UKSC 39
On appeal from:  EWCA Civ 1
Bank Mellat (Appellant) v Her Majesty's Treasury (Respondent) (No. 2)
Lord Neuberger, President
Lord Hope, Deputy President
JUDGMENT GIVEN ON
19 June 2013
Heard on 19, 20 and 21 March 2013
Michael Brindle QC
Dr Gunnar Beck
(Instructed by Zaiwalla and Co)
Jonathan Swift QC
Tim Eicke QC
(Instructed by Treasury Solicitors)
Martin Chamberlain QC
(Instructed by the Special Advocates Support Office)
|Advocate to the Court
Robin Tam QC
(Instructed by Treasury Solicitors)
Nicholas Vineall QC
(Instructed by Zaiwalla and Co)
LORD SUMPTION (with whom Lady Hale, Lord Kerr, and Lord Clarke agree in whole; Lord Neuberger and Lord Dyson agree only on the procedural grounds, Lord Carnwath only on the substantive grounds)
"exercise vigilance over the activities of financial institutions in their territories with all banks domiciled in Iran, in particular with Bank Melli and Bank Saderat, and their branches and subsidiaries abroad, in order to avoid such activities contributing to the proliferation sensitive nuclear activities, or to the development of nuclear weapon delivery systems."
"(4) ...the Treasury reasonably believe that
the development or production of nuclear, radiological, biological or chemical weapons in the country, or
the doing in the country of anything that facilitates the development or production of any such weapons,
poses a significant risk to the national interests of the United Kingdom."
The present proceedings
The Treasury's reasons
"These restrictions are being imposed in respect of these entities because of their provision of services for Iran's ballistic missile and nuclear programmes. It is considered that a direction to cease business with these entities will contribute to addressing the risk to the UK national interests posed by Iran's proliferation activities."
This was expanded in a written ministerial statement. After explaining why the Treasury considered that the Iranian nuclear programme posed significant risks for the national interests of the United Kingdom, the document continued:
"We cannot and will not ignore specific activities undertaken by Iranian companies which we know to be facilitating activity identified by the UN as being of concern, particularly where such activities have the potential to affect the UK' s interests.
Of the particular entities in question ... Bank Mellat has provided banking services to a UN listed organisation connected to Iran's proliferation sensitive activities, and been involved in transactions related to financing Iran's nuclear and ballistic missile programme.
The direction to cease business will therefore reduce the risk of the UK financial sector being used, unknowingly or otherwise, to facilitate Iran's proliferation sensitive activities."
In response to a request from the Bank's solicitors for further information about the contents of this statement, the Treasury wrote on 27 October 2009:
"Iran's nuclear and ballistic missile programmes clearly require financing mechanisms to underpin them, and access to the international banking system remains essential for transactions with foreign suppliers. As set out in the Written Ministerial Statement Bank Mellat has provided banking services to a UN listed organisation connected to Iran's proliferation sensitive activities, and been involved in transactions related to financing Iran's nuclear and ballistic missile programme. The direction prevents Bank Mellat from conducting transactions or business relationships with persons operating in the UK financial sector and therefore restricts the financing mechanisms available to entities involved in lran's nuclear programme and its missile programme. It also protects the UK financial sector from being unknowingly implicated in financing Iran's nuclear programme through transactions with Bank Mellat."
Finally, on 17 December 2009, the Exchequer Secretary to the Treasury answered a number of questions relating to the order in the House of Commons. She said:
"The first question was on how the Government assess the impact on Iran's proliferation activities. International finance services underpin the actions of Bank Mellat and IRISL. Restricting their access to UK financial services will lock them out of a key financial centre, which will make their contribution to Iran's nuclear programme more difficult. Obviously, our action applies to the UK. The Hon Member for Fareham used the word "sanction", but the order is not a sanction on Iran, but a direction for financial institutions in the UK."
And later in the same debate:
"The restriction targets Bank Mellat and IRISL transactions. Other Iranian banks are not subject to the restrictions. As long as all financial sanctions and relevant risk warnings are complied with, alternative banks may be used, otherwise an application for a licence of exemption may be made to the Treasury."
(1) The "UN listed organisation" was Novin Energy Company, which had been identified in Annex I of Resolution 1747 as a company which "operates within AEOI and has transferred funds on behalf of AEOI to entities associated with Iran's nuclear programme." AEOI is the Atomic Energy Organisation of Iran. It is an umbrella organisation concerned with the coordination of the programme. It is listed in Annex I of Resolution 1737. Mr Robertson's evidence was that Bank Mellat had "serviced and maintained AEOI accounts mainly through AEOI's financial conduit Novin Energy."
(2) Bank Mellat was said to have provided banking services to senior officials of Iran's "Aerospace Industries Organisation" (or "AIO"), including a Mr Taghizadeh and a Mr Esbati. AIO is not an organisation listed in the Annexes to the Security Council resolutions, but it is the parent of four entities which are listed. Mr Robertson alleged that "senior AIO officials concerned with Iran's ballistic missile programme", by inference including Mr Taghizadeh and Mr Esbati, had in 2007 and 2008 "used Bank Mellat services to conduct business with companies associated with Iranian procurement attempts".
(3) Between autumn 2007 and spring 2009 the Bank had a banking relationship with a company called Doostan International, which was said to be an intermediary company that had in the past been used by subsidiary organisations of AIO listed in the Security Council resolutions, and which was linked to Iran's nuclear programme.
(1) Bank Mellat "has in place a mechanism, which it operates conscientiously, to ensure that it does not provide banking services to Security Council designated entities and individuals." This finding reflected the Bank's evidence, which described its due diligence procedures.
(2) Novin Energy Company was a "financial conduit" for AEOI and did facilitate Iran's nuclear weapons programme. But once it was designated in Security Council Resolution 1747, the Bank ran down and eventually terminated its relationship with it.
(3) Doostan International had played a part in the Iranian nuclear weapons programme. The Bank holds accounts for Doostan and for its managing director Mr Shabani, but the Bank had investigated the position in good faith and found nothing unusual or suspicious. Mitting J considered that the position with regard to Doostan "does not greatly matter".
(4) Mitting J was not satisfied on the information available to him that the Bank had provided banking services to the two individuals said to be senior officials of the AIO. Their names are very common in Iran and it had not proved possible to identify them in the Bank's records.
(5) Bank Mellat is not controlled by the Iranian government, which exercises voting rights only in respect of the 20% of the shares which it owns. Nonetheless some pressure would be brought to bear on the Iranian government by the direction.
"The Treasury's case is not that the bank has knowingly assisted Security Council designated entities after designation, or even that it has knowingly assisted entities liable to be designated, but which have not yet been, by providing banking facilities to them, but that it has the capacity to do so, has in one instance done so and is likely to do so in the future. The fundamental justification for the Order is that, even as an unknowing and unwilling actor, the bank is, by reason of its international reach, well placed to assist entities to facilitate the development of nuclear weapons, by providing them with banking facilities, in particular trade finance. Concealment of the true nature of imported goods paid for by a letter of credit is straight forward: all that an issuing bank sees are documents. On presentation of compliant documents describing innocent goods, the bank must pay, whatever the nature of the goods in fact imported. Access to the international financial system is, as the Financial Action Task Force reported on 18 June 2008, essential for what it describes as "proliferators". I accept Mr Robertson's conclusion, in paragraph 57 of his statement, that Iran's banking system provides many of the financial services which underpin procurement of the raw materials and components needed for its nuclear and ballistic missile programmes."
The Bank's substantive grounds
The Bank's procedural grounds
"My Lords, I think it unnecessary to refer by name or to quote from, any of the often-cited authorities in which the courts have explained what is essentially an intuitive judgment. They are far too well known. From them, I derive that (1) where an Act of Parliament confers an administrative power there is a presumption that it will be exercised in a manner which is fair in all the circumstances. (2) The standards of fairness are not immutable. They may change with the passage of time, both in the general and in their application to decisions of a particular type. (3) The principles of fairness are not to be applied by rote identically in every situation. What fairness demands is dependent on the context of the decision, and this is to be taken into account in all its aspects. (4) An essential feature of the context is the statute which creates the discretion, as regards both its language and the shape of the legal and administrative system within which the decision is taken. (5) Fairness will very often require that a person who may be adversely affected by the decision will have an opportunity to make representations on his own behalf either before the decision is taken with a view to producing a favourable result; or after it is taken, with a view to procuring its modification; or both. (6) Since the person affected usually cannot make worthwhile representations without knowing what factors may weigh against his interests fairness will very often require that he is informed of the gist of the case which he has to answer."
"well established that when a statute has conferred on any body the power to make decisions affecting individuals, the courts will not only require the procedure prescribed by the statute to be followed, but will readily imply so much and no more to be introduced by way of additional procedural safeguards as will ensure the attainment of fairness."
Like Lord Bingham in R (West) v Parole Board  1 WLR 350 at para 29, I find it hard to envisage cases in which the maximum expressio unius exclusio alterius could suffice to exclude so basic a right as that of fairness.
"Natural justice requires that the procedure before any tribunal which is acting judicially shall be fair in all the circumstances, and I would be sorry to see this fundamental general principle degenerate into a series of hard-and-fast rules. For a long time the courts have, without objection from Parliament, supplemented procedure laid down in legislation where they have found that to be necessary for this purpose. But before this unusual kind of power is exercised it must be clear that the statutory procedure is insufficient to achieve justice and that to require additional steps would not frustrate the apparent purpose of the legislation."
Cf. Lord Morris of Borth-y-Gest at 309B-C.
"In constitutional law a clear distinction can be drawn between an Act of Parliament and subordinate legislation, even though the latter is contained in an order made by statutory instrument approved by resolutions of both Houses of Parliament. Despite this indication that the majority of members of both Houses of the contemporary Parliament regard the order as being for the common weal, I entertain no doubt that the courts have jurisdiction to declare it to be invalid if they are satisfied that in making it the Minister who did so acted outwith the legislative powers conferred upon him by the previous Act of Parliament under which the order is ultra vires by reason of its contents (patent defects) or by reason of defects in the procedure followed prior to its being made (latent defects)."
"To sum it up, the levels of public expenditure and the incidence and distribution of taxation are matters for Parliament, and, within Parliament, especially for the House of Commons... If a statute, as in this case, requires the House of Commons to approve a minister's decision before he can lawfully enforce it, and if the action proposed complies with the terms of the statute..., it is not for the judges to say that the action has such unreasonable consequences that the guidance upon which the action is based and of which the House of Commons had notice was perverse and must be set aside. For that is a question of policy for the minister and the Commons, unless there has been bad faith or misconduct by the minister. Where Parliament has legislated that the action to be taken by the Secretary of State must, before it is taken, be approved by the House of Commons, it is no part of the judges' role to declare that the action proposed is unfair, unless it constitutes an abuse of power in the sense which I have explained."
Sedley LJ rightly pointed out in BAPIO that this reasoning was "predicated on the inapt nature of the subject-matter – public finance – for judicial scrutiny, not upon a quasi-immunity from judicial review of delegated legislation or rules which have been laid before Parliament." He pointed out that there was no such immunity, and that the Immigration Rules would be reviewable for want of power to make them or for irrationality. Turning to the question whether they were reviewable for procedural unfairness he said this:
"The real obstacle which I think stands in the appellants' way is the difficulty of propounding a principle which reconciles fairness to an adversely affected class with the principles of public administration that are also part of the common law. These are not based on administrative convenience or potential embarrassment. They arise from the separation of powers and the entitlement of executive government to formulate and reformulate policy, albeit subject to such constraints as the law places upon the process and the product. One set of such constraints in modern public law are the doctrines of legitimate expectation, both procedural and substantive."
I agree with this in the cases to which Sedley LJ was referring, namely those in which delegated legislation was an expression of legislative policy. I think that it represents a more nuanced and accurate statement of the law than the more hard-edged formulations of Maurice Kay LJ and Rimer LJ in the same case.
LORD REED (dissenting)
"Furthermore, whilst Parliament is entirely independent of the courts in its freedom to enact whatever legislation it sees fit, legislation by Order in Council, statutory instrument or other subordinate means is in a quite different category, not being Parliamentary legislation. This subordinate legislation is subject to some degree of judicial control in the sense that it is within the province and authority of the courts to hold that particular examples are not authorised by statute, or, as the case may be by the common law, and so are without legal force or effect."
A similar explanation was given by Lord Phillips of Worth Matravers MR in R (Asif Javed) v Secretary of State for the Home Department  EWCA Civ 789;  QB 129, para 33. Since the executive is acting under powers conferred by Parliament when it makes a statutory instrument, it can only act within the scope of those powers as determined by the courts. The subject-matter of the court's supervision is the lawfulness of the decision taken by the executive: there is no question of judicial supervision of the exercise by Parliament of its power to approve the instrument or to withhold its approval. That distinction is reflected in section 63 of the 2008 Act, which, as I have mentioned, permits an application to be made to set aside the decision of the Treasury. If the court sets aside that decision, it then quashes the resulting order, but it does not review anything done by Parliament.
The substantive grounds of challenge
The relevant legal principles
The concept of proportionality
"The Court has consistently held that the principle of proportionality is one of the general principles of Community law. By virtue of that principle, the lawfulness of the prohibition of an economic activity is subject to the condition that the prohibitory measures are appropriate and necessary in order to achieve the objectives legitimately pursued by the legislation in question; when there is a choice between several appropriate measures recourse must be had to the least onerous, and the disadvantages caused must not be disproportionate to the aims pursued."
The intensity with which the test is applied – that is to say, the degree of weight or respect given to the assessment of the primary decision-maker - depends upon the context.
"whether: (i) the legislative objective is sufficiently important to justify limiting a fundamental right; (ii) the measures designed to meet the legislative objective are rationally connected to it; and (iii) the means used to impair the right or freedom are no more than is necessary to accomplish the objective."
De Freitas was a Privy Council case concerned with fundamental rights under the constitution of Antigua and Barbuda, and the dictum drew on South African, Canadian and Zimbabwean authority. The three criteria have however an affinity to those formulated by the Strasbourg court in cases concerned with the requirement under articles 8 to 11 that an interference with the protected right should be necessary in a democratic society (eg Jersild v Denmark (1994) Publications of the ECtHR Series A No 298, para 31), provided the third limb of the test is understood as permitting the primary decision-maker an area within which its judgment will be respected.
Paragraph 9(6) of Schedule 7
"(a) a person carrying on business in the country [in respect of which the conditions mentioned in paragraph 1 are satisfied];
(b) the government of the country;
(c) a person resident or incorporated in the country."
Under paragraph 9(2), the requirements may be imposed in relation to
"(a) a particular person within sub-paragraph (1) [known as a "designated person": paragraph 9(3)],
(b) any description of persons within that sub-paragraph, or
(c) all persons within that sub-paragraph."
Under paragraph 9(4), different types of requirement may be imposed upon the institution or institutions: enhanced customer due diligence in relation to transactions or business relationships with a designated person, ongoing monitoring of such relationships, systematic reporting in respect of such transactions or relationships, or limiting or ceasing such transactions or relationships. Under paragraph 9(5), a direction may make different provision in relation to different descriptions of designated person and in relation to different descriptions of transaction or relationship. It is in that context that paragraph 9(6) provides:
"The requirements imposed by a direction must be proportionate having regard to the advice mentioned in paragraph 1(2) or, as the case may be, the risk mentioned in paragraph 1(3) or (4) to the national interests of the United Kingdom."
Applying the proportionality test
"The Oakes inquiry into 'rational connection' between objectives and means to attain them requires nothing more than showing that the legitimate and important goals of the legislature are logically furthered by the means government has chosen to adopt."
The words "furthered by" point towards a causal test: a measure is rationally connected to its objective if its implementation can reasonably be expected to contribute towards the achievement of that objective. The manner in which the courts should determine whether that test is satisfied requires careful consideration.
"The unsatisfactory basis for the figures and analysis in the [impact assessment] does not, in the absence of any other factor, justify concluding that the ban is disproportionate, given the wide margin of appreciation to be accorded. If one takes away one source of cigarettes, particularly one that involves no control over the identity of the purchaser, it is scarcely unreasonable to conclude that it will reduce consumption of cigarettes to some extent, although … that conclusion is not one which necessarily follows ineluctably."
Like La Forest and McLachlin JJ in the RJR-MacDonald case, Lord Neuberger MR treated "common sense" and "logic" (paras 238, 242 and 244) as a sufficient basis for finding that the ban was rational. In the parallel litigation in the Court of Session, the court also referred to common sense as a basis for concluding that the legislation was apt to achieve its objective (Sinclair Collis Ltd v Lord Advocate 2013 SLT 100, para 62).
"that the choice of an immigration measure to address a security problem had the inevitable result of failing adequately to address that problem (by allowing non-UK suspected terrorists to leave the country with impunity and leaving British suspected terrorists at large) while imposing the severe penalty of indefinite detention on persons who, even if reasonably suspected of having links with Al-Qaeda, may harbour no hostile intentions towards the United Kingdom."
Lord Bingham did not explicitly apply the three De Freitas criteria or the fuller Oakes analysis (to which he referred at para 30), but in the passage cited appears to balance the severity of the effects on the rights of the persons detained against the importance of the objective: that is to say, step four in the analysis. Lord Hope of Craighead focused on the question whether there was some other way of dealing with the emergency which would not be incompatible with the Convention rights (para 124): in other words, a test of necessity. Lord Scott of Foscote also considered that the legislation failed to meet the necessity test, since it had not been shown that monitoring arrangements or movement restrictions would not suffice (para 155). That was also the approach adopted by Lord Rodger of Earlsferry, who stated that, proceeding on the same basis as the Government and Parliament, that detention of the British suspects was not strictly required to meet the threat that they posed to the life of the nation, the detention of the foreign suspects could not be strictly required either to meet the comparable threat that they posed (para 189). Baroness Hale of Richmond also focused on the question of necessity, observing that if it was not necessary to lock up the nationals it could not be necessary to lock up the foreigners (para 231). Lord Carswell agreed with Lord Bingham.
The justification for making the order
"The Treasury was satisfied that Bank Mellat has provided financial services to companies engaged in Iran's nuclear and ballistic missile programmes. A direction to cease business with Bank Mellat would restrict the financial services available to entities involved in Iran's nuclear and ballistic missile programmes by denying them access to the UK financial sector through Bank Mellat. This would have the maximum possible adverse impact on the nuclear and ballistic missile programmes of the measures available under Schedule 7 in relation to Bank Mellat. If Bank Mellat wished to continue its activities in support of those programmes it would need to seek other sources of financial services, assuming such alternatives were actually available to it. There was also the possibility that as a bank subject to restrictions in the United Kingdom, Bank Mellat would not be in a position to access the global financial system as effectively in order to seek substitute arrangements for those no longer available to it in the UK. At the very least, this would impede the Iranian nuclear and ballistic missile programmes by imposing additional costs and delays on the programmes."
"The Treasury's case is not that the bank has knowingly assisted Security Council designated entities after designation, or even that it has knowingly assisted entities liable to be designated, but which have not yet been, by providing banking facilities to them, but that it has the capacity to do so, has in one instance done so and is likely to do so in the future. The fundamental justification for the order is that, even as an unknowing and unwilling actor, the bank is, by reason of its international reach, well placed to assist entities to facilitate the development of nuclear weapons, by providing them with banking facilities, in particular trade finance."
It was on that basis that Mitting J commented that Bank Mellat's dealings with Doostan and Mr Shabani did not greatly matter.
A different justification from that given to Parliament
"Iran continues to pursue its proliferation sensitive nuclear and ballistic missile activities in defiance of five UN Security Council Resolutions. We cannot and will not ignore specific activities undertaken by Iranian companies which we know to be facilitating activity identified by the UN as being of concern, particularly where such activities have the potential to affect the UK's interests.
On the particular entities in question, vessels of the Islamic Republic of Iran Shipping Lines (IRISL) have transported goods for both Iran's ballistic missile and nuclear programmes.
Similarly, Bank Mellat has provided banking services to a UN listed organisation connected to Iran's proliferation sensitive activities, and been involved in transactions related to financing Iran's nuclear and ballistic missile programme.
The direction to cease business will therefore reduce the risk of the UK financial sector being used, knowingly or otherwise, to facilitate Iran's nuclear proliferation sensitive activities."
"These restrictions are being imposed in respect of these two entities because of their provision of services for Iran's ballistic missile and nuclear programmes. It is considered that a direction to cease business with these entities will contribute to addressing the risk to the UK national interests posed by Iran's nuclear proliferation sensitive activities."
Similar explanations of the thinking behind the order were also provided by Ministers during the Parliamentary proceedings leading to the approval of the order.
"The task … on an appeal on a Convention ground against a decision of the primary decision-maker … is to decide whether the challenged decision is unlawful as incompatible with a Convention right or compatible and so lawful. It is not a secondary, reviewing, function dependent on establishing that the primary decision-maker misdirected himself or acted irrationally or was guilty of procedural impropriety."
"Article 9 of the Convention is concerned with substance, not procedure. It confers no right to have the decision made in any particular way. What matters is the result."
In this respect, there is no difference between article 9 and other Convention rights.
Less intrusive means
LORD HOPE (DISSENTING)
The substantive issues
The procedural issues
"Although in this case I am only concerned with a direction made in the circumstances set out in paragraph 1(4) of Schedule 7 in respect of a bank, there are many other circumstances in which directions could be made when Parliament cannot have intended that there should be an opportunity for affected persons to make representations. They include individuals engaged in terrorist financing or money laundering activities (paragraphs 1(3)(c) and 9(1)(c)); and governments reasonably believed to be engaged in the development or production of nuclear etc weapons (paragraphs 1(4)(a) and 9(1)(b); and the manifold persons in the UK financial sector to whom the direction is given (paragraph 3(1))."
He also pointed out that a duty to permit prior representations where there was no reason to believe that avoiding action would be taken by an affected person would be judge-made. Where Parliament had conferred a rule-making power on the executive subject to Parliamentary control, it was not generally for the courts to superimpose additional procedural safeguards: R (Bapio) v Secretary of State for the Home Department  EWCA Civ 1139.
(a) the common law challenge
(b) the Convention rights challenge
"It is one thing temporarily to freeze a person's assets, so that he cannot divest himself of them before an issue is tried; it is another thing to deprive someone of their employment by operation of law."
LORD NEUBERGER (dissenting in part)
The substantive ground of challenge
The procedural ground of challenge
LORD DYSON (dissenting in part)
LORD CARNWATH (dissenting in part)