Factortame Ltd & Ors v Secretary of State for Transport (No.5)

A Member State may be liable in damages for legislative breaches of Community law where the breach is sufficiently serious. The assessment is objective and requires a global evaluation of all relevant circumstances. Relevant factors include the clarity of the rule breached, the discretion available to the legislature, the complexity of the legal and factual situation, whether the error was excusable, the conduct of Community institutions, and whether the breach was intentional.

A direct breach of the fundamental prohibition on nationality discrimination will almost inevitably be sufficiently serious, absent a relevant Treaty exception. Indirect discrimination may also meet that threshold where, viewed cumulatively, the circumstances show a grave and manifest breach.

The respondents were fishing-vessel owners, operators, shareholders and directors affected by registration conditions in the Merchant Shipping Act 1988. The conditions required British nationality, domicile and residence and were subsequently held by the ECJ to breach Community law.

The Divisional Court declared that the breaches were sufficiently serious to give rise in principle to liability for damages, subject to causation and quantification. The Secretary of State appealed. The central issue was whether the breaches, particularly the nationality, domicile and residence conditions, were sufficiently serious under the principles stated by the ECJ in the related proceedings.

1. Appeal dismissed. The Court, in a judgment delivered by Lord Woolf MR to which Lord Justice Schiemann and Lord Justice Robert Walker contributed, upheld the Divisional Court’s declaration that the respondents were entitled in principle to damages. Causation and quantum remained to be determined.
2. Where legislative action breaches Community law in an area involving wide legislative discretion, liability requires a sufficiently serious breach, namely one that is grave and manifest. The seriousness must be assessed objectively by weighing all relevant circumstances. Fault, intention and negligence are relevant but are not conditions precedent.
3. The relevant considerations include the complexity of the situation, difficulties of application or interpretation, the margin of discretion, the clarity and precision of the rule breached, whether the infringement was intentional or involuntary, whether any legal error was excusable, the contribution of a Community institution, the features of the Common Fisheries Policy and the Commission’s attitude. The assessment requires a global or basket approach.
4. The nationality condition involved direct discrimination contrary to the fundamental Treaty prohibition on discrimination by nationality. In the absence of any relevant exception under Articles 55 and 56, that breach was almost inevitably sufficiently serious. The domicile condition was treated in substance in the same way.
5. The residence condition was indirect discrimination. Although the question whether residence alone could ground liability did not strictly arise, the Court held that by 31 March 1989 the Government ought to have appreciated that the legality of the legislation was seriously open to question. The surrounding circumstances therefore made the breach sufficiently serious.
6. The three conditions were cumulative. Liability for the nationality and domicile conditions extended through the relevant periods, including after 2 November 1989 for domicile. The Court also expressed concern about the inconsistent and ungenerous operation of the dispensing power in section 14(4), which would increase the seriousness of the breach if necessary.

1. Court of Appeal (Civil Division) [1998] EWCA Civ 1971: appeal dismissed. The Divisional Court’s declaration of liability in principle was upheld.
2. Divisional Court [1997] EU LR 475: declared that the breaches were sufficiently serious to give rise to liability for damages, subject to causation and amount; exemplary damages were refused.