AIG Europe Ltd has argued in the Commercial Court in London that it cannot pay 414,000 Jordanian Dinars (US $584,000) in reinsurance cover to the Jordan Insurance Company for money said to have been stolen in 2013 from a Syrian bank (International Bank for Trade and Finance Ltd), because that payment would breach US sanctions on Syria.
AIG argues that the payment would be a prohibited transaction because it would have to involve US-based banks (the reinsurance contracts stipulate for claims and premiums to be paid in US dollars), constituting the supply of services from the US to Syria, or the receipt in Syria of the benefit of such services. Judgment awaited.
As previously reported, the Court of Appeal held in October 2015 that the principles relating to the disclosure of closed material in the context of control orders, as set out in the House of Lords judgment in AF (No. 3), also applied to disclosure in the context of applications to set aside a financial restrictions decision, see: Bank Mellat v HM Treasury (No 4)  EWCA Civ 1052, and remitted the case to the Administrative Court to consider whether there had been sufficient disclosure by HM Treasury in Bank Mellat’s action to set aside financial restrictions affecting it.
The Administrative Court has just decided, in a closed judgment, that some material may be withheld and other disclosed. The open judgment (Bank Mellat v HM Treasury  EWHC 2931 (Admin)) sets out the relevant principles applied in the closed judgment.
The ECJ has today answered questions the UK High Court referred to it (on which see previous blog) in the EU’s preliminary reference procedure asking for the ECJ to interpret some of the EU’s sanctions on Russia imposed in July 2014. The ECJ’s judgment is here; Case C-72/15. The EU Russia sanctions at issue are those imposing restrictions on some financial transactions and on the access of some Russian entities to EU capital markets, and on the export of some goods and technology and services required for oil transactions. The questions were referred to the ECJ in the course of a judicial review brought by Rosneft (the Russian oil and gas company) against the UK Government and Financial Conduct Authority (see previous blog for the background to this case). See previous blog for the Advocate General’s opinion in this case.
The ECJ judgment holds (link to the Court’s summary of its judgment here) that:
- It has jurisdiction to answer most of the questions on the validity of these restrictive measures, even though they are EU Common Foreign & Security Policy (CFSP) measures, because the ECJ has jurisdiction to consider whether CFSP measures comply with Article 40 TEU (which concerns institutional competence) and CFSP decisions imposing restrictive measures on natural or legal persons. The Court commented that the exclusion of jurisdiction for certain CFSP decisions should be “interpreted strictly” given the need to ensure effective judicial protection as part of the rule of law.
- The ECJ rejected Rosneft’s argument that the EU Council had encroached on the powers of the Commission and EU High Representative for foreign & security policy in breach of Article 40 by enacting these measures.
- These measures were not incompatible with the EU-Russia Partnership agreement because the EU institutions could take the view that they were necessary to protect essential EU security interests and to maintain peace and international security.
- The measures gave sufficient reasons and did not breach the principle of equal treatment or misuse the EU’s powers, nor did they amount to a disproportionate interference with Rosneft’s fundamental rights.
- Rosneft would have to have challenged the Council’s refusal to give full access to its file in an action for annulment before the General Court, not in a preliminary reference in the ECJ.
- The ECJ said the vagueness of some of the measures did not make them invalid for lack of certainty or prevent member states from imposing criminal penalties for breach, and gave interpretations of a few provisions:
- The power for authorities to grant an authorisation in Article 3(5) of Regulation 833/2014 must be understood as meaning that they had to ensure that the application of the first sub-para of Article 3(5) was without prejudice to the execution of contracts concluded before 1 August 2014.
- The measures on “financial assistance” in Article 4(3)(b) do not include the processing of a payment by a bank or other financial institution.
- Article 5(2) prohibits the issuance of Global Depositary Receipts pursuant to a depositary agreement concluded with one of the entities listed in Annex VI where those GDRs represent shares issued by one of those entities before 12 September 2014.
The Court of Appeal has allowed the Libyan Investment Authority’s (the LIA’s) appeal against a High Court judgment setting aside the LIA’s statutory demand for payment under a 2008 guarantee made by Glenn Maud – Libyan Investment Authority v Maud  EWCA Civ 788 (see previous blog). A link to the judgment is here.
Mr Maud had successfully argued at first instance that any payment he made to LIA would breach the EU’s sanctions relating to Libya, which froze LIA’s assets, and therefore the demand for payment should be set aside. The Court of Appeal said the EU’s sanctions measures must be construed as far as possible compatibly with the UN Security Council Resolutions they were intended to implement, and noted the easing of UN sanctions on the LIA “to enable the Libyan people to have the benefit” of its assets. Mr Maud argued that his guarantee fell within the definition of funds, and so payment under the guarantee would breach the requirement that the LIA’s existing funds or assets should remain frozen. The Court held that payment of the guarantee was caught by a separate prohibition on making funds available to the LIA, from which EU and UN sanctions provide a derogation for payments due under agreements that were concluded before the person was designated and paid into frozen accounts and which in any event no longer applies to the LIA, as is the case with Mr Maud’s guarantee to the LIA. The Court also dismissed Mr Maud’s argument that the LIA’s statutory demand for payment was a form of claim, and so by not setting it aside the Court would be satisfying a claim on behalf of the LIA in contravention of a prohibition on doing so under EU sanctions.
Abdulbaqi Khaled, a British/Libyan citizen, is claiming misfeasance in public office and conspiracy to injure, challenging the decision to recommend that he be sanctioned by the UN Security Council (and then the UK) for ties to Al-Qaida. His case is that the recommendation was made on the basis of information the Government knew to be unreliable and/or illegally obtained, in bad faith.
The High Court has given judgment in his application for standard disclosure of the information relied on by the Government when it recommended that he be listed. Judgment here: Khaled v Security Service & Ors  EWHC 1727 (QB). This is another judgment, post Sarkandi (see previous blog) on the extent to which AF (No. 3) v Secretary of State for the Home Department  standards of disclosure apply in decisions to propose people for sanctions designations, and where declarations have been made under the Justice & Security Act (JSA).
The High Court (Mr Justice Irwin) said AF (No. 3) enhanced disclosure obligations did not apply in this case, therefore as much as possible had to be disclosed consistent with section 8 of the JSA but no more.
The Administrative Court in the UK has dismissed a claim for judicial review brought by Egyptian businessman Ahmed Ezz, which challenged the rationality of an HM Treasury decision on the release of his frozen funds for the payment of legal expenses in Egypt – R (on the application of Ezz) v HM Treasury  EWHC 1470 (Admin). Mr Ezz is subject to an asset freeze under the EU’s sanctions on Egypt (see previous blog), for allegedly misappropriating public funds. The decision at issue was to assess the reasonableness of the legal fees charged by Mr Ezz’s Egyptian lawyers by taking the maximum London legal rates and converting them to a reasonable rate in Egypt via the IMF’s purchasing power parity (PPP) ratio. The ratio compares the relative costs of living in different countries, and in this way HM Treasury reduced the maximum daily rate payable for appearing in court from £15,000 in the UK to $5,790.98.
The Court found that, in accordance with general principles of interpreting EU law, the derogation from the asset freeze under the EU’s Egypt sanctions for payment of legal expenses must be interpreted restrictively. It said that this was particularly so given that the objective of the sanctions was to recover misappropriated public funds, which would allegedly be undermined were Mr Ezz’s application successful. It noted that HM Treasury had been generous in using the maximum daily rate in London as its starting point, and that the “reasonable” fees allowed by the EU did not necessarily mean the highest legal fees payable. The Court concluded by saying that it was not unreasonable for HM Treasury to use the PPP conversion ratio, even though the cost of legal services in Egypt may not be perfectly reflected by a ratio based on general living expenses.
Advocate General Wathelet (the Belgian AG) has given an opinion in a request to the European Court of Justice for a preliminary ruling in relation to a judicial review brought in the UK by Rosneft (see previous blog) – Case C-72/15 Rosneft Oil Company OJSC v HM Treasury . His opinion is not binding on the ECJ. Rosneft’s judicial review challenges the Export Control (Russia, Crimea, and Sevastopol Sanctions) (Amendment) Order 2014 which gives effect to some of the EU’s sanctions on Russia in the UK. When the ECJ gives judgment (in a few months’ time), the UK court will apply the ECJ’s judgment.
AG Wathelet considers that:
- Jurisdiction: the ECJ does have jurisdiction to give a preliminary ruling, after a detailed review of the parts of the EU’s common foreign & security policy that are reviewable and those that are not.
- Validity: Provisions of Regulation 833/2014 and Decision 2014/512, which it implements, are valid, apart from Article 3(5) of Regulation 833/2014, which allows a Member State to authorise certain transactions arising out of contracts concluded before 1 August 2014, which he considers invalid because it contradicts Decision 2014/512 on which it was based (which does not affect contracts concluded before 1 August 2014).
- Vagueness: Regulation 833/2014 was not too vague to mean that a member state could not impose criminal penalties for breach before its scope had been clarified by the Court of Justice.
- the term “financial assistance” includes the processing of a payment by a bank or other financial institution relating to an underlying transaction covered by Article 3(1) of Regulation 833.
- Article 5(2) of Regulation 833 prohibits the issuing of or dealing with GDRs (global depository receipts) issued by Rosneft irrespective of when those shares were issued.
- The meaning of “waters deeper than 150m” is to be taken as meaning vertically from the point of drilling.
As previously reported (here), in 2013 the UK Supreme Court held that the UK Order in 2009 imposing financial restrictions on Bank Mellat in the UK was unlawful. Bank Mellat is now in the middle of challenging the subsequent UK Orders made in 2011-2012 which are targeted at all Iranian banks, not just at Bank Mellat. The Court of Appeal has just given an important judgment on disclosure in that context; link here Bank Mellat v HM Treasury  EWCA Civ 1052.
The Terrorism Act provides for closed material procedures in the context of a challenge of this kind. The issue on appeal was the disclosure to which Bank Mellat was entitled within that closed procedure. The Bank argued that Article 6 of the European Convention on Human Rights requires in a Terrorism Act challenge, just as in a case of detention or a control order, as an “irreducible minimum”, that a sufficient gist of the essential allegations is disclosed to the bank to enable it to refute as well as deny the allegations, even where there are national security concerns that would not otherwise permit disclosure (this is the standard set out in AF (No. 3) in the House of Lords).
The Court of Appeal held that this AF (No. 3) standard of disclosure does apply, because “restrictions on the freedom to do business or to engage in financial restrictions can be as serious for a bank as restrictions on personal liberty for an individual”, there is “no doubt” that the standard of disclosure required by AF (No. 3) would apply in an asset freezing case, and although the orders against Bank Mellat were not asset freezing, they were “highly restrictive measures with very serious effects”, and therefore the same standard of disclosure applies to challenges to these Orders.
The Court also gave a closed judgment overturning the judgment below on whether there had been sufficient disclosure (Ouseley J held that there had been even if AF (No. 3) applied); the Court of Appeal disagreed and remitted the case back to the Administrative Court for reconsideration of disclosure in light of these judgments.