Bank Mellat v Her Majesty's Treasury (No 2)

A measure interfering with a fundamental right must pursue a sufficiently important objective, be rationally connected to that objective, use no more intrusive means than can achieve it without unacceptable compromise, and strike a fair balance between individual rights and community interests.

A targeted statutory measure may be disproportionate where it arbitrarily singles out one person while leaving materially comparable persons unaffected. Procedural fairness will ordinarily require advance notice and an opportunity to make representations before a statutory power foreseeably causes serious detriment, unless the statute clearly excludes that protection or the circumstances make it impracticable. Parliamentary approval of delegated legislation does not prevent judicial review of the executive decision to make it.

The Treasury made the Financial Restrictions (Iran) Order 2009 under Schedule 7 to the Counter-Terrorism Act 2008. It directed the United Kingdom financial sector to cease transactions and business relationships with Bank Mellat. The measure was intended to hinder the financing of Iran’s nuclear and ballistic missile programmes and caused serious loss to the Bank’s business and goodwill.

The Bank applied under section 63 to set aside the Treasury’s decision. Mitting J dismissed the application. The Court of Appeal, [2011] EWCA Civ 1, unanimously rejected the substantive challenge and, Elias LJ dissenting, rejected the procedural challenge.

The Supreme Court considered whether the measure was rational and proportionate, particularly given the selection of the Bank from among comparable Iranian banks, and whether fairness required advance notice and an opportunity to make representations.

1. Appeal allowed. By a majority of five to four, the Court held that the direction was substantively unlawful. By a majority of six to three, it held that the failure to give prior notice and an opportunity to make representations was procedurally unfair. The Treasury’s decision was set aside and the order quashed.

2. Lord Sumption, with Lady Hale, Lord Kerr, Lord Clarke and Lord Carnwath forming the substantive majority, held that proportionality required an exacting analysis of the factual justification. The court asks whether the objective is sufficiently important, whether the measure is rationally connected to it, whether a less intrusive measure could achieve it without unacceptable compromise, and whether a fair balance has been struck. The executive retained a large margin of judgment in matters of national security and nuclear non-proliferation: paras 19–21.

3. The prevention of nuclear proliferation was of the highest importance, and excluding an Iranian bank could make some contribution to that objective. The measure was nevertheless irrational in its incidence and disproportionate. The justification ultimately accepted concerned risks inherent in international banking, not a special deficiency of Bank Mellat. Comparable banks remained available as alternatives. The arbitrary distinction substantially reduced the measure’s effectiveness and was not objectively justified: paras 22–27.

4. Lord Sumption, joined on the procedural issue by Lady Hale, Lord Kerr, Lord Clarke, Lord Neuberger and Lord Dyson, held that fairness required consultation. The measure specifically targeted the Bank, had immediate and potentially irreversible effects, rested on factual allegations within its knowledge, and presented no sufficient difficulty of secrecy, urgency or avoidance: paras 28–32.

5. Neither section 63 nor the statutory instrument procedure excluded the common law duty. A later judicial challenge did not provide equivalent protection against immediate damage. Delegated legislation remains an executive act made under limited statutory powers. Parliamentary approval therefore does not prevent review for substantive or procedural unlawfulness, especially where the instrument applies a statutory power to named persons rather than implementing general policy: paras 33–48.

6. Lord Reed and Lord Hope dissented on both issues. Lord Neuberger and Lord Dyson would have rejected the substantive challenge but allowed the procedural challenge. Lord Carnwath would have allowed the substantive challenge but rejected the procedural challenge.

1. United Kingdom Supreme Court: By majorities on both grounds, allowed the appeal, set aside the Treasury’s decision and quashed the order: [2013] UKSC 39.
2. Court of Appeal: Dismissed the appeal unanimously on the substantive grounds and by a majority on the procedural ground, Elias LJ dissenting: [2011] EWCA Civ 1.
3. High Court: Mitting J dismissed the Bank’s application on both the substantive and procedural grounds: [2010] EWHC 1332 (QB).