R v Secretary of State ex p Factortame (No 2)

The Factortame litigation arises from a dispute between a group of Spanish fishing companies and the United Kingdom government concerning the registration of fishing vessels. The companies, operating under the name Factortame Ltd and associated entities, had previously registered their vessels under UK law and fished against the UK's quota allocation under the Common Fisheries Policy. Parliament enacted the Merchant Shipping Act 1988 in response to concerns that foreign-owned vessels were depleting the UK's fish quota — a practice colloquially described as "quota hopping." The 1988 Act imposed new conditions of nationality, residence, and domicile upon vessel owners, operators, and charterers, effectively requiring a genuine British connection before a vessel could be registered under the UK flag.

The Spanish fishing companies were unable to satisfy the new registration requirements and consequently found themselves unable to fish lawfully in UK waters. They commenced judicial review proceedings in the English courts, contending that the 1988 Act was incompatible with European Community law, and in particular with the right of freedom of establishment enshrined in what was then Article 52 of the EEC Treaty (now Article 49 TFEU). The applicants sought interim relief to prevent the Secretary of State for Transport from enforcing the registration conditions while the substantive question of compatibility with EC law was determined.

The Divisional Court initially granted interim relief, disapplying the Act pending a reference to the Court of Justice of the European Communities. The Court of Appeal reversed that decision, and the matter came before the House of Lords for the first time in R v Secretary of State for Transport, ex p Factortame Ltd [1990] 2 AC 85 (Factortame No 1 in the domestic proceedings). The House of Lords held that, as a matter of English common law, no court possessed jurisdiction to disapply an Act of Parliament or grant injunctive relief against the Crown. However, recognising the importance of the EC law dimension, their Lordships referred to the Court of Justice the question whether EC law required national courts to grant such interim protection of putative Community rights.

The Court of Justice responded in Factortame Ltd v Secretary of State for Transport (No 1) Case C-213/89 [1990] ECR I-2433. The Court held emphatically that EC law required national courts to set aside any rule of national law — including a constitutional rule — that prevented them from granting interim relief to protect putative Community rights. A national court seized of a dispute governed by Community law must have the power to grant interim relief; any national provision precluding that power must itself be set aside.

The matter returned to the House of Lords as Factortame No 2, reported at [1991] 1 AC 603. The House of Lords was now required to give effect to the ruling of the Court of Justice and determine the domestic consequences: whether English courts could grant interim relief against the Crown by way of injunction and whether they were obliged to disapply a provision of an Act of Parliament pending the determination of the applicants' substantive claim that the 1988 Act violated EC law.

The constitutional stakes were extraordinary. The traditional doctrine of parliamentary sovereignty, as articulated in British Railways Board v Pickin [1974] AC 765, held that the courts could not question or disregard an Act of Parliament. Alongside this, the Crown's immunity from injunctive relief was well established in domestic law, a position later more fully examined in M v Home Office [1994] 1 AC 377. The Factortame No 2 proceedings therefore required the House of Lords to confront directly the relationship between European Community law and fundamental doctrines of English constitutional law.

The first and overarching issue was whether, following the ruling of the Court of Justice in Case C-213/89, English courts were obliged as a matter of EC law to grant interim relief to protect putative Community rights even where doing so required them to set aside or disapply a provision of an Act of Parliament — specifically, the registration conditions imposed by the Merchant Shipping Act 1988.

The second issue was whether the rule of English law precluding the grant of injunctive relief against the Crown — rooted in the Crown Proceedings Act 1947 and earlier common law — could be maintained in circumstances where such relief was necessary to protect rights arising under EC law.

Underlying both questions was the broader constitutional question of how the principle of parliamentary sovereignty — the foundational doctrine of the UK constitution — was to be reconciled with the UK's membership of the European Community and the obligations assumed upon accession by the European Communities Act 1972.

The House of Lords begins its analysis by accepting, unreservedly, the authority of the Court of Justice's ruling in Case C-213/89. Under Article 177 of the EEC Treaty (now Article 267 TFEU), a ruling of the Court of Justice on a preliminary reference is binding upon the referring court. The House of Lords therefore treats the Court of Justice's conclusion as determinative of what EC law requires, and the remaining question is one of domestic implementation.

Their Lordships trace the constitutional foundations for the supremacy of EC law to the foundational trilogy of Court of Justice jurisprudence. In Van Gend en Loos v Netherlands Inland Revenue Administration Case 26/62 [1963] ECR 1, the Court of Justice established that the Community constitutes a new legal order of international law, one which confers rights directly upon individuals enforceable in national courts. In Costa v ENEL Case 6/64 [1964] ECR 585, the Court held that Community law takes precedence over inconsistent national law, whether enacted before or after the Community measure in question. These two decisions together establish the twin pillars of direct effect and supremacy upon which the entire EC legal order rests.

The further step required in the present case — that a national court must disapply even a statute enacted after accession — had been addressed directly by the Court of Justice in Simmenthal SpA v Commission Case 106/77 [1978] ECR 629. In Simmenthal, the Court held that directly applicable Community rules must be fully and uniformly applied in all Member States from the date of their entry into force. A national court which is called upon to apply Community law has an obligation to give full effect to those provisions, if necessary refusing of its own motion to apply any conflicting provision of national legislation, without waiting for or awaiting the setting aside of such provision by other constitutional means. The House of Lords regards Simmenthal as directly applicable to the present facts.

Turning to the domestic constitutional dimension, their Lordships acknowledge that the traditional doctrine of parliamentary sovereignty would, in the absence of Community membership, preclude the courts from questioning the validity or applicability of an Act of Parliament. The authority of British Railways Board v Pickin [1974] AC 765 is recognised as correctly stating the domestic constitutional position: Parliament is supreme, and the courts cannot look behind or beyond a statute to question its passage or validity. However, the House of Lords distinguishes Pickin on the ground that the present case does not involve a challenge to the validity of an Act of Parliament as a matter of domestic law. Rather, it concerns the applicability of the Act in circumstances where the applicants claim rights derived from an external legal order — Community law — which Parliament itself has incorporated into domestic law.

The critical domestic instrument is the European Communities Act 1972. Section 2(1) of that Act provides that all rights, powers, liabilities, obligations and restrictions created or arising under the Treaties are, without further enactment, to be given legal effect in the United Kingdom. Section 2(4) further provides that any enactment passed or to be passed, other than one contained in Part I of the 1972 Act itself, shall be construed and have effect subject to the foregoing provisions. The House of Lords reads section 2(4) as containing a rule of construction — or, more properly, a rule of precedence — directing that subsequent Acts of Parliament are to be read subject to directly effective Community rights. Parliament, by enacting the 1972 Act, expressly authorised national courts to give priority to Community law in cases of conflict.

This analysis represents a significant doctrinal move. Their Lordships in effect hold that Parliament, in passing the 1972 Act, voluntarily modified the ordinary operation of the doctrine of implied repeal. Under that doctrine, a later Act of Parliament would ordinarily override an earlier inconsistent Act. But by section 2(4), Parliament indicates that Community law rights are to prevail over later statutes. This is not the courts displacing parliamentary sovereignty; it is the courts giving effect to the will of a sovereign Parliament as expressed in the 1972 Act. The House of Lords frames the outcome as consistent with, rather than subversive of, parliamentary sovereignty — though the practical consequence is that an Act of Parliament is rendered inapplicable.

Earlier authority suggesting that Parliament could never surrender its sovereignty, such as the broad statements in Madzimbamuto v Lardner-Burke [1969] 1 AC 645, is considered by their Lordships but is not treated as an obstacle. The Privy Council's observations in Madzimbamuto concerned the political and moral constraints on Parliament's legislative competence rather than the legal consequences of enacted statutory instruments governing the relationship between domestic and Community law. The House of Lords declines to extend those observations to the present context.

On the question of interim relief against the Crown, the House of Lords addresses the established rule that no injunction can be granted against the Crown or against officers of the Crown acting in their official capacity. This rule, which reflects both the prerogative position of the Crown and the terms of the Crown Proceedings Act 1947, would ordinarily prevent the grant of the relief sought by the applicants. However, following the Court of Justice's ruling that any national rule preventing interim protection of Community rights must be set aside, the House of Lords holds that this domestic rule on Crown immunity from injunctions cannot be maintained in cases involving Community law rights. The rule must yield to the requirements of Community law in the same manner as the provisions of the Merchant Shipping Act 1988.

Having established the jurisdiction to grant interim relief, the House of Lords proceeds to consider whether such relief is appropriate on the facts. The standard applicable to applications for interim relief in English law is that established in American Cyanamid Co v Ethicon Ltd [1975] AC 396, requiring the court to consider whether there is a serious issue to be tried, and then to balance the risk of injustice to each party in the event that interim relief is granted or refused. Their Lordships hold that the applicants plainly raise a serious issue going to their Community law rights. The balance of convenience, taking into account the severe and irreversible financial harm that would be suffered by the applicants if relief is refused and their businesses are destroyed pending the substantive hearing, favours the grant of interim relief.

The House of Lords also weighs the public interest considerations advanced by the Secretary of State. The government argues that the Merchant Shipping Act 1988 was enacted to protect the UK's fishing industry and fishing communities, and that granting interim relief would allow quota hopping to resume to the detriment of British fishermen. Their Lordships acknowledge these considerations as weighty, but hold that they cannot override the applicants' Community law rights if those rights are ultimately vindicated. To refuse interim relief in circumstances where the substantive claim may succeed would be to deny effective judicial protection of those rights in the interim — a result which the Court of Justice has expressly held to be incompatible with EC law.

The House of Lords accordingly grants interim relief, disapplying the nationality and residence conditions of the Merchant Shipping Act 1988 as against the applicant fishing companies pending the determination of the substantive compatibility question by the Court of Justice. The relief is expressly limited in scope and time, and the applicants are required to provide undertakings in damages in the event that their substantive case ultimately fails and the national legislation is vindicated.

Throughout the judgment, the House of Lords emphasises that the outcome is not the product of judicial activism or constitutional adventurism. The courts do not set aside an Act of Parliament on the basis of their own assessment of its merits or desirability. Rather, they give effect to the legal consequences of the United Kingdom's accession to the European Community, as Parliament itself has directed by the European Communities Act 1972. The disapplication of the 1988 Act is a legal, not a political, act — one mandated by the hierarchy of norms which Parliament has itself established.

The House of Lords holds that, where a conflict exists between a provision of domestic legislation and directly effective rights arising under Community law, a United Kingdom court is obliged to disapply the domestic provision so far as it is inconsistent with Community law. This obligation derives from the European Communities Act 1972 and from the supremacy of Community law as authoritatively established by the Court of Justice. The Merchant Shipping Act 1988, to the extent that its nationality and residence conditions are incompatible with the applicants' Community law rights of freedom of establishment, is accordingly disapplied.

The House of Lords further holds that the rule of English law precluding the grant of injunctive relief against the Crown must be set aside in cases where such relief is necessary to protect putative Community law rights pending the resolution of the substantive dispute. Interim relief by way of injunction is accordingly available against the Crown in such circumstances, and is granted on the facts of the present case.

The appeal is allowed. The applicant fishing companies are granted interim relief preventing enforcement of the