Joined Cases C-402/05 P and C-415/05 P, C-402 Kadi and Al Barakaat

Mr Kadi, a resident of Saudi Arabia, and Al Barakaat, a foundation established in Sweden, were designated by the United Nations Sanctions Committee as being associated with Usama bin Laden, Al-Qaeda or the Taleban. In accordance with a number of resolutions of the Security Council, all States that were Members of the United Nations must freeze the funds and other financial resources controlled directly or indirectly by such persons or entities.

In order to give effect to those resolutions within the European Community, the Council adopted Regulation 881/2002, ordering the freezing of the funds and other economic resources of the persons and entities whose names appeared in a list annexed to that regulation. That list was regularly updated in order to take account of changes in the summary list drew up by the Sanctions Committee.

On October 19, 2001 the names of Mr Kadi and Al Barakaat were added to the summary list, then placed in the list annexed to the Community Regulation. Al Barakaat and Mr Kadi brought actions before the Court of First Instance for annulment of that regulation. The Court of First Instance rejected all the pleas in law raised by Mr Kadi and Al Barakaat and confirmed the validity of the regulation. Mr Kadi and Al Barakaat appealed before the Court of Justice.

Articles 60 and 301 EC
The Court of Justice first of all held the Court of First Instance rightly ruled that, having regard to the wording of Articles 60 and 301 EC , those provisions concerned the adoption of measures vis-à-vis third countries, since that concept might include the rulers of such a country and also individuals and entities associated with or controlled, directly or indirectly, by them.

The Court of First Instance had also rightly ruled that no specific provision of the EC Treaty provided for the adoption of measures of the kind laid down in the contested regulation relating to the campaign against international terrorism and, more particularly, to the imposition of economic and financial sanctions, such as the freezing of funds, in respect of individuals and entities suspected of contributing to the funding of international terrorism, where no connection whatsoever had been established with the governing regime of a third State, with the result that the first condition for the applicability of Article 301 EC was satisfied in the case in point.

Choice of legal basis
The Court reiterated that a Community measure fell within the competence in the field of the common commercial policy provided for in Article 133 EC only if it related specifically to international trade in that it was essentially intended to promote, facilitated or governed trade and had direct and immediate effects on trade in the products concerned. Having regard to that purpose and object, it could not be considered that the regulation related specifically to international trade in that it was essentially intended to promote, facilitated or governed trade. The contested regulation could not, therefore, be based on the powers of the Community in the sphere of the common commercial policy.

The Court of Justice held that while it was correct to consider, as did the Court of First Instance, that a bridge had been constructed between the actions of the Community involving economic measures under Articles 60 and 301 EC and the objectives of the EU Treaty in the sphere of external relations, including the CFSP, neither the wording of the provisions of the EC Treaty nor the structure of the latter provided any foundation for the view that that bridge extended to other provisions of the EC Treaty, in particular to Article 308 EC.

The Court of Justice reiterated that Article 308 EC, being an integral part of an institutional system based on the principle of conferred powers, could not serve as a basis for widening the scope of Community powers beyond the general framework created by the provisions of the EC Treaty as a whole and, in particular, by those defining the tasks and the activities of the Community. Article 3 EU could not supply a base for any widening of Community powers beyond the objects of the Community. (see
Opinion 2/94)

The Court of First Instance correctly held that Article 308 EC could be included in the legal basis of the contested regulation, jointly with Articles 60 and 301 EC .Since Articles 60 and 301 EC did not, however, provide for any express or implied powers of action to impose such measures on addressees in no way linked to the governing regime of a third country such as those to whom the contested regulation applied, that lack of power, attributable to the limited ambit ratione materiae of those provisions, could be made good by having recourse to Article 308 EC as a legal basis for that regulation in addition to the first two provisions providing a foundation for that measure from the point of view of its material scope, provided, however, that the other conditions to which the applicability of Article 308 EC was subject had been satisfied.

The objective pursued by the contested regulation was immediately to prevent persons associated with Usama bin Laden, the Al-Qaeda network or the Taliban from having at their disposal any financial or economic resources, in order to impede the financing of terrorist activities. Contrary to what the Court of First Instance held, that objective could be made to refer to one of the objects which the EC Treaty entrusted to the Community. The judgments under appeal were therefore vitiated by an error of law on this point also (see
Case C‑117/06, Möllendorf and Möllendorf-Niehuus, ECR I‑8361 I wrote about in this post)

The Court held that implementing restrictive measures of an economic nature through the use of a Community instrument did not go beyond the general framework created by the provisions of the EC Treaty as a whole, because such measures by their very nature offered a link to the operation of the common market, that link constituting another condition for the application of Article 308 EC.

Direct and individual concern
According to the Court, the Court of First Instance furthermore rightly held that the fact that the persons and entities who were the subject of the restrictive measures imposed by the contested regulation were expressly named in Annex I thereto, so that they appeared to be directly and individually concerned by it, within the meaning of Article 230(4) EC, did not mean that that act was not of general application within the meaning of Article 249(2) EC or that it was not to be classified as a regulation.

The Court held that the contested regulation laid down a prohibition, worded exceptionally broadly, of making available funds and economic resources to those persons or entities. As the Court of First Instance quite rightly held, that prohibition was addressed to whoever might actually hold the funds or economic resources in question. (see also the Möllendorf case referred to above).

International law and constitutional principles EC Treaty
The Court held that the obligations imposed by an international agreement could not have the effect of prejudicing the constitutional principles of the EC Treaty, which included the principle that all Community acts must respect fundamental rights, that respect constituting a condition of their lawfulness which it was for the Court to review in the framework of the complete system of legal remedies established by the Treaty. The Court of Justice used three arguments to substantiate this.

The Court of Justice first of all reiterated that the Community was based on the rule of law, inasmuch as neither its Member States nor its institutions could avoid review of the conformity of their acts with the basic constitutional charter, the EC Treaty, which established a complete system of legal remedies and procedures designed to enable the Court of Justice to review the legality of acts of the institutions.

Secondly, the Court reiterated that an international agreement could not affect the allocation of powers fixed by the Treaties or, consequently, the autonomy of the Community legal system, observance of which was ensured by the Court by virtue of the exclusive jurisdiction conferred on it by Article 220 EC, jurisdiction that the Court had, moreover, already held to form part of the very foundations of the Community. (see
Opinion 1/91 [1991] ECR I‑6079 and Case C-459/03 Commission v Ireland [2006]).

Thirdly, it reiterated that respect for human rights was a condition of the lawfulness of Community acts. Measures incompatible with respect for human rights were not acceptable in the Community. (see
C-305/05, Ordre des barreaux francophones and germanophone [2007], I wrote about in this post] and Case C‑112/00 Schmidberger [2003] ECR I‑5659

The Court held that any judgment given by the Community judicature deciding that a Community measure intended to give effect to a resolution adopted by the Security Council was contrary to a higher rule of law in the Community legal order would not entail any challenge to the primacy of that resolution in international law. The European Community must respect international law in the exercise of its powers.

It was not a consequence of the principles governing the international legal order under the United Nations that any judicial review of the internal lawfulness of the contested regulation in the light of fundamental freedoms was excluded by virtue of the fact that that measure was intended to give effect to a resolution of the Security Council adopted under Chapter VII of the Charter of the United Nations.

Such immunity from jurisdiction for a Community measure like the contested regulation, as a corollary of the principle of the primacy at the level of international law of obligations under the Charter of the United Nations, especially those relating to the implementation of resolutions of the Security Council adopted under Chapter VII of the Charter, could not find a basis in the EC Treaty. (
see inter alia Case C‑124/95 Centro-Com [1997] ECR I‑81).

Article 307 EC
According to the Grand Chamber, Article 307 EC might in no circumstances permit any challenge to the principles that formed part of the very foundations of the Community legal order, one of which was the protection of fundamental rights, including the review by the Community judicature of the lawfulness of Community measures as regards their consistency with those fundamental rights.

Nor could an immunity from jurisdiction for the contested regulation with regard to the review of its compatibility with fundamental rights, arising from the alleged absolute primacy of the resolutions of the Security Council to which that measure was designed to give effect, find any basis in the place that obligations under the Charter of the United Nations would occupy in the hierarchy of norms within the Community legal order if those obligations were to be classified in that hierarchy.

By virtue of Article 300(7) EC, supposing it to be applicable to the Charter of the United Nations, the latter would have primacy over acts of secondary Community law. That primacy at the level of Community law would not, however, extend to primary law, in particular to the general principles of which fundamental rights formed part. (see also
Case C‑308/06 Intertanko and Others [2008], I wrote about in this post).

The Court of First Instance erred in law, therefore, when it held that it followed from the principles governing the relationship between the international legal order under the United Nations and the Community legal order that the contested regulation, since it was designed to give effect to a resolution adopted by the Security Council under Chapter VII of the Charter of the United Nations affording no latitude in that respect, must enjoy immunity from jurisdiction so far as concerned its internal lawfulness save with regard to its compatibility with the norms of jus cogens. The appellants’ grounds of appeal were therefore well founded on that point, with the result that the judgments under appeal must be set aside in this respect.

Breach of right to be heard
The Court reiterated that the principle of effective judicial protection was a general principle of Community law stemming from the constitutional traditions common to the Member States, which had been enshrined in Articles 6 and 13 of the European Convention on Human Rights, this principle having furthermore been reaffirmed by Article 47 of the Charter of fundamental rights of the European Union. (see
C-432/05, Unibet [2007], I wrote about in this post)

Because the Council neither communicated to the appellants the evidence used against them to justify the restrictive measures imposed on them nor afforded them the right to be informed of that evidence within a reasonable period after those measures were enacted, the appellants were not in a position to make their point of view in that respect known to advantage. Therefore, the appellants’ rights of defence, in particular the right to be heard, were not respected.

The Court thus held that the contested regulation was adopted according to a procedure in which the appellants’ rights of defence were not observed, which had the further consequence that the principle of effective judicial protection had been infringed.

Infringement right to property
The Court furthermore reiterated that the right to property was one of the general principles of Community law. It was not, however, absolute, but must be viewed in relation to its function in society. Consequently, the exercise of the right to property might be restricted, provided that those restrictions in fact corresponded to objectives of public interest pursued by the Community and did not constitute, in relation to the aim pursued, a disproportionate and intolerable interference, impairing the very substance of the right so guaranteed.

The freezing measure provided by the contested regulation amounted to disproportionate and intolerable interference impairing the very substance of the fundamental right to respect for the property of persons who, like Mr Kadi, were mentioned in the list set out in Annex I to that regulation. The Court held that there was no justification for this infringement.

It followed from all the foregoing that the contested regulation, so far as it concerned the appellants, must be annulled. The effects of the contested regulation, in so far as it included the names of the appellants in the list forming Annex I thereto, must, by virtue of Article 231 EC, be maintained for a brief period to be fixed in such a way as to allow the Council to remedy the infringements found, but which also took due account of the considerable impact of the restrictive measures concerned on the appellants’ rights and freedoms. In those circumstances, Article 231 EC would be correctly applied in maintaining the effects of the contested regulation, so far as concerned the appellants, for a period that might not exceed three months running from the date of delivery of this judgment.