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On 22 January 2015 the General Court handed down its judgment in Bank Tejarat, a sanctions case.

Bank Tejarat concerned an application to annul or declare inapplicable certain provisions of Council Decision 2012/35/CFSP, Council Implementing Regulation 54/2012, Council Regulation 267/2012, Council Implementing Regulation 709/2012 and Council Decision 2010/413/CFSP concerning restrictive measures against Iran, in so far as they applied to the said bank. The bank had been listed since 2012 on alleged grounds that it was owned by Iran, had facilitated the country’s nuclear efforts, had assisted designated Iranian banks in circumventing international sanctions and had supported the activities of subsidiaries and subordinates of certain designated Iranian organisations.

The General Court held that:

• The plea (lack of legal basis and error of assessment committed by the Council in adopting restrictive measures against the applicant) was upheld. The proposal for the adoption of restrictive measures contained only those allegations relied on in the statement of reasons for the contested measures, and did not substantiate their merits. The Council had not adequately justified its delay in submitting certain relevant evidence to the court. The Council had not submitted information to adequately prove the claimant’s support for nuclear proliferation or help given to other entities to breach restrictive measures against them. Moreover, since 2009 the Iranian state was no longer the majority shareholder of the applicant.
• In conclusion, the contested provisions of Council Decision 2012/35/CFSP, Council Implementing Regulation 54/2012, Council Regulation 267/2012 and Council Implementing Regulation 709/2012 were annulled in so far as they concerned the bank.
• The effects of Council Decision 2010/413/CFSP (i.e. asset freezing) were maintained as regards the bank until the annulment of Regulation 267/2012 and Implementing Regulation 709/2012 would take effect. If the dates when the annulment of Regulation 267/2012 and Implementing Regulation 709/2012 and that of Decision 2010/413 took effect were to differ, that would jeopardise legal certainty since those two acts imposed identical measures on the applicant.

Case T‑176/12 Bank Tejarat v Council, 22 January 2015

On 15 January 2015 the Technology and Construction Court (Akenhead J) clarified some significant issues surrounding the application of the new proportionality rule as regards costs assessment.

In Savoye and Savoye the court had to make a summary assessment of the costs. The claimant had secured its judgment for the full sum claimed (c. £900,000). The only outstanding issue was the meaning of a term in the Housing Grants, Construction and Regeneration Act 1996. The claimant’s costs bills totalled c. £200,000 for four hearings. Three of the hearings were for the application for summary judgment issued by the claimant. The time billed by the claimant’s solicitors included 111 hours of partner time (c. £58,000), 223 hours of associate time (c. £83,000) and counsel’s fees of £27,800.

Akenhead J held that:
This is an important judgment for paying parties in relation to commercial cases where the number of hours spent by partners, costs against hearing length ratios, levels of counsel fees and the “team approach” to case handling are the main points of contention.

• In light of CPR r 44 and for the purposes of costs assessment, the court should have regard to the following when assessing proportionality and the reasonableness of costs:
  • The relationship between the amount of costs claimed and the amount in issue: “…for example, if the amount in issue in the claim was £100,000 but the costs claimed for are £1 million, absent other explanations the costs may be said to be disproportionate”.
  • The amount of time spent by solicitors and barristers in relation to the total length of the hearing. “For example, if 3,000 hours of lawyers’ time is incurred on a case which involves only a one day hearing, that might well point to a disproportionate incurrence of time spent”.
  • “In the context of time spent, the Court can have regard to the extent to which the lawyers for the party claiming costs and the party itself has incurred cost and spent time before the Court proceedings in connection with any other contractual dispute resolution machinery agreed upon between the parties. Here, for instance, there was provision for adjudication, in which the parties were required to pay their own costs of that process. If and to the extent that the work in connection with the adjudication duplicates the work done in the Court proceedings, or, put another way, if the same issue arises and was addressed in the Court proceedings as in the adjudication, it may be disproportionate to expend anew what is repetitious effort and time in the later proceedings”. The case revolved around a relatively narrow issue (the interpretation of a term in a particular statutory provision). The issue and arguments in the court proceedings were substantially the same which had previously been raised in the arbitration between the parties: “…the costs of the Court proceedings could have been relatively modest, taking into account that the legal team knew exactly what the issue was about”.
  • The extent to which the case was a test case. The present was not, though it elicited some helpful points.
  • “The importance of the case to either party. If for instance an individual or a company is being sued for everything which he, she or it is worth, it may not be disproportionate for that individual to engage a QC even if the amount in issue is objectively not very large”. Here, the commercial existence of the parties did not depend on the outcome of the case.
• In light of the above, a costs bill of over £200,000, albeit in relation to a claim worth just under £900,000, was disproportionate. Excessive partner, associate and counsel time had been spent on a narrow and already known issue.
• The costs were reduced as follows: partner time to 20 hours, associate time to 160 hours and counsel’s fees to £18,800. Overall, the costs were effectively halved (c. £96,000).

Savoye and Savoye Ltd v Spicers Ltd [2015] EWHC 33 (TCC), 15 January 2015

On 21 January 2015 the General Court handed down its judgment in Makhlouf, a sanctions case.

Makhlouf concerned an application for annulment of Council Implementing Decision 2011/488/CFSP, Council Decision 2011/782/CFSP and Council Decision 2012/739/CFSP concerning restrictive measures against Syria, in so far as it applied to Mr Makhlouf. He had been on the Syrian sanctions list since 2011 due to his alleged association and his relationship with the Al-Assad and Makhlouf families.

The General Court held that:

• The Council had not infringed the applicant’s rights of defence or his right to a fair hearing. Notably, the EU authorities could not be required to communicate the grounds for listing before the name of a person or entity had been entered on the sanctions list. Such prior communication would be liable to jeopardise the effectiveness of the measures. Failure to notify to the applicant Council Decision 2011/782/CFSP and Council Decision 2012/739/CFSP did not breach his rights of defence as the reasons for listing the applicant in those two instruments were the same as for the previous Council Implementing Decision 2011/488/CFSP.
• The grounds relied upon by the Council had provided the applicant with sufficient information to enable him to contest their validity, and the Council had not made an error of assessment. On the basis of the evidence it had brought, the Council was entitled to take the view that Mr Makhlouf was connected with and gave economic support to the Syrian ruling family.
• The Council had not infringed the applicant’s fundamental rights (including the principle of proportionality, the right to property and the right to privacy). In particular, the right to privacy did not protect against a loss of purchasing power, and thus the asset-freezing measures did not infringe this right by lowering the living standards of the applicant’s family.
• In conclusion, the application for annulment of Council Implementing Decision 2011/488/CFSP, Council Decision 2011/782/CFSP and Council Decision 2012/739/CFSP was rejected.

Case T-509/11 Mohammad Makhlouf v Council, 21 January 2015, currently only available in French

On 16 January 2015 the Ministry of Justice presented its response to part 2 of the consultation on enhanced fees.

The key points arising from this response are as follows:

• The government has decided to increase the fee to issue proceedings for the recovery of money to 5% of the value of the claim for all claims over £10,000.
• The fees for claims of less than £10,000 (which are over 90% of all money claims) remain at their current levels.
• The maximum fee to issue proceedings is set at £10,000.
• Discounts of 10% apply to the fees where the claim is initiated electronically using the Secure Data Transfer facility or Money Claims Online.
• The Government will not implement the proposed increase to the fee for a divorce, or either of the options for charging higher fees for commercial proceedings.

Ministry of Justice: Enhanced Court Fees – The Government Response to Part 2 of the Consultation on Reform of Court Fees and Further Proposals for Consultation, January 2015

On 19 January 2015 the grounds for annulment in VTB Bank, Sberbank of Russia and Agrotikos Sinetairismos Profiti Ilia were published in the Official Journal.

Both VTB Bank and Sberbank are seeking annulment of Council Decision 2014/512/CFSP, Council Regulation 833/2014, Council Decision 2014/659/CFSP and Council Regulation 960/2014, in so far as these measures apply to them. VTB Bank also requests that the Court declare illegal or inapplicable Article 1 of Council Decision 2014/512/CFSP, Article 5 of Regulation 833/2014, Article 1 of Council Decision 2014/659/CFSP and Article 1(5) of Regulation 960/2014. Sberbank also requests a declaration of illegality as detailed in its application and an order that the Council should pay its costs.

The grounds relied on by VTB Bank are that the Council has failed to give adequate or sufficient reasons for listing the applicant, that the Council has manifestly erred in considering that the criteria for listing had been fulfilled, that the Council has failed to safeguard the applicant’s rights of defence and effective judicial review, and that the Council has infringed, without justification or proportion, the applicant’s fundamental rights (including its right to protection of its property, business and reputation). As regards the declaration of illegality, the applicant argues that the contested provisions are unlawful because they are not necessary or proportionate to the objectives of the contested sanctions measures, and that the contested sanctions measures breach the EU’s international law obligations.

The grounds relied on by Sberbank are that the Council has manifestly erred in considering that the criteria for listing had been fulfilled, that the Council has breached its obligation to give reasons for listing the applicant, that the Council has failed to safeguard the applicant’s rights of defence and right to effective judicial review, and that the inclusion of the applicant in the contested measures amounts to an unjustified and disproportionate restriction of its fundamental rights (including its right to protection of its business and reputation).

Agrotikos Sinetairismos Profiti Ilia is seeking annulment of Council Regulation 833/2014 and an order that the Council should pay its costs. The ground relied on is an error in the choice of legal basis: that the Regulation was erroneously adopted on the basis of Article 215 TFEU, when it should have been adopted on the basis of Article 207 TFEU with regard to the common commercial policy.

Case T-731/14 Agrotikos Sinetairismos Profiti Ilia v Council (action brought on 17 October 2014)

Case T-732/14 Sberbank of Russia v Council (action brought on 23 October 2014)

Case T-734/14 VTB Bank v Council (action brought on 24 October 2014)

In Webber v Department for Education, the High Court provided guidance on the operation of the good faith exception to the change of position defence in a mistaken payment case. The exception is drawn from Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 where Lord Goff explained that “the defence is not open to one who has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution” (at 580).

In this case, Mr Webber had returned to work following a short period of retirement. He notified his pension fund of his return, but, despite receiving a letter requesting that he update the fund on any changes in his circumstances (such as his 55th birthday), he failed to do so. As a result, his pension was overpaid for several years. The fund sought to recoup the overpayments. Mr Webber complained to the Pensions Ombudsman that he had changed his position in reliance on the overpayments. A Deputy Ombudsman found that as Mr Webber had turned a blind eye to the need to inform the fund of any change in his circumstances he was precluded from relying on the change of position defence.

On appeal, Mr Webber argued that his failure to inform the fund was merely negligent and did not amount to a lack of good faith. Nugee J (at [61]) applied the consideration of the good faith exception in Niru Battery Manufacturing Co v Milestone Trading Ltd [2002] EWHC 1425 (Comm); [2003] EWCA Civ 1446 where the Court of Appeal and the judge at first instance described the exception as requiring a consideration of whether it was “inequitable or unconscionable, and thus unjust, to allow the recipient of money paid under a mistake … to deny restitution to the payer” (CA at [162]).

Applying this approach, Nugee J held that (at [62]):

If a person appreciates that the payment he is receiving may be an overpayment … and can make a simple enquiry of the payer to check whether this is so but chooses not to do so, I do not see anything wrong in the conclusion that the defence is not open to him. … If it turns out that the payment was indeed an overpayment, it would be inequitable or unconscionable for such a person to deny restitution by relying on a change of position defence.

Therefore, because Mr Webber turned a blind eye to the need to notify the fund of any change in his circumstances he could be taken to have anticipated that he may be being overpaid. The onus was on him to make enquiries with the fund. His failure to do so meant that he took the risk that he was not entitled to the money. It was therefore unconscionable for him to rely on the defence (at [62]).

Webber v Department for Education [2014] EWHC 4240 (Ch), 19 December 2014

On 14 January 2015 the General Court handed down its judgment in Abdulrahim, a sanctions case.

Abdulrahim concerned an application for annulment of Regulation 881/2002, as amended by Regulation 1330/2008, or of Regulation 1330/2008 (establishing restrictive measures against persons and entities associated with Usama bin Laden, the Al-Qaida network and the Taliban). The Commission raised an objection of inadmissibility. Subsequently, Mr Abdulrahim’s name was removed from the relevant sanctions list.

The General Court held that there was no longer any need to adjudicate on the application for annulment, and that it was consequently unnecessary to rule on its admissibility. Mr Abdulrahim appealed against the order of no need to adjudicate. The Court of Justice set aside the order of no need to adjudicate and referred the case back to the General Court for it to rule again on Mr Abdulrahim’s action for annulment.

The General Court held:

• On the admissibility of the annulment application, that the objection of inadmissibility was rejected. Unforeseen circumstances, in the shape of a delay due to the postal service used, had caused the application to be filed out of time. The fact that a more expensive, faster, tracked service could have been used was irrelevant. The postal service used had been a reputedly reliable one, and the applicant’s lawyers had acted swiftly to resend the application by an alternative service as soon as it transpired that the original service had failed to deliver the application.
• On the substance of the action for annulment, that the principles in Kadi II applied. The court had to ensure that the listing decision had been taken on a sufficiently solid factual basis, which entailed a verification of the factual allegations in the summary of reasons underpinning that decision. Mr Abdulrahim’s alleged association with Al-Qaida had been assumed on the basis on his links with the Libyan Islamic Fighting Group (LIFG) and on the LIFG’s association with Al-Qaida. This assumption was not well founded on the facts: Mr Abdulrahim had been a LIFG member well before the LIFG became associated with Al-Qaida. Moreover, on several occasions the English courts had refused to find that the fact that an individual was linked to the LIFG automatically proved that that individual was linked to Al-Qaida. In addition, the more specific grounds against Mr Abdulrahim were either insufficiently detailed or specific to meet the requirements inherent in the obligation to state reasons and in effective judicial review, or were not supported by information or evidence on the basis of which it could be established that they were well founded in fact. Overall, therefore, the summary of reasons did not establish to the requisite legal standard that Mr Abdulrahim was materially linked to Al-Qaida on the date of his listing. Regulation 1330/2008 should be annulled in so far as it applied to him.

Case T‑127/09 RENV Abdulbasit Abdulrahim v Council and Commission, 14 January 2015

On 9 January 2015 the EU published a fact sheet setting out the recent developments in EU-Ukraine relations.

Fact sheet

The European Commission has published two new taxation papers: on R&D tax incentives and on VAT compliance.

According to the Commission, the aim of the taxation papers series is:

• to facilitate the spreading of the analysis of the Commission’s Taxation and Customs Union DG; and
• to contribute to the debate on taxation in the European Union.

Taxation papers

R&D Tax Incentives

VAT compliance

On 18 December 2014 the Court of Justice of the European Union (“CJEU”) handed down its judgment in infringement proceedings brought by the Commission against the UK concerning the effect of section 107 Finance Act 2007 (“FA 2007”). This case concerns the limitation periods for the remedies available under English law for actions for recovery of tax unlawfully levied.

Following the High Court’s decision in Deutsche Morgan Grenfell v IRC in 2003, the UK had enacted legislation (section 320 FA 2004) which restricted the application of the 6 year limitation period in relation to claims for recovery of taxes paid under a mistake of law (Kleinwort Benson claims). The UK government later adopted section 107 FA 2007, which further amended, retrospectively and without transitional arrangements, the limitation period in relation to Kleinwort Benson claims brought against the Revenue under mistake of law.

The Commission began infringement proceedings in October 2009. By its judgment in Test Claimants in the FII GLO in May 2012, the Supreme Court unanimously ruled that section 107 FA 2007 was contrary to EU law. The UK subsequently acknowledged that section 107 breached EU law and stated that it would be disapplied each time it proved to be incompatible. However, the Commission was not satisfied with this response and proceeded with the action.

The CJEU gave judgment without an Opinion from the Advocate General. Its decision, unsurprisingly, follows that of the Supreme Court in FII and the CJEU’s own judgment in Case C-362/12 FII (3rd reference). The CJEU found that section 107 FA 2007 breached the EU law principles of effectiveness and protection of legitimate expectations. The UK had failed to uphold its obligation under Article 4(3) TEU to guarantee tax payers the right to a refund of unlawfully levied taxes. Although the UK government had argued that an amendment of section 107 FA 2007 was contemplated, the CJEU rejected this as irrelevant to the situation existing in the UK at the time.

Case C‑640/13 European Commission v United Kingdom of Great Britain and Northern Ireland, 18 December 2014