Bank Mellat v HM Treasury

A shareholder cannot recover, as its own Convention loss, a loss sustained directly by a company which can itself claim as a victim. The corporate personality will be disregarded only in exceptional circumstances. A claimant's separate victim status in respect of other losses does not entitle it to recover the company’s loss.

Where the facts relevant to just satisfaction remain unresolved, the court should not use a preliminary issue to determine whether alleged future income, goodwill, contractual rights or other economic interests are recoverable under Human Rights Act 1998. Characterisation, causation and recoverability should instead be determined after the necessary findings of fact.

The Supreme Court had held that the Financial Restrictions (Iran) Order 2009 unlawfully interfered with Bank Mellat’s rights under Article 1 of Protocol 1 and remitted its claim for just satisfaction. Bank Mellat then claimed substantial damages under Human Rights Act 1998, including 60% of the lost earnings of Persia International Bank plc (PIB), in which it held 60% of the shares, and losses connected with future business.

On preliminary issues, Flaux J held that Bank Mellat could claim PIB’s loss but declined to determine the recoverability of future income: [2015] EWHC 1258 (Comm). HM Treasury appealed. The central questions were whether PIB itself had victim status and, if so, whether Bank Mellat could recover PIB’s loss as shareholder; and whether the court should determine at the preliminary stage the scope of recoverable just satisfaction.

1. Appeal allowed in part. Lord Thomas CJ, with whom Longmore and Lewison LJJ agreed, held that the claim for 60% of PIB’s loss of earnings before tax had to be struck out. The judge was correct to decline to determine the future-income issue at the preliminary stage.

2. PIB was directly affected by the 2009 Order. It was a relevant person operating in the financial sector and Article 4 directly prohibited it from entering into or continuing a business relationship with Bank Mellat. PIB could therefore seek to set aside the decision under section 63(2) of the Counter-Terrorism Act 2008 and obtain judicial-review relief under section 63(4).

3. PIB also had victim status under section 7 of the Human Rights Act 1998. Its loss was not remote: the direct prohibition imposed on PIB was a principal means by which the Order prevented Bank Mellat from dealing through the United Kingdom. PIB could accordingly seek just satisfaction under section 8.

4. The court applied the Strasbourg principle that, save in exceptional circumstances, a company, rather than its shareholders, is the victim entitled to claim for loss sustained by the company. Bank Mellat’s own victim status in relation to its direct losses did not enable it to recover PIB’s loss. PIB was a distinct regulated financial institution, with its own directors and interests. Bank Mellat had suffered only the consequential loss of income from its shareholding. There was no basis to disregard PIB’s legal personality.

5. The exceptional cases involving a sole owner, or special and intertwined ownership arrangements without competing interests, did not assist Bank Mellat. The court did not finally decide the precise domestic-law rationale of the reflective-loss rule, because that issue arose only tangentially.

6. On the second issue, the nature, extent, causation and recoverability of the alleged losses required factual findings. The court declined to decide whether future income, goodwill, legitimate expectations or other asserted interests could found an award of just satisfaction. All such issues remained open for the trial judge, who was not bound by Flaux J’s views on them.

• Court of Appeal (Civil Division): HM Treasury’s appeal was allowed in part. The court reversed the ruling permitting Bank Mellat to claim PIB’s loss, but upheld the refusal to determine the future-income issue at a preliminary stage.
• Commercial Court: Flaux J determined preliminary issues in [2015] EWHC 1258 (Comm). He held that Bank Mellat could claim PIB’s loss and declined to decide the future-income issue.
• Supreme Court: In Bank Mellat v HM Treasury (No 2), [2013] UKSC 39, the Supreme Court held that the 2009 Order breached Article 1 of Protocol 1 and remitted the claim for just satisfaction.
• High Court: Mitting J had found that Bank Mellat suffered some damage to its possessions: [2010] EWHC 1332 (QB).