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The Court of Appeal voiced significant reservations about the correctness of the decision in Al-Skeini v United Kingdom (55721/07) (2011) 53 E.H.R.R. 18, which extended the European Convention on Human Rights (ECHR) to the battlefield. Nevertheless, this case authority was binding and therefore followed. The Secretary of State’s appeal failed. Serdar Mohammed’s (Mohammed) cross-appeal regarding the defence of act of state succeeded and he was entitled to compensation.

This case considers important points about (i) the territorial application of the ECHR and its relationship to international humanitarian law; (ii) the consequences of failing to provide procedural safeguards required by Article 5 (right to liberty and security of person) of the ECHR; and (iii) the principles of the defence of act of state and when the defence is available.

Key points arising out of the appeal are:

• The Secretary of State had failed to make appropriate and lawful arrangements for the deployment of UK armed forces to Afghanistan and for the capture of those who posed a threat. There had been no means of enabling detention exceeding 96 hours. The actions of the UK armed forces in detaining Mohammed for longer than that were not attributable to International Security Assistance Force (ISAF).
• There had been no authority for extended detention under any of the three bases advanced by the Secretary of State. He had not put in place procedural safeguards agreed under international law to be appropriate for a non-international armed conflict and he had therefore engaged in the arbitrary detention of Mohammed, which was contrary to Article 5 of the ECHR.
• The detention was also unlawful under Afghan law, and the defence of act of state would not apply to any private law claim in tort made under Afghan law because the claim was justiciable and no rule of public policy prevented domestic Courts from giving effect to Afghan law as the applicable law.

In addition to the main appeal, there were conjoined Afghan detention cases raising similar issues, together with an appeal by a Pakistani citizen (R) against a decision ([2014] EWHC 3846 (QB)) that his claim concerning his 10 year detention in Iraq was barred because of the defence of act of state. The issues raised in the other Afghan cases were justiciable, but as they had brought public law proceedings rather than private law claims in tort, the second limb of the act of state principle had no application to them. The act of state principles identified in Mohammed’s claim applied equally to R’s claim. However, because the facts of his case had not been established, the instant Court was unable to determine whether the defence was available to the Secretary of State.

[(1)Serdar Mohammed & Ors (Respondents) v Secretary of State for Defence (Appellant) (2) Yunus Rahmatullah & the Iraqi Civilian (Appellants) v Ministry of Defence and Foreign Commonwealth Office (Respondent) [2015] EWCA Civ 843]

Read the full judgment here

The Court of Appeal upheld Mr Justice Field’s decision ([2013] EWHC 3494 (Comm), [2014] 1 All E.R. (Comm) 942) which set aside third party debt and receivership orders made to enforce an arbitration award against State Oil Marketing Company of the Ministry of Oil, Republic of Iraq (SOMO) and dismissed Taurus Petroleum Limited’s (Taurus) appeal.

The Court of Appeal’s ruling has important ramifications on the question of the immunity of state-owned companies worldwide and the proper limits of the English Court’s jurisdiction when foreign parties or property are involved.

Key points arising out of the judgment are:

• SOMO has a separate corporate status from the Iraqi State. The Iraqi State owned the oil, but selling it was entrusted to SOMO. This was a commercial act and not one performed in the exercise of sovereign immunity. The debts would be immune if they were the property of the Central Bank of Iraq (CBI). CBI’s contractual right to require the French bank to discharge its obligation to SOMO by making payment to the New York account was not sufficient to give it a proprietary interest in the debt or to justify regarding the debts as CBI’s property.
• A debt due under a letter of credit is situated where payment is made. Power Curber International Ltd v National Bank of Kuwait SAK ([1981] 1 W.L.R. 1233) was followed. The English Court had no jurisdiction to make a third party debt order in respect of letters of credit to be paid in New York.
• Where foreign parties or property are involved, the Court is obliged to consider the proper limits of its jurisdiction and should refrain from making an order that exceeds those limits. Masri v Consolidated Contractors International Co SAL ([2008] EWCA Civ 303, [2009] Q.B. 450) was followed. It was not appropriate to make a receivership order in this case as SOMO’s connection with the jurisdiction was tenuous, and an order would prevent CBI from obtaining the benefit of the French bank’s obligation to pay the sums due into the New York account.
• The process of opening a letter of credit is essentially mechanical. The Court should be very cautious before construing letters of credit by reference to extraneous circumstances.
• There is no reason in principle why a letter of credit could not be issued in favour of joint beneficiaries.
• There is no principle limiting the scope of third party debt orders to debts with which the judgment debtor could honestly deal, otherwise than by reference to the existence of proprietary interests.

[Taurus Petroleum Limited v State Oil Marketing Company of the Ministry of Oil, Republic of Iraq ([2015] EWCA Civ 835)]

The Court of Appeal ruled that making a UK Court Order for interim maintenance payment does not unlawfully circumvent prohibitions in Ukrainian Sanctions Legislation and the appeal was dismissed.

This appeal raises a short but important point of law about whether the Court can make an Order for payment by a husband in favour of his former wife of interim maintenance into an account in Russia with a Russian bank. Both husband and wife are Russian citizens: the husband lives in Russia and the wife lives in the UK. The Order of Moor J dated 17 October 2014 (the subject of this appeal) provides for maintenance payment by the husband into the wife’s account in a Russian bank in Russia. As the wife lives in the UK, clearly she will remit those monies to the UK. The husband is subject to sanctions imposed by Council Regulation (EU) No 269/2014 (the EU Regulation). The primary effect of the EU Regulation is that his assets are “frozen” in the EU which means no one can “deal” with them in the EU and a person within the EU cannot participate in his dealing with them: it is that primary effect which gives rise to the issue on this appeal.

In most respects the EU Regulation is directly enforceable. However, certain matters require domestic regulations and in the case of the UK these are the Ukraine (European Union Financial Sanctions) (No 2) Regulations 2014 (2014 No. 693), (the UK Regulations). The EU Regulation has primacy over the UK Regulations.

The EU Regulation requires each member to nominate a “competent authority”, which is able to give releases in certain circumstances. HM Treasury is the competent authority nominated by the UK. HM Treasury confirmed that the EU Regulation did not prevent the husband from transferring money in Russia into her Russian account and that the wife was free to transfer money from her Russian account to the UK.

The husband submitted that it was not open to the Court to make an Order for interim maintenance in Russia. The UK Regulations did not contain any provision enabling him to do so. This was rejected by Mr Justice Moor.

The appeal upheld Moor J’s decision, citing two relevant guiding principles:

(1) Each set of Regulations must be construed as a consistent whole and which enables all the Articles or Regulations in question to have effect.

• The basic premise of Article 5 of the EU Regulation is that there can be a valid Court Order, even if it deals with funds, because otherwise it would be pointless for that Regulation to empower the competent authority to authorise the use of frozen funds to meet it.
• The UK Regulations do not transpose Article 11.
• Even if HM Treasury did not give a licence in a particular case, the person entitled to the Court Order would be entitled to enforce it when sanctions came to an end. It would be disproportionate for the EU legislature to invalidate the Court Order and therefore deprive him of that possibility.

(2) Both sets of Regulations should so far as possible be construed consistently with the EU fundamental right to effective judicial protection.

• The right to effective judicial protection includes the right of access to Court. It would be contrary to the wife’s fundamental right of access to Court to prevent her from obtaining the valid and effective decision of the Court in a Member State as to the maintenance to which she was entitled, unless that right was clearly taken away by the EU Regulation.
• The making of a Court Order would only circumvent the EU Regulation for the purposes of Article 9 if the Order itself contained provisions which dealt with funds or economic resources and which were also intended to achieve a dealing with funds or economic resources within the scope of the EU Regulation without the licence of HM Treasury.
• The competent authority can only authorise the use of funds or economic resources of a designated person if certain conditions are met. Where a Court Order has been made, the relevant condition is that the funds are “subject to” the Court Order.
• There is no breach of Article 9 of the EU Regulation or Regulation 10(2)(a) of the UK Regulations as a result of Moor J’s Order. There cannot be a circumvention of a measure by adopting a means which the EU Regulation permits.

[R and R [2015] EWCA Civ 796]

The CJEU has once again had to consider a holding company’s right to deduct VAT. In a case to which the Sixth VAT Directive – as opposed to the more recent VAT Directive – was relevant, the referring German court was in doubt about how to apportion input VAT paid by a holding company for the acquisition of capital intended for the purchase of shares between the economic and non-economic activities of that company. First of all, the Court recalled the principles arising from its case-law on this topic, namely:

(1) A holding company whose sole purpose is to acquire shares in other undertakings and which does not involve itself directly or indirectly in the management of those undertakings, without prejudice to its rights as a shareholder, does not have either the status of taxable person or the right to deduct tax.

(2) The mere acquisition and holding of shares in a company is not to be regarded as an economic activity conferring on the holder the status of a taxable person. The mere acquisition of financial holdings in other undertakings does not amount to the exploitation of property for the purpose of obtaining income therefore on a continuing basis because any dividend yielded by that holding is merely the result of ownership of the property.

(3) However, it is otherwise where the holding is accompanied by direct or indirect involvement in the management of the companies in which the holding has been acquired and the involvement of a holding company in the management of companies in which it has acquired a shareholding constitutes an economic activity where it entails carrying out transactions which are subject to VAT, e.g. the supply of administrative, financial, commercial and technical services.

The right to deduct input tax arises even where there is no direct and immediate link between a particular input transaction and output transactions giving rise to the right to deduct, where the costs of the services in question are part of a taxable person’s general costs and are, as such, cost components of the taxable person’s supplies. The rules in Article 17(5) of the Sixth Directive provide for methods of deduction where input transactions are used to carry out both economic transactions which give rise to a right to deduct and those which do not. However, the determination of the methods and criteria for apportioning input tax between economic and non-economic activities – referred to in the UK as business and non-business activities – is in the discretion of the Member States who must, within that discretion, provide for a method of calculation which objectively reflects the part of the input expenditure actually to be attributed to those two types of activity. It was for the national courts to establish whether the Member State had had regard to the aims and broad logic of the Sixth Directive and had provided for such a method of calculation.

The CJEU also found that the Sixth VAT Directive precluded national legislation which reserved the right to form a VAT group solely to entities with legal personality and linked to the controlling company of that group in a relationship of subordination, except where those requirements were “appropriate and necessary in order to achieve the objectives seeking to prevent abusive practices or behaviour or to combat tax evasion or tax avoidance”, which were matters for the national court to determine. However, the relevant provision, Article 4(4) did not satisfy the criteria allowing taxable persons to claim direct effect (i.e., to claim the benefit of the provision in the event that their Member State’s legislation was not compatible with that provision and could not be interpreted in a way compatible with it).

[Beteiligungsgesellschaft Larentia + Minerva mbH & Co. KG v Finanzamt Nordenham (C-108/14); Finanzamt Hamburg-Mitte v Marenave Schiffahrts AG (C-109/14)]

The government has published the responses to the consultation on the proposed minimum claim period for the remittance basis charge for non-UK domiciled individuals.

At Autumn Statement 2014, the government announced it would consult on making the claim to pay the remittance basis charge apply for a minimum of 3 years, so that non-UK domiciled individuals could not easily arrange their tax affairs so as to only pay the charge occasionally. The consultation sought to better understand the reasons why individuals choose not to pay the remittance basis charge consistently from year to year. It also sought views on how a minimum claim period for the charge might apply, but also any alternatives that would also meet the government’s objectives.

Respondents did not support the introduction of a minimum claim period for the remittance basis charge. It was argued that there is very little evidence of individuals actively arranging their affairs to plan around the remittance basis charge and that the fluctuation of income and gains from year to year was more likely to be the reason for an individual opting in and out of paying the charge. It was also considered to be complex and unnecessary because of the scale of the issue. Some responses indicated that if the government wished to take action then there would be greater support for restricting the ability to pay the remittance basis charge for a period of time once an individual chooses not to pay the charge.

As a result of significant reforms to the taxation of non-UK domiciled individuals and the responses to the consultation, the government announced at Summer Budget 2015 that it will not introduce a minimum claim period for the remittance basis charge.

HM Treasury, Summary of responses on minimum claim period consultation, July 2015

The European Commission has opened two formal antitrust investigations into possible abusive behaviour by Qualcomm in the field of baseband chipsets used in consumer electronic devices.

Qualcomm is the world’s largest supplier of baseband chipsets.

The first antitrust investigation focuses on Qualcomm’s conditions related to the supply of certain chipsets that comply with 3G (UMTS) and 4G (LTE) standards and are used to deliver cellular mobile connectivity in smartphones and tablets. In particular, the Commission will investigate whether Qualcomm has granted payments, rebates or other financial incentives to its customers on condition that they purchase all or a significant part of their baseband chipsets requirements from Qualcomm, and whether any such behaviour might hinder the ability of rivals to compete.

The second investigation concerns Qualcomm’s pricing practices with regard to certain chipsets that comply with 3G (UMTS) standards and are used to deliver cellular mobile connectivity. In particular, the Commission will be assessing whether Qualcomm has engaged in “predatory pricing” by selling these chipsets at prices below costs, with the intention of hindering its competition from remaining in the market and competing with Qualcomm.

Press release – Antitrust: Commission opens two formal investigations against chipset supplier Qualcomm, 16 July 2015

The Summer Finance Bill 2015-2016 is now available here.

Summary of the Bill: A Bill to grant certain duties, to alter other duties, and to amend the law relating to the National Debt and the Public Revenue, and to make further provision in connection with finance.

The Court of Appeal ordered that, whatever the outcome of an appeal, costs associated with preparation of the Court of Appeal bundle will not be recoverable if the bundle does not comply with Paragraph 27 of Practice Direction 52C (appeals to the Court of Appeal) of the Civil Procedure Rules.

The appeal raised a question concerning the proper operation of CPR Part 24 (Summary Judgment) in the context of multi-party construction litigation. However, before addressing this question, Lord Justice Jackson made the following comments on the appeal bundle:

• Paragraph 27 of Practice Direction 52C sets out clearly what documents should be included and, more importantly, what documents should not.
• Specifically, paragraph 27 (1) provides that the appeal bundle “must contain only those documents relevant to the appeal”.
• In the present appeal bundle there are numerous duplicates and irrelevant documents. The arrangement of the correspondence is, to put it charitably, chaotic. It is certainly not chronological. Amongst the jumble of correspondence there are copies of superfluous authorities. The brief chronology furnished by the parties does not contain any page references to aid the hapless judge as he/she struggles to piece together the story of what happened.
• The appeal bundle should be an aid to the Court, not an obstacle course. The Practice Direction governing the conduct of appeals is not difficult to understand. It serves a serious purpose. Experienced practitioners should do what it says.
• Consequently, whatever the outcome of the appeal, no party will be entitled to recover any costs referable to the preparation of the bundle.

Lord Justice Tomlinson and Lord Justice Floyd agreed with Lord Justice Jackson and the decision not to award costs for preparing the bundle to either party was held.

In relation to the pivotal question in the appeal, the Court of Appeal held that the appeal should be allowed as the requirements of CPR 24.2 (grounds for summary judgment) had not been met.

The Honorary Edward Iliffe and Mrs Teleri Iliffe (as Respondents) v Feltham Construction Limited (as Appellant) and others [2015] EWCA Civ 715

Denmark’s implementation notifications under the agreement between itself and the EU on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters have been published in the Official Journal.

According to Article 4 of the Agreement of 19 October 2005 between the EU and Denmark on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, whenever implementing measures are adopted, Denmark’s decision on whether or not to implement the content of such measures shall be notified to the Commission.

Denmark has notified the Commission of its decision to implement a number of such measures, following amendments to relevant EU Regulations (notably the Brussels I Regulation).

Agreement between the European Union and the Kingdom of Denmark on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, OJ L 182/1, 10 July 2015

The Commission has adopted its Annual Report on how it monitors the application of EU law in 2014.

The 32nd Annual Report on Monitoring the Application of EU Law reviews Member States’ performance on key aspects of the application of EU law and highlights the main enforcement policy developments of 2014.

The Commission launches infringement procedures when a Member State does not resolve an alleged breach of Union law. The Commission opens infringement procedures when a Member State has not notified the measures transposing a directive into national law within the agreed deadline. The Commission can also open an infringement procedure on the basis of a Commission investigation or a complaint by individual citizens or businesses when a country’s legislation is not in line with the requirements of EU legislation or when Union law is not applied correctly or at all by national authorities.

Overall, the number of formal infringement procedures has decreased in the last five years. The Commission considers that this reflects the effectiveness of the structured dialogue with Member States via EU Pilot before a formal infringement procedure is launched. The Commission has stated that it also reflects the Commission’s determination to work with the Member States in improving compliance at an early stage and resolving potential infringements quickly, to the benefit of citizens and businesses.

As in 2013, environment, transport and internal market and services remain the policy areas in which most infringement cases were open in 2014.

Report on 2014 infringements: Commission enforces correct implementation of EU law (press release)

Report from the Commission: Monitoring the application of Union law – 2014 Annual Report, 9 July 2015