R v HM Treasury and another, ex parte Centro-Com Srl (Case C-124/95)

• Jurisdiction: European Union
• Date: 14 January 1997
• Court: European Court of Justice

England, Divisional Court, Queen's Bench Division.

England, Court of Appeal.

Court of Justice of the European Communities.

(Watkins LJ and Auld J)

(Glidewell and Kennedy LJJ and Sir John Megaw)

(Rodríguez Iglesias, President; Mancini, Moitinho de Almeida and Murray, Presidents of Chambers; Kapteyn (Rapporteur), Gulmann, Edward, Puissochet, Hirsch, Jann and Ragnemalm, Judges; Jacobs, Advocate-General)1

Regina

and

HM Treasury and the Bank of England, ex parte Centro-Com srl

Economics, trade and finance — Economic sanctions — Effectiveness — Implementation in national law and European Community law of sanctions imposed by the United Nations Security Council — Assets freeze — States required to prohibit payments from blocked funds except for payment for medical supplies — Allegations of sanctions violations — Whether Member State of the European Community entitled to prohibit payment from funds in its territory for goods supplied from another Member State — Requirement that Member States trust one another to comply with sanctions requirements

International organizations — United Nations — Security Council — Economic sanctions — Obligation of United Nations Member States to comply with decision of Security Council — Other international obligations — Security Council Resolution 757 (1992)

International organizations — European Community — Implementation of sanctions imposed by United Nations Security Council — Relationship between obligations of Member States of Community under Community law and obligations under United Nations Charter — EEC Treaty, Articles 113 and 234

War and armed conflict — Economic warfare — Sanctions — Yugoslavia — The law of England and of the European Community

Summary: The facts:—On 30 May 1992, the United Nations Security Council, acting under Chapter VII of the United Nations Charter, adopted Resolution 757 (1992) which required States to impose economic sanctions upon the Federal Republic of Yugoslavia (Serbia and Montenegro) (‘FRY’). Under paragraph 4(c) of the Resolution States were required to prevent exports to the FRY, with the exception of supplies intended strictly for medical purposes and notified to the Sanctions Committee established by the Security Council. Paragraph 5 of the Resolution required States to prohibit any payment of funds from their territories to persons or bodies in the FRY, except in respect of payments for medical supplies or foodstuffs. These sanctions were given effect in the United Kingdom by the Serbia and Montenegro (United Nations Sanctions) Order 1992 (‘the 1992 Order’)2 made under Section 1 of the United Nations Act 1946 (‘the 1946 Act’) and in the European Community generally by Council Regulation (EEC) 1432/92 as amended by Council Regulation (EEC) 2015/92.3

The applicant, Centro-Com, a trading company incorporated in Italy, had contracted to export duly authorized medical supplies to Serbia and Montenegro. It sought payment for these goods from funds of the National Bank of Yugoslavia which were deposited at Barclays Bank in London and had been frozen in accordance with Article 10 of the 1992 Order. The Bank of England permitted payment from Serbian and Montenegrin accounts in the United Kingdom for exports of medical supplies which were approved by the Sanctions Committee. Following reports of abuse of the authorization procedure, however, the Bank and the Treasury altered this policy and permitted payment to be made only where the exports were made from the United Kingdom. This change of policy was said to be necessary to improve the effectiveness of the sanctions regime. The applicant was, accordingly, refused permission.

The applicant challenged the legality of this refusal. It contended that refusal to permit payment from an account in the United Kingdom in respect of exports of medical supplies from another European Community State was contrary to United Kingdom obligations under the United Nations Charter and Resolution 757, as implemented in the United Kingdom by the 1992 Order, and contrary to European Community law, in particular Articles 113,4 75 and 306 of the EEC Treaty, 1957 and Regulation 1432/92.

Held (by the Divisional Court):—The application was refused.

(1) The new policy of the Bank of England and its application to Centro-Com were not ultra vires Section 1 of the 1946 Act or Article 10 of the 1992 Order. Article 41 of the United Nations Charter enabled the Security Council to call upon Member States to apply measures other than armed force to give effect to its decisions. The effect of Articles 4(c) and 5 of Resolution 757, which were given effect in the United Kingdom by Articles 3, 4 and 5 of the 1992 Order, was not to oblige but merely to allow the United Kingdom to permit the sale of medical goods to Serbia and Montenegro and to permit the release of funds. Section 1 of the 1946 Act empowered the United Kingdom to make provision ‘as appears necessary or expedient’ for enabling the UN sanctions to be effectively applied. The exclusive aim of the new policy of the Bank of England was to enhance the effectiveness of the UN sanctions by reducing the scope for evasion (pp. 455–61).

(2) Article 10 of the 1992 Order entitled the Bank of England to refuse to permit payment for medical or other such excepted goods exported from another Member State of the Community and was not contrary to European Community law. The scheme of Regulation 1432/92 was such as to allow and not to oblige a Member State to permit exceptions to a general prohibition. Other EC Member States were not obliged to permit such payment from Serbian funds within their jurisdictions solely because Italy had decided to authorize the export of medical goods. The prime consideration of Regulation 1432/92 was to implement UN sanctions and not to establish a common commercial policy between the Community and third countries as provided for in Article 113 of the EEC Treaty. The Regulation did not purport to give effect to all of the UN sanctions in the Community—for example there was no provision for the freezing of assets as under Article 10 of the 1992 Order—and the Community did not have exclusive competence as the sanctions regime was not truly within the sphere of commercial policy (pp. 462–7).

(3) The new policy of the Bank of England did not contravene Article 7 of the EEC Treaty, which had direct effect and prohibited any discrimination on grounds of nationality. The United Kingdom considered that the adoption of the new policy was ‘necessary or expedient’ under Section 1 of the 1946 Act to prevent evasion of controls in other States designed to apply the UN sanctions effectively and as such was justified in differentiating between exports from the United Kingdom and from other EEC countries and in applying the new policy to the applicant (pp. 467–70).

(4) The new policy and its present application did not breach Article 30 of the EEC Treaty. In any event the public policy exception contained in Article 36 of the EEC Treaty was applicable. The Community had not provided for the public policy aspect of effective enforcement of the UN sanctions by its own Regulation 1432/92 as it did not incorporate all of the UN sanctions to which the United Kingdom was committed. Given the evidence of abuse of the sanctions, the Bank of England was entitled to employ any means it deemed necessary to enforce the sanctions and was not limited to the least restrictive (pp. 470–4).

(5) In the event of a conflict between Community law and United Nations obligations as implemented by statute in the United Kingdom, the 1992 Order as the domestic embodiment of the United Kingdom's obligations under the United Nations Charter prevailed. Article 103 of the Charter gave precedence to obligations under the Charter in the event of a conflict with other international obligations and the EEC Treaty gave precedence to the international obligations existing before accession to the Community. However, there was no conflict as the United Kingdom was committed effectively to apply both UN and Community sanctions under Section 1 of the 1946 Act and the 1992 Order. In the present case no referral to the European Court under Article 177 of the EEC Treaty was necessary (pp. 474–5).

(6) The application of sanctions in the form of the new policy could operate retrospectively, affecting transactions already or partly completed, and thus was not ultra vires the 1946 Act or the 1992 Order whose object was to apply those sanctions effectively. The Bank of England did not act unfairly in the application of the policy given the urgent need for action to strengthen the effectiveness of the UN sanctions and there was no basis on which the applicant could have had a legitimate expectation that the policy would not change and any current transactions be affected. Neither could the Bank be accused of failure to consult the applicant given that it had regard to the representations made by the applicant in considering whether to depart from the new policy in this particular case. The Bank had made a political judgement in deciding to apply the new policy retrospectively and had not acted irrationally (pp. 475–82).

Centro-Com appealed to the Court of Appeal.

Held (by the Court of Appeal, Glidewell LJ dissenting in part):—The appeal was dismissed on all issues except the Article 113 issue, on which a ruling was requested from the Court of Justice of the European Communities.

(1) (Unanimously) The new policy adopted by the Bank and the Treasury was not contrary to United Kingdom law. The primary obligation on the United Kingdom was to implement the sanctions imposed by the United Nations Security Council and to make them effective. The 1946 Act and the 1992 Order gave the Bank and the Treasury the necessary powers to do that. The available evidence suggested that the system for authorization of payments for medical exports was working so badly that the Bank and the Treasury were justified in concluding that they...