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The Commercial Court has handed down its judgment on three preliminary issues in Bank Mellat v HM Treasury, ruling in favour of the bank.

The Supreme Court had previously ruled that the Financial Restrictions (Iran) Order 2009, the effect of which was to shut the bank out from the UK financial sector, was unlawful (Bank Mellat v HM Treasury (No. 2) [2013] UKSC 39).

In the present damages action brought by the bank against the Treasury for damages caused by the 2009 Order, Flaux J held as follows:

• The Treasury could not contend that it did not act in a way which was incompatible with a European Convention right when a majority of the Supreme Court had decided that it did. Lord Sumption had in mind that the bank’s case was that the 2009 Order was incompatible with its right to peaceful enjoyment of its possessions and thus unlawful under section 6(1) of the Human Rights Act 1998. Moreover, Lord Sumption referred to the principles of rationality and proportionality as they had been developed in human rights law.
• The Strasbourg jurisprudence generally recognised a rule equivalent to the English law rule against recovery of reflective loss, unless there were exceptional circumstances. Since Persia International Bank Plc, of which the bank held 60%, could not have brought a claim against the Treasury under the Human Rights Act or at common law, for the purposes of the Strasbourg jurisprudence there were exceptional circumstances here. Mellat Bank could therefore pursue a claim against the Treasury for diminution in the value of its shareholding in Persia Bank.
• The Treasury could not limit the damages recoverable by the bank by arguing that such damages should be restricted to those relating to “possessions”. The issue as to what damages were recoverable depended on issues of causation. These included whether the damages claimed were demonstrably and directly caused by the violation of Article 1 of the First Protocol to the European Convention on Human Rights. This was an issue for the full trial, not to be determined at the preliminary issue stage.

Bank Mellat v HM Treasury [2015] EWHC 1258, 6 May 2015

The Commission has published its 2014 Report on the Application of the EU Charter of Fundamental Rights, which has gained increasing importance before the EU courts.

The Charter has been legally binding since the entry into force of the Lisbon Treaty on 1 December 2009. It is binding on EU institutions when enacting new measures. It also binds Member States when they act within the scope of EU law.

According to a press release, the Commission stated that it was committed to ensuring an efficient protection and promotion of fundamental rights in the EU. The report reviews the application of the Charter by and to EU institutions (in particular the Commission) and Member States. It highlights the importance of the European Convention of Human Rights and provides an update on EU accession to it. For the first time, the report also includes a section on a topical emerging issue. This year, the topic is fundamental rights in the digital environment.

2014 Report on the Application of the EU Charter of Fundamental Rights

2014 Report on the Application of the EU Charter of Fundamental Rights: Factsheet

Judicial review applications against particular applications of the partnership payment notice regime introduced by the Finance Act 2014 are working their way through the courts. However, such applications do not have the effect of suspending the notices under challenge pending the determination of the judicial review. Therefore, without more, the Claimant in the judicial review application either has to pay the tax demanded under the notice or not pay and face the risk of significant penalties if the judicial review application ultimately proves to be unsuccessful. In principle, an interim injunction preventing HMRC from enforcing the notice under challenge would remove that issue.

An application for such an injunction was made in March in the case of Nigel Rowe and others v HMRC and was rejected by Simler J. A transcript of that decision is not available. However, a similar application was made in the case of Dunne and Gray v HMRC, and the decision of Mrs Justice Laing has been reported. Again, the application for an interim injunction was unsuccessful.

The Judge determined that the statutory scheme was exhaustive and unambiguous. The legislation imposes distinct and separate statutory duties on HMRC, and any interim injunction would directly interfere with the performance of those statutory duties. Additionally, there is a statutory right of appeal against the issue of any penalties. Overall, Parliament has provided that if a partnership payment notice is issued the taxpayer must decide, if they wish to seek to challenge the notice by judicial review proceedings, whether or not to pay the sum demanded or take their chances on the judicial review and in any statutory appeal against any penalty should the judicial review fail. Consequently the Judge doubted whether she had the power to grant an injunction but if she did have such a discretion, she would not exercise it to grant the relief sought. She described an argument that the choice facing the Claimant effectively rendered the judicial review application nugatory as “misconceived”.

So all now rests on the outcome of the judicial review applications themselves.

Eamonn Dunne and Vincent Gray v Revenue & Customs Commissioners [2015] EWHC 1204 (Admin) (currently only available from Lawtel, which requires a subscription)

The Austrian legislation disallowed amortisation of goodwill in cases where a holding was acquired in a company established in a Member State other than Austria. The Austrian Administrative Court asked the CJEU:

• whether the amortisation of goodwill constituted prohibited state aid, and
• whether the exclusion of non-resident group members from the amortisation of goodwill constituted a restriction on the freedom of establishment?

AG Kokott noted that although the Austrian measures amounted to a tax benefit within the meaning of TFEU’s state aid provisions, the legislation did not confer a selective advantage to the undertakings in question and it did not constitute state aid.

However the AG then concluded that the measures were discriminatory because resident and non-resident subsidiaries are in objectively comparable situations and the restriction could not be justified because there was no direct link between the amortisation of the commercial value of the shareholding in a subsidiary and the allocation of profits of a subsidiary. In her opinion therefore, the Austrian regime constituted a restriction on the freedom of establishment.

Case C-66/14 Finanzamt Linz v Bundesfinanzgericht, AG’s Opinion, 16 April 2015 (not yet available in English)

Advocate General Kokott has handed down her Opinion in Case C-105/14 Taricco and Others. The Italian courts requested a preliminary reference from the CJEU on whether EU law requires domestic courts to refrain from applying domestic limitation period provisions in order to guarantee the effective punishment of tax offences.

AG Kokott firstly confirmed that the Court had jurisdiction to hear the dispute. Although the case concerned tax offences under Italian criminal law, the Italian authorities were required to exercise their powers according to the relevant provisions and principles of EU law. Criminal proceedings in the field of VAT fell within the scope of EU law and the Court’s jurisdiction.

AG Kokott held that EU law required that Member States provide for “effective, proportionate and dissuasive penalties” for irregularities in VAT matters. In serious cases of VAT fraud this would involve deprivation of liberty. She found that domestic limitation period provisions which had the effect of exempting the perpetrators of VAT fraud from punishment breached EU law and should not be applied by the national courts.

Case C-105/14 Ivo Taricco and Others, AG’s Opinion, 30 April 2015

The Organisation for Economic Co-operation and Development (OECD) has released a discussion draft on work in relation to Action 8 of the Action Plan on Base Erosion and Profit Shifting (BEPS).

Action 8 is entitled “Assure that transfer pricing outcomes are in line with value creation: Intangibles”. It requires the development of “rules to prevent BEPS by moving intangibles among group members” and involves updating the guidance on cost contribution arrangements.

According to the OECD, the discussion draft sets out a proposed revision to Chapter VIII of the Transfer Pricing Guidelines. The draft aims to align the guidance in Chapter VIII with the other elements of Action 8 already addressed in the Guidance on Transfer Pricing Aspects of Intangibles (released in September 2014).

Written comments must be submitted by 29 May 2015. A public consultation meeting is due to be held in Paris at the OECD Conference Centre on 6 or 7 July 2015.

Public Discussion Draft, BEPS Action 8: Revisions to Chapter VIII of the Transfer Pricing Guidelines on Cost Contribution Arrangements (CCAs), 29 April 2015

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