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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Secretary of State for Defence v Elias [2006] EWCA Civ 1293 (10 October 2006)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2006/1293.html
Cite as: [2006] 1 WLR 3213, [2006] IRLR 934, [2006] EWCA Civ 1293

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Neutral Citation Number: [2006] EWCA Civ 1293
Case No: C1/2005/1548 & C1/2005/1554

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
ADMINISTRATIVE COURT
MR JUSTICE ELIAS
CO/5181/04
AND
ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT
HHJ HARRIS
CLAIM No: 5CL12683

Royal Courts of Justice
Strand, London, WC2A 2LL
10th October 2006

B e f o r e :

LORD JUSTICE MUMMERY
LADY JUSTICE ARDEN
and
LORD JUSTICE LONGMORE

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Between:
SECRETARY OF STATE FOR DEFENCE
Appellant
- and -

MRS DIANA ELIAS
Respondent

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(Transcript of the Handed Down Judgment of
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____________________

MR PHILIP SALES & MR MARTIN CHAMBERLAIN (instructed by the Treasury Solicitor) for the Appellant
MR RABINDER SINGH QC, MS HELEN MOUNTFIELD, MS CLAIRE McCANN & MR JOHN HALFORD (instructed by Bindman & Partners) for the Respondent

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HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    Lord Justice Mummery :

    Litigation overview

  1. This is no ordinary race discrimination case. The setting is an application for judicial review of common law powers exercised by the Secretary of State for Defence (the Secretary of State) to set up an ex gratia compensation scheme. There are grave allegations, responsibly made, of abuse of power and serious maladministration by the Secretary of State involving direct, as well as indirect, race discrimination. Exemplary damages are claimed for alleged oppressive, arbitrary or unconstitutional action by public officials. Aggravated damages are claimed for alleged high-handed, trivialising, insulting and thoughtless behaviour towards a vulnerable citizen.
  2. Some of the arguments criticising executive action are unjustified, but the occasion for making them ought never to have occurred. For all those concerned about sound standards of administration, prudence in the handling of taxpayers' money and State compliance with principles of equal and fair treatment of individuals some aspects of this affair are troubling. It is fully appreciated that officials are sometimes over-pressured and under-resourced in the conduct of public affairs. The decisions that they have to make are sometimes more difficult than is generally understood. This is, however, a case in which more time should have been given to careful thought, detailed discussion, relevant consultations and responsible planning before the launch of a well-intentioned humanitarian scheme for the ex gratia distribution of hundreds of millions of pounds from public funds. The result of inadequate preparation has been an embarrassing administrative and legal muddle, personal pain, charges of incompetence, costly litigation and political apologies, accompanied by inquiries, investigations, reports, hearings and reviews. A cloud has been cast over what many people would agree was an honourable act of public benevolence.
  3. Challenge to the Compensation Scheme

  4. The claimant, Mrs Diana Elias, is in her early 80s and lives with her disabled eldest son. She is a British subject, as were both of her parents (and, she claims, her grandparents); but she was not born in the United Kingdom; nor were her grandparents, or her parents, who were both Jewish, her mother from Iraq and her father from Iraq or India. Mrs Elias and her family took great pride in being British subjects.
  5. Mrs Elias was born in Hong Kong in 1924. She was there when the Japanese forces invaded in 1941. During the Japanese occupation from 1941 till 1945 she was interned by the Japanese in Stanley Camp, Hong Kong. She suffered extremely traumatic experiences with serious, long-term psychological effects. She was interned because she was a British civilian, as evidenced by her registration with the British High Commission and by the inclusion of her name and the names of her parents and siblings in a list handed to the Japanese by the British authorities.
  6. Mrs Elias is also a British citizen. She lived partially in the UK between 1945 and 1976. She has lived in the UK full time since 1976. Her children and grandchildren are all British citizens.
  7. The defendant Secretary of State is responsible for the administration of an ex- gratia compensation scheme announced in November 2000. The court below found race discrimination of the indirect (or disguised) kind resulting from the application of discriminatory criteria to applications for payments under the scheme. Mrs Elias' claim is simple: she would be eligible for a payment of £10,000 under the scheme, but for the racially discriminatory condition or requirement introduced and applied by the Secretary of State that either she, or one or more of her parents or grandparents, should have been born in the United Kingdom. She is "very deeply aggrieved" by her exclusion from the scheme resulting from the application of discriminatory criteria. Like others in the same position as she is, she finds it offensive to be told that she is not "British enough" to be compensated, although she was "British enough" to be interned.
  8. It has to be said that, although the claim is simple, the course of the litigation and the legal issues thrown up by it are far from simple. The principal written submissions on behalf of Mrs Elias run to 267 paragraphs (82 pages). They were supplemented by further written submissions before and after the oral hearing. The Secretary of State's principal and supplementary submissions are of comparable length and complication. This is a worrying case, which raises fundamental issues of discrimination law. They are not made any easier by the fact that the whole affair is suffused with a personal and historic sense of injustice. The issues of interpretation and application of the law must, of course, be judged with complete objectivity.
  9. The main grounds of challenge to the lawfulness of administrative action are direct or indirect race discrimination contrary to the Race Relations Act 1976, as amended (the 1976 Act) and the unlawful fettering of discretion in the exercise of common law public powers. It is contended that these grounds render unlawful the application of the eligibility criteria adopted by the Secretary of State between March and June 2001 for determining who would be entitled to receive payments under the non-statutory Far Eastern Prisoner of War and Civilian Internees Ex-Gratia Compensation Scheme (the Compensation Scheme).
  10. The Compensation Scheme was announced by the Parliamentary Under-Secretary of State for Defence in Parliament on 7 November 2000. It exists to "to repay the debt of honour" owed by the UK to "British civilians" who were interned by the Japanese during the Second World War. The Compensation Scheme was described in similar terms in "Notes for Guidance" in a leaflet published by the War Pensions Agency (now the Veterans Agency). There was no definition of "British" and there was no reference at that time to the need to demonstrate any other links with the UK, to "belonging to Britain" or to any other defined eligibility criteria.
  11. For the Secretary of State it was contended that it was wrong to read references in the announcement and the leaflet to "British civilians" as being or containing a promise to compensate every internee who was a British subject at that time. Whatever may have been intended, the announcement was lacking in detail and clarity. The need to clarify "British" in an easily understandable and administratively workable way emerged as completed application forms were received and assessed. The Secretary of State argued that it was never stated that payments would be made to all civilians who were British subjects at the time of internment and that it was always intended to require strong links with the UK as a condition of payment.
  12. On any view of the matter the unfortunate feature of the launch of the Compensation Scheme is that its announcement in Parliament preceded a decision on how the intended beneficiaries, who were described in the announcement as "British civilians", should actually be determined. Thousands of applicants, who were identified as having received compensation under an earlier war pensions scheme in the 1950s, received payments under the Compensation Scheme before the announcement and publication of the eligibility criteria that the Secretary of State then relied on to reject applications from Mrs Elias and hundreds of other similarly placed applicants.
  13. The conditions for eligibility under the 1950s scheme (the Japanese Asset Scheme) were that a civilian did not qualify for payment unless he was a British national normally resident in the UK before internment, who had returned to take up residence in the UK on or before the date of application for payment, and was over 21 on 8 December 1941. The underlying thinking behind the earlier scheme was that the persons to benefit should be British nationals normally belonging to or having roots in the UK before the war and who were living in the UK at the time of distribution. It should be remembered, however, that, at the time of the 1950s scheme, there was no race discrimination legislation, which had to be complied with or which could be invoked as a ground of challenge.
  14. According to the 2000 announcement single lump sum payments of £10,000 each were to be made to "British civilians" who had been interned by the Japanese in the Second World War. Mrs Elias falls into this general description. Her hopes were raised by the announcement, as she thought that she would be eligible for compensation. But the claim submitted by her soon after the setting up of the Compensation Scheme was rejected by the Secretary of State's Veterans Agency on the grounds that she did not satisfy the eligibility criteria. She feels deeply aggrieved that the "debt of honour" does not extend to her, although, in circumstances that are disputed, the widows of her two brothers, Charlie and Abraham, who had been interned, received compensation, as have many thousands of others.
  15. In total it is estimated that in the region of £250m worth of payments of £10,000 each have been made to about 25,000 applicants. Although there is no agreement on the figures, it is asserted by Mrs Elias that there are about 300 people living in the UK who are in a similar position to her and about another 800 living abroad. The Secretary of State regards these figures as speculative. He also points to the potential "knock on" effect of removing or amending the eligibility criteria to include applicants in the position of Mrs Elias, in particular on the cost of another compensation scheme mentioned below for military prisoners of war.
  16. The reason why the eligibility criteria excluding Mrs Elias were not mentioned in the original announcement in November 2000 was that they were not finally settled until 18 May 2001. The decision on the eligibility criteria was only reached after a series of internal meetings of an Inter-Departmental Working Group, discussions, submissions and memoranda earlier in 2001. The Cabinet Office was involved, as well as the Ministry of Defence and the Veterans' Agency. The discussions were held to clarify criteria requiring close links between applicants and the UK.
  17. During the discussions concerns were expressed by some officials about a definition of "British" which would lead to the rejection of individual cases in circumstances that would be indefensible on grounds of fairness and logic, as well as out of keeping with the original intent and spirit of the Compensation Scheme. The documents disclosed by the Secretary of State reveal an awareness by some officials of the risk of a legal challenge by including race as "a deciding factor" (an expression used in internal communications between administrators) in the eligibility criteria and of "potentially embarrassing contradictions arising out of the current definition."
  18. While internal deliberations were continuing section 71 of the 1976 Act came into force on 2 April 2001. It imposed on the Secretary of State a statutory duty to have due regard to the need to eliminate unlawful race discrimination. It was held by the court below that this duty was breached by the Secretary of State, as no regard was had to the potentially racially discriminatory nature of the eligibility criteria. The Secretary of State has not appealed against this ruling. He accepted that no detailed review of the Compensation Scheme was undertaken on the coming into effect of section 71 and that there should have been.
  19. The eligibility criteria were announced in Parliament by the Parliamentary Under-Secretary on 11 July 2001, 8 months after the first announcement of the Compensation Scheme and after Mrs Elias had received a letter at the end of June 2001 stating that she was not entitled to receive a £10,000 payment. Hundreds of others received similar letters.
  20. It does not require much foresight to appreciate the importance of giving proper consideration to establishing lawful eligibility criteria before starting to make ex gratia payments to claimants. Astonishing though it may seem, very many payments were made under the Compensation Scheme (though not to Mrs Elias), even before the eligibility criteria had been settled and announced and without giving proper consideration to whether there was potential discrimination on racial grounds.
  21. The eligibility criteria, which exclude Mrs Elias, have been referred to in the litigation as "the birth link criteria" or "the blood link criteria." Literally speaking they are "birth place criteria." However they are described, everybody in the case knows that the various phrases refer to the conditions laid down by the Secretary of State for eligibility under the Compensation Scheme. The judge used the expression "birth link" in his judgment. I shall do the same in this judgment.
  22. Earlier challenges: ABCIFER and Gurung

  23. This is not the only litigation about the operation of the Compensation Scheme. There was an earlier application for judicial review, which reached the Court of Appeal. It was brought on different grounds and it failed. In R. (Association of British Civilian Internees: Far East Region) v. Secretary of State for Defence (the ABCIFER case) [2002] EWCA Civ 473; [2003] QB 1397 a judgment of the court setting out a very detailed account of the Compensation Scheme was handed down on 3 April 2003. It was unsuccessfully argued that the birth link criteria were unlawful because they were disproportionate or irrational and defeated a legitimate expectation created by the terms of the announcement of the Compensation Scheme. The Secretary of State's evidence in the ABCIFER case describing the rationale for the adoption of the birth link criteria stated that it had always been the Government's intention that only civilians with "a strong link to the United Kingdom" would be eligible for the payment. The birth link criteria were held by the Administrative Court and by this court not to be irrational. The House of Lords refused leave to appeal.
  24. In his account of the Scheme Dyson LJ, who delivered the judgment of the court, said-
  25. "40. …Looking at the matter entirely generally, it seems to us that it would have been possible rationally to establish a scheme for payment to the entire class of those who were British civilians at the time of internment. It would also have been possible, without acting irrationally, to exclude certain categories from the entire class. But the criteria for their exclusion would, by definition, have had to be rational. It would clearly not have been rational to exclude people on the grounds of their physical characteristics or their gender or their religious beliefs. No reasonable decision maker could decide, when setting up a scheme to meet the debt of honour owed by this country to those British civilians who were interned by the Japanese, that such criteria should be reasons to disqualify a claimant to compensation. Just as in satisfying the requirements of proportionality, so too in meeting the Wednesbury test, the measures designed to further the objective must be rationally connected to it …"
  26. Although exclusion on the ground of race was not mentioned in that passage or any where else in the judgment, it has now been conceded by the Secretary of State that the birth link criteria were indirectly discriminatory contrary to the 1976 Act. The ABCIFER case was argued and therefore decided on more conventional judicial review lines than this case. The anti-discrimination provisions in Article 14 EHCR, which refer to discrimination on the ground of race, were relied on in the context of Article 1 of the First Protocol, but there was no challenge to the lawfulness of the scheme under the 1976 Act.
  27. This court was informed during the hearing of this appeal that an application to the Court of Appeal has been made by the unsuccessful applicants in that case for permission to re-open the appeal in the light of disclosures of new material to Mrs Elias and to the Parliamentary Commissioner, who conducted an investigation into complaints of maladministration of the Compensation Scheme. The application has since been granted by Dyson LJ.
  28. The judgment of the court in ABCIFER went on to express views on what would be rational criteria-
  29. "41. But it would have been rational, for example, to exclude those who were entitled to compensation from another country. It would be reasonable to take the view that the objective of paying the debt of honour to those who were British subjects at the time of internment did not require payment to be made to internees who were entitled to be compensated by other countries. We do not believe that any of this is controversial.
    42. What is in controversy is whether it is rational to limit the beneficiaries of the scheme to those British subjects who had close links with the UK at the time of internment. In our view, it is impossible to say that the close link criterion is irrational. At the time of internment, large numbers of British subjects had no links with the UK save for their being British subjects by reason of the 1914 Act. By the time the scheme came to be set up, the UK had become a medium sized European country which had lost its empire. The situation was very different from what it was at the time of the war when Britain controlled a huge empire. No doubt, the Government could have decided to include in the scheme all those who were British subjects at the time of their internment who were not entitled to compensation from their home countries. But its failure to do so was not irrational."
  30. Having dealt with further arguments on the alleged irrationality of the birth link criteria and having rejected the contention that it was irrational to ignore the close links that claimants had developed with the UK since the war, the court considered a set of submissions based on a legitimate expectation created by the announcement of the Scheme. The court rejected the legitimate expectation challenge on the ground that the original announcement did not contain a clear and unequivocal representation that all civilians who were British subjects at the time of their internment would receive ex gratia payments. "There were tell-tale signs that the scheme was not, or at least might not be, as all-embracing as might at first appear." (paragraph 60).On the facts the campaigning group ABCIFER, which represented a substantial number of individuals interned by the Japanese in World War II as British civilians (and of which Mrs Elias was a member), had not so understood the announcement. The court held that the Secretary of State had not acted with conspicuous unfairness amounting to an abuse of power so as to permit a claim of legitimate expectation to succeed in the absence of such a representation.
  31. Although the point was raised in the appellants' skeleton argument, the court in ABCIFER did not hear argument on the application of an alleged free- standing common law principle of equality and made no determination on the point. The court's comments are, however, relevant to a submission made in this case on the margin of appreciation that would be allowed to the Government in formulating the eligibility criteria for ex gratia payments. The court said-
  32. "86. In our judgment, whether the question is considered in Wednesbury terms, or on an application of a free-standing principle that like cases should be treated alike unless there is a valid reason for treating them differently, the complaint in the present case must be rejected. We have already given our reasons for concluding that the decision to exclude those who did not satisfy the birth criteria was not unreasonable in the Wednesbury sense. If a free-standing principle of equality were to be applied, it would have to be on the basis that the court would give the minister a margin of appreciation to determine whether there was a valid reason for treating internees differently. In our view, the minister's decision to exclude those British subjects who did not satisfy the birth criteria fell comfortably within the margin of appreciation that should be accorded to him by the court. Our reasons are essentially the same as those which led us to conclude that the challenge to the birth criteria fails on an application of the Wednesbury test."
  33. The absence of argument in ABCIFER on race discrimination is surprising, as a race discrimination challenge had succeeded in an earlier application for judicial review of a scheme to compensate military prisoners of war, who had suffered at the hands of the Japanese in the Second World War. The claims were brought by the Ghurkas. They had fought in the British Indian Army, but they were denied the benefits of the compensation scheme: R (Phalam Gurung) v. Ministry of Defence [2002] EWHC 2463 Admin (McCombe J). (Although this decision was cited in argument in ABCIFER, it was not referred to in the judgment and it does not seem to have alerted anybody in the ABCIFER case to the possibility of a challenge on the ground of unlawful race discrimination.)
  34. The Gurung proceedings, in which judgment was given on 27 November 2002, succeeded on a race discrimination ground, although the decision does not assist Mrs Elias, as the eligibility criteria for military personnel differed from those for civilians in the Compensation Scheme. The birth link criteria did not apply to military personnel. An appeal by the Secretary of State was not pursued. The racially discriminatory criteria were subsequently removed from the scheme to compensate military prisoners of war. The government decided to pay compensation to Nepalese national Gurkha prisoners of war who had served in the Indian Army
  35. Although the judgment in Gurung was followed by internal reviews of the Compensation Scheme and concern about the Compensation Scheme was expressed by the Commission for Racial Equality in correspondence with the Secretary of State in December 2002, no changes were made to the birth link criteria until shortly before the hearing of this appeal.
  36. Appeals from judicial review and discrimination damages judgments

  37. The claims in these proceedings were successful in part. Elias J handed down judgment on 7 July 2005. (I will call Elias J "the judge" in order to avoid possible misunderstandings arising from the confusing coincidence that the judge and the applicant, who are not related, have the same surname).
  38. The judge held that, as was ultimately conceded by the Secretary of State, the birth link criteria indirectly discriminated against Mrs Elias on racial grounds (i.e. national origins). Their application had an adverse impact on a greater proportion of British civilian internees who were of non-British national origin, such as Mrs Elias, than they had on internees of British national origin.
  39. The judge also held that, although the birth link criteria had a legitimate aim, the indirect discrimination was not objectively justified, as the birth link criteria were disproportionate. This part of the judgment is appealed by the Secretary of State.
  40. The judge rejected the claim that Mrs Elias had suffered direct discrimination on grounds of her national origin. He also held that the Secretary of State had not fettered his discretion unlawfully or unfairly by failing to consider the possibility of making ex gratia payments to those who fell outside the criteria, but were exceptional cases. These rulings are appealed by Mrs Elias.
  41. She also appeals against the judge's decision on the form of relief for indirect discrimination. She contends that the judge should have made an order directing the Secretary of State to re-consider her application under the Compensation Scheme as it existed at the time of her application, but disapplying the unlawful discriminatory criteria, in which case she would be entitled to be paid the sum of £10,000 plus interest. The judge ruled that her proper remedy was to seek damages for race discrimination in the County Court, which has an exclusive jurisdiction under section 57 of the 1976 Act.
  42. Mrs Elias then successfully brought an action against the Secretary of State in the Central London County Court claiming damages for race discrimination. On 9 March 2006 she was awarded £3,000 damages for the injury to her feelings inflicted by indirect discrimination. The judge (HHJ Harris) declined to award damages for financial loss. He also rejected her claims for aggravated and exemplary damages. With the permission of HHJ Harris the County Court judgment is appealed by both sides.
  43. Following the judicial review judgment the Compensation Scheme was suspended so that no new decisions or payments would be made until the final conclusion of the proceedings.
  44. All of the appeals were heard together over a period of three days. Unfortunately, there was insufficient hearing time in which to complete the oral arguments. They were very detailed covering nearly every aspect of the many points argued at first instance in the judicial review proceedings and in the County Court proceedings. The parties were allowed to make further written submissions after the hearing. As a result of the intervening Easter Vacation the parties did not complete this process until the end of April.
  45. The court is indebted to all concerned, the parties and their legal representatives, for their assistance, patience and courtesy. I would also extend the court's gratitude to the judge and to HHJ Harris for their full and careful treatment of all the factual and legal issues in this extraordinary litigation.
  46. Issues on the judicial review appeal

  47. These are the principal issues on the judicial review appeal.
  48. 1) Direct race discrimination
    The judge dismissed the direct discrimination ground. He decided that Mrs Elias was not treated less favourably "on racial grounds." Such grounds are defined in the 1976 Act as including "national origins." The judge held that, on the basis of the authorities binding on him, the concept of "national origins" was used in the legislation in the sense of race, not citizenship, and that the express criterion of place of birth is not a forbidden ground of discrimination, nor is it inextricably linked to a forbidden ground of discrimination. The birth link criteria do not require all applicants under the Compensation Scheme to be of UK "national origin." Further, a person of UK national origin would not necessarily satisfy the birth link criteria. The judge concluded-
    "50. …I accept that the effect of adopting the criteria used in this scheme is likely to produce a very similar outcome as would have resulted had a national origins criterion been adopted. Nevertheless, it is not an identical form of differentiation."
    2) Indirect race discrimination
    At a late stage the Secretary of State conceded that the application of the birth link criteria inevitably involved indirect discrimination, as "they treat less favourably those who are of non-British origin" (paragraph 53 of the judgment). The only issue was whether the indirect discrimination was objectively justified and whether the birth link criteria were a proportionate means of achieving a legitimate aim. The judge made a declaration that the criteria introduced in 2001 constituted unlawful indirect discrimination contrary to section 1(1A) and/or section 1(1) (b) of the 1976 Act. He made an order that the decision of 28 July 2004 refusing to make a payment to Mrs Elias under the Compensation Scheme be quashed.
    The judge made those orders on the following bases. First, the birth link criteria were indirectly discriminatory. Secondly, the criteria served a legitimate aim of limiting eligibility to a category narrower than all applicants who were British subjects at the date of internment by requiring close links with the UK. Thirdly, the criteria chosen were not proportionate to the aim of the measures. The judge said it was a case where the court should carefully scrutinise the justification claimed, because the extent of the discrimination on the grounds of national origin "is very marked indeed" (paragraph 84). The judge said-
    "89. …The criteria chosen were very closely linked to national origins. Using the criteria was by no means the only way in which the Minister could achieve his legitimate objective. He could have chosen criteria which narrowed the category of British subjects without linking them so closely with descent and national origins. For example, a simple link to, say, a period of residence in the United Kingdom within the period leading up to the internment, or the adoption of criteria based on domicile would have done so. It would, of course, still have involved a disparate impact statistically and the less favourable treatment of those who were not British nationals, but it would in my judgment have been proportionate to the objective being sought."
    3) Fettering discretion
    The judge rejected the argument that the Secretary of State had unlawfully fettered his discretion by refusing to consider Mrs Elias as an exceptional case for compensation because of her circumstances, in particular her extreme suffering. The Veterans Agency had informed Mrs Elias that, as administrators of the Compensation Scheme, they were entirely bound by the conditions for eligibility laid down by the government, that they had no discretion to act otherwise and that they could not change the rules or make exceptions for the particular circumstances of individual claims. While accepting that it would be open to the government to have provided for the possibility of exceptional cases in the Compensation Scheme itself or to amend the Compensation Scheme, the judge held that the law did not require the Secretary of State to consider whether to make an exception for an applicant, who did not meet the criteria set for determining eligibility for an ex gratia payment. The criteria did not have to be flexible or allow for exceptions. The judge concluded-
    "36. I see no basis for saying that because the government agrees to make payments in a certain class of situations, that it is now obliged to consider applications from those who do not fall within the rules in a different way than it would otherwise have done. In my judgment it is not obliged in every case effectively to consider extending the scheme on a case by case basis beyond the scope which it has carefully delineated. The court's task is to give effect to the scheme established by the Crown in the same way as it would a scheme established by legislation. It is no more an unfair or unlawful exercise of power for the Crown, acting through a Minister, to refuse to consider exceptional cases under the common law scheme than it would have been under a statutory scheme. Moreover, in so far as Parliament authorises funding for the scheme itself, there would be no authority to make payments outside the terms of the scheme. "
    4) Relief
    The judge declined to order that the sum of £10,000 compensation should be awarded to Mrs Elias in consequence of his judgment in her favour on indirect discrimination. He held that her remedy was to bring a claim in the County Court for damages for race discrimination. It was submitted on behalf of Mrs Elias that, as a result of his ruling on indirect discrimination by the birth link criteria, the unlawful criteria should now be stripped out of the Compensation Scheme, leaving her with an absolute entitlement to a payment of £10,000 under it, plus interest. She should be put in the same position that she would have been in, had the Compensation Scheme not unlawfully discriminated against her on the ground of race in the first place. She should be placed in the same position as the many people, who have already received payments of £10,000 each under the Compensation Scheme. It is not suggested that other people will have to repay what they have received, but they will have been treated more favourably than Mrs Elias, if she does not also receive a payment of £10,000.
    The judge accepted the submission of the Secretary of State that the Compensation Scheme was not the only possible scheme that could be adopted and that it was open to the Secretary of State to formulate lawful limiting criteria, other than the impugned criteria, which would nevertheless exclude Mrs Elias.
    He identified a second difficulty in the relief claimed by Mrs Elias: what would be the lawful scheme, if the unlawful elements of the Compensation Scheme were stripped away? It might not be accurate to say that the birth link criteria were unlawful in their entirety. A criterion limiting eligibility to the birth of the claimant in the UK might be lawful. The proper relief in the judicial review proceedings was to require the Compensation Scheme to be re-formulated and for Mrs Elias' application under the Compensation Scheme to be re-considered according to the new criteria.

    Issues on the discrimination damages appeal

  49. Mrs Elias appeals against the level of the damages awarded to her by HHJ Harris in the Central London County Court on 9 March 2006. The award was made on the basis of the liability of the Secretary of State for indirect discrimination established in the judicial review judgment. The sole jurisdiction to award damages was in the County Court under section 57(1) of the 1976 Act. The judge awarded her £3,000 damages for injury to feelings, plus interest of about £900 as at the date of the order. He refused to award further damages claimed by Mrs Elias for financial loss and by way of aggravated and exemplary damages.
  50. These are the main issues on the damages appeal:
  51. 1) The financial compensation issue.
    Is Mrs Elias entitled to damages for financial loss of £10,000, plus interest? Or is she entitled to a sum equal to the financial loss which she will suffer by reason of the set off rules, which will be applied to her benefit entitlement by reason of the increase in her capital? The benefit entitlement refers to means-tested credits, such as pension credit, housing benefit and council tax benefit. I need not deal further with this point, as the parties have agreed that, should the court decide that Mrs Elias was entitled to be put in the financial position which she would have been in had she received £10,000 under the Scheme, they would seek to agree the mechanics of how this should be done and the amount required to be paid, with liberty to apply to the court, if there were subsequent difficulties about quantum.
    2) Injury to feelings.
    Should the court increase the award of £3,000 for injury to feelings? This issue involves the application of the guidelines for the award of damages for injury to feelings in discrimination cases laid down by this court in Vento v. Chief Constable of West Yorkshire Police [2002] EWCA 1871; [2003] ICR 318 at paragraphs 65 -68 (Vento). Although the guidance was given to employment tribunals dealing with cases of sex and race discrimination in the employment field, it was not suggested that there should be a different approach to the assessment of damages for injury to feelings in this case.
    3) Aggravated/exemplary damages.
    Should awards have been made to Mrs Elias for aggravated and exemplary damages?

    Fresh materials

  52. The submissions in this court were supplemented by materials not available to the judge and exhibited as JH 3 to the Statement (3) of Mr John Halford in support of an application issued on 13 September 2005 for an order for permission to adduce further evidence. Mr Halford made 4th and 5th statements requesting disclosure of documents and making allegations of material non-disclosure. Ms Jessica Smith of the Treasury Solicitor's Department made a witness statement in response on 3 April 2006. Further documents were disclosed without admission of obligation to make disclosure.
  53. The court granted permission to adduce the materials in so far as they consisted of fresh evidence and required the permission of the court. They do not significantly affect the legal arguments on the appeal, although they give a fuller picture of the affair as it continues to unfold. They also include correspondence between the solicitors for Mrs Elias and the Treasury Solicitor in July 2005 about the need for a review of the Compensation Scheme and its differential impact on different racial groups in the light of the ruling by the judge on breach of section 71 of the 1976 Act.
  54. 1) Report of the Parliamentary Commissioner on 12 July 2005 (HC 324) This report on "A Debt of Honour: The ex gratia scheme for British groups interned by the Japanese during the Second World War" was published less than a week after the judge handed down judgment on the judicial review application. Documents relevant to the formulation of the birth link criteria were obtained by the Parliamentary Commissioner which had not been disclosed in the ABCIFER case or to Mrs Elias during the course of the litigation. The Parliamentary Commissioner for Administration (the Ombudsman) found maladministration in the formulation, announcement and operation of the Compensation Scheme. She made recommendations for remedying the injustice found by her. Not all of the recommendations have been accepted by the Secretary of State. On 13 July 2005 an apology was given in the House of Commons by the Parliamentary Under-Secretary of State for the distress caused by the way the Compensation Scheme was introduced and announced and for the administrative failings. Further comment was postponed until the final outcome of this case is known.
    The Parliamentary Commissioner made some damning findings, in particular, that the Compensation Scheme was not devised in accordance with good administrative practice; it had been announced before its criteria had been fully determined, the meaning of "British" having been discussed for the first time after the announcement and after the first payments had been made; clear criteria were required in order to avoid unnecessary distress or inconvenience and to produce consistent outcomes and equal treatment; the criteria chosen were surprising as a means to repay "a debt of honour" to those who were "British enough" to be interned by the Japanese, though their fairness was a matter for the courts, not for the Parliamentary Commissioner; not all applicants had been afforded treatment equal to those whose applications had been determined before the introduction of the criteria; the Compensation Scheme had not been reviewed in the light of criticisms by the courts and others; and the justified feeling of outrage and distress by those who were implicitly "not British enough" to receive a payment constituted an injustice caused by maladministration. The Parliamentary Commissioner reported that
    "…many people have suffered outrage at the way in which the scheme has been operated and distress at being told that they were not 'British enough' to qualify for payment under the scheme." (paragraph 206)
    2) Report of the Public Administration Select Committee(PASC) 12 January 2006. The report agreed with the Parliamentary Commissioner. Evidence was given to the Committee by Mr Donald Touhig M.P., Minister for Veteran Affairs. Evidence was also given by Mr Jonathan Iremonger on behalf of the Secretary of State about the problems of defining "British" in the eligibility criteria and the limits of the responsibility of the UK government to the large number of people, who were British subjects at the time of the Second World War. Soon after giving his evidence in December 2000 Mr Touhig announced a review of the way in which decisions had been made to distribute payments under the Scheme before March 2001 by reference not to the birth link criteria, but to the 1950s scheme.
    3) The internal review of the early operation of the Compensation Scheme. This was explained in the evidence of Mr Jonathan Iremonger on behalf of the Secretary of State.
    4) Disclosure of fresh documents. Allegations are made of inadequate disclosure of documents in the ABCIFER case and in the judicial review proceedings. They include an unsigned note on a fax dated 6 November 2000; a letter of 10 November 2000 from an official in the Ministry of Defence to other officials to clarify a misunderstanding about the Ministerial announcement; a paper submitted by the War Pensions Agency to the Cabinet Office on 4 May 2001 about the need for extension of criteria relating to eligibility with particular reference to a class of persons in the position of Mrs Elias; and an internal note dated 9 May 2001 from a Ministry official expressing reservations about the proposal to extend eligibility.
    5) Announcement by the Minister for Veteran Affairs. On 28 March 2006 Mr Donald Touhig announced that the Compensation Scheme would include a provision rendering eligible those who have resided in the UK for at least 20 years since the end of the Second World War. Although this provision would cover Mrs Elias, it does not affect her appeals, save that it is accepted by Mrs Elias that she would not be entitled to double recovery under both the original criteria and under the new criteria based on residence. If she is entitled to be paid the sum of £10,000 under the original scheme, she will be entitled to interest, which she would not receive on a payment to her under the revised scheme.
  55. There was disagreement between the parties as to whether a number of documents, which came to the knowledge of Mrs Elias after the judgment was handed down (for example, documents referred to or quoted in the report of the Parliamentary Commissioner), should have been disclosed earlier in the judicial review proceedings.
  56. Mr Sales submitted, on behalf of the Secretary of State, that there has been no breach of the obligation to make proper disclosure of relevant documents in the judicial review proceedings. The documents disclosed set out fully and fairly what had been done and why it was done in relation to the challenge by way of judicial review to the legality of the birth link criteria and the decision to reject the application for payment by Mrs Elias: see R v. Lancashire CC ex p. Huddleston [1986] 2 All ER 941.
  57. In my judgment, it is important to remember that these are proceedings in the Administrative Court for review of the lawfulness of the eligibility criteria in the Compensation Scheme. Although the 1976 Act, as amended, is relied on to challenge the lawfulness of the criteria, the judicial review proceedings are not proceedings under the 1976 Act for a specific act or acts of race discrimination against Mrs Elias. In those circumstances the obligation to make disclosure of documents relevant to the lawfulness of the criteria and whether they are legally justified is not as wide as it would be in proceedings under the 1976 Act for specific acts of race discrimination against a particular individual. As signalled at the beginning of this judgment, this is not an ordinary case of race discrimination. Race discrimination is not the cause of action invoked by Mrs Elias in the Administrative Court. It provides the legal basis for her argument that an exercise of public power by the Secretary of State was contrary to law and should be quashed. If the power in question is re-exercised by the Secretary of State, it must not be contrary to law. In particular it must not be contrary to the 1976 Act.
  58. Mrs Elias was, of course, entitled to ventilate in this court her detailed complaints of non-disclosure of documents, but in truth they do not assist in reaching a decision on the difficult points of law which arise in the appeals on comparatively few documents. I think that the complaints were a distraction from the substance of the case. They created the impression of a campaign in the court room, as well as one which has been conducted through the media and by letters to MEPs, the Prime Minister, the Prince of Wales and the Queen. The proper place for campaigning and exerting pressure to change decisions of government is outside the court. The court is solely concerned with the application of law to facts established by evidence.
  59. The appeals are not concerned with any improper attempt to withhold relevant evidence. They about an alleged failure to pay proper regard to the application of race discrimination law in a public law exercise of common law power by the Executive. The alleged unlawfulness of executive action has arisen out of impatience, confusion and misunderstanding, not out of a cover-up of suspected wrongdoing.
  60. Race discrimination law

  61. Sweeping changes were made to the scope of application of the 1976 Act to public authorities by the Race Relations (Amendment) Act 2000 (the 2000 Act) with effect from 2 April 2001.
  62. Section 71 imposes a general statutory duty on every specified body or other person that it
  63. "(1) ….shall, in carrying out its functions, have due regard to the need-
    (a) to eliminate unlawful racial discrimination; …"
  64. As mentioned earlier, the Secretary of State has not appealed against the declaration made by the judge that the Secretary of State had not complied with his obligations under section 71(1) in the formulation and maintenance of the Compensation Scheme.
  65. Section 71(2) of the 1976 Act enables orders to be made requiring specified bodies to take steps for the better performance of their duties under section 71(1). An order was made obliging the publication of a racial equality scheme by 31 May 2002. The Secretary of State published his first Race Equality Scheme in May 2002, which referred to seeking out and removing discrimination and the possibility of discrimination from the services provided by the Ministry of Defence, such as the provision of pensions. The Race Equality Scheme contained no reference to the Compensation Scheme. As the judge observed, it was wrongly assumed at the time that there was no race discrimination issue to be addressed.
  66. Section 19B of the 1976 Act provides that
  67. "(1) It is unlawful for a public authority in carrying out any functions of the authority to do any act which constitutes discrimination."
  68. It has been common ground in this litigation that the Secretary of State and the Veterans Agency are subject to sections 71 and 19B.
  69. It is also accepted by the Secretary of State, for the purposes of this litigation, that an ex gratia payment under the Compensation Scheme is a "form of social advantage" within the meaning of the amended provisions of the 1976 Act set out below, which derive from Article 3 of the EC Race Equality Directive referred to below. In the context of the prohibition of discrimination in EC law the concept of "social advantage" has not been interpreted restrictively (see State of the Netherlands v. Reed 17 April 1986, Case 59/85 at paragraph 25). It encompasses "not only benefits accorded by virtue of a right but also those granted on a discretionary basis." See Law of the European Communities Service (General Editor David Vaughan QC) at paragraph 145.
  70. While making the concession for the purposes of this case, Mr Sales drew our attention to cases on EC Regulation 1612/68 (for example, Baldinger C-386/02 at paragraph 17), in which it was held that an allowance to a former prisoner of war was not a "social advantage" within the meaning of the Regulation. Although this expression does not necessarily have the same meaning in both contexts, it may be argued in a later case that "social advantage" is a term of art in EC law.
  71. I now turn to the specific provisions of the 1976 Act, as amended, which make acts of race discrimination unlawful.
  72. Section 1(1) of the 1976 Act defines race discrimination. There are two sub-subsections, (a) and (b). They define two different kinds of discrimination in the alternative ("or"): subsection (a) defines what is commonly described as direct discrimination; subsection (b) defines what is commonly described as indirect discrimination. Those expressions do not appear anywhere in the legislation, but are commonly used in discrimination law practice. The non-statutory descriptions "overt discrimination" and "covert" or "disguised discrimination" are also sometimes used.
  73. Until this case I had assumed, perhaps wrongly, that direct and indirect discrimination were strictly alternative statutory causes of action, as indicated by the use of a disjunctive "or" placed between the definitions in sub-subsections (a) and (b). The difference between the two forms of discrimination may be crucial, because the elements of the causes of action are different and the defence of justification of the difference in treatment between one racial group and another, irrespective of the race of the persons to whom the condition or requirement is applied, is only available under the 1976 Act in the case of indirect discrimination. Direct discrimination on racial grounds is never justifiable under the 1976 Act.
  74. The distinction between direct and indirect discrimination also affected remedies for discrimination. For example, it was provided by section 57(3) of the 1976 Act that, as respects an unlawful act of discrimination falling within section 1(1)(b), no award of damages shall be made if the respondent proves that the requirement or condition in question was not applied with the intention of treating the claimant unfavourably on racial grounds.
  75. If it is the correct reading of section 1(1) to distinguish between the two kinds of discrimination as alternatives, it would follow that it would not be possible for the same act to be both an act of direct discrimination and an act of indirect discrimination. This reading is challenged by Mrs Elias, on whose behalf Mr Rabinder Singh QC submitted that the eligibility criteria are both directly and indirectly discriminatory by reason of the racially discriminatory purpose and effect of the birth link criteria. In the alternative, the criteria are either direct or indirect discrimination on racial grounds.
  76. Section 1(1)(a) covers direct discrimination;
  77. "(a) A person discriminates against another in any circumstances relevant for the purposes of any provision of this Act if-
    (a) on racial grounds he treats that other less favourably than he treats or would treat other persons; or ..."

  78. "Racial grounds" are defined in section 3(1) as meaning-
  79. "any of the following grounds, namely colour, race, nationality or ethnic or national origins;"
  80. Indirect discrimination is covered by section 1(1) (b). It provides that a person discriminates against another in any circumstances relevant for the purposes of this Act if-
  81. "(b) he applies to that other a requirement or condition which he applies or would apply equally to persons not of the same racial group as that other but-
    (i) which is such that the proportion of persons of the same racial group as that other who can comply with it is considerably smaller than the proportion of persons not of that racial group who can comply with it; and
    (ii) which he cannot show to be justifiable irrespective of the colour, race, nationality or ethnic or national origins of the person to whom it is applied; and
    (iii) which is to the detriment of that other because he cannot comply with it."
  82. "Racial group" is defined in section 3(1) as meaning
  83. "a group of persons defined by reference to colour, race, nationality or ethnic or national origins, and references to a person's racial group refer to any racial group into which he falls."
  84. Section 3(4) states-
  85. "A comparison of the case of a person of a particular racial group with that of a person not of that group under section 1(1) or (1A) must be such that the relevant circumstances in the one case are the same, or not materially different, in the other."
  86. As the reference to subsection (1A) in section 3(4) indicates, the provisions relating to indirect discrimination have been amended since 1976. The protection against indirect discrimination was extended by amendments made with effect from 19 July 2003 (SI 2003/1626) implementing the Council Directive 2000/43/EC (the Race Equality Directive). The Directive was made in order to extend the principle of equal treatment to persons irrespective of racial or ethnic origin. The preambles refer (in preamble (3)) to the "right to equality before the law and protection against discrimination for all persons" as constituting "a universal right" recognised by various international instruments including the 1969 International Convention on the Elimination of all forms of Racial Discrimination (CERD) and (in preamble (12)) to covering areas such as "social protection, including social security and healthcare", and "social advantages."
  87. The concept of discrimination is defined in Article 2 of the Directive expressly in terms of direct or indirect discrimination based on racial or ethnic origin. As in the 1976 Act, the different forms of discrimination in the Directive are expressed in the alternative. They are differently defined in Article 2.2 (a) and (b). In the case of direct discrimination the focus is on less favourable treatment of a person "on grounds of racial or ethnic origin." In the case of indirect discrimination the focus is on "an apparently neutral provision, criterion or practice [which] would put persons of a racial or ethnic origin at a particular disadvantage compared with other persons, unless that provision, criterion or practice is objectively justified by a legitimate aim and the means of achieving that aim are appropriate and necessary."
  88. In accordance with general principles of European Community law the duty of the UK courts is to construe, in so far as it is possible for them to do so, the domestic law implementing a directive so as to be compatible with the directive.
  89. Article 14 of the Directive requires Member States to take necessary measures to ensure that any laws or administrative provisions contrary to the principle of equal treatment are abolished. Article 15 requires Member States to lay down rules on sanctions applicable to infringements of national provisions adopted pursuant to the Directive and for them to be "effective, proportionate and dissuasive."
  90. Mrs Elias relies on the new provisions on indirect discrimination inserted in the 1976 Act in order to comply with Article 2 of the Directive, as well as on the original provisions. They have applied since 19 July 2003 when they came into force. Where discrimination falls within the new provision, section 1(1)(b) does not apply: see section 1(1C). As in the case of indirect discrimination contrary to section 1(1)(b), the focus is not on difference in treatment "on racial grounds", express or implied: it is on the evaluation of the disparate and adverse racial impact of the application of an apparently neutral and general provision, criterion or practice-
  91. "(1A) A person also discriminates against another if, in any circumstances relevant for the purposes of any provision referred to in subsection (1B), he applies to that other a provision, criterion or practice which he applies or would apply equally to persons not of the same race or ethnic or national origins as that other, but-
    (a) which puts or would put persons of the same race or ethnic or national origins as that other at a particular disadvantage when compared with other persons,
    (b) which puts that other at that disadvantage, and
    (c) which he cannot show to be a proportionate means of achieving a legitimate aim."
  92. According to subsection (1B)(c) the provisions mentioned in subsection (1A) include section 19B, so far as relating to
  93. "(iii) any other form of social protection; and
    (iv) any form of social advantage

    which does not fall within section 20."

  94. As I indicated earlier, it is common ground, for the purposes of this case, that payments under the Compensation Scheme are a "form of social advantage" that do not fall within section 20, which relates to the provision of goods, facilities or services, such as access, accommodation, financial services, education, leisure, transport and so on. The Secretary of State accepts that, for the purposes of this case, section 1(1A) applied to the case of Mrs Elias as from 19 July 2003.
  95. I should add that it is clear from section 41 of the 1976 Act, which relates to acts done under statutory authority, that it is no longer possible for the Secretary of State to rely on section 41(1) as a defence in a case where the discrimination is on grounds of race or ethnic or national origins and it is unlawful by virtue of a provision referred to in section 1(1B): see section 41(1A). As already mentioned, section 1(1B) refers to section 19B.
  96. I should also explain that, although proceedings alleging race discrimination under Part III of the 1976 Act must be brought in the County Court (section 53(1)) (and proceedings under Part II must be brought in the employment tribunal), the making of judicial review orders are not precluded in public law proceedings: section 53(2).
  97. Mrs Elias also relied on the CERD, which was ratified by the UK and came into force on 4 January 1969. It was submitted that the 1976 Act must be interpreted to produce an effect compatible with the CERD. Article 1(1) defines "racial discrimination" in the Convention in such a way as to emphasise the importance of the principle of equality and of the discriminatory purpose or effect of an action or measure in determining whether it is unlawful. The term means
  98. " any distinction, exclusion, restriction or preference based on race, colour, descent, or national or ethnic origin which has the purpose or effect of nullifying or impairing the recognition, enjoyment or exercise, on an equal footing, of human rights and fundamental freedoms in the political, economic, social, cultural or any other field of public life."
  99. Reference was also made to Article 2 of CERD relating to the obligations of Member States to eliminate racial discrimination in all its forms and to the obligation in Article 6 to provide effective protection and remedies, including just and adequate reparation or satisfaction for any damage suffered as a result of such discrimination.
  100. Finally, Mrs Elias submitted that discrimination on the ground of race may be a form of degrading treatment prohibited by Article 3 of the European Convention of Human Rights (ECHR). The ruling of the Commission in East African Asians v. UK (1973) 3 EHRR 76 was cited as showing that ambiguities in national legislation should be resolved so as to avoid breaches of obligations under international law, such as the ECHR.
  101. The East Africans Case is, it was argued on behalf of Mrs Elias, relevant to both direct and indirect discrimination. The immigration rule challenged in that case was framed in similar terms to the birth link criteria, so as to exclude those UK passport holders who did not have at least one grandparent born in the UK and did not therefore have a substantial connection or close links with the UK. The European Commission of Human Rights found a breach of Article 3 of the ECHR in the racially discriminatory purpose of the rule which, in its normal operation, singled out for differential treatment, on the ground of race, a particular group of persons. The rule was more favourable to descendants of white settlers than to Asian persons. The close links did not have a legitimate aim, irrespective of discrimination, which would prevent the rule from being a breach of Article 3.
  102. Although a number of authorities on ECHR were cited, I should point out this case is not brought under the Human Rights Act 1998 and is not based on breach of Convention rights. Article 14 ECHR deals with discrimination in relation to the Convention rights. There is no Convention right not to be discriminated against on grounds such as race or national origins. This must be borne in mind when considering the authorities on ECHR points cited in support of the construction of the provisions of the 1976 Act, as amended, and of the EC Directive. It is, I think, fair to say that, as there is no general right not to be discriminated against on racial grounds guaranteed by the Convention, the Strasbourg jurisprudence on race discrimination in relation to Convention rights has not yet developed as fully as UK domestic law or EC law, either on the different forms that race discrimination may take or on the possible justifications for discrimination.
  103. Throughout his submissions for Mrs Elias, Mr Rabinder Singh QC emphasised the fundamental nature of the right to equality underlying the 1976 Act, EC law, the ECHR and in international law and the unlawfulness of a racially discriminatory purpose aimed at excluding those who are of alien descent, even though the discriminatory effects were not fully achieved in practice.
  104. Direct race discrimination

  105. Direct race discrimination was at the forefront of the arguments of Mrs Elias in the judicial review appeal.
  106. The judge rejected the contention that the birth link criteria were directly discriminatory "on racial grounds." On behalf of Mrs Elias, Mr Rabinder Singh QC submitted that she should succeed on both direct and indirect discrimination, or, failing that, on the ground of direct discrimination in preference to the ground of indirect discrimination upheld by the judge. As mentioned earlier, subject to the defence of justification, indirect discrimination has been conceded by the Secretary of State. As for direct discrimination, the thrust of the case for Mrs Elias is based principally on the racially discriminatory purpose of the birth link criteria and on their discriminatory effects.
  107. The obvious importance of the case for direct discrimination is that, if it is made out, the defence of justification is not available to the Secretary of State.
  108. That Mrs Elias was treated less favourably than other comparable persons is undeniable. Her application for a payment under the Compensation Scheme was rejected. Applications by others for compensation were accepted. The critical question is whether her application was rejected "on racial grounds" within the meaning of section 1(1)(a) of the 1976 Act.
  109. The fact is that, although Mrs Elias was, by virtue of the British Nationality and Status of Aliens Act 1914, a British subject at the date of her internment in 1941, she did not have the birth link with the UK required by the eligibility criteria: she was not born in the UK, nor were either of her parents or any of her grandparents. She did not qualify for a payment, because she did not satisfy the condition of payment linked to place of birth.
  110. The judge accepted the submissions of the Secretary of State that Mrs Elias was not discriminated against directly, as the grounds on which compensation was refused were not "racial grounds." The criteria specified place of birth as determinative: either her place of birth, or the place of birth of either of her parents and/or any of her grandparents. The birth link criteria did not require an applicant to have UK national origins, nor did the UK national origins of an applicant guarantee entitlement.
  111. The judge recognised that a distinction has been established by the authorities on race discrimination between the "national origins" of a propositus and the place of birth of the propositus. In practical terms the use in the Compensation Scheme of criteria relating to the place of birth meant that applicants for compensation were eligible, even if they were not of UK national origin, it being sufficient that their mother happened to be in the UK when she gave birth.
  112. Although these aspects give the criteria an arbitrary and adventitious quality, the Court of Appeal held in ABCIFER that they were not irrational. It does not, of course, follow that they complied with the 1976 Act. It is necessary to examine a different line of authority on the scope of discrimination on "the racial grounds" in the context of national origins and their relationship to place of birth.
  113. Ealing LBC v. Race Relations Board [1972] AC 342, a decision on the Race Relations Act 1968, was cited by Mr Philip Sales for the Secretary of State. Ealing LBC refused to place the name of the applicant, who was a Polish national, on the housing waiting list, as he was not a British subject. This was less favourable treatment, but, according to the House of Lords, it was not treatment "on racial grounds." "National origin", a term left undefined in the legislation, meant national in the sense of, or analogous to, race, lineage or descent. It did not mean national in the legal sense of the citizenship (i.e. nationality), which may be acquired by an individual at birth by virtue of parental connection with the country in which birth takes place: see pages 358D-G, 363H-364E and 365D-366E. In distinguishing between national origins and nationality the House of Lords incidentally distinguished national origins from place of birth, which does not by itself determine "national origins."
  114. The law was amended in section 3(2) of the 1976 Act to include "nationality" in "racial grounds," but that has not affected the construction placed by the courts on the expression "national origins." This expression was repeated by Parliament in the 1976 Act, four years after the Ealing case with, it is reasonable to assume, knowledge of the meaning that the House of Lords had placed on it in the earlier legislation against race discrimination. In those circumstances it may be presumed that Parliament intended "national origins" to continue to have the same meaning in the 1976 Act: BBC Scotland v. Souster [2001] IRLR 150 (Court of Session-Inner House) per Lord Cameron of Lochbroom at paragraph 28, applying the principle in Barras v. Aberdeen Steam Trawling and Fishing Company Ltd [1933] AC 402 at 412, 442 and 445 that a word which has received a judicial interpretation must, when used in the same context in a later enactment, bear the same interpretation unless a contrary meaning is indicated.
  115. In this case the birth link criteria related to where Mrs Elias or her ancestors happened to have been born. Mr Sales submitted that this was an adventitious fact that does not operate to determine or identify a person's "national origins" for the purposes of the 1976 Act.
  116. The reasoning in the Ealing case has been followed in later cases, which have drawn a distinction in race discrimination law between different treatment on grounds of "national origins", as construed in Ealing, and different treatment on grounds of place of birth.
  117. In Tejani v. Superintendent Registrar for the District of Peterborough [1986] IRLR 502 the dismissal of a claim for direct race discrimination was upheld by the Court of Appeal. The claimant was a British national born in Uganda. He wished to marry. The Registrar asked all people from abroad to produce their passports. Mr Tejani produced his as requested, but later made a claim under the 1976 Act for direct discrimination on the ground of national origins. The court held that the reason why the Registrar took that course had nothing to do with race: it was because the claimant was born abroad. He would have taken the same course with everyone coming to this country from abroad, irrespective of their race or national origins: see the judgment of Slade LJ at p506.
  118. In Naraine v. Hoverspeed Ltd ...12 November 1999) Mr Naraine, who was a black Asian Caribbean born in Guyana, complained that Hoverspeed had unlawfully discriminated against him on racial grounds contrary to the 1976 Act by declining to carry him to France. His full British passport had expired. He held a British Visitor's passport, the holder of which the French authorities refused to admit to France if the document showed that the holder was born outside the UK. The French authorities also fined sea carriers who brought such passengers to France.
  119. The rejection of the claim for direct discrimination was upheld by the Court of Appeal. The reason for the refusal to carry him was that he lacked the travel documents required by the French authorities as a condition of entry and that the French authorities would fine Hoverspeed, if they did carry him. The refusal by Hoverspeed had nothing to do with the "national origins" of Mr Naraine. May LJ asserted an intrinsic distinction between national origins and place of birth in that a person's place of birth may be entirely fortuitous. It was a distinction recognised in the Ealing case and in Tejani. He pithily pointed out that being born a German and being born in Germany are two different things. See also AG's Reference (N0 4 of 2004: R v. D [2005] EWCA Crim 889.
  120. Mr Sales accordingly submitted that a criterion that distinguishes between applicants on the basis of the place of birth is not discrimination on the grounds of "national origins." This is so, even though statistically those who are born in the UK are more likely to have UK national origins than those who are not born in the UK .
  121. He disputed the suggestion that the generous extension of the place of birth criterion in this case to ancestors born in the UK in order to make the birth link criteria more inclusive had the effect of making the criterion so closely related to national origins as to lead in practice to almost the same differentiation as the adoption of national origins would have done. Having UK national origins was neither a necessary nor a sufficient condition of eligibility under the Compensation Scheme.
  122. Mr Sales contended that the CERD, to which particular reference had been made in the case for Mrs Elias for its reference to "descent", added nothing to her case. The domestic legislation on race discrimination complied with the CERD. As in the case of national origins, the birth link criteria neither excluded applicants of non-British descent nor guaranteed entitlement to applicants of British descent.
  123. The point was discussed by reference to different ways of posing the question of the ground of the treatment of Mrs Elias in refusing her application for compensation. First, there was the "reason why" approach as in Shamoon v. Chief Constable of the Royal Ulster Constabulary [2003] UKHL 11, [2003] ICR 337: why had Mrs Elias received less favourable treatment by being denied compensation? Secondly, there was the "but for" approach, as in James v. Eastleigh Borough Council [1990] 2 AC 751: would Mrs Elias have received the same treatment but for her national origins?
  124. The answers to these questions, Mr Sales submitted, did not lead to the conclusion that Mrs Elias was discriminated against on the grounds of her "national origins." She was denied compensation because she did not satisfy criteria as to her place of birth or that of her parents or grandparents. The criteria applied irrespective of her national origins. As the judge pointed out, even as someone with non-UK national origins, she might have qualified had a parent or grandparent been born in the UK, whether or not they were of UK national origins. Similarly a person with UK national origins would not inevitably qualify for a compensation payment.
  125. The different ways of putting the crucial question (why was Mrs Elias's application for payment refused?) produced the same answer: she could not establish that her place of birth or that of her parents or grandparents was in the UK. For that reason she could not satisfy the birth link criteria. It had nothing to do with the racial or national origins of Mrs Elias. Irrespective of her national origins, she could not satisfy the criteria.
  126. The point made by Mr Rabinder Singh QC for Mrs Elias was that, in order to answer the relevant question, it is necessary to look beyond the literal criteria of the place of birth to the central discriminatory purpose of the birth link criteria and to their discriminatory effect in favouring, on racial grounds, one group as compared with another. Direct discrimination on racial grounds can, he argued, occur even where the criteria are not expressly framed to refer to race. The judge had erred in only looking at the outer edges of application of the birth link criteria. The fringe cases had diverted the attention of the judge from the central purpose of the birth link criteria and led him to disregard the descent-based grounds for refusing payment.
  127. Applying the "purpose" or "effect" approach spelt out in Article 1 of CERD Mr Singh submitted that the birth link criteria were deliberately selected for the purpose of identifying and requiring a real, strong and close link between those eligible for compensation and the UK. Descent, parentage and national origins provide the link and they constitute direct discrimination against Mrs Elias.
  128. In practice in the vast majority of cases place of birth and national origins come to the same thing. It does not require statistical evidence or any other kind of evidence to establish that, for the vast majority of people in the UK, their place of birth and their national origins are one and the same. Birth criteria focus on origins of a national character, which are immutable characteristics acquired or imposed at birth. Further, the national origins in the criteria in this case were reinforced by the fact that they relate not only to the birth place of the applicant but also to the birth place of the applicant's parents or grandparents. The whole purpose of adopting such criteria was to identify those who could show a concept of "belonging to the UK" or "being British" in a more specific way than simply through being British subjects or civilians. Although it is accepted that place of birth is not identical to national origins, it is so close to it that it should be treated as direct discrimination on that racial ground. The criteria were designed for the very purpose of excluding from payment those of non-national UK origins or alien descent and to make only de facto Europeans eligible for payments under the Compensation Scheme. If her parents or grandparents had been born in the UK she would have qualified. She was treated less favourably because she was not of UK national origins.
  129. Why, Mr Singh forcefully protested, should peripheral cases of UK nationals, who are born outside the UK, and non-UK nationals, who are born in the UK, on which the judge relied, be determinative of whether the grounds on which an applicant is refused compensation under the Compensation Scheme are racial or not? The real reason why Mrs Elias could not satisfy the birth link criteria was because she did not have UK national origins. The refusal of her application was less favourable treatment of her "on racial grounds."
  130. This is a very pertinent question aimed at throwing real doubt on whether, in cases of this kind, there is a valid distinction between national origins and place of birth and whether there is any meaningful distinction in substance between the concepts of direct and indirect discrimination. What really matters, it is suggested, is whether the difference in treatment can be justified independently of racial grounds.
  131. Certainly, from the perspective of victims of discrimination, there is no difference in substance between direct and indirect discrimination, other than that the former is more open, explicit or obviously offensive racial treatment, which is less excusable than a neutrally worded requirement, condition, provision, criterion or practice applicable equally to persons not of the same race. Whatever the kind of discrimination, direct or indirect, the victim of the discrimination in this case has been subjected to a comparative disadvantage, to which those with UK birth links, who are predominantly of UK national origins, have not been subjected. The legal distinction drawn in the authorities on the interpretation of the 1976 Act between national origins and place of birth might well appear to the victims of race discrimination to be a hair splitting distinction, in which the substance of the matter is obscured by preoccupation with form.
  132. Mr Singh also submitted that overall the arguments advanced by the Secretary of State on the discrimination issue were contradictory and inconsistent. He said that the Secretary of State was impaled on Morton's Fork
  133. As to direct discrimination the Secretary of State sought to avoid the charge of a racially discriminatory purpose present in the birth link criteria by emphasising their random and adventitious aspects. Place of birth was where the mother of Mrs Elias happened to be when she gave birth. How could this be a racially discriminatory purpose?
  134. As to indirect discrimination, which is discussed in more detail below, the emphasis of the Secretary of State's submissions on objective justification was not on the fortuitous aspects of the birth link criteria, but on the purpose of requiring close links with the UK at the date of internment. This was a discriminatory purpose, as it was linked to grounds of UK descent or national origins and could not be relied on as a justification of race discrimination.
  135. The powerful submissions of Mr Rabinder Singh raised serious doubts in my mind about the correctness of the judge's ruling on this point, which, as Mr Singh pointed out, focused more on the edges of the effects of the criteria than on their central purpose or effect. In a general sense, discrimination with a discriminatory purpose, regardless of the particular form it takes, can be perceived as treating a person less favourably "on racial grounds."
  136. I am, however, clear that, in the present state of the law, the particular form of discrimination matters, even if there are present in the circumstances of the case a discriminatory purpose and discriminatory effects. The 1976 Act, as amended, makes an important broad distinction between two different forms of discrimination. This distinction is consistent with the Directive and this court must observe it.
  137. The discrimination complained of in this case does not take the direct form of treatment "on racial grounds." The birth link criteria take an apparently neutral form, which applies or would apply equally to all applicants for payments under the Compensation Scheme. It is the application of the neutrally worded criteria which produces the disparate adverse impact and puts persons of the same national origins at a particular disadvantage when compared with other persons. These are the distinguishing features of discrimination in its indirect form.
  138. On this aspect of the case I would make the following particular points.
  139. First, the 1976 Act clearly creates two different causes of action for race discrimination. They are two different statutory torts. The conditions of liability, the available defences to liability and the available defences to remedies differ. So far as remedies are concerned damages for injury to feelings for indirect discrimination were not available in cases of unintentional indirect discrimination contrary to section 1(1)(b): see section 57(3). (This has ceased to matter much in practice since the introduction of section 1(1A) as the defence to damages in section 57(3) has been removed for discrimination contrary to that section: see section 1(1C)).
  140. Secondly, it is well established on authority and in practice that the material facts for the separate causes of action need to be separately pleaded, proved and ruled on. Section 1 of the 1976 Act cannot be construed as collapsing two causes of action into a single cause of action, the ingredients of which are discriminatory purpose and/or discriminatory effects.
  141. Thirdly, the basic differentiation between the two causes of action is plain: it is between one form of discrimination, which focuses on treatment of another person on prohibited grounds and aims at achieving "formal equality" of treatment, and a different form of discrimination, which aims at achieving "substantive equality of results" where the application of apparently racially neutral criteria produces disproportionate adverse racial impact: see the trenchant observations in Secretary of State for Trade and Industry v. Rutherford [2006] UKHL 19 at paragraph 71 per Lady Hale.
  142. Fourthly, the distinction between the two forms of discrimination is recognised in the Directive, as well as in the original and the amended provisions of section 1 of the 1976 Act. It is not just a peculiar feature of UK domestic law.
  143. Fifthly, the availability of the defence of objective justification for one form of discrimination but not for another emphasises the importance of observing the separate nature of direct and indirect forms of discrimination. If the distinction is not observed, the result would be that the defence of justification would become available for direct discrimination. That result would not reflect the provisions of section 1 of the 1976 Act or be compatible with the Directive.
  144. Sixthly, there is a consistent line of authorities since the Ealing case which are binding on this court and are to the effect that less favourable treatment on the ground that you were not born in a particular country is different from less favourable treatment on the ground of "national origins" and that the former falls outside what is prohibited by the 1976 Act as direct discrimination. Although place of birth is not a racial ground, it may be prohibited as an indirect form discrimination, subject to the defence of justification which may be difficult to establish, because, as will be explained later, justification must address the substance and not just the form of the discrimination.
  145. Accordingly the judge was right, indeed bound, to rule as he did on the issue of direct discrimination. So is this court. Although I have continuing reservations, in principle, about the defensibility of a legal distinction between national origins and place of birth when determining whether there is direct race discrimination, I think that this court is bound by authority to dismiss this ground of the appeal by Mrs Elias.
  146. Indirect race discrimination: justification

  147. The Secretary of State conceded that the birth link criteria had an adverse impact on a greater proportion of applicants like Mrs Elias than on applicants who were born in the UK and had UK national origins. In other words the birth link criteria excluded a higher proportion of those with non-UK national origins than those with UK national origins. This is indirect race discrimination, which is unlawful, unless objectively justified.
  148. The issue of objective justification, which has a number of different aspects, is the most difficult point in the whole case. The court heard very lengthy arguments on many points with extensive citation of authorities dealing in generalities, which, like so much in this field, are easier to state in the abstract than to apply in practice to the facts of particular cases.
  149. A number of points fall to be considered: the relevance, if any, of the fact that, as reflected in the declaration under section 71 of the 1976 Act, the Secretary of State did not consider the question of justification at the relevant time because it was not accepted by him that there was any race discrimination; the question whether the justification relied on was "irrespective of race"; the level of scrutiny by the court appropriate to the defence of justification; whether there was a legitimate aim in the birth link criteria; whether there was a wide margin of appreciation or a discretionary area of judgment allowed to the Secretary of State in formulating the eligibility criteria; and whether the birth link criteria were a necessary and proportionate means of achieving a legitimate aim.
  150. Although Mrs Elias was successful overall on the absence of objective justification, she contends that the judge should have decided the case in her favour on a broader basis than he did. He should have held that there was no legitimate aim in seeking to achieve close links to the UK by reference to descent and that such an aim could not be justified by cost considerations or administrative workability.
  151. Failure to address potential race discrimination

  152. This is an important point affecting the court's overall view of the defence of justification. Mr Sales submitted that the Secretary of State was entitled to assert that the birth link criteria were justified, even though he had not addressed the issue of discrimination or possible justifications for it at the time of formulating the birth link criteria: Schonheit v. Stadt Frankfurt am Main [2004] IRLR 983 at paragraphs 86 and 87. Indirect discrimination may be justified, depending on the circumstances, by reasons other than those put forward when the measure introducing the differential treatment was adopted. What matters is that there are objective reasons for the criteria, which are unrelated to the forbidden grounds of, among other things, national origins and are such as to justify the measure concerned.
  153. While I do not doubt the correctness of the general proposition that in theory ex post facto justification of indirect race discrimination is legally permissible, it does depend on the circumstances. In R (Morris) v. Westminster City Council [2005] EWCA Civ 1184, [2006] 1 WLR 505 at paragraph 49 Sedley LJ referred to the difficulties of relying on the margin of appreciation in cases of attempts to justify discrimination, when it was not appreciated that the measure had a discriminatory impact and so no judgment at all was made as to whether the measure was proportionate or otherwise justified.
  154. There are several legal and practical difficulties in this case in advancing grounds of justification for a form of indirect discrimination that was not even considered when the birth link criteria were adopted and, when raised, was consistently denied down to the hearing of the case.
  155. First, the onus is on the Secretary of State to justify the birth link criteria as a matter of law and of objective fact. The onus is not on Mrs Elias to establish that the birth link criteria are unjustified, because they do not have a legitimate aim or because the means of pursuing a legitimate aim are disproportionate or because the birth link criteria cannot be justified "irrespective of race." I would also add that the onus is not on the court, as part of the exercise of margin of appreciation or area of discretionary judgment allowed by the court to the State, to search around for a justification of the birth link criteria in order to help the Secretary of State out of a situation of his own making.
  156. Secondly, one important consequence of the failure of the Secretary of State to address the indirectly discriminatory effects of the birth link criteria is the absence of an evidential basis for justifying the birth link criteria or for assessing the comparative discriminatory effects of other possible criteria as a means of confining compensation to those with close links with the UK. I agree that the requirement of close links with the UK would make it practically impossible to avoid some adverse disparate impact resulting from different neutrally worded criteria, such as requirements of residence or domicile. But, if the exercise of formulating the criteria had been properly carried out with due regard to the potentially discriminatory effects of requiring close links with the UK, there would probably have been brought into existence evidence in the form of data and reasons relevant to an informed choice of criteria, which might have had a lesser discriminatory impact than the birth link criteria. The kind of evidential material which ought to be available for deciding the issue of justification does not exist, because the selection of the eligibility criteria by the Secretary of State was carried out without due regard to the race discrimination issue.
  157. Thirdly, this court must give effect to section 71 of the 1976 Act, which placed on the Secretary of State a statutory duty which he has failed to perform. I think that this adds to the difficulties of the Secretary of State in now attempting to justify the imposition of the birth link criteria. He has to justify an act of discrimination committed in the carrying out his functions when, in breach of an express duty, he failed even to have due regard to the elimination of that form of unlawful race discrimination. He has to justify something which he did not even consider required any justification. In these circumstances the court should consider with great care the ex post facto justifications advanced at the hearing. I shall return to this point later.
  158. Legitimate aim

  159. The judge held that the aim of the birth link criteria was in principle legitimate (paragraph 73).The Secretary of State was entitled to limit eligibility to compensation to a category narrower than everyone who was a British subject at the time of internment by requiring the applicant to have close links with the UK.
  160. In formulating a legitimate aim the Secretary of State was entitled to take into account a number of factors: considerations of social and national solidarity; administrative workability; and the cost to the UK taxpayers of funding as part of the definition of the Compensation Scheme and the financial consequences of decisions. The court was referred to Hoogendijk v. The Netherlands (2005) 40 EHRR SE22 189 at 204-205, a case on Article 14 of the Convention in relation to an alleged violation of a violation of rights under Article 1 of Protocol No 1. The case concerned loss of entitlement to disablement benefits. It was held that the control of public expenses by the State is a legitimate aim for the purposes of securing social justice and protecting the State's economic well-being. In this respect, in implementing social and economic policies, the margin of appreciation enjoyed by the national authorities in determining what is in the general interest of the community is a broad one. The court went on to consider the issue of proportionality and held that, given the wide margin of appreciation enjoyed by Contracting States in implementing social and economic policies, the decision complained of could not be considered disproportionate to the legitimate aims pursued and so there was no violation of Article 1 of Protocol No 1.
  161. As to whether it was legitimate to require applicants for benefits to demonstrate a sufficient connection with the paying state, as they are national in character and express a debt of national gratitude, it was submitted on behalf of Mrs Elias that national solidarity cannot justify a measure which, by requiring a national connection, has disparate impact on persons of a particular race nationality or national origin.
  162. Mr Sales summarised four factors as justifying the aim of narrowing the class of British subjects by requiring close links with the UK. First, the immense size of the "British subject" group, many living in territories that are now independent and not financed by UK public funds. Secondly, the fact that military prisoners of war were the main focus of the compensation payments initially. As they were confined to UK Armed Forces, a similar equivalent connecting factor was sought for civilian claimants. Thirdly, the cost to the public purse. Fourthly, the need for understandable and administratively workable criteria.
  163. He also pointed out that there was no single obviously "right" solution. There was no rule of EC law against "national solidarity" in the distribution of benefits of this kind, such as social security benefits, which were an act of national recognition by particular states to those with genuine links with that state. Ex gratia payments of the kind made under the Compensation Scheme as expressions of national gratitude were an a fortiori case.
  164. A rational attempt had been made to make the criteria more inclusive by extending place of birth from the applicant to parents and grandparents and to relate the requirement of close links with the UK to the position as at the date of internment. It had been held by his court in ABCIFER that this was not an irrational aim with which to start.
  165. Mr Rabinder Singh criticised the judge's finding of the legitimate aim of the birth link criteria on a number of grounds.
  166. First, as already mentioned, there was no national or social solidarity as a legitimate aim in this case, as the solidarity was judged by national origins/racial descent. He cited Cowan v. Tresor Public ...Case 186/87) [1989] ECR 195 at paragraphs 16 and 17, a case on freedom of movement, in support of the proposition that the principle of national solidarity cannot justify a measure relating to the award of compensation which has discriminatory effects on grounds of nationality.
  167. Secondly, economic considerations could never be relied on to justify race discrimination. The curtailing of the cost of the scheme was not a legitimate aim. In this case it was, in any event, an ex post facto consideration and the estimated figures showed that only a comparatively small group was disadvantaged by the birth link criteria.
  168. Thirdly, administrative workability was not a legitimate aim. In this case it was relied on ex post facto. There had been no difficulty in making a large number of payments in February 2001 before the birth link criteria were settled.
  169. I think that the question of legitimate aim has to be looked at in the round. In my judgment the judge was right to conclude that overall the aim of confining the payments to those with close links with the UK was a legitimate one. The real question is not about the end to be achieved but the means by which it was to be achieved and, in particular, whether the birth link criteria were a reasonably necessary and proportionate way of achieving the aim. I would make the following points.
  170. First, I agree with the judge that ends must be distinguished from means. The overall aim sought to be achieved was to require close links of the applicants for compensation with the UK. The birth link criteria were the means chosen to achieve that end. The critical issue is whether they are proportionate means to achieve the end. I shall deal with that point later.
  171. Secondly, national or social solidarity can justify the aim of close links to the State supplying the benefits. I do not think that Cowan v. Tresor Public is authority for such a wide legal proposition as that advanced on this point by Mr Rabinder Singh.
  172. Thirdly, cost is not itself an aim or part of the aim. It is a factor in selecting the means and it falls to be considered as part of the proportionality exercise discussed below.
  173. Fourthly, the same comment applies to the administrative workability of the criteria selected as a means of achieving the aim of close links with the UK.
  174. Standard of scrutiny

  175. In deciding the issue of proportionality there was significant disagreement on the preliminary point of the appropriate level of scrutiny of the birth link criteria.
  176. In the ABCIFER the Court of Appeal rejected the contention that the birth link criteria were irrational. That does not, of course, determine this case. As the issue of race discrimination was not raised the court did not have to consider the question whether indirect race discrimination was objectively justified.
  177. The standard of justification in race discrimination is the more exacting EC test of proportionality. As held by the Court of Justice in Bilka Kaufhaus GmbH v. Weber von Harz [1986] ECR 1607 at paragraphs 36 and 37 the objective of the measure in question must correspond to a real need and the means used must be appropriate with a view to achieving the objective and be necessary to that end. So it is necessary to weigh the need against the seriousness of the detriment to the disadvantaged group. It is not sufficient that the Secretary of State could reasonably consider the means chosen as suitable for attaining the aim.
  178. The judge was criticised by Mr Sales for applying "intense scrutiny" to the birth link criteria. The judge did so, as he regarded the criteria as too closely related to "national origins."
  179. Mr Sales submitted that there was a broad margin of appreciation or discretionary area of judgment allowed by the courts in areas of social and economic policy, as, for example, in the distribution of social security benefits.
  180. A wide margin of appreciation or discretion was a recurrent theme of the submissions of Mr Sales on the different aspects of justification and it was the main plank for his criticisms of the judge's ruling on proportionality. He submitted that the judge failed to accord to the Secretary of State in relation to the Compensation Scheme an appropriate margin of appreciation in using "bright line" criteria which were easy to understand and administratively workable.
  181. He relied on Hoogendjik v. The Netherlands ...see above) at 205 and 207-208 as showing that a wide margin of appreciation should be accorded to national authorities in a case in which what is impugned is a social policy decision on the basis of discrimination on "a suspect ground." This approach in earlier decisions was, he argued, re-inforced by the very recent decision of the Strasbourg Court in Stec v. UK ... 12 April 2006- Application Nos 65731/01 and 65900/01). It is a case on a state welfare benefits scheme in which the criteria, which were linked to the different pensions ages for men (65) and women (60) directly discriminated on the ground of sex. It was held that the discrimination was justified. The Court said-
  182. "50. The applicants complain of a difference in treatment on the basis of sex, which falls within the non-exhaustive list of prohibited grounds of discrimination in Article 14.
    51. Article 14 does not prohibit a Member State from treating groups differently in order to correct "factual inequalities" between them; indeed in certain circumstances a failure to attempt to correct inequality through different treatment may in itself give rise to a breach of the article …….. A difference in treatment is, however, discriminatory if it has no objective and reasonable justification; in other words, if it does not pursue a legitimate aim or if there is not a reasonable relationship of proportionality between the means employed and the aim sought to be realised. The Contracting State enjoys a margin of appreciation in assessing whether and to what extent differences in otherwise similar situations justify a different treatment. …
    52. The scope of this margin will vary according to the circumstances , the subject matter and the background ( see Petrovic v. Austria …) As a general rule, very weighty reasons would have to be put forward before the Court could regard a difference in treatment based exclusively on the ground of sex as compatible with the Convention. …On the other hand, a wide margin is usually allowed to the State under the Convention when it comes to general measures of economic or social strategy. ….Because of their direct knowledge of their society and its needs, the national authorities are in principle better placed than the international judge to appreciate what is in the public interest on social or economic grounds, and the Court will generally respect the legislature's policy choice unless it is "manifestly without reasonable foundation."
  183. Mr Sales submitted that it was sufficient to show that the Secretary of State could reasonably consider that the means chosen were "suitable for attaining the aim". The judge has misdirected himself by relying on cases of direct discrimination when he had already correctly concluded that this was not a case of direct discrimination.
  184. It was argued that a wide margin of appreciation was appropriate in this case, as it had been recognised that special considerations applied to one-off war payments. There was a one-off moral objective, which had major economic consequences, principally because of the potential impact of the removal of the birth link criteria on the military eligibility criteria if they were extended to include all military personnel who were British subjects when they became prisoners of war.
  185. In my judgment, the judge correctly adopted a rigorous standard in scrutinising the reasons advanced by the Secretary of State in justifying the birth link criteria.
  186. The submissions made by Mr Sales do not meet the point that, although the race discrimination is indirect in form, objective justification must address the particular substance of the discrimination, which flows from the neutrally worded condition or requirement.
  187. Although the birth link criteria are not direct discrimination in the form of treatment on "racial grounds", as they relate expressly to place of birth, they are in substance very closely related to treatment on "racial grounds." This is because it is self evident that the overwhelming proportion of applicants born in the UK, or whose parents or grandparents were born in the UK, have UK national origins as compared with the overwhelming proportion of applicants not born in the UK who do not have UK national origins.
  188. Even though UK national origins are not formally specified in the birth link criteria, Mrs Elias' exclusion from the Compensation Scheme is in substance very closely related to her non-UK national origins. It is that exclusion that has to be objectively justified. A stringent standard of scrutiny of the claimed justification is appropriate because the discrimination, though indirect in form, is so closely related in substance to the direct form of discrimination on grounds of national origins, which can never be justified.
  189. If this is the correct approach, as I think it is, it is difficult for the Secretary of State to rely on a wide margin of appreciation or a broad discretionary judgment. I agree with the judge that the speech of Lord Fraser in Orphanos v. Queen Mary College [1985] AC 761 supports the stringent standard of scrutiny in seeking to justify indirect discrimination, which is closely related to "racial grounds".
  190. I agree with Mr Rabinder Singh's point that, at the heart of the Secretary of State's case, there is a serious contradiction. It does not, in my view, as Mr Singh asserts, make the discrimination direct, but it does make the substance of the indirect discrimination very difficult to justify. The contradiction is that, on the one hand, in order to avoid liability for unjustifiable direct discrimination, the Secretary of State focuses on the happenstance of "place of birth" as where the mother of the propositus just happens to be at the moment of birth, which has no necessary close link with the national origins of the mother or child. On the other hand, when it comes to justification of admitted indirect discrimination, the Secretary of State is at pains to emphasise the legitimate aim of close requiring links of applicants with the UK, which, in substance, involve their national origins and are difficult to justify as proportionate means which are appropriate and necessary to that end.
  191. Proportionality

  192. The judge correctly considered that the proportionality issue was at the heart of the case on justification.
  193. A three stage test is applicable to determine whether the birth link criteria are proportionate to the aim to be achieved: see de Freitas v. Permament Secretary of Ministry of Agriculture, Fisheries and Housing [1999] AC 69 at 80 and R (Daly) v. Secretary of State for the Home Department [2001] UKHL 26, [2001] 2 AC 532 at paragraph 27 and 28. First, is the objective sufficiently important to justify limiting a fundamental right? Secondly, is the measure rationally connected to the objective? Thirdly, are the means chosen no more than is necessary to accomplish the objective?
  194. The first issue has been covered by the earlier discussion on the legitimacy of an aim requiring the applicant to have close links with the UK. The issue of justification turns on the second and third aspects of the proportionality of measure (the birth link criteria) which is the chosen means of accomplishing the aim.
  195. The judge thought that the birth link criteria were not necessary and proportionate to achieve the legitimate aim of requiring close links with the UK at the date of internment.
  196. He was particularly influenced by two factors: first, the fact that the birth link was "very closely linked to national origins" (paragraph 89) and, secondly, by the consideration that the birth link criteria were by no means the only way in which the Secretary of State could have achieved the legitimate objective of restricting the category of British subjects, such as a period of residence in the UK before internment or criteria based on domicile. There would still be disparate impact, but it would be further removed from the forbidden racial ground of national origins.
  197. This made it necessary to make a stringent assessment of the justification advanced.
  198. This was disputed by Mr Sales. He contended that the judge erred in focussing on the criteria themselves instead of on the particular justification for them. The justification advanced by the Secretary of State was independent of and irrespective of national origins.
  199. States, he said, have a wide margin of appreciation in determining whether policies in the field of social or economic policies are proportionate to a legitimate aim. The means were proportionate if the state could reasonably consider that the means chosen were suitable for attaining that aim. There was a discretionary area of judgment, even where the Secretary of State had failed to consider the issue of justification.
  200. The judge had also failed to consider and compare other means by which the legitimate aim could have been achieved. If this was done, the birth link criteria satisfied the proportionality test. The Compensation Scheme had to identify those who qualified for payment. The criteria for close connection were appropriate. Other states had chosen criteria. It was an inevitable feature of the very nature of the scheme that the criteria are satisfied by a greater number of persons whose origins are those of the relevant country. The means chosen were rationally connected to the aim and could be reasonably considered to be suitable to attain the end. The alternatives of residence or domicile were no more obviously generous to those of non-UK national origins.
  201. In my judgment, the judge was right to find that the means used were not proportionate to the aim. In reaching a decision on proportionality it is important to focus on the particular circumstances of this case rather than on the different circumstances of other cases. I would make the following particular points about this case.
  202. First, the concepts of margin of appreciation and discretionary judgment developed by the Strasbourg Court in relation to Convention rights have to be cautiously applied to this case, which is not dealing with a Convention right or with Article 14 of the ECHR.
  203. Under domestic law implementing the Directive, the Secretary of State was under an express statutory duty not to discriminate on racial grounds. There is an unappealed ruling that he acted in breach of that duty. It is more difficult for the Secretary of State to justify the proportionality of his choice of the birth link criteria as a matter of discretionary judgment when he did not even consider whether or not he was indirectly discriminating on racial grounds. This is particularly so when the indirect discrimination which it is sought to justify is in substance very close to direct discrimination on racial grounds, which can never be justified under the 1976 Act. It must be more difficult to give a wide margin of appreciation to discrimination in these circumstances.
  204. Secondly, it is relevant to take account of the fact that, as the Compensation Scheme was not properly thought out in the first place, the issue of discrimination was not properly addressed at the relevant time and that poor standards of administration were evident. Consequently there was no proper attempt to achieve a proportionate solution by examining a range of criteria as a means of determining close links with the UK and by balancing the need for criteria to achieve the legitimate aim of close links with the UK with the seriousness of the detriment suffered by individuals who were discriminated against.
  205. Thirdly, the birth link criteria produce anomalous or even absurd results, because there is no real match between the end and the means. An applicant who did not have a close connection with the UK would qualify simply because his or her mother was on holiday here at the date of birth.
  206. Fourthly, as there was no proper consideration of whether there were other less discriminatory means of restricting payments to those with a close link to the UK, there is no evidential basis for finding that the birth link criteria were the only criteria that were reasonably necessary and proportionate to achieve the legitimate aim.
  207. I would add three comments on points which I consider to be irrelevant to proportionality. The first is the "numbers" point. The argument that the birth link criteria adopted are justified because they are more inclusive than other possible birth link criteria that could have been adopted, as they include the place of birth of a parent or grandparent, is irrelevant to proportionality. The argument that more people are receiving favourable treatment does not justify treating others less favourably if they are excluded on what are, in substance, racial grounds.
  208. The second point is that when the Secretary of State reviewed the Compensation Scheme and decided to amend the criteria so that Mrs Elias became eligible for compensation by virtue of more than 20 years residence in the UK, he was able to d