[New search]
[Printable RTF version]
[Help]
Case No: 00/0132/A3
00/0131/A3
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION COMMERCIAL COURT
(The Hon Mr Justice Langley)
Royal Courts of Justice
Strand, London WC2A 2LL
Thursday 25th May 2000
Before:
LORD JUSTICE SIMON BROWN
LORD JUSTICE JUDGE
and
LORD JUSTICE TUCKEY
- - - - - - - - - - - - - - - - - - - - -
|
SHANNING
INTERNATIONAL LIMITED
(in liquidation)
|
Appellant
|
|
-
and -
|
|
|
LLOYDS
TSB BANK PLC
(formerly Lloyds Bank Plc)
|
Respondent/
Part 20 Appellant
|
|
and
(1) RASHEED BANK
(2) SBG HOLDINGS LIMITED
|
Part 20
Respondents
|
- - - - - - - - - - - - - - - - - - - - -
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
- - - - - - - - - - - - - - - - - - - - -
I. Milligan Esq QC and S. Morris Esq (instructed by Messrs Norton Rose
for the Appellant)
M. Hapgood Esq QC (instructed by Messrs CMS Cameron McKenna for Lloyds
TSB Bank PLC)
J. Davies Esq and P. Trepte Esq (instructed by Teacher Stern Selby
for Rasheed Bank)
- - - - - - - - - - - - - - - - - - - - -
Judgment
As Approved by the Court
Crown Copyright ©
LORD JUSTICE TUCKEY:
Introduction.
In the aftermath of Iraq's invasion of Kuwait the EEC adopted Council
Regulation 3541/92 (the Regulation) on 7th December 1992. The Regulation which
has direct effect purports to prohibit anyone within the Community satisfying
any claim made under or in connection with a transaction the performance of
which was affected by the sanctions imposed upon trade with Iraq. In these
proceedings Rasheed, an Iraqi bank, contends that the Regulation is invalid
because it was adopted for foreign or security policy reasons and not for any
legitimate purpose of the EEC and its adoption involved infringements of
essential procedural requirements. Alternatively, Rasheed contends that as a
matter of construction the Regulation does not impose a permanent prohibition.
On a trial of preliminary issues Langley J. held that the Regulation was valid
and of permanent effect. Rasheed appeals with his permission. There is also
an appeal from one part of the Judge's order for costs.
The Commercial Dispute.
In September 1989 the Claimants, Shanning, contracted to supply medical
equipment for a hospital in Iraq. The Iraqi buyers agreed to make an advance
payment of £907, 141.32p, (20% of the purchase price) secured by an
advance payment guarantee confirmed by an Iraqi Bank. Rasheed issued this
guarantee at the request of Lloyds Bank. Lloyds issued a counter-guarantee to
Rasheed. Shanning gave Lloyds a counter-indemnity secured by the deposit of
the entire advance payment. Both the advance payment guarantee and the Lloyds'
counter-guarantee are governed by Iraqi law. The counter-indemnity is governed
by English law.
Iraq invaded Kuwait on 2nd August 1990. Shanning was prevented from completing
its contract by sanctions prohibiting trade with Iraq which are still in force.
The Iraqi buyers have demanded payment from Rasheed under the advance payment
guarantee and Rasheed in turn is deemed to have demanded payment from Lloyds
under the counter-guarantee. If the Regulation is valid it is common ground
that Lloyds is presently prohibited from paying Rasheed. If the Regulation is
not of permanent effect Rasheed says that under Iraqi law its claim would not
become statute barred for at least fifteen years.
Lloyds' position is that whilst there is any risk that it will have to pay
Rasheed it cannot release the money which it is holding as security for
Shanning's counter-indemnity, particularly as Shanning is now in liquidation.
The Judge however made declarations to reflect his decision upon the validity
and effect of the Regulation which enabled judgment to be given for the money
to be paid to Shanning's liquidator.
The Role of the National Court.
A national court cannot hold Community legislation to be invalid without first
asking for a preliminary ruling from the European Court. If the national court
has any real doubt about the validity of the legislation it should ordinarily
refer the matter to that
court where, as in the instant case, the Community law issue is critical to the
court's final decision. However, if the national court has no real doubt about
the matter it may decide that the legislation is valid. (C.I.L.F.I.T. -v-
The Ministry of Health) [1982] ECR 3429; R -v- Stock Exchange
ex. p. Else [1993] 2 WLR 70).
In construing Community legislation the national court must apply Community law
which requires a purposive approach. To ascertain the purpose the court must
look at the material, including the travaux preparatoires, which led to the
adoption of the legislation and its recitals.
All of this was common ground between the parties and Langley J directed
himself accordingly.
The Treaty.
The argument over the validity of the Regulation has ranged far and wide over
the scope of the Treaty and its procedural requirements. Its provisions are
also relevant to an understanding of the history of sanctions against Iraq. I
refer to the Treaty in the form it was in at the time the Regulation was
made.
By Article 2 the Community is given the task of establishing a common market
and
progressively approximating the economic policies of the Member States to
promote throughout the Community a harmonious development of economic
activities........
To this end by Article 3 the activities of the Community are to include
(b) the establishment of a ...... common commercial policy towards third
countries;
(f) the institution of a system ensuring competition in the common market is
not distorted.
Chapter 1 of Part Three of the Treaty contains the well-known specific rules on
competition which are Articles 85 (restrictive agreements), 86 (abuse of
dominant position), 91 (dumping) and 92 (state aid).
Chapter 4 deals with common commercial policy. By Article 113 this policy is
to be based on uniform principles particularly in regard to (among other
things) export policy. The Commission is required to submit proposals to the
Council for implementing this policy. It is common ground that this Article
enabled regulations to be made prohibiting the export or import of goods
following a political decision to impose sanctions, but did not enable the
Regulation to be made.
The Regulation was made under Article 235 which says
If action by the Community should prove necessary to attain, in the course of
the operation of the Common Market, one of the objectives of the Community and
this Treaty has not provided the necessary powers, the Council shall, acting
unanimously on a proposal from the Commission and after consulting the
Assembly, take the appropriate measures.
The changes to the Treaty negotiated at Maastricht had not come into effect
when the Regulation was made. These included what became Article 228a which
said
Where it is provided in a common position or in a joint action adopted
according to the provisions of the Treaty on European Union relating to the
common foreign and security policy for an action by the Community to interrupt
or to reduce in part or completely, economic relations with one or more third
countries, the Council shall take the necessary urgent measures.
Article 73g says that the measures may relate to capital movements and
payments.
The other relevant provisions of the Treaty are :
Article 4. 1. The tasks entrusted to the Community shall be carried out by the
following institutions:
an Assembly,
a Council,
a Commission,
a Court of Justice.
Each institution shall act within the limits of the powers conferred upon it by
this Treaty.
Article 189. In order to carry out their task the Council and the Commission
shall, in accordance with the provisions of the Treaty, make regulations ......
take decisions ......
A regulation shall have general application. It shall be binding in its
entirety and directly applicable in all Member States. ......
A decision shall be binding in its entirety upon those to whom it is addressed.
......
Article 190. Regulations ...... and decisions of the Council and the
Commission shall state the reasons on which they are based and shall refer to
any proposals or opinions which were required to be obtained pursuant to this
Treaty.
Finally, Articles 173 and 184 show that a challenge to the validity of a
regulation can be made
on grounds of lack of competence, infringement of an essential procedural
requirement, infringement of this Treaty or of any law relating to its
application, or misuse of powers.
Rasheed's indirect challenge relies on each of these grounds.
Sanctions.
On 6th August 1990 the UN Security Council adopted Resolution 661 which
required all states to prevent the supply by their nationals of any products to
any person or body in Iraq. They were similarly required to prevent their
nationals from making funds available to any undertaking in Iraq.
The United Kingdom gave effect to Resolution 661 by The Iraq and Kuwait (United
Nations Sanctions) Order 1990 SI 1651, as amended by SI 1768.
These regulations prohibit the supply of goods to or payments under bonds to or
to the order of persons in Iraq except with the permission of named
authorities. It is common ground that these regulations prevented Lloyds from
paying Rasheed under the counter-guarantee and Shanning from completing the
supply contract or making payment to Lloyds under the counter-indemnity.
The EEC gave partial effect to Regulation 661 by Council Regulations 2340/90
and 3155/90 which were made under Article 113 of the Treaty. These regulations
dealt with the supply of goods but not the making of payments or payments under
bonds.
After Iraq had been expelled from Kuwait the UN Security Council adopted
Resolution 687 (1991), known as the `cease fire resolution'. It laid down
terms for the review and lifting of sanctions which have still not been met,
but Paragraph 29 said that the Security Council
Decides that all states including Iraq shall take the necessary measures
to ensure that no claim shall lie at the instance of the Government of Iraq, or
of any person or body in Iraq or of any person claiming through or for the
benefit of such person or body, in connection with any contract or other
transaction where its performance was affected by reason of the measures taken
by the Security Council in resolution 661 (1990) and related resolutions.
The UK did not take any further (material) legislative action as a result of
resolution 687 but the EEC did in the shape of the Regulation. SIs 1651 and
1768 remain in force, but if and when UN Resolution 687 is complied with and
sanctions are lifted, they are likely to be repealed. Hence, at trial,
Shanning and Lloyds did not rely on the
UK regulations for their contention that Lloyds would never have to pay Rasheed
under the counter-guarantee.
The Regulation.
In response to Paragraph 29 of Resolution 687 the Commission submitted a
proposal for a regulation to the Council on 12th July 1991. The recitals to
the draft regulation did not say anything about permanence or the distortion of
competition.
The draft regulation was accompanied by an explanatory memorandum. After
setting out its terms the memorandum says
Paragraph 29 thus provides for protection of economic operators against
unjustified claims by Iraqi individuals companies or organisations. In doing
so it prevents Iraq from obtaining compensation retroactively for the negative
effects of the embargo.
It goes on to say that the banking sector as well as European International
contractors predict that the lifting of sanctions would give rise to an
avalanche of claims for payment of performance bonds, guarantees and the like
and that Paragraph 29 makes it clear that the admission of such claims is
unacceptable to the International Community.
It continues
It also seems clear that the practical results intended by paragraph 29 can
only be achieved if the principles contained therein are implemented in a
uniform way. In a great number of cases, contracts or transactions concerned
involved companies and banks in different countries. Different national
approaches as regards the modalities of protection granted are therefore bound
to weaken the efficiency of such protection altogether. Furthermore such
differences would give rise to distortion of competition between operators in
different countries, thus affecting the common commercial policy. This calls
for implementation, at community level, by a community instrument. It also
requires close consultation between the Community and third countries, in
particular OECD Members.
The memorandum then discusses whether it is preferable to make claims
unenforceable or to prohibit their payment and opts for the latter because it
would prevent claims being settled by agreement and make it clear that the
contractual obligations under which the claims were made are no longer valid.
It leaves open the question of what rights of recourse there would be if an
Iraqi claimant was able to satisfy his claim by legal execution or other means.
As it was proposed to adopt the Regulation under Article 235 the European
Parliament (The Assembly) had to be consulted. Its committee on Foreign
Affairs and Security
recommended approval of the proposal. The Committee's explanatory statement
echoed much of what was said in the Commission's memorandum and acknowledged
that the problem was extremely political. The Committee on External Economic
Relations also approved the proposal again recognising that the problem was
essentially a political one.
The European Parliament's opinion was expressed in their legislative resolution
of 19th November 1992 which says that it
1. Approves the Commission proposal ...... ;
2. Calls on the Council to notify Parliament should it intend to depart from
the text approved by Parliament;
4. Asks to be consulted again should the Council intend to make substantial
modifications to the Commission's proposal;
The Council adopted the Regulation the following month. The recitals to the
Regulation are :
Whereas under Regulations 2340/90 and 3155/90 the Community has taken measures
to prevent trade between the Community and Iraq;
Whereas the United Nations Security Council has adopted Resolution 687 (1991)
of 3rd April 1991 which, in its Paragraph 29, deals with claims by Iraq in
relation to contracts and transactions the performance of which was affected by
measures taken by the Security Council pursuant to Resolution 661 (1990) and
related resolutions;
Whereas the Community and its Member States meeting in Political Co-operation
have agreed that Iraq must comply in full with the provisions of Paragraph 29
of United Nations Security Council Regulation 687 (1991) and consider that, in
deciding whether to reduce or lift measures taken against Iraq ......
particular account must be taken of any failure by Iraq to comply with
Paragraph 29 of the same resolution;
Whereas as a consequence of the embargo against Iraq economic operators in the
community and third countries are exposed to the risk of claims by the Iraq
side;
Whereas it is necessary to protect operators permanently against such claims
and to prevent Iraq from obtaining compensation for the negative effects of the
embargo;
Whereas the community and its member states meeting in political co-operation
have agreed to resort to a community instrument in order to
ensure uniform implementation, throughout the community, of Paragraph 29 of
United Nations Security Council Resolution 687(1991);
Whereas such uniform implementation is essential for achieving the aims of the
Treaty establishing the European Economic Community and in particular for
avoiding distortion of competition;
Whereas the Treaty does not provide for the adoption of this regulation, powers
other than those of Article 235;
Having regard to the Treaty establishing the European Economic Community, and
in particular Article 235 thereof
Having regard to the proposal from the Commission,
Having regard to the opinion of the European Parliament
The operative part of the Regulation is Article 2 which says :
1. It shall be prohibited to satisfy or take any step to satisfy a claim made
by:
a. A person or body in Iraq...
e. Any person or body making a claim arising from or in connection with the
payment of a bond or financial guarantee or indemnity, to (a person or body in
Iraq)
under or in connection with a contract or transaction the performance of which
was affected directly or indirectly by the measures decided pursuant to UN
resolution 661 and related resolutions.
2. This prohibition shall apply within the Community and to any body which is
incorporated or constituted under the law of a Member State.
Article 3 spelt out the circumstances in which Article 2 did not apply. It
differed from the proposed draft regulation by saying that the prohibition did
not apply to claims for payment made under insurance contracts which were
compulsory under the law of a Member State or to claims relating to contracts
of employment subject to the law of any Member State. The only other
difference relied on by Rasheed between the proposal and the Regulation adopted
is in the definition of "Contract or Transaction" where the words "whatever the
applicable law" were added.
Validity.
Rasheed's Submissions.
I have already referred to the fact that Rasheed challenged the validity of the
Regulation on each of the grounds set out in Article 173. However, it relies
essentially on the same arguments to support its contention that there was lack
of competence, infringement of the Treaty and misuse of its powers. The same
arguments are also deployed in support of Rasheed's contention that the
substantive requirements which enable the Council to legislate under Article
235 were not met in this case. It is convenient to consider these arguments
together leaving the procedural complaints for separate consideration.
What in essence Rasheed says is that the Regulation was adopted for a foreign
or security (political) purpose to ensure that the sanctions imposed upon Iraq
would be effective as Paragraph 29 of Resolution 687 required. There was no
legitimate common market (economic) objective. The last minute reference in
the recitals to distortion of competition was not a genuine objective. This is
borne out by the fact that none of the material which led to the adoption of
the Regulation sought to explain in any way how competition would be distorted.
Common market competition law should not be based on supposition or speculation
but upon evidence showing which undertakings providing which services or goods
would be affected, how the distortion would arise and how it would affect trade
between Member States and why the measures were necessary to avoid unacceptable
distortion. Article 3(f) of the Treaty contemplates "the institution of a
system" to ensure that competition is not distorted. Articles 85 and following
and other anti-competitive measures taken by the Community show the detail
which is required and the Regulation and the material which led to its adoption
contain no such detail.
The reference in the explanatory statement to "distortion of competition
between operators in different countries" is followed by the words "thus
affecting common commercial policy". This shows that the authors had Article
3(b) (commercial policy towards third countries) in mind and not Article 3(f),
but the Regulation could not be made under Article 113 so Article 235 was used.
This was a misuse of that Article which is designed to fill gaps in the Treaty
only where the Treaty has not provided sufficient powers to attain one of its
stated objectives and cannot be used to widen its scope.
Rasheed's procedural complaints are based on an alleged failure to give
adequate reasons justifying the adoption of the Regulation and failure to
consult Parliament because the Regulation was substantially different from the
proposed regulation which they had approved.
Discussion
Substance
It is common ground that the substantive requirements which enable the Council
to legislate under Article 235 are :
1. The power must be used in order to attain one of the objectives of the
Community.
2. Action by the Community must be necessary for this purpose.
3. The attainment of the objective must take place in the course of the
operation of the common market.
4. The Treaty must not have provided the necessary powers.
5. The measure must be appropriate for the attaining of the objective.
The Judge considered Rasheed's objections of substance to the validity of the
Regulation under these five heads. The first three obviously cover much the
same ground as the Article 173 grounds of lack of competence, infringement of
the Treaty and misuse of its powers.
It is clear that foreign or security policy objectives are not within the scope
of the Treaty. However, it was common ground before the Judge and before us
that the fact that sanctions regulations are preceded by an agreement to take
common action as a matter of foreign or security policy, does not mean that by
adopting sanctions the Community is pursuing an objective outside the scope of
the Treaty. Political events may well give rise to the need for common action
in the economic field. Article 113 provided the basis for earlier sanctions
prohibiting the export and import of goods on the basis of common commercial
policy. A concurrent political objective was not objectionable. Mr. Davies,
Counsel for Rasheed, submitted that the common market objective had to be the
principal objective but no authority was cited to support this proposition and
I do not accept it. In R -v- Searle (1995) 3 CMLR 196 the Court of
Appeal Criminal Division held that a regulation imposing sanctions on trade
with Serbia and Montenegro based on Article 113 was valid notwithstanding that
the motive underlying the sanctions was political and not commercial. The
court also held that the subsequent adoption of Articles 228a and 73g did not
mean that the Community had no power to adopt the regulation at the material
time.
So the question in this case is simply whether the Regulation was adopted for
any Community objective. It says it was adopted for the purpose of ensuring
that competition in the common market was not distorted. This is one of the
fundamental aims and objectives of the Community. Rasheed's submission must
necessarily involve the assertion, to put it politely, that this statement
cannot be accepted and that
the sole objective was political. This is a bold submission and Mr. Davies did
not shirk from making it, but unless it is right his main attack on the
validity of the Regulation is bound to fail. On analysis all his submissions
apart from those relating to procedure were directed to attacking the
credibility of this statement in the Regulation. Put in more familiar terms
where credibility is in issue, what he is saying is that the statement was made
at the last minute, it was preceded by a contradictory statement (in the
explanatory memorandum) and does not bear the hallmarks of truth because none
of the detail normally associated with anti-competitive measures is to be
found.
Any evaluation of these submissions must I think start by considering whether
implementation of Paragraph 29 of Resolution 687 could distort
competition. In doing so it is important to note at the outset that the
purpose of the Regulation was not merely to implement this paragraph. Member
States would have been obliged to do so anyway as members of the UN. One of
the purposes of the Regulation was to ensure that they did so
uniformly.
There is no doubt that Paragraph 29 could have been implemented in a number of
different ways. The explanatory memorandum discusses alternative ways of
taking "the necessary measures". Member States could have defined "the
contract or other transaction" and how "performance was affected" differently.
I have no doubt that without uniformity of implementation there was obvious
potential for distortion of competition. The relevant distortion was future
competition between economic operators, particularly banks, in different Member
States where some operators had to bear the cost of meeting massive claims from
Iraq and others did not.
Once one has accepted, as I do, that uniform implementation of Paragraph 29
could have been a legitimate Community objective, there is little to be said
for Rasheed's submissions. It is true that distortion of competition made a
late appearance in the recitals to the Regulation, but it was referred to in
the explanatory memorandum ("Different national approaches as regard modalities
of protection granted ...... would give rise to distortion of competition in
different countries......"). I accept that this also refers to the common
commercial policy, but there is no reason to think and the document does not
say that it is confined to such policy. There is no reason why the Commission
should not have been considering distortion of competition within the Community
and with third countries which would be a matter for common commercial policy.
I do not think that lack of detail advances Rasheed's case either although I
shall have to return to this when considering their procedural complaints. We
were referred to a number of cases where decisions of the Commission on
competition matters affecting individual undertakings had been annulled by the
European Court for lack of detailed analysis. These cases shed no light on the
credibility of the recital to the Regulation in this case.
The Judge concluded "I see no reason to doubt the genuineness of the expressed
objective". I agree.
This conclusion means that I reject Rasheed's submissions based on lack of
competence, infringement of the Treaty and misuse of its powers and its
submission that the first three substantive requirements which enable the
Council to legislate under Article 235 were not met. There is no point I think
on the fourth requirement since it is accepted that the Regulation could not
have been adopted under Article 113 and no other basis for its adoption has
been suggested.
As to the fifth requirement (proportionality) Mr. Davies submits that if the
Regulation is of permanent effect, it goes beyond what is required by Paragraph
29. For reasons which I will explain when I consider the issue of
construction, I do not accept this submission.
It follows that I do not accept any of Rasheed's objections of substance to the
validity of the Regulation.
Procedure.
Relying on Article 190 Mr. Davies contends that the Regulation does not
adequately state the reasons on which it is based. He supports this submission
by the arguments about detail to which I have already referred and to
decisions of the European Court where the importance of reasons has been
emphasised. Thus in Germany -v- The Commission [1963] ECR 63 which
concerned a decision of the Commission to restrict Germany's quota of imported
wine in accordance with the common commercial policy the court said at page 69
:
In imposing upon the Commission the obligation to state reasons for its
decisions, Article 190 is not taking mere formal considerations into account
but seeks to give an opportunity to the parties of defending their rights to
the court of exercising its supervisory functions and to Member States and to
all interested nationals of ascertaining the circumstances in which the
Commission has applied the Treaty.
In Beus -v- Hauptzollamt [1968]) ECR 83 where the Council had adopted a
regulation making amendments to earlier regulations, the court said at page 95
:
The extent of the requirement laid down by Article 190 of the Treaty to state
reasons on which measures are based depends on the nature of the measure in
question.
It is a question in the present case of a regulation, that is to say, a measure
intended to have general application, the preamble to which
may be confined to indicating the general situation which led to its adoption,
on the one hand and the general objectives which it is intended to achieve, on
the other.
Consequently, it is not possible to require that it should set out the various
facts which are often very numerous and complex, on the basis of which the
Regulation was adopted or, a fortiori, that it should provide a more or less
complete evaluation of those facts.
The Judge relied on Beus in support of his conclusion that "the
Regulation fully complies with the requirement to state reasons".
Mr. Davies argued that the Judge should not have reached this conclusion.
There was a legislative history in Beus which justified the conclusion
the court reached. Here there was no legislative history. Moreover this was a
novel situation. No regulation in support of sanctions had ever been made
before (or since) to prevent the distortion of competition relying on the
powers contained in Article 235. This made it even more important to give
adequate reasons. In Papiers Peints -v- Commission [1975] ECR
1491 the European Court said of a Commission decision under Article 85 at page
1514 :
Although a decision which fits into a well established line of decisions may be
reasoned in a summary manner, for example by a reference to those decisions, if
it goes appreciably further than the previous decisions the Commission must
give an account of its reasoning.
As a matter of form I think there must be a difference between a regulation
which is legislative and a decision which only affects the rights and
obligations of those involved. This is reflected in the language of Article
189 to which I have referred and in what the court said in Beus which I
take to be a correct statement of Community law on this subject.
On this basis to comply with Article 190 the recitals have only to indicate the
general situation which led to adoption of the regulation on the one hand and
the general objectives which it is intended to achieve, on the other. Here, I
think the first four recitals meet the former requirement and the next three
the latter.
Article 235 requires consultation with Parliament on the proposed regulation
but Parliament has no power to impose additional requirements. However, it is
common ground that if the final text of the regulation which the Council
proposes to adopt, viewed as a whole, differs in essence or departs
substantially from the text on which Parliament has already been consulted,
there is an obligation to reconsult. (Germany -v- Council [1994] ECR
4973 and Parliament -v- Council [1995]ECR 1185).
I have already referred to the differences relied on by Rasheed between the
proposed and final text of the Regulation. I do not think they required
reconsultation.
Permanence was, as I shall explain, implicit in what was proposed from the
outset. Distortion of competition was referred to in the explanatory
memorandum and is echoed in the report from one of the parliamentary
committees. As the proposal from the outset was to prohibit the payment of
claims it was implicit that the legislation was indifferent to the proper law
of the affected contracts. The additions to Article 3 add nothing to the
substance of the Regulation since such contracts would not have been within the
scope of the prohibition imposed by Article 2 in any event.
For these reasons, like the Judge, I conclude that Rasheed's procedural
objections to the validity of the Regulation are unfounded.
It is perhaps worth adding that although the Regulation has been in force for
7½ years and must have affected many economic operators within the
Community, there appears to be no other litigation in which its validity has
been challenged. Further, although this is an area of the law which is of
great interest to commentators, we were not referred to any publication which
questioned its validity.
Finally, in the course of his submissions, Mr. Davies periodically reminded us
that if any of the points which he was making raised any real doubt in our
minds about the validity of the Regulation, that would be sufficient for his
purpose since we would be bound to refer the matter to the European Court.
Skilfully and persistently though they were put however, Mr. Davies's arguments
did not raise any such doubt in my mind.
Construction.
Mr. Davies's submissions proceeded from the proposition that the only way in
which permanence could have been achieved was to provide that the contracts
affected by sanctions were discharged. As this was not proposed by Resolution
687 or enacted in the Regulation, the presumption had to be that the
prohibition was temporary. Article 2.1, the operative provision of the
Regulation, did not say that the prohibition was permanent.
I do not accept these submissions.
It is clear that Paragraph 29 was directed to making provision for what would
happen when sanctions were lifted. Until that time the sanctions regulations
themselves would prevent claims from being made. So it is that the UK
regulations still prevent Rasheed from claiming under the counter-guarantee.
As the Commission recognised in the explanatory memorandum, Paragraph 29 was
designed to ensure that states put in place measures to prevent Iraqis from
obtaining compensation retroactively once sanctions had been lifted. One would
expect such measures to be of permanent effect. Retroactive compensation could
only be prevented if the prohibition was permanent. As the Judge said:
"The political considerations underlying sanctions ...... and common sense
(would) dictate that no claims should ever be made for the effects of the
sanctions themselves".
To leave open the possibility that claims could be made at some unspecified
time in the future would make no sense and would cause great commercial
uncertainty.
Because the sanctions themselves were not intended to be permanent it does not
follow, as Mr. Davies's submissions suggested, that measures intended to deal
with their consequences were likewise only intended to be temporary.
For these reasons I think it was implicit in Paragraph 29 that the measures
proposed should be permanent.
Turning to the Regulation itself, I have no doubt that it imposed a permanent
prohibition. The recital makes this clear. There is nothing in Article 2.1 to
suggest that its effect is only temporary or suspensory. There is no
significance in the fact that
the Regulation does not provide for the discharge of the affected contracts.
Any such provision would have no impact on those contracts which were governed
by a system of law other than that of a Member State. Moreover, the chosen
method of prohibition is effective and the quest for some juridical basis to
explain how claims can be permanently prohibited under contracts which remain
in force, is entirely academic. If it is juridically acceptable to prohibit
such claims temporarily it must be legislatively possible to prohibit them
permanently. That is what the Regulation has done in my judgment.
Conclusion.
The Regulation is valid and of permanent effect. I would dismiss Rasheed's
appeal.
The Costs Appeal.
To understand the costs appeal it is necessary to consider the form which the
proceedings took. Originally Shanning claimed declarations against Lloyds that
Lloyds was permanently prevented from paying any claim to Rasheed under the
counter-guarantee. Rasheed asked to be joined in the proceedings. Shanning
declined to join Rasheed as a Defendant unless it would provide security for
costs, so Lloyds made a Part 20 claim against Rasheed seeking the same
declarations as Shanning sought. However, by the time of the trial Shanning
confined its claim to declarations relating to the counter-indemnity saying
that Lloyds' position under the counter-guarantee was of no concern to it.
Lloyds relied on Rasheed's defence to its Part 20 claim in defence of
Shanning's claim, but said at the end of its defence that it :
had always made its position clear: it could not admit to (Shanning's) claims
or return the deposit until it is found or until Rasheed accepts that (it) has
no liability under the (counter-guarantee)
This essentially neutral line was the one it took at trial. The Judge made a
declaration that the Regulation permanently prohibited Lloyds from satisfying
any claims by Rasheed under the counter-guarantee and gave judgment for
Shanning for the return of the deposit plus interest.
As the successful claimant Shanning asked for its costs against Lloyds. The
Judge accepted Lloyds' argument that the order should be made directly against
Rasheed and it is against this order that Shanning appeals.
In giving his reasons for making this order the Judge recognised that the
general rule was that a successful claimant in such circumstances should have
his costs against the defendant, but said :
It remains the case that the court does have a broad discretion as to costs
intended to meet the overall justice of the case
He then said :
In this case Lloyds issued a guarantee to Rasheed at Shanning's request and
normally would have been entitled to be reimbursed for any exposure which it
would have suffered as a result of that guarantee.
This case does involve some unusual circumstances and I do think there is force
in (the) submission that the real dispute lay between Shanning and Rasheed and
Lloyds' role was substantially one of neutrality.
In those circumstances I think it would be wrong and unjust to Lloyds that it
should find itself with an exposure for Shanning's costs and I shall order that
Rasheed pay Shanning's costs as well as the costs of Lloyds.
Mr. Milligan, QC, Counsel for Shanning, submits that the Judge's reasoning
demonstrates errors of principle. The Regulation prevented Lloyds from relying
on its right to reimbursement from Shanning and so it was wrong to take this
into account on
the question of costs. Lloyds' neutrality was irrelevant. This was a paradigm
case for the application of the general rule where the real dispute often lies
between the claimant and the third party.
I do not accept these submissions. The general rule is no more than that. The
court obviously has power to depart from it if the justice of the case requires
this to be done. Where the trial Judge in the exercise of the broad discretion
which he has as to costs makes an order which he considers meets the justice of
the case, this court should seldom interfere with it. I would be content to
dismiss the appeal on this basis alone, but in deference to Mr. Milligan's
arguments I will deal with them shortly.
Lloyds had no personal interest in the deposit they were holding. If the
Regulation was valid and of permanent effect, they could safely pay it to
Shanning. Whilst there was any doubt about it they could not. Rasheed raised
that doubt and therefore, as the Judge said, the real dispute was between
Shanning and Rasheed, as Shanning's original claim recognised. Lloyds could
not inter-plead because it did not face a money claim from Rasheed, but I think
it was in a similar position in which case the inter-pleading party does not
have to pay either claimant's costs. This is not therefore the paradigm case
where the defendant has a personal interest in the outcome of his defence to a
claim, but one in effect of a party facing competing claims to a sum of money
which he is holding to which he has no claim of his own. I think he was
entitled to take into account as a matter of history that Lloyds became
involved in the
transaction at Shanning's request and in circumstances where Shanning agreed to
indemnify it against all the consequences of their doing so. The order for
costs which the Judge made was not of course a breach of the Regulation; he was
not requiring Shanning to pay Lloyds' costs.
For these reasons I would dismiss the costs appeal.
LORD JUSTICE JUDGE:
I agree.
LORD JUSTICE SIMON BROWN:
I also agree.
Order: Rasheed's appeal dismissed with costs;
Shanning's appeal dismissed with cost; Lloyd's appeal against shanning
dismissed with costs; permission to appeal to House of Lords refused; stay
pending determination of petition to the House of Lords; Counsel to draft a
minute order.
(Order does not form part of the approved judgment)
BAILII:
Copyright Policy |
Disclaimers |
Privacy Policy |
Feedback |
Donate to BAILII
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2000/177.html
