Bank Mellat v Her Majesty’s Treasury (No 2)

JUSTICES: Lord Neuberger (President), Lord Hope (Deputy President), Lady Hale, Lord Kerr, Lord Clarke, Lord Dyson, Lord Sumption, Lord Reed, Lord Carnwath

BACKGROUND TO THE APPEAL

This appeal concerns measures taken by the Treasury to restrict access to the UK’s financial markets by a major Iranian commercial bank on account of its alleged connection with Iran’s nuclear programme. On 9 October 2009 the Treasury made a direction under Schedule 7 of the Counter-Terrorism Act 2008 (“the Act”) requiring all persons operating in the financial sector not to have any commercial dealings with Bank Mellat. The Act lays down three safeguards: (1) the direction must be laid before Parliament after being made and unless approved by affirmative resolution within 28 days will cease to have effect thereafter; (2) the direction must be proportionate having regard to the risk to the national interest presented by, in this case, nuclear proliferation; and (3) any person affected by the direction may apply to the High Court to set it aside.

Bank Mellat sought to have the direction set aside on procedural and substantive grounds. On the substantive grounds, Bank Mellat’s case is 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 to the procedural grounds, Bank Mellat’s case was that the Treasury 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. In the High Court, Mitting J dismissed Bank Mellat’s application under both heads. The Court of Appeal (Maurice Kay, Elias and Pitchford LJJ) dismissed the appeal, unanimously in the case of the substantive grounds, and by a majority (Elias LJ dissenting) in the case of the procedural grounds.

JUDGMENT

The Supreme Court allows the appeal of Bank Mellat, on the procedural ground by a majority of 6 to 3 ((Lords Hope, Reed and Carnwath dissenting); and on the substantive grounds by a majority of 5 to 4 (Lords Neuberger, Hope, Dyson and Reed dissenting). It accordingly sets aside the direction and quashes the order giving effect to it. Lord Sumption gives the lead judgment.

REASONS FOR THE JUDGMENT

Substantive Grounds

The essential question is 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 [19]. For the majority, there were two particular difficulties with the direction: (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. Singling out Bank Mellat was arbitrary and irrational, and disproportionate to any contribution which it could rationally be expected to make to the direction’s objective. 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 [126, 133, 173]. It was not decisive that the justification in the courts below was not the same as the statement laid before Parliament [119, 133]. There were good reasons for not involving all other Iranian banks, and the facts showed that the choice was not arbitrary [114-5].

Procedural Grounds

The majority also holds 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 [28]. This makes it unnecessary to decide whether a duty of prior consultation arose under the ECHR. [49] The common law duty of prior consultation depended on the particular circumstances in which each direction is made. [31] 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 [32]. 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 before making the direction the material which they were properly required by Mitting J to disclose in the subsequent proceedings [31].

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 [33]. 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 [37]. 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 [44]. The direction, although made by statutory instrument, involves the application of a discretionary legislative power against identifiable individuals. The statutory instrument is simply the form which the specific application of the particular legislation is required to take [46].

For the minority, 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, given the circumstances in which such orders might be made [56]. To require the Treasury to apply a case-by-case approach would place it in an unduly difficult position [60]. The existence of a duty of consultation made little sense of the provision preventing participation in the procedure leading to its approval by Parliament [61]. The Act protected persons affected by an order by giving them the right to apply to the courts [62]. A procedure involving consultation would contribute to good administration, but there were other competing considerations and it was not for the courts to re-write the scheme intended by Parliament [64, 153].

References in square brackets are to paragraphs in the judgment

NOTE

This summary is provided to assist in understanding the Court’s decision. It does not form part of the reasons for the decision. The full judgment of the Court is the only authoritative document. Judgments are public documents and are available at:

https://www.supremecourt.uk/decided-cases/index.html