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Bank Mellat v Her Majesty's Treasury (No. 2)
Factual and Procedural Background
The Treasury, acting under Section 62 and Schedule 7 of the Counter-Terrorism Act 2008, issued a direction on 9 October 2009 forbidding all United Kingdom financial institutions from entering into, or continuing, any business with Company A, an Iranian commercial bank. The direction—implemented by the Financial Restrictions (Iran) Order 2009—was intended to curtail financing of Iran’s alleged nuclear-weapons and ballistic-missile programmes.
Company A applied to the High Court under Section 63 of the 2008 Act to set the direction aside. It advanced two broad challenges: (1) substantive—asserting that the direction was irrational, disproportionate and discriminatory; and (2) procedural—contending that the Treasury violated common-law and Convention fair-hearing guarantees by issuing the direction without first giving Company A an opportunity to comment.
The High Court dismissed both grounds. The Court of Appeal affirmed the substantive dismissal unanimously but, by majority, upheld the High Court on the procedural ground as well. Company A appealed to the Supreme Court.
Legal Issues Presented
- Whether the direction and resulting Order were irrational, disproportionate or discriminatory, contrary both to domestic public-law principles and to Article 1 of Protocol 1 of the European Convention on Human Rights (ECHR).
- Whether the Treasury breached the common-law duty of procedural fairness—and Articles 6(1) ECHR and Article 1 of Protocol 1—by failing to give Company A advance notice and an opportunity to make representations before making the direction.
Arguments of the Parties
Company A’s Arguments
- The direction singled out Company A without any rational or evidence-based distinction from other Iranian banks.
- Even if the statutory pre-conditions in Schedule 7 were met, the measure was disproportionate: a less intrusive regime of reporting or enhanced due-diligence could have achieved the same aim.
- The Treasury’s stated reasons were factually flawed (e.g., incorrect assertions about government ownership) and relied on unverified allegations.
- Procedurally, issuing a draconian, immediately effective ban without prior consultation contravened common-law fairness and the minimum procedural requirements of Articles 6 and 1, Protocol 1.
The Treasury’s Arguments
- Company A had demonstrably provided banking services to entities involved in Iran’s nuclear and missile programmes, creating a significant proliferation risk.
- Because other Iranian banks with UK subsidiaries were already subject to asset-freezes or reporting obligations, focusing on Company A closed an identified loophole.
- The urgency and sensitivity of proliferation risks, coupled with potential avoidance tactics, made prior consultation impractical and potentially counter-productive.
- Any procedural deficiency was cured by Company A’s statutory right under Section 63 to seek judicial review after the direction was made.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Cooper v Board of Works (1863) | Common-law duty to afford a hearing before exercising draconian powers. | Cited to support Company A’s contention that prior notice was required. |
| Doody (1994) | Fairness usually requires an opportunity to make representations. | Invoked in analysing procedural fairness. |
| De Freitas (1999) | Four-stage proportionality test. | Formed the analytical framework for assessing the direction’s proportionality. |
| Daly (2001) | Intensive judicial review where fundamental rights engaged. | Guided scrutiny level for substantive challenge. |
| Huang (2007) | Need to balance individual rights and community interests. | Applied when weighing security objectives against economic impact on Company A. |
| Quila (2011) | Refinement of proportionality’s “less intrusive means” limb. | Used in debating whether reporting requirements would suffice. |
| A v Secretary of State (2005) | Discriminatory and disproportionate anti-terrorism measures can be struck down. | Considered by majority when evaluating whether singling out Company A was arbitrary. |
| Jokela v Finland (ECtHR, 2003) | “Comprehensive view” of procedures for Article 1, Protocol 1 compliance. | Cited on adequacy of post-decision judicial review. |
| Wiseman v Borneman (1971) | Statutory scheme may implicitly exclude additional procedural steps. | Relied on by dissent to justify no prior consultation. |
| BAPIO v Secretary of State (2007) | Courts cautious about adding consultation duties to rule-making with parliamentary scrutiny. | Discussed but distinguished by the majority. |
Court's Reasoning and Analysis
Substantive Issue (Majority): The majority held that the direction was both irrational and disproportionate. Although proliferation posed a grave threat, the Treasury failed to demonstrate a rational basis for targeting only Company A when similarly situated Iranian banks faced no equivalent ban. This selective treatment undermined the measure’s efficacy and rendered its severe economic impact on Company A disproportionate to any marginal security benefit.
Procedural Issue (Unanimous Majority): The Court reaffirmed the common-law presumption of prior consultation where a public measure foreseeably causes serious detriment. None of the statutory provisions in the 2008 Act expressly or implicitly displaced that presumption. Practical objections advanced by the Treasury—risk of funds being moved; presence of closed material—were rejected as unpersuasive. Consequently, issuing the direction without affording Company A an opportunity to be heard breached common-law fairness and the minimum procedural guarantees implicit in Article 6 ECHR and Article 1, Protocol 1.
Dissenting Views: A minority would have upheld the direction’s substantive validity, giving a broad margin of appreciation to the Treasury’s assessment of proliferation risk and accepting that Parliament intended Schedule 7 directions to be made without prior consultation in urgent or sensitive contexts.
Holding and Implications
The Supreme Court (by majority) QUASHED the Treasury’s direction and the consequential Order.
Immediate Effect: All UK financial institutions are no longer prohibited from dealing with Company A, and the Bank may resume efforts to restore its UK business.
Broader Implications: The decision clarifies that even in national-security contexts the executive must justify selective financial-restriction measures and, absent explicit statutory exclusion, must provide affected entities with prior notice and an opportunity to respond. While the judgment does not preclude future Schedule 7 directions, it underscores the need for transparent, proportionate targeting and robust procedural safeguards.
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