R (on the application of M) v Her Majesty's Treasury

The central legal issue was the proper interpretation of the phrase "for the benefit of" in article 2.2 of Council Regulation (EC) No 881/2002 as amended, read with article 2.1, article 2.3 and the exception regime in article 2a (added by Regulation 561/2003). The committee concluded that article 2.2 should not be read so widely as to make any expenditure from which a listed person derives an incidental benefit automatically "for the benefit of" that person. Instead the phrase should be understood (subject to the Court of Justice's ruling) to require that funds be made available to the listed person in a way that enables him or her to use them. The committee held that the intrusive licence conditions imposed by the Treasury on payments of social security benefits to a person living with a listed individual were not required by article 2.2 and would produce disproportionate and anomalous results compared with article 2.3.

This case concerned the effect of UN Security Council Resolution 1390 (2002) as implemented in the European Union by Council Regulation (EC) No 881/2002 and as amended by Council Regulation (EC) No 561/2003, and its transposition into United Kingdom domestic law by the Al-Qa'ida and Taliban (United Nations Measures) Order 2002 (SI 2002 No 111). The factual matrix involved listed persons under the sanctions regime and payments of social security benefits to spouses or others living with listed persons. For example, Mr M (a listed person) lived with Mrs M who received benefits such as income support, disability living allowance, child benefit, housing benefit and council tax benefit.

The Treasury's position was that article 2.2 barred any funds "for the benefit of" a listed person and therefore required licences under article 2a before social security payments could be made to someone living with a listed person. The licence imposed strict conditions: payment into a controlled account, severe cash limits, monthly itemised accounts and disclosure of receipts, and a warning that giving cash or assets to the listed person was a criminal offence. The licence rationale was to guard against diversion of funds to terrorism.

The issues framed were (i) whether "for the benefit of" in article 2.2 has a wide meaning so as to include any expenditure from which a listed person derives some incidental or in-kind benefit, and so requires licensing of payments made to third parties living with listed persons; (ii) whether that construction is required to give effect to the purpose of the UN Resolution and the Regulation; and (iii) whether the Treasury's construction is compatible with the structure of the Regulation (including article 2.3) and with proportionality.

The committee decided to refer a question of interpretation to the Court of Justice under article 234 of the Treaty establishing the European Community. In aid of the reference it gave its own opinion: a broad construction would not follow the purpose of the UN Resolution, would be anomalous when compared with article 2.3 (which prohibits making economic resources available only where they enable the listed person "to obtain funds, goods or services"), would wrongly treat "made available for the benefit of" as equivalent to "expended or applied for the benefit of", and would produce disproportionate and oppressive intrusions into the private affairs of persons who are not listed. The committee noted that article 2a addresses licences for payments to listed persons themselves and does not make article 2a redundant under a narrower reading of article 2.2.

The Appellate Committee decided to refer a question of interpretation of article 2.2 of Council Regulation (EC) No 881/2002 to the Court of Justice for a preliminary ruling. In their view the Treasury's wide construction of "for the benefit of" was unnecessary to achieve the purpose of the sanctions regime, produced an anomalous discrepancy with article 2.3, conflated "made available" with "applied or expended", and would lead to disproportionate and oppressive intrusions on persons who are not listed. The Committee therefore concluded that the intrusive licence regime imposed on payments to persons living with listed individuals was not required by article 2.2, and invited the Court of Justice to rule on the precise meaning.

On appeal from the Court of Appeal [2007] EWCA Civ 173.