Bank Mellat v Her Majesty's Treasury (No 1)

Facts

In 2009 the Treasury made a direction under Schedule 7 to the Counter-Terrorism Act 2008, which allowed it to require businesses in the financial sector to cease transactions with a person in a country of concern. The direction applied to Bank Mellat, an Iranian bank, and was made because of concern that Iran was developing nuclear weapons and that the bank had provided services connected with that activity. The effect was to cut the bank off from the UK financial system.

History

Bank Mellat challenged the direction in the High Court, which rejected the claim after hearing closed material, and the Court of Appeal dismissed the appeal. The Supreme Court allowed the bank to appeal and, after dealing with a preliminary question about closed material procedures in a separate judgment, considered the substantive challenge.

Issue

Whether the direction was lawful, in particular whether it was a proportionate interference with the rights of the bank, including its rights under Article 1 of the First Protocol, and whether it was irrational or arbitrary.

Held

Appeal allowed and the direction quashed. The direction was disproportionate, since it imposed a severe burden on the bank without sufficient justification, and the selection of the bank over others was not shown to be necessary for the aim pursued.

Ratio

• A measure that interferes with a protected right is proportionate only if the objective is sufficiently important to justify limiting the right, the measure is rationally connected to the objective, a less intrusive measure could not have achieved the objective without unacceptably compromising it, and a fair balance is struck between the rights of the individual and the interests of the community.
• Where a measure is imposed on one person while others in a comparable position are left outside it, the decision maker must be able to show why the more intrusive measure was needed, and a failure to explain is a ground for finding the measure disproportionate.

The judgments

Key reasoning

• The court drew on earlier authorities such as R (Daly) v Secretary of State for the Home Department [2001] UKHL 26 and de Freitas v Permanent Secretary of Ministry of Agriculture [1999] 1 AC 69 to formulate the questions of purpose, rational connection, necessity and balance.
• The question of necessity asks whether there was an alternative measure which would have achieved the aim with less impact on the rights, and the Treasury was unable to show why the direction had to include all of the activities of the bank.
• The direction was imposed on a single bank while other Iranian banks involved in similar business were not directed, and that selective treatment was not explained.

Where it fits in the module

In the Constitution course the case is used to explore the structure of proportionality review under the Human Rights Act 1998 and at common law, and the extent to which courts should defer to the executive on national security. It is read with Daly and the debate over whether proportionality has replaced Wednesbury unreasonableness as the standard of review.

Criticisms

• The formulation of proportionality leaves the fourth stage, the fair balance, as a matter of judgment with no clear criteria, so that the test may disguise the courts own policy preferences.
• The decision involved closed evidence that the bank could not see, which raises a question of whether the court properly tested the executive reasons for the direction.
• The difference in the accounts of Lord Sumption and Lord Reed on the stages of proportionality left uncertainty about whether the test applies in the same way across all contexts and rights.