Customers queue to use a Bank Mellat bank branch in Tehran, Iran, on Saturday, Aug. 22, 2015. Iran, the world's fifth largest crude producer, has set aside almost nothing for oil investments this year because of the drop in prices. Photographer: Simon Dawson/Bloomberg
A Bank Mellat branch in Tehran © Bloomberg

An Iranian bank has won a favourable ruling from the European Court of Justice that sanctions were wrongly imposed on it in 2010, which its lawyers say strengthens a $4bn damages claim against the UK government.

Bank Mellat has been fighting a legal battle for several years against sanctions that it claims were wrongfully placed on it by the European Union and the UK Treasury over alleged links to Tehran’s nuclear missile programme.

Iranian banks are gradually being reintegrated with the international financial system after Europe and the US last month agreed to lift some sanctions against Iran in a deal designed to stop the country developing nuclear weapons.

The ECJ in Luxembourg rejected an appeal on Thursday by the European Council against a ruling by a lower court that the EU sanctions against the Tehran-based lender were unjustified. It ordered the council to pay its own and the bank’s costs.

Sarosh Zaiwalla, a lawyer for the Iranian bank, described the judgment as the first big legal success for an Iranian corporation challenging the sanctions regime and predicted it could open the door to others.

Mr Zaiwalla said the ECJ’s decision would “pave the way” for it to “pursue a substantial damages claim against the European Council, which could see the bank awarded billions in compensation for its loss of earnings”.

“This judgment will also set a precedent for such cases in the future,” he added. The bank had already successfully challenged the sanctions placed upon it by the UK Treasury, and is awaiting a decision on a $4bn damages claim before the English court.

The European Council argued that evidence supporting the sanctions on Bank Mellat came from confidential sources, who could be endangered if the information were disclosed. But the court ruled this was inadmissible because it was relied on the council’s earlier, unsuccessful case.

The ECJ also found that the council had mistakenly described Bank Mellat as a state-owned bank. The lender is currently 80 per cent owned by Iranian private sector interests and 20 per cent by the state.

Bank Mellat, founded in 1979, has claimed in legal arguments over the past few years that before the sanctions being imposed it had a “thriving and profitable international trade finance business” and held 33m accounts for 19m customers across 2,000 branches in Iran, Turkey and South Korea.

Last year, the High Court in London ruled that a $4bn damages trial brought by Bank Mellat against the Treasury should proceed after rejecting an attempt by the UK government to delay the hearing.

The damages claim followed a ruling by Britain’s Supreme Court, which quashed UK sanctions imposed on the bank after finding its rights had been violated under the European Convention on Human Rights as well as common law. A hearing is due in November.

Since European sanctions against Iran were lifted last month, several Iranian banks have been reconnected to the Swift global payments network, allowing them to resume cross-border transactions with foreign lenders after four years on the sidelines.

However, western banks remain nervous about resuming normal business with Iranian lenders via so-called correspondent banking agreements because the US has maintained significant parts of its sanction regime against Iran.

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