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Judgments - R (on the application of M) (FC)(Appellant) v Her Majesty’s Treasury (Respondents) and two other actions

HOUSE OF LORDS

SESSION 2007-08

REPORT

[2008] UKHL 26

on appeal from:[2007] EWCA Civ 173

APPELLATE COMMITTEE

R (on the application of M) (FC)(Appellant)

v

Her Majesty’s Treasury (Respondents) and two other actions

REPORT

Counsel

Appellants:

Rabinder Singh QC

Simon Cox

(Instructed by Birnberg Peirce and Partners)

Respondent:

Jonathan Swift

Cecilia Ivimy

(Instructed by Treasury Solicitor)

Hearing date:

21 FEBRUARY 2008

ON

WEDNESDAY 30 APRIL 2008

REPORT

from the Appellate Committee

30 APRIL 2008

R (on the application of M) (FC) (Appellant) v

Her Majesty’s Treasury (Respondents) and two other actions

ORDERED TO REPORT

The Committee (Lord Bingham of Cornhill, Lord Hoffmann, Lord Walker of Gestingthorpe, Baroness Hale of Richmond and Lord Brown of Eaton-under-Heywood) have met and considered the cause R (on the application of M) (FC)(Appellant) v Her Majesty’s Treasury (Respondents) and two other actions. We have heard counsel on behalf of the appellant and respondent.

1.  This is the considered opinion of the Committee.

2.  The committee has decided to advise the House to refer to the Court of Justice for a preliminary ruling, pursuant to article 234 of the Treaty establishing the European Community, a question on the interpretation of article 2.2 of Council Regulation (EC) No 881/2002. In case it should be of assistance to the Court, the committee will briefly state their own opinion on this question.

3.  The Regulation was made to implement Resolution 1390 (2002) of the United Nations Security Council imposing sanctions on the Taliban and the Al-Qa'ida network. Article 2 of the Resolution called upon all states to take various measures with respect to persons and groups named in a list drawn up by the Sanctions Committee established pursuant to Resolution 1267 (1999). These measures included an obligation to—

“(a) Freeze without delay the funds and other financial assets or economic resources of these individuals, groups, undertakings and entities, including funds derived from property owned or controlled, directly or indirectly, by them or by persons acting on their behalf or at their direction, and ensure that neither these nor any other funds, financial assets or economic resources are made available, directly or indirectly, for such persons’ benefit, by their nationals or by any persons within their territory;”

4.  The Regulation defines “funds” and “economic resources” in article 1. Funds are widely defined by article 1 to include what the United Nations Resolution calls financial assets. “Economic resources” are defined to mean what might for brevity be called convertible assets—

“assets of every kind, whether tangible or intangible, movable or immovable, which are not funds but can be used to obtain funds, goods or services”

5.  Article 2 then gives effect to article 2(a) of the United Nations Resolution:

“1. All funds and economic resources belonging to, or owned or held by, a natural or legal person, group or entity designated by the Sanctions Committee and listed in Annex I shall be frozen.

2. No funds shall be made available, directly or indirectly, to, or for the benefit of, a natural or legal person, group or entity designated by the Sanctions Committee and listed in Annex I.

3. No economic resources shall be made available, directly or indirectly, to, or for the benefit of, a natural or legal person, group or entity designated by the Sanctions Committee and listed in Annex I, so as to enable that person, group or entity to obtain funds, goods or services.”

6.  The effect of this Regulation was completely to deprive listed persons of any resources whatever. Their own assets were frozen by article 2.1 and article 2.2 and 2.3 prevented anyone else from providing them with funds or economic resources. To mitigate the severity of these sanctions, Security Council Resolution 1452 (2002) allowed some exceptions. The Council decided that the prohibitions of paragraph 2(a) of Resolution 1390 should not apply to—

“funds and other financial assets or economic resources that have been determined by the relevant State(s) to be:

(a) necessary for basic expenses, including payments for foodstuffs, rent or mortgage, medicines and medical treatment, taxes, insurance premiums, and public utility charges, or exclusively for payment of reasonable professional fees and reimbursement of incurred expenses associated with the provision of legal services, or fees or service charges for routine holding or maintenance of frozen funds or other financial assets or economic resources, after notification by the relevant State(s) to the [Sanctions] Committee…(hereinafter referred to as “the Committee”) of the intention to authorize, where appropriate, access to such funds, assets or resources and in the absence of a negative decision by the Committee within 48 hours of such notification;

(b) necessary for extraordinary expenses, provided that such determination has been notified by the relevant State(s) to the Committee and has been approved by the Committee.”

7.  Pursuant to this Resolution, the Regulation was amended by Council Regulation (EC) No 561/2003 to add article 2a:

“1. Article 2 shall not apply to funds or economic resources where:

(a) any of the competent authorities of the Member States, as listed in Annex II, has determined, upon a request made by an interested natural or legal person, that these funds or economic resources are:

(i) necessary to cover basic expenses, including payments for foodstuffs, rent or mortgage, medicines and medical treatment, taxes, insurance premiums, and public utility charges;

(ii) intended exclusively for payment of reasonable professional fees and reimbursement of incurred expenses associated with the provision of legal services;

(iii) intended exclusively for payment of fees or service charges for the routine holding or maintenance of frozen funds or frozen economic resources; or

(iv) necessary for extraordinary expenses; and

(b) such determination has been notified to the Sanctions Committee; and

(c) (i) in the case of a determination under point (a) (i), (ii) or (iii), the Sanctions Committee has not objected to the determination within 48 hours of notification; or

(ii) in the case of a determination under point (a) (iv), the Sanctions Committee has approved the determination.

2. Any person wishing to benefit from the provisions referred to in paragraph 1 shall address its request to the relevant competent authority of the Member State…”

8.  Article 10 of the Regulation requires each Member State to determine the sanctions to be imposed where the provisions of the Regulation are infringed. The United Kingdom has transposed the Regulation by the Al-Qa'ida and Taliban (United Nations Measures) Order 2002 (SI 2002 No 111). Article 7 gives effect to article 2 of the Regulation and article 20(1) provides that the maximum punishment for a contravention, after trial on indictment, shall be imprisonment for 7 years.

9.  Shortly stated, the question of interpretation referred to the Court of Justice is whether the words “for the benefit of” in article 2.2 have a wide meaning which covers any application of money from which a listed person derives some benefit, or whether they apply only to cases in which funds, financial assets or economic resources are, to use the language of the United Nations Resolution and article 2.2, “made available” for his benefit, so that he is in a position to choose how to use them.

10.  The question has arisen in connection with the payment of social security benefits to the spouses of listed persons living in the United Kingdom. To take as an example one of the three cases which have come on appeal before the House, Mr M is a listed person who lives with Mrs M and their five children. Both Mr and Mrs M suffer from disabilities which would ordinarily entitle them to various social security payments (income support, disability living allowance, child benefit, housing benefit, council tax benefit). There is no dispute that Mr M would require a licence under article 2a from HM Treasury (the competent authority in the United Kingdom) for payment of funds to him. There is also no dispute that Mrs M would not be entitled without such a licence to make funds or convertible assets (“economic resources”) available to her husband. The question is whether a licence under article 2a is necessary to enable social security benefits to be paid to Mrs M herself.

11.  HM Treasury take the view that such a licence is necessary because money spent by Mrs M on the running of the family household will be “for the benefit” of Mr M within the meaning of article 2.2. So, for example, if she buys food for a communal meal in which he participates, the money will have been expended for his benefit. HM Treasury therefore consider it their duty to ensure that none of the benefit money paid to Mrs M is expended for purposes which might benefit Mr M outside the scope of article 2a.1.(a). In order to police this restriction, the licence requires Mrs M to have her benefits paid into a bank account from which she can draw only up to £10 in cash for each member of her household. All other payments from the account must be made by debit card. She must send a monthly account to the Treasury, which details all her expenditure in the previous month, enclosing receipts for goods purchased and a copy of her monthly bank statement. Someone in the Treasury presumably goes through her supermarket receipts to check that the purchases from which Mr M may derive a benefit do not exceed “basic expenses". Finally, the licence warns Mrs M that it is a criminal offence to give cash, financial assets or economic resources to her husband.

12.  The Committee’s opinion is that this intrusive regime is not required by article 2.2 of the Regulation. First, it is not required to give effect to the purpose of the Security Council Resolution, which was obviously to prevent funds from being used for terrorist activities. Indeed, the licence tells Mrs M that the licence conditions are “to provide safeguards against the risk of these funds being diverted to terrorism.” It is however hard to see how the expenditure of money on domestic expenses, such as buying household food, from which Mr M derives a benefit in kind, can create any risk that he may divert funds to terrorism.

13.  Secondly, the broad construction which the Treasury gives to the words “for the benefit of” in article 2.2 produces an anomalous discrepancy with article 2.3, which prohibits making economic resources available to a listed person only where it enables that person “to obtain funds, goods or services". There is accordingly no limit to the (non-financial) economic resources with which Mrs M may provide her husband provided that they do not enable him to obtain funds, goods or services. That restriction accords with the purpose of the United Nations resolution. Unless the listed person is able to obtain funds, goods or services, there is nothing which he can divert to terrorism. It would therefore be logical to imply a similar restriction in article 2.2. The United Nations resolution, in article 2(a), makes no distinction between funds and economic resources.

14.  Thirdly, the construction which has been adopted by HM Treasury treats the words “made available…for the benefit of” in article 2.2 as if they had said “applied” or “expended” for the benefit of. It seems more likely, if one has regard to the purpose of the legislation, that “made available” was intended to mean a benefit made available to the listed person which he could use for terrorist purposes.

15.  Fourthly, the Treasury construction produces a disproportionate and oppressive result. It means that anyone paying money to Mrs M (an employer, for example, if she had been in work, or even her bank) would have required a licence under article 2a simply because she lived with a listed person and some part of the expenditure of her own money might be for his benefit. Furthermore, the terms of the licence are such that she would be unable to spend any of her own money, however large her income, without accounting to the Treasury for every item of her expenditure. This would seem an extraordinary invasion of the privacy of someone who is not a listed person.

16.  In a case in which a person who provides funds to someone living with a listed person knows or has reason to suspect that she will use those funds to make money or convertible assets available for his use, he may commit the offence of indirectly making those funds available to or for the benefit of the listed person. But that is no reason for assuming that anyone living with a listed person is likely to make any funds she receives available for his use, so that he can use them for the purpose of terrorism. In the case of a family living on state benefits which are carefully calibrated to provide them with no more than they need to live on, this is a wholly unrealistic assumption. She would be in a better position to provide her husband with funds if she had substantial resources of her own, but the Regulation does nothing to freeze these. And in any case, the Treasury position is not that Mrs M requires a licence to receive benefit payments because of the possibility that she may commit the offence of providing funds or convertible assets to Mr M. It is simply because the Treasury considers that any expenditure from which he derives a benefit will mean that funds have been made available for his benefit within the meaning of article 2.2 and it is therefore necessary to ensure that they do not exceed “basic expenses". The Committee considers that this gives too wide a construction to the article.

17.  In conclusion, two arguments on behalf of the Treasury should be noticed. The first is that the narrower construction of article 2.2 would have made article 2a unnecessary. That is not the case. The question referred to the Court of Justice is whether payments of money to persons other than the listed person require to be licensed on the ground that some of their expenditure of that money will be for the benefit of the listed person. Article 2a is concerned with payments to the listed person himself. The second argument is that the decision of the Court of Justice in Case C-117/06 Möllendorf and Möllendorf-Niehuus (11 October 2007) supports the case for the Treasury. But that case was concerned with a transfer of property to a listed person and therefore has nothing to say about the question referred to the Court.

 
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