Britain has dodged a lawsuit over its use of anti-terror powers to freeze billions of in Icelandic bank’s assets. Iceland’s decision to refrain from action in London over Landsbanki implies that Britain’s unprecedented use of the freezing powers in a non-terror case could be hard to challenge domestically. This outcome potentially paves the way for similar action by the Treasury against other failing financial institutions.

The Icelandic government conceded on Tuesday that a High Court challenge to the freezing order made against Landsbanki, the national bank of Iceland, in October stood little success. However, the Icelandic government said it would back a separate legal challenge brought against Britain related to Kaupthing, one of the country’s three banks nationalized last year to stave off their collapse.

The Icelandic government stressed that it still considered Britain’s use of freezing powers in the 2001 Anti-Terrorism, Crime and Security Act as “wrongful and unjustified”. Reykjavik said it would “examine exhaustively” other options for international legal action, particularly in the European Court of Human Rights.

The decision to pull back from a Landsbanki lawsuit in London bolsters the Treasury’s view that it was legally entitled to intervene to protect British depositors, using the sweeping discretion that the terror act offered to combat “action to the detriment of the UK’s economy”.