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You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Shanning International Ltd and Others v. Rasheed Bank and Others [2001] UKHL 31; [2001] 1 WLR 1462 (28th June, 2001)
URL: http://www.bailii.org/uk/cases/UKHL/2001/31.html
Cite as: [2001] 1 WLR 1462, [2001] WLR 1462, [2001] 3 CMLR 14, [2001] UKHL 31

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Shanning International Ltd and Others v. Rasheed Bank and Others [2001] UKHL 31; [2001] 1 WLR 1462 (28th June, 2001)

HOUSE OF LORDS

Lord Bingham of Cornhill Lord Steyn Lord Hope of Craighead Lord Hobhouse of Wood-borough Lord Scott of Foscote

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT

IN THE CAUSE

    SHANNING INTERNATIONAL LTD (IN LIQUIDATION)

    AND OTHERS

    (RESPONDENTS)

v.
    RASHEED BANK

    (APPELLANTS)

    AND OTHERS

    SHANNING INTERNATIONAL LTD (IN LIQUIDATION)

    (RESPONDENTS)

    AND OTHERS

    (APPELLANTS)
v.
    RASHEED BANK

    (RESPONDENTS)

    AND OTHERS
CONJOINED APPEALS

ON 28 JUNE 2001

[2001] UKHL 31

LORD BINGHAM OF CORNHILL

My Lords,

1. There are effectively three parties to these appeals, to whom it is convenient to refer as Shanning, Lloyds and Rasheed. By an order of 17 December 1999 Langley J made two declarations:

The judge based these declarations on a construction of Council Regulation (EEC) 3541/92 which was later upheld by the Court of Appeal: [2000] 3 CMLR 450. In these appeals to the House Rasheed challenges the correctness of that construction.

2. The relevant facts may be briefly summarised. By a contract in writing dated 16 September 1989 Shanning agreed with Al-Mansour Contracting Co of Baghdad to supply 10 operating theatres and medical equipment related to those theatres according to technical specifications and bills of quantities identified in the contract. Under the contract Al-Mansour agreed to make an advance payment to Shanning of 20% of the total price, a sum of £907,141.32. The payment was to be made against a bank demand guarantee, confirmed by an Iraqi bank, which was to be released after presentation of the shipping documents for the last shipment of equipment under the contract. The contract was governed by the law of Iraq. Rasheed is an Iraqi bank, and issued a guarantee dated 27 January 1990 to Al-Mansour, in the amount of the advance payment. Rasheed issued its guarantee in reliance on a counter-guarantee (No G89/60047T) dated 22 December 1989 issued by Lloyds in favour of Rasheed. Both these guarantees are governed by Iraqi law. Lloyds in its turn issued its counter-guarantee at the request of Shanning, secured by a counter-indemnity in its favour dated 5 January 1990 issued by Shanning and the deposit by Shanning with Lloyds of an amount equal to the advance payment, £907,141.32. The counter-indemnity issued by Shanning is governed by English law and is expressed to indemnify Lloyds "against all claims demands liabilities costs charges and expenses" which Lloyds might incur "arising out of or in connection with" the counter-guarantee issued by Lloyds in favour of Rasheed. On 2 August 1990 Shanning had almost completed the supply contract. Of the total contract value (in excess of £4.5 m), one shipment only (valued at £270,000) remained to be made.

3. On 2 August 1990 Iraq invaded Kuwait. The international response of the Security Council of the United Nations, the European Community and the United Kingdom was very prompt. On the same date the Security Council adopted Resolution 660 (1990) condemning the invasion and demanding an immediate withdrawal by Iraq. The United Kingdom, on 2 and 4 August, made statutory instruments restricting the making of payments or the parting with gold or securities on the orders of any party in Kuwait or Iraq (the Control of Gold, Securities, Payments and Credits (Kuwait) Directions 1990 (SI 1990/1591), the Control of Gold, Securities, Payments and Credits (Republic of Iraq) Directions 1990 (SI 1990/1616)). By Resolution 661(1990) adopted on 6 August the Security Council decided that all states should (subject to some limited exceptions) prevent the supply of goods or the remission of funds to Iraq or Kuwait. Over the following months the Security Council adopted 11 further resolutions directed to this subject.

4. On 8 August 1990, having regard to Resolutions 660 and 661, and in order that trade between member states of the Community and Iraq and Kuwait should be prevented, the Council of the European Communities adopted Regulation (EEC) 2340/90, which provided in article 2:

5. On the same date, 8 August 1990, and also with reference to Resolution 661, the United Kingdom made the Iraq and Kuwait (United Nations Sanctions) (Amendment) Order 1990 (SI 1990/1651) which provided in article 3:

6. By the Iraq and Kuwait (United Nations Sanctions) (Amendment) Order 1990 (SI 1990/1768), made on 29 August 1990, article 3 of this Statutory Instrument was slightly amended and a new article was inserted which had the effect of prohibiting payment to any person in Iraq or Kuwait under any agreement by which a party ("the obligor") agreed that, if called upon or if a third party failed to fulfil a contractual obligation owed to another, the obligor would make payment to or to the order of the other party to the agreement. On 29 October 1990 the Council, by Regulation (EEC) 3155/90, extended the effect of the embargo imposed by the Community.

7. The liberation of Kuwait from Iraqi occupation led to the adoption by the Security Council on 3 April 1991 of Resolution 687(1991), a wide-ranging instrument directed to the new international situation. The resolution set out a detailed list of conditions to be met by Iraq. It was decided (in paragraph 24) that in accordance with Resolution 661 and until a further decision had been taken the existing embargo on trade to Iraq should continue. The Secretary-General was requested by paragraph 26 to develop guidelines to facilitate full international implementation of the embargo, and by paragraph 27 international organisations and states were called upon to take such steps as might be necessary to ensure full compliance with the guidelines. Then, in paragraph 29, the Security Council decided that

The Community adopted a regulation on 7 May 1991 to give immediate effect to Resolution 687, but then embarked on consideration of a further measure.

8. On 12 July 1991 the Commission promulgated the draft of a proposed Council Regulation which in due course was (subject to some changes) adopted as Regulation (EEC) 3541/92, the regulation which the House is asked to construe in these appeals. In accordance with the admirable practice of the Commission this proposed regulation was accompanied by an explanatory memorandum, setting out in broad and untechnical terms the object of the proposed instrument. In this memorandum reference was made to Resolution 687, which was said to foresee the lifting of the embargo after the fulfilment of the necessary conditions by Iraq. Paragraph 29 of Resolution 687 was quoted in full and the memorandum then continued:

Under the heading "Specific considerations" the memorandum continued:

Non-enforceability of claims or prohibition to pay

Burden of proof

Possible exceptions

9. The Commission's proposed regulation was first considered by the Committee on Foreign Affairs and Security which on 6 November 1992 approved it. On 16 November 1992 the Committee on External Economic Relations also approved it. In a letter expressing its opinion, the Committee, having referred to paragraph 29 of Resolution 687, expressly adopted passages in the Commission's explanatory memorandum. On 19 November 1992 the European Parliament approved the Commission's proposal, although calling for further consultation if the Council intended to make substantial modifications to the Commission's proposal.

10. On 7 December 1992 the Council adopted Regulation (EEC) 3541/92 "prohibiting the satisfying of Iraqi claims with regard to contracts and transactions the performance of which was affected by United Nations Security Council Resolution 661(1990) and related resolutions". In the European manner the text of the regulation was preceded by a series of important recitals explaining its genesis and rationale:

In the Commission's proposed regulation there was no equivalent of the third of these recitals, and the recitals common to both versions were in a different order. There were some differences of language: the word "permanently" in the fifth of the recitals quoted did not appear in the proposed draft.

11. Article 1 of the regulation contains a series of comprehensive definitions:

(b)

(c)

12. Article 2, which lies at the heart of these appeals, provides (so far as relevant):

It is common ground that article 2 and, for that matter, the United Kingdom statutory instruments already referred to, which remain in force, are effective to prevent Lloyds paying Rasheed and also to prevent Lloyds reimbursing itself out of funds which it holds on behalf of Shanning.

13. Article 3 provides that, without prejudice to the embargo on trade with Iraq introduced pursuant to United Nations Security Council Resolution 661, article 2 should not apply to certain transactions, for example to claims which had been accepted before the adoption of measures in response to Resolution 661, claims for payment under insurance contracts in respect of events occurring before the adoption of such measures and

14. This issue of construction now arises because Shanning is in liquidation and the liquidators seek payment by Lloyds of the sum which Lloyds holds on deposit on behalf of Shanning. Lloyds for its part adopts a Janus-like position: it is content to pay to Shanning the sum which it holds on behalf of Shanning if on a proper construction of Regulation (EEC) 3541/92 it can be assured that it cannot hereafter become liable to Rasheed; but if on such a construction any risk exists that it may hereafter be liable to Rasheed, it resists making payment to Shanning. Thus, quite understandably, it aligns itself with whichever of Shanning or Rasheed is to succeed in these appeals.

15. Before the judge the construction issue was whether Regulation (EEC) 3541/92 imposed a permanent prohibition on Lloyds making any payment to Rasheed under its counter-guarantee against any claim Rasheed might at any time make in connection with this contract and a permanent prohibition on Lloyds reimbursing itself under Shanning's counter-indemnity out of funds held by Lloyds on behalf of Shanning. He rightly held that in construing the regulation a broad purposive approach was to be followed, giving due weight to the travaux préparatoires and recitals to which reference has already been made. Since Shanning sought a declaration on the legal effect of the regulation as it stood, he did not think it right to speculate on the possibility of future revocation or repeal, although he gave reasons for concluding that such possibility could be discounted. Basing himself on the travaux préparatoires, the recitals, the political considerations underlying the sanctions policy and common sense, he concluded that Shanning's submission was correct and that the effect of article 2 was to prohibit satisfaction by Shanning and Lloyds respectively of claims which might at any time be made against them by Lloyds or Rasheed respectively.

16. Giving the leading judgment in the Court of Appeal, Tuckey LJ was of the same opinion: [2000] 3 CMLR 450. The prohibition in article 2 was to continue in effect even when the embargo was lifted. He did not attach significance to the fact relied on by Rasheed that article 2 did not provide for the discharge of affected contracts. There was no juridical objection to a permanent prohibition on satisfying claims, and that was the legislative technique which had been adopted.

17. Before the House Rasheed challenged the construction put on the regulation by the courts below on two main grounds. First, it was argued, there is nothing in article 2 of the regulation to suggest that the prohibition it imposed was intended to be permanent. Such terms as "permanently" or "for all time" were not to be found. Had the prohibition been intended to be permanent, the article would have provided for the obligations of non-Iraqi parties to be extinguished or discharged, but instead performance was subjected only to a prohibition, which could be temporary. Significance should not be attached to the term "permanently" in the fifth recital, which had not appeared in the Commission's original draft and could not therefore have been regarded as a substantial addition. But if, secondly, the expression "permanently" in the fifth recital was of significance, its effect was only to protect operators against "such claims", which meant claims referred to in the fourth recital, namely, claims which were a consequence of the embargo. That would not cover claims relating, for example, to the quality of goods supplied. So long as there was a possibility of such claims being validly made, Lloyds and Shanning could not be released from their counter-guarantee and counter-indemnity, and the judge was accordingly wrong to make the declarations he did.

18. In my opinion these submissions are at variance with the obvious intent and effect of the regulation. The embargo on trade and financial dealings with Iraq was imposed in the immediate aftermath of the Iraqi invasion of Kuwait in the hope that it would coerce Iraq to withdraw its forces within its own borders. This embargo had the inevitable and intended effect of halting the performance of current contracts. This prevented non-Iraqi contractors and suppliers from fulfilling their contractual obligations and so put them in breach of contract, subject to any defence of frustration or force majeure which might (or might not) be available to them under any relevant law or in any relevant court. The hope that imposition of an embargo would lead to peaceful withdrawal was not realised. Armed intervention was necessary to liberate Kuwait. But it was decided that the embargo on trade and financial dealings with Iraq should continue until Iraq met a series of clearly specified conditions, which it showed little willingness to do. The potential exposure of non-Iraqi contractors and suppliers therefore continued. Resolution 687 plainly looked forward to the end of the embargo, but it also expressed a very clear intention that no claim should lie at the instance of any Iraqi entity in connection with any transaction where performance had been affected by the embargo. The Community travaux préparatoires and Regulation (EEC) 3541/92 expressed the same clear intention. Were the ending of the embargo to be accompanied by removal of the prohibition on satisfaction of claims against non-Iraqi contractors and suppliers, it is obvious that those who had been involuntarily prevented from performing their contracts would or might become liable to their Iraqi opposite numbers, with the result that the ultimate losers as a result of Iraq's gross violation of international law would be the non-Iraqi contractors and suppliers and not the Iraqi entities (including the government) which the embargo was intended to injure.

19. The present case provides a good example. Shanning had performed a very substantial part of its contract. It had almost earned its contractual reward. It was prevented by the embargo from completing the contract and earning its reward. But for the embargo it seems fair to assume that it would have done so. It may be regarded as an innocent victim of the international community's response to Iraqi lawlessness. It would be extraordinary if, even when the embargo is lifted and normal commercial relations are restored, it were to be exposed even to the risk of claims (and it is "the risk of claims" to which the fourth recital refers) by the Iraqi side.

20. Any claim which Rasheed or Lloyds might make under the counter-guarantee and counter-indemnity would plainly be "under or in connection with a contract or transaction the performance of which was affected, directly or indirectly, wholly or in part" by the embargo. As such it would fall squarely within the prohibition in article 2(1), whatever the nature of the claim. It is not suggested that article 3 would apply.

21. It is plain from the Community travaux préparatoires that careful thought was given to the best legislative means of protecting non-Iraqi contractors and suppliers against the risk of claims. It would no doubt have been possible to provide that affected contracts should be treated as discharged, or that rights and obligations arising thereunder should be extinguished. But this would have enabled an Iraqi party which had made an advance payment or deposit to seek a restitutionary remedy, and it was instead thought preferable to prohibit the satisfaction of any claim by any Iraqi entity under or in connection with any affected contract. This may very well have been a wise approach. It was certainly, in my opinion, an effective one.

22. The judge was right to make the declarations he did. If I entertained any real doubt about the construction of Regulation (EEC) 3541/92 I should see force in Rasheed's submission that a ruling should be sought from the European Court of Justice, but I do not. For these reasons, and also those given by my noble and learned friends Lord Steyn and Lord Hope of Craighead, I would dismiss these appeals. Rasheed must pay the costs of both Shanning and Lloyds in this House.

LORD STEYN

My Lords,

23. In the dispute between Shanning and Rasheed the only matter before the House is the correct construction of article 2 of Council Regulation (EEC) 3541/92 of 7 December 1992 which prohibited the satisfying of Iraqi claims with regard to contracts and transactions the performance of which was affected by the trade embargo imposed on Iraq by United National Council Resolution 661 (1990) and related resolutions.

24. There is an illuminating discussion in Cross, Statutory Interpretation, 3rd ed. pp 105-112 of the correct approach to the construction of instruments of the European community such as the regulation in question. The following general guide provided by Judge Kutscher, a former member of the European Court of Justice, is cited by Cross (at p 107):

Cross points out that of the four methods of interpretation - literal, historical, schematic and teleological - the first is the least important and the last the most important. Cross makes two important comments on the doctrine of teleological or purposive construction. First, in agreement with Bennion, Statutory Interpretation, 2nd ed, s.311, Cross states that the British doctrine of purposive construction is more literalist than the European variety, and permits a strained construction only in comparatively rare cases. Judges need to take account of this difference. Secondly, Cross points out that a purposive construction may yield either an expansive or restrictive interpretation. It follows that Regulation No 354/92 ought to be interpreted in the light of the purpose of its provisions, read as a coherent whole, and viewed against the economic and commercial context in which the regulation was adopted.

25. In flagrant breach of international law Iraq invaded Kuwait in August 1990. Kuwait was liberated in February 1991. In the meantime the international community, acting pursuant to United National resolutions, imposed a trade embargo on Iraq. These primary sanctions affected the implementation of a large number of contracts between Iraqi and EEC contracting parties. The legal consequences of the trade embargo are not in issue. The fact is, however, that the primary sanctions were always intended to be a means of persuading Iraq to comply with international norms. It was contemplated that in due course the primary sanctions would have to be lifted. That left the problem of the large number of contracts between EEC and Iraqi parties affected by the trade embargo.

26. Unless drastic and affective action was taken there was the spectre attested to by the contemporary EEC memorandum of an avalanche of claims by Iraqi parties, including claims by the Iraqi state, Iraqi state agencies and Iraqi corporations, against EEC parties. The prospect of Iraqi parties through successful law suits retrospectively transferring to EEC nationals and entities losses resulting from the trade embargo, which Iraq had entirely brought upon itself, was self evidently unacceptable. The obvious means of eliminating this risk to EEC parties was by an EEC Council Regulation. The only real question was what legislative technique to adopt. There were two possibilities. The EEC could have chosen the route either of discharging the affected contracts or of prohibiting the satisfying of Iraqi claims on such contracts. Both methods would be directed at the same obvious end, namely the elimination of the risk of Iraqi contracting parties successfully pursuing claims against wholly innocent EEC parties. The first route involved conflict of law problems. It would not have been effective, or not necessarily effective, in respect of a system of law other than that of a member state of the EEC. The chosen method was therefore the second. And it is important to note that Council Regulation (EEC) 3541/92 was put in place more than two years after the initial imposition of the trade embargo. It was plainly directed at claims already affected by primary sanctions.

27. Against this crystal clear contextual scene Rasheed advances two implausible arguments. The first is that the prohibition contained in the Regulation is not stated to be permanent in the operative part of the Regulation and is therefore not permanent in character. The recital quoted by Lord Bingham of Cornhill plainly impresses the stamp of permanence on the entire Regulation. Even without this recital the intrinsic nature of the Regulation, in order to be effective, would have to be permanent. Unless the prohibition is permanent it cannot achieve its obvious aim. As Tuckey LJ observed in the Court of Appeal [2000] CMLR 450, 481: "to leave open the possibility that claims could be made at some unspecified time in the future would make no sense and cause great uncertainty." The language of the regulation interpreted against the contextual scene rules out Rasheed's argument that the prohibition contained in the Regulation is not permanent in character. Counsel for Rasheed suggested that it is curious, if the prohibition is permanent in character, that the underlying rights and obligations under the affected contracts are still in force. There is, however, no issue before the House as to whether or not the underlying contractual rights and obligations remain in being. And I express no view on the matter. In any event, Tuckey LJ gave the answer to this point. He observed, at p 481:

The position is therefore that the Regulation validly, effectively and permanently bars Iraqi claims under affected contracts. Rasheed's argument to the contrary is misconceived.

28. The second argument of Rasheed is directed to the subject matter of the prohibition. Counsel for Rasheed argued that the Regulation says nothing about prohibiting permanently the satisfaction of claims which are not the consequence of the embargo. He emphasised that the words in the recital aim to prevent Iraqi parties "from obtaining compensation for the negative effects of the embargo." This statement is substantially correct but establishes nothing that assists Rasheed. The prohibition in the operative part of the Regulation extends to the satisfaction of any claim "under or in connection with a contract or transaction the performance of which was affected, directly or indirectly, wholly or in part, by [primary sanctions]" It is moreover an agreed fact that the trade embargo made it unlawful "for Lloyds to pay Rasheed under the Lloyds counter-guarantee, and unlawful for Shanning both to complete the supply contract itself and to make payment to Lloyds under the Shanning counter-indemnity." In these circumstances the contractual instruments which Lord Bingham has described were plainly affected by primary sanctions. The argument under this heading must be rejected.

29. In my view the judge rightly made the declarations which have been challenged on this appeal. And the reasons of the Court of Appeal for dismissing the appeal were entirely convincing.

30. For these reasons, as well as the fuller reasons given by Lord Bingham, I would dismiss Rasheed's appeal and make the order which Lord Bingham proposes.

LORD HOPE OF CRAIGHEAD

My Lords,

31. I have had the advantage of reading in draft the speech which has been prepared by my noble and learned friend Lord Bingham of Cornhill. I agree with it, and for the reasons which he gives I too would dismiss the appeal. But our attention was drawn to the importance of this case to the appellants, and to the wider significance throughout the European Union of the issue which they have raised. So I should like to add these brief observations.

32. The critical question is whether the prohibition in article 2 of Council Regulation (EEC) 3541/92 against the satisfying of Iraqi claims with regard to contracts and transactions the performance of which was affected by United Nations Security Council Resolution 661 (1990) and related resolutions is or is not permanent. If the prohibition is permanent, Lloyds will have a complete answer to any and all claims which may be made by Rasheed for payment under the Lloyds Counter-Guarantee. In that event there will be no obstacle to the recovery by Shanning of the sum which Lloyds holds on deposit on its behalf. Rasheed accepts that the prohibition is in force for the time being. But its contention is that it is not a permanent prohibition, as the underlying obligations were not discharged by the Regulation nor are they declared by it to be void. According to its argument, as there is nothing in the Regulation to the contrary, the permanence of the prohibition cannot be assumed so it is possible that these claims may become enforceable again when the embargo is lifted.

33. The answer to the question whether or not the prohibition is permanent depends on the meaning of the words used in the Regulation. It is a question of construction. In terms of article 189 of the EC Treaty (now article 249 EC) a regulation is binding in its entirety and directly applicable in all member states. The effect of Regulation (EEC) 3541/92 is to be determined according to the rules of construction which are firmly established in Community law. As Lord Templeman said in Lister v Forth Dry Dock Co Ltd [1990] 1 AC 546, 558E, the courts of the United Kingdom are under a duty to follow the practice of the European Court of Justice when construing Community instruments. A purposive approach is to be adopted, and the travaux préparatoires may be referred to for guidance as to what was intended. Community legislation is to be interpreted, so far as possible, in such a way that it is in conformity with general principles of Community Law: Dowling v Ireland, the Attorney General and Minister for Agriculture and Food (Case C-85/90) [1992] ECR I-5305, 5319, para 10 per AG Jacobs.

34. The starting point is to examine the words used in the recitals and articles of the regulation itself. Mr Eder for Rasheed devoted much of his argument to an examination of the wording of the Commission's proposal at the stage when the regulation was still in draft and it was being considered by the European Parliament. I agree that the proposal is available as an aid to construction. Article 190 of the EC Treaty (now article 253 EC) provides that regulations, directives and decisions adopted by the Council shall state the reasons on which they are based and shall refer to any proposals or opinions which were required to be obtained pursuant to the Treaty. But I think that it is necessary to bear in mind that the instrument which is binding in its entirety in terms of the Treaty is the regulation which was adopted by the Council of the European Communities at the end of the legislative process which the Treaty has identified. Moreover, in Garcia v Mutuelle de Prévoyance Sociale D'Aquitaine (Case C-238/94) [1996] ECR I-1673, the court held that in view of the clear and precise terms of the article it was not necessary to look even at the preamble to the directive in order to determine the purpose or the scope of the provision.

35. The Treaty base for Regulation 3541/92 is to be found in article 235 of the EC Treaty (now article 308 EC), as the eighth and ninth recitals of the regulation indicate. This article provides:

The Regulation which the Council made on 7 December 1992 was based on a proposal presented by the Commission on 12 July 1991 on which an opinion was delivered by the European Parliament on 19 November 1992. But, as I have said, I think that the proper starting point is to examine the wording of the regulation which was adopted by the Council at the end of this process.

36. The fourth and fifth recitals of the Regulation are in these terms:

The phrase "to protect operators permanently" in the fifth recital is an important indication as to the intended effect of the Regulation. Mr Eder did not suggest that these words were in themselves ambiguous. According to their plain meaning, the intention was to put in place a protection against the risk of claims by the Iraqi side which would indeed be permanent. Mr Eder submitted that the words "such claims" in the fifth recital indicated that the protection was to be limited to claims of the kind described in the fourth recital and that a narrow interpretation ought to be placed on those words. For a proper understanding of the extent of the protection however it is necessary to turn to the articles.

37. The Regulation contains six articles, of which the first and the last three are ancillary to its leading provisions. The leading provisions are set out in articles 2 and 3. Article 2 describes the prohibitions. Article 3 contains a list of claims to which the article 2 prohibitions do not apply. But it is subject to an important proviso which excludes from this exception any amount, by way of interest, charge or otherwise, to compensate for the fact that performance was, as a result of the embargo, not made in accordance with the terms of the relevant contract or transaction. The wording and structure of these two articles, when read together with the definition of the word "claim" in article 1 of the regulation, leave no room for doubt that the prohibition in article 2 extends to any and all claims for performance of any obligation arising under or in connection with a contract or transaction and for extension of payment of a bond, financial guarantee or indemnity of whatever form. The articles are carefully structured to leave open the possibility of the making of claims by the operators against the Iraqi side, as it is only the satisfying of claims by the Iraqi side that is prohibited.

38. As for the permanence of the prohibition, it is plain that anything less than a permanent prohibition would not relieve economic operators in the Community from the damaging effects of the embargo. The proviso to article 3 shows that the Council was well aware of the risk of claims for failures in performance due to the embargo to which economic operators had been exposed by it, to which in any event attention had been drawn by paragraph 29 of the so-called "cease-fire" resolution by the United Nations Security Council (Resolution 687(1991)) which foresaw the lifting of the embargo after the fulfilment of the necessary conditions by Iraq. Unless they were protected against such claims the operators would have to make provision against them for a prolonged and indefinite period. This would be bound to impose a substantial financial burden upon them, to the detriment of their businesses. Nothing less than a permanent prohibition would give them the protection which they needed once the embargo was brought to an end and the sanctions against Iraq were lifted. The significance of the use of the word "permanently" in the fifth recital is that it serves to confirm what a purposive reading of the articles in their whole context would in any event indicate.

39. I see no need in these circumstances to refer back to the travaux préparatoires for further guidance. Mr Eder's argument that we should do so was largely based upon the absence from the recital in the proposal by the Commission which corresponds to the fifth recital in the regulation of the word "permanently", the fact that the word does not appear in article 2 and the lack of any mention in the explanatory memorandum which accompanied it and in the draft resolution embodying the opinion on the proposal of the European Parliament that the prohibition was intended to be permanent. But the legislative history of the regulation simply shows that, as not infrequently happens, the wording of the regulation as adopted by the Council differs in various respects from that of the Commission's proposal. It is settled law that the requirement to consult the European Parliament in the legislative procedure in cases provided for in the Treaty means that it must be freshly consulted whenever the text finally adopted, taken as a whole, differs in essence from the text on which the Parliament has already been consulted: European Parliament v Council of the European Union (Case C-392/95) [1997] ECR I-3213, p 3246, para 15. The information which is before your Lordships indicates that the Parliament was not consulted about the changes in the wording of the preamble.

40. The inference which I would draw from the inclusion of the word "permanently" in the fifth recital is that it was introduced in order to explain more fully the purpose of the Regulation, but to not change the essence of what had been proposed. It was intended to remove a possible but unintended ambiguity in the words used by the proposal. There was no need to include the word in article 2, as the intention of the Regulation as a whole was made plain by the terms of the recital. I do not think that the plain meaning of the Regulation can be contradicted by reference to the absence of this word from the proposal and the travaux préparatoires. Once this conclusion is reached the basis for Mr Eder's argument on this point disappears.

LORD HOBHOUSE OF WOODBOROUGH

My Lords,

41. I agree that the appeal should be dismissed with costs as proposed by my noble and learned friend Lord Bingham of Cornhill and for the reasons which he has given. I would also like to express my agreement with the speech of my noble and learned friend Lord Hope of Craighead and, in particular, what he has said concerning the approach to be adopted in construing a Council Regulation.

LORD SCOTT OF FOSCOTE

My Lords,

42. I have had the advantage of reading in draft the opinions of my noble and learned friends, Lord Bingham of Cornhill, Lord Steyn and Lord Hope of Craighead. For the reasons they give, I too would dismiss this appeal.