Shanning International Ltd v Lloyds TSB Bank Plc & Ors

Community legislation adopted in response to political events may be valid where it also pursues a genuine Treaty objective. A concurrent foreign-policy purpose does not invalidate an economic measure. Under Article 235, the Council may act where the measure pursues a Community objective, is necessary and appropriate for it, operates in the common market, and no other Treaty power is available.

A regulation of general application satisfies the duty to give reasons if its recitals identify the general situation leading to its adoption and its general objectives. Reconsultation is required only where the final measure differs in essence or departs substantially from the consulted proposal. A prohibition intended to prevent claims after sanctions are lifted may be permanent even though the underlying contracts remain in force.

Shanning supplied medical equipment to buyers in Iraq. The transaction was supported by an advance-payment guarantee from Rasheed Bank, a counter-guarantee from Lloyds, and a counter-indemnity secured by Shanning’s deposit.

Following Iraq’s invasion of Kuwait, sanctions prevented performance and payment. Council Regulation 3541/92 prohibited satisfaction of certain claims connected with transactions affected by the sanctions. Rasheed challenged the Regulation’s validity and contended that the prohibition was temporary. Langley J held that the Regulation was valid and permanent, and made declarations enabling judgment for Shanning’s liquidator. Rasheed appealed, and Shanning appealed the costs order.

The central issues were whether the Council had competence under Article 235, whether essential procedural requirements had been met, whether the prohibition was permanent, and how costs should be allocated.

1. Rasheed’s appeal dismissed. The Regulation was valid and imposed a permanent prohibition.

2. Article 235 required: a Community objective; necessity for that objective; attainment in the operation of the common market; absence of another necessary Treaty power; and an appropriate measure. Political or security objectives were outside the Treaty, but a measure prompted by political events could also pursue a legitimate economic objective. The court rejected the submission that the common-market objective had to be the principal objective.

3. Uniform implementation of paragraph 29 of UN Security Council Resolution 687 could legitimately protect competition in the common market. Without uniformity, banks and other economic operators in different Member States might bear unequal exposure to Iraqi claims. The recital referring to distortion of competition was genuine, and the absence of the detailed analysis required in individual competition decisions did not invalidate a regulation of general application.

4. The reasons requirement in Article 190 was satisfied. For a regulation, the recitals need indicate the general situation leading to adoption and the general objectives pursued. The Regulation’s recitals did so. Parliament did not need to be consulted again because the final text did not differ in essence or depart substantially from the proposal.

5. The purpose of paragraph 29 was to prevent retroactive compensation after sanctions were lifted. That purpose required permanence. The Regulation’s recital and operative wording imposed a permanent prohibition; the absence of contractual discharge provisions did not prevent that construction.

6. Shanning’s costs appeal was also dismissed. The general rule that a successful claimant receives costs from the defendant is subject to the court’s broad discretion. Lloyds was substantially neutral and held the money without a personal interest in it, so the judge was entitled to order Rasheed to pay Shanning’s costs.

• Court of Appeal (Civil Division): dismissed Rasheed’s appeal against Langley J’s decision that Council Regulation 3541/92 was valid and permanent; dismissed Shanning’s costs appeal; refused permission to appeal to the House of Lords.