UK supreme court quashes order against Bank Mellat

The Supreme Court of the United Kingdom has held that an Order made by HM Treasury in 2009 imposing financial restrictions on Bank Mellat was unlawful. A link to the judgment is here: [2013] UKSC 39.

In 2009, HM Treasury made an Order, pursuant to the Counter Terrorism Act 2008, that ‘all persons operating in the financial sector’ should not to ‘enter into, or continue to participate in, any transaction or business relationship’ with Bank Mellat. The effect of this Order was to shut down the bank’s UK operations.

A majority of the Supreme Court (sitting in full formation, ie 9 judges) has quashed the Order on both substantive and procedural grounds, on the basis that:

1. (By majority of 5:4) The decision to make an Order against Bank Mellat was arbitrary, discriminatory and disproportionate to the statutory purpose of hindering Iran’s nuclear programme, because it singled out Bank Mellat but not other Iranian banks, yet the only reason accepted as valid was a general concern about the banking industry and not a particular concern about Bank Mellat.
2. (By a differently constituted majority of 5:4) The Order was vitiated by a unfair procedure because the Treasury failed to give the bank notice of its intention to make the Order or an opportunity to make representations. The Court found that common law fairness (which Parliament had not displaced) required that the Bank, as a body directly affected, should have had an opportunity to make representations before the Order was made.

All of the speeches make interesting reading. The following are some notable points.

First, in a separate judgment, the Court gave its reasons for holding (by a majority of 6-3) that it had jurisdiction to hold a closed hearing given that the statutory scheme did not expressly permit closed hearings in the Supreme Court, and for deciding (by a majority of 5-4) to exercise that jurisdiction in this case. See previous blog on this. All of the judgments on this issue, which come hot on the heels of the Justice & Security Act, emphasis the crucial importance of open justice and the “obnoxious” exceptional nature of closed hearings. All judges criticise the Government for not substantiating the need for a closed hearing in this case. Lord Hope considered that by permitting a closed hearing without express Parliamentary approval the majority had “crossed the Rubicon” and that “secret justice at this level is not really justice at all”.

Second, on one view the Court’s reasoning goes further than the European courts in sanctions cases. For example, the European court has not said that it is discriminatory or disproportionate to single out one bank (if the criteria for designation are met), nor recognised that permitting the targets of restrictive measures to make representations in advance makes for better decisionmaking (good administration) as well as being fair.

Third, there are interesting dissents on all issues (whether the statutory scheme displaces common law fairness, whether the reasons were disproportionate, and so on), and a different majority of the Court on the substantive and procedural issues.

The Bank may now pursue an action for damages against HM Treasury. The Order at issue in this case is distinct from the EU’s sanctions against Iranian nuclear proliferation which include Bank Mellat – the Bank won its case in Luxembourg (see previous blog) but remains listed in the EU because an appeal is pending to the ECJ. HM Treasury has published a notice stating that this judgment does not affect the current EU asset freeze which remains in place against Bank Mellat.