Secretary of State for Transport, Ex Parte Factortame Ltd and Others, R v. [1999] UKHL 44; [2000] 1 AC 524; [1999] 4 All ER 906; [1999] 3 WLR 1062 (28th October, 1999)

BAILII is celebrating 24 years of free online access to the law! Would you consider making a contribution?
No donation is too small. If every visitor before 31 December gives just £1, it will have a significant impact on BAILII's ability to continue providing free access to the law.
Thank you very much for your support!

	[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	United Kingdom House of Lords Decisions
You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Secretary of State for Transport, Ex Parte Factortame Ltd and Others, R v. [1999] UKHL 44; [2000] 1 AC 524; [1999] 4 All ER 906; [1999] 3 WLR 1062 (28th October, 1999) URL: http://www.bailii.org/uk/cases/UKHL/1999/44.html Cite as: [2000] 1 AC 524, [1999] 3 CMLR 597, [2000] AC 524, [1999] 4 All ER 906, [1999] 3 WLR 1062, [1999] UKHL 44, [2000] Eu LR 40

HOUSE OF LORDS

Lord Slynn of Hadley Lord Nicholls of Birkenhead Lord Hoffmann
Lord hope of Craighead Lord Clyde

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT

IN THE CAUSE

In this important case your Lordships have had the advantage, in addition to formal written cases, of most able and admirably concise oral arguments from Counsel on behalf of all parties. Those parties are, as Appellant, the Secretary of State for Transport, in effect representing the United Kingdom, and, as the Respondents, companies (or shareholders or directors of companies) and individuals who owned or managed vessels which were part of the British fishing fleet until they lost their registration on 31 March 1989 as a result of legislation, including delegated legislation, adopted in the United Kingdom. That legislation has been held by the European Court of Justice to constitute a breach of Community Law by the United Kingdom and the question on this appeal is whether the Appellant's breaches of Community Law were sufficiently serious to give rise under Community Law to a right to compensatory damages to those who can show that the breach caused them damage. Any question of causation has been left over pending a determination as to the seriousness of the breach for the purpose of Community Law.

The Divisional Court and the Court of Appeal unanimously held that the breaches were sufficiently serious for that purpose. A claim for exemplary damages, though originally made, has not been pursued before the Court of Appeal or before your Lordships' House. It is not suggested that there is any need to make a reference to the European Court under Article 177 of the Treaty, the assessment of seriousness being for the national court (Brasserie du Pecheur SA v. Federal Republic of Germany and Reg. v. Secretary of State for Transport, Ex parte Factortame Ltd. (No. 4) (Cases C-46 and 48/93) [1996] QB 404, 500, para. 58 ("Factortame III").

The case has a long history both on the facts and in relation to the judicial proceedings before courts in the United Kingdom and before the European Court of Justice. Those facts and proceedings are recited in detail in the judgment of the Divisional Court ([1997] EuLR 475) to which I refer. Since with one exception the findings of fact were accepted before the Court of Appeal and before your Lordships' House it is neither necessary nor useful to set them all out again. I therefore confine myself to indicating the important stages of the saga.

From 1970 the European Community established, as part of the Common Agricultural Policy, a Fisheries Policy, pursuant to Article 38 of the E.E.C. Treaty. This arose partly out of concern for the over-fishing of stocks in the North Sea and Atlantic Ocean but also out of a desire to ensure equality for the vessels of member states in access to fishing grounds and to exclude the fishermen of non-member states from those grounds other than on terms agreed by the Community. Such an agreement was made by the Community with Spain in 1980 (i.e. before Spain's accession to the Community) giving Spanish vessels the right to fish for particular species in identified waters of the member states.

The adoption of this policy meant that domestic rules as to fisheries had to comply with the rules of the Common Fisheries Policy and the United Kingdom on accession in 1973 became subject to those rules.

The common fisheries policy in fact developed more slowly than the common agricultural policy but in 1980 by Council Declaration of 8 May 1980 on the Common Fisheries Policy (O.J. 1980 C 158/2) the Council set out guidelines on which the Policy was to be based. These emphasise the importance of having regard to the needs of regions where the local population was dependent on fishing, to traditional fishing activities in those regions and to the fair distribution of catches.

By Council Regulation E.E.C. No. 170/83 (O.J. 1983 L24/1) of 25 January 1983 the Community set up a system of national quotas for "total allowable catch[es]" based in part on catches for the years 1973-1978 and it issued multi-annual guidance programmes dealing with fishing capacity and fleets.

From 1976 Spain had conferred advantages (e.g. as to landing rights) on Spanish fishing companies which were entered on the register of another State so as to be able to fish in that State's waters, in order that those companies retained their economic links with Spain (Royal Decree 2517./1976). The United Kingdom took the view that Spanish vessels were registered on the British register so as to obtain access to United Kingdom fishing grounds in a way which went beyond what had been agreed between the Community and Spain in 1980 and that to all intents and purposes these were Spanish vessels using up the British quota. The owners of these fishing vessels (and the directors of and shareholders of companies owning vessels) were Spanish; many of the fishermen were Spanish; the catches went to Spain. Local British fishing communities accordingly derived no benefit from these activities which even when carried out on British registered vessels were essentially Spanish.

It is hardly surprising that the British Government wished to do something to protect these British fishing communities and those vessels which were intrinsically, as opposed to merely legally, British and also to protect the British national quotas. There is no doubt that in international law and under domestic law steps could have been taken to control registration on the British register and to regulate the fishing of particular stocks. What could be done was, however, subject to Community Law and the British Government sought unsuccessfully to persuade the Commission to take steps to prevent what the United Kingdom was complaining about and which came to be referred to as "quota hopping".

In order to deal with the substantial number of Spanish vessels which had been re-registered on the British register and of British registered boats acquired by Spanish companies and individuals, the United Kingdom enacted in March 1983 the British Fishing Boats Act 1983 and it made the British Fishing Boats Order 1983 (S.I. 1983 No. 482) which required vessels registered on the British register to have a crew of at least 75 per cent E.E.C. nationals before they could fish lawfully in British fishing grounds. That excluded the Spanish fishermen. But when Spain acceded to the Community with effect from 1 January 1986 (and thereby became subject to Community rules) the 1983 legislation ceased to achieve its objective. Pursuant to the Sea Fish (Conservation) Act 1967 new licensing conditions were therefore introduced on 1 January 1986 which required that 75 per cent of the crew must be nationals of E.E.C. States and reside ashore in the United Kingdom. All the crew had to pay United Kingdom Social Security contributions and the vessels had to show that they operated from British ports either by at least visiting the ports four times a year or by landing and selling 50 per cent by weight of landed fish in the United Kingdom. These conditions as to nationality, residence and social security contributions were held on 14 December 1989 to be contrary to Community Law (though the operating condition was held not to be unlawful) by the European Court in Reg. v. Ministry of Agriculture, Fisheries and Food, Ex parte Agegate Ltd. (Case C-3/87) [1990] 2 QB 151. A challenge to the operating condition was made in Reg. v. Ministry of Agriculture, Fisheries and Food, Ex parte Jaderow Ltd (Case C-216/87) [1990] 2 Q.B. 193 the Spanish owned vessels agreed to comply with the operating condition and the United Kingdom agreed not to enforce the crew residence and national insurance contribution conditions.

Even before the judgments in Agegate and Jaderow the Government took the view that the position was getting worse since Spanish controlled vessels were increasing their take from British quotas; British fishing communities accordingly were further disadvantaged. The way to tackle the problem was seen to be to change the rules on registration rather than on licensing. As a result the Merchant Shipping Act 1988 was enacted with effect from 1 December 1988 and the Merchant Shipping (Registration of Fishing Vessels) Regulations 1988 (S.I. 1988 No. 1926) also came into force on the same date.

By section 14 of the Act a vessel could only be entered on the register as a British fishing vessel if it was British owned. To qualify as such the legal owners and not less than 75 per cent of the beneficial owners had to be qualified persons or companies. In addition the charterer, manager or operator of the fishing vessel had to be a qualified person. The vessel to qualify had to be managed and its operation be directed and controlled from within the United Kingdom. A "qualified person,"so far as relevant, meant

Section 14 further provided in sub-section 4 that where, in the case of any fishing vessel, the Secretary of State was satisfied that the vessel could not be registered as a British fishing vessel because the individuals were not British citizens, but that it would be appropriate to dispense with the requirement of British citizenship in the case of that individual in view of the length of time he had resided in the United Kingdom and been involved in the fishing industry of the United Kingdom, the Secretary of State might dispense with the nationality requirements.

Questions as to the legality under Community Law of these conditions was referred to the European Court of Justice under Article 177 of the Treaty in March 1989 by the Divisional Court. On 18 May 1989 your Lordships' House referred the further question as to whether under Community Law English courts were required to have the power to grant interim protection for rights claimed under Community Law, a question answered in the affirmative by the European Court on 19 June 1990 in its judgment in Reg. v. Secretary of State for Transport, Ex parte Factortame Ltd. (Case C-213/89) [1990] ECR I-2433 ("Factortame I").

On 7 August 1989 the Commission began proceedings under Article 169 of the Treaty against the United Kingdom contending that the nationality condition was in breach of articles 7, 52, 59 and 221 of the Treaty and applying for interim measures to require that condition not to be applied pending the decision in the main proceedings.

On 10 October 1989 the President of the European Court made an order for interim measures in the Article 169 proceedings pending judgment in those proceedings. His order was that:

This Order was given effect to by the Merchant Shipping Act 1980 (Amendment) Order 1989 (S.I. 1989/No. 2006) which came into force on 2 November 1989. This was limited to the nationality condition. By a letter before action of 13 June 1990 pursuant to article 169 the Commission added its objection both to the domicile and to the residence conditions.

In Reg. v. Secretary of State for Transport, Ex parte Factortame Ltd. (No. 3) (Case C-221/89) [1992] QB 680 ("Factortame II"), the European Court on 25 July 1991 held that although member states could determine in accordance with the rules of international law the conditions for the registration of vessels on their register and the right to fly their flag they still had to comply with Community law. The Court further held that the requirement of nationality, residence and domicile for legal and beneficial owners, charterers, and managers and operators of fishing vessels registered on a member state's register were contrary to Community Law and in particular to article 52 of the Treaty, although articles 5,7, and 221 thereof were also breached. They held that the power to dispense with the nationality requirement on the grounds of a period of residence did not justify the requirements of nationality, residence or domicile. Nor were such requirements justified by the fact that the Common Fisheries Policy provided for national quotas to be fixed. On the other hand they held that the requirement that the vessel be managed and its operations directed and controlled from within a member state was not contrary to Community law.

That was not, however, sufficient redress for the Respondents. They had already claimed that they had suffered financial loss caused directly by the United Kingdom's breach of Community Law in adopting and applying the Merchant Shipping Act 1988 on the basis of Francovich v. Italian Republic (Cases C-6/90 and C-9/90) [1991] E.C.R. 5357. Their entitlement to compensation was now the issue. The Divisional Court referred to the European Court first the question whether when the three conditions to which I have referred had been laid down by primary legislation and had been held to infringe articles 5, 7, 52 and 221 of the E.C. Treaty, the owners or managers of such vessels or directors and shareholders in vessel-owning and managing companies were entitled to compensation as a matter of Community Law for the losses suffered as a result of the breaches of the Treaty. Second, the court asked, if they were entitled, what considerations the national court should apply in determining the claims for damage relating to

In its judgment of 5 March 1996 in Factortame III (cases C-46/93 and C-48/93) [1996] QB 404, 506 the European Court replied:-

It was accepted by the appellant that the relevant rules of Community Law were intended to confer rights on individuals and, as I have already said, the question of causation it was agreed should be left over. But it is said that the United Kingdom's breach or breaches were "sufficiently serious" to entitle the Respondents to compensation for the damage suffered which it is said is substantial.

In addition to the fundamental importance of the principal breach (as held by the European Court of Justice in "Factortame II") the Divisional Court regarded as serious the fact that discrimination on the ground of nationality was the intended effect of the domicile and residence conditions, that the Secretary of State was aware that the imposition of the conditions must necessarily injure the applicants because the conditions were intended to ensure that the applicants would no longer fish against the British quota, that the attitude of the Commission was hostile and that the Government decided to adopt the conditions by primary legislation, the consequence of which was that under domestic law the applicants could not get interim relief. The Divisional Court added [1997] EuLR 475, 518:-

The Court concluded that the appellants' breaches of Community Law including the breach in complying with the President's Order of 10 October 1989 was sufficiently serious to give rise to liability for any damage that might subsequently be shown to have been caused by the appellant to the respondents.

The Court of Appeal [1998] Eu.L.R.456, 475 was of the opinion that the seriousness of the breach "has to be judged objectively taking into account all the relevant circumstances [including] the circumstances identified by the European Court of Justice in Factortame III.

As to the residence condition standing alone (which was relevant to applicants who satisfied the nationality and domicile conditions) the Court of Appeal said at pp. 476-477:

Both the Divisional Court and the Court of Appeal expressed concern about the way that the 84th applicant, Rawlings (Trawlers) Limited (one of whose shareholders and directors, Mr. Yllera, was a Spanish national) had been treated on its application for a dispensation under section 14(4) of the Act in view of his integration in the British fishing industry. They also expressed similar concern about the way in which the 85th to 97th applicants (Mr. and Mrs. O'Connor and their companies other than management companies) had been treated. He was an Irish national and his wife a Belgian national. They therefore failed on nationality, but, having been resident in the United Kingdom and having worked with the British fishing fleet since 1978, they applied for, but were refused, a dispensation under section 14(4) of the Act of 1988. The Divisional Court thought the policy uncertain and confused and inconsistently applied. The Court of Appeal regarded this treatment as adding to the seriousness of the breach, which was however established sufficiently without reliance on the way they had been treated on their application for a dispensation and the nationality condition.

On this appeal the Solicitor-General accepts that since "domicile" in the Act was intended to have its meaning in English law as residence with an intention permanently to reside (and not merely residence with a substantial connection with the United Kingdom), it is to be treated in the same way as the nationality requirement and not in the same way as the residence requirement He was in my opinion right to take that view since domicile in the intended sense was at least as restrictive and discriminatory as the nationality requirement. He also accepts that the failure to give effect to the President's Order of 10 October 1989 until 2 November 1989 was itself a sufficiently serious breach to entitle at any rate the respondents resident here (but not satisfying the nationality test, in particular Rawlings) to compensation for the period of delay. This was in line with the view of the Divisional Court based in part on the statement by the European Court of Justice (Factortame III [1996] QB 404, 464, para. 64) that if the United Kingdom failed to adopt immediately the measures needed to comply with the President's Order of 10 October 1989 this "should therefore be regarded by the national court as constituting in itself a manifest and, therefore, sufficiently serious breach of Community law".

I agree with the Divisional Court that the President's Order took immediate effect and that, therefore, to refuse Rawlings' application for registration on the day following the President's Order, on the basis that legislation by Order in Council was needed, or at any rate was to be awaited, before the President's Order could be put into effect was a breach in itself, and on the basis of the European Court's judgment was a sufficiently serious breach. I consider therefore that the Solicitor-General was right also to accept that result.

The appellant contends, however, that the Divisional Court and the Court of Appeal were wrong in their conclusions that there had been a sufficiently serious breach of Community law. In summary it is said that here the United Kingdom was adopting legislation to deal with a serious economic problem. In deciding what to do it had a wide measure of discretion and damages can only be awarded if there is a manifest and grave disregard of its powers; to impose liability otherwise would be to inhibit legislative action which was necessary. Even where there is a breach of Community law there can be no liability to compensate where the breach was excusable. Here the breach was excusable since the law was not clear until the judgment in Factortame II [1992] QB 680 and there were substantial objective grounds to justify what was done when regard is had both to the existence of the common fisheries policy, which is intended to provide national quotas which member states are entitled to protect, and to a state's rights under international law to decide who should be entitled to register a vessel on its register and to fly its national flag. Moreover other member states adopted the same approach as the United Kingdom, the courts here regarded the issue as difficult (as in the judgments preceding Factortame I in the European Court) and the Government obtained and relied on independent legal advice that what they proposed to do would be accepted under Community law. Even if the action was discriminatory it could still in law, and was here, excusable. The United Kingdom was not bound to follow the opinion of the Commission and its action cannot be said to be a sufficiently serious breach merely because the Commission took the view that what was done was a breach of Community law. Moreover the United Kingdom was not deliberately setting out either to breach Community law or to injure the respondents and throughout it acted in good faith even if its clear intention was to prevent foreign owners, and particularly Spanish owners, from using the device of having or registering their vessels on the British register in order to fish against the British quota and thereby to take the fishing away from local British fishing communities and to send the fish to Spain. Even if the breach caused by the nationality condition was sufficiently serious, it is said that the breach consisting of the residence condition was not.

My Lords in Frankovich (supra), a case where there had been a failure to implement a directive, the European Court said at paragraph 37 "it is a principle of Community law that the member states are obliged to make good loss and damage caused to individuals by breaches of Community law for which they can be held responsible". The court did not indicate what were the conditions for such liability or what if any defences would be available to a member state in breach of Community law obligations, save that in the case of a directive liability was conditional on there being a grant of rights to individuals by the directive, that the contents of those rights were clear, and that the loss suffered was shown to be caused by the state's breach. The further scope of the remedy was left to be worked out in subsequent cases as it has been in Factortame III.

The European Court has made it clear that, in deciding whether a state should be held liable, regard should be had to the principles laid down by the Court of Justice in deciding whether the Community itself would be held liable "in accordance with the general principles common to the laws of the Member States, [to] make good any damage caused by its institutions" (article 215). In Factortame III para. 42 the Court said, "the conditions [for state liability] cannot, in the absence of particular justification, differ from those governing the liability of the Community in like circumstances. The protection of the rights which individuals derive from Community law cannot vary depending on whether a national authority or a Community authority is responsible for the damage".

The basic approach is clear. Before a member state can be held liable, a national court must find (i) that the relevant rule of Community law is one which is intended to confer rights on individuals; (ii) the breach must be sufficiently serious; (iii) there must be a direct causal link between the breach and the loss or damage complained of. That condition (i) is satisfied is rightly accepted by the Appellants; (iii) is deferred if the Respondents succeed on (ii). The question, therefore, is what constitutes being "sufficiently serious" and whether the Divisional Court and the Court of Appeal were right to hold that the breaches here were sufficiently serious. It has in this regard particularly to be borne in mind that what is attacked in the first place here is a state's decision to adopt legislation, though in the second place the respondents complain about the way in which the legislation was applied.

In view of the court's judgment in Factortame III it is not necessary to examine in detail the earlier judgments of the Court of Justice under article 215 but reference should be made to Bayerische HNL Vermehrungsbetriebe G.m.b.H & Co. K.G. v. Council and Commission of the European Communities (Joined Cases 83 and 94/76 and 4, 15 and 40/77) [1978] E.C.R. 1209, Ireks-Arkady G.m.b.H. v. Council and Commission of the European Communities (Case 238/78) [1979] ECR 2955 and Mulder v. Council and Commission of the European Communities (Joined Cases C-104/89 and C-37-90) [1992] ECR I-3061

In Bayerische the Court stressed at p. 1224 that the fact that Community legislation is null and void does not entitle an individual to compensation where choices of economic policy are involved - it is only where there has been "a sufficiently serious breach of a superior rule of law for the protection of the individual"; "public authorities can only exceptionally and in special circumstances incur liability for legislative measures which are the result of choices of economic policy"; "the Community does not therefore incur liability unless the institution concerned has manifestly and gravely disregarded the limits on the exercise of its powers."

In Ireks-Arkady the Court in adopting what had been said in Bayerische said, at p. 2973, para. 11 that the prohibition in article 40(3) of the E.E.C. Treaty of discrimination in the common organisation of the agricultural markets "occupies a particularly important place among the rules of Community law intended to protect the interests of the individual". In that case a limited and clearly defined group of commercial operators was affected and the damage alleged "goes beyond the bounds of the economic risks inherent in the activities of the sector concerned" (paragraph 11). In Mulder v. Council and Commission of the European Communities the Advocate-General analysed the court's approach in the earlier cases. He said [1992] ECR I-3061, 3103:

In Factortame III the court repeated these principles and said [1996] QB 404, 498, para. 43:

The strict approach towards the liability of the Community in the exercise of legislative functions was due in part to the need not to hinder legislative action, "whenever the general interests of the Community requires legislative measures to be adopted which may adversely affect individual interests."

It was also in part due to the rule that the Community can only be liable where it has gravely and manifestly disregarded the limits on the exercise of its power. A national legislature may be required to achieve a particular result when it does not have a wide discretion but if it does have a wide discretion the same approach must be followed as with Community institutions.

More recent cases show the working out of these rules. Thus in . Reg. v. H.M. Treasury, Ex parte British Telecommunications Plc. (Case C-392-93) [1996] QB 615 the Court held that where the interpretation adopted by the United Kingdom was arguable on the basis of an imprecisely worded article of the relevant directive and where there was no case law to give guidance the state was not liable in damages. In Reg. v. Ministry of Agriculture, Fisheries and Food, Ex parte Hedley Lomas (Ireland) Ltd. (Case C-5/94) [1997] QB 139 where there was no or very little room for discretion in granting a licence that could in itself be a sufficiently serious breach. In Dillenkofer v. Federal Republic of Germany (Case C-178/94) [1997] QB 259 it was held that a failure to implement a directive, where no or little question of legislative choice was involved, the mere infringement may constitute a sufficiently serious breach. In Denkavit Internationaal B.V. v. Bundesamt für Finanzen (Cases C-283/94) [1996] ECR I-5063 the Court held that other member states, after discussion with the Council had adopted the same interpretation of the Directive as Germany and as there was no relevant case law of the Court it was held that the breach was not sufficiently serious.

It was also clear from the cases that it is not necessary to establish fault or negligence on the part of the member state going beyond what is relevant to show a sufficiently serious breach.

In the present case the United Kingdom was entitled to consider how it would exercise the margin of discretion left to it under Community law in the application of the Common Fisheries Policy and in particular of the quota system and also, subject to those limits, how it would exercise its rights under international law to provide for registration as a British fishing vessel. Although the three conditions (nationality, domicile, residence) held in Factortame II [1992] QB 680 to be a breach of the Treaty taken in conjunction reflect what the British Government was seeking to do, for the purposes of liability to compensate, the conditions have been considered separately. The first question is, therefore, whether in imposing a nationality requirement the United Kingdom committed a sufficiently serious breach in that it had manifestly and gravely disregarded the limits of its discretion.

In the first place it is to be noted that the relevant rule of Community law is not to be found in an ambiguous directive but in a clear and fundamental provision of the Treaty. By Article 7 it is provided that "within the scope of application of this Treaty and without prejudice to any special provision contained therein, any discrimination on the grounds of nationality shall be prohibited". The importance of this principle in the present context is underlined in Article 40(3) of the E.E.C. Treaty since any common organisation of the market set up under Article 39 "shall exclude any discrimination between producers and consumers within the community".

It is obvious that what was done here by the Government was not done inadvertently. It was done after anxious consideration and after taking legal advice. I accept that it was done in good faith and with the intention of protecting British fishing communities rather than with the deliberate intention of harming Spanish fishermen and those non-British citizens with financial stakes in British registered fishing vessels. The inevitable result of the policy adopted, however, was to take away or seriously affect their rights to fish against the British quota.

The nationality condition was obviously discriminatory and in breach of Article 52 as Factortame II [1992] QB 680 decided. Indeed as far as Article 52 was concerned, this was already clear from Commission of the European Communities v. Italian Republic (Case 63/86) [1988] E.C.R. 29. Although the question whether this was a sufficiently serious breach justifying the award of damages is a matter for the national courts, and therefore for your Lordships, to decide it is to be noted that in Factortame III [1996] QB 404, 500, para. 61 the European Court stated bluntly that the nationality condition constituted direct discrimination which was manifestly contrary to Community law.

Can it be said that, even if the Act was deliberately adopted, it was an unintentional and "excusable" breach which should prevent what was done being "a sufficiently serious breach" in that it was a manifest and grave disregard of the limits of the United Kingdom's discretion?

The appellant relies on the history of the discussions leading up to the enactment of the Act of 1988 and the making of regulations under it. He explains the problem and the understandable aim of seeking to protect British fishing communities and the British quota. Licensing rules having not been adequate, the only solution they felt was to change the rules on registration by primary legislation (letter Ministry of Agriculture Fisheries and Food to Foreign Secretary on 14 November 1986). They were, however, aware from the beginning of the legal problems involved. A memorandum sent to the Law Officers on 2 December 1986 which is set out more fully in the judgment of the Divisional Court [1997] EuLR 475, 490 asks for advice and recognises that "The proposed legislation (and the parallel legislation in other Member States) may contravene Article 52".

Officials and ministers were clearly aware that there was a risk that if the legislation was adopted it would be held to be contrary to Community law. (See letter of Margaret Lind Smith of 17 July 1987 and of Mr. Ingram of 6 October 1987.) The Secretary of State for Transport wrote to the Attorney-General on 22 October 1987

Professor Francis Jacobs, Q.C., and other Counsel were asked to advise on the basis that a national condition of registration could be challenged before the European Court and that Articles 52, 59 and 221 of the Treaty posed a particular difficulty. The Government said that nationality was a more appropriate test than residence.

They recommended, however, that the percentage of shares held legally and beneficially by British nationals resident and domiciled in the United Kingdom should be no more than 75 per cent, that there should be a period of grace before the legislation took effect and they stressed that the dispensation provisions in section 14(4) of the Act of 1988 in respect of nationality where there had been a long period of residence were important. They concluded however:

On 18 November 1988 Mr. Advocate-General Mischo gave his opinion (a) in Jaderow (Case C-216/87) [1989] E.C.R. 4509, 4525, para. 7 that:

and (b) in Agegate (Case C-3-87) [1989] ECR 4459 that the residence requirement in the crewing condition in the Act of 1983 was compatible with Community law because of the quota system and other features of the fisheries regulation.

On the other hand it is to be remembered that the power of member states in this area is subject to the extensive control exercised by the Community institutions under the common fisheries policy. On 28 March 1988, before the bill received the Royal assent the Commission (D.G. XV) told the United Kingdom Government that the proposed conditions were prima facie contrary to the right of establishment under Article 52. The Commission continued to state its opposition to the nationality condition and subsequently to the domicile and residence conditions. The Article 169 proceedings against the United Kingdom in respect of the nationality condition, led to the President's Order of 10 October 1998 as an interim measure suspending that condition. Moreover it is to be recalled that the Divisional Court had initially suspended all three conditions [1989] 2 C.M.L.R. 353 as the House of Lords was to do on 10 July 1989 following Factortame I: [1991] AC 603. The decisions of the European Court in Agegate [1990] 2 QB 151 and Jaderow [1990] 2 Q.B. 193 gave the government no comfort or encouragement.

It was, moreover, obvious as the Divisional Court [1989] 2 C.M.L.R. 353 and the Court of Appeal [1989] 2 C.M.L.R. 392 thought on the initial hearing in 1988, and as the House of Lords [1990] 2 AC 85 thought on the hearing following Factortame I (Case C-213/89) [1990] ECR I-2433 that the damage which would be suffered by the respondents would be serious and immediate

How far the views of the Commission ought to be taken into account has been much debated in argument. The Divisional Court said [1997] EuLR 475, 519:

The appellant contends that the Court of Appeal and the Divisional Court have overstated the importance of the Commission's role.

It is in my view clear that the views of the Commission are not conclusive (a) as to whether there has been a breach of Community law and (b) as to whether the breach is a sufficiently serious breach to justify an award of damages. The former is as a last resort for the European Court in proceedings under article 169 or on a reference under article 177 and the latter is for the national court. The considered view of the Commission in a case of this kind, where the Community has a substantial role, is however of importance. Indeed in an area so closely subject to community control as is the common fisheries policy, it is not only wise but often a necessary step to consult the Commission. The Government did here consult the Commission. A member state may choose to ignore the advice given but if it does so, it incurs the risk that, if it proves to be wrong and the Commission to be right, the member state will be found to have gone ahead deliberately, well aware of the Commission's views, and that a court will be more likely to find that the breach has been manifest and grave and thus sufficiently serious. In the present case, the Commission's view was firm, consistent and hostile to the Government.

It seems to me that the appellant can rely on the fact that it took legal advice although that is but one factor in having regard, as I think one must, to all the circumstances. However, the advice of Professor Jacobs Q.C. and others in 1987 was to some extent qualified and was based on the instructions that there would be a dispensing power not just for the residence but also for the nationality and domicile conditions. Moreover as time went on, there was clearly doubt as to whether the Government could really succeed before the European Court and the Commission's letters, to which I have referred, were not it seems the subject matter of any further discussion with counsel. Further, the subsequent opinion of Mr. Christopher Bellamy Q.C., although on a different question, was more qualified as to the overall chances of success.

The shortness of the transitional period, the fact that there was, it seemed, no way in domestic law of challenging the statute, and that the respondents were obliged, not merely to avoid being removed from the old register, but to apply to be put on the new register all emphasise the determination of the Government to press ahead with this scheme despite the strong opposition of the Commission and the doubts of some of its officials. When the judgments in Agegate and Jaderow ([1990] 2 QB 151 and 193) were delivered they gave the Government no encouragement to continue and the view of some government officials (e.g. Mr. Timothy Pratt on 14 December 1989 which in retrospect seemed prophetic) and the opinion of Andrew Macnab of counsel on the 16 March 1990 made the difficulties more clear. There is indeed, in my view, considerable justification for the Divisional Court's finding that by January 1990 there was really little hope of saving the three conditions.

Accordingly, despite the arguments of the United Kingdom and the advice it received, it seems to me clear that the deliberate adoption of legislation which was clearly discriminatory on the ground of nationality and which inevitably violated article 52 of the Treaty (since it prevented establishment in the United Kingdom) was a manifest breach of fundamental treaty obligations. It was a grave breach of the treaty both intrinsically and as regards the consequences it was bound, or at the least was most likely, to have on the respondents. It has not been shown to have been excusable. The Commission opposed it and despite the view of Mr. Advocate-General Mischo, on the 1983 Act there was no decision of the European Court to support the Government. What was done, therefore, in regard to nationality plainly constituted a sufficiently serious breach for the purposes of the second condition of liability. Moreover to maintain the legislation in operation after the court's decisions in Agegate and Jaderow and to allow such a short transitional period itself constituted a sufficiently serious breach.

It is agreed that "domicile" falls to be treated in the same way as nationality. That condition, therefore, was also a sufficiently serious breach.

I have had some doubt about the condition as to residence. If the aim of protecting the livelihood of British fishing communities, including allied trades such as preparing and processing landed fish, is justified then it is arguable that to require active fishermen to live in these communities might be excusable. The condition here was not however, limited to such fishermen or to such areas. It covered shareholders and directors of companies owning fishing vessels. It allowed the fishermen to live anywhere. It seems to me that this condition cannot be justified where the discrimination is, as it is here, clear. Moreover the British Government all along took the view that the residence condition would not it itself be sufficient to achieve its aims and so taken separately cannot in my view be justified.

It is, moreover, somewhat artificial to separate out the various conditions and in the end I agree with the Court of Appeal that the conditions should be treated as cumulative. Even taken separately, it is clear that discrimination on grounds such as residence can constitute indirect or covert discrimination on the grounds of nationality Sotgiu v. Deutsche Bundespost (Case 152/73) [1974] E.C.R. 153. I accordingly consider that the residence condition also constituted a serious breach.

I also agree with the Court of Appeal that, if it had been necessary to do so, which it is not, it would have been right to regard the treatment of Mr. Yllera and Mr. and Mrs. O'Connor, under section 14(4) of the Act of 1980 as contributing to the seriousness of the breach.

I, therefore, conclude that the United Kingdom's breach of its Community obligations by imposing and applying the conditions of nationality, domicile and residence in and pursuant to the Merchant Shipping Act 1988 was a sufficiently serious breach so as to entitle the respondents to compensation for damage directly caused by that breach. I consider also that the United Kingdom was in breach of community law by failing to give effect to the order of the President of the European Court of the 10 October 1989 until 2 November 1989 and that this also constituted a serious breach of community obligations which would, had they not succeeded on the first ground, have entitled Rawlings (Trawling) Limited to compensation for damage directly caused by that breach.

I have had the advantage of reading a draft of the speeches of my noble and learned friends Lord Slynn of Hadley and Lord Hope of Craighead. For the reasons they give, I too would dismiss this appeal.

In passing the Merchant Shipping Act 1988 the United Kingdom (acting by its legislature) took a calculated risk. It knew that there was, to put the matter at its lowest, doubt over whether the legislation contravened fundamental principles of Community law. The European Commission had expressed the clear view that it infringed the rights of establishment of citizens of other member states and their right to invest in United Kingdom companies. The U.K. government knew that the effect of the legislation would be to cause substantial losses to the owners of boats which they could no longer use for fishing under the British flag. It could have delayed implementation of the legislation until there had been an authoritative ruling on whether it was lawful. Instead, it chose to brook no delay and successfully appealed against a decision of the Divisional Court in March 1989 which would have suspended the operation of the Act until the matter had been determined. In the end, the United Kingdom was held to have been wrong. The judgment of the European Court in July 1991 held unequivocally that the Community rights of the boat owners had been infringed.

The question is now whether they are entitled to compensation. The Court of Justice has ruled [1996] QB 404, that this depends upon whether the breach of Community law was sufficiently serious. It accepts that in principle the area in which the United Kingdom was legislating was one in which it had a wide discretion. In such a case, the breach of Community law will be sufficiently serious only if the legislature "manifestly and gravely disregarded the limits of its discretion:" See para. 55

I agree with my noble and learned friend Lord Slynn of Hadley that the actions of the United Kingdom can properly be so described. There is no doubt that in discriminating against non-U.K. Community nationals on the grounds of their nationality, to which the requirements of domicile and residence were added to tighten the exclusion of non-U.K. interests, the legislature was prima facie flouting one of the most basic principles of Community law. The responsible Ministers considered, on the basis of the advice they had received, that there was an arguable case for holding that the United Kingdom was entitled to do so. In that sense, the Divisional Court has held that the Government acted bona fide. But they could have been in no doubt that there was a substantial risk that they were wrong. Nevertheless, they saw the political imperatives of the time as justifying immediate action. In these circumstances, I do not think that the United Kingdom, having deliberately decided to run the risk, can say that the losses caused by the legislation should lie where they fell. Justice requires that the wrong should be made good.

The Solicitor-General argued that the breach of Community law was excusable on the grounds that the government acted upon legal advice. He relied in particular on the written opinion given by Mr. Francis Jacobs Q.C. and others in February 1987. I do not think that a member state can rely simply upon the fact that its relevant organ of government acted upon legal advice. It is a basic principle of Community law that in considering the liabilities of a member state, all its various organs of government are treated as a single aggregate entity. It does not matter how their responsibilities are divided under domestic law or what passed between them. Likewise, as it seems to me, the process of advice and consultation undertaken within a member state by its responsible organs of government is irrelevant. Advice received from Community institutions is another matter: as the Court of Justice points out in its judgment on the reference in this case (Brasserie du Pecheur S.A. v. Federal Republic of Germany and Reg. v. Secretary of State for Transport, Ex parte Factortame Ltd. (No. 4 (Cases C-46 and 48/93) [1996]Q.B. 404, 499, para. 56), "the fact that the position taken by a Community institution may have contributed towards the omission" is a relevant matter to take into account in deciding whether a breach was sufficiently serious. But the question of whether the error of law was excusable or inexcusable is an objective one and the excuses must be considered on their own merits.

When one comes to consider the strength of the United Kingdom's arguments to justify discrimination against nationals of other member states, it seems to me that there was a fatal divergence between the rhetoric which the Government used to describe the problem and the solution which it adopted. The Act was said to be to ensure that "U.K. quotas were reserved for U.K. fishermen." Foreign nationals, mainly Spanish, were said to be "quota hopping", using the British flag to fish against the U.K. quota. The image conveyed was of disappointed trawlermen from Newquay or Grimsby, returning with empty holds because the fish which were part of the U.K. quota had been taken by Spanish vessels flying the British flag and landed at Santander. There is a dispute about whether this presented a fair picture of the reality which the Divisional Court found it unnecessary to resolve. Neither do your Lordships, because the provisions of the Act went far beyond anything which was necessary to deal with such a situation. The system of quotas was intended, as stated by a recital to Council Regulation (EEC) No. 170/83 of 25 January 1983, to "safeguard the particular needs of regions where local populations are especially dependent on fisheries and related industries." The Court of Justice has always recognised that member states are entitled to take any necessary and appropriate measures to ensure that there is a "real economic link" between operations of vessels fishing against the national quota and the local populations dependent on fishing and related industries: see, for example, the judgment of the Court of Justice in The Queen v. Ministry of Agriculture Fisheries and Food, Ex parte Jaderow Ltd. [1990] 2 Q.C. 193, 222, para.27. But the terms of the Act were inappropriate to achieve this object because they were principally concerned, not with the operations of the vessels, but with the nationality, domicile and country of residence of the shareholders in the companies which owned them. One is bound to ask how it could be thought to have made any difference to the interests of the population of an English fishing port whether the shares in a company owning a vessel fishing out of that port were owned by a U.K. national and domiciliary resident in London or a Spanish national and domiciliary resident in Madrid.

For these reasons, as well as those given by my noble and learned friends Lord Slynn of Hadley and Lord Hope of Craighead, I would dismiss the appeal.

I have had the advantage of reading in draft the speech which has been prepared by my noble and learned friend, Lord Slynn of Hadley. I agree with it, and for the reasons which he has given I too would dismiss the appeal. I wish merely to add these observations to what he has said.

As the Solicitor General said at the outset of his argument, the question whether the breach by the United Kingdom of its Community obligations entitles the respondents to damages raises issues of fact as well as issues of law. It seems to me that it is the issues of fact that are determinative of the question which is before us in this case. I am not persuaded that the Divisional Court and the Court of Appeal were in error in their assessment of these issues.

In Brasserie du Pecheur SA v. Federal Republic of Germany and Reg. v. Secretary of State for Transport, Ex parte Factortame Ltd. (No. 4) (Cases C-46/93 and C-48/93) [1996] QB 404, 498, para. 51 ("Factortame III") the European Court of Justice set out the conditions for the entitlement to damages in these terms:

The first of these three conditions, which raises an issue of law, was held in Factortame III, para. 54 to have been satisfied. This was on the ground that it was manifest that articles 30 and 52 of the E.C. Treaty (now articles 28 and 43 E.C.) were both intended to confer rights on individuals. The third condition, which relates to causation, was held to be a matter for the national courts to determine: para. 64. This raises an issue of fact which must be deferred for consideration at a later date. It will have to be considered in the light of the evidence. The dispute at this stage relates to the second condition. Was the breach "sufficiently serious"?

In para. 55 of its decision in Factortame III the European Court, following the approach it has taken as to the liability of Community institutions under article 215 E.C. (now article 288 E.C.) in the exercise of their legislative activities, said that the decisive test for finding that a breach of Community law is sufficiently serious is whether the member state "manifestly and gravely" disregarded the limits on its discretion. In the following paragraph, in a list which I would regard as helpful but not exhaustive, six factors were mentioned for consideration by the competent court. Among these are the clarity and precision of the rule breached, whether the infringement was intentional or involuntary and whether any error of law was excusable or inexcusable. In various passages elsewhere in the judgment the Court expressed its opinion about the nature of the breach for the consequences of which the respondents are claiming damages. But I would not be inclined to attach much importance to these expressions of opinion, because in para. 58 of the judgment the Court made it clear that it was for the national courts to assess the seriousness of the breach. The national courts have the sole jurisdiction to find the facts in the main proceedings. It is for them to decide how to characterise the breaches of Community law which are in issue.

It is a novel task for the courts of this country to have to assess whether a breach is sufficiently serious to entitle a party who has suffered loss as a result of it to damages. The general rule is that where a breach of duty has been established and a causal link between the breach and the loss suffered has been proved the injured party is entitled as of right to damages. In the present context however the rules are different. The facts must be examined in order that the court may determine whether the breach of Community law was of such a kind that damages should be awarded as compensation for the loss. The phrases "sufficiently serious" and "manifestly and gravely" which the European Court has used indicate that a fairly high threshold must be passed before it can be said that the test has been satisfied.

It seems to me that three factors emerge from the facts of this case which justify the conclusion that the breach was sufficiently serious to entitle the respondents to damages. The first relates to the subject matter of the breach. In this regard I agree with the Court of Appeal [1998] EuLR 456, 476D that the three conditions of nationality, domicile and residence in section 14 of the Merchant Shipping Act 1988 must be treated, in the context of the provisions of that Act, as cumulative. It is plain that we are dealing in this case with the adoption and retention in our national law of measures which were contrary to the obligations of the United Kingdom under the E.C. Treaty relating to nationality and domicile: see article 52 E.C., read with articles 5 and 7 (now article 43 E.C., read with articles 10 and 14). These are key areas of the Treaty in regard to the free movement of persons and the right of establishment. This is not a case where it can be said that the Treaty obligations were obscure or that they related to matters which were of minor importance. I would not go so far as to say, with the Court of Appeal at p. 476B, that the direct breach of a fundamental principle of the Treaty will almost inevitably create a liability in damages. But the nature of the breach will always be a highly relevant factor in the assessment. The more fundamental the breach, the easier it will be to regard it as sufficiently serious.

The second factor relates to the potential of the breach for causing damage to those who are likely to suffer loss as a result of it. The Divisional Court [1997] EuLR 475, 503B-C. held that the stated and actual purpose of the Government was to protect indigenous British fishing interests, not to injure the respondents, although that might be the effect of the policy. But it was clear that once the law took effect it would almost certainly cause loss to those who were affected by it, and that their loss was likely to be both serious and irremediable. The respondents were to be deprived of their right to fish in United Kingdom waters. They had established themselves here, and for all practical purposes they had nowhere else to go to continue their livelihood. This potential for obvious and immediate damage leads naturally to the conclusion that, even though the Government were acting in good faith, this was a serious breach and that the respondents ought to be entitled to compensation by way of damages if the other two conditions laid down by the European Court are satisfied.

The third factor relates to the methods which were used to achieve the result. The Government chose to resort to primary legislation. This made it impossible for the respondents to obtain interim relief against it under domestic law as it then stood. It then chose to impose a short and inflexible transitional period for bringing the legislation into effect. No interval of time was allowed, in the event of its being challenged, for the issues of principle to be determined by means of a preliminary reference. This was despite the fact that by the time the legislation was introduced the Commission's stance on the matter was well known and the point was by now clearly open for argument. The interests of those who were likely to be affected by the legislation were subordinated to those of the Government. A deliberate decision was taken to proceed in this way, albeit in good faith, in preference to safeguarding the interests of those who were entitled to the protection of the treaty obligations should the legal advice on which the Government was proceeding turn out to be wrong.

This then was more than a trivial or technical breach of the Community obligations. The words "manifest" and "grave" are not easy adjectives to apply in this context. But I have no difficulty at all in seeing what was done here as a breach which was sufficiently serious to entitle the respondents to compensation by way of damages for such losses as they can show flowed directly from the breach. If damages were not to be held to be recoverable in this case, it would be hard to envisage any case, short of one involving bad faith, where damages would be recoverable.

The Solicitor General laid great stress on the point made by the European Court that one of the factors which could be taken into account in the assessment of seriousness was whether or not the breach was excusable. Much importance was attached by him to the legal advice which had been taken and received. But I was not impressed by this argument. The good faith of the Government is not in question. It is not suggested that it proceeded without taking advice, or that it acted directly contrary to the advice which it received. Nor is it suggested that there was a lack of clarity in the wording of the relevant provisions of the Treaty or that there was some other point which might reasonably have been overlooked. So this case cannot, I think, be described as one which went wrong due to inadvertence, misunderstanding or oversight. The meaning of the relevant articles was never in doubt. The critical issue related to the interaction between these articles and the Common Fisheries Policy. On this matter there was clearly a serious issue to be resolved. Different views had been expressed within government, and the Commission was known to have taken a view contrary to that which the Government decided to adopt.

I do not wish to be taken as suggesting that the Government should have deferred to the views of the Commission on this matter. It was clearly entitled to take a different view and to decide upon its own course. But the Commission's role, while not conclusive, was important. It was seized of the matter, and it had stated its position in terms which were unequivocal. The decision to legislate was taken by the Government in full knowledge of the risks. I find it impossible to describe that decision as having been based on an oversight or an error of law which was excusable.

I also agree that this appeal should be dismissed and it is only on account of the importance of the case that I would add some observations of my own.

It was established in Reg. v. Secretary of State for Transport, Ex parte Factortame Ltd. [1992] QB 680 that the requirements for registration of fishing vessels contained in the Merchant Shipping Act 1988 were contrary to the provisions of the treaty and unlawful and invalid in community law. The dispute now concerns the claim for damages which the respondents have brought against the appellant. In circumstances such as the present the European Court of Justice has identified the conditions which require to be met for conferring under Community law a right to reparation against the legislature of a member state following upon a breach by that legislature of community law. In para. 51 of their judgment in the combined cases of Brasserie du Pecheur S.A. v. Federal Republic of Germany and Reg. v. Secretary of State for Transport, Ex parte Factortame Ltd. (No. 4) (Cases C-46 and 48/93) [1996] QB 404, 499 ("Factortame III") the court prescribed three conditions which required to be met. First, the rule of law infringed must be intended to confer rights on individuals; secondly the breach must be "sufficiently serious," and thirdly, there must be a direct causal link between the breach of the obligation and the damage. The first of these is not in dispute and the third is matter to be resolved at a later stage. The only question in the present appeal is whether the breach was "sufficiently serious."

In developing the conditions under which liability may arise the court has looked to its jurisprudence both in relation to article 215 and also in relation to the liability of Community institutions. From this has emerged the recognition of the relevance both of the practical and legal problems involved in particular cases, and also of the extent of the discretion open to the party in breach. In some cases there may be no discretion left to the state, and where there is an absolute duty to act a liability for a failure to act may more readily arise. In other cases there can be a degree of discretion and the wider the discretion the less readily should a claim for damages be available. The rationale for this strict approach, as appears from p. 498, para. 45 of the judgment in Factortame III, is the consideration that governments should not be hindered from passing legislation in the general interest of the community which may adversely affect individual interests by the prospects of actions for damages.

It has been recognised by the European Court of Justice that in the circumstances of the present case the United Kingdom legislature had a wide discretion. In p. 499, para. 49 of the judgment the court explains that the legislation was concerned not only with the registration of vessels but also with the regulation of fishing. The former of these falls within the jurisdiction of the member states, and the latter, concerned with the implementation of the common fisheries policy, leaves a margin of discretion to the member states.

Where member states act in a field where there is a wide discretion the situation should be comparable with that of the community institutions in the implementation of community policies. The conditions under which liability may arise should also be comparable.

Where legislative measures are the result of choices of economic policy it is only exceptionally and in special circumstances that liability for those measures should arise. That principle was recognised in para. 5 of the judgment of the court in Bayerische HNL Vermehrungsbetriebe G.m.b.H. & Co. KG v. Council and Commission of the European Communities [1978] E.C.R. 1209. In that case it was held (in para. 6 of the judgment) that the Community does not incur liability "unless the institution has manifestly and gravely disregarded the limits on the exercise of its powers." The language appears to echo a passage in the argument presented by the Council (at p.1216 of the report) that "It must be a serious breach which is particularly blatant, a particularly clear infringement and a manifest grave violation of the basic content of a principle." In Factortame III [1996] QB 404, 499, para.55 the court stated that "the decisive test for finding that a breach of Community law is sufficiently serious is whether the member state or the Community institution concerned manifestly and gravely disregarded the limits on its discretion."

While the application of the test may not require any too precise analysis, its ingredients may deserve to be identified. That the limits on the discretion have to be disregarded suggests that something more than a mere excess of power is required. More particularly the disregard must be manifest. From p. 499 para. 59 of the judgment in Factortame III it is said of one of the provisions in the German legislation in the Brasserie case that "it would be difficult to regard the breaches of article 30 by that legislation as an excusable error, since the incompatibility of such rules with article 30 was manifest in the light of earlier decisions of the court. . . ." Legislation which is contrary to established case law is thus one example of a manifest breach. It is to be noted that in that passage the court refers to excusability as covering either the case where the breach is not manifest or, which would in such an event follow, where the breach was not sufficiently serious. The Solicitor-General sought to use the concept of excusability as the touchstone for freedom from liability. But it may be preferable to hold to the language of the "decisive test" rather than resort to different expressions which may less exactly reflect the principle, unless the word is clearly used simply as a label to represent the converse of a sufficiently serious breach.

In addition to being manifest the disregard of the limits of the discretion must be grave. This points to some significant and substantial characteristic, as where the breach is of a basic principle of Community law. As can be seen from the judgment in Factortame III [1996] QB 404, 499, para. 57, persisting in an infringement despite a judgment finding the infringement to be established would be an example of a sufficiently serious breach. The disregard of the limits of the discretion would be manifest by virtue of the judgment and it would be grave in respect of the persistence in the infringement.

But it may be too narrow an approach in the practical application of the test to make the distinction between the categorisation of what is manifest and of what is grave. A broader approach is perhaps to be preferred. Moreover the application of the test laid down by the court comes eventually to be a matter of fact and circumstance. In the judgment the court [1996] QB 404, 499, para. 56 lists some of the factors which may be taken into consideration. But that list does not pretend to be complete or exhaustive. It would doubtless be premature to attempt any comprehensive analysis. But it appears to be possible to identify some of the particular considerations which may properly be taken into account, although the relevance in particular cases and the weight to be given to them in particular circumstances may obviously vary from case to case. It is to be noted that liability does not require the establishment of fault as, to use the language of the Advocate General in his Opinion [1996] QB 404, 476, para. 90, "a subjective component of the unlawful conduct." It is on the objective factors in the case that the decision on liability requires to be reached. No single factor is necessarily decisive. But one factor by itself might, particularly where there was little or nothing to put into the scales on the other side, be sufficient to justify a conclusion of liability. Some of those factors can be identified as follows.

1. In paragraph 38 at p. 497 of its judgment in Factortame III the court has affirmed that the liability of a member state for damages for a breach of community law depends on the nature of the breach. This gives rise to consideration of a number of more particular matters, one of the most prominent of which is the importance of the principle which has been breached. Thus in Mulder v. Council and Commission of the European Communities [1992] E.C.R. 1-3061) the court founded upon the fact that the breach in question was of a general and superior principle of Community law, namely the protection of legitimate expectations.

2. Another consideration relating to the nature of the breach is the clarity and precision of the rule breached. If the breach is of a provision of Community law which is not framed in clear language and is readily open to construction, then the breach may be the less serious. Questions of the clarity of the rule may require to be associated with questions of the complexity of the factual situation. The application to complex facts even of a rule which is reasonably clear in itself may render the situation open to doubt.

3. Closely related to that last consideration is the degree of excusability of an error of law. That could arise on account of the ambiguity of a Community text. It could also arise out of the uncertainty of the law in some particular area, where there is little or no guidance and evident room for difference of opinion.

4. Another factor relating to the clarity of the law is the existence of any relevant judgment of the court on the point. If there is settled case law, the failure to follow it may add to the seriousness of the breach. On the other hand if the point is novel and is not covered by any guidance from the court then liability should less readily follow.

5. It is also relevant to look at the state of mind of the infringer, and in particular whether the infringer was acting intentionally or involuntarily. A deliberate intention to infringe would obviously weigh heavily in the scales of seriousness. An inadvertent breach might be relatively less serious on that account. Liability may still be established without any intentional infringement. More broadly, the purpose of the infringer should be considered. If the purpose was to advance the interests of the Community a breach committed with that end in view might be seen as less serious than one committed with the purpose of serving merely national interests.

6. The behaviour of the infringer after it has become evident that an infringement has occurred may also be of importance. At the one extreme the immediate taking of steps to undo what has been done and correct any error which has been committed may operate to mitigate the seriousness of the breach. At the other extreme a persistence in the breach, the retention of measures or practices which are contrary to Community law, especially where they are known so to be, will add to the seriousness of what has been done. Indeed, in paragraph 37 of the judgment in Factortame III the court stated that persistence in a breach despite a judgment finding an infringement or clear case-law on the point, "will clearly be sufficiently serious."

7. Another aspect relates to the persons affected by the breach. In the Mulder case [1992] E.C.R. I-1029 the court also founded upon the fact that there had been a complete failure to take account of the specific situation of a defined economic group, namely the producers of milk. The fact that the exclusion of the producers from the allocation of a reference quantity was not foreseeable and was beyond the limits of ordinary economic risk made the breach all the more obvious (paras. 16 - 17).

8. A further consideration is the position taken by one of the Community institutions in the matter. It may be that one of the institutions has, to use the language of the court in the judgment in Factortame III, "contributed towards the omission:" [1996] QB 404, 499, para. 56. In the present context this is not to be seen as bearing upon the third of the three necessary conditions for liability which the court has prescribed, namely the existence of a direct causal link between the breach and the damages sustained. Here it is a factor relating to the seriousness of the breach. As phrased in para. 56 it is presented as a mitigating factor and it is wide enough to include various kinds of actions on the part of the institution concerned. But it also includes the giving of information or advice and in that connection the factor could operate in either direction so far as the seriousness of the breach is concerned. Advice from the Commission that the state would not be acting in breach of Community law in taking a particular step would plainly be a mitigating factor. The decision to persist in a proposed step in the face of warnings from the Commission that the state would be in breach of Community law in so doing would add to the seriousness of the State's action.

What then remains is the application of the test to the facts of the case. In para. 58 at p. 500 of the judgment the court records that the national courts have the sole jurisdiction to find the facts and to decide how to characterise the breaches in question. But the court then states that "it will be helpful to indicate a number of circumstances which the national courts might take into account." The first of these appears to be a plain indication that at least the nationality condition was manifestly contrary to Community law. But it is still for the national court alone to determine whether there was a sufficiently serious breach. It may be noted that the Advocate General (Tesauro) expressed himself robustly on the point in para 120 at p. 489 of his opinion:

Secondly, the court states that the conditions on residence and domicile were prima facie incompatible with the Treaty; that the United Kingdom sought to justify them but that the court rejected that justification in Factortame II [1992] QB 680. That leaves open for argument whether at the time the breach was manifest and grave. Thereafter in para. 63 the court details three matters which the national court might take into account in relation to the question whether the breach of Article 52 was sufficiently serious. It is not altogether clear whether these are intended to relate to the matter of nationality as well as to the matters of residence and domicile but in the overall appraisal of the case that point may not be critical. The three matters are not intended to be exclusive and they appear to point in divergent directions. The first, a reference to the legal disputes relating to particular features of the common fisheries policy may indicate a degree of uncertainty in the law which would point in favour of the appellant's case. On the other hand the attitude of the Commission "which made its position known to the United Kingdom in good time" is a factor pointing in favour of the respondents. The third matter, "the assessments as to the state of certainty of Community law made by the national courts in the interim proceedings brought by individuals affected by the Merchant Shipping Act", may be seen as pointing in the appellant's favour. It may be recalled that Bingham L.J. observed of the problem of Community law (Reg. v. Secretary of State for Transport, Ex parte Factortame Ltd. [1989] 2 C.M.L.R. 353,399):

There are of course further considerations. For example, account may properly be taken of the fact that the appellant acted in good faith. He took legal advice from a recognised expert in the field. He sought advice from the Commission. He had the serious purpose of seeking to counter what he saw as an abuse of the common fisheries policy. He recognised that the measure would cause loss, but that was not the purpose of it.

The reference to which the European Court responded was made by the Divisional Court on 18 November 1992 and it was to that court that the case was returned to determine the matter in the light of the guidance given. In a detailed and careful judgment that court decided that the breaches by the appellant of Community law were sufficiently serious to give rise to a liability in damages. That decision has been considered and endorsed by the court of Appeal. I would not propose to open up the whole range of considerations again with a view to forming a fresh assessment of them. I have not been persuaded that there exists any ground for disturbing the conclusion which has already been reached and I consider that the view which has been taken by the Divisional Court and by the Court of Appeal regarding the condition of residence as well as the view taken on the matters of nationality and domicile were sound and correct. On one point only would I venture to express disagreement, and that is only with regard to the matter of the relative weight to be given to the view of the Commission. In the Divisional Court [1997] EuLR 475, 519, it was stated in relation to the Commission that "a member state which disregards its view does so at its peril." That may be a slight overstatement. The court also stated that a failure to follow the views of the Commission "is likely to lead to the breach being regarded as inexcusable and so manifest." That more moderate formulation was adopted by the Court of Appeal and seems to me to be preferable. But this detail does not touch on the substance of the decision nor the overall assessment. I would dismiss the appeal.

United Kingdom House of Lords Decisions