Bank Mellat v HM Treasury (No. 2) [2013] UKSC 39

In brief

The Supreme Court allowed the appeal of an Iranian bank against a Treasury direction under the Counter-Terrorism Act 2008 that singled it out from all other Iranian banks. By a 5–4 majority (Lord Reed, Lord Hope, Lord Neuberger and Lord Dyson dissenting on this ground), the Court held the direction was irrational, arbitrary, and disproportionate because the Treasury failed to justify why this bank was selected when the stated risk applied to all Iranian banks equally (§22–27). By a 6–3 majority (Lord Hope, Lord Reed and Lord Carnwath dissenting on this ground), the Court also held that procedural fairness required pre-decision notice and an opportunity to make representations, given the measure's serious and immediate effects (§28–49). Lord Sumption (majority) set out the four-part proportionality enquiry as a summary of the effect of existing case law (De Freitas as adapted in Daly, Shayler, Huang and Quila) (§20); the toolkit treats it as the standard formulation now used across UK public law.

Key provisions

• §20 (Lord Sumption, majority); §74 (Lord Reed, dissenting on the outcome; agreed in substance by the majority at §20) — Four-part proportionality test: (i) sufficiently important objective, (ii) rational connection, (iii) whether a less intrusive measure could have been used without unacceptably compromising the objective, (iv) fair balance between individual rights and community interests : The four-part proportionality test: (i) the objective must be sufficiently important, (ii) the measure must be rationally connected to the objective, (iii) a less intrusive measure could not have been used without unacceptably compromising the objective, (iv) a fair balance must be struck between the rights of the individual and the interests of the community.
• §22, §24–27 (Lord Sumption, majority) — Anti-arbitrariness: on the facts, singling out Bank Mellat from comparable banks was arbitrary, irrational and disproportionate : Anti-arbitrariness: the 5–4 majority said a measure responding to a real problem may still be irrational or disproportionate if it is discriminatory in a respect incapable of objective justification, and held on the facts that the distinction between Bank Mellat and comparable banks was arbitrary and irrational and the measure disproportionate (§25–27). It is a possibility applied to the facts, not an invariable rule.
• §22–23, §27 (Lord Sumption, majority) — Reasons and justification: the shift from the justification given to Parliament counted against the Treasury on the facts; no general rule was laid down : Lord Sumption (majority) treated it as a serious difficulty on these facts that the justification accepted below was not the one ministers gave Parliament and was in some respects inconsistent with it (§22–23, §27). No general rule that the justification must be the one advanced at the point of decision is stated. Lord Reed (dissenting) said the point had no bearing on rational connection (§123–124); Lord Neuberger (§175–177) and Lord Dyson (§197), both dissenting in part, left the question of principle open.
• §28–50, esp. §32, §37, §49–50 (Lord Sumption, majority); §178–181 (Lord Neuberger, majority on the procedural ground) — Pre-decision notice: on the facts, fairness required notice and an opportunity to make representations before this targeted direction was made : By 6–3 the Court held that fairness required prior notice and an opportunity to make representations for this targeted measure with serious, near-immediate effects, no practical difficulty in consulting having been shown (Lord Sumption, majority, §31–32, §37, §46–49). The duty depends on the circumstances and on the statute not excluding it. Lord Neuberger (majority on the procedural ground, §179) frames the exception as impossibility, impracticality or pointlessness.
• §32, §37 (Lord Sumption, majority) — Serious and immediate effects: why the after-the-event court application was not enough to secure fairness for this direction : Lord Sumption (majority) said a direction to cease business is apt to cause serious and immediate damage, so the after-the-event court application is not enough to secure fairness for such a direction, though it may matter less for lesser directions (§32, §37). The judgment does not state a general sliding scale of procedural standards.

When relevant

Central to all proportionality reasoning within the toolkit. Directly relevant when: (a) an organisation singles out a person or group for a restrictive measure, (b) decision rationale is being documented — recording reasons at the time is good practice, though the Court laid down no rule that later justification is barred (Lord Sumption, majority, §22–23; Lord Neuberger §175–177 and Lord Dyson §197 left the point open), (c) high-impact person-specific decisions are made without consultation, (d) an organisation changes policy reactively under external pressure or legal threat without independent proportionality analysis, (e) any EqIA or proportionality assessment is being conducted. Also grounds the proportionality wizard, the Policy Roast, Defence Mode, and Quinn framework analysis. The four-part test: legitimate aim, rational connection, necessity/less intrusive means, fair balance.