Mellat v Her Majesty's Treasury (Rev 1)

The primary issue which we have to determine is whether Mitting J was right to conclude that the standard of disclosure required of Her Majesty’s Treasury in this case is the same as that required of the Home Secretary, as identified by the House of Lords, in Secretary of State for the Home Department v AF (No 3) [2009] UKHL 28, [2009] 3 WLR 74. That is the point which is raised on this appeal brought by the Treasury; there is a further issue raised by the respondent, Bank Mellat, which ultimately concerns the question whether the Judge applied the requirements correctly in this case.

The issues arise out of a direction (“the Direction”) dated 9 October 2009, made by the Treasury, and contained in the Financial Restrictions (Iran) Order 2009, made pursuant to schedule 7 to the Counter-Terrorism Act 2008. Pursuant to section 63 of the 2008 Act, the Bank challenged the Direction by means of an application, to which the provisions of CPR Part 79 apply. The application was met by open and closed evidence and argument from the Treasury, and it became clear that there was an issue between the parties as to the extent of the disclosure required to be made to the Bank by the Treasury.

This led to a hearing before Mitting J, which was partly open and partly closed. In his open judgment, given on 24 February 2010, he decided that the Bank was right in its contention that the decision of the Strasbourg Court in A and others v United Kingdom (2009) 49 EHRR 29, as interpreted by the House of Lords in AF (No 3) [2009] 3 WLR 74, applied in this case. Accordingly, the Judge concluded that the Treasury should be required to afford the Bank sufficient disclosure “to ensure that the Bank had the opportunity of giving effective instructions about the essential allegations against it” – [2010] EWHC 350 (QB), paragraph 13. The Treasury contends that such a degree of disclosure is, in the circumstances of this case, too generous to the Bank. At a closed hearing, the Judge gave more detailed and specific directions as to the extent of the disclosure required of the Treasury, which the special advocates contend is insufficient; they base their case on the contention that the standard of disclosure ordered by the Judge, far from being too generous to the Bank, did not go far enough.

On 23 March, we heard the argument on the appeal in open session, and on the cross-appeal in closed session. We reserved judgment, but indicated that we would give our decision before the end of that term, as we were told that the Bank’s application was due to come back before the High Court for further argument at the beginning of the following term, in mid-April. (In fact, as we were subsequently, and properly, informed by counsel for the Bank, that hearing has been postponed, but nothing hangs on that.)

Our decision was given on 31 March, to the following effect. On the Treasury’s appeal, we ruled that Mitting J was right to conclude that the standard of disclosure described and applied by the House of Lords in AF (No 3) [2009] 3 WLR 74 should be applied in this case, and that he correctly described that standard in the words quoted from his judgment in paragraph 3 above.

This meant that the cross-appeal was also dismissed, but, as we said, it did not follow that there was no need for the Treasury to disclose any evidence. We explained that the standard laid down by the Judge required the Treasury’s disclosure to be sufficient to enable the Bank to give sufficient instructions not merely to deny, but actually to refute (in so far as that was possible), “the essential allegations” relied on by the Treasury to justify the making and continuance of the direction. As we also stated, the precise extent of the disclosure to be ordered is inevitably fact-specific, and is very much a matter for the first instance judge who is seized of the case, although, of course, an appeal against such an order could succeed if it could be shown that the judge went wrong in principle.

These are our reasons for those conclusions.

Pursuant to section 62 of the 2008 Act, schedule 7 empowers the Treasury “to act against terrorist financing, money laundering and certain other activities”. Paragraph 1(1) of schedule 7 sets out the circumstances in which the Treasury “may give a direction”, namely, if “one or more of the following conditions are satisfied in relation to a country.” One of those conditions is in paragraph 1(4), which is that the Treasury “reasonably believe” that either (a) “the development of or production of nuclear ... weapons in the country”, or (b) “the doing in the country of anything which facilitates the development or production of such weapons” poses “a significant threat to [the UK’s] national interests”.

Paragraphs 3 and 4 of schedule 7 permit a direction to be given either to “a particular person” or to “all persons” “operating in the financial sector”, provided any such person is “a credit or financial institution”, which is either “a United Kingdom person” or “acting in the course of a business carried on by it in the [UK].” A person in respect of whom a declaration is made is a “designated person” – paragraph 9(3). By paragraphs 9, 13 and 14, a direction can impose various types of restrictions “in relation to transactions or business relationships”, the most extreme of which precludes “all persons” “operating in the financial sector” in the UK from “enter[ing] into or continu[ing] to participate in ... any transaction” with a designated person. Such a direction “must be contained in an order made by the Treasury”, which must be laid before, and approved by, each House of Parliament, by virtue of paragraph 14, and, pursuant to paragraph 15, it ceases to have effect after a year. A person who fails to comply with a direction is guilty of an offence (paragraph 30), but the Treasury has power, under paragraph 17, to exempt specified acts from the ambit of a direction.

The Treasury made the direction in this case, i.e. the Direction, through the medium of the 2009 Order, on 9 October 2009, and it was laid before Parliament and came into effect three days later. The terms of the Direction prohibited all persons operating in the financial sector from entering into or participating in any transaction or business relationship with the Bank: thus, it was the most wide-ranging direction that could have been made under schedule 7 to the 2008 Act. According to the open evidence of the Treasury, the purpose of the Direction was, as the Judge succinctly put it at [2010] EWHC 350 (QB), paragraph 10, “to hamper Iran’s nuclear and ballistic missile programme by shutting out Bank Mellat from the UK financial sector, and, perhaps, by restricting its access to the global financial system as well.”

In its evidence, the Treasury said that it believes that the Bank “continues to engage in a pattern of conduct which supports and facilitates Iran’s proliferation-sensitive activities”, that “nuclear-related companies continued to receive funds from” the Bank in 2007, and that a company with alleged connections with other, nuclear-related, companies “in spring 2009 ... conducted business using [the Bank]”. More detailed evidence was available, and much of it was, and no doubt will be, relied on by the Treasury on a closed basis.

The Bank is one of Iran’s largest commercial banks, with some 1800 branches in Iran and also in a number of foreign countries. It has a subsidiary in the UK. It strongly denies all the allegations on which the Direction is based, and contends that the Direction is unlawful, alleging that there are no grounds for the Direction, that it infringes the Bank’s rights under the European Convention, conflicts with the Treasury’s own policy, and that it was introduced in a procedurally unfair way. The Bank also contends that, unsurprisingly, the effect of the Direction is devastating on its business, both because of its direct effect, and because it has prompted other countries into taking similar action against the Bank. Accordingly, on 20 November 2009, the Bank exercised its right, under section 63 of the 2008 Act, to apply to the High Court to set aside the decision to make the Direction.

Sections 66 and 67 of the 2008 Act provide for rules of court to be made in relation to applications under section 63, and such rules are now contained in CPR Part 79. As foreshadowed by sections 66 and 67, CPR Part 79 provides for a closed material procedure, with the involvement of special advocates. CPR 79.2 also states that the overriding objective, and any other rule, must be read in such a way as to ensure that “the court will ensure that information is not disclosed contrary to the public interest...”. CPR 79.26(5) and (6) require the court to permit the Treasury to withhold closed material where its disclosure “would be contrary to the public interest” (which is not defined, and would seem, as Sullivan LJ said in argument, to include the public interest in a party to litigation seeing any relevant material). Although not repeated in CPR Part 79, section 67(6) of the 2008 Act states that “[n]othing in this section or in [CPR Part 79] is to be read as requiring the court to act in a manner inconsistent with [article 6(1) of the Convention]”.

The open evidence provided by the Treasury to support the making of the Direction and to answer the Bank’s application is in the form of a witness statement made by Mr James Robertson. In effect, this statement encapsulates the Treasury’s open case (and it includes the passages quoted in paragraph 11 above). The Bank’s contention is that this statement does not amount to “a case to which it is able to give effective instructions to its open legal representatives or to its special advocate”. This was the contention which gave rise to the issues which came before the court.

As a result of the contention, Mitting J had to decide two main issues. The first issue, which he dealt with in an open judgment following an open hearing, was the extent of any disclosure required of the Treasury as a matter of principle. The second issue, which he dealt with in a closed judgment following a closed hearing, was the much more specific and detailed question of what precisely was required of the Treasury so far as disclosing, gisting or summarising any closed document was concerned.

So far as the open issue of principle was concerned, the Judge concluded that article 6(1) of the European Convention on Human Rights applied to the proceedings, and that it followed from the reasoning of the Strasbourg Court in A and others (2009) 49 EHRR 29, as interpreted by the House of Lords in AF (No 3) [2009] 3 WLR 74, that the Treasury was obliged to afford the Bank sufficient disclosure to enable the Bank to give effective instructions about the essential allegations made against it.

This conclusion is attacked by the Treasury on the ground that Mitting J erred in treating the rule laid down in those cases as being an immutable rule which applies to all civil proceedings to which article 6(1) applies. The Treasury’s case is that the procedural requirements of article 6(1) vary according to context, and that, in every case where it is said that the contents of potentially relevant documents in the possession of one party should not be disclosed to the other party on public interest grounds, a balance has to be struck between the rights of the latter party in the litigation and the wider public interest.

In relation to many article 6(1) arguments, I readily accept that such a balancing exercise will be appropriate. However, there are irreducible minimum rights which article 6(1), like the common law (albeit that the minimum rights may not always be identical –see Al Rawi v Security Service [2010] EWCA Civ ), requires to be accorded to any party involved in litigation to which the article applies. For the reasons given by Maurice Kay LJ in Tariq v the Secretary of State for Home Affairs [2010] EWCA (Civ) , I consider that every party to litigation has the right to be given sufficient information about the evidential case against him, so as to enable him to give effective instructions in relation to that case, to paraphrase what Lord Phillips of Worth Matravers said in AF (No 3) [2009] 3 WLR 74, paragraph 59. I accept the Bank’s contention that this conclusion is supported by the Luxembourg court’s decision and reasoning in Kadi v Council of the European Union [2009] 3 WLR 872, paragraphs 346-349.

In these circumstances, it follows that the Treasury’s appeal must be dismissed, as Mitting J reached the right conclusion for the right reasons. I should add that, for my part, I find this an unsurprising conclusion, reflecting, as it does, observations such as those of Lord Scott of Foscote in A v Secretary of State for the Home Department [2005] 2 AC 68, paragraph 155 and of Lord Bingham of Cornhill in R (Roberts) v Parole Board [2005] 2 AC 738, paragraphs 16 and 17, as pointed out by Lord Hope of Craighead in AF (No 3) [2009] 3 WLR 74, paragraphs 83-84.

Given that the special advocates accept that, if the Judge adopted the right test, the cross-appeal should be dismissed, there is, at least on the face of it, nothing further to say about the cross-appeal. However, there are two points worth making in connection with that aspect, although it is necessary to be somewhat circumspect, as the argument and evidence were both considered at a closed hearing and this is an open judgment.

The first point to make is that the requirements of article 6(1) are such that the information to be provided by the Treasury must not merely be sufficient to enable the Bank to deny what is said against it. The Bank must be given sufficient information to enable it actually to refute, in so far as that is possible, the case made out against it. It does not seem sensible to go into any further detail, by way of example: what constitutes sufficient information to satisfy the requirements of article 6(1) obviously must depend very much on the facts of the case in question, including the particular issues between the parties, the contents of the statements of case, the nature and import of the particular evidence in question, and the state of knowledge of the party seeking the information.

The second point to be made is that, if a party is dissatisfied with a decision as to what information should be disclosed in a case such as this, an appeal would, at least in principle, represent an uphill task. An appellate court would normally be reluctant to interfere with a first instance judge’s determination of what has to be disclosed to satisfy the requirements of article 6(1), although it would, of course, do so if satisfied that the judge had gone wrong in principle. If an appeal is to be mounted against such a decision, it would be sensible to ensure that the judge is given the opportunity to give a brief judgment explaining why he reached the conclusion that he did on the specific issue or issues which are sought to be appealed.

As it is, however, both the Treasury’s appeal and the Bank’s cross-appeal are dismissed.

I agree.

I also agree.