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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Bank Mellat v Her Majesty's Treasury [2015] EWCA Civ 1052 (23 October 2015) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2015/1052.html Cite as: [2015] EWCA Civ 1052, [2016] 1 WLR 1187, [2016] CP Rep 7, [2015] WLR(D) 427, [2016] WLR 1187

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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
The Hon Mr Justice Collins and The Hon Mr Justice Ouseley
[2014] EWHC 3631 (Admin)

		Royal Courts of Justice Strand, London, WC2A 2LL
		23/10/2015

Lord Justice Richards :

1. The appellant, Bank Mellat, has applied under section 63 of the Counter-Terrorism Act 2008 ("the 2008 Act") to set aside the directions contained in two statutory instruments made by the respondent, Her Majesty's Treasury, in the exercise of powers conferred by Schedule 7 to the 2008 Act. The instruments under challenge are the Financial Restrictions (Iran) Order 2011 ("the 2011 Order") and the Financial Restrictions (Iran) Order 2012 ("the 2012 Order"). A challenge to an earlier instrument, the Financial Restrictions (Iran) Order 2009 ("the 2009 Order"), succeeded before the Supreme Court: see Bank Mellat v Her Majesty's Treasury (No.2) [2013] UKSC 39, [2014] AC 700 ("Bank Mellat (No.2)"). That decision is not, however, determinative of the present proceedings. An important point of distinction is that the 2009 Order was targeted at Bank Mellat alone, which led to a finding that it was irrational and disproportionate, whereas the 2011 and 2012 Orders apply to all Iranian banks.
2. The present appeal relates to interlocutory decisions concerning disclosure of closed material. Applications under section 63 of the 2008 Act are subject to the procedural rules in CPR Part 79, including provision for a closed material procedure for the protection of material the disclosure of which would be contrary to the public interest. The claimant and the claimant's legal representatives are unable to participate in that procedure but the claimant's interests are represented in it by a special advocate. Central questions for decision by the court in the course of the procedure are whether to give permission for closed material to be withheld from the claimant and the claimant's legal representatives and, if so, whether to direct the service of a summary (or gist) of that material on them: see rule 79.26.
3. In an open judgment handed down on 5 November 2014, Collins J held that the standard to be applied in determining what disclosure should be made in the present case was that laid down by the House of Lords (in the context of control orders) in Secretary of State for the Home Department v AF (No.3) [2009] UKHL 28, [2010] 2 AC 269 ("AF (No.3)"), which in turn applied the approach of the Grand Chamber of the ECtHR in A v United Kingdom (2009) 49 EHHR 29. As Lord Phillips put it at paragraph 59:

"… I am satisfied that the essence of the Grand Chamber's decision lies in para 220 and, in particular, in the last sentence of that paragraph. This establishes that the controlee must be given sufficient information about the allegations against him to enable him to give effective instructions in relation to those allegations. Provided that this requirement is satisfied there can be a fair trial notwithstanding that the controlee is not provided with the detail or the sources of the evidence forming the basis of the allegations. Where, however, the open material consists purely of general assertions and the case against the controlee is based solely or to a decisive degree on closed materials the requirement of a fair trial will not be satisfied, however cogent the case based on the closed materials may be."

4. The Treasury agreed to provide certain gists of the closed material to Bank Mellat but a closed hearing took place before Ouseley J on 18 November 2014 to determine whether any further disclosure should be made. In a closed judgment, Ouseley J said that he would apply the AF (No.3) test in accordance with Collins J's decision, but he held in the application of that test that no further disclosure was required.
5. Those decisions give rise to two issues for resolution by us. The first, raised by way of the Treasury's cross-appeal against Collins J's order, is whether the standard of disclosure in AF (No.3) is the correct standard to apply in the present context. The second, raised by Bank Mellat's appeal against Ouseley J's order, is whether the judge, in applying that standard to the closed material, was wrong to hold that no further disclosure was required.
6. The first issue was the subject of full argument before us in an open hearing and can be dealt with entirely in this open judgment. As to the second issue, Bank Mellat's open representatives were able to outline their general concerns in the open hearing but the detailed argument was addressed by the special advocates and by counsel for the Treasury in a closed hearing. This open judgment covers the second issue to the extent that it can without disclosing information contrary to the public interest. There is a separate closed judgment of the court covering matters disclosure of which would be contrary to the public interest. This approach accords with CPR rules 79.2 and 79.28.
7. After the hearing of the appeal, agreement was reached between the Treasury and the special advocates that parts of Ouseley J's closed judgment could be opened up. The opened content is attached as an annex to this judgment. The court allowed an exchange of short written submissions between Bank Mellat and the Treasury on that opened content. This did not, however, add materially to the arguments we had already heard in relation to Ouseley J's judgment in the course of the closed procedure.

The legislative and factual background

8. Part 1 of Schedule 7 to the 2008 Act (paragraphs 1-2) sets out the conditions for giving a direction. Paragraph 1 provides, so far as material:

"1(1) The Treasury may give a direction under this Schedule if one or more of the following conditions is met in relation to a country.

(2) The first condition is that the Financial Action Task Force has advised that the measures should be taken in relation to the country because of the risk of terrorist financing or money laundering activities being carried on - (a) in the country ….

…

(4) The third condition is that the Treasury reasonably believe that – (a) the development or production of nuclear, radiological, biological or chemical weapons in the country … poses a significant risk to the national interests of the United Kingdom."

The 2011 and 2012 Orders were based on the parts of the first and third conditions that I have quoted.

9. Part 2 of Schedule 7 (paragraphs 3-8) sets out the persons to whom a direction may be given, namely persons operating in the financial sector who are either United Kingdom persons or persons carrying on business in the United Kingdom. Part 3 (paragraphs 9-13) sets out the requirements that may be imposed, which include a requirement not to enter into or continue to participate in any transaction or business relationship with a "designated person": the 2011 and 2012 Orders imposed such a requirement in respect of dealings with the Central Bank of Iran, credit institutions incorporated in Iran and their branches and subsidiaries wherever located. Part 4 of Schedule 7 (paragraphs 14-17) contains procedural provisions.
10. The general effect of the provisions in Schedule 7 was summarised in this way by Lord Sumption in his judgment on the substantive appeal in Bank Mellat (No.2):

"5. If the conditions in paragraph 1 as to the existence of a relevant risk are satisfied, the Treasury may give a direction to one or more persons 'operating in the financial sector' (essentially credit and financial institutions) regarding their dealings with any 'designated person'. A 'designated person' includes any person carrying on business in or resident in the foreign country in question: see paragraph 9(1). The direction may require the financial institutions to whom it is addressed to exercise an enhanced customer due diligence so as to obtain information about the designated person and those of its activities which contribute to the risk: paragraph 10. It may require enhanced monitoring (paragraph 11) or systematic reporting (paragraph 12) to the same end. But the most draconian provision is paragraph 13, which provides that the direction may require those to whom it is addressed 'not to enter into or continue to participate in … any transaction or business relationship with a designated person'. Under paragraph 16(4), any direction made in the exercise of those powers expires a year after it is made. A direction made under Schedule 7 must be contained in an order: see paragraph 14(1). By section 96, any order under the Act must be made by statutory instrument.

6. It will be apparent that for designated persons with a substantial business in the United Kingdom, especially if they are banks, the exercise of the power conferred by paragraph 13 will have extremely serious and possibly irreversible consequences. The Act provides three relevant safeguards against the unwarranted use of this power. First, under Schedule 7, paragraph 14(2), if the direction contains requirements of a kind mentioned in paragraph 13 of Schedule 7 (limiting or ceasing business with a designated person) it must be laid before Parliament after being made and unless approved by affirmative resolution within 28 days will cease to have effect at the end of that period. Second, Schedule 7, paragraph 9(6) provides that the requirements imposed by a direction must be proportionate having regard, in the case within paragraph 1(4) to the risk referred to in that paragraph. This means the risk to the national interests of the United Kingdom presented by the development of nuclear weapons, radiological, biological or chemical weapons in the foreign country. Third, section 63 of the Act provides a special procedure by which a person affected by any 'decision' of the Treasury, including a decision under Schedule 7, may apply to the High Court to set it aside, applying the principles applicable on an application for judicial review."

11. The 2011 Order was in force from 21 November 2011 until its expiry by effluxion of time on 20 November 2012. The 2012 Order was in force only from 21 November 2012 until 31 January 2013, when it was revoked because of the coming into force of an EU measure, Regulation 1263/2012/EU, which made similar provision at the EU level.

The first issue: does the standard in AF (No.3) apply in this context?

12. Bank Mellat's case before Collins J was that article 6 of the European Convention on Human Rights required the application of the standard in AF (No.3) and that the same result was reached under EU law, in particular by reference to article 47 of the Charter of Fundamental Rights of the European Union and the decision of the CJEU in ZZ (France) v Secretary of State for the Home Department Case (C-300/11) [2013] QB 1136. In the course of his judgment, Collins J expressed the view that the approach in ZZ (France) was of general application in a case involving EU law, but his actual decision was that in the circumstances of the present case article 6 of the Convention required disclosure in accordance with the standard in AF (No.3).
13. Bank Mellat's written submissions in support of the judge's conclusion continued to rely on EU law as well as on article 6. At the hearing of the appeal, however, Mr Brindle QC put the focus of his submissions on article 6 and invited the court to decide the case on that basis. He did not abandon reliance on EU law – indeed, he submitted that the position under EU law was effectively the same as under article 6 of the Convention – but he expressed a preference not to get drawn into issues of the kind now set out in the judgment of this court in Kiani v Secretary of State for the Home Department [2015] EWCA Civ 776: the hearing in Kiani immediately preceded the hearing of the present appeal. In the event, the court held in Kiani that the approach in ZZ (France) was context-specific, not of general application, and that it would be remarkable if there were a material difference of general approach between Convention law and EU law in relation to the important issue of procedural justice raised in Kiani. Whilst EU law is unlikely to produce a materially different result from article 6 in the present case, the position under EU law need be considered only if Collins J is found to have been wrong in relation to article 6.
14. It is common ground that article 6 applies and that, as reaffirmed in Kiani, the requirements of article 6 with regard to disclosure depend on context and all the circumstances of the case. The context and circumstances of AF (No.3) called for a higher standard of disclosure than those of Tariq v Home Office [2011] UKSC 35, [2012] 1 AC 452 or Kiani. The question is whether Collins J was right to place the present case on the same point in the scale as AF (No.3). The contention advanced by Mr Kovats QC on behalf of the Treasury is that AF (No.3) applies only to cases where personal liberty or some equally compelling fundamental interest is at stake and that financial restriction orders do not fall within that class.
15. A v United Kingdom, from which the test in AF (No.3) was drawn, concerned detention for suspected involvement in terrorism and was a case under article 5(4) of the Convention. The ECtHR held that "in the circumstances of the present case, and in view of the dramatic impact of the lengthy – and what appeared at that time to be indefinite – deprivation of liberty on the applicants' fundamental rights, art. 5(4) must import substantially the same fair trial guarantees as art. 6(1) in its criminal aspect" (paragraph 217). That was the basis on which it went on to state the test subsequently summarised in AF (No.3).
16. The House of Lords in AF (No.3) held that the same disclosure requirements applied to proceedings in respect of control orders, even though the restrictions imposed by a control order might fall far short of detention (see per Lord Phillips at paragraph 57).
17. Bank Mellat v HM Treasury [2010] EWCA Civ 483, [2012] QB 91 ("Bank Mellat (No.1)") concerned an interlocutory stage of the proceedings in which Bank Mellat challenged the 2009 Order. The primary issue for determination by the Court of Appeal was whether the judge at first instance had been right to conclude that the standard of disclosure required was the same as that in AF (No.3). It was argued on behalf of the Treasury that AF (No.3) involved severe consequences on liberty and was distinguishable (see page 94F-H). The court rejected the argument. Lord Neuberger MR, in a judgment with which the other members of the court agreed, said this:

"5. Our decision was given on 31 March to the following effect. On the Treasury's appeal we ruled that Mitting J was right to conclude that the standard of disclosure described and applied by the House of Lords in the AF (No.3) case … should be applied in this case, and that he correctly described the standard in the words quoted from his judgment in para 3 above.

6. This meant that the cross-appeal was also dismissed but, as we said, it did not follow that there was no need for the Treasury to disclose any evidence. We explained that the standard laid down by the judge required the Treasury's disclosure to be sufficient to enable the bank to give sufficient instructions not merely to deny, but actually to refute (in so far as that was possible) 'the essential allegations' relied on by the Treasury to justify the making and continuance of the direction. As we also stated, the precise extent of the disclosure to be ordered is inevitably fact-specific, and is very much a matter for the first instance judge who is seized of the case, although of course an appeal against such an order could succeed if it could be shown that the judge went wrong in principle."

18. In giving reasons for those conclusions, Lord Neuberger stated inter alia, at paragraph 10, that the terms of the 2009 Order prohibited all persons operating in the financial sector from entering into or participating in any transaction or business relationship with the bank, and thus it was the most wide-ranging direction that could have been made under Schedule 7 to the 2008 Act. Its purpose was to hamper Iran's nuclear and ballistic missile programme by shutting out Bank Mellat from the UK financial sector and, perhaps, by restricting its access to the global financial system as well. Rejecting the Treasury's argument that in every case where disclosure of potentially relevant documents to the other party is resisted on public interest grounds a balance has to be struck between the rights of that party and the wider public interest, he said:

"18. In relation to many article 6.1 arguments I readily accept that such a balancing exercise will be appropriate. However, there are irreducible minimum rights which article 6.1, like the common law (albeit that the minimum rights may not always be identical …), requires to be accorded to any party involved in litigation to which the article applies. For the reasons given by Maurice Kay LJ in Tariq v Home Office …, I consider that every party to litigation has the right to be given sufficient information about the evidential case against him, so as to enable him to give effective instructions in relation to that case, to paraphrase what Lord Phillips of Worth Matravers said in the AF (No.3) case. I accept the bank's contention that this conclusion is supported by the Luxembourg court's decision and reasoning in Kadi v Council of the European Union (Joined Cases C-401/05P and C-402/05P) [2009] AC 1225, paras 346-349."

The Kadi case to which Lord Neuberger referred was a challenge to an EU Council Regulation imposing an asset freeze on persons listed by the UN Security Council's sanctions committee; and the relevant paragraphs in the judgment of the Luxembourg court related to infringement of the rights of defence and of the right to an effective legal remedy by a failure to communicate to the applicants, or to afford them the right to be informed of, the evidence used against them to justify the restrictive measures imposed on them.

19. The problem about paragraph 18 of Lord Neuberger's judgment in Bank Mellat (No.1) is its adoption of the reasoning of the Court of Appeal in Tariq as to the existence of a minimum disclosure requirement in every case. On appeal to the Supreme Court in Tariq, that reasoning was disapproved. The claimant in Tariq was employed as an immigration officer but was suspended when his security clearance was withdrawn. He claimed that he was the victim of discrimination on the grounds of race and religious belief. The Home Office said that it was in the interests of national security that much of the evidence on which it wished to rely should not be disclosed to the claimant or his advisers. The Supreme Court held that the AF (No.3) standard of disclosure was not a uniform requirement and that on the particular facts of Tariq the disadvantage to the claimant of withholding secret material was outweighed by the paramount need to protect the integrity of the security vetting process. A fuller account of the decision is given at paragraphs 20-23 of Lord Dyson's judgment in Kiani, including this summary:

"23. In summary, therefore, the requirements of article 6 depend on context and all the circumstances of the case. The particular circumstances in Tariq included the fact that (i) it did not involve the liberty of the subject; (ii) the claimant had been provided with a degree of information as to the basis for the decision to withdraw his security vetting: he was not completely in the dark; (iii) there was real scope for the special advocate to test the issue of discrimination without obtaining instructions on the facts from the claimant; and (iv) this was a security vetting case and it was clearly established in the Strasbourg jurisprudence that an individual was not entitled to full article 6 rights if to accord him such rights would jeopardise the efficacy of the vetting regime itself (para 159)."

20. It follows that the decision of the Court of Appeal in Bank Mellat (No.1) cannot be relied on as direct authority that the AF (No.3) standard of disclosure applies to the present case, though the fact that the court had no apparent concerns about the application of that standard in the context of the 2009 Order is of some relevance.
21. Mr Kovats cited passages from the Supreme Court's judgment in Tariq in support of his argument that there is no minimum disclosure requirement where neither personal liberty nor an equally fundamental interest is at stake. The particular reasons why no further disclosure was required in Tariq were, however, more nuanced than that, as indicated by the summary quoted above from Lord Dyson's judgment in Kiani. Most of those reasons have no application to the present case. It is true that one point in common to Tariq and the present case is that they do not involve the liberty of the subject. But that does not take Mr Kovats very far, since restrictions on the freedom to do business or to engage in financial transactions can be as serious for a bank as restrictions on personal liberty for an individual.
22. If this were an asset freezing case, I have no doubt that the AF (No.3) standard of disclosure would apply. In rejecting an argument in Tariq that it was as critical for Mr Tariq to receive the fullest procedural rights as it was for the applicants in A v United Kingdom, AF (No.3) and Kadi, Lord Mance said that "[d]etention, control orders and freezing orders impinge directly on personal freedom and liberty in a way to which Mr Tariq cannot be said to be exposed" (paragraph 27). He may have had in mind the effect of the freezing orders under consideration in Ahmed v Her Majesty's Treasury [2010] UKSC 2 & 5, [2010] 2 AC 534, in which the persons designated were said to be "effectively prisoners of the state" (per Lord Hope at paragraph 4) and the orders were described as "scarcely less restrictive of the day to day life of those designated (and in some cases their families) than are control orders" (per Lord Brown at paragraph 192). Subsequently, in Mastafa v Her Majesty's Treasury [2012] EWHC 3578 (Admin), [2013] 1 WLR 1621, at paragraphs 35-37, Collins J expressed the view that although asset-freezing orders under the Terrorist Asset-Freezing etc Act 2010 did not impose a direct restriction on liberty, they interfered with fundamental rights and were not likely to be subject to any lesser disclosure requirements than in relation to orders under the Terrorism Prevention and Investigation Measures Act 2011 to which AF (No.3) applied.
23. I accept of course that the 2011 and 2012 Orders were not asset-freezing measures and that they did not interfere with fundamental rights to the same extent as asset-freezing measures would have done. They were, however, highly restrictive measures with very serious effects. As Lord Sumption said in paragraph 6 of his judgment in Bank Mellat (No.2), quoted above, the exercise of the power conferred by paragraph 13 of Schedule 7 to the 2008 Act "will have extremely serious and possibly irreversible consequences". Later in his judgment, he spelled out the object and effect of the 2009 Order:

"9. The object of the direction, as the Treasury acknowledges, was to shut the Bank out of the UK financial sector, and that has been its effect. Before the direction, the bank had a substantial international business, much of it international trade finance transacted through London. In the year to March 2009, it issued letters of credit with an aggregate value of about US$11bn, of which about a quarter represents letters of credit in respect of business transacted through the United Kingdom. The bank's own estimate of its revenue losses is about US$25m a year. In addition, the bank has been prevented from drawing on 183m euros of call and time deposits with its part-owned subsidiary in London. Important banking relationships have been lost to other banks. The judge found that since the direction, the bank has been unable to make profitable use of the goodwill which it had established in the United Kingdom, which was a 'possession' for the purposes of article 1 of the First Protocol to the European Convention on Human Rights. He held that 'on any view the effect has been substantial, and suffices to require all of the bank's challenges to the Order to be addressed and determined'. This much is not in dispute."

24. In relation to the lapse of time between the making of a direction and the determination of a section 63 challenge to it, he said:

"37. … This may not matter much in the case of a direction to exercise heightened customer due diligence or to monitor or report. But it matters a great deal when the direction is in the draconian terms permitted by paragraph 13. A direction to financial institutions to cease business with a designated person is apt to achieve serious and immediate damage while it remains in effect, extending well beyond transactions related to nuclear proliferation. Even if it is set aside, the impact on the designated person's goodwill may be substantial and in some cases irreversible."

25. Whilst some of those details may not apply to the 2011 and 2012 Orders (Mr Kovats made the point that it was only the 2009 Order, not the 2011 or 2012 Order, which prevented Bank Mellat from drawing on the 183m euros of call and time deposits), the general tenor of Lord Sumption's observations in respect of the 2009 Order applies to the later Orders with equal force. In my judgment, directions in such draconian terms involved sufficiently serious restrictions on Bank Mellat's freedom of action, and a sufficiently serious impact on its banking business, as to call for the application of the AF (No.3) standard of disclosure in proceedings to challenge the Orders.
26. Mr Kovats drew attention to the existence of concurrent EU sanctions against Iran, including Regulation 961/2010/EU and then Regulation 267/2012/EU which froze all funds and economic resources belonging to, owned, held or controlled by designated persons, including Bank Mellat. The designation of Bank Mellat under those and other EU measures was annulled just two days before the date of revocation of the 2012 Order: see the judgment of the General Court dated 29 January 2013 in Bank Mellat v Council of the European Union (Case T-496/10). The judgment is currently under appeal to the CJEU. But I do not think that the EU sanctions or their annulment have a material effect on the analysis. The 2011 and 2012 Orders did not simply echo the EU regime but imposed separate and additional restrictions on Bank Mellat.
27. The witness statement of Mr Matthew Taylor, Deputy Director of the Sanctions and Illicit Finance Team in the International and EU Group of HM Treasury, shows that the Orders were seen as plugging a gap in protection. Mr Taylor explains that whilst the EU measures were a significant step forward, in that they made it considerably more difficult for Iran or Iranian entities to transact business with the United Kingdom, "they did not eliminate all risks for UK financial and credit institutions" (paragraph 60), and that owing to the position of London as an international financial centre, the United Kingdom was "particularly exposed" (paragraph 62). He states that "[to] issue a direction to UK credit and financial institutions to cease all transactions and business relationships with Iranian banks was the most effective and prudent option available under the Treasury's powers to tackle the risk that it had identified" (paragraph 69). In relation to the 2012 Order, although it was known that new EU-wide measures with similar effect were due shortly to come into force, there was going to be a temporal gap and "[it] was therefore necessary to protect the UK financial sector – and comply with the [Financial Action Task Force] recommendation – by bridging the gap" (paragraph 74). The open gists of the closed material, to which I refer below when dealing with the second issue, are consistent with the witness statement and likewise show that the 2011 and 2012 Orders were perceived as plugging a gap left open by sanctions at the EU level.
28. The conclusion I reach on the first issue is that Collins J was correct to hold that in the circumstances of the present case article 6 required disclosure in accordance with the test in AF (No.3). It is unnecessary in those circumstances to consider the position under EU law.

The second issue: was the standard in AF (No.3) correctly applied?

29. At the time of the open hearing of this appeal, all that Bank Mellat knew about Ouseley J's closed judgment was that the judge had concluded that no further disclosure was required in order to meet the requirements of AF (No.3). Mr Brindle's submission was that, in the absence of further disclosure, Bank Mellat was unable to prepare evidence for the substantive hearing of its claims, in which it was challenging the 2011 and 2012 Orders on grounds of proportionality and discrimination. He said that the Bank was unable to understand, let alone refute, the Treasury's open case: the allegations were advanced in such general terms that the Bank could not provide adequate instructions to the special advocates.
30. The open gists of the closed material include the following, in a document setting out the "case for a direction requiring the UK financial sector to cease all business with the Iranian banking sector":

"14. The Treasury has identified a case for using its powers in the Counter-Terrorism Act 2008 to direct the UK financial sector to cease business relationships and transactions with the Iranian banking sector …. This case is considered because of the role of the Iranian banking sector in activity in Iran which facilitates the development or production of nuclear weapons and the potential for a direction given to the UK financial sector to have an impact on the activity undertaken by Iranian banks.

…

16. Iran's access to the international banking system has been severely reduced as a result of international sanctions. But it is still able to do so and pay for goods and material for its nuclear and ballistic missile programmes (though it also uses other methods of payment, including the hawala system, barter and cash). Iran's financial institutions provide the financial services which underpin this procurement activity. Iranian banks manage accounts for entities and individuals working for these programmes and for the cover companies and front companies which procure on their behalf. They open letters-of-credit, act as consignees and serve as correspondent and intermediary banks in procurement deals, for example:

In early 2011, the Atomic Energy Organisation of Iran (AEOI) ordered a euro payment amounting to tens of millions of euro which was transferred from Bank Mellat Tehran to Bank Tejarat Tehran, which then credited an account held for a Bank Tejarat subsidiary.

Energy Novin in 2010-2011 held rial stocks and foreign currency with Bank Mellat, Bank Sepah, Bank Melli, Ban Keshavarzi and Bank Karafarin. UN-designated Energy Novin is a subsidiary of the AEOI and is the body controlling much of the finance for Iran's nuclear programme.

17. The City of London is one of the world's pre-eminent financial centres and as such is an attractive alternative source of the financial service it requires. Iranian financial institutions use deception practices to hide any connection with Iran in order to circumvent sanctions and national and multilateral financial measures. Therefore, financial institutions in the UK, even with due diligence, risk providing services to companies and individuals wittingly or unwittingly engaged in proliferation-related trade with Iran. Banks with correspondent banking relationships are at heightened risk of exposure to any proliferation-related finance activity or sanctions circumvention taking place within other banks. The risk can be at several steps removed as the UK bank serves as one in a long chain of correspondent banks, and the entire chain may not be apparent in the course of standard due diligence procedures. Iranian [banks] have extensive, multilayered networks of correspondent banking relationships.

18. They seek to access the UK financial system via correspondent banks in non-EU neighbouring countries. UK banks also have correspondent relationships with overseas banks which have active relationships with Iranian banks, both undesignated and designated." (Italics in the original.)

31. The two italicised examples are the only specifics given in the gists, which are otherwise in general terms. But even the two examples, according to Mr Brindle, are insufficiently particularised to enable Bank Mellat to identify what is being referred to, so as to be in a position to investigate and refute the allegations.
32. In the closed hearing, the case for greater disclosure was developed in the submissions of Mr Chamberlain QC, as special advocate, on the basis of closed grounds of appeal. The principles that were examined in the course of the closed argument can be discussed in this open judgment, though their detailed application to the closed material cannot be. They are not materially affected by the points made in the exchange of written submissions that took place after the opened content of Ouseley J's judgment had become available (see paragraph 7 above).
33. Mr Chamberlain referred to the general approach laid down in AF (No.3), including per Lord Phillips at paragraph 59 (quoted at paragraph 3 above), and stressed that it relates to the disclosure of allegations, not of evidence. He submitted that the standard of disclosure is a relatively high one and that "where detail matters, as it often will, detail must be met with detail" (per Lord Hope at paragraph 87). There must be "a real opportunity for rebuttal" (per Lord Scott at paragraph 96). This ties in with the observation of Lord Neuberger, at paragraph 6 of his judgment in Bank Mellat (No.1), that disclosure must be "sufficient to enable the bank to give sufficient instructions not merely to deny, but actually to refute (in so far as that was possible) 'the essential allegations' relied on by the Treasury to justify the making and continuance of the direction".
34. Those general points are all rooted in the authorities and I agree with them. In a passage of his judgment that has now been opened up, Ouseley J expressed concern about the implications of Lord Neuberger's observation in Bank Mellat (No.1). He said:

"Taken to its logical conclusion, which, in one sense, is not very far away reading that, the Court of Appeal would appear to be suggesting that there was very little which could be kept in closed regardless of where that left the effective operation of the legislation. But, as the courts in AF No.3 declined to hold the relevant legislation to be incompatible with the ECHR and nothing that the Court of Appeal say could be regarded as undermining what the House of Lords had so recently and authoritatively said in AF No.3, it is clear that it would be wrong to read paragraph 6 in the Court of Appeal in Bank Mellat as undermining or providing a different test to that which the House of Lords provided in Lord Phillips' and Lord Hope's speeches, but of course also reading all the other speeches to gain the overall impression as to the test which they are saying should apply."

For my part, however, I see no inconsistency between Lord Neuberger's observation in Bank Mellat and the tenor of the speeches in AF (No.3); nor do I accept that approaching the matter in the way envisaged by Lord Neuberger would undermine the effective operation of the legislation. The 2008 Act provides in terms that nothing in the section of the Act providing for rules of court about disclosure, or in the rules of court made under it, is to be read as requiring the court to act in a manner inconsistent with article 6 of the Convention. If Bank Mellat is not given sufficient disclosure to enable it to give sufficient instructions not merely to deny but to refute (in so far as possible) the essential allegations against it, the fair trial requirements of article 6, as spelled out in AF (No.3), will not be met.

35. Mr Chamberlain submitted further that if the Treasury relied on specific allegations in support of the directions, Bank Mellat was entitled to sufficient information about them even if they related to an Iranian bank other than Bank Mellat. It would be no answer to say that Bank Mellat was unlikely to be able to answer allegations relating to other Iranian banks. Disclosure cannot be avoided by arguing that it would make no difference to the outcome: see AF (No.3) per Lord Phillips at paragraphs 60-65 and per Lord Hope at paragraph 84. Again I agree with the point.
36. Mr Kovats submitted that it was unnecessary to disclose any specific allegations relating to individual banks, because the essence of the Treasury's case had already been made known. He distinguished the legislative regime under the 2008 Act from that under consideration in cases such as A v United Kingdom and AF (No.3). The focus in those cases was on showing that a particular individual was involved in terrorist activity, whereas in the present case the concerns were of a more general nature, relating to the risk of Iranian nuclear proliferation and the risk of the Iranian banking system being used in support of proliferation activities. He submitted that the material showing that the conditions in paragraph 1 of Schedule 7 to the 2008 Act were satisfied was already in open, and that the open witness statement, the open gists and other open material gave the Bank sufficient information about the reasons for the directions, even for the purposes of determining the issue of proportionality. For reasons given in the closed judgment, I reject that submission.
37. Another point of principle ventilated in the closed hearing was that the requirement of disclosure under AF (No.3) applies even if disclosure would be contrary to the interests of national security. There is, however, an important proviso. If disclosure is directed by the court, the Treasury is not compelled to make the disclosure but may elect instead to cease to rely on the material in question. This is dealt with in CPR rule 79.26(7), which provides:

"Where the court does not give permission to the Treasury to withhold closed material from, or directs the Treasury to serve a summary of that material on, the specially represented party or that party's legal representative –

(a) the Treasury are not required to serve that material or summary; but

(b) if they do not do so, at a hearing on notice, the court may–

(i) where it considers that the material or anything that is required to be summarised might adversely affect the Treasury's case or supports the case of the specially represented party, direct that the Treasury must not rely on such material in their case, or must make such concessions or take such other steps, as the court may specify; or

(ii) in any other case, direct that the Treasury do not rely on the material or (as the case may be) on that which is required to be summarised."

If, pursuant to that rule, the Treasury ceased to rely on material upon which reliance was placed in making the original decision, it might have significant implications for the defence of the decision, but that is not something that needs to be addressed in this appeal.

38. Beyond those various points, the closed hearing was concerned with matters of detail that cannot properly be dealt with in this open judgment. They are, as I have said, the subject of a separate closed judgment.
39. For the reasons given in the closed judgment, I am satisfied that Ouseley J was wrong to conclude that no further disclosure was required in the application of the test in AF (No.3).

Conclusion

40. For the reasons given, I would dismiss the Treasury's appeal against the order of Collins J but would allow Bank Mellat's appeal against the order of Ouseley J. I would remit the case to the Administrative Court for reconsideration of the issue of disclosure in the light of the judgment of this court.

Lord Justice Lewison :

41. I agree.

The Master of the Rolls :

42. I also agree.
ANNEX OPEN CONTENT OF THE JUDGMENT OF MR JUSTICE OUSELEY DATED 18 NOVEMBER 2014, AGREED BETWEEN HMT AND SPECIAL ADVOCATES

Following the quashing of the Financial Restrictions Order 2009 by the Supreme Court in 2012, the Government made two further orders in relation to Iran and its financial system. The chief distinction between the quashed order and the new orders of 2011 and 2012 is that the latter pair are not targeted at Bank Mellat alone, but at the Iranian banking and financial system as a whole designating all Iranian banking entities. The aim of the order is to prevent the UK banks and financial system being used by the Iranian banks to advance the financing of Iran's nuclear and ballistic missile programme.

The claimant, Bank Mellat, is a bank affected by these orders and has brought proceedings to challenge those orders, in response to which the defendant relies in part upon closed evidence, if it has permission to do so.

On 5th November 2014, following substantial argument, Collins J ruled that the test to be applied to the consideration of the disclosure of such material was what is known as the AF No. 3 test following the decision in the case of that name, [2010] 2 AC 269, [2009] UKHR 28. The paragraphs usually cited in this connection in that decision are 59 of Lord Phillips' speech and paragraphs 86 and 87 of Lord Hope's speech. What was required was a sufficient statement of the allegations against a person, and sufficiency was to be measured by the ability to give specific instructions beyond a general denial. The important point was to enable an effective challenge to be presented to the case against the claimant. The speech drew the distinction between disclosure of the allegation and disclosure of the evidence, material or sources underlying the allegation. This is a distinction which, at times, is wholly illusory and can be very difficult to observe in practice, but, nonetheless, is one which is a guide to how the House of Lords envisaged the test being operated.

Mr Chamberlain QC, and special advocate in this case, also referred me to paragraph 6 of Bank Mellat in the Court of Appeal [2010] EWCA Civ 483 [2012] QB 91, in particular, at paragraph 6, where Lord Neuberger said that the standard laid down required the Treasury's disclosure "to be sufficient to enable the bank to give sufficient instructions not merely to deny but actually to refute (in so far as that was possible) 'the essential allegations' relied on by the Treasury to justify the making and continuance of the direction."

That issue was not before the Supreme Court in Bank Mellat. I simply make this observation at this stage. Taken to its logical conclusion, which, in one sense, is not very far away reading that, the Court of Appeal would appear to be suggesting that there was very little which could be kept in closed regardless of where that left the effective operation of the legislation. But, as the courts in AF No. 3 declined to hold the relevant legislation to be incompatible with the ECHR and nothing that the Court of Appeal say could be regarded as undermining what the House of Lords had so recently and authoritatively said in AF No.3, it is clear that it would be wrong to read paragraph 6 in the Court of Appeal in Bank Mellat as undermining or providing a different test to that which the House of Lords provided in Lord Phillips' and Lord Hope's speeches, but of course also reading all the other speeches to gain the overall impression as to the test which they are saying should apply.

I am, of course, not bound by what Collins J said. But it would be futile, given that there is scope for appeal from that, for the decision that I make as to whether particular material should be disclosed to adopt a different approach. It would render the process of the litigation absurd.

In these proceedings to determine what more, if any, should be disclosed, I will apply the AF No. 3 test as simply described by Collins in his 5th November decision.

There are a number of issues with which this court is not now concerned. It is not concerned with any documents which were not before HM Treasury when the relevant decisions were made. The court is not concerned with the debate about whether any of the undisclosed documents can be disclosed without harm to national security, because Mr Chamberlain accepts that all the material withheld satisfies that test, though, as he rightly points out, that cannot possibly be the end of the issue. I am not concerned either with the disclosure of material dealing [redacted].

Mr Kovats QC, for the Treasury, says that the Treasury has considered carefully whether anything more could possibly be gisted, but has come to the conclusion that it simply could not do more. He does not say that disclosure would be the end of the case, although it is clear that a requirement to disclose what it does not want to disclose, leading to its removal from the evidence, would weaken the case and could do so significantly. But, as I have said, that is not relevant to the decision I have to make. The considerations in relation to Article 6 and fairness trump the considerations in relation to national security.

The next point that Mr Kovats makes is as to the nature of the allegations. What he submits is that these two orders are not directed at Bank Mellat in the way in which the quashed order was directed at Bank Mellat. He submits that it must be remembered at all times that these orders are directed at Iran, its nuclear programme, the financing of its nuclear programme and the risk of the United Kingdom's financial system being involved through the activities of Iranian banks in supporting that system. [redacted].

The third point that Mr Kovats makes is that, in directing the restrictions to the Iranian Government and the financing of its programme, the orders are not specific to Bank Mellat, but to the banks and financial institutions which make up the Iranian banking system and its operation. Therefore, it is to the whole of that system that attention needs to be focused in considering what the essential allegations in the case are [redacted].

To Mr Kovats, the essential allegations are that the Iranian banking system is engaged in supporting the Iranian nuclear programme through a variety of methods, whether deceptive, covert, evasive or entirely innocent, in which they are duped or even persuaded or coerced to go along unwillingly, with this process, and it is the banking system as a whole to which attention is drawn. It is not, therefore, of importance, he submits, whether any particular bank is engaged [redacted] in this process. Moreover, a further essential allegation is that, if one bank is designated and restricted in its activities or a number are, but others are not, those others will become the banks that will be used [redacted] to further the nuclear programme.

I accept Mr Kovats' submission as to where the essence of this case lies. [redacted].

That is important in considering what are the essential allegations which have to be disclosed in order for the claimant to meet the case which it has to meet. The essential case which it has to meet is not an allegation about Bank Mellat as such; it is allegations about the Iranian banking system, because that is the case advanced by the Government in response to this judicial review challenge.

I should add that, of course, so far as an individual bank is concerned, it would be open to it to seek licensing under the order, either generally or for a specific transaction. If it were refused a licence, the circumstances in which it was refused the licence would make the case in respect of that specific bank one in which the essential allegations would take on a different and more targeted nature, but that is not the position here. [redacted].

[redacted]. Mr Chamberlain, wholly understandably, relies upon paragraph 6 of the Court of Appeal in Bank Mellat. As I have said, that submission takes what is said there to a logical extreme, but misses, in my judgment, the essential confines which must be read into that paragraph, respecting, as it must do, what the House of Lords said itself in AF No 3, which the Court of Appeal was intending to apply. Taken to the extent to which Mr Chamberlain would take it, [redacted] examples would have to be detailed [redacted] regardless, of course, of any national security effect. But I have to say that such an outcome would appear to be one which would be no different in essence from that which would apply in ordinary civil litigation and I cannot for present purposes see that the Court of Appeal intended to go that far in the teeth of the approach in AF No. 3 to such a statute. [redacted].

For those reasons, I am not going to make any further order for disclosure. Whether the bar is different as a result of Bank Mellat in the Court of Appeal is, of course, another issue, but applying it as I understand it that is the conclusion I have come to, which I hope will enable the other issues to be resolved, although they have leave to apply to come back.