Sanctions in the High Courts: A Lawyer’s Perspective

Sanctions in the High Courts: A Lawyer’s Perspective

The Joint Comprehensive Plan of Action (JCPOA) framework agreement reached between the P5+1 countries and Iran relating to Iran’s nuclear programme is a welcome development. This is a historic moment, and the start of a new relationship between Iran and the West. Iran’s people, and the businesses they depend on, have been suffering because of the sanctions imposed against Iran; now their resilience has finally paid off. Over the next three months, the framework deal will be put into writing and signed, bringing an end to the long-standing dispute over Iran’s nuclear programme.

The framework deal was reached after more than a decade of halting negotiations between Iran and the West, but substantial progress was only made after the election of the current Iranian President Dr. Hassan Rouhani in August 2013. Rouhani’s election opened the door to new political opportunities.

But even before the JCPOA was being formulated by diplomats in Lausanne, progress was being made on the legal opportunities around Iran sanctions. In particular, progress could be seen in the judgment of the UK Supreme Court in the Bank Mellat case, as well as a tide of judgments from the European Court of Justice over the last 2-3 years. These judgements annulled the economic sanctions, which had wrongfully been imposed on Iranian private entities and individuals, and challenged Western officials to apply sanctions with greater discretion and legal justification.

My firm, Zaiwalla & Co has made significant contributions to these developments, by giving legal advice and appearing in Court to present the challenges brought by various Iranian individuals and businesses which were targeted under the sanctions regimes imposed on Iran by the United Kingdom, the European Union, the United States and the United Nations. We have specialised in representing overseas parties, including foreign governments, for over 30 years, and Iran disputes have posed a particular challenge in this time.

The pressure which the West built on Iran by way of a particularly wide range of blanket sanctions on the financial and oil & gas sectors of Iran’s economy was struck a blow when my firm succeeded for Bank Mellat in the EU General Court, cancelling the sanctions against Bank Mellat. The case demonstrated how sanctions, though often well-intentioned, were applied carelessly, with limited evidence for the purported justification.

I remember that during the course of the hearing before the European Court of Justice, the Chairman of the Judge’s Tribunal asked the EU’s Advocate to clearly present the evidence against Bank Mellat. The Advocate gave a vague reply, upsetting the judge. The European Court was not going to be satisfied with vague evidence and insisted on a clear legal justification for the applied sanctions. When this was not forthcoming, Bank Mellat emerged with the first-ever successful challenge in the European Court brought by an entity listed by the EU Council under Iran sanctions. 

Soon thereafter the UK Supreme Court struck a further blow against the sanctions, by holding the listing of Bank Mellat by the UK Government (parallel to the EU sanctions) as both unlawful and irrational. During the course of this trial, for the first time in the history of the Supreme Court, the proceedings included a secret "closed" hearing to consider the intelligence evidence which the British Government said it had about Bank Mellat’s involvement in Iran’s nuclear proliferation. Bank Mellat’s officers and lawyers were sent outside the court for this hearing. Nonetheless, following that closed hearing the Supreme Court held that the intelligence evidence was not sufficiently credible, and gave judgment in Bank Mellat’s favour.

The Supreme Court then referred the matter back to the High Court for the assessment of the losses which Bank Mellat had suffered as a result of the sanctions— losses it could claim as damages. Bank Mellat has brought a claim in the sum of over USD $4 billion against the British Government as damages for its wrongful listing. This claim is currently before the English High Court.  These two judgments, which my firm obtained from the EU Court and the UK Supreme Court, set the precendent for other Iranian entities, who could now hope to succeed with their challenges against the Iran sanctions.

The courts in these judgments said that it was unlawful for any private person or entity to be targeted with sanctions without there being evidence of any wrongdoing on that person’s part. Sanctions are strong political tools, and on many occasions prove to be an alternative to war by compelling another country to change its policies or in a way “penalise” a country for its wrongful actions. Nonetheless, the highest courts in the UK and the EU have confirmed that they must not directly damage ordinary and innocent citizens.

Furthermore, in cases of sanctions imposed by the EU, in relation to the Iranian nuclear programme, strong emphasis has been placed on the importance of two primary obligations which fall upon the EU Council: firstly, the duty to provide proper reasons for the listing of each applicant challenging the imposition of sanctions and, secondly, the duty to disclose all evidence supporting the listing, including the listing proposal by any member state, to the applicant in good time for them to respond to any such evidence.

In multiple cases, including those of Bank Tejarat and Bank Mellat, both of which were represented by Zaiwalla & Co, the failure of the EU Council to adduce sufficient evidence before the Court led to the Court granting favourable judgments in favour of the applicants. In the Bank Mellat and Bank Tejarat cases, the European Court also emphasised that the EU Council should not sanction an entity based solely on the fact that another country had already imposed sanctions. Instead the EU Council is required to conduct an independent review of the underlying evidence and satisfy itself that grounds exist before sanctioning the entity. These decisions remind policymakers that sanctions, while employed as a tool of political coercion, must remain consistent in application with legal norms.

To this extent, the UK Supreme Court and European Court judgments have undoubtedly put pressure on the West to be more realistic about the promise of sanctions relief as codified in agreements like the JCPOA. This is because the possibility of the payment of damages to wrongly sanctioned entities would have a serious effect on the economies of the UK and the EU member states, because the damages will have to be paid out of taxation. This would have also placed pressure on the US administration because it is very likely that the UK and EU Council imposed their sanctions at the insistence of the US administration. 

The unjustified sanctions against these entities have caused irreparable damage to their goodwill towards and established business reputation among the international community. The agreed JCPOA framework is a big step towards re-establishing the reputations and positions of such entities in the international economy.

It is very important to note that the current wide range of blanket and targeted nuclear related sanctions in respect to Iran will remain in place until further progress of the ongoing negotiations between Iran and the P5+1 group. Although the framework agreement envisages great business opportunities in Iran for foreign companies, foreign firms and individuals must be cautious to abide by the current restrictions until they are formally lifted.

Additionally, sanctions imposed by OFAC (the US Office of Foreign Assets Control) are very extensive and could potentially cover any transactions in US dollars with an Iranian person and/or entity. Furthermore, international concerns such as those raised by the Financial Action Task Force (“FATF”), which is the global standard setting body for anti-money laundering and combating the financing of terrorism to encourage better compliance with the relevant regulations, remain in place in the case of Iran. It is therefore vital for anyone who hopes to do business in the newly open Iran to obtain extensive legal and financial advice first.



Photo Credit: New York Times

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