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The Investigatory Powers Tribunal (IPT) has held that documents protected by legal privilege and held by GCHQ should be destroyed, but compensation would not be payable to the claimant.

The IPT’s planned hearing was previously reported on the blog here. The hearing was intended to consider any remedies that the IPT should provide on the hypothetical possibility that UK intelligence agencies had unlawfully intercepted privileged communications between Libyan nationals and their lawyers.

The IPT found as follows:

• Whether there had in fact been any relevant interception of the claimants’ privileged communications: in respect of the third claimant only (Sami Al Saadi), two documents that were protected by legal privilege had been held by GCHQ.
• GCHQ was to give an undertaking that the parts of the documents containing legally privileged information would be destroyed or deleted. GCHQ was to provide within 14 days a closed report confirming that the destruction and deletion of the two documents had been carried out. A hard copy of the two documents should be delivered within 7 days to the Interception of Communications Commissioner, to be retained for a period of 5 years, should it be required for further legal proceedings or inquiry.
• However, no compensation would be payable to the third claimant in the present case. Although the information in the two documents in question was covered by privilege, it did not disclose nor refer to any legal advice. There was no use or disclosure of the privileged information for the purpose of defending the civil claim previously brought by the third claimant (Al Saadi and ors v Straw and ors [HQ12X02604]), so Article 6 ECHR had not been breached. Moreover, even if the privileged information had been disclosed to the government defence team, it would not have been of any use nor have provided any litigation advantage to them.

Belhadj and ors v Security Service and ors – judgment (29 April 2015)

Belhadj and ors v Security Service and ors – determination (29 April 2015)

The CJEU has issued a press release setting out the proposed reforms to the EU court system. The proposal “aims to reinforce the efficiency of justice at EU level in a sustainable manner in the interest of EU citizens”.

The case load of the General Court has increased significantly in recent years, from 398 cases in 2000 to 912 cases in 2014. This increase is set to continue.

In light of this issue and of the complexity of cases before the court, the court’s proposal is to create extra judges according to the following schedule:
It is hoped that this reform will allow the General Court to stop the increase in the number of pending cases and begin disposing of its caseload, and that it will simplify the judicial structure of the EU, enhance its overall efficiency and promote consistency in its case law.

• 2015: increase of 12 judges;
• 2016: upon renewal of the mandates of the General Court’s members in September, there will be an additional 7 judges appointed through the merging of the Civil Service Tribunal with the General Court. This will bring the number of General Court judges to 47; and
• In 2019, at the next renewal of the mandates of the General Court’s members, the number of judges will increase by nine, bringing the total number of judges to 56.

The total net cost of the reform for all three phases is calculated at €13.875m per year.

The General Court has annulled the listing of Mr Ayadi as regards EU terrorism-related sanctions on the same grounds as in the earlier Kadi II case.

Mr Ayadi’s UN listing (on the Al-Qaida sanctions list) had previously been annulled by the ECJ on appeal. He subsequently sought to have his relisting by the EU annulled. The ECJ referred the case back to the General Court, holding that Mr Ayadi had a continuing interest in bringing proceedings for annulment in spite of his having been delisted by then.

The General Court held as follows:

• Mr Ayadi’s submissions, which he had not made before the referral, were admissible as he “adhered to the core substance of his arguments” that he had made previously.
• The Commission had observed Mr Ayadi’s rights of defence “only in the most formal and superficial sense”, as had been the case in Kadi II. The Commission had not substantiated by any information or evidence the reasons given for the relisting: “…there is no information to be extracted from the statement of reasons from which it is possible to establish to the requisite legal standard that Mr Ayadi was materially linked to Al-Qaida on the date when he was included in the list at issue”.
• “Although it is not legally bound by [Kadi II], the General Court considers that it may be applied, by analogy, to Mr Ayadi’s case in the absence of any other information or inculpatory evidence concerning Mr Ayadi”. Based on the legal grounds which had already been stated in Kadi II, Mr Ayadi’s listing was consequently annulled, and the Commission was ordered to pay his costs (in this case, to refund his legal aid to the General Court).

Case T‑527/09 RENV Ayadi v Commission, 14 April 2015

On 24 April 2015 the latest list of Bilateral Investment Treaties (BITs) between EU Member States and third countries was published in the Official Journal.

The publication of the BIT list referred to in Article 4(1) of Regulation 1219/2012 (establishing transitional arrangements for BITs between Member States and third countries) is based on the notifications submitted by the Member States to the Commission as per Articles 2, 11(6) and 12(6) of the same Regulation.

Note, in particular, that BITs concluded with the Republic of Croatia are only subject to Regulation 1219/2012 until the country accedes to the EU.

List of the bilateral investment agreements referred to in Article 4(1) of Regulation (EU) No 1219/ 2012 of the European Parliament and of the Council of 12 December 2012 establishing transitional arrangements for bilateral investment agreements between Member States and third countries, OJ C 135/1, 24 April 2015

The new EU General Court Rules of Procedure were published in the Official Journal on 23 April 2015. The new Rules had previously been approved by the General Affairs Council on 10 February 2015.

According to the Preamble:

Full revision of the text is necessary in order to give this set of rules a new coherence, to promote consistency in the procedural provisions governing proceedings brought before the Courts of the European Union, to preserve the capacity of the General Court to rule on cases within a reasonable time, to clarify parties’ rights, to specify the General Court’s expectations regarding the parties’ representatives and to adjust a certain number of provisions to take account of certain changes, including technological changes, in relation to the lodging and service of procedural documents, and of difficulties encountered in their implementation.

In particular, key changes to the Rules are summarised as follows:

• In addition to the procedural provisions applicable to direct actions, intellectual property actions and appeals lodged against EU Civil Service Tribunal decisions have been made subject to particular procedural rules set out in special titles. For the benefit of litigants, the rules that apply to each procedure have been specified. Intellectual property proceedings have been streamlined with a view to reducing their duration.
• For clarity, requests and applications relating to judgments and orders, as well as procedures following referral by the Court of Justice have been gathered in two respective single titles.
• The adversarial principle governing proceedings has been expressly articulated in Article 64. Moreover, Article 103 sets out circumstances where the court may, exceptionally, keep certain information provided by a party confidential from the other party, where such information is necessary for the court to rule in the case.
• Provisions previously contained in practice directions to parties (for instance relating to the length of pleadings) or in instructions to the General Court registrar (for example the provision concerning anonymity and that specifying the circumstances in which a third party may be given access to thefile in the case) are intended to be elevated to the status of rules of procedure.
• At a general level across the Rules, those which are outdated or not applied have been removed, every paragraph of the articles has been numbered, a specific heading for each article has been added, and terminology has been harmonised.

Rules of Procedure of the General Court OJ L 105/1, 23 April 2015

A typical problem area encountered in EU VAT practice is how transactions consisting of separately identifiable goods or services should be treated, particularly where those elements have different VAT liabilities. The Court of Justice has once more ruled on this issue.

In the case of Minister Finansów v Wojskowa Agencja Mieszkowania w Warszawie the referring court had asked (1) whether the VAT Directive must be interpreted as meaning that the supply of electricity, heating and water and refuse collection provided by third parties for a tenant directly using those goods and services must be regarded as being supplied by the landlord where he has concluded agreements for such provisions and where he simply passes on the costs to the tenant and (2) if so, whether the costs of those supplies increased the taxable amount (rent) or were supplies separate from the letting of immovable property.

The Court answered the first question in the affirmative. On the second question, the Court recalled the relevant basic principles in its case-law. For VAT purposes every supply must normally be regarded as distinct and independent but, in certain circumstances, several formally distinct services which could be supplied separately must be considered to be a single transaction when they are not independent. This is also the case where one or several services constitute the principal service, and where the other service or services constitute one or several ancillary services which share the tax treatment of the principal service.

In order to determine whether services supplied constitute independent services or a single service it is necessary to examine the characteristic elements of the transaction.

Factors pointing towards a separate supply in principle would include a tenant’s right to choose his suppliers and/or the terms of use of the relevant goods or services, a tenant’s ability to determine his own consumption of water, electricity or heating that is verifiable by the installation of individual meters and billed according to consumption and, in all cases, itemisation of the supply separately from the rent. Services such as the cleaning of common parts of a building under joint ownership should be regarded as separate from the letting if they can be organised by each tenant individually or by tenants collectively. The fact that the tenant has the right to obtain services from the provider of his choice is not, however, in itself decisive, nor does the landlord’s ability to terminate the rental agreement for non-payment of rental charges prevent the services to which those charges relate from constituting services separate from the letting.

However, if the letting of immovable property appears objectively, from an economic point of view, to form a whole with the supplies that accompany it, that can be considered a single supply that it would be artificial to split. The Court thought this might apply to the letting of turnkey offices ready for use with the provision of utilities and certain other supplies or short lettings, in particular, for holidays and professional reasons. Where the landlord is unable to choose freely and independently the suppliers and terms of use of the goods or services provided with the letting, those supplies are generally inseparable from it.

Accordingly, the Court held that the various services in question must be regarded as distinct and to be assessed separately for VAT purposes, unless, objectively speaking, the elements of the transaction, which would include those indicating the economic reason for the contract, were so closely linked that there was a single indivisible economic supply which it would be artificial to split. It was, however, a matter for the national court to assess taking into account all the circumstances of the letting.

Minister Finansów v Wojskowa Agencja Mieszkowania w Warszawie (Case C-42/14), 16 April 2015

The Supreme Court has held that the illegality defence did not bar a claim by the liquidators of a company used for VAT fraud against its former directors.

The respondent company was alleged to have been the vehicle for VAT carousel fraud in the context of transactions involving EU emissions allowances. After the company went into liquidation, the liquidators brought proceedings against its former directors and the appellant company, contending that the directors had breached their fiduciary duties and that the appellant had dishonestly assisted them. The appellant argued that the claim was precluded by an illegality defence, and that s. 213 of the Insolvency Act 1986 (under which the liquidators sought contributions from the directors and the appellant) did not apply extra-territorially.

The Supreme Court held as follows:

• Lords Neuberger, Clarke, Carnwath, Mance, Toulson and Hodge: the proper approach to the defence of illegality required timely examination by the Supreme Court. However, the present case was not the opportunity to do this since the nature of the defence was not determinative of the outcome here.
• Lords Toulson and Hodge: the doctrine of illegality had been developed by the courts on the ground of public policy. There was a public interest underlying the fiduciary duties owed by the directors of an insolvent company to its creditors. To allow the directors to escape liability (i.e. to be “let off the hook on the ground that their illegality tainted the liquidators’ claim”) because they were in control of the company would undermine those duties.
• Contrast with Lord Sumption, disagreeing with the statutory policy approach above: “the illegality defence is based on a rule of law on which the court is required to act, if necessary of its own motion, in every case to which it applies. It is not a discretionary power on which the court is merely entitled to act, nor is it dependent upon a judicial value judgment about the balance of the equities in each case”
• A company had separate legal personality, though it acted through its directors and agents. Whether their actions could be attributed to the company depended on the particular context. Here, in the context of an alleged breach of directors’ duties (namely using the company to commit fraud and thereby allegedly causing loss to the company), it was inappropriate to attribute to the company the fraud to which the alleged breach of duty related. “[A]s between the company and the defrauded third party, the company should be treated as a perpetrator of the fraud; but … in the different context of a claim between the company and the directors, the defaulting directors should not be able to rely on their own breach of duty to defeat the operation of the provisions of the Companies Act in cases where those provisions were intended to protect the company”.
• S. 213 of the Insolvency Act 1986 had extra-territorial effect. Its context was the winding up of a British company, where the effect of such an order was worldwide. S. 213 provided a remedy against any person who had knowingly become a party to the carrying on of that company’s business with a fraudulent purpose. The persons against whom the provision was directed were (a) parties to a fraud and (b) involved in the carrying on of the (insolvent) company’s business. “It would seriously handicap the efficient winding up of a British company in an increasingly globalised economy if the jurisdiction of the court responsible for the winding up of an insolvent company did not extend to people and corporate bodies resident overseas who had been involved in the carrying on of the company’s business”.

Jetivia SA and anor v Bilta (UK) Ltd (in liquidation) and ors [2015] UKSC 23, 22 April 2015

The CJEU has confirmed the sanctions imposed on a number of Zimbabwean officials, including the Attorney-General, rejecting an application for annulment of their listing.

The Council had imposed sanctions (freezing of funds and ban on entry into or transit through EU territory) on Zimbabwean individuals and corporations in view of the alleged human rights infringements of the country’s government. Mr Tomana (the Attorney-General of Zimbabwe), 109 other individuals and 11 companies applied for annulment of their listing. The reasons for the listings generally ran along the lines of allegedly undermining democracy, respect for human rights and the rule of law.

The CJEU held as follows:

• As to the absence of an adequate legal basis for the listing, the measures were imposed because of alleged conduct which was part of a strategy of intimidation and systematic violation of the fundamental rights of the Zimbabwean people, responsibility for which the Council assigned to the leaders of that country. Moreover, the majority of the applicants occupied positions which characterised them as leaders of Zimbabwe or associates of those leaders. That ground alone justified their listing.
• As to the infringement of the obligation to state reasons, with respect to the majority of the applicants the reference to the posts which they were occupying when the contested acts were adopted (or which they had occupied in the past) was in itself sufficient to justify their listing. With respect to the others, a reference to specific conduct imputed to them was required, and this had been provided here.
• As to a manifest error of assessment, it was not correct to state that the measures could be imposed only on individuals or companies whose activities seriously undermined human rights in Zimbabwe. The measures were also directed against “members of the Government of Zimbabwe” and “any natural or legal persons, entities or bodies associated with them”. Such a status was therefore in itself sufficient to justify the listing.

Case T‑190/12 Tomana v Council and Commission, 22 April 2015

On 16 April 2015 the CJEU ruled in favour of the Commission in Case C-591/13 Commission v Germany.

Under the German tax rules, tax on capital gains realised upon the sale of certain capital assets (“the replaced assets”, which include mostly land and buildings) can be deferred by transferring those capital gains to newly acquired or produced capital assets (“the replacement assets”) until the sale of those replacement assets, provided certain conditions are fulfilled. The replacement assets must be acquired within a certain time period and must be held as a fixed asset of a domestic permanent establishment. The European Commission brought the present case against Germany asking the CJEU to rule that the latter condition restricts the freedom of establishment as it discourages German businesses from carrying out activities through permanent establishments located in other Member States.

Germany disputed the admissibility of the proceedings on two grounds, first that there was a delay in bringing the action, and secondly, that the subject-matter of the action has been altered. With regard to the first ground, the CJEU held that the Commission is not obliged to act within a specific period. The considerations which determine the Commission’s choice of time cannot affect the admissibility of the action, subject to situations in which the excessive duration of the pre-litigation procedure can make it more difficult for the Member State concerned to refute the Commission’s argument and thus infringe the rights of defence of that Member State. The CJEU also found that the subject-matter of the action has not been altered.

Germany also argued that the legislation is justifiable on the basis of the balanced allocation of the power to impose taxes, coherence of the tax system and that it provides for a tax benefit for natural or legal persons.

The CJEU rejected all the justification grounds that were raised and found that immediate taxation on gain reinvested in a Member State other than Germany is discriminatory in comparison to the roll-over relief available on reinvestment in Germany and is a restriction on the freedom of establishment.

Case C-591/13 Commission v Germany, 16 April 2015

The Master of the Rolls, Lord Dyson, announced on 17 April 2015 that there would be no changes to the Guideline Hourly Rates (GHRs) for litigation costs, and that the existing rates would remain in force for the foreseeable future.

The GHRs had originally been set in 2010. According to Lord Dyson, these rates will remain a component in the assessment of costs, along with the application by the judiciary of proportionality and costs management.

Lord Dyson stated that there was no funding available for undertaking the requisite in-depth survey which could act as an adequate evidence base for amending the GHRs. Moreover, even if such funding were available, it was doubtful whether sufficient firms would be willing to participate and provide the level of detailed data required to produce accurate and reasonable GHRs.