The Second Opinion: U.K Supreme Court Rules Against Sanctions On Iranian Bank

The U.K. Supreme Court recently quashed an order prohibiting Bank Mellat from operating in Britain (the "Order") over allegations the Bank helped finance Iran's nuclear weapons program. The decision will have ramifications for states attempting to impose sanctions, including Canada, as well as institutions attempting to implement such sanctions.

The Court also weighed in on the appropriateness of secret hearings held to determine evidentiary issues in such matters.

In 2009, the British government prohibited any company operating in the U.K. from dealing with the Tehran-based Bank as part of rules designed to prevent the development of nuclear weapons in Iran. The Order was made under the authority of the U.K. Counter-Terrorism Act 2008 which empowers the Treasury to make such orders in circumstances where there is a risk of (a) money laundering; (b) terrorist financing; and (c) nuclear proliferation. Bank Mellat applied to have the Order set aside.

The Treasury took the view that some of the evidence relied on by the Treasury to justify the Order was of such sensitivity that it could not be shown to the Bank or its representatives and requested that the Supreme Court to go into a secret session. These secret sessions were created by the Justice and Security Act 2013, and created an extraordinary alternative to public interest immunity procedure. This alternative, known as Closed Material Procedure or "CMP", allows courts, even those hearing an ordinary civil case, to consider any material the disclosure of which would be "damaging to the interests of national security" without such material being disclosed to the non-governmental party to the case.

The Government's reason for the legislation was said to be to increase judicial scrutiny of the actions of the Intelligence Services because the legislation would allow courts to consider material that would otherwise be excluded by the operation of public interest immunity. However, the prospect of secret hearings to determine ordinary civil cases provoked very strong objections from those who argued that such a regime is flatly contrary to the rule of law and natural justice.

In March, 2013, the Supreme Court heard the case, holding a closed hearing for the first time in its history, an event that Lord Neuberger described as an "unhappy procedure". The Bank was represented by a special advocate but the Bank itself could not see the material or attend the closed hearing.

Before the Supreme...