Mellat v HM Treasury

Where unlawful interference with a Convention right has been established, damages under section 8 of the Human Rights Act 1998 are not confined to loss of the particular “possession” affected. Consequential losses, including future profits, may in principle be recoverable if they were demonstrably and directly caused by the unlawful interference. Whether that requirement is met is ordinarily fact-sensitive.

The Strasbourg jurisprudence recognises a rule equivalent to the English rule against reflective loss. A shareholder generally cannot recover loss reflecting loss suffered by the company, unless exceptional circumstances prevent the company from pursuing its own claim. The rule did not apply where the subsidiary itself had no viable claim against the wrongdoer.

Bank Mellat claimed damages under section 8 of the Human Rights Act 1998 for losses caused by the Financial Restrictions (Iran) Order 2009, made under the Counter-Terrorism Act 2008. The Order excluded the Bank from the United Kingdom financial sector and was later held unlawful by a majority of the Supreme Court.

The Commercial Court tried three preliminary issues: whether the Treasury could contest Convention unlawfulness; whether losses reflected in the diminished earnings of subsidiaries were irrecoverable; and whether damages were limited to losses concerning “possessions” protected by Article 1 of Protocol No 1. The court also considered whether consequential and future losses could be recoverable following established interference with protected goodwill.

1. Convention unlawfulness. The Treasury could not contend that the Order was merely unlawful at common law. The Supreme Court majority had determined that the Order was incompatible with the Bank’s right to peaceful enjoyment of its possessions under Article 1 of Protocol No 1 and was therefore unlawful under section 6(1) of the Human Rights Act 1998. The first preliminary issue was decided against the Treasury.
2. Reflective loss. The Strasbourg jurisprudence recognises, in general terms, a rule equivalent to the English rule that a shareholder cannot recover loss which merely reflects loss suffered by the company. That rule is subject to exceptional circumstances, including where the company cannot bring a claim. The Bank was the direct victim of the Order. PIB was affected only indirectly and could not itself claim damages under sections 7 and 8 of the Human Rights Act 1998, nor under any identified private-law cause of action. The exception therefore applied, and the claim concerning diminution in the value of the Bank’s PIB shareholding was not struck out.
3. Scope of damages. The relevant “possessions” were the Bank’s established goodwill, not future profits as such. That distinction addressed the threshold question whether Article 1 of Protocol No 1 was engaged. It did not confine damages, once unlawful interference had been established, to direct damage to the possession itself.
4. Applying the principle of restitutio in integrum and just satisfaction, consequential losses, including loss of future earnings or profits, could in principle be recovered. Recovery depended on proof that the losses were demonstrably and directly caused by the unlawful interference with the protected possessions. Causation, the extent of loss and the possibility of speculation were matters for the full trial, not suitable for determination on these preliminary issues.
5. The Treasury’s attempt to limit the Bank’s damages by reference to whether each claimed loss was itself a “possession” was rejected. The third preliminary issue was determined against the Treasury.

• Supreme Court—The majority held that the Financial Restrictions (Iran) Order 2009 was unlawful and remitted the damages claim to the High Court.
• Court of Appeal—The majority dismissed the Bank’s challenge to the Order: [2011] EWCA Civ 1 ; [2012] QB 101 .
• High Court—Mitting J refused the application to set aside the Order: [2010] EWHC 1332 (QB) ; [2010] Lloyd’s Rep (FC) 504.