An Iranian bank whose British assets had been frozen for allegedly financing Iran’s controversial nuclear programme has won a significant legal victory with the Supreme Court ordering the government to lift the sanctions against it.

Tehran-based Bank Mellat, one of Iran’s largest private banks, had been fighting to have the sanctions lifted since 2009, denying any links with the nuclear programme.

In a strongly-worded verdict, likely to force the Treasury to review its sanctions regime, the court said singling out Bank Mellat was irrational and disproportionate.

“The bank is entitled to succeed [in its appeal] on the ground that it received no notice of the Treasury’s intention to make the direction, and therefore had no opportunity to make representations. The duty to give advance notice and an opportunity to be heard to a person against whom a draconian statutory power is to be exercised is one of the oldest principles of what would now be called public law,” said Lord Jonathan Sumpton.

In a separate and more withering ruling, Lord David Neuberger, president of the Supreme Court, took the government to task for making the court hold its hearings behind closed-doors on grounds that intelligence relating to the case was too sensitive to be heard in public. He said the intelligence shown to the court did not justify “secret” hearings.

“Having held a closed hearing, it turned out that there had been no point in the Supreme Court seeing the closed judgment [which related to the secret intelligence], because there was nothing in it which could have affected [our] reasoning in relation to the substantive appeal. A [closed hearing] should be resorted to only where it has been convincingly demonstrated to be genuinely necessary in the interests of justice,” he said

The Treasury said it was disappointed and might appeal.

The bank’s assets would remain frozen pending an appeal.

Sarosh Zaiwalla, whose law firm represented the bank, said the ruling was “a victory for the rule of law as much as it is for Bank Mellat”.

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