The Council adopted Regulation (EC) No 881/2002 of May 27th 2002 imposing certain specific restrictive measures directed against certain persons and entities associated with Usama bin Laden, the Al-Qaeda network and the Taliban in order to implement UN Security Council Resolution 1390 (2002). That Resolution required all countries to:
"Freeze without delay the funds and other financial assets or economic resources of these individuals, groups, undertakings and entities, including funds derived from property owned or controlled directly or indirectly, by them or by persons acting on their behalf or at their direction, and ensure that neither these nor any other funds, financial assets or economic resources are made available, directly or indirectly for such persons’ benefit, or by their nationals or by persons within their territory”.
The United Kingdom interpreted the "on their behalf" requirement strictly by withholding payment of social security and other entitlements to the spouses of individuals designated by the UN Al Qaeda and Taliban Sanctions Committee. The UK regulations issued required that such benefit payments could be paid to terrorist spouses only if they applied for a license granting such payments, and then only to a bank account held in the name of the spouse. Payments would be made in limited amounts calculated to cover each member of the household except the designated individual.
“M”, who purports to be the spouse of a designated individual challenged the British measures measures in the English courts and the House of Lords referred the case to the Court of Justice which asked a question on the scope of Article 2 of Regulation 881/2002 and in particular whether that provision requires the freezing of funds in the form of social security paid to spouses of designated persons who will or may use the money to pay for goods and services which the designated person will consume or benefit from.
The Court of Justice held that the British measures were too strict and that member States are not required by Article 2 of Regulation 881/2002 to freeze payments to spouses on the grounds only that the spouse lives with the designated person and that person may or will use some of those payments to pay for goods or services which he will consume or benefit from.
The Court noted that the different language versions of Regulation 881/2002 diverged: Support for the UK's interpretation of Article 2 to include making funds available indirectly for the benefit of a designated person could be found in the English, Hungarian, Dutch, Finnish and Swedish versions. On the other hand, the Spanish, French, Portuguese and Romanian versions were different. And the German and Italian versions were different again.
Consequently, the Court recalled its settled case-law that the different language versions of a text of EU law must be given a uniform interpretation and hence, in the case of divergence between the language versions, the provision in question must be interpreted by reference to the purpose and general scheme of the rules of which it forms a part (Case C‑341/01 PlatoPlastik Robert Frank  ECR I‑4883, paragraph 64 and case-law cited). Also to interpret Regulation No 881/2002, account must also be taken of the wording and purpose of Resolution 1390 (2002) which that regulation is designed to implement (Joined Cases C‑402/05 P and C‑415/05 P Kadi and Al Barakaat International Foundation v Council and Commission  ECR I‑6351, paragraph 297 and case-law cited).
The Court held that the objective of Regulation No 881/2002 is to prevent designated persons from having at their disposal any financial or economic resources, in order to impede the financing of terrorist activities (Case C‑117/06 Möllendorf and Möllendorf-Niehuus  ECR I‑8361, paragraph 63) in order to combat international terrorism, in particular to cut it off from its financial resources by freezing the economic funds and resources of persons or entities suspected of involvement in activities linked to terrorism (Kadi and Al Barakaat International Foundation v Council and Commission, paragraph 169).
The Court went on to find that it was not argued that the spouses concerned hand over those funds to a designated person instead of allocating them to their basic household expenses. It was not disputed that, in the cases in the main proceedings, the funds in question are in fact used by the spouses concerned to meet the essential needs of the households to which the designated persons belong. If the funds are misappropriated then such a misappropriation of funds would, moreover, be covered by the prohibition laid down in Article 2(2) of that regulation and would constitute an offence punishable under national criminal law.
Accordingly, the Court concluded that having regard to the differences in the language versions of Article 2(2) of Regulation No 881/2002, that provision must, in the light of its object, be construed as meaning that it does not apply to the payment of social security or social assistance benefits in circumstances such as those in issue in the main proceedings.
The Court added for good measure that in construing a provision of secondary EU law, preference should as far as possible be given to the interpretation which renders the provision consistent with the general principles of European Union law and, more specifically, with the principle of legal certainty (C‑1/02 Borgmann  ECR I‑3219, paragraph 30 and case-law cited). That principle requires legislation, such as Regulation 881/2002, which imposes restrictive measures having considerable impact on the rights and freedoms of designated persons (Kadi and Al Barakaat International Foundation v Council and Commission, paragraph 375) and which, as provided in Article 10 of that regulation, in domestic law involves penalties, in this instance criminal penalties, for infringement of those measures, to be clear and precise so that the persons concerned, including third parties such as the social security bodies involved in the main proceedings, may know unambiguously their rights and duties and take measures accordingly. If Regulation 881/2002 were to be construed differently, legal uncertainty would be endangered, in particular so far as concerns triangular situations in which funds are made available, directly or indirectly, not to a designated person but to someone else to whom the designated person is more or less closely connected and in which the latter indirectly derives some benefit from those funds.