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On 18 March 2015 the Supreme Court handed down judgment in Braganza v. BP Shipping, holding that contractual decisions affecting both parties would be reviewed by the court in the same way as administrative decisions.

The case concerned death benefits accruing under an employment contract. The employee, Mr Braganza, had vanished while on board the respondents’ vessel. The respondents were of the opinion that he had committed suicide, and that no benefits were therefore due to his widow.

In the Commercial Court, Teare J had held that there was real uncertainty about what had happened to Mr Braganza, meaning whether his death had been an accident (possibly because he was out on the deck for work purposes) or suicide. The respondents’ opinion that he had committed suicide had to have been formed reasonably. Reasonableness in the present context meant Wednesbury reasonableness: the decision should have been taken rationally (by taking into account all relevant matters and not taking into account irrelevant matters), honestly and in good faith. “Although the present case concerns the exercise of a contractual power rather than a statutory power the same principles apply”. Teare J found that the respondents had failed the rationality aspect of the test and had not considered the possibility that the employee’s death could have been an accident. The widow’s claim succeeded, and death in service benefits were payable by BP under the contract.

The Court of Appeal (Longmore LJ, with whom Rimer and Tomlinson LLJ unanimously agreed) reversed this decision and held that no such benefits were payable. The court thought that it was “not entirely clear” whether Teare J had considered that the respondents’ failure to direct themselves as to the need for cogent evidence before making a finding of suicide was in itself enough to render their opinions unreasonable. As to the failure to appreciate that there might be work-related reasons for Mr Braganza to go on deck, that failure could not make the employer’s opinion unreasonable in the absence of a mechanism explaining how he could accidentally fall overboard. The widow appealed.

The Supreme Court allowed the widow’s appeal. The majority was 3 to 2 in favour of the appeal (with Lady Hale giving the lead judgment and Lord Hodge giving a concurring judgment, and Lord Kerr agreeing with Lady Hale and Lord Hodge). Lord Neuberger gave a dissenting judgment, with which Lord Wilson agreed. It was held as follows:

• There were two issues to be answered here: a particular one (the proper approach of a contractual fact-finder considering whether a person may have committed suicide) and a general one (what it meant that the decision of a contractual fact-finder should be reasonable).
• For contracts involving one party taking decisions which affected the rights of both parties, the court would imply a term into the contract that the decision-making process be lawful and rational in the public law sense: i.e. that the decision was made rationally, in good faith and consistently with the contractual purpose. Whatever term would be implied depended on the terms and context of the particular contract. The test had two limbs: the decision-making process (whether the right matters had been taken into account in reaching the decision) and the outcome (whether, even though the right things had been considered, the result was so outrageous that no reasonable decision-maker could have reached it).
• The particular context here was an employment contract, which was different from an ordinary commercial contract. Any decision-making entrusted to the employer had to be exercised in accordance with the implied obligation of trust and confidence. In deciding that the employee had committed suicide the respondents had not acted rationally or reasonably, in the public law sense of the decision having been formed without taking relevant matters into account. They respondents should have asked themselves whether the evidence was sufficiently cogent to overcome the inherent improbability of suicide (and it was not, as there were no positive indications of suicide here).
• Lord Neuberger (dissenting) agreed with the majority that where a contract allocated power to a party to make decisions which had an effect on both parties, the court should review the decision in the same way as administrative decisions. However, he would have held that there was a combination of reasons which could fairly be said to be sufficiently cogent to justify the finding that Mr Braganza had committed suicide.

Braganza v. BP Shipping Limited and another [2015] UKSC 17, 18 March 2015

On 18 March 2015 the Permanent Court of Arbitration in The Hague (PCA) handed down its award in the matter of the Chagos Marine Protected Area Arbitration between Mauritius and the UK.

The arbitration focused on the 2010 establishment by the UK of a Marine Protected Area (MPA) around the Chagos Archipelago, in the Indian Ocean. The archipelago is under UK administration as the British Indian Ocean Territory.

The PCA found as follows:

• It declined jurisdiction to consider Mauritius’ claim that the UK was not the “coastal State” in respect of the archipelago for the purposes of the 1982 United Nations Convention on the Law of the Sea (UNCLOS). This was because the parties’ dispute related to land sovereignty over the archipelago, and their differing views on the “coastal State” were simply one aspect of this larger dispute. The land sovereignty issue was not genuinely related to the UNCLOS (paras 207-221 of the award).
• Nor did it have jurisdiction to consider Mauritius’ alternative claim that certain undertakings by the UK had endowed Mauritius with rights as a “coastal State” in respect of the archipelago. The true “object of the claim” (Nuclear Tests (New Zealand v. France), Judgment, I.C.J. Reports 1974) was to bolster Mauritius’ claim to sovereignty over the archipelago. Therefore, this alternative claim related to the same dispute in respect of land sovereignty over the archipelago as Mauritius’ previous submission (paras 228-230 of the award).
• However, it did have jurisdiction to consider Mauritius’ claim that the UK’s declaration of the MPA was not compatible with the UK’s UNCLOS obligations. The dispute between the parties in relation to the compatibility of the MPA with the UNCLOS related more broadly to the preservation of the marine environment and to the legal regime applicable to the archipelago and its surrounding waters when it was eventually returned to Mauritius (paras 283-323).
• As a result of undertakings given by the UK in 1965 and repeated thereafter, Mauritius held legally binding rights to fish in the waters surrounding the archipelago, to the eventual return of the archipelago to Mauritius when no longer needed for defence purposes, and to the preservation of the benefit of any minerals or oil discovered in or near the archipelago pending its eventual return. In declaring the MPA, the UK failed to give due regard to these rights and breached its obligations under the UNCLOS (Chapter VI – Merits).
• There was no dispute between the parties regarding submissions to the Commission on the Limits of the Continental Shelf, and it was therefore unnecessary for the PCA to exercise jurisdiction in respect of Mauritius’ claim on this issue (paras 331-350).
• Two PCA members issued a joint Dissenting and Concurring Opinion, setting out their view that the PCA should have found that it had jurisdiction to consider Mauritius’ claims concerning the identity of the “coastal State”. The Dissenting and Concurring Opinion also expressed the view that the PCA should have exercised that jurisdiction to hold that the UK’s detachment of the archipelago from the colony of Mauritius in 1965 was contrary to the principles of decolonisation and self-determination.

Chagos Marine Protected Area Arbitration (Mauritius v. United Kingdom), 18 March 2015

On 17 March 2015 the House of Lords passed the Corporation Tax (Northern Ireland) Bill 2014-15. The government aims to pass the law before the upcoming May general election.

The Secretary of State, Rt Hon Theresa Villiers MP, has welcomed the development. The Bill provides for the creation of a Northern Ireland rate of corporation tax, thus devolving such tax from April 2017.

The main provisions that the Bill would introduce are as follows (summary from HMRC available here):

• The Northern Ireland Assembly will be responsible for setting the rate of corporation tax. It is expected that the rate will be reduced to 12.5% (if not below), to match the rate of the Republic of Ireland and thus encourage investment competition.
• The new rate will apply to Northern Ireland companies, meaning those that carry out a “qualifying trade” and pass either the SME or the large company test. Trades which are excluded and therefore not qualifying include, notably, financial activities such as lending and investing, asset management, long-term insurance (mainly life insurance), and reinsurance of both general and long-term insurance.
• Companies will treat their Northern Ireland trading activity as if it were a separate business from their activity in the rest of the UK, and apportion profits appropriately between the two.
• Regarding loss carry forward and group/consortium relief rules, similar amendments will apply. Such amendments will facilitate a potential rate differential, including the revaluation of Northern Ireland trading losses used to relieve profits arising in the UK main rate regime.

In the 2015 Budget, George Osborne confirmed that legislation will be introduced in the Finance Bill 2015 for a new tax on diverted profits coming into effect from 1 April 2015.

The tax was first announced at the Autumn Statement 2014 and in his speech the Chancellor of the Exchequer stated that it is aimed at “large multinationals who artificially shift their profits offshore”. Following consultation, the legislation has been revised to narrow the notification requirement.

There have also been changes to clarify rules for giving credit for tax paid, the operation of the conditions under which a charge can arise, specific exclusions and the application of the Diverted Profits Tax to companies subject to the oil and gas regime.

The UN Convention on Transparency in Treaty-based Investor-State Arbitration (the “Mauritius Convention on Transparency”) gained its first seven signatories at a ceremony in Port Louis, Mauritius on 17 March 2015.

The Convention’s purpose is to broaden the use of the new UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration. These Rules are designed to provide a high level of transparency and public accessibility in investor-state disputes.

Under their own terms, these Rules apply only to UNCITRAL arbitrations that arise out of treaties “concluded” (i.e., typically, signed) after 1 April 2014. As the vastly greater proportion of the roughly 3,000 investment treaties currently in force were concluded prior to this date, the Transparency Rules will be of extremely limited application for a very long time unless either the state parties to treaties or the parties to individual disputes adopt additional instruments to apply them.

The Mauritius Convention is an important means to expand the use of the Rules to treaties initiated under this enormous raft of pre–Transparency Rules treaties. It provides a simple mechanism to apply the Transparency Rules to any investor-State arbitration, whether or not initiated under the UNCITRAL Arbitration Rules, in which both the investor’s “Home State” and the Respondent “Host State” are parties to the Convention. The Convention allows state parties who do so to make a limited number of reservations, excluding the application of the Transparency Rules to disputes arising out of certain particular investment treaties, or to all arbitrations under a particular set of Rules, or to any arbitration in which that state is the Respondent state.

The Convention was adopted by the United Nations General Assembly last December (2014). Its first seven signatories are Canada, Finland, France, Germany, Mauritius, Sweden, the United Kingdom and the United States. However, it has not yet entered into force. This will first happen six months after the date that the first three signatories have deposited their instruments of ratification at the UN in New York.

Here is a copy of the URL of the official text of the treaty: Official UN text of Treaty

On 12 March 2015 the Investigatory Powers Tribunal (IPT) held a rare open hearing to consider any remedies it should provide on the hypothetical possibility that UK intelligence agencies had unlawfully intercepted privileged communication between Libyan nationals and their lawyers.

The details and outcome of the hearing have not yet been made available. The IPT’s Order of 26 February 2015 states as follows:

• There is a declaration that since January 2010 the regime for the interception/obtaining, analysis, use, disclosure and destruction of legally privileged material has contravened Article 8 ECHR and was accordingly unlawful.
• The factual issue as to whether the claimants’ legally privileged communications have in fact been intercepted/obtained, analysed, used, disclosed or retained (“relevant interception”) will be considered by the IPT in a closed hearing.
• There will be an open hearing to consider, on the hypothetical assumption (the true position being neither confirmed nor denied) that there has been relevant interception, what, if any, remedies should be granted to the claimants, at 10.30am on Thursday, 12 March 2015 in the Rolls Building in a court to be notified.

The pleas in law of DenizBank in its annulment application against the sanctions in view of Russia’s actions in Ukraine have been published in the OJ on 16 March 2015.

What is unique about the pleas is that they allege a breach of the Ankara Agreement between the EU and Turkey, which aims towards the accession of Turkey to the EU (Agreement Establishing an Association between the European Economic Community and Turkey and the Additional Protocol).

The annulment action refers to Council Decision 2014/659/CFSP and Council Regulation (EU) No 960/2014 (both of 8 September 2014). The details of the pleas in law are as follows:

• That the Council has breached its duty to give reasons for imposing the contested measures on the applicant, and that the Council has given the applicant no reasons for imposing the contested measures on it, nor even informed it of its inclusion.
• That the Council has failed to safeguard the applicant’s rights of defence, including its right to a fair hearing and to effective judicial review. Moreover, that the Council has given the applicant no reasons or evidence for imposing the contested measures on it, no opportunity for it to comment on the case against it, and has thereby also impeded the Court from exercising effective judicial review.
• That insofar as it has imposed the contested measures on the applicant, the Council has breached the Ankara Agreement between Turkey and the EU (and its Additional Protocol) in a number of respects.
• That the Council has breached the principles of non-discrimination and proportionality, and has imposed an unjustified and disproportionate restriction on the applicant’s fundamental rights.

Case T-798/14 DenizBank v Council, action brought on 5 December 2014

On 5 March 2015 the CJEU handed down its judgment in EIH v Council. This was an appeal brought by Europäisch-Iranische Handelsbank (EIH) against the General Court’s refusal to remove it from the list of sanctions against Iran. The CJEU rejected the appeal.

EIH had been listed on grounds of assisting Iranian banks with alternative options for completing transactions disrupted by EU sanctions, and had its assets frozen.

The most interesting part of the judgment concerns the validity of general licences in the context of exceptions to sanctions, and highlights the need to exercise caution in relying on such licences in circumstances where the relevant legal instruments mandate obtaining specific licences before engaging in otherwise prohibited acts.

The main findings of the CJEU were as follows:

• EIH admitted that it had carried out transactions with listed entities (Iranian banks), but argued that they were lawful as they had been authorised by the Bundesbank (German central bank).
• However, the General Court had been correct to find that in the absence of authorisations granted on a case-by-case basis, a blanket approval from the Bundesbank that did not distinguish the nature of the precise transactions and the designated entities concerned was insufficient. Moreover, except for one call that took place after the applicant had been entered on the lists, the communications containing approval predated the transactions by either one or two years. EIH knew that the transactions it was carrying out concerned listed entities, and that those transactions were therefore particularly suspect, as they made it possible to circumvent the freezing of those entities’ funds.
• The applicant’s legitimate expectations had therefore not been infringed. The wording of the legislation concerned was clear that the transactions in question were subject to a regime of release and authorisation on a case-by-case basis. The legislation had been adopted against a background of growing suspicion and increased controls of financial transactions. As a bank specialising in Iran-related services, EIH must have known that the transactions concerned listed entities and were therefore particularly suspect.
• Even on the assumption that the general approvals granted by the Bundesbank were capable of forming the basis of a legitimate expectation on the part of the appellant, such an expectation could not render lawful transactions that were expressly prohibited by the relevant legislation.

Case C‑585/13 P Europäisch-Iranische Handelsbank v Council, 5 March 2015

On 5 March 2015 the CJEU handed down its judgment in the appeal brought by Ezz following the General Court’s refusal to annul his sanctions listing.

Ezz and three of his wives were listed on the following grounds: “[p]erson subject to judicial proceedings by the Egyptian authorities in respect of the misappropriation of State Funds on the basis of the United Nations Convention against corruption”.

The main findings of the CJEU were as follows:

• The disputed sanctions instruments had as their objective to assist the Egyptian authorities in their fight against the misappropriation of State funds. As such, the English-language version of the disputed Decision was more consonant with its objective. The English version did not require a criminal conviction for misappropriation of state assets before an individual could be listed, by contrast with other language versions, which did contain such a requirement (for example the French version).
• The General Court had been correct in using the English version and consequently construing the listing criterion “responsible for misappropriating State funds” as not requiring a criminal conviction.
• Pursuant to the English version, persons could be listed on the following grounds: persons having been identified as responsible for misappropriation of State funds and those associated with them; persons being prosecuted for misappropriation of Egyptian State funds; persons the subject of judicial proceedings connected to criminal proceedings for misappropriation of Egyptian State funds; persons associated with the individuals the subject of those criminal proceedings.
• The other grounds for appeal were also rejected. The appeal was therefore dismissed, and the listing of the appellants remains in place.

Case C-220/14P Ezz and others v Council, 5 March 2015

Last year the Office of Tax Simplification was commissioned by the Government to produce a report on employment status. The OTS’s terms of reference commissioned it “to examine the dividing line between employment and self-employment and whether it is drawn in the right place and in the right way”. These terms of reference also expressly instructed the OTS not to consider IR35, the construction industry scheme and the expenses rules for employed and self-employed people. The OTS report has just been published (see link below).

The report contains a range of simplification proposals, but is expressed to be a part of a “long range project”. The report does not purport to suggest a “solution” to the employment status issue. The OTS recognises that the report will be something for Treasury Ministers in the next Government. However, the authors of the report anticipate an immediate reaction in next week’s Budget.

The report recognises that an individual’s status as an employee or not is something that affects issues beyond tax such as employee rights, national minimum wage, benefits and credits and pensions auto-enrolment. Indeed, the report recognises that it is often the potential employer that is most interested in knowing the answer; employee or not.

The key recommendations of the report are:
This is the last formal project of the OTS in its current form, and it will be interesting to see if and how the report is picked up in next week’s Budget. However, in his Foreword to the report, John Whiting, Tax Director of the OTS, does say that the OTS hopes to participate in a conference in the summer on the issues raised in the report.

• There should be a joint review between HMRC, HM Treasury, DWP and the Department for Business, Innovation and Skills to explore the possibility of an agreed code of principles on employment status.
• There should be exploration of a set de minimis level for payments to an individual who carries out some activities for a business which would definitely not be an employment.
• There should be exploration of a “safe harbour” basis that balances businesses’ need for certainty with risk to HMRC.
• The idea of a statutory employment test should be taken further.
• There should be a full study into the alignment of tax and NICs payments and benefits across the employed and self-employed.
• The OTS repeats the recommendations made in its Small Business Review that merging tax and national insurance would remove many of the anomalies within the tax system and assist in simplifying issues around employment status by reducing the differentials.

OTS Employment Status review and report, March 2015