Mabanaft Ltd, R (on the application of) v Secretary of State for Energy and Climate Change

Under Council Directive 2006/67/EC, the requirement that stockholding arrangements be fair and non-discriminatory does not require a Member State to calculate operators’ actual costs or use a uniform cost-allocation method. The Member State may choose an appropriate method, including a technical methodology based on minimum operating requirements, provided the result complies with non-discrimination, proportionality and effectiveness. Judicial review of such a choice is restrained where it involves a complex technical or economic assessment. The court asks whether the decision contains a manifest error, misuses power, clearly exceeds the available discretion, or is manifestly disproportionate. An adverse effect on one class of market operator is insufficient without a demonstrably less restrictive and effective alternative.

Mabanaft, a substantial importer of crude oil and petroleum products, challenged a decision establishing a new compulsory stockholding regime. Refiners were required to hold 67.5 days’ supply and importers 58 days’ supply, with the differential calculated using the International Energy Agency’s minimum operating requirements methodology. The regime was implemented by a direction under section 6 of the Energy Act 1976.

Beatson J dismissed Mabanaft’s judicial review claim: [2008] EWHC 1052 (Admin). He held that the Directive allowed a range of implementation methods and that the Secretary of State’s decision was within the available margin of appreciation. The appeal concerned whether article 3(2) required investigation of actual costs and equalisation of the cost burden.

1. Appeal dismissed unanimously. Arden LJ gave the leading judgment, with Hallett LJ and Blackburne J agreeing. The Secretary of State’s decision could not be set aside.
2. The first sentence of article 3(2) of Council Directive 2006/67/EC left Member States free to choose the method by which compulsory stockholding obligations were implemented. The second sentence required the resulting cost burden to be identified through transparent arrangements, but did not require an investigation of actual operator costs. The word identified indicated that summary information was sufficient. The third sentence was permissive and reinforced the absence of any uniform method for assessing or sharing the burden. Recital (9) complemented, but did not enlarge, the principal obligation.
3. Because the choice involved a complex technical and economic assessment, the Secretary of State enjoyed a large measure of discretion. Community-law review was stricter in principle than domestic Wednesbury review, but remained low in intensity in this field. The court would intervene only for a manifest error, misuse of powers, clear disregard of the limits of discretion, or a manifestly unreasonable assessment. It could not substitute its own technical assessment.
4. Non-discrimination required, so far as possible, equal competitive conditions and generally required objective justification for different treatment. The use of minimum operating requirements was a viable methodology supported by professional advice. The fact that it disadvantaged importers did not make it unlawful, particularly as the differential reduced their obligation. The approach in Royal Scholten-Honig (Holdings) Ltd v Intervention Board for Agricultural Products ([1978] ECR 2037) was distinguishable because that case concerned the omission of a material consideration from a production-levy calculation.
5. Proportionality required consideration of suitability for the Directive’s objective, the absence of an ulterior protectionist purpose, and whether a less restrictive measure could achieve the objective effectively. Mabanaft identified no demonstrably less intrusive alternative; it argued only for investigation of actual costs. In the technical context, the regime was not manifestly disproportionate. The meaning of article 3(2) was sufficiently clear, so no preliminary reference was required.

1. Court of Appeal (Civil Division): dismissed the appeal and upheld the decision below, [2009] EWCA Civ 224.
2. High Court of Justice, Queen’s Bench Division, Administrative Court: Beatson J dismissed the judicial review claim on 14 May 2008, [2008] EWHC 1052 (Admin).