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You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Factortame Ltd, R (On the Application Of) v Secretary of State for Transport  UKHL 13 (11 October 1990)
Cite as:  AC 603,  3 WLR 818,  1 AC 603,  1 Lloyd's Rep 10,  1 All ER 70, (1991) 3 Admin LR 333,  UKHL 13,  3 CMLR 375
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[EUROPEAN COURT OF JUSTICE]
REGINA v. SECRETARY OF STATE FOR TRANSPORT, Ex parte FACTORTAME LTD. AND OTHERS (No. 2)
(Case C 213/89)
|1990 April 5; |
|President O. Due Presidents of Chambers Sir Gordon Slynn , C. N. Kakouris , F. A. Shockweiler and M. Zuleeg Judges C. F. Mancini , R. Joliet , J. C. Moitinho de Almeida , G. C. Rodríguez Iglesias , F. Grévisse and M. de Valacso Advocate General G. Tesauro |
[HOUSE OF LORDS]
|1990 July 2, 3, 4, 5, 9; 25; |
| Lord Bridge of Harwich , Lord Brandon of Oakbrook , Lord Oliver of Aylmerton , Lord Goff of Chieveley and Lord Jauncey of Tullichettle |
Solicitors: Chief State Solicitor, Republic of Ireland; Treasury Solicitor; Thomas Cooper & Stibbard.
[Reported by PAUL H. NIEKIRK ESQ., Barrister]
After the answers to the questions referred to the European Court of Justice had been received, the matter was reconsidered by the House of Lords.
On 9 July their Lordships made an order for interim relief for reasons to be given later.
The facts are set out in the opinions of Lord Bridge of Harwich and Lord Goff of Chieveley.
David Vaughan Q.C., Gerald Barling and David Anderson for the first to ninety-fourth applicants. There are three main issues in the substantive case (Reg. v. Secretary of State for Transport, Ex parte Factortame Ltd. (Case 221/89)) as referred to the European Court of Justice by the Divisional Court  2 C.M.L.R. 353: (a) would the applicants' basic Community law rights (in a field other than fishing) be contravened by nationality, domicile and residence requirements such as those in section 14 of the Merchant Shipping Act 1988? (b) Are these Community law rights removed in the context of registration of vessels by the rule of international law that a state may choose which vessels should fly its flag? (c) Are these Community law rights affected by the existence of the common fisheries policy? Hodgson J. in the Divisional Court found that the applicants had a “strong prima facie case” on each of the three. Bearing in mind both the factors that were before the Divisional Court and the subsequent legal developments, the applicants' case on the merits is nothing short of overwhelming.
As to (a), the relevant Community law rights are the right of establishment under articles 52 to 58 of the E.E.C. Treaty (Cmnd. 5179-II) and article 168 of and Annex XII to the Act concerning the conditions of accession of the Kingdom of Spain and the Portuguese Republic concerning the adjustments to the Treaties (“Act of Accession”) (1985) (Cmnd. 9634); the right to participate in capital (article 221 of the Treaty); the right not to be discriminated against on the grounds of nationality, a general principle that appears, inter alia, from articles 7 and 40(3) of the Treaty (see, e.g., Commission of the European Communities v. French Republic (Case 167/73)  1 E.C.R. 359).
It was conceded by the Secretary of State in the Divisional Court that Community law would prevent the enforcement of United Kingdom nationality, domicile and residence requirements as a condition for the entry of Community nationals to normal economic activities such as owning a fish and chip shop or operating a fleet of lake pleasure boats. As to the residence requirement, see the judgment of the European Court of 14 December 1989 in Reg. v. Ministry of Agriculture, Fisheries and Food, Ex parte Agegate Ltd. (Case C 3/87)  2 QB 151, which held a crew residence licence condition to be unlawful (paras. 22–26, at pp. 187–188). This must be true a fortiori of an investor/shareholder residence condition for registration. On the place of management and control restriction, the applicants themselves satisfy this restriction and accept that a member state may legitimately impose requirements that are necessary to ensure a “genuine link” between that state and its vessels. Accordingly, the restriction on the place of management and control in section 14 would be incompatible with Community law only to the extent that it was interpreted or applied in such a way as to exclude the possibility that any element of management, direction or control could exist in any other member state.
As to (b), the international law argument (that the requirement imposed by the 1958 Geneva Convention (Cmnd. 584) on the High Seas of a “genuine link” between states and vessels bearing their flag makes it necessary to limit the nationality, domicile and residence of the owners and directors and shareholders in owning companies) is untenable. If it were correct, the United Kingdom would itself have been in breach of the “genuine link” requirements for fishing vessels for the 30 years between the 1958 Convention and the Act of 1988 and would still be in breach of the requirement by not imposing the nationality, residence and domicile conditions on the owners of, and all those financially involved with, vessels other than fishing vessels. The point of the “genuine link” requirement is to ensure that a state has sufficient control over a vessel, principally for the purpose of ensuring safety with regard to such matters as signals, communications and the prevention of collisions, the manning and labour conditions of the crew and the construction, equipment and seaworthiness of the ships. The requisite jurisdiction and control would not be significantly assisted by the restrictions placed by the Act of 1988 on investors and company directors, many of whom will never have seen the vessel in question. Even if the restrictions could assist, it is not seriously arguable that they are necessary in order to avoid the British flag becoming a flag of convenience. The requirement of a genuine link could be much more easily ensured by restrictions relating to the vessel itself: the requirement of onshore representation in the flag state, for example, which forms part of the Commission's recommendation of 19 July 1989. The existence of less onerous methods of ensuring a genuine link renders the Act of 1988 restrictions disproportionate.
In any event, the 1958 Convention expressly provides, by article 30, that it is to be read subject to the provisions of international agreements already in force, which include the E.E.C. Treaty; the provision applies to the United Kingdom just as it does to other member states; and, as regards the obligations of member states inter se, Community law must, if necessary, be taken to prevail over conflicting provisions of public international law.
The international law argument was rejected on a prima facie basis by the European Court in Commission of the European Communities v. United Kingdom (Case 246/89 R)  E.C.R. 3125, (impliedly overruling, to the extent to which it was necessary to do so, the remark of Advocate-General Mischo in Reg. v. Ministry of Agriculture, Fisheries and Food, Ex parte Jaderow Ltd. (Case C 216/87)  2 Q.B. 193, 208 at paragraph 7 of his opinion).
As to (c), basic treaty principles prevail over the specific rules of the common agricultural policy (including the common fisheries policy unless articles 39 to 46 of the Treaty call for derogations either expressly or by necessary implication: article 38(2) of the Treaty. Articles 39 to 46 make no such express or implied call for derogations; indeed, article 40(3) reaffirms the general principle of non-discrimination in the specific context of the common agricultural policy. Secondary Community legislation cannot authorise derogations from the Treaty, but the secondary legislation in any case affords the Secretary of State no support. On the contrary, the secondary legislation confirms the applicants' contention that the common fisheries policy, far from being exempt from the basic principles of Community law such as the right of establishment, the prohibition of discrimination and the right to free movement of goods, is expressly subjected to each of them. Nor is it the case that the very existence of national quotas justifies discrimination on grounds of nationality, domicile and residence “by necessary implication” or otherwise. National quotas, even if established in part for the benefit of the fishermen of each member state, cannot justify discrimination in favour of company directors and investors, as provided for by the Act of 1988. And if the national quotas were established in part for the benefit of the traditional fishing communities of each member state, again the quotas cannot justify as “necessary” the discrimination contained in the Act of 1988. The Act has no regard to whether or not a person is involved in the indigenous fishing industry. There is no correspondence in practice or in theory between financial involvement in the applicants' vessels (which cost about £1m. to build) and membership of a traditional fishing community. (c) The Act does nothing to help British fishermen or traditional fishing communities. Indeed, it has disadvantaged many of them by forcing the laying-up of boats that had been involved in the British fishing industry for years, with consequent unemployment and hardship of United Kingdom residents (including Britons) referred to in the affidavit evidence and accepted by all courts; and by restricting the access of the British fishing industry to foreign capital.
In any event, the common fisheries policy is concerned solely with the management of quota stocks in Community waters. It could not justify a measure that, by placing restrictions on the registration of a boat rather than on the grant of quota stock licences, extends to all fishing vessels, including those which fish for non-quota stocks and those which fish outside the Community 200-mile limit.
The following relevant legal developments since the judgment of the Divisional Court further strengthen the applicants' case.
(a) It has always been known that 42 of the applicants' vessels have always been British flag vessels and that 36 of them were part of the United Kingdom fleet during the period 1973–78, the reference period for the allocation of national quotas introduced in 1983. It came to the notice of the applicants' solicitors only in April 1989 (after the hearings in the Divisional Court and the Court of Appeal) that a further 43 of the applicants' vessels were explicitly accorded rights as “joint venture vessels” by virtue of article 168.4 of, and Annex XII to, the Act of Accession (1985) (Cmnd. 9634). On 12 June 1985, the date of signature of that Act, all those 43 vessels (ex-Spanish-flag boats that had transferred to the British flag before 1983) were registered as British fishing vessels fishing against United Kingdom quotas. The Act of Accession thus gave the applicants additional and specific Community rights with Treaty status. The allegation of “quota-hopping” is also seen as particularly unjust when 42 of the 95 vessels have never been anything other than British, and when a further 43 transferred to the British flag before quotas were introduced in 1983. It should also be remarked that the European Court decided to give interim relief in Commission of the European Communities v. United Kingdom (Case 246/89 R) without the Commission being aware of or having relied on the presence of the 43 vessels in Annex XII to the Act of Accession.
(b) By interim order in Commission of the European Communities v. United Kingdom the President of the European Court, having seen and heard written and oral argument by the Solicitor-General on behalf of the United Kingdom, acceded to the Commission's application for suspension of the nationality requirement in section 14 of the Act of 1988 pending judgment in the main proceedings (Case 246/89). In opposition to the Commission's application, the United Kingdom raised both the international law defence (remarking that the conditions corresponded to those imposed by other member-states) and the common fisheries policy defence. The President considered that the requirement of a prima facie case had been satisfied to the standard required for the grant of interim relief in the European Court. His order, however, has even greater significance in that (i) he applied the usual prima facie case/balance of interests test of the European Court, very similar to that in American Cyanamid Co. v. Ethicon Ltd.  AC 396, without modifying it because he was dealing with the primary legislation of a member state (see, also, the indication by Mr. Advocate General Tesauro in paragraphs 30–34 of his opinion (ante, pp. 637–640) that a prima facie test was appropriate in the national court); and (ii) the President did not confine himself (as would have been sufficient under the case law of the court) to the question whether the Commission had a prima facie case. He expressed the provisional view that the Commission had much the stronger case by referring to there being no basis on which he thought that the United Kingdom's argument might be upheld and saying separately with regard to each defence that there was “nothing” before him to suggest that the United Kingdom had a prima facie case. His order accordingly provides the best guide that is ever likely to be available on an interim basis to the probability of success of a substantive action that has been referred by a United Kingdom court to the European Court. (c) The Agegate case (Case C 3/87)  2 QB 151 and the Jaderow case (Case C 216/87)  2 Q.B. 193 are not directly in point since they concern the validity of licence conditions rather than the validity of conditions for the registration of vessels. Nonetheless, the judgments are relevant in the following respects. First, the court in Agegate struck down the United Kingdom licence condition that 75 per cent. of the crew must be ordinarily resident in the United Kingdom:  2 QB 151, 187–188, paras. 22–26. The court started from the presumption that the residence requirement was discriminatory and held that it could not be justified by the aim of the quota system. If residence requirements cannot be justified for fishermen, the same must be true a fortiori of residence and domicile requirements imposed on owners, shareholders, directors and financial backers, who are at least one remove from the fishermen themselves: see Commission of the European Communities v. Kingdom of Belgium (Case 221/85)  E.C.R. 719. per Mr. Advocate General Lenz, point 35, p. 733. Secondly, the court in Jaderow held that member states were justified in taking certain types of measure to ensure that a vessel had a “real economic link” with a member state:  2 Q.B. 193, 221–222, paras. 21–27. The “economic” link has a different purpose in the context of licence conditions from its purpose in the context of registration. The European Court took a very narrow view of the permissible “economic links” that could be imposed as licence conditions, insisting that they concerned only the relations between a vessel's fishing operations and the populations dependent on fisheries and related industries:  2 Q.B. 193, 224–225, paras. 42–44. This points to a similarly narrow view of the extent to which an economic link may be imposed as a condition of registration.
Although the Divisional Court  2 C.M.L.R. 353 found it necessary to refer the substantive issues to Luxembourg (Case 221/89), it is possible to say with a high degree of certainty (should this be necessary at the interim stage) that the applicants are the probable winners. Particularly helpful in this respect are the matters before the Divisional Court, which led Hodgson J. to the conclusion that the applicants had a strong prima facie case on all three main areas of contention; the wholehearted intervention of the Commission in support of the applicants in Case 221/89, when the Commission (unlike the member states that intervened on both sides) had no vested interest; the subsequent judgment in Agegate, which must render the residence condition in section 14 of the Act of 1988 almost impossible to defend; and the interim order of the European Court, made after hearing arguments identical to those advanced by the Secretary of State in this case, which confirmed not only that the applicants had a prima facie case but also, it would seem, that the Secretary of State had not.
The Secretary of State's arguments as to discretion (see  2 AC 85, 118–119) are all “blockers” under another name: they are to the effect that there can be no injunction against the Crown or against an Act of Parliament. [Reference was made to Garden Cottage Foods Ltd. v. Milk Marketing Board  A.C. 130, 136–137.]
Absent the “constitutional enormity” referred to by Bingham L.J. in the Court of Appeal  2 C.M.L.R. 353, 407 — but there are enormities both ways — the Divisional Court and Court of Appeal judges were all one way on the question of discretion, and the course for the House of Lords should be to restore their order. [Reference was made to the Merchant Shipping Act 1988 (Amendment) Order 1989 (S.I. 1989 No. 2006), art. 3.]
National rules, whether obligatory or discretionary, have now, in the light of the European Court's judgment, to be set aside. The applicants are entitled to have their appeal allowed and the order of the Divisional Court reinstated or some other like order made.
Nicholas Forwood Q.C. for the ninety-fifth applicants, Rawlings (Trawling) Ltd. The ninety-fifth applicants endorse everything that has been said on behalf of the first to ninety-fourth applicants as regards general considerations in relation to the European Court judgment and the general consequences. It follows that the Divisional Court was right, in the situation then before it, to exercise its discretion to grant interim relief.
The factors specific to the ninety-fifth applicants are that they are currently fishing and an application by them to be put on the register has been granted. They seek now to be put in the same position as the other applicants. The relief currently being sought by all applicants would remove the effects of the restriction as regards both nationality and domicile. The ninety-fifth applicants want that removal, which might benefit them. Public interest considerations clearly have no application in their case: they are acknowledged not to be part of the mischief.
Sir Nicholas Lyell Q.C., S.-G., John Laws, Stephen Richards and Andrew Macnab for the Secretary of State. The European Court in the instant case did not decide that the national court was obliged to grant interim relief in the circumstances set out in the House of Lords' question, nor did it specify what criteria should be applied in determining whether such relief should be granted. It left to the national court the questions what criteria should be applied; whether any interim relief should be granted; and, if so, on what terms it should be granted; but it ruled that, once the national court had decided that such relief should be granted but for a jurisdictional rule that prevented it from doing so, the national court must set aside any such jurisdictional rule. It adopted a “minimalist” approach: it simply said that there must not be a national rule that prohibited the exercise of discretion. It did not say that the national court must exercise the discretion in the applicant's favour. It did not say that there must be a remedy. One should not draw more from Amministrazione delle Finanze dello Stato v. Simmenthal S.p A. (Case 106/77)  ECR 629 than is warranted.
The House of Lords is, therefore, now required to address the question of fundamental importance, that was left outstanding in its previous judgment  2 AC 85, namely, what considerations the courts must take into account in granting interim relief that includes setting aside the provisions of an Act of Parliament and is contrary to the rule that no injunction may be granted against the Crown. The House of Lords is obliged to rule on the criteria and considerations to be applied in deciding whether to grant interim relief, and on the application of those considerations to the facts as they now stand. The House of Lords must look at the facts and law as they stand today. Any decision by it would irrevocably determine the position in the period until the European Court rules on the substantive issue. The legal considerations are of fundamental importance because the new powers conferred on the courts are of great significance and guidance on the exercise of such powers is necessary.
In an ordinary case, the purpose of an interlocutory injunction is clear: to “hold the ring,” or preserve, as best the court may, the position of both parties until their rights or obligations are established at trial: see American Cyanamid Co. v. Ethicon Ltd.  AC 396, 406D–F and Reg. v. Secretary of State for Transport, Ex parte Factortame Ltd.  2 AC 85, 139E–H. In the present case, no question of “holding the ring” can possibly arise: see  2 AC 85, 142G — 143B. The consideration differentiating the present case from what is the usual situation in applications for interim relief is not, however, merely a function of the particular facts in play in the present case. Whenever an applicant claims that he has Community legal rights that are denied him by a United Kingdom statute (or subordinate legislation), and there is an article 177 reference on the question, any grant of interim relief pending the ruling of the European Court will entail, at least, (a) that the claimant, during the interim period, may enjoy the right he claims as if it were already established, whereas it is merely putative; and (b) that the legal position that the legislature (whether sovereign or secondary) intended to establish, which is likely to involve the grant of rights to others, will be to some extent abrogated. Neither (a) nor (b) can be described as a merely provisional position, capable of being recalled or corrected on the delivery of final judgment. Neither the claimant's enjoyment (for the interim period) of his claimed right, nor the abrogation (for the same period) of the legislature's effects, can be recalled. This is not merely a proposition of fact: unless the case is one in which a cross-undertaking in damages could sensibly be required (which here, and in perhaps all cases, it could not), it is a necessary truth. Thus, the effect of the interim order is actually to grant final relief in relation to the period up to judgment, and in a case like the present that final relief will diminish the value of the rights of persons that are in no sense putative but vested and undeniable.
The issue in the substantive proceedings in a case like the present is one of law, not fact: see  2 AC 85, 140B–F. It follows, therefore, that the ultimate decision of the case will not depend on proof of facts that are at present unresolved and as to which the court at present lacks the material to form any confident view. Where, as in the ordinary case, that is the position, the court has no interest in going on the basis that one side's account of the facts is more likely to turn out to be right than the other's: it simply recognises that there is a serious issue to be tried and proceeds to judge the balance of convenience. That is a natural and appropriate exercise in such circumstances.
If on the application for interlocutory relief the court is by contrast presented, as it will always be in cases like this, with two views of the law between which it cannot then and there finally decide because the question is being referred under article 177, wholly different considerations arise. The court in deciding whether to grant interim relief is bound to choose between two alternative positions: either the applicant's contention as to the law is in the meantime to be treated for all the world as being correct, or the respondent's contention is to be so treated. The question, therefore, that it has to answer is as to which legal régime shall prevail until final determination of the issue. In the ordinary case, however, the court is not faced with the question of what facts are to be assumed to be true in the meantime. It makes no such assumptions. It follows that there is an issue of principle as to what the court's approach should be in deciding which legal régime to validate on an interim basis, and the jurisprudence concerning interlocutory injunctions in the typical case affords no guidance on the question.
There is, in general terms, an elementary public interest in seeing that statute law (whether primary or secondary) is upheld. As a function of this, it is a settled principle of English law that a legislative act, proper in form, enjoys a presumption of validity: Smith v. East Elloe Rural District Council  AC 736 and F. Hoffmann-La Roche & Co. A.G. v. Secretary of State for Trade and Industry  A.C. 295. This is a factor that has no analogy in the ordinary case of interlocutory relief: there is no presumption that what a defendant in a private law suit has done (or intends to do) to the plaintiff is legally justified. The approach to the position that may potentially arise on a domestic law challenge to the vires of a statutory instrument (in which no issue of Community law arises) is grounded on well settled principles, none the less so because it is a different approach than that propounded in American Cynanamid Co. v. Ethicon Ltd.  AC 396 in relation to private law litigation. There is then the question whether there should or might be any different approach where the complaint is that legislation, whether primary or secondary, is on its face inconsistent with Community law. There can be no basis for a distinction in principle between the two cases. All the factors that militate against any interim relief against a statutory instrument apply with at least equal force to the European case. The presumption of validity does not deprive the court of jurisdiction to grant interim relief against a legislative measure, since such a position is contradicted by the recent ruling of the European Court; but the public interest reasons that underlie that presumption speak loud as to the proper approach of the court to its discretion, now vouchsafed by the European Court, whether to grant such relief.
The principles that the court should apply in a case like the present are as follows. (1) The factors pointing against the grant of relief, which are of systematic and not merely contingent application, are so strong as to give rise to a principle that the court will presume against the grant of relief. Exceptional circumstances will have to be shown if the presumption is to be set aside.
(2) Proof that the applicant will, absent an injunction, suffer irrecoverable damage cannot of itself amount to an exceptional circumstances. Such irrecoverable damage can only exist on the premise that the applicant's substantive contention as to the law is to be taken as correct: if it is not correct, he has suffered no damage cognisable in law. (3) The court must at least be satisfied that the applicant's substantive case is more likely to be right than the respondent's. If the matter is evenly balanced, or the respondent's case appears stronger, the measure under challenge should be left in place until final trial: this does no more than recognise that the public interest ordinarily requires legislation to be presumed to be valid.
(4) The court must be especially slow to grant interim relief since its effect is to dispose finally of the rights of the parties in relation to the period elapsing before the European Court gives its ruling: the true position is that, if the relief is granted, then whatever the European Court rules, there will never be a trial that will affect the question whether the applicants may be allowed to enjoy, at the expense of others, the rights that they claim in respect of that period. This is fundamentally different from the situation that obtains on the grant of an interlocutory injunction in the ordinary case, where the plaintiff gives a cross-undertaking in damages. There, in the eye of the law, the defendant's putative legal right, apparently overborne by the injunction, is preserved by the undertaking. The undertaking is as good as the right itself and represents it: there is no finality.
(5) The court should take into account the attitude of the Commission to its own discretion to bring infraction proceedings under article 169 and to seek interim measures under article 186. It is made the guardian of the treaty under article 155.
(6) The usual factors relevant to the exercise of the court's discretion to grant interim relief, such as the requirement of clean hands, apply at least with equal force in this context. In particular, where a mandatory order is sought, the court will generally be slow to grant it: see, for example, Locabail International Finance Ltd. v. Agroexport  1 W.L.R. 657, 664A–D.
(7) In so far as any balance falls to be struck, the court must be satisfied that the consequences for the applicants if no relief is granted would be so much graver than the consequences to those with established rights if relief is granted as to amount to a wholly exceptional cicumstance, and even then relief should not be given unless the court firmly concludes that the public interest in maintaining the measure in effect until final judgment should take second place.
Fifteen months have elapsed since the judgment of the Divisional Court of 10 March 1989, and the legal and factual situations are now materially different. It would be wrong in principle for the court to close its eyes to such developments when considering the exercise of a discretion to grant interim relief. As to factual developments, reliance is placed on additional affidavit evidence sworn on behalf of the Secretary of State. The evidence shows that an interim order in favour of the applicants would seriously interfere with the exercise of vested and undeniable rights enjoyed by the operators of genuine British fishing vessels and would cause the British fishing fleet serious and uncompensatable damage. As to the introduction of fresh evidence, see Garden Cottage Foods Ltd. v. Milk Marketing Board  A.C. 130, 137E–G.
As to the legal developments, the “nationality” issue is no longer a live one for the purposes of the present application, since the Act of 1988 was amended with effect from 2 November 1989 in order to give effect to the interim Order of the President of the Court of Justice in Commission of the European Communities v. United Kingdom (Case 246/89 R)  E.C.R. 3125. So far as concerns the issues of “residence” and “domicile,” the substantive arguments, including those concerning the competence of a member state to determine who can fly its flag, are similar to those that arise in respect of “nationality,” though it should be stressed that the United Kingdom's substantive arguments on “nationality” continue to be pressed in the main proceedings before the European Court. The judgment of the European Court in Reg. v. Ministry of Agriculture, Fisheries and Food, Ex parte Agegate Ltd. (Case C 3/87)  2 QB 151 does not undermine the United Kingdom's case. So far as the issue of “direction and control” is concerned, the Crown's case is supported by the judgment of the European Court in Reg. v. Ministry of Agriculture, Fisheries and Food, Ex parte Jaderow Ltd. (Case C 216/87)  2 Q.B. 193, which held, inter alia, that a member state was entitled to require a vessel to have a real economic link with that state for the purpose of fishing against that state's quotas. The precise significance of the judgments in Agegate and Jaderow is a matter of dispute and remains to be determined, and the European Court has yet to make a substantive ruling on the specific issues raised in the present case. Accordingly, great caution needs to be exercised in the use of those judgments.
The United Kingdom's arguments in the main proceedings still pending before the European Court included the following. Community law does not affect the sovereign right of a member state to lay down the conditions for the grant of its flag to ships. The requirements laid down in the Act of 1988 govern access to the British flag. The purpose of Part II of the Act was to ensure that (i) British fishing vessels had a real economic link with the United Kingdom; (ii) the United Kingdom was able to exercise effective jurisdiction over vessels flying its flag; (iii) the United Kingdom quotas granted under the common fisheries policy enured to the benefit of the genuine British fishing fleet.
The grant of the flag gives rise to legal and international obligations. It (a) engages the state in question in real and far-reaching international obligations and (b) asserts the jurisdiction of that state over the ship and those on board in civil, criminal, operational and employment matters: see article 94 of the 1982 Convention on the Law of the Sea. Similar provisions apply, mutatis mutandis, to aircraft. The grant of the flag is intrinsically an act of sovereignty, and, in the absence of any express provision in the Treaty and any power for the Community to assume direct legal and international responsibility for vessels registered in the member states, it is not to be presumed that the Treaty interferes with the exercise of a state's sovereign power.
Customary international law, as expressed in article 5(1) of the 1958 Geneva Convention on the High Seas, requires a genuine link between a vessel and the state whose flag it flies. The nationality of owner criterion is a means of ensuring a genuine link between the vessel and the state whose flag it flies. Such a criterion is recognised in international law: article 5(1) of the 1958 Geneva Convention on the High Seas and the commentary thereon by the International Law Commission, the corresponding provision in the 1982 United Nations Convention on the Law of the Sea and article 8 of the 1986 Convention on Conditions for Registration of Ships. The other requirements, e.g. as to residence, of the Act of 1988 seek to reinforce the genuine link. Community law does not take precedence over customary international law (cf. article 234 of the Treaty); rather, customary international law is a source of Community law: van Duyn v. Home Office (Case 41/74)  ECR 1337, 1350–1351.
The principle of non-discrimination in article 7 of the Treaty presupposes the existence of the concept of nationality. The attribution of nationality necessarily involves differentiation among persons connected with member states. Article 7 does not prevent a member state from deciding who is eligible to be its nationals or from deciding which vessels or aircraft are able to fly its flag. The grant of the flag does not impede the right of establishment under article 52. In merchant shipping generally, nationals of, or companies controlled by nationals of, other member states can be fully established in the United Kingdom operating vessels under their flag of origin. The same is true of fishing save that fishing activities cannot be carried on with access to the United Kingdom fishing quotas established under the common fisheries policy. The grant of the flag is not within the recognised categories of establishment: no mention of it is made in the General Programme for the abolition of restrictions on freedom of establishment (Official Journal 1962 No. 36). The right of establishment includes the right of secondary establishment, i.e., to have more than one establishment: Ordre des Avocats au Barreau de Paris v. Klopp (Case 107/83)  Q.B. 711;  E.C.R. 2971. In the case of the flag, such a right would be absurd. Community law does not allow persons to invoke article 52 for reasons that are not legitimate under Community law. To seek to rely on article 52 to evade and/or exploit the quota system under the common fisheries policy is an abus de droit: see, by analogy, Reg. v. Her Majesty's Treasury, Ex parte Daily Mail and General Trust Plc. (Case 81/87)  Q.B. 446, opinion of Mr. Advocate General Darmon and judgment. If articles 7 and 52 did render illegal the registration conditions in the Act of 1988, including the nationality of owner criterion, that would have startling consequences for maritime and air transport generally. It would render otiose the transitional provisions in Council Regulation (E.E.C.)No. 4055/86 (Official Journal 1986 No. L.378/1) on phasing out national flag reservations for the maritime carriage of goods between member states and between member states and third countries. National airlines of member states would be able to obtain the flag of all other member states and then be eligible to operate internal air services within each member state on the same conditions as local airlines. This would undermine the purpose of article 61 of the Treaty.
It is settled law that the quota system constitutes a permitted derogation from the principle of equal access: Romkes v. Officier van Justitie for the District of Zwolle  E.C.R. 2671 and Jaderow  2 Q.B. 193, 221–222, para. 24. The registration rules in the Act of 1988 are intended to prevent abuse of the freedoms of the Treaty to gain unfair advantage of the Community quota system, which is designed to protect the local fishing communities of each member state. The long and arduous negotiations leading up to the quota system established by Council Regulation (E.E.C.)No. 170/83 were based on the legitimate expectation that the concepts of “flying the flag” or “registered in a member state,” which are not defined in the E.E.C. Regulations, would remain within the competence of the member states, who would continue to be free to lay down rules on access to the flag in conformity with international law. Thus the quota system would not be undermined.
The preliminary points in Agegate  2 QB 151 and Jaderow were specifically concerned with the powers granted to member states under article 5(2) of Council Regulation (E.E.C.)No. 170/83 to adopt licensing conditions governing the pattern of operation of a fishing vessel. The European Court did not have to address its mind to rules on access to the flag. In particular, no consideration was given to the question whether the establishment of the quota system by reference to the concept of “flying the flag” and “registered in a member state” meant that member states had lost their right under international law to determine registration rules of fishing vessels. It was made clear by the court in both cases (see paragraphs 17 and 18 of the judgment in Jaderow, at p. 220, and paragraphs 16 and 17 of the judgment in Agegate, at p. 187) that national quotas were linked to vessels flying the flags of the member states in question and that the licensing conditions being discussed were those that might be attached to the licence to fish granted to vessels in the fishing fleet of the member state. They were, therefore, licensing conditions attached to those already entitled to fly the flag. It is important that there should be a real link with the member state so as to ensure that quotas are realistic and to make policing more real. It is easier to police people whose genuine base is in the member state.
The right of member states to lay down their own registration rules in a manner compatible with international law was an essential foundation of the common fisheries policy. Were it otherwise, the whole basis of the policy would be destroyed. The requirements of residence, domicil and direction and control are essential to ensure the real economic link, and are encompassed within the same general arguments. Nationality in itself would not always ensure that there is a real economic link between the vessel and its flag member state. The residence, domicil and place of direction and control requirements do not discriminate on grounds of nationality. A member state is entitled to impose residence requirements if they are for a legitimate purpose: Robert Fearon & Co. Ltd. v. Irish Land Commission (Case 182/83)  E.C.R. 3677.
The order for which the applicants contend, if ultimately upheld at trial, produces the result that it would be the obligation of the United Kingdom, and of every member state, to be prepared to register as a fishing vessel any vessel owned by any member of the Community notwithstanding where he resided, managed the vessel and directed and controlled it. Fishermen would thus have an unrestricted right to choose under which flag to fish. That would undercut the whole common fisheries policy with regard to sharing out available stocks.
Vaughan Q.C. in reply. F. Hoffmann-La Roche & Co. A.G. v. Secretary of State for Trade and Industry  A.C. 295 was an interlocutory case. It was not in a state for anyone to make a decision. Here, the matter came on for final trial. It would be wrong to bring in a higher standard than in other cases to deal with a Community matter of this nature. The burden should not be put too high on the applicant in a Community law case. [Reference was made to Smith v. Inner London Education Authority  1 All E.R. 411; Sierbien v. Westminster City Council (1987) 86 L.G.R. 431 and Films Rover International Ltd. v. Cannon Film Sales Ltd.  1 W.L.R. 670.] Here, the Divisional Court found that the damage and injustice would be all one way. Bingham L.J. in the Court of Appeal  2 C.M.L.R. 353, 405, said that the case for granting interlocutory relief was “very strong, if not overwhelming.” It is not necessary, in that case, to weigh the applicants' chances of success too nicely. As to injustice, the obtrusiveness of the order sought (e.g. an order to pull a house down) is also relevant: see Films Rover. It is prima facie contrary to Community law to have these requirements.
It is clear that those who have gone fishing have done so out of desperation. Their irreparable losses will be overwhelming. They are very unlikely to get a decision from the European Court in the substantive proceedings before Easter 1991.
As to the Secretary of State's seven principles, this case is different from the ordinary American Cyanamid case  AC 396, but the proper place in which to take this into account is in the balancing exercise. It is exceptional to grant relief in this sort of case, but this does not mean that it cannot be granted. The court should look at Locabail International Finance Ltd. v. Agroexport  1 W.L.R. 657 in the light of Films Rover, not just by itself. The principles are put much too high; as they stand, it would be almost impossible for anyone to get any protection. The real questions are whether there is irrecoverable damage, whether the applicants can be protected in any way and how this is to be done. Under the European Court judgment, the principle to be safeguarded is that of full effectiveness from the moment of application.
Applicants' costs in Court of Appeal, European Court and House of Lords to be costs in cause.
Cause remitted to Queen's Bench Division.
Solicitors: Thomas Cooper & Stibbard; Thomas Cooper & Stibbard; Treasury Solicitor.
The permission for BAILII to publish the text of this judgment was granted by:
Incorporated Council of Law Reporting for England & Wales
Their assistance is gratefully acknowledged.