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:
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.
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:
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.
The Administrative Court made a declaration under s 6 of the Justice and Security Act 2013 that a closed material procedure could be used in the judicial review of a decision of the Secretary of State to propose the addition of the Claimants as designated individuals under EU sanctions.
The Claimants were added to the list of designated individuals under an EU Decision and Regulation on the proposal of the Secretary of State to the EU Council on the basis that they were “senior members” of the Islamic Republic of Iran Shipping Lines. The IRISL was a designated entity under an earlier EU Decision and Regulation enacted to restrict or prevent Iranian nuclear proliferation. The IRISL and the Claimants successfully challenged their designations before the General Court of the European Union.
The Claimants issued a claim for judicial review seeking a declaration that the proposal to list them was unlawful and damages for losses suffered as a result of the listing. The Secretary of State made an interlocutory application for a declaration under s 6(2) of the Justice and Security Act 2013 that closed material procedure could be used in the case.
The judge made the declaration as the two conditions in ss 6(4) and 6(5) were met and it was an appropriate case for the court to exercise its discretion under s 6(3). There was sensitive material (being damaging to national security if disclosed) which was disclosable, subject to any PII application; the detail of the material available to the decision-maker was essential to an evaluation of the substantive case; and there was no practicable alternative to a closed material procedure if the case were to be fairly tried.
The court emphasised that the decision under review was that taken by the Secretary of State as distinct from the decisions of the EU Council and that it did not follow that because the Council’s decisions had been wrong that the Secretary of State’s decision was wrong on the basis of the different material before him. It rejected the Claimants’ submission that the Secretary of State could not seek to support his decision on the basis of material which he did not share with the Council, the Claimants or the General Court.
The judge also noted that CPR r 82.23(4) could not be read literally and that it should be interpreted as meaning that “the hearing of the application shall so far as necessary take place in the absence of the claimants, their lawyers and the public” and that this was only necessary when submissions referred to closed material.
The common law jurisdiction of the English courts over foreign company derivative claims has not been revoked by the Companies Act 2006.
The Claimant owned 50% of the Third Defendant, a company incorporated in the BVI. It commenced English proceedings, both in its own right and in a derivative action on behalf of the Third Defendant. The claims were brought against the First Defendant, the owner of the other 50% of the Third Defendant, for breaches of, amongst other things, a shareholders’ agreement, and against the First Defendant’s representative director on the board of the BVI company, the Second Defendant, for breaches of fiduciary duty.
The First and Second Defendant applied to the English court for, inter alia, an order setting aside permission to serve the English proceedings out of the jurisdiction.
The High Court acceded to the application to set aside permission in respect of both the claims in the Claimant’s own name and the derivative claims, holding that:
(1) The Claimant had established a real case that the common law jurisdiction over foreign company derivative claims had not been revoked by the operation of Part 11, Chapter 1 of the Companies Act 2006. The court drew support from the decisions of Briggs J in Universal Project Management Services ([2013] EWHC 348 (Ch)) and David Richards J in Abouraya([2014] EWHC 277 (Ch)) which were consistent with the conclusion that the whole of the common law relating to derivative claims had not been abolished (Paragraphs 27-30).
(2) As a matter of English conflicts law, the law of the country of incorporation of the company governed the right of a shareholder to bring a claim in England (following Konananeni [2002] 1 WLR 1269). Section 184C of BVI Business Companies Act 2004, requiring a member of a BVI company to seek to leave in the BVI court, was a substantive condition precedent to the bringing of a derivative claim in relation to a BVI registered company and thus a requirement that must be complied with as a matter of English conflicts law before such a claim could be brought in England. The Claimant had failed to show more than a fanciful case that it had the right to commence derivative proceedings in the absence of such permission and accordingly permission to serve out in respect of the derivative claims would be set aside (Paragraphs 31-46).
(3) In respect of its personal claims, permission would also be set aside because the Claimant had failed to show that it had more than a fanciful claim for damages which were not reflective of the losses suffered by the Third Defendant (Paragraphs 54-61).
While this was held sufficient to grant the application, the judge went on to bolster his reasoning by considering that the Claimant had failed to establish an arguable case in respect of the alleged breaches of the shareholders’ agreement or a realistic case that the declarations sought would be granted.
Finally, the judge noted that he would have concluded that England was the most appropriate forum giving most weight to the exclusive jurisdiction clause in the shareholders’ agreement than to other factors such as the familiarity of the courts of the country of incorporation with the law applicable to the claims concerning breach of fiduciary duty (given the unlikelihood of material differences with English company law).
Novatrust Ltd v Kea Investments Ltd [2014] EWHC 4061 (Ch), 10 December 2014
A bank challenging financial restrictions affecting it was entitled to disclosure of sufficient information about the allegations against it to enable it to give effective instructions to special advocates in a closed hearing.
The Claimant bank applied pursuant to section 63 of the Counter-Terrorism Act 2008 to set aside financial restriction decisions affecting it in the Financial Restrictions (Iran) Orders 2011 and 2012, which restricted the access of Iranian banks to UK financial markets. The Defendant had relied on material which it was not prepared to disclose since it would breach national security to do so. The Defendant argued that the standard of disclosure required by the decision of the House of Lords in Secretary of State for the Home Department v AF (No 3) ([2010] 2 AC 269) did not apply and that there was no requirement in this case to disclose the details of allegations to the Claimant where the interests of national security required secrecy.
This approach was rejected by the judge who was persuaded that Article 6.1 of the ECHR required disclosure that met the requirements of AF (No 3). While the Claimant’s liberty was not affected in the same way as an individual, the utterly damaging effect on its ability to function was material and its exclusion from London as a major centre for financial institutions was particularly damaging.
Bank Mellat v HM Treasury [2014] EWHC 3631 (Admin), 5 November 2014
A bribe or secret commission received by an agent in breach of his fiduciary duty to his principal is held on trust for his principal. The principal has a proprietary remedy in addition to his personal claim for equitable compensation.
The Respondents purchased the issued share capital of a Monegasque company which owned a leasehold interest in a Monte Carlo hotel. The Appellant acted as the Respondents’ agent in negotiating the purchase. The Appellant had also entered into an agreement with the vendor which provided for the payment to the Appellant of a €10 million fee following successful conclusion of the sale. The Respondents issued proceedings seeking recovery of the sum of €10 million.
At first instance the judge found that the Appellant had acted in breach of fiduciary duty and ordered it to pay the sum to the Respondents, but he refused to grant the Respondents a proprietary remedy in respect of the monies. The Court of Appeal allowed the Respondents’ appeal and made an order which included a declaration that the Appellant had received the fee on constructive trust for the Respondents absolutely. The Appellant appealed to the Supreme Court.
The Supreme Court dismissed the appeal, accepting the Respondents’ submission that a bribe or secret commission received by an agent is held on trust for his principal. The previous authorities taken as a whole and the practical and policy considerations supported this conclusion. The law had taken a wrong turn in Heiron ((1880) 5 Ex D 319) and Lister((1890) 45 Ch D 1), and those decisions and any subsequent decisions (such as Sinclair([2012] Ch 453) in so far as they relied on or followed Heiron and Lister, should be treated as overruled.
The supporting arguments based on principle and practicality included its consistency with the fundamental principles of agency, the merits of simplicity and intolerance of bribery and corruption, which outweighed concerns over potential prejudice to an agent’s unsecured creditors. This also aligned the English courts with the position taken in other common law jurisdictions, including Australia, where the Federal Court had previously declined to follow Sinclair (see Grimaldi (2012) 287 ALR 22).
FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45, 16 July 2014
