaceful enjoyment of property) of the European Convention on Human Rights. The Courts below dismissed these arguments, albeit with a dissent from Elias LJ on the procedural point.

The Supreme Court allowed the appeal, on the procedural ground by a majority of 6 to 3, and on the substantive grounds by a majority of 5 to 4. So it set aside the direction.

Substantive grounds

The question was whether the interruption of Bank Mellat’s commercial dealings in the UK bore some rational and proportionate relationship to the statutory purpose of hindering the pursuit by Iran of its nuclear weapons programmes. The judge had found that, while the Bank had provided banking services to two entities, Novin and Doostan, which were involved in the Iranian nuclear weapons and ballistic missiles programmes, this had happened without their knowledge and in spite of their conscientiously operated procedures to avoid doing so.

The majority explained the legal test on proportionality as follows at [20]

… the question depends on an exacting analysis of the factual case advanced in defence of the measure, in order to determine (i) whether its objective is sufficiently important to justify the limitation of a fundamental right; (ii) whether it is rationally connected to the objective; (iii) whether a less intrusive measure could have been used; and (iv) whether, having regard to these matters and to the severity of the consequences, a fair balance has been struck between the rights of the individual and the interests of the community.

Lord Reed (in the minority) sets out at [69]-[76] a scholarly account of the concept of proportionality (one for mature reflection, and starting with Aristotle), with which Lord Sumption also agreed.

Lord Sumption, for the majority, emphasised that:

None of this means that the court is to take over the function of the decision-maker, least of all in a case like this one….. It is difficult to think of a public interest as important as nuclear non-proliferation. The potential consequences of nuclear proliferation are quite serious enough to justify a precautionary approach. In addition, the question whether some measure is apt to limit the risk posed for the national interest by nuclear proliferation in a foreign country, depends on an experienced judgment of the international implications of a wide range of information, some of which may be secret. This is pre-eminently a matter for the executive. For my part, I wholly endorse the view of Lord Reed that “the making of government and legislative policy cannot be turned into a judicial process.”

And then came the large “But”.

For the majority: there were two particular difficulties with the direction in that (1) it did not explain or justify the singling out Bank Mellat; and (2) the justification was not one which ministers advanced before Parliament, and was in some respects inconsistent with it [22]. As to (1), on the findings of the judge, the risk was not specific to Bank Mellat but an inherent risk of banking, and the risk posed by Bank Mellat’s access to those markets was no different from that posed by other comparable banks. The direction was irrational in its incidence and disproportionate to any contribution which it could rationally be expected to make to its objective.  Hence it was unlawful.

By contrast, the minority were satisfied that, in view of the wide margin of appreciation given to the Treasury in these matters, the direction was rationally connected to the objective and was proportionate. It was not decisive that the justification in the courts below was not the same as the statement laid before Parliament. There were good reasons for not involving all other Iranian banks, and the facts showed that the choice was not arbitrary.

Procedural Grounds

The majority also held that Bank Mellat is entitled to succeed on the ground that it received no notice of the Treasury’s intention to make the direction, and therefore had no opportunity to make representations before it was made.

As Lord Sumption pointed out,

The duty to give advance notice and an opportunity to be heard to a person against whom a draconian statutory power is to be exercised is one of the oldest principles of what would now be called public law. In Cooper v Board of Works for the Wandsworth District (1863) 14 CB (NS) 180, the Defendant local authority exercised without warning a statutory power to demolish any building erected without complying with certain preconditions laid down by the Act. “I apprehend”, said Willes J at 190, “that a tribunal which is by law invested with power to affect the property of one Her Majesty’s subjects is bound to give such subject an opportunity of being heard before it proceeds, and that rule is of universal application an founded upon the plainest principles of justice.”

This conclusion made it unnecessary for the majority to decide whether a duty of prior consultation arose under Article 6 of the European Convention on Human Rights or Article 1 of the First Protocol.

The minority rejected these HR arguments; the statutory scheme was HR compliant, because it did provide access to the courts -it did not need to provide for prior consultation. As Lord Hope in the minority put it

At the stage when the decision was taken there was, in my view, no directly decisive determination of the Bank’s civil rights. The Treasury were in no position to carry out an article 6(1) compliant determination at that stage, and they could not do so anyway as they were not an independent or impartial tribunal. But the procedure for the making of an application under section 63 was available as soon as the person could claim to be affected by the decision: section 63(2). There was then an issue about the Bank’s civil rights which could be determined in a manner that was compatible with article 6(1). It was, no doubt, for this purpose, that section 63 was enacted. As there was then an opportunity for the Order to be set aside without delay on an application of judicial review principles, I think that it was unnecessary for an opportunity to be provided for the Bank to be consulted before the Order was made in order to satisfy the requirements of the article.

For the other side of this coin, one will need to look at Elias LJ’s dissent, analysed here.

Returning to the majority view, the common law duty of prior consultation depended on the particular circumstances in which each direction is made. Unless a statute expressly or impliedly excludes a duty of consultation, or in the particular case consultation would be impractical or frustrate the object of the direction, fairness required that a person specifically targeted by it should have an opportunity to make representations. The direction had serious effects on Bank Mellat’s business, came into force immediately and took effect for up to 28 days pending Parliamentary approval. There were no significant practical difficulties about consultation: the Bank could as easily re-arrange its affairs after the direction as before it, and the Treasury could have disclosed the material to the Bank which they were properly required by Mitting J to disclose.

The duty of fairness was not excluded by (1) the statutory right under the Act of recourse to the courts after the direction, or (2) the fact that the order was subordinate legislation. As to (1), the statutory right substantially reproduces the rights which a person affected would have anyway on judicial review. It should not limit other procedural rights. It is also inadequate where the effects of an order are immediate. As to (2), the statutory instrument is the instrument of the minister who is empowered by the enabling Act to make it. The fact that it requires Parliamentary approval does not alter that. The direction, although made by statutory instrument, involves the application of a discretionary legislative power against identifiable individuals.

The minority pointed out that the Act laid down a detailed procedural scheme which made no provision for representations to be made. The absence of such a provision was understandable. To require the Treasury to apply a case-by-case approach would place it in an unduly difficult position. The existence of a duty of consultation made little sense of the provision preventing participation in the procedure leading to its approval by Parliament. Affected persons could apply to the courts under the Act. It was not for this court to re-write the scheme intended by Parliament.

The CMP appeal

As Adam Wagner noted in his post, the hearing before the Supreme Court was the first such occasion with a secret court element. The other judgment of today confirmed the Court’s view that there was power in the Supreme Court to so order – again by a majority. The main argument was that if the Courts below have such a power, then the Supreme Court much have a like power on appeal – even though not expressly stated in section 40(2) of the Constitutional Reform Act 2005.

The minority thought that because Parliament had not expressly conferred such a power, then it would be contrary to the fundamental principle of the common law right to a fair trial  There is a strong presumption that Parliament does not intend to interfere with the exercise of fundamental rights, and it will be understood as doing so only if it does so expressly or by necessary implication. There are alternatives to CMPs in the Supreme Court, and choices to be made in relation to them, which are appropriately made by Parliament after full consideration.

But the whole CMP exercise does not appear to have done the Treasury any favours. Even the majority who ordered it thought that there had been no point in the Supreme Court seeing the closed judgment, because there was nothing in it which could have affected its reasoning on the substantive appeal. Several conclusions can be drawn from this experience, which should be considered by any appellate court considering whether to adopt a CMP and by any advocate considering inviting an appellate court to take such a course; these are set out by the majority at [67]-[74], and by the minority at [89]-[97], and cannot be shortly summarised.  Lord Hope went on to observe, somewhat tartly:

 I am not to be taken as suggesting that it was wrong for the Treasury to make use of closed material in the lower courts, where its use has been expressly authorised by Parliament. But the attitude which they have adopted in this appeal was a misuse of the procedure, because they invited the court to look at the closed judgment when there was nothing in it that could not have been gathered equally well from a careful scrutiny of the open judgment. This experience should serve as a warning that the State will need to be much more forthcoming if an invitation to this court to look at closed material were to be repeated in the future.

Comment

There is bound to be a lot of cud-chewing over both judgments, and today’s post can only give a flavour of the rich and differing accounts by the courts on both the main and CMP appeals. It is also interesting to see how their ultimate conclusions are consistent with the CJEU’s similar sceptical view in January 2013 when annulling EU measures against the same Bank – see my post here.

Robert Wastell of 1 Crown Row was acting for the Treasury in the Supreme Court. He has had no part in the writing of this post.

 

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1 comment;


  1. James Lawson says:

    . Lord Neuberger, said, that in his judgment: “Having held a closed hearing, it turned out that there had been no point in the supreme court seeing the closed judgment [which related to the
    secret intelligence], because there was nothing in it which could have affected [our]
    reasoning in relation to the substantive appeal. A [closed hearing] should be resorted to only where it has been convincingly demonstrated to be genuinely necessary in the interests of justice. If the court strongly suspects that nothing in the closed material is likely to affect the outcome of the appeal, it should not order a closed hearing. “Appellate courts should be robust about acceding to applications to go into closed session or even to look at closed material.”

    So where did such ‘secret intelligence’ originate? We can infer, from revelations in the Guardian Newspaper that it is not a million miles away from the ‘Prism’ system. It demonstrates that the ‘closed evidence procedure’ being used in order to protect the integrity of foreign intelligence being passed on to us in good faith by our allies’ allows for an extremely broad range of uses well beyond the scope of ‘National Security’. Had the government got its way during the passage though Parliament of the Justice and Security Bill in removing judicial discretion, Lord Nueberger would have probably given a rather different judgment.

    It also demonstrates the extent to which the government is prepared to blatantly lie to both the public and to Parliament about its intentions.

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