The Civil Division of the Court of Appeal handed down judgment in the case of Bank Mellat v HM Treasury [2011] EWCA Civ 4 on 13th January 2011. This case examined the question of whether financial restrictions imposed on the respondent effectively excluding it from the UK financial market breached English or European Convention principles of fairness.

The Financial Restrictions (Iran) Order 2009 (FRIO) made by HM Treasury pursuant to powers conferred by Schedule 7 to the Counter-Terrorism Act 2008 restricted persons operating in the financial sector from entering or participating in a transaction or business relationship with the appellant bank. This was justified by a Ministerial Statement declaring that it would “reduce the risk of the UK financial sector being used, unknowingly or otherwise, to facilitate Iran’s proliferation sensitive activities”. On 20 November 2009 the appellant issued a claim in the High Court seeking to have the FRIO set aside. On 11 June 2010 Mitting J handed down a judgment in which he rejected the appellant’s challenge to the FRIO but gave permission to appeal.

The appellant argued that the FRIO should be set aside; its grounds of appeal being grouped into substantive and procedural grounds.

The substantive grounds for the appeal were based on proportionality; the apparent dispute being as to whether the “minimum interference” option forming the third part of Lord Justice Clyde’s test in De Freitas v Permanent Secretary of Ministry of Agriculture, Fisheries, Lands and Housing [1999] 1 AC 69 had been satisfied; Mitting J at first instance having found it had “no part to play” in this case. Kay LJ felt that the answer, in his view, lay not in the “wholesale rejection” of the minimum interference test but in its “cautious deployment” but agreed with Mitting J that even if minimum interference were part of the test, it had been satisfied in this case.

The appellants submitted that: Mitting J had been wrong in his conclusion that the FRIO was “rationally connected” to the legitimate aim; the FRIO was unduly draconian; and the procedural difficulties also impacted on proportionality. Again, the majority upheld Mr. Justice Mitting’s view “that this is a case in which it is established that the most effective measure is the most intrusive one but that is justified by the very high value of the legitimate aim, namely minimising the risk of very great harm to vital national interests.”

The procedural basis for the appeal was grounded in the argument that the appellant had been adversely affected by an administrative decision without having been given the opportunity to make representations prior to the making of the FRIO. The majority upheld Mitting J’s conclusion that the provisions of the Act were intended to exclude such a universal right to consultation.

The majority following the decision in R (BAPIO Action Ltd) v Secretary of State for the Home Department 2007 EWCA Civ 1139, held that it was not for the courts to superimpose additional procedural safeguards. In any event, the affirmative procedure offered designated persons and opportunity to make written representations and this, coupled with the statutory right to apply under Article 53 meant that the FRIO was not vitiated by lack of common law fairness. Elias LJ, dissenting, distinguished the present FRIO from that in the BAPIO case as being of a “qualitatively different character” since it affected a “broad and amorphous class or classes of persons”. In his opinion it “would allow form to dictate substance if BM were to be denied the fundamental protection of natural justice simply on the grounds that the Order is classified as a legislative act”.

The Court of Appeal dismissed the appeal.