Case Comment: Bank Mellat v Her Majesty’s Treasury (Nos. 1 and 2)  UKSC 38 and UKSC 39
16 Tuesday Jul 2013
The Supreme Court handed down judgment in Bank Mellat v Her Majesty’s Treasury (No 1) and (No 2) on the 19th June, holding that the Supreme Court is able to conduct a closed hearing both in principle and in this case, and allowing the Bank’s substantive appeal.
Bank Mellat is a large, privately owned, Iranian commercial bank. On 9 October 2009, the Treasury created the Financial Restrictions (Iran) Order 2009 (SI 2009/2725) under powers conferred to it by the Counter-Terrorism Act 2008, Sch 7. This Order came into force on 12 October 2009, stipulating that all persons operating in the UK financial sector must not enter into or continue with any transaction or business relationship with the Bank, with immediate effect. The Order was made in the context of nuclear proliferation activities in Iran, and investigations into those that finance such activities. The Order inflicted damage upon the Bank’s reputation and existing business activities, prompting it to challenge the Order under s 63(2) of the 2008 Act. The Bank alleged that the Order in question breached the rules of natural justice, and/or Article 6 ECHR, and/or Article 1 Protocol 1 ECHR. In addition to this substantive appeal, some of the evidence relied upon by the Treasury was of a sensitive nature and had resulted in a closed session at first instance and the subsequent production of a closed judgment. This posed novel questions for the Supreme Court as to its ability to sit in closed session as the UK’s final court of appeal.
The decisions of the High Court and Court of Appeal
In the High Court, The Honourable Mr Justice Mitting dismissed both the procedural and substantive challenge to the Order. The procedural challenge was made through the Bank’s inability to make representations prior to the establishment of the Order. As against this claim, it was held that the Bank did have such an opportunity prior to Parliament’s affirmation of the Order, and through the procedure under s 63(2) of the 2008 Act. The substantive challenge, which largely concerned the proportionality of the Order toward its aims, was also rejected for the reason that there was a reasonable belief that the nuclear proliferation activities in question were a significant threat to the national interests of the UK, something which falls within the wide margin of discretion available in such cases. Mr Justice Mitting heard evidence presented by the Treasury in closed session, although this evidence was not stated to have been determinative on the proportionality issue. A closed judgment was produced specifically dealing with the closed evidence presented.
The Bank lost its subsequent appeal in The Court of Appeal. There, the Court dismissed the Bank’s arguments as to both the substantive and procedural issues, providing similar reasons to those given at first instance. The Court sat in closed session only to consider the closed judgment of Mr Justice Mitting. No closed judgment was produced, and the Court referred to the closed material in general terms in an open judgment.
Before the Supreme Court
Bank Mellat v HM Treasury (No 1) – Closed Material Procedures (“CMP”)
There were two pivotal questions to answer: first, can the Supreme Court conduct a CMP in principle; second, will it do so in this case?
CMPs in the Supreme Court
The majority held that the Supreme Court may, in principle, conduct closed hearing. This was reasoned on the basis that s.40(2) and s.40(5) of Constitutional Reform Act 2005 (“the 2005 Act”) logically lead to this conclusion in cases where a CMP is necessary in order to disposed on an appeal. Respectively, the two sections state:
An appeal lies to the Court from any order or judgment of the Court of Appeal in England and Wales in civil proceedings.
The Court has power to determine any question necessary to be determined for the purposes of doing justice in an appeal to it under any enactment.
Cases in which sensitive information is relied upon by one party may necessitate a closed session in order to do justice in the appeal. Therefore a CMP may, in principle, be conducted.
The minority were not so persuaded. Lord Hope’s dissent opined that, due to the engagement of the fundamental common law principle of a right to a fair trial, anything short of specific Parliamentary provision for the use of a CMP at the Supreme Court is insufficient – “a point of such fundamental importance [cannot] be left to implication”.
Holding a CMP in this case
The majority found that it was necessary to consider the closed judgment of Mr Justice Mitting, and to hear related submissions in order to justly dispose of the appeal. Lord Neuberger stated that, whilst the Court suspected that the closed judgment would not be useful, this could not be said with any certainty until it had been seen. His Lordship highlighted a number of concerns about the process in this case and considered that, ultimately, the evidence heard merely put some “evidential flesh on some fairly bare bones embodying some of the conclusions of fact reached in the open judgment”.
From this experience, the Court provided dicta as to how CMPs ought to be dealt with in the future. Where a judge gives an open and closed judgment, the open judgment should make clear which conclusions were reached in whole or part in light of the points made or referred to in the closed judgment, and courts must themselves remember their duty to avoid a CMP if that can be achieved. Further, counsel representing a party seeking to rely on confidential evidence must fulfil their duty to the Court, as well as to their client, and as such must judge whether the course of conduct in question is necessary or appropriate. Generally, it was held that an appellate court must be robust about acceding to these applications; there must be very few appeals where this is likely to be necessary and, it was stated, that it is hard to believe, in this narrow range of cases, that an advocate cannot articulate convincing reasons in open court for taking such a course.
Lord Hope’s dissent, again, provides some particularly interesting comments. His Lordship considered that, as the onus is on the Treasury to prove the necessity of a CMP and, as the Treasury merely asserted the need for a CMP rather than providing substantive reasons, the case for a CMP had not adequately been made. Lord Hope went so far as to state that he was “not impressed” by Counsel for the Treasury’s lack of ability to answer the questions asked as to “the point” of the paragraph in the closed judgment which was being asserted as important. The Courts should be steadfast in ensuring that CMPs are not over-used by those in control of the confidential material.
The majority approached the issue of CMPs at Supreme Court level by taking a middle road: the use of CMPs is not simply to be the default approach where sensitive information may be of relevance, but nor are CMPs necessarily limited to circumstances where they are very specifically mandated by Parliament. Instead, CMPs are available for use, but the establishment of specific thresholds and the carrying out of specific duties are required before the procedure is shown to be necessary. Particularly interesting in light of this approach to CMPs is the dictum reiterating the duty of counsel to the court in this context: representatives cannot not utilise sensitive evidence in order to place courts in difficult positions as to the need for a CMP where, if a CMP were entered into, it would become clear that it was inappropriate. This is borne from the reality that a court cannot truly be sure of the value of sensitive evidence until it has been heard. There must therefore a duty for counsel seeking to rely on this evidence to do so with the utmost responsibility, being mindful of both his/her duty to their client as well to the interests of justice.
Bank Mellat v HM Treasury (No 2) – The challenge to the Order
The procedural challenge:
The Treasury argued that there was no breach of procedural duty toward the Bank due to (a) the fact that s 63(2) of the 2008 Act is sufficient for these purposes; and (b) that the Order is made as a piece of subordinate legislation, and so the procedural challenge is not well founded. By majority, the Supreme Court allowed the appeal of the Bank. First, the mere existence of a statutory provision for effective judicial review is not enough to remove the Treasury’s common law duty of fairness. Second, although the Order is secondary legislation, one must not address its reviewability on its form but rather on its substance. As this Order directs itself toward individuals, in principle, prior notice must to be given to the individual affected in order for representations to be made. Thus, as the Bank was deprived of the opportunity to make representations prior to the Order’s coming into force, the Supreme Court found in favour of the Bank on this ground. Dissenting opinion argued that the scheme set out in the 2008 Act was a specific iteration of Parliamentary intention for procedural matters in this context, and that the Court should not change this statutory scheme.
The substantive challenge:
The Order in question was challenged as being disproportionate toward the goal to be achieved, and therefore unlawful. In this respect, the issue was the specific direction of the Order toward Bank Mellat as opposed to toward a particular class of Iranian banks, in light of the perceived threat to UK interests. By majority, the Supreme Court held that the issues which the Order sought to address (financing nuclear proliferation activities) are inherent to banking generally, and are not specific to the actions and conduct of Bank Mellat. This makes the singling out Bank Mellat disproportionate and irrational; there is no reason why eliminating Bank Mellat’s business in London was necessary to achieve the purposes in question. The minority disagreed, arguing that the wide margin of discretion available to the Treasury in making these decisions, and the rational connection between the Order and the goal in question, meant that the action was proportionate.
This judgment makes it clear that, despite the highly sensitive political aim in question, government action must comply with the law. Within the wide margin of discretion afforded to the State in such cases, there must be greater evidence than was available in this case before single entities are targeted and restrained in their business. This is an interesting example of the difficult terrain of court ‘interference’ with essentially political decisions, with the Supreme Court remaining steadfast in ensuring respect for the rule of law.