UPDATE 1-British govt launches defence in Iranian bank's $4 bln lawsuit

Fri May 9, 2014 1:29pm EDT

Related Topics

* Bank Mellat claiming damages after wrongful sanctions

* Treasury denies sanctions caused the bank ubstantial losses (Adds details, comments from Bank Mellat lawyer, HM Treasury no comment)

By Clare Hutchison

LONDON, May 9 (Reuters) - The British government has filed a defence against a $4 billion lawsuit brought by an Iranian bank against which it wrongfully imposed sanctions, denying that the sanctions caused the bank substantial losses or reputational damage.

Bank Mellat, Iran's largest private bank, filed a damages claim in London's High Court in February after the Supreme Court quashed UK sanctions imposed against it over alleged links to Tehran's nuclear programme.

The lender said the bank suffered "significant pecuniary loss" and substantial reputational damage as a result of the measures that were taken against it in 2009.

It claimed the British government also successfully lobbied other authorities to take their own action against Bank Mellat, which it says ultimately caused and continue to cause the loss of profitable business, customers, banking relationships and dealing services.

In a defence filed in court on Friday and seen by Reuters, the Treasury, Britain's finance ministry, rejected those allegations.

"It is denied that the 2009 order substantially damaged Bank Mellat's reputation and goodwill in both the UK and internationally and caused significant pecuniary loss."

Any such losses would have been suffered anyway, because at the time there was a general reluctance to conduct business with Iranian banks in light of earlier U.S. financial sanctions, the defence document stated.

"By this time, the overall exposure of the UK financial sector to Iran was very low and many participants in the UK financial sector had, of their own volition, decided generally to wind down, or had completely ceased, business with the Iranian banks based in the UK, including Bank Mellat," it said.

Europe and the United States imposed sanctions against specific Iranians, state institutions and companies in an attemnpt to persuade Tehran to rein in its nuclear programme, which they believe to be attempting to enrich uranium for use in atomic bombs, and open its doors to U.N. inspectors.

EASING SANCTIONS

Tehran maintains that its nuclear programme is for peaceful purposes only and Western governments are now starting to ease part of the sanctions after Iran and world powers reached an interim deal in November.

With the claim being made against the British Treasury, a ruling in favour of Bank Mellat would effectively hit UK taxpayers, which the bank's lawyer Sarosh Zaiwalla, of Zawailla & Co, believes will make authorities more careful when enforcing sanctions.

Zaiwalla said that the effect of the case can already been seen in the more cautious approach British and European Union officials have taken with sanctions against Russia after its actions in Ukraine.

"The EU council and the UK government has learned a lesson," he said, adding that Bank Mellat had also recently filed an application for a judicial review into the Treasury's action regarding the bank.

A Treasury spokesman declined to comment because the case is ongoing. (Editing by Jason Neely and David Goodman)

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