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Cite as: [2014] EWHC 3631 (Admin)

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Neutral Citation Number: [2014] EWHC 3631 (Admin)
Case No: PTA/7/2012 AND PTA/4/2013


Royal Courts of Justice
Strand, London, WC2A 2LL

B e f o r e :


Bank Mellat
- and -

Her Majesty's Treasury


Mr Timothy Otty QC and Ms Amy Rogers (instructed by Zaiwalla & Co. LLP) for the Claimant
Mr Steven Kovats QC, Mr Patrick Goodall QC & Mr Julian Blake (instructed by the Treasury Solicitors) for the Defendant
Special advocates: Mr Martin Chamberlain QC & Ms Esther Schutzer-Weissman (instructed by Special Advocates Support Office)
Hearing dates: 14 and 15 October 2014



Crown Copyright ©

    Mr Justice Collins:

  1. The Claimant is making an application pursuant to section 63 of the Counter-Terrorism Act 2008 which seeks to set aside financial restriction decisions affecting it in the Financial Restrictions (Iran) Orders of 2011 and 2012. The Defendant has relied on material which it is not prepared to disclose since it would breach national security to do so and accordingly the special advocates have been appointed to protect the interests of the Claimant in any closed session of the claim. In accordance with the requirements of CPR 79.26, closed hearings must take place in order to determine what can be disclosed to the Claimant having regard to s.66(2)(b) of the 2008 Act which prohibits disclosure of information where such disclosure would be contrary to the public interest.
  2. In considering what disclosure should be made, it is most important to determine the standard to be applied. In a previous claim against a financial restriction decision made in 2009, it was decided that the standard required by the decision of the House of Lords in Secretary of State for the Home Department v- AF(No 3) [2010] 2 AC 269 (AF3) applied. This meant that the claimant should be given sufficient information about the allegations against it to enable it to give effective instructions to the special advocates.
  3. There was a hearing fixed before me on 23 May 2014. An issue was raised whether the Defendant should be able to remove from the documentation which has been served on the special advocates material which had not been before the Chancellor of the Exchequer when he decided to make the orders. Consideration of disclosure was adjourned. The issue was dealt with by me at this hearing. I decided that in the circumstances it was not appropriate to permit such removal and that, if it transpired that any of it might assist the special advocates in furthering the Claimant's interests, it could then be relied on. Otherwise it would remain unused. The Defendant's argument was based on the limitation by virtue of s.63(3) of the 2008 Act of the approach of this court to applying judicial review principles. This meant, it was argued, that there was no obligation to provide material which was not before the decision maker. I did not hear full argument on this because for reasons I gave in the course of the hearing I took the view that since the documentation had been served the point was academic and in the interest of justice it should remain available to the special advocates. I need say no more about that.
  4. Prior to and at the hearing on 23 May 2014 the Defendant did not seek to argue that AF3 did not apply. For various reasons, the hearing had to be adjourned and in the end, following a further adjournment in July, it was due to be heard by me on 2 October 2014. On 29 September 2014 the Defendant filed what was described as an open substituted response to the special advocates' CPR 79.26 request. This for the first time argued that AF3 did not apply and that no minimum level of disclosure was required. The closed hearing procedure sufficed to provide any necessary fairness. The special advocates provided a reply on 1 October which was followed by a response by the Defendant on the same day.
  5. When the matter came before me on 2 October 2014, I was aware that the Claimant wanted to be able to make its own submissions. Counsel for the Claimant did not attend since the hearing was due to be closed. It seemed to me that, since the point did not involve consideration of any of the factual matters involved in the claim, it was necessary to enable the Claimant's counsel to argue the point. In addition, he could provide arguments on the application to disclose material without, of course, knowing what the material was. He could argue the points of principle.
  6. Accordingly, the matter was adjourned until 14 October 2014. The arguments presented by Mr Otty QC reflected and expanded on those which had been put in writing by the special advocates on 1 October 2014. Thus the special advocates did not present any oral argument to me.
  7. The Defendant made a direction under s.62 of the 2008 Act by means of an order made on 9 October 2009 (the 2009 Order). This targeted the Claimant and prohibited all persons operating in the financial sector from entering into or participating in any transaction or business relationship with the Claimant. The purpose behind that and the 2011 and 2012 orders was to hamper Iran's nuclear and ballistic missiles programmes by shutting out in the 2009 Order the Claimant specifically and in the 2011 and 2012 orders all Iranian financial institutions (including of course the Claimant) from the UK financial sector. The direction in Article 4 of the 2011 order (which is also in identical terms in the 2012 Order) directed that a relevant person, namely any person operating in the financial sector (Article 2), must not (a) enter into, or (b) continue to participate in any transaction or business relationship with a designated person. Article 3 required a designated person to include any branch or subsidiary of a credit institution incorporated in Iran. Thus the Claimant was directly affected by the orders.
  8. In due course, the 2009 order was quashed by the Supreme Court: see Bank Mellat v- Her Majesty's Treasury (No.2) [2014] AC 700. This was in part because there had been a failure to give advance notice to the Claimant to enable it to make representations and in part because to distinguish between the Claimant and other Iranian banks when there was a general risk from the Iranian banking system was irrational and disproportionate. Mr Kovats has made the point that the 2011 and 2012 orders do not single out the Claimant and so differ from the 2009 order. That may be relevant in arguing the merits of the claim but is not relevant in answering the issue to be dealt with in this judgment.
  9. It is clear that the effect of the 2011 and 2012 orders on the Claimant is no different from that achieved by the 2009 order. Paragraph 13 of Schedule 7 to the 2008 Act enables a direction to be made "not to enter into or continue to participate in any transaction or business relationship with a designated person". Article 4 of the 2011 order follows that wording. In his judgment Lord Sumption described this as "the most draconian provision" and in paragraph 37 stated:-
  10. "A direction to financial institutions to cease business with a designated person is apt to achieve serious and immediate damage whilst it remains in effect, extending well beyond transactions relating to nuclear proliferation."
  11. There is no doubt that the Claimant has suffered serious damage from the orders. Mr Kovats has argued that the orders do not and do not purport to freeze its assets but are aimed only at as it were exiling it and all Iranian banks from the financial market in this country. Asset freezing is covered by an EU Directive which is under attack from the Claimant in the ECJ in Luxembourg. However, the Claimant holds 183 million Euros in this country and the effect of the order was to prevent it from moving that money so that for all practical purposes it was frozen. I should say that in early 2013 the 2012 order was revoked because the view was taken that the EU Directive provided sufficient protection against Iran's nuclear proliferation. But when they were in force the 2011 and 2012 orders produced the same effect including the freezing of the 183m Euros.
  12. Mr Otty argues that the AF3 approach to what is required to provide a fair hearing for the Claimant is provided for by domestic and by EU law. Since, subject to an argument that the EU authorities, namely ZZ (France) v. Secretary of State for the Home Department [2013] QB 1136 and Kadi v European Commission (No.2) [2014] 1 CMLR 29, should be limited to their own facts and should not be regarded as having a general application, Mr Kovats accepted that EU law applied; I shall deal with that first.
  13. Article 63 of the Treaty on the Functioning of the European Union (TFEU) provides:-
  14. "1. Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between Member States and third countries shall be prohibited.
    2. Within the framework of the provisions set out in this Chapter, all restrictions on payments between Member States and third countries shall be prohibited".
    There are grounds upon which these prohibitions can be overcome, but that they apply so that EU law is in play is apparent. Thus it is necessary to ascertain what EU law as set out by the ECJ requires to enable an individual affected by any restriction to have a fair hearing in any appeal or claim against such restrictions.
  15. ZZ (France) concerns a national who was an EU citizen with dual French and Algerian nationality. Having been granted the right to permanent residence in the UK, he was refused admission and was expelled on the ground of national security when he sought to return to the UK following a trip to Algeria in 2005. He had a right of appeal to SIAC which he exercised. SIAC considered in a closed hearing, material relied on by the Secretary of State which could not be disclosed to ZZ on national security grounds. Whilst SIAC ensured that he was given as much information as could be disclosed without breaching national security, ZZ was not able to know much of what was said to show that he should be excluded. The ECJ decided, as the head note to the report states:-
  16. "The procedure had to ensure that the adversarial principle was complied with and that the person concerned was informed of the essence of the grounds for the decision, since the necessary protection of state security could not have the effect of denying the person his right to be heard and of rendering his right to redress ineffective".
  17. ZZ's appeal against the SIAC decision which had upheld the Secretary of State's direction was reconsidered by the Court of Appeal following the ECJ's decision. The parties were not able to agree what was the true meaning of the ECJ's decision in ZZ and so the court had to reach its own decision. This is shown in ZZ (France) v. SSHD (No.2) [2014] QB 820. In paragraph 18 Richards LJ, who gave the leading judgment with which the MR and Christopher Clarke LJ agreed, said this:-
  18. "18. Although the submissions of both counsel took us into related fields, it seems to me that the resolution of the issue before us depends on a straightforward reading of the Court of Justice's judgment. In my view that judgment lays down with reasonable clarity that the essence of the grounds on which the decision was based must always be disclosed to the person concerned. That is a minimum requirement which cannot yield to the demands of national security. Nor is there anything particularly surprising about such a result in the context of restrictions on the fundamental rights of free movement and residence of Union citizens under European Union law".

    Both Richards and Christopher Clarke LJJ noted that the court had not said in terms what should happen if the essence of the grounds could not be disclosed without also disclosing confidential evidence. The answer to that would be that the Secretary of State could not rely on any evidence the essence of which had to be disclosed to enable a fair hearing for the individual. Thus a highly dangerous person might have to be admitted.

  19. This decision makes it clear that the ZZ approach is of general application when EU law is concerned. Mr Kovats accepts that what Richards LJ said in paragraph 18 forms part of the ratio of the case and is binding on me. It is to be noted that in paragraph 33 Richards LJ makes the point that, albeit that the approach laid down in ZZ by the ECJ is much the same as that laid down by the ECtHR in A v. UK (reflected by the Supreme Court in AF3), the difference in context and the fact that the ECJ made no mention of A v. UK led him to the view that the ECJ's decision should be interpreted independently of the decision in A v. UK.
  20. I have difficulty in seeing that there is any practical difference. The need to disclose the essence of allegations must surely mean that the person affected has sufficient information to enable him to mount a defence which, in closed hearings, is to be made through his special advocate. However, it may be having regard to the decision of the ECtHR in IR v. UK (2004) 58 EHRR 211, that what I will call the ZZ test requires only what may be described as a very minimum disclosure which need not go into any detail.
  21. The ECtHR decision in IR related to two foreign nationals, one Sri Lankan and one Libyan, whom the Secretary of State decided should be excluded from the UK on the ground that their presence was not conducive to the public good. The Secretary of State's decisions were based on national security grounds. Each applicant appealed to SIAC. They received no disclosure of the nature of the national security case and depended on what could be achieved on their behalf by the special advocates in closed hearings. The applicants alleged breaches of Articles 8 and 13. Since the decisions they were seeking to overturn concern immigration, Article 6 did not apply. The court recognised that Article 8 applied but said this (paragraph 60):-
  22. "While it is incumbent on states under Article 8 of the Convention to put in place a procedure in cases giving rise to national security concerns which strikes a balance between the need to restrict access to confidential material and the need to ensure some form of adversarial proceedings, there may be more than one way of achieving this goal. This court must therefore examine the entirety of the system put in place in the Contracting Party in question in order to assess whether the procedural guarantees required by Article 8 have been respected in the particular circumstances of the case. A procedural defect present in one respect might well be offset by a procedural safeguard present in another".
  23. The court referred to ZZ and noted the ECJ's conclusions. However, it was satisfied that the closed hearing procedure offered sufficient procedural guarantees. In paragraph 66, it made the point that it was not its task to apply directly the level of protection offered in other international instruments and so, if EU law gave greater protection than the minimum required by the ECHR, that was not in any way decisive for the court considering whether the ECHR was breached.
  24. There is thus a conflict between what the ECJ said was required in ZZ and the decision of the ECHR in IR. I have no doubt that ZZ is a bad decision but, unlike decisions of the ECtHR, it is binding in our courts. Thus despite the difficulty I referred to in paragraph 16 above, it may be that to reconcile the decisions of the two courts the requirement to inform the person concerned of the essence of the grounds, being limited to that which is strictly necessary, requires very limited disclosure and sets a standard which may be below that set out in AF3.
  25. I turn now to deal with domestic law independently of EU law considerations. Mr Kovats relied on the decision of the Supreme Court in Tariq v. Home Office [2012] 1AC 452 which decided that there was no absolute requirement to disclose the details of allegations where the interests of national security required secrecy and that in the circumstances of this case no such requirement applied. Mr Tariq was employed as an immigration officer. His security clearance was withdrawn following the arrest of close family members in a terrorist investigation. He claimed that he was the subject of unlawful discrimination and applied to an employment tribunal claiming damages. A Special Advocate was appointed. The EAT and the Court of Appeal decided that he was entitled to be provided with sufficient detail of the allegations to enable him to make an effective challenge. The Supreme Court allowed the Home Office appeal against that decision.
  26. The argument deployed on behalf of Mr Tariq was based on AF3. In paragraph 27, Lord Mance with whom the majority agreed, said that "detention, control orders and freezing orders impinge directly on personal freedom and liberty" and that "the balancing exercise called for in paragraph 217 of the judgment in A v. UK 49 EHRR 625 (which concerned a control order and which was applied in AF3), depends on the nature and weight of the circumstances on each side and cases where the state is seeking to impose on the individual actual or virtual imprisonment are in a different category to the present, where an individual is seeking to pursue a civil claim for discrimination against the state which is seeking to defend itself".
  27. In Ahmed v. HM Treasury [2010] 2 AC 534, the Supreme Court considered an appeal against Orders in Council which froze the appellant's assets. Lord Hope observed at paragraph 4 on p.611c.
  28. "[The designated person's] freedom of movement is not, in terms, restricted. But the effect of the Orders is to deprive the designated persons of any resources whatever. So in practice they have this effect. Persons who have been designated, as Sedley LJ observed in the Court of Appeal, are effectively prisoners of the State".
  29. Lord Brown made the same point at paragraph 192 on page 664. The effect of the Orders was "scarcely less restrictive of the day to day life of those designated (and in some cases their families) than are control orders". He continued:-
  30. "In certain respects, indeed, they could be thought even more paralysing. Undoubtedly, therefore, these Orders provide for a regime which considerably interferes with the Article 8 and Article 1 of Protocol 1 rights of those designated".
  31. In the proceedings relating to the 2009 order, it was accepted that the AF3 test applied in relation to what should be disclosed to the Claimant bank. So much was decided by the Court of Appeal in Bank Mellat v. HM Treasury [2012] QB 91. In paragraph 18 at p. 99D Lord Neuberger MR stated that in all cases to which Article 6.1 of the ECHR applied (as it did in the present case) there were irreducible minimum rights which required disclosure of sufficient information about the evidential case against the bank to enable it to give effective instructions in relation to the case (the AF3 test). The court relied on the decision of the Court of Appeal to that effect in Tariq v Home Office [2010] ICR 1034.
  32. Mr Kovats submits that, since the Court of Appeal's decision in Tariq has been reversed by the Supreme Court, the reasoning which led to the decision in the Bank Mellat appeal is erroneous and so the decision carries no weight. While it has not been expressly overruled, it is inconsistent with the Supreme Court's decision in Tariq and with the decision of the ECtHR in IR. In IR the court was considering the interference with Article 8 rights and there is, Mr Kovats submitted, no reason to elevate the right under Article 1 of Protocol 1 above those in another Article which is not absolute in its effect or which does not lead to what can be regarded as akin to deprivation of liberty.
  33. I was referred to a decision of mine, Mastafa v. HM Treasury [2013] 1WLR 1621. I applied AF3 to a freezing order against an individual. Since the Order had the sort of effect that was referred to in A v. HM Treasury [full citation needed], I do not doubt that my decision was correct. But I distinguished Tariq on the basis that the Order in question was a "measure taken against the applicant which affects his fundamental rights" (paragraph 35). I then cited the passage I have already cited from Lord Mance's judgment at paragraph 27 of Tariq equating freezing orders against individuals to virtual imprisonment.
  34. It seems to me that, while the Bank's liberty is not affected in the same way as that of an individual, the utterly damaging effect on its ability to function is material. It must not be forgotten that London is a, some would say the, major centre for financial institutions. Exclusion is thus particularly damaging. In these circumstances, I am persuaded that Article 6.1 does require disclosure that meets the requirement of AF3.

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