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(HOBHOUSE LJ, COLLINS AND MOSES JJ )

B e f o r e:

(LORD WOOLF)

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(Transcript of the handed down Judgment of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 421 4040

Official Shorthand Writers to the Court)

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LORD FALCONER OF THOROTON QC , MR C VAJDA QC , MISS E SHARPSTON , MISS E GREY , MR P SALES (Instructed by Messrs Thomas Cooper & Stibbard, London EC3A 2DJ) appeared on behalf of the Appellant.

MR D VAUGHAN , MR D ANDERSON , MS L FRAZER (Instructed by The Treasury Solicitor, London SW1H 9JS) appeared on behalf of the 1st - 83rd Respondents.

MR N FORWOOD (Instructed by Messrs Holman Fenwick & Willan, London EC3N 3AL) appeared on behalf of the 84th Respondent.

MR G BARLING , MR N GREEN , MR F RANDOLPH (Instructed by Messrs Grant & Horton, Plymouth PL4 0LP) appeared on behalf of the 85th - 87th Respondents.

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(As approved by the Court)

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©Crown Copyright

Index to Judgment

I Introduction page 3

II The Factual Background page 5

III The Present Proceedings before

the Divisional Court page 22

IV The Task before this Court page 26

V The Relevant Principles page 27

VI The Solicitor General’s

Submissions page 38

VII Application of the Principles page 41

(Subject to further factual amendments)

I

INTRODUCTION

LORD WOOLF, MR: This is the judgment of the Court, to which each member of the Court has contributed, on an appeal by the Secretary of State for Transport. This case is important because it is the first case in which courts within this jurisdiction have had to consider the award of damages against the State for breach of Community law by the enactment and implementation of certain provisions of an Act of Parliament. It comes before this court on appeal from an order of the Divisional Court (Hobhouse LJ and Collins and Moses JJ) made on 31 July 1997. By that order it was declared that the Secretary of State’s breaches of Community law were sufficiently serious to give rise to liability for any damages that may be shown to have been caused to the applicants (the respondents to the appeal). The order also declared that the applicants were not entitled to exemplary damages. That point is challenged in a respondent’s notice of appeal but this court (being bound by authority limiting the availability of exemplary damages) has not heard any argument on the point. The applicants reserve their position if the case goes further.

The judgment of the Divisional Court is now reported in [1997] EU LR 475. In Parts I and II it sets out with conspicuous clarity the background facts. The dispute arises out of various provisions contained in the Merchant Shipping Act 1988 (“the 1988 Act”). These provisions discriminated against citizens of other Member States of the European Community. One of the cardinal principles which binds all Member States of the Community is contained in Article 6 of the Treaty which provides that any discrimination on grounds of nationality shall be prohibited. The discrimination in the 1988 Act is found in provisions broadly to the effect that registration of vessels entitled to fly the British flag would only be possible if 75% of the ownership was in the hands of those who fulfilled three conditions: (a) they are citizens of the United Kingdom, (b) they are domiciled in the United Kingdom. The first of the conditions amounts to direct discrimination; the second and third to indirect discrimination. The Government of the day considered that this discrimination was compatible with our membership of the Community and the European Communities Act 1972. This was not the case. On 10 October 1989 the President of the ECJ made an interim order suspending the nationality condition. That condition was of no effect after 2 November 1989. However, the Government continued to enforce the domicile and residence conditions until the House of Lords in July 1990 granted interim relief against the Government. It is now common ground that the discrimination inherent in the imposition of each of the three conditions was in breach of the obligations which this country undertook upon becoming a member of the Community and was thus unlawful. The respondents to this appeal claim to have been disadvantaged by the discrimination provisions whilst they were in force. They sued the United Kingdom for damages. The Divisional Court held that, subject to establishing causation and amount, they are in principle entitled to damages. The Secretary of State appeals to this court. On this appeal the Secretary of State does not challenge any of the Divisional Court’s findings of primary fact, or indeed any of its factual conclusions except the conclusion in Part III of the judgment ([1997] EU LR at page 503) that by January 1990 the Government’s view of the legality of the 1988 Act under Community law

“had ceased to be reasonable. It may have been reasonable, having come that far and in view of the fact that the United Kingdom case was being supported by other Member States, not wholly to abandon the case but there no longer existed any reasonable prospect that the outcome would be favourable”.

In these circumstances no useful purpose would be served by any extended summary of background material which is set out clearly in the Divisional Court’s judgment. It is enough to note some salient events, starting at the beginning of 1987, and going into rather more detail as the sequence of events moves on to March 1989. Several important events occurred during March 1989, culminating at the end of the month in the expiry of the transitional period for transfer of fishing vessels to the new register established by the Merchant Shipping (Registration of Fishing Vessels) Regulations 1988, S.I. 1988 No 1926 (“the 1988 Regulations”) made under the 1988 Act.

II

THE FACTUAL BACKGROUND

At the end of 1986, in response to the second wave of registrations of British fishing vessels by Spanish fishermen, the Ministry of Agriculture, Fisheries and Food (“MAFF”) saw a need for new legislation and sought support from other ministers. The Foreign and Commonwealth Office (“FCO”) and the Law Officers stressed the importance of complying with the requirements of Community law. The purpose of the proposed Bill was described in a memorandum to the Law Officers as being “to define what a British fishing vessel is, which in effect means specifying who is entitled to register and operate a British fishing vessel; and thus to prevent vessels which are not owned and operated by British citizens or British-owned companies from being registered as British”. It was decided to seek counsel’s opinion and instructions were on 23 December 1986 sent to a team of counsel headed by Professor Francis Jacobs Q.C., who has since become one of the Advocates General at the European Court of Justice (“ECJ”). The importance of Community law was emphasised by the reference of R v MAFF, ex p. Agegate (“Agegate”) to the ECJ, under Article 177, earlier in December 1986. In that case the issue was the legality of licensing conditions imposed by the United Kingdom upon licences to fish issued under the Sea Fish Conservation Act 1967. One of those conditions required 75% of the crew to reside ashore in this country. The ECJ in due course held that condition to be unlawful: [1989] ECR 4459.

Counsel sought further instructions, especially as to whether it was practicable to put a new registration system for fishing vessels on a basis other than that of nationality (the proposal was for conditions tied to nationality, domicile and residence). Counsel were instructed that to rely on residence alone would not in practice be satisfactory. Counsel then wrote a joint opinion dated 24 February 1987 and reached the conclusion that

“the proposed legislation should, if challenged, be held to be compatible with Community law on the basis that such legislation is a necessary consequence of the Common Fisheries Policy (“CFP”)”.

In reaching their conclusion counsel relied on the principle of international law that the right for a vessel to fly a national flag was to be determined by the state in question, so long as there was some genuine link between the vessel and the state. They also relied on the fact that the CFP allocated quotas on a national basis, so that

“in our view, any discrimination that arises out of the proposed measures is a natural consequence of the CFP itself which divides out the available fishing quotas along national lines ... In the case of fish which are no respecters of territorial limits it is necessary to establish a clear link between the Member State to whom the quota is granted and the vessels that are entitled to fish for that quota”.

Nevertheless Counsel’s advice was not unqualified and they referred to an element of risk. In order to reduce the risk they recommended that two modifications should be made to the proposals: that is the reduction from 100 per cent to 75 per cent of the proportion of shareholders and directors of fishing boat companies that had to meet the qualifying conditions of United Kingdom nationality, domicile and residence; and a period of grace for vessels already on the British register. Counsel also noted that the Secretary of State was to have a dispensing power where “because of the applicant’s long residence in the United Kingdom it would be unfair to refuse registration”.

A dispensing power was in due course enacted (in respect of the nationality condition only) as section 14(4) of the 1988 Act. Counsel advised that its inclusion was important if the measures were not to be seen as heavy handed and disproportionate. Unfortunately the power seems, in practice, to have been exercised in a manner that was inconsistent and, in relation to Mr Yllera and Mr O’Connor, ungenerous to the point of being unreasonable.

After the joint opinion had been given, the Solicitor General sought and obtained confirmation that counsel considered the proposals to be compatible with rights of establishment under Community law. On 31 March 1987 the Law Officers advised that there was a reasonably good prospect that the proposed legislation would be upheld by the ECJ. On the same day the Minister of State at the FCO informed the Minister of State at MAFF that the FCO was content for the legislation to be introduced, but that the European Commission should be informed as soon as possible. The initial reaction of the Commission was from the Government’s point of view at best ambiguous.

On 9 May 1987 the British Government announced its intention to introduce legislation. Soon afterwards there was an Article 177 reference to the ECJ in R v MAFF, ex p. Jaderow (“Jaderow”) , accompanied by a formal agreement which represented a temporary compromise while the reference proceeded. The issue in Jaderow was the legality of another licensing condition for ships engaged in fishing. The ruling of the ECJ is reported at [1989] ECR 4459.

Instructions to parliamentary counsel were drafted, and the Bill was introduced to Parliament on 29 October 1987. During the preparation of the Bill there was discussion in Whitehall as to how far the new measures could or should be framed as primary legislation so as to be effective unless and until struck down by the ECJ. The legal adviser to the Department of Transport commented in July 1987,

“If the legislation is designed to be deliberately challengeable, its purpose will be largely frustrated. All we will produce is yet more cases to drag their slow lengths along in the [ECJ] in Luxembourg”.

In the event, these proceedings have been dragging their slow length for about nine years, and their end is not yet clearly in sight.

The Bill had made progress in Parliament when on 28 March 1988 the Commission (in the person of Mr Fitchew, DG XV Financial Institutions and Company Law) wrote to the Government warning that the provisions of the Bill appeared to infringe rights of establishment under Community law, and that if the Bill were to be enacted in that form the Commission would have to give serious consideration to infringement proceedings under Article 169. This threat of a challenge was not unexpected, and the Law Officers advised that the progress of the Bill should not be delayed. It went forward and received the Royal Assent on 3 May 1988. Part II of the 1988 Act (which provided for a new system of registration of British fishing vessels) was (by s.58(3)) to come into force on the date of the coming into force of the first regulations made under s.13, that is the 1988 Regulations. They were made on 2 November 1988 and laid before Parliament on 10 November 1988. They came into force on 1 December 1988. Regulation 66 provided for a transitional period ending on 31 March 1989.

The crucial provisions of the 1988 Act were in section 14. Subsection (1) provided (subject to the Secretary of State’s power to impose further requirements under subsection (3) and his power to dispense with the citizenship requirement under subsection (4)) that a fishing vessel could be registered only if (a) it was British-owned; (b) it was managed, and its operations directed and controlled, from within the United Kingdom; and (c) any charterer, manager or operator of it was a qualified person or company. By subsection (2) a fishing vessel was British-owned if

“(a) the legal title to the vessel is vested wholly in one or more qualified persons or companies; and

(b) the vessel is beneficially owned

(i) as to not less than the relevant percentage [in the event 75 per cent] of the property in the vessel, by one or more qualified persons, or

(ii) wholly by a qualified company or companies, or

(iii) by one or more qualified companies and, as to not less than the relevant percentage of the remainder of the property in the vessel, by one or more qualified persons”.

Subsection (7) contained definitions of “qualified company”-

“a company which satisfies the following conditions, namely-

(a) it is incorporated in the United Kingdom and has its principal place of business there;

(b) at least the relevant percentage of its shares (taken as a whole), and of each class of its shares, is legally and beneficially owned by one or more qualified persons or companies; and

(c) at least the relevant percentage of its directors are qualified persons”

and of “qualified person” -

“(a) a person who is a British citizen resident and domiciled in the United Kingdom, or

(b) a local authority in the United Kingdom”.

The general effect of the 1988 Act was therefore, in the words of the Divisional Court [1997] EU LR at page 479),

“to revoke any previous entitlement and substitute an entitlement which was dependent upon (among other requirements) the satisfaction of three criteria:

1. Nationality - being a “British citizen”;

2. Domicile - being domiciled in the United Kingdom: and

3. Residence - being resident in the United Kingdom”.

In the meantime the dialogue with the Commission was continuing, and Agegate and Jaderow were before the ECJ. The United Kingdom Permanent Representative sent a reasoned response to Mr Fitchew’s letter. There were inconclusive discussions in the Commission’s Interdepartmental Working Group on Quota Hopping and in the European Parliament’s Committee on Agriculture, Fisheries and Food. On 18 November 1988 Advocate-General Mischo delivered opinions in Agegate and Jaderow which were on the whole favourable to the United Kingdom Government. The most important passage is probably paragraphs 62 to 82 of the Agegate opinion, relating to residence conditions for crews. Paragraphs 80 to 82 were in the following terms,

“Such exceptional rules are justified because, as the Council stated in the second recital to regulation No 101/76 [laying down the common structural policy for the fishing industry] ‘sea fisheries ... have their own social structure and fish under special conditions’.

It is because of those special characteristics of the fishing industry and the need to allow the quota system to achieve its aims that the residence condition laid down by the United Kingdom must be considered compatible with Community law.

That residence condition constitutes the corollary, so to speak, of the derogation from certain rules of Community law entailed in the quota system itself”.

On 16 December 1988 leave to apply for judicial review was granted in these proceedings. An earlier application had been refused because Part II of the 1988 Act was not then in force. On 10 March 1989 the Divisional Court (Neill LJ and Hodgson J) referred the substantive questions to the ECJ under Article 177 but did grant the applicants interim relief (1989 2 CMLR 353). Neill LJ (at p.374) refrained from expressing even a tentative view of the likely result of the reference under Article 177, beyond saying that neither side’s arguments were weak. Hodgson J. (at p.383) said that the applicants had a strong prima facie case.

An appeal to this court was heard with great expedition ([1989] 2 CMLR 353, 392) and on 22 March 1989 this court (Lord Donaldson MR and Bingham and Mann LJJ) allowed the Secretary of State’s appeal against the injunction granted by the Divisional Court. This court recognised that the issues raised were very difficult and of high constitutional importance. At least two members of the court would have continued the interim relief had not the challenged provisions been embodied in primary legislation.

There was a further expedited appeal to the House of Lords ([1990] 2 AC 85). Their Lordships regarded both the substantive and the procedural issues as grave and difficult. On 18 May 1989 the House of Lords dismissed the appeal but made a further Article 177 reference to the ECJ of the question whether Community law empowered or obliged an English Court, regardless of national law, to provide effective interim protection for the rights which the applicants claimed under Community law. So by the summer of 1989 there were before the ECJ both the procedural questions of Community law referred by the House of Lords ( “Factortame I”) and the substantive questions which had earlier been referred by the Divisional Court, but were overtaken ( “Factortame II ”); and Agegate and Jaderow had still not been decided.

Although the Commission had not succeeded in producing an alternative solution to the problem of quota-hopping it continued to object to the 1988 Act as an unacceptable solution. On 16 March 1989 the Vice President of the Commission sent to the Secretary of State for Foreign and Commonwealth Affairs a mise en demeure (formal notice) objecting to the nationality condition embodied in the 1988 Act. The letter concluded,

“In the light of the foregoing, the Commission is of the opinion that the United Kingdom has acted in violation of articles 7 [1], 52, 59 and 221 of the EEC Treaty by introducing and maintaining in the [1988 Act] provisions imposing conditions as to the nationality of individual owners of fishing vessels and, in the case of companies owning such vessels, of their shareholders and directors.

It is therefore obliged, in accordance with article 169 of the Treaty, to invite the United Kingdom Government to submit its observations on this matter within one month of the day of receipt of this letter.

In this letter the Commission has considered only the aspect of the requirement contained in the [1988 Act] as to the nationality of owners of fishing vessels, without prejudice to a fuller examination of any other aspects of that Act which may constitute infringements of Community law and it reserves the right to reconsider those matters.

The Commission reserves the right, if necessary, after having considered the said observations to issue a reasoned opinion as provided for in Article 169 of the EEC Treaty. The Commission also reserves the right to issue a reasoned opinion if the observations requested are not supplied within the specified period.

In view of the serious and irreparable damage to the fishermen concerned, the Commission requests the United Kingdom to suspend the implementation of the legislation at issue, and in particular the effects of the establishment of the new register for fishing vessels, pending a solution to this problem in accordance with Community law.”

This was followed on 29 May 1989 by the Commission’s reasoned opinion objecting to the nationality condition and on 7 August 1989 by the Commission’s action under Article 169, applying for interim measures in respect of that condition.

After an oral hearing on the Commission’s application during September, on 10 October 1989 the President of the ECJ made an order for interim measures in respect of the nationality condition. He ordered ([1989] ECR 3125) that

“Pending delivery of the judgment in the main proceedings, the United Kingdom shall suspend the application of the nationality requirements laid down in s.14(1)(a) and (c) of the [1988 Act], read in conjunction with [subsections] (2) and (7) of that section, as regards the nationals of other Member States and in respect of fishing vessels which, until 31 March 1989, were pursuing a fishing activity under the British flag and under a British fishing licence”.

The terms of the President’s judgment were dismissive of the United Kingdom Government’s submissions. As the Divisional Court put it, there was no comfort in it for the Government.

Three weeks elapsed before the President’s order for interim measures was given effect by an Order in Council laid before both Houses of Parliament and made under s.2(2) of the European Communities Act 1972. This was the Merchant Shipping Act 1988 (Amendment) Order 1989, 1989 S.I. No 2006, which was made on 1 November 1989 and came into force on the following day. It suspended the nationality condition only, by substituting “Community-owned” for “British-owned”, with an appropriate alteration in the definition of “qualified person”.

At the end of 1989 the Commission added to its objection to the nationality condition further objections as to the domicile and residence conditions. The Commission regarded the notion of domicile as closely akin to that of residence, but it has been conceded in this court that (domicile being understood in its normal sense under national law) it is in practice more likely to coincide with nationality. This point is covered in Part II, section 14 of the judgment of the Divisional Court ([1997] EU LR at pages 497-8). The Commission’s objections to the domicile and residence conditions were first formally expressed on 27 October 1989 in its observations on Factortame II and were the subject of a mise en demeure on 13 June 1990.

On 14 December 1989, more than a year after the opinions of Advocate General Mischo, the ECJ gave judgment in Agegate and Jaderow. In Agegate the judgment rejected the residence requirement (under the previous licensing system) as irrelevant to the quota system and unjustified. In Jaderow the judgment held that the aims of the quota system might justify conditions (such as the landing of a minimum proportion of catches) ensuring a real economic link between a fishing vessel and its flag state.

In January 1990 the Government was advised by counsel (Mr Christopher Bellamy QC, now one of the Judges of the Court of First Instance) that in the light of these decisions

“it is going to be difficult to rely on the CFP, not least because our nationality provisions are not sufficiently ‘focused’ towards the local fisheries populations. But we may still be able to scare the Court away from tackling too directly the issues of nationality on the basis of the intrinsic differences between ‘establishment’ and the ‘right to a flag’ and the international law complications ...”

On 5 April 1990 Advocate General Tesauro gave his opinion on the reference by the House of Lords in Factortame I and this was followed on 19 June 1990 by the judgment of the ECJ, ruling that in a case concerning Community law, a national court must set aside a rule of national law if that rule is the sole obstacle to the granting of interim relief. The matter came back to the House of Lords in July 1990. At the end of the hearing their Lordships indicated that interim relief would be granted, and their speeches were given on 11 October 1990. All these proceedings are reported in [1991] 1 AC 603. Their Lordships all saw the applicants as having a strong case which (in the light of the judgment of the ECJ) justified the extraordinary step of granting an injunction against the operation of the primary legislation. Lord Bridge (at pages 660-1) referred to the submissions about a genuine economic link and then to the rather laconic judgment of the ECJ in Agegate. He said,

“I confess that I have some difficulty in understanding the reasoning in the judgment which leads to this conclusion. But if a residence requirement relating to crew members cannot be justified as necessary to the maintenance of a genuine economic link with the local industry, it is difficult to see how residence or domicile requirements relating to beneficial owners could possibly fare any better.

The broader contention on behalf of the Secretary of State that Member States have an unfettered right to determine what ships may fly their flag raises more difficult issues”.

Lord Goff (with whom Lord Brandon and Lord Oliver agreed) considered the matter at length and said near the end of his speech (at page 674),

“The court should not restrain a public authority by interim injunction from enforcing an apparently authentic law unless it is satisfied, having regard to all the circumstances, that the challenge to the validity of the law is, prima facie, so firmly based as to justify so exceptional a course being taken ...

Your Lordships heard submissions from both parties about the strength of the applicants’ challenge to the relevant provisions of section 14 of the [1988 Act]. It is plain that the United Kingdom will, before the [ECJ], be resisting most strongly arguments by the applicants that any provision in section 14 is incompatible with European Law, whether in respect of nationality (despite the recent decision of the President to grant interim relief), or in respect of the domicile and residence of the beneficial owners, shareholders and directors ... There are, however, certain reasons which persuaded me to conclude, for present purposes, that, prima facie, the applicants have strong grounds for challenging the validity of the provisions relating to residence and domicile”.

Lord Goff then instanced the views of the President when ordering interim measures in the Article 169 proceedings, and the decision of the ECJ in Agegate. Lord Jauncey (at pages 679-82) concluded that the applicants had crossed the threshold of a strong prima facie case.

On 13 March 1991 Advocate General Mischo gave his opinions in Factortame II and the Article 169 proceedings, and these were followed by the judgements of the ECJ in those proceedings on 25 July and 4 October 1991 respectively. In his opinion in Factortame II the Advocate General (paragraph 29) had no hesitation in concluding that the nationality condition was incompatible with Articles 52 and 221. He then (paragraph 70) referred to his opinion in Agegate (which had not been followed by the ECJ) and said,

“I remain of the view, moreover, that since the quotas were introduced in order to safeguard the interests of local populations dependent on fishing, it is legitimate to require the majority - and even 75 per cent - of crew members of vessels fishing for species subject to quotas to be ordinarily resident on the coast of the country in question. The residence requirements at issue in Agegate did not include the latter stipulation, although, to my mind, it was implicit therein. Perhaps the Court would have accepted it had the stipulation been explicit”.

The Advocate General then went on (like Lord Bridge) to conclude that in relation to the residence and domicile requirement the arguments in respect of owners, shareholders and directors could hardly be better than those in respect of crew.

In its judgment in Factortame II the ECJ dealt in an almost summary fashion with the three questions submitted to it by the Divisional Court. That was despite the fact that the United Kingdom Government had received support, on one or more of the questions, from Belgium, Denmark, Germany, Greece and Ireland. On the first question the ECJ ruled that it was for member states to decide, in accordance with the general rules of international law, what vessels should fly their flag, but that in doing so the member states must comply with the rules of Community law. On the second question (as reformulated) the judgment ruled that the nationality, domicile and residence requirements were all incompatible with Community law, and were not justified by the possibility of exercise of the dispensing power. On the third question it ruled that it was not the purpose of national legislation as to registration of vessels to define in detail how quotas should be used, and that the existence of national quotas did not therefore affect the replies to the second question.

The ECJ’s judgment in the article 169 proceedings largely repeated its view in Factortame II . Shortly afterwards, on 19 November 1991, the ECJ gave its very important judgment in Francovich v Italian Republic [1991] ECR 1-5357. On 18 November 1992 the Divisional Court made the third reference to the ECJ under article 177, the first question referred being,

“In all the circumstances of this case where:

(a) a Member State’s legislation laid down conditions relating to the nationality, domicile and residence of the owners and managers of fishing vessels, and of the shareholders and directors in the vessel-owning and managing companies, and

(b) such conditions were held by the [ECJ] in [ Factortame II and the Article 169 proceedings] to infringe Articles 5,7,52 and 221 of the EEC Treaty, are those persons who were owners or managers of such vessels, or directors and/or shareholders in vessel-owning and managing companies, entitled as a matter of Community law to compensation by that Member State for losses which they have suffered as a result of all or any of the above infringements of the EEC Treaty?”

The second question instanced particular heads of damage, including exemplary damages. This reference (Case C-48/93) in Factortame III was joined to Case C-46/93, Brasserie du Pecheur SA v Federal Republic of Germany. The joinder of the two cases, together with the importance of the issues raised in the two cases, may explain their slow progress. Advocate General Tesauro gave his opinion on 28 November 1995 and the ECJ gave its judgment on 5 March 1996. The latter is referred to in detail below and it is unnecessary to summarise it at this point.

III

THE PRESENT PROCEEDINGS BEFORE THE DIVISIONAL COURT

It is however appropriate to add brief summaries of the positions of the various applicants, and of the findings that the Divisional Court made (in Part III of its judgment) as to the criticisms addressed to it of the conduct of the United Kingdom Government.

There were in all 97 applicants. A small number have fallen by the wayside but the great majority of the 1st to the 83rd applicants appeared together (before this court as before the Divisional Court) by a team led by Mr David Vaughan QC. These applicants are companies (or shareholders or directors of companies) and individuals who owned (or in a few cases managed) vessels in the British fishing fleet which lost their registration on 31 March 1989. Some of the vessels had originally flown the Spanish flag but had been reflagged. Many of the vessels were joint venture vessels and remained so under transitional arrangements in the Spanish Act of Accession. Others were at all times registered as British. All the vessels operated from ports in the west of the United Kingdom, including Milford Haven, Brixham, Penzance, Falmouth and Plymouth.

The 84th applicant Rawlings (Trawling) Ltd (“Rawlings”) appeared by Mr Nicholas Forwood QC and Mr Ben Quiney. Rawlings was in an unique position because it was excluded solely because of the Spanish nationality of one of its shareholders and directors, Mr Yllera. The Divisional Court said of Rawlings ([1997] EU LR at page 500),

“Its sole fishing vessel, the Brisca, was built with financial aid from the United Kingdom Sea Fish Industry Authority. It fished with a predominantly British crew, based its activities from Milford Haven, and landed the great majority of its fish in that port. Mr Yllera had been actively involved in the British fishing industry since the early 1980s. He had lived in Wales with his family since 1986. By reason of his integration with the British fishing industry, when he applied for dispensation under s.14(4) of the Act in early 1988, he was supported by his MP, officials within the Department of Transport and the Welsh Office. His application was refused, despite a second application in November 1988. It appears that the reason for refusal was a belief that Mr Yllera had only been resident in the United Kingdom and involved in the fishing industry for less than three years”.

The third group of applicants consists of Mr and Mrs O’Connor and companies (other than management companies) in which they were concerned. These applicants appeared by a team led by Mr Gerald Barling QC. The Divisional Court said of the O’Connors (page 501),

“They have been resident in the United Kingdom since 1977 and have worked with the British fleet since 1978. Although no formal concession has been made, no argument has been presented to suggest that they are not domiciled here. However, Mr O’Connor is a citizen of the Republic of Ireland and his wife a citizen of Belgium. They have not been allowed to register those vessels in which they or their companies have an interest because of the nationality condition in the 1988 Act. Mr O’Connor applied for naturalisation on 19 December 1988. The application was refused. The grounds upon which that application was refused having regard to s.44(2) of the British Nationality Act 1981. We decline to draw any inference relevant to this case from this refusal.

On 29 March 1989 Mr O’Connor applied for dispensation pursuant to s.14(4) of the Act. It appears that the Registrar General of Shipping refused the dispensation in pursuance of a policy which, the respondent says, evolved between 1988-90, and which, it is pleaded by the respondent, required involvement in the British fishing industry for a period covering at the very least the years 1973-78. This policy never seems to have been stated clearly in documents at the time; those documents reveal uncertainty and confusion as to the criteria to be adopted when considering dispensation. Nor was the policy applied with consistency, since discovery has revealed that there were a number of exceptions, which included one who was a schoolboy in 1973 and a New Zealander who had fished only since 1980”.

In Part III of its judgment the Divisional Court made findings as to the conduct of the Government. That conduct had been severely criticised, to the extent (as the Divisional Court understood it) of a charge of bad faith, although this court has been told that the applicants expressly disavowed that imputation. The Divisional Court found that the Government acted in good faith, and that has not been challenged in this court. The Divisional Court made eight particular findings, which merit careful attention ([1997] EU LR at pages 502-3). These were in very brief summary as follows. (1) The Government’s policy towards the quota-hopping was not covert but open. (2) Its stated and actual purpose was to protect indigenous British fishing interests, not to injure the applicants, although that might be the effect of the policy. (3) The criteria of nationality, domicile and residence were chosen “because they would be effective to achieve the protection required. It was reasonably believed that a simple residence criterion alone would not have sufficed.” (4) “The Government did not decide to introduce what became the 1988 Act with an intent to flout Community law nor did it disregard the potential conflict between basic Community principles and what it was proposing to do...The Government took and acted on qualified advice. It had reason to believe before the decision to go ahead was taken that the legality of the Act, although it would probably be challenged, would be likely to be upheld by the ECJ.” (5) The reality of that advice progressively receded, and by January 1990 it was no longer reasonable for the Government to rely on it. (6) The handling of the domicile requirement was most regrettable but came about through muddle, not bad faith. (7) The choice of primary legislation was motivated by the desire for an effective solution immune to delaying tactics. (8) The Government was aware of the Commission’s opposition but was not obliged to accept its view of Community law.

IV

THE TASK BEFORE THIS COURT

We now proceed to examine the guidance given by the ECJ on the circumstances in which, as a matter of Community law, Member States must be held liable in damages for breaches of Community law. We note that there is nothing in Community law which prevents national courts from imposing liability on their own Government in other circumstances. While Mr Nicholas Forwood Q.C. submitted in his skeleton argument that under our domestic law it was arguable that a remedy in damages might be available in circumstances where as a matter of Community law it was not required to be available, he was not anxious to develop before us this difficult submission. None of the respondents has asked this court to go further than it is obliged as a matter of Community law to go. So we leave for consideration on another occasion the circumstances, if any, in which, quite apart from any requirement of Community law, our law will give a remedy for damage caused by legislation enacted in breach of a superior legal rule. Traditionally this remedy has not been available in our law. Now that it is undoubtedly available in circumstances which contain a Community law element it may be right on some future occasion to re-examine that tradition.

For the present it suffices

(a) to identify the principles which determine whether an infringement of Community law gives a right to damages to those who have suffered loss in consequence of the infringement (“the relevant principles”); and

(b) to decide whether applying the relevant principles to the infringement of Community law, which the ECJ has held that the bringing into force 1988 Act involves, results in the applicants being entitled in principle to damages during any, and if so which part, of the period between the coming into force of the 1988 Act and the granting of the interim injunction by the House of Lords (“the application of the principles”).

V

THE RELEVANT PRINCIPLES

In relation to the issues which arise on this appeal, the relevant principles are to be found in the decision of the ECJ in Factortame III.

Among the answers given to the questions raised in that case by the ECJ are the following:

1. The principle that Member States are obliged to make good damage caused to individuals by breaches of Community law attributable to the State is applicable where a national legislature was responsible for the breach in question.

2. Where a breach of Community law by a Member State is attributable to the national legislature acting in a field in which it has a wide discretion to make legislative choice, individuals suffering loss or injury thereby are entitled to reparation where the rule of Community law breached is intended to confer rights upon them, the breach is sufficiently serious and there is a direct causal link between the breach and the damage sustained by the individuals. Subject to that reservation the State must make good the consequences of the loss or damage caused by the breach of Community law attributable to it, in accordance with its national law on liability. However, the conditions laid down by the applicable national laws must not be less favourable than those relating to similar domestic claims or framed in such a way as in practice to make it impossible or excessively difficult to obtain reparation.

3. Pursuant to the national legislation which it applies, reparation of loss or damage cannot be made conditional upon fault (intentional or negligent ) on the part of the organ of the State responsible for the breach, going beyond that of a sufficiently serious breach of Community law.(emphasis added)

4. ...in the absence of relevant Community provisions, it is for the domestic legal system of each Member State to set the criteria for determining the extent of reparation. However those criteria must not be less favourable than those applying to similar claims or actions based on domestic law and must not be such as in practice to make it impossible or excessively difficult to obtain reparation.” (emphasis added)

It is not necessary in the present appeal to consider whether the breaches being considered infringed any rights of the applicants since this is conceded. Nor is it necessary to enter upon questions of causation since they are to be resolved after the result of this appeal is known. The issue for us is whether the breach in question is sufficiently serious to entitle the injured individual to damages.

The ECJ judgment gives guidance, both general and in the context of the present case, as to the circumstances which should be taken into account in arriving at a decision on the question whether to fix the State with liability for the damage caused by its unlawful acts. It makes clear, first, that the fact that the breaches of Community law were attributable to the national legislature of a Member State does not invariably exempt that State from any liability which it would otherwise incur by virtue of the principle that Member States are obliged to make good damages caused to individuals by breaches of Community law attributable to the State; the obligation to make good damage caused to individuals by breaches of Community law can not depend on domestic rules as to the division of powers between constitutional authorities (paragraphs 33 and 36). Secondly it makes clear that the conditions under which that liability gives rise to a right to damages depend on the nature of the breach of Community law giving rise to the loss and damage in question (paragraph 38).

The ECJ emphasises that the principles which determine whether an individual can recover damages for a breach of Community law by a Member State do not differ from those which apply when the breach is by an institution of the Community. There has been a number of cases in which the European Court has worked out principles in relation to the liability of the Community to pay damages under Article 215 of the Treaty [2] for the legislative acts of its institutions. The case law indicates that there should be taken into account “ inter alia the complexity of the situations to be regulated, difficulties in the application or interpretation of the texts and, more particularly, the margin of discretion available to the author of the act in question”. (Paragraph 43). The ECJ here has regard to the wide discretion available to institutions in implementing Community policies (paragraph 44).

The ECJ indicates that in cases where the legality of legislative measures is under consideration it will be more difficult to obtain an award of damages than in cases where there is no element of legislative discretion. It states that it had taken a strict approach to the liability of the Community in the exercise of its legislative activities because of two considerations. First, “exercise of legislative functions must not be hindered by the prospect of actions for damages whenever the general interest of the Community requires legislative measures to be adopted which may adversely affect individual interests. Second, in a legislative context characterised by the exercise of a wide discretion, which is essential for implementing a Community policy, the Community cannot incur liability unless the institution concerned has manifestly and gravely disregarded the limits on the exercise of its powers” (paragraph 45, emphasis added).

The ECJ clearly proceeds on the basis that the field in which the United Kingdom was acting in the present case was one to which each of those two considerations was of relevance. Our task therefore is to decide whether or not in the present case the then Government and Parliament “manifestly and gravely disregarded the limits on (their) discretion”.

The factors identified by the ECJ as being ones which the domestic court may take into consideration in determining whether a Member State has gone beyond the limits of its discretion “ include the clarity and precision of the rule breached, the measure of discretion left by the rule to the national .... authorities, whether the infringement and the damage caused was intentional or involuntary, whether any error of law was excusable or inexcusable, the fact that the position taken by a Community institution may have contributed towards the omission, and the adoption or retention of national measures or practices contrary to Community law.” (Paragraph 56, emphasis added). In view of the use of the word “include” the considerations identified are presumably not exhaustive and there could be additional factors.

Having set out the general test which applies in cases involving the exercise of the legislative discretion of a Member State, the ECJ also made it clear that it would not substitute its assessment of seriousness for that of the national court which has the sole jurisdiction to find the facts and to decide how to characterise the breaches of Community law at issue. (Paragraph 58) (This is the function which the Divisional Court performed and the jurisdiction which it exercised in this case.) However, the court did seek to help the German and English national courts whose questions referred under Article 177 it was answering by indicating “a number of circumstances which the national courts might take into account”. (Paragraph 58, emphasis added).

While the ECJ made it clear that it was only identifying circumstances which the national courts might take into account, its comments are helpful. First because they tend to clarify the general test which the court had already identified. In addition they provide a “steer” as to what should be the result in the particular cases which were before the national courts.

The guidance which was given in this case started off by suggesting that the assessment would be different “in the case of the provisions making the registration subject to a nationality condition” from that in the case of provisions laying down “residence and domicile conditions for vessel owners and operators”. In the case of the nationality condition the court stated that this constituted “direct discrimination manifestly contrary to Community law”. In the case of the residence and domicile conditions, the court stated that they were “prima facie incompatible with Article 52 of the Treaty” (Article 52 being the Article which deals with the abolishing of restrictions on freedom of establishment of a Member State in the territory of another.) (Paragraphs 61 and 62).

The court added that as to the position as to residence and domicile, the English court, in determining whether the breach was sufficiently serious, might take into account, “ inter alia,

the legal disputes relating to particular features of the [CFP]

the attitude of the Commission, which made its position known to the United Kingdom in good time, and

the assessments as to the state of certainty of Community law made by the national courts in the interim proceedings brought by individuals affecting the [1988] Act”. (Paragraph 63)

Finally the court turned its attention to the specific claim of Rawlings that the United Kingdom had failed to comply with the order of the President of the ECJ of 10 October 1989 and said that this could be regarded by the national court as constituting in itself a manifest and therefore sufficiently serious breach of the Community law. (Paragraph 64). This suggestion of the ECJ as to the situation is accepted before this Court by the Secretary of State. This means that now it is not in dispute that in relation to the failure of the Government to respond to the President’s Order for three weeks there was a sufficiently serious breach by the Secretary of State to create a right to damages.

Having referred to the detail of the judgment of the ECJ we summarise our conclusions as follows:

(1) As with the Community, so with Member States: as a matter of general principle they are under an obligation to make good any damage which they have caused by contravening Community law.

(2) Again as is the case with the Community, where a Member State has a wide legislative discretion, it will not be under a liability to pay damages unless the breach of Community law is sufficiently serious, that is to say it is grave and manifest.

(3) The reason for the restriction on liability is that the legislative function should not be hindered by the chilling effect of a liability for damages, unless the breach is of a seriousness which justifies the Member State being made liable to pay damages.

(4) In deciding whether there is liability in a particular case, various factors are relevant including:

(i) the complexity of the situation to be regulated;

(ii) difficulties in the application and interpretation of the text;

(iii) the margin of discretion available to the Member State in relation to the action in question;

(iv) the clarity and precision of the rule breached;

(v) the measure of discretion left by the rule to the Member States;

(vi) whether the infringement of the rule was intentional or involuntary;

(vii) whether the error of law was excusable or inexcusable;

(viii) whether the position taken by the Community institution may have contributed towards the omission;

(ix) in this particular case the features of the C F P; and

(x) the attitude of the Commission.

The court drew a clear distinction between the nationality requirement contained in the 1988 Act and the domicile and residence requirement. As to domicile, it appears probable that the ECJ did not appreciate that domicile was being used in the Act in its English law sense, that is, as creating a requirement that a person should both reside here and have the intention to make this country his or her permanent home. Because of this the Solicitor General accepted that for practical purposes the views expressed by the ECJ as to nationality would substantially also apply to domicile. It is only residence which comes into a different category.

The ECJ clearly regarded the condition relating to nationality as being a breach of Community law falling into a special class. This is readily understandable in view of the terms of Article 6 of the Treaty which specifically provides:

“Within the scope of application of this Treaty, and without prejudice to any special provisions contained therein, any discrimination on the grounds of nationality shall be prohibited.”

The status of the requirements of Article 6 was vividly highlighted by Advocate General Jacobs in the joint cases C92/92 and C326/92, Phil Collins [1993] E.C.R. 15145 at p 15162 where he says:

“9. The prohibition of discrimination on the grounds of nationality is the single most important principle of Community law. It is the leit motiv of EEC Treaty...

10. It is not difficult to see why the authors of the Treaty attach so much importance to the prohibition of discrimination. The fundamental purpose of the Treaty is to achieve an integrated economy in which factors of production, as well as the fruits of production, may move freely and without distortion, thus bringing about a more efficient allocation of resources and a more perfect division of labour. The greatest obstacle to the realisation of that objection was the host of discriminatory rules and practices whereby the national Governments traditionally protected their own producers and workers from foreign competition. Although the abolition of discriminatory rules and practices may not be sufficient in itself to achieve the high level of economic integration envisaged by the Treaty, it is clearly an essential pre-requisite.

11. .....the prohibition of discrimination on the grounds of nationality is also of great symbolic importance, inasmuch as it demonstrates that the Community is not just a commercial arrangement between the Governments of the Member States but it is a common enterprise in which all citizens of Europe are able to participate as individuals.”

VI

THE SOLICITOR GENERAL’S SUBMISSIONS AS TO THE LAW

The Solicitor General made a number of submissions as to the law and it is convenient if we record them and our response.

(1) Mere breach of Community law by a national legislative act will not be enough to fix the State with liability for damage caused thereby. Something else is required. We agree.

(2) The liability is fault based. This submission contains inherent ambiguities in as much as the concept of fault is too uncertain to be of any assistance. If the submission is intended to imply that no liability for compensation can be attached to the State unless the State deliberately intended by its act to do something which it knew was undoubtedly against Community law we reject it.

(3) If the relevant provision of Community law is not clear then no liability for compensation can be attached to the State. We do not accept this proposition although we accept that lack of clarity is a relevant factor. We note that the ECJ in Article 177 reference R v HM Treasury, ex p. British Telecommunications plc [1996] ECR 1-1631 indicated that it had all the necessary information to assess whether the facts must amount to a sufficiently serious breach of Community law to justify an award of compensation in principle. The ECJ in that case held that because of a number of factors including the lack of clarity of the relevant Community law provision the facts could not amount to a sufficiently serious breach [3]. In the present case the ECJ did not follow that course either in relation to the nationality condition breaches or in relation to the breaches related to the residence and domicile conditions. From that it is legitimate to deduce that in the opinion of the ECJ either the relevant Community law provisions did not lack clarity or the Solicitor General’s submission that mere lack of clarity will prevent the attachment of liability is wrong.

(4) Where the view of the law which was held by the Member State was one which could reasonably be held then no liability could attach. We disagree although we accept that the fact, if it be a fact, that the State held a view which could reasonably be held, is a relevant factor when deciding whether to attach liability. If the ECJ had considered that this factor was a decisive one and that the view of the law allegedly held by the Government was one which could reasonably be held, it seems probable that it would have indicated to the national court that all it needed to do was to establish whether in truth the Government held that view. The ECJ judgment gives no hint that this was the opinion of that court.

(5) The Commission’s view as conveyed to the Government was not legally conclusive of the question whether or no liability should attach. We agree. Again, it is however a highly relevant factor.

The applicants placed particular weight upon the attitude expressed by the Commission. We think they were right to do so. The fact that a Member State proceeds in a way which conflicts with the opinion of the Commission as to what is lawful does not mean that the conduct of a Member State, which is subsequently held to be contrary to Community law, must necessarily be categorised as serious. However having regard to the Commission’s role in the Community, any Member State should regard the views of the Commission as being worthy of great respect. A Member State always has the choice between proceeding on its course despite the opinion of the Commission or deferring action until the legality of what is proposed has been clarified. If a Member State adopts the former course and it subsequently transpires that this was a course which should not have been followed, the fact that the Commission’s advice has not been followed, strengthens the case of those who seek damages for the loss which they have suffered. We share the approach of the Divisional Court that:

“Where there is doubt about the legality of any proposal, a failure by a Member State to seek the views of the Commission or, if it receives them, to follow them is likely to lead to any breach being regarded as inexcusable and so manifest.”

VII

APPLICATION OF THE PRINCIPLES

The Solicitor General drew our attention to a number of matters which he submitted militated against the imposition of liability on the United Kingdom.

(1) The CFP was a Community policy which was intended to safeguard up to a point existing fishing interests. It appeared inherent in the very concept of national quota that Member States had a right to establish nationality criteria to determine who could fish against that quota. There was a tension between the prohibitions on discrimination in the Treaty and the Community’s desire to safeguard existing interests.

(2) The attribution of nationality to people and vessels was something not specifically regulated under Community law. It was reasonable to suppose that Community law simply required Member States not to discriminate between vessels flying the flag of any Member State.

(3) In its legislative activity in the present case there was a fair amount of discretion which, on any basis, was left to the United Kingdom. The position was different from that which appertained for instance when a Community Directive gave a date by which its provisions were to be transposed into domestic law. In such a case, there was a discretion as to the date of transposition but there was no discretion to do this after the date specified in the Directive.

(4) Without the benefit of hindsight it was not obvious that the ECJ would rule as it did. A number of other Member States supported the stance taken by the Government of the United Kingdom.

(5) The Divisional Court found that the Government had acted in good faith and did not intend to breach Community law.

(6) The Government took and (up to a point, at any rate) acted upon qualified legal advice.

In our judgment a breach can be manifest and grave so as to make it sufficiently serious without it being intentional or negligent. The lack of the intention to commit the breach or negligence or fault are relevant circumstances but their presence is not a condition precedent to a breach being sufficiently grave or manifest. The seriousness has to be judged objectively taking into account all the relevant circumstances, which include the circumstances identified by the ECJ in Factortame lll . At the end of the day the Court must come to a judgment as to whether the case before it is an appropriate one in which to permit the applicant before it to claim damages against the State for its legislative activity.

In a case in which the legislative discretion of a Member State is involved, as here, so as to avoid an excessive chilling factor defeating that discretion, a basket or global approach, involving weighing the relevant considerations is the required approach. Nonetheless, where what is relied on in support of an application for damages is a direct breach of the fundamental principle of the Treaty forbidding discrimination on grounds of nationality that will almost inevitably create a liability for damages. Whether intentional or not, such a breach is inexcusable in a case, such as this, where it is not suggested that the exceptions in Articles 55 and 56 which apply to the right of establishment granted by Article 52 have any relevance. While giving weight to the points made by the Solicitor General we consider that looking at the position overall it would not be right to deprive the respondents of a remedy for the wrong which has been done to them. In adopting this view, we regard ourselves as merely applying the approach clearly laid down by Factortame III . We do not find it necessary to rely on the opinion of the Advocate General van Gerven in Mulder v The Council and Commission 1992 ECR 1/306 paragraph 16 p.3104, though that opinion is supportive of our conclusion.

Our decision as to the nationality condition means that there is a liability to pay damages during the period from the coming into force of the 1988 Act until 2 November 1989 when it ceased to have effect. For this period we see no cause to distinguish between the three conditions. They are cumulative and it would be artificial to distinguish between them.

However, thereafter the only conditions capable of causing damage were the domicile and residence conditions. In the course of the hearing before us the Solicitor General did not seek to disturb the finding of the Divisional Court that the domicile condition is to be equated with the nationality condition. It seems to be implicit in that concession that if, as we find, there ought to be a remedy in damages in relation to the nationality condition whilst it was in force there ought equally to be a remedy in relation to the domicile condition whilst it was in force - namely throughout the period ending with the granting of the interim injunction by the House of Lords.

Since (so far as we have been informed) none of the individual applicants satisfied the domicile condition the question whether the imposition of the residence condition could had it stood alone have grounded liability in damages does not arise. However it may be useful if we give our views as to what the position would have been if it had stood alone.

We have already pointed out that in this case it is artificial to isolate the condition as to residence for separate treatment because the conditions were cumulative. In addition during the second period, when as a result of the President’s decision, nationality was no longer relevant the Secretary of State is faced with the difficulty that he had not regarded a requirement as to residence by itself as providing the necessary protection. This makes it difficult to justify the more limited requirement of residence by the need to protect the CFP. If the Secretary of State did not regard a condition of residence as capable of combating the problem it can hardly be justifiable as being necessary for that purpose. The Divisional Court pointed out the residence condition was intended to achieve by an indirect method the same result as was intended to be achieved by the nationality condition. The Divisional Court stated, “accordingly we can see no difference in principle between a breach of Article 52 created by the residence condition and one created by the nationality condition” (at p.516E).

We now know (because this has been determined by the ECJ), that the points relied on by the Government had no substance. However, as the Solicitor General protested in argument, neither he nor the Secretary of State should be “tortured with hindsight”. While this is right, by the earlier of the possible critical dates, that is the date when the new register came into force, and certainly by the second of those dates, that of the President’s decision, the Secretary of State ought to have been aware that the legitimacy of the 1988 Act was at least seriously open to question. By 31 March 1989 in the Divisional Court, Hodgson J had already expressed a preference for the arguments of the respondents although Neill LJ was neutral. Some support for Hodgson J’s approach had been provided by Bingham LJ. Furthermore during exchanges the Commission had indicated strong reservations as to the proposed action of the Government, which reservations had been confirmed by the letter of 28 March 1988. This had been followed by the letter from the Commission on 16 March 1989 which while focusing on nationality left open the position as to residence. But this provides little comfort for the Secretary of State since if he could not rely on his arguments as to nationality it was unlikely that the same arguments would assist him as to residence. While there were other factors from which Secretary of State could draw comfort, in general the tide, as time passed, was running with increasing force against him.

Having balanced the conflicting considerations we share the view of the Divisional Court that the indirect discrimination, which the requirement of residence involved, must, at least by 31 March 1989, be regarded as constituting a sufficiently serious breach for the purposes of attracting an entitlement to damages.

We think it desirable to say something of the position of Mr Yllera who operated Rawlings and Mr and Mrs O’Connor and their companies. The Divisional Court accepted that they have cause to complain about the way in which they were treated but this did not mean that they were deliberately targeted with a view to injuring them. Because this appeal is in any event bound to fail, it is not necessary for this court to go into the detail of their complaints. However we feel it right to reiterate the concern expressed by the Divisional Court. We would add that if there was any doubt about the seriousness of the breach committed by the Secretary of State, then the way in which these applicants were treated would undoubtedly increase the seriousness of the breach. Section 14(4) of the 1988 Act contained a power to dispense with the nationality requirement. It provided:

“(4) Where, in the case of any fishing vessel, the Secretary of State is satisfied that:

(a) the vessel would be eligible to be registered as a British fishing vessel but for the fact that any particular individual, or (as the case may be) each of the number of particular individuals, is not a British citizen (and is accordingly not a qualified person) and

(b) it would be appropriate to dispense with the requirement of British citizenship in the case of that individual or those individuals, in view of the length of time he has resided in the United Kingdom and been involved in the fishing industry of the United Kingdom.

The Secretary of State may determine that the requirement should be dispensed with; and if he does so, the vessel shall, so long as paragraph (a) above applies to it and any such determination remains in force, be treated for the purposes of this part as eligible to be registered as a British fishing vessel”.

Section 14(4) gave the Secretary of State a wide discretion to mitigate the effect of the nationality condition. The way that these respondents were treated illustrates that that discretion was not as a matter of policy operated in a way which concentrated its impact on those against whom the nationality condition should have been aimed, namely those engaged in quota hopping. While it could not be expected that general provisions of the 1988 Act should never affect the interests of individuals who did not deserve to be targeted, those individuals could at least expect that the Secretary of State would try and achieve a result which minimised the impact on them. Regrettably this does not appear to have happened. Instead what appears to have occurred is that those who had the responsibility for operating Section 14(4) lost sight of what had been the whole purpose of the section.

As in this court the respondents have reserved their position in relation to exemplary damages, there are no further issues with which we have to deal. We accordingly dismiss this appeal. We will at a later date consider the appeal of the applicants in relation to the order for costs made by the Divisional Court and ancillary matters.

[2] ....the Community shall, in accordance with the general principles common to the laws of member States, make good any damage caused by its institutions ....

[3] In an Article 177 reference the assessment of facts is in principle for the national court and the function of the ECJ is to give a preliminary ruling on the law. However, where the ruling on the law can on the admitted facts only result in one conclusion it is common practice for the ECJ to say so.