Bank Mellat v HM Treasury

The Court of Appeal considered two preliminary issues arising from a remitted claim in which Bank Mellat seeks just satisfaction under s.8 of the Human Rights Act 1998 for an Article 1 of Protocol 1 (A1P1) violation found by the Supreme Court in Bank Mellat v HM Treasury (No 2) [2013] UKSC 39. The panel held that a United Kingdom bank (Persia International Bank plc, PIB) which was a "relevant person" under the Financial Restrictions (Iran) Order 2009 and was directly affected by the direction in that Order had victim status under s.7 of the Human Rights Act and could therefore seek just satisfaction under s.8; as a consequence, Bank Mellat could not maintain a claim for 60% of PIB's loss of earnings before tax because that loss was the company’s loss (reflective loss) and recoverable by PIB, not by Bank Mellat.

The court reached that conclusion by statutory construction of s.63 of the Counter-Terrorism Act 2008 read with s.7(3) and s.7(7) of the Human Rights Act 1998 and by applying the Strasbourg line of authority (notably Agrotexim v Greece and subsequent cases) that, save in exceptional circumstances, the company and not its shareholders are the proper claimant for losses to company assets. The Court of Appeal therefore struck out that part of the claim.

On the second preliminary issue — whether loss of future income claimed by Bank Mellat is recoverable as just satisfaction under A1P1 — the court declined to determine the matter as a preliminary issue. The court held that the question is highly fact-sensitive (involving characterisation of possessions, goodwill and causation) and should be determined at trial on findings of fact; Flaux J’s decision to refuse a pre-trial determination on that issue was upheld.

Background and parties: The Supreme Court had held that HM Treasury’s Financial Restrictions (Iran) Order 2009, made under s.62 and Schedule 7 of the Counter-Terrorism Act 2008, unlawfully interfered with Bank Mellat’s rights under A1P1. The Supreme Court remitted the question of remedies to the High Court. Bank Mellat claimed just satisfaction under s.8 HRA for losses said to total about $4 billion. Two preliminary issues were ordered for trial in the Commercial Court and heard by Flaux J; the Treasury appealed two aspects of those preliminary rulings to the Court of Appeal.

Bank Mellat sought monetary relief under s.8 HRA (just satisfaction) for loss of possessions caused by the 2009 Order, including (i) 60% of the earnings before tax of PIB (a company in which Bank Mellat owns 60%) and (ii) loss of future business / loss of income.

Procedural history to this court: Liability for the A1P1 breach was established by the Supreme Court in [2013] UKSC 39; the Supreme Court remitted quantification to the High Court. Preliminary issues were heard by Flaux J ([2015] EWHC 1258 (Comm)); the Treasury appealed to the Court of Appeal ([2016] EWCA Civ 452).

Issues framed by the court: (1) Whether Bank Mellat could claim directly 60% of PIB’s loss of earnings before tax; and (2) whether Bank Mellat could recover loss of future income / other economic losses as just satisfaction under A1P1 and s.8 HRA, or whether recovery was confined to "possessions" such as concluded contracts or marketable goodwill.

Court’s reasoning on issue (1): The Court of Appeal concluded that PIB fell within the definition of a "relevant person" in the 2009 Order and was directly affected by Article 4 of that Order. Reading s.63 Counter-Terrorism Act 2008 together with s.7(3) and s.7(7) HRA, PIB had victim status and could seek relief (including s.8 HRA remedies) consequent upon the Order being set aside. Domestic law and Strasbourg jurisprudence require that where a company is the directly affected party, it is ordinarily the proper claimant — shareholders cannot recover reflective loss. The court applied Johnson v Gore Wood and the Strasbourg authorities (especially Agrotexim v Greece) to hold that Bank Mellat could not recover PIB’s loss as a shareholder and that that part of the claim must be struck out.

Court’s reasoning on issue (2): The Court of Appeal reviewed Strasbourg and domestic authority on what constitutes a "possession" under A1P1 (goodwill, concluded contracts, lucrum cessans) and the authorities on assessment of just satisfaction. It held that the recoverability of claims for loss of future income, goodwill and other economic interests is fact-sensitive and depends on causation and characterisation. Accordingly the court upheld Flaux J’s refusal to resolve the issue as a preliminary point and remitted the factual and legal questions to the trial judge, free from any restrictive dicta.

Subsidiary findings and implications: The court emphasised the general Strasbourg rule that the corporate veil will be pierced only in exceptional circumstances (for example sole ownership or complete identity of the company and owner) and that there was no basis on the facts to depart from that rule. It left open detailed issues about the scope of Article 41 compensation, marketable goodwill and the treatment of future income pending full trial.

The appeal was allowed in part. The Court of Appeal held that PIB, a UK-authorised bank, was directly affected by the Financial Restrictions (Iran) Order 2009 and therefore had victim status under s.7 HRA to claim just satisfaction under s.8; consequently Bank Mellat could not recover 60% of PIB’s loss of earnings before tax and that head of claim was struck out. On the separate issue of recoverability of loss of future income and related economic losses, the court declined to decide the matter as a preliminary issue and remitted those questions for trial because they are fact-sensitive and involve characterisation and causation.

The claim concerned a remittal by the Supreme Court (Bank Mellat v HM Treasury (No 2) [2013] UKSC 39) to the High Court for quantification following a finding of an A1P1 violation. Preliminary issues were heard by Flaux J in the Commercial Court ([2015] EWHC 1258 (Comm)). HM Treasury appealed to the Court of Appeal (A3/2015/1691; [2016] EWCA Civ 452).