Cukurova Finance International Ltd & Anor, R (on the application of) v HM Treasury & Anor

Judicial review proceedings challenging the vires of secondary legislation must be brought promptly. The grounds of a vires challenge arise when the legislation is made or comes into force, assessed by reference to the nature of the challenge rather than the claimant’s circumstances. An extension of time depends on good reasons for the delay and the likely hardship, prejudice or detriment to good administration caused by relief. Public importance and apparent merit are relevant but do not override prolonged delay affecting commercial transactions.

Under section 2(2)(b) of the European Communities Act 1972, secondary legislation may deal with matters naturally arising from or closely related to implementation of a Community obligation. Legislation may go beyond the Directive or reflect an independent domestic policy choice, provided the extension remains sufficiently connected with the Directive’s purpose.

The claimants sought permission to challenge the vires of the Financial Collateral Arrangements Regulations 2003, made under section 2(2)(b) of the European Communities Act 1972 to implement the Financial Collateral Directive. They argued that the Regulations unlawfully extended the Directive’s personal scope to arrangements between non-natural persons where neither party was a specified financial institution.

The challenge arose from British Virgin Islands proceedings concerning a loan secured over shares and Alfa Telecom’s purported exercise of the appropriation remedy. The claimants had conducted the BVI litigation on the assumption that the Regulations were valid and commenced the present proceedings more than four years after the Regulations came into force. The central issues were whether time should be extended and whether the proposed vires challenge had sufficient merit to justify doing so.

1. Permission refused. The claim was brought outside the time required by CPR 54.5. The grounds of a challenge to the vires of secondary legislation arose when the Regulations were unlawfully made or came into force, not when the claimant later acquired a practical reason to challenge them.
2. The court declined to treat an extension as confined to exceptional cases. The proper approach was to consider the reasons for extending time and, if they existed, the likelihood that relief would cause substantial hardship, substantially prejudice rights or be detrimental to good administration. The claimant’s delay was not excused by the BVI proceedings, which had been conducted on the basis that the Regulations were valid.
3. The issue was of public importance, but that was not a trump card. More than four years had passed during which commercial arrangements had been entered into in reliance on the validity of the Regulations. The claimants had also obtained the commercial benefit of the loan while accepting, with English legal advice available, the potential appropriation remedy.
4. The merits did not justify an extension. Oakley (2006 1 Chancery 337) established that legislation may go further than a Directive, and may reflect an independent domestic policy choice, without necessarily being ultra vires. Section 2(2)(b) permits measures which naturally arise from or are closely related to the primary purpose of implementation. It may also permit an original domestic choice which is consistent with, though not designed to further, the Directive’s purpose.
5. The Regulations widened protection for financial collateral arrangements and thereby furthered the Directive’s essential objective of financial-market stability. Although they struck a different balance between collateral-takers and unsecured creditors, the difference was insufficient to establish a compelling vires challenge. The court therefore refused permission and ordered the claimants to pay the Treasury’s and Alfa’s costs.

First-instance judicial review permission application. No appellate history is stated in the judgment.