In September 2005 the Court of First Instance (“CFI”) delivered its (in)famous judgments in Cases T-30601 (Yusuf and Al Barakaat) and T-315/01 (Kadi) (Garde [2006] C.L.J. 281). Three years later, the European Court of Justice (“the ECJ”) handed down its judgment on the appeal: Joined Cases C-402/05 P and C-415/05 P, Kadi and Al Barakaat International Foundation v. Council (not yet reported). The cases arose from United Nations Security Council (“UNSC”) Resolution 1390 (2002), which set up a system at the UNSC level listing suspected members of Al Qaeda and the Taliban. Once a name is listed, various restrictions are to be imposed upon that person or organisation, including the freezing of their assets. This measure was implemented within the European Community (“EC”) by Regulation 881/2002/EC, which contained an Annex covering the names on the UN list. The names of Kadi and Al Barakaat were both included on that list and they sought the annulment of the Regulation. The CFI rejected both applications, but the ECJ overturned those judgments on appeal.

First, the ECJ held that the EC was competent to implement the UNSC Resolution by means of an EC regulation. The Advocate General Poaires Maduro had relied exclusively upon Articles 301 and 60 EC. With regard to the implementation of the Common Foreign and Security Policy (“CFSP”), Article 301 authorises measures “to interrupt or reduce … economic relations with one or more third countries”, while Article 60 concerns “measures … as regards the third countries concerned”. The Advocate General argued that these Articles formed an appropriate legal basis because sanctions against persons in third countries would inevitably affect economic relations with those countries, and a narrow reading of Article 301 would be unduly restrictive given the complex threats of modern terrorist activities. The ECJ rejected this: under Article 301 a link was required between the EC measure and the third country (including entities controlled by the rulers of that country). Here, however, there was no such link to any third country, since the Regulation only aimed to combat international terrorism by non-State actors. Instead, the ECJ relied upon Article 308, but not (as the CFI had suggested) as widening the “bridge” created by Article 301 between the objectives of the CFSP and the EC's imposition of economic sanctions: that would fall foul of the restriction upon using Article 308 to broaden the EC's powers beyond the competence conferred by the Treaty. Rather, the ECJ reasoned that Article 308 was an acceptable legal basis because a Community objective was involved: the general underlying aim (made explicit in Articles 301 and 60) that it should be “possible to adopt such measures through the efficient use of a Community instrument” (at [226]).

The Court's reasoning concerning the legal basis of the Regulation is problematic. Its rejection of the CFI's analysis is difficult to reconcile with the ECJ's own use of Article 308, which seems to effect the very widening of the scope of express EC competence that the ECJ had (at [203]) explained was impermissible. It does so by clear reference to CFSP objectives – adopting measures to combat international terrorism – which are then said to be implicit in a general Community objective, in spite of the limitations upon Article 301 which the ECJ had itself emphasised (see [166]–[170]). Furthermore, the extent to which the ECJ required an effect upon the internal market (allowing recourse to Article 308) seems rather small when compared with the Tobacco Advertising cases (see Case C-308/03 Germany v. Parliament and Council [2006] E.C.R. I-11573): the mere risk of disparities between national rules is insufficient. Trade obstacles must be likely and the EC measure must be designed to prevent such obstacles. It is difficult to see how this was the case here. It seems, therefore, that the only way to provide a more secure legal basis for the Regulation would be to adopt some form of the Advocate General's approach, although this, too, would involve a purposive interpretation of the wording of Article 301. Were the Treaty of Lisbon to enter into force, a specific Treaty basis for such Council measures aimed at non-State actors would be available: see Article 215(2) of the Treaty on the Functioning of the Union.

Second, the ECJ clarified the relationship between UNSC resolutions (and, indeed, international law) and the EC's legal order: in particular, it rejected the CFI's analysis and emphasised that the EC Regulation implementing that Resolution was subject to scrutiny in the light of EC law fundamental rights standards. “Such review,” held the ECJ, “is a constitutional guarantee forming part of the very foundations of the Community” (at [290]), which is based upon the rule of law and which the Court, by virtue of Article 220 EC, is bound to uphold. The Court found nothing in the UN Charter or international law which required the EC to accord primacy to an international agreement within the Community legal order. Nor could Articles 307 or 297 EC authorise any derogation from such fundamental and foundational principles of the Community legal order: the Court repeatedly stressed the “autonomous” nature of the Community legal order in its judgment. In the hierarchy of norms established in that order, such UN measures could at best outrank secondary EC law, but not primary Treaty rules or fundamental rights. It was emphasised, however, that such review assessed the compatibility of the EC Regulation with EC fundamental rights law and should not be construed as a challenge to the UNSC Resolution itself (at [286]).

This approach allowed the ECJ to avoid questions concerning the CFI's analysis of the principles of ius cogens; instead, it moved on to consider whether the applicants' fundamental rights had been properly respected by the Community in its adoption of the contested Regulation. It held that they had not, finding violations of their rights to be heard and to an effective legal remedy (since at no stage had the Council informed the applicants of any of the evidence against them, nor had they been heard on that evidence: see [333]–[353]). Also, Kadi's right to property had been infringed. Although the restriction upon his property rights might in principle be justifiable in the pursuit of an objective of general interest (the fight against terrorism), the Community had failed to provide appropriate procedures to allow Kadi to put his case to the competent authorities (see [354]–[370]). As a result, the Regulation was annulled by the ECJ insofar as it affected the applicants; however, the Regulation's effects were maintained in force for a period of no more than three months to afford the Council an opportunity to remedy these legal defects, since “it cannot be excluded that, on the merits of the case, the imposition of those measures on the appellants may … prove to be justified” (at [374]). Since none of the evidence against the applicants had been provided, the ECJ could only “find that it is not able to undertake the review of the lawfulness of the contested regulation” (at [351]): for the ECJ to be forced to reach this conclusion on the merits is a sorry state of affairs.

Kadi is one of the ECJ's most significant judgments to date: it makes strong statements about the autonomy of the EC legal order, the centrality of fundamental rights protection to that legal order and its relationship with international law. The Community legal order will determine the conditions for the reception of international law, although the precise requirements of due process in this context will need further development in practice (the CFI has already embarked upon this task in a different series of terrorist asset freezing cases (see Johnston [2007] C.L.J. 273, 523 and [2008] C.L.J. 31) and there may be lessons to be learned from this jurisprudence). The ECJ's analysis of the EC's competence to adopt such EC measures, however, leaves rather more to be desired. The Council's response to the judgment is still awaited: its implications for the future operation of the legal regimes for terrorist asset freezing at EC, international and national levels will be substantial.