In the case of Lithgow and Others *,
_______________
* Note by the Registrar: The case is numbered 2/1984/74/112-118.
The second figure indicates the year in which the case was referred to
the Court and the first figure its place on the list of cases referred
in that year; the last two figures indicate, respectively, the case's
order on the list of cases and of originating applications (to the
Commission) referred to the Court since its creation.
_______________
The European Court of Human Rights, taking its decision in plenary
session in pursuance of Rule 50 of the Rules of Court and composed of
the following judges:
Mr. R. Ryssdal, President,
Mr. W. Ganshof van der Meersch,
Mr. J. Cremona,
Mr. G. Wiarda,
Mr. Thór Vilhjálmsson,
Mrs. D. Bindschedler-Robert,
Mr. G. Lagergren,
Mr. F. Gölcüklü,
Mr. F. Matscher,
Mr. J. Pinheiro Farinha,
Mr. L.-E. Pettiti,
Mr. B. Walsh,
Sir Vincent Evans,
Mr. R. Macdonald,
Mr. C. Russo,
Mr. R. Bernhardt,
Mr. J. Gersing,
Mr. A. Spielmann,
and also of Mr. M.-A. Eissen, Registrar, and Mr. H. Petzold,
Deputy Registrar,
Having deliberated in private on 28 June, 24-26 and 28 September,
23 and 25 October 1985, 27-30 May and 24 June 1986,
Delivers the following judgment, which was adopted on the
last-mentioned date:
PROCEDURE
1. The present case was referred to the Court by the European
Commission of Human Rights ("the Commission") on 18 May 1984, within
the three-month period laid down by Article 32 para. 1 and Article 47
(art. 32-1, art. 47) of the Convention for the Protection of Human
Rights and Fundamental Freedoms ("the Convention"). The case
originated in the following seven applications against the United
Kingdom of Great Britain and Northern Ireland, lodged with the
Commission between 1977 and 1981 under Article 25 (art. 25)
by the persons indicated:
- no. 9006/80: Sir William Lithgow;
- no. 9262/81: Vosper Ltd. (now Vosper PLC - "Vosper");
- no. 9263/81: The English Electric Company, Ltd.
("English Electric") and Vickers Ltd. (now Vickers PLC - "Vickers");
- no. 9265/81: Banstonian Company ("Banstonian") and Northern
Shipbuilding & Industrial Holdings Ltd. ("Northern Shipbuilding");
- no. 9266/81: Yarrow PLC (formerly Yarrow and Company Ltd. -
"Yarrow"), Sir Eric Yarrow, M & G Securities Ltd.
and Mrs. Monique Augustin-Normand;
- no. 9313/81: Vickers;
- no. 9405/81: Dowsett Securities Ltd. ("Dowsett"), FFI (UK Finance)
PLC (now Investors in Industry PLC - "Investors") and The Prudential
Assurance Company Ltd. ("Prudential").
Sir William Lithgow and Sir Eric Yarrow are British citizens and
Mrs. Augustin-Normand is a French citizen; the remaining applicants
are all companies incorporated and registered in the United Kingdom.
The expression "the applicants" hereinafter designates all the
above-named persons other than Sir Eric Yarrow, M & G Securities Ltd.
and Mrs. Augustin-Normand whose complaints were declared inadmissible
by the Commission (see paragraph 102 below).
2. The Commission's request referred to Articles 44 and 48
(art. 44, art. 48) and to the declaration whereby the United Kingdom
recognised the compulsory jurisdiction of the Court (Article 46)
(art. 46). The request sought a decision from the Court as to the
existence of violations of Articles 6 para. 1, 13, 17 or 18
(art. 6-1, art. 13, art. 17, art. 18) of the Convention or of
Article 1 of Protocol No. 1 (P1-1) (taken alone or in conjunction with
Article 14 of the Convention) (art. 14+P1-1).
3. In response to the inquiry made in accordance with Rule 33
para. 3 (d) of the Rules of Court, the applicants all stated that they
wished to take part in the proceedings pending before the Court and
designated the lawyers and, in the case of Vickers, the company's
Commercial Director who would represent them (Rule 30).
4. The Chamber of seven judges to be constituted included, as ex
officio members, Sir Vincent Evans, the elected judge of British
nationality (Article 43 of the Convention) (art. 43), and
Mr. G. Wiarda, the then President of the Court (Rule 21 para. 3 (b)).
On 22 May 1984, the President drew by lot, in the presence of the
Registrar, the names of the five other members, namely Mr. R. Ryssdal,
Mr. Thór Vilhjálmsson, Mr. W. Ganshof van der Meersch, Mr. L. Liesch
and Mr. E. García de Enterría (Article 43 in fine of the
Convention and Rule 21 para. 4) (art. 43).
On the same day, the Chamber decided under Rule 50 to relinquish
jurisdiction forthwith in favour of the plenary Court.
5. The President of the Court consulted, through the Registrar,
the Agent of the United Kingdom Government ("the Government"), the
Commission's Delegate and the applicants' representatives on the
necessity for a written procedure (Rules 37 para. 1 and 50 para. 3).
Thereafter, in accordance with the President's Orders and directions,
the following documents were lodged at the registry:
- on 30 October 1984, individual memorial of Sir William Lithgow;
- on 31 October 1984, joint memorial of the applicants and individual
memorials of Vosper, English Electric and Vickers, Yarrow, and
Vickers;
- on 5 November 1984, memorial of the Government and individual
memorial of Dowsett, Investors and Prudential;
- on 15 November 1984, individual memorial of Banstonian and Northern
Shipbuilding.
By letter of 15 January 1985, the Secretary to the Commission
indicated that its Delegate did not propose to reply in writing to
these memorials.
6. After consulting, through the Registrar, the Agent of the
Government, the Commission's Delegate and applicants' representatives,
the President directed on 18 December 1984 that the oral proceedings
should open on 24 June 1985.
7. On 30 May 1985, the Court (presided over by Mr. Ryssdal, who
had on that day succeeded Mr. Wiarda) held a preparatory meeting when
it drew up a list of requests and questions which were communicated
shortly thereafter by the Registrar to the Government, the Commission
and the applicants.
8. The hearings were held in public at the Human Rights Building,
Strasbourg, from 24 to 26 June 1985.
There appeared before the Court:
- for the Government:
Mr. M. Eaton, Legal Counsellor,
Foreign and Commonwealth Office, Agent,
Mr. R. Alexander, Q.C.,
Prof. R. Higgins, Barrister-at-Law,
Mr. N. Bratza, Barrister-at-Law, Counsel,
Mr. H. Whitaker,
Mr. J. Keeling,
Dr. G. Davis,
Mr. J. Knox, Department of Trade and Industry,
Mr. R. Gardiner, Law Officers' Department, Advisers;
- for the Commission:
Mr. J.A. Frowein, Delegate;
- for Sir William Lithgow:
Mr. J. Macdonald, Q.C.,
Mr. N. Maryan-Green, avocat,
Mr. J. McNeill, Advocate, Counsel,
Mr. D. Ross Macdonald, Solicitor,
Mr. C. Hardcastle,
Mr. C. Gladstone,
Mr. D. Brock, Hardcastle & Co. Ltd., Advisers;
- for Vosper:
Mr. A. Lester, Q.C.,
Mr. M. Mendelson, Barrister-at-Law,
Mr. D. Pannick, Barrister-at-Law, Counsel,
Mr. J. Howison, Solicitor;
- for English Electric and Vickers:
Mr. R. Southwell, Q.C.,
Miss M. Simmons, Barrister-at-Law,
Prof. I. Delupis, Barrister-at-Law, Counsel;
- for English Electric:
Mr. M. Lester, Director of Legal Affairs, Solicitor;
- for Vickers:
Mr. C. Foreman, Commercial Director, Representative,
Mr. N. Bevins, Company Secretary, Adviser;
- for Banstonian and Northern Shipbuilding:
Mr. R. Graupner, Solicitor,
Mr. T. Edwards, Rea Brothers PLC, Adviser;
- for Yarrow:
Prof. F. Jacobs, Q.C., Counsel,
Mr. A. Mallinson,
Mr. D. Rowe, Solicitors;
- for Dowsett, Investors and Prudential:
Mr. A. Lester, Q.C.,
Mr. D. Pannick, Barrister-at-Law, Counsel,
Mr. A. Foyle, Solicitor.
The Court heard addresses by Mr. Alexander for the Government, by
Mr. Frowein for the Commission and by Mr. J. Macdonald, Mr. A. Lester,
Mr. Southwell, Mr. Graupner and Prof. Jacobs for the applicants, as
well as replies to questions put by it and certain of its members.
During the course of the hearings, various documents, including
written replies to questions put by the Court (see paragraph 7 above),
were filed by the Government and the applicants.
AS TO THE FACTS
9. The applicants in the present case had certain of their
interests nationalised under the Aircraft and Shipbuilding Industries
Act 1977 ("the 1977 Act"). Whilst not contesting the principle of the
nationalisation as such, they claimed that the compensation which they
received was grossly inadequate and discriminatory and alleged that
they had been victims of breaches of Article 1 of Protocol No. 1
(P1-1) to the Convention, taken alone and in conjunction with
Article 14 (art. 14+P1-1) of the Convention. They also invoked
Article 6 (art. 6) and - in one case - Article 13 (art. 13) of the
Convention. Certain claims of violation of Articles 17 and 18
(art. 17, art. 18) of the Convention, which had been made before the
Commission, were not pursued before the Court.
I. Relevant legislation
A. Background to the 1977 Act
1. The nationalisation proposals
10. In its election manifesto published on 8 February 1974, the
Labour Party stated that its political programme included
nationalisation of the United Kingdom aircraft and shipbuilding
industries. It had made previous statements to that effect in 1971,
1972 and 1973.
At a general election held on 28 February 1974, the Labour Party
gained office from the Conservatives and formed a government; it did
not then have an overall majority in the House of Commons. On
31 July 1974, the Secretary of State for Industry announced that the
shipbuilding and shiprepair industries would be taken into public
ownership and that legislative provisions for safeguarding their
assets would be effective from that date; details of the Government's
proposals for nationalising those industries were set out in a
discussion paper published on the same day.
A further general election was held on 10 October 1974, at which the
Labour Party was returned with an overall majority. On 29 October,
the Queen's Speech at the opening of Parliament referred to the
Government's intention to bring the aerospace industry into public
ownership and a statement concerning safeguarding provisions for its
assets was made in the House of Commons on 4 November. On
15 January 1975, the Government published a consultative document
relative to their plans for the nationalisation of that industry.
11. The above-mentioned discussion paper and consultative document
contained particulars of the companies to be nationalised and stated
that "fair compensation" would be paid, though without giving details
of the compensation terms. Both documents set out the political,
economic and social considerations that motivated the nationalisation
proposed; essentially, the Government considered that it would put the
industries concerned - which had been in receipt of substantial
Government assistance and were heavily dependent on Government
contracts - on a sounder organisational and economic footing and bring
to them a desirably greater degree of public control and
accountability.
2. The Parliamentary proceedings and subsequent developments
12. On 17 March 1975, the Secretary of State for Industry
announced in the House of Commons the forthcoming introduction of an
Aircraft and Shipbuilding Industries Bill to give effect to the
nationalisation proposals. He indicated, for the first time, the
basis on which compensation would be determined, namely by reference
to the value of the securities of the companies to be acquired:
securities quoted on a recognised Stock Exchange were to be valued at
their average price during the six months ending on 28 February 1974,
whilst the value of unquoted securities was to be determined, by
agreement or arbitration, as if they had been quoted during that
period. Details of the safeguarding provisions were also given.
13. A Bill on the lines announced was duly published, providing
for the securities of forty-three companies to pass into the ownership
of public corporations. Although the Bill received its first reading
on 30 April 1975, it lapsed at the end of the Parliamentary session
due to lack of time. The Government then reviewed the proposed
compensation terms (including the choice of the valuation reference
period) in the light of representations received, but decided not to
change them, notably on account of the uncertainty which this would
have created, of the extent of share dealings that had taken place on
the basis of the terms already announced and of the fact that in the
alternative reference periods canvassed share prices were likely to
have been distorted by the commitment to nationalisation.
14. A second Bill, in essentially the same terms as the first, was
introduced in November 1975. It gave rise to protracted proceedings
in the House of Commons, covering such matters as the principle and
the scope of the nationalisation measure and the compensation terms.
In February 1976, the Government themselves announced the exclusion
from the ambit of the Bill of Drypool Group Ltd.; this shipbuilding
company had become insolvent after February 1974 and the Government
considered that it would be unjustifiable to pay its shareholders the
full value of the shares during the compensation reference period.
Having received its third reading in the House of Commons on
29 July 1976, the Bill passed to the House of Lords where, after
further lengthy debates, various amendments were made which were not
acceptable to the Government; in particular, certain shiprepairing
and warship-building companies were excluded and a provision was
inserted whereby the Arbitration Tribunal - which was to assess
compensation in default of agreement - would have been able to award
"fair compensation" if it considered that this would not be provided
under the statutory formula. The ensuing disagreement between the two
Houses of Parliament over the amendments could not be resolved by the
end of the session and the second Bill therefore also lapsed.
15. A third Bill in the same terms as the second was introduced
into the House of Commons on 26 November 1976, completed all
procedural stages there by 7 December and was then introduced into the
House of Lords under a special procedure whereby it could pass into
law without the assent of that House. It received the Royal Assent
and came into force on 17 March 1977. The compensation terms enacted
were essentially identical to those provided for in the first Bill;
the same applied to the interests to be nationalised, except for the
exclusion of Drypool Group Ltd. and also - following an amendment
accepted by the Government during the proceedings on the third Bill -
of certain companies whose business consisted solely of shiprepairing.
In the final event, thirty-one companies (four aerospace and the
remainder shipbuilding, marine engineering or shipbuilding training)
were listed for nationalisation in the 1977 Act.
16. The Parliamentary debates were characterised throughout by
opposition concentrated, in particular, on the alleged unfairness of
the compensation terms. The criticisms - which were substantially
identical to those made by the applicants in the present proceedings
and were all withdrawn or rejected after debate - related, inter alia,
to the use of a hypothetical Stock Exchange method of valuation for
unlisted shares; the choice of the valuation reference period; the
absence of provision for taking account of growth in the companies
concerned, or fall in the value of money, after the reference period;
the non-inclusion in the compensation formula of any equivalent of the
"control premium" (see paragraph 98 below); and the fact that the
valuation of certain acquired companies might be related to the stock
market quotation of their parent companies' shares.
Government spokesmen, for their part, maintained that the terms were
fair. They argued, amongst other things, that it was proper to value
securities at a date before they were affected by the possibility of
nationalisation; that the subsequent performance of a particular
company would normally have been in prospect at the reference period
and hence reflected in the imputed share price; that it was
reasonable that the Government should benefit from any improvements in
the companies after the end of the reference period since they
accepted the risk of any deterioration, short of bankruptcy; that it
was fallacious to assume that there was a correlation between share
values and the rate of inflation; that the choice of reference period
protected shareholders against the subsequent fluctuations in market
prices; that the terms on which compensation was being offered were
not those on which a willing buyer acquired control of a company from
a willing seller, since this was not a transaction of that kind but a
nationalisation by Act of Parliament; and that regard would be had to
the quotation of a parent company's shares only where the acquired
company's activities constituted a "very substantial" part of the
whole undertaking. The Government also acknowledged that the
settlement of compensation would take some time, but expressed their
intention of making payments on account as large and as quickly as
possible and within six months of passage of the companies into public
ownership.
17. In May 1979 - at which time compensation negotiations were
still in progress (see paragraphs 33-35 below) -, a further general
election was held and the Conservative Party returned to office. The
new Government reviewed, in the light of representations made, the
compensations terms contained in the 1977 Act but decided not to
change them. In a written answer the new Secretary of State for
Industry announced this to the House of Commons on 7 August 1980, in
the following terms:
"We recognise that some previous owners and many members of this House
and of the public believe that the terms of compensation imposed by
the 1977 Act were grossly unfair to some of the companies and we share
this view. We have explored every possibility to right the injustice
done by the previous Government but to our very great regret we have
concluded that amending legislation to establish new compensation
terms retrospectively would be unjust to the many people who sold
shares on the basis of the previous terms."
The new Government also considered, but decided against, any immediate
denationalisation of certain of the companies that had passed into
public ownership.
B. The 1977 Act
18. Sections 19 and 20 of the 1977 Act provided that, on a date to
be specified by the Secretary of State for Industry ("Vesting Day"),
the securities of the companies engaged in the aircraft and
shipbuilding industries which were listed in Schedules 1 and 2,
together with certain other assets appurtenant to their activities,
should vest in "British Aerospace" or "British Shipbuilders", two
public corporations established under the Act. The dates subsequently
so specified were, for aerospace companies, 29 April 1977 and, for
shipbuilding companies, 1 July 1977.
The Act also made provision for compensation to be paid to the former
holders of securities of the acquired companies, for the safeguarding
of the assets of the nationalised undertakings, for the appointment of
stockholders' representatives and for the establishment of an
Arbitration Tribunal.
1. Compensation
19. Under section 35(3), the amount of compensation payable was,
generally, an amount equal to the "base value" of the nationalised
securities, less any deduction which was appropriate by virtue of
section 39 (see paragraphs 23-24 below). For securities listed on the
London Stock Exchange, the "base value" was, under section 37(1), the
average of their weekly quotations during the six months between
1 September 1973 and 28 February 1974 ("the Reference Period", the
second date being that of the general election referred to in
paragraph 10, second sub-paragraph, above). For securities not so
listed and issued before the end of the Reference Period, the "base
value" was "such as may be determined by agreement between the
Secretary of State and the stockholders' representative" (see
paragraph 28 below) "or, in default of such agreement, as may be
determined by arbitration under this Act to be the base value which
the securities would have had under section 37 ... if they had been
listed" on the Stock Exchange throughout the Reference Period
(section 38(1)). The "base value" of unlisted securities issued after
the end of the Reference Period was, generally, their issue price
(section 38(10)).
Among the reasons given by the Government for the choice of this
reference period were: the need to avoid a period when the value of
the shares was distorted by the prospect of nationalisation; subject
to this, the need to take as recent a period as possible; and the
general decline in share prices between mid-1972 and March 1975, when
the compensation terms were announced, making it desirable to choose a
period reflecting the mid-point of the share market over those years.
In determining the "base value" of unlisted securities, the
Arbitration Tribunal (see paragraphs 29-32 below) was to have regard
to "all relevant factors"; when the acquired company was the
subsidiary of a company all or part of whose shares were listed on the
Stock Exchange and carried on an undertaking which "formed a
substantial part of the undertakings of the group of companies of
which the company and the parent company were members", one of those
factors was the stock market quotation of the parent company's shares
(section 38(3) and (6)).
During negotiations, the Secretary of State, whilst having some scope
for judgment, could not offer by way of compensation more than was
possible under the statutory formula. The Arbitration Tribunal, for
its part, was in no way bound by the amount offered or contended for
in negotiations. In determining compensation, no regard was had to
any grants to the nationalised undertakings from public funds.
20. Under section 36, compensation was not payable until the "base
value" of the nationalised shares and the amount of any deduction to
be made under section 39 (see paragraphs 23-24 below) had been
determined. However, it was provided that, at any time after Vesting
Day, "such sum may be paid on account of compensation ... as the
Secretary of State thinks fit ...". The payments on account made to
the applicants in the present case were unconditional.
21. (a) Compensation was to take the form of government stock,
known as "Compensation Stock" (section 35(1)). Interest thereon was
to accrue from Vesting Day (Schedule 5). The rate of such interest
was to be determined by the Treasury, as were the conditions as to
repayment, redemption and other matters (section 40).
(b) Compensation was not subject to tax on receipt, but disposal or
redemption of Compensation Stock gave rise to liability to capital
gains tax, the gain being calculated by reference to the cost of
acquisition by the shareholder of the nationalised shares. However,
by virtue of section 54 of the Finance Act 1976, the replacement of
Compensation Stock by new business assets could give rise to an
entitlement to "roll-over relief", whereby liability to tax would be
deferred until the new assets, or their successors, were ultimately
disposed of. Such relief was available only where the recipient of
the Compensation Stock was a company and where the nationalised
concern had been either a subsidiary, at least 75% owned, of that
company or a wholly-owned subsidiary of a consortium consisting of
five or fewer companies; it could not be claimed by a private
individual, regardless of the size of his shareholding in the
nationalised concern. These criteria were intended to limit the ambit
of "roll-over relief" to cases where the shares in the nationalised
company had been held as a business asset rather than as a purely
financial investment.
2. Safeguarding provisions
22. During the course of the Parliamentary proceedings on the
various Bills, Government spokesmen stated that the undertakings to be
nationalised were to continue to operate as normal commercial concerns
until Vesting Day. And, in fact, all the companies with which the
present case is concerned did so.
Although the undertakings remained private property until Vesting Day,
the 1977 Act contained a number of safeguarding provisions whose
general aim was to ensure that, between the end of the Reference
Period (28 February 1974) and that Day, there was no abnormal action
by the existing owners or management which might be detrimental to the
public sector. The provisions, whose broad effect is summarised
below, did not apply if the action in question had been approved by
the Secretary of State for Industry; retroactive approval was
possible in certain circumstances, notably in respect of "material
transactions" (see paragraph 24 below). The Government gave assurances
that the safeguarding provisions would not be used in such a way as to
penalise reasonable action taken in the normal course of business and
in good faith.
23. Holders of securities of the acquired companies were entitled
to dividends and interest thereon for all periods up to Vesting Day.
However, limits were in effect imposed on the amount of dividends and
interest paid pursuant to resolutions passed between the end of the
Reference Period and Vesting Day: if the date of the resolution lay
between 28 February 1974 and the "Safeguarding Date" (generally
17 March 1975, being the date of the statement in Parliament outlining
the compensation terms and safeguarding provisions; see paragraph 12
above), the amount of any payments in excess of the permissible
maximum fell, under section 39, to be deducted from the compensation
payable for shares under section 35; if the date of the resolution
was after the Safeguarding Date and before Vesting Day, the directors
of the acquired company were personally liable to the relevant public
corporation for any such excess (section 23). For a dividend, the
permissible maximum was generally either the net revenue of the
company for the period in respect of which the dividend was declared
or the amount of the most recent ordinary dividend previously paid
(whichever was the less); for interest, it was the minimum necessary
to avoid default on obligations or the carrying over of interest for
subsequent payment (section 24). During the Parliamentary debates, the
Government gave assurances that higher payments would be authorised if
the circumstances warranted.
24. British Aerospace and British Shipbuilders were protected
against losses occasioned by "material" or "onerous" transactions
entered into by an acquired company between the end of the Reference
Period and Vesting Day. Broadly speaking, a "material transaction"
was one, such as a special dividend, that involved the direct or
indirect transfer of company assets to shareholders and an "onerous
transaction" was one that was unusual or unreasonable and foreseeably
caused loss to the company (sections 30 and 31). If the transaction
had been entered into between 28 February 1974 and the Safeguarding
Date - or in certain cases the "Initial Date" (31 July 1974 for the
shipbuilding industry or 4 November 1974 for the aerospace industry) -,
the net loss caused thereby to the relevant public corporation
fell, under section 39, to be deducted from the compensation payable
for shares under section 35; if the transaction had been entered into
after the Safeguarding Date - or the Initial Date - and before Vesting
Day, that corporation could institute proceedings before the
Arbitration Tribunal (see paragraphs 29-32 below) to recover from the
directors or the parties to the transaction the loss caused thereby
and, in the case of an "onerous transaction", to have the same
declared void (sections 30 and 31).
25. There was also a general prohibition on the transfer away by
an acquired company of certain assets, coupled with the possibility
for the relevant public corporation to institute proceedings before
the Arbitration Tribunal to have the damage suffered as a result of
the transfer made good by the directors or the parties thereto
(section 28). If the transfer had been effected after the Initial
Date, the corporation could recover the assets, either by acquiring
certain additional companies or by acquiring the assets themselves
(sections 26 and 29).
26. The Secretary of State could in certain circumstances (notably
insolvency) remove a company from the list of companies to be
nationalised (section 27).
27. Questions arising as to the amount of the appropriate
deduction to be made from compensation under section 39 were to be
determined by agreement between the Secretary of State and the
Stockholders' Representative (see paragraph 28 below) or, in default
of such agreement, by the Arbitration Tribunal. The latter also had
jurisdiction over various other issues arising under the safeguarding
provisions.
3. The Stockholders' Representative
28. Section 41(1) of the 1977 Act provided that a Stockholders'
Representative was to be appointed in respect of each acquired company
"to represent the interests of holders of securities of that company
in connection with the determination of the base value of those
securities". He was to be appointed by the holders of the securities
at a meeting held within a prescribed time-limit, failing which, by
the Secretary of State; he could be removed by resolution passed at a
meeting of the security holders (Schedule 6). His remuneration and
expenses were to be met by the Secretary of State.
The raison d'ętre for the institution of Stockholders' Representative
was that it was considered essential, in order to prevent negotiations
and arbitration being rendered unworkable by a multiplicity of
individual claims, that they be conducted, on behalf of the former
owners, exclusively by a nominee representing their collective
interests. As a result, although the individual shareholders had
voting rights at stockholders' meetings, they had no direct standing
in compensation negotiations.
According to Sir William Lithgow, the Representative was not obliged
to seek the stockholders' consent before agreeing to compensation in
negotiations or to refer the question of compensation to arbitration
if so requested by them; in this applicant's view, a stockholder had,
in practice, no means of ensuring that the Representative complied
with his wishes, save for the aforesaid possibility of removal.
According to the Government, stockholders would have had a remedy in
the domestic courts against a Representative for failure to comply
either with his obligations under the 1977 Act or with his common-law
obligations as agent. They further maintained that he could not
refuse to institute arbitration proceedings if so directed by the
stockholders or, probably, a majority of them and that, as a matter of
pure practice, he would not agree the quantum of compensation in
negotiations without their consent.
4. The Arbitration Tribunal
29. Section 42 of the 1977 Act established the Aircraft and
Shipbuilding Industries Arbitration Tribunal. For the hearing of any
proceedings, the Tribunal was to consist of a legally-qualified
president (appointed by the Lord Chancellor or, in the case of
Scottish proceedings, the Lord President of the Court of Session) and
two other members (appointed by the Secretary of State after
consultation with all the Stockholders' Representatives), one being of
experience in business and the other in finance.
Criteria for the selection of members of the Tribunal - relating to
their standing and experience and including a requirement that they
should not have any connection with the companies nationalised - were
worked out in consultation with the Stockholders' Representatives, who
were also invited to make proposals as to suitable members.
Members of the Tribunal were to hold office "for such period as may be
determined at the time of their respective appointments". The
appointor of a member could declare his office vacant "on the ground
that he is unfit to continue in his office" but, by virtue of section
8(1) of the Tribunals and Inquiries Act 1971, this power was
exercisable only with the consent of the Lord Chancellor or the
Lord President of the Court of Session. Provision was also made for
resignation, vacation of office on grounds of bankruptcy or
replacement in case of illness.
30. The Tribunal's jurisdiction was limited to the issues
specified in the 1977 Act; these included various claims and
questions arising under the safeguarding provisions and, in the
context of compensation, determination of the "base value" referred to
in section 38(1) and of the deductions to be made therefrom under
section 39 (see paragraphs 19 and 23-24 above). In assessing the
"base value", the Tribunal could hear argument about the weight to be
attached to any relevant factor, but not about the alleged unfairness
of the statutory formula, by which it was bound.
The jurisdiction in relation to "base value" and deductions arose only
"in default of agreement" between the Secretary of State and the
Stockholders' Representative, but the latter was free to refer the
question of compensation to the Tribunal at any moment after Vesting
Day. In the view of the Government - which was contested by
Sir William Lithgow -, there was no legal bar to access to the Tribunal
by an individual shareholder, unless and until agreement had been
reached in negotiations. Thereafter, he could not seise the Tribunal
even if he considered that the sum agreed was too small under the
statutory formula.
31. The procedure before the Tribunal was governed by The Aircraft
and Shipbuilding Industries Arbitration Tribunal Rules 1977 and The
Aircraft and Shipbuilding Industries Arbitration Tribunal (Scottish
Proceedings) Rules 1977, made by the Lord Chancellor and the Lord
Advocate, respectively. These statutory instruments provided for
proceedings similar to those of a court; in particular, hearings were
generally to be held in public.
32. An appeal on any question of law - but not on the quantum of
compensation - lay from the Tribunal to the Court of Appeal in England
or the Court of Session in Scotland and thereafter, with leave, to the
House of Lords (Schedule 7). Furthermore, a Stockholders'
Representative could, according to the Government, test in the
ordinary courts whether the Secretary of State, in formulating a
compensation offer, had erred in law by misinterpreting or misapplying
the 1977 Act.
C. Procedure followed in the implementation of the 1977 Act
33. On the passing of the 1977 Act, Messrs. Whinney Murray & Co.,
a leading firm of chartered accountants appointed by the Government to
advise them in the compensation procedures, set about valuing the
companies concerned by issuing a questionnaire to all of them.
According to the Government, it was not possible to seek the
cooperation of the companies or their shareholders at an earlier date
because there was no certainty as to when or in what form the strongly
contested legislation would be passed.
34. Compensation for those shares in the acquired companies which
were listed on the Stock Exchange was agreed before, and paid on,
1 July 1977, the relevant Vesting Day. As regards the remaining,
unquoted, shares, Messrs. Whinney Murray & Co. provided the Department
of Industry with preliminary valuations on most of the companies
during January 1978 and on the remainder during April 1978, for the
purpose of calculating payments on account of compensation which were
made during those months.
On various dates between December 1977 and May 1978, the accountants
supplied the Department with full valuation reports, factual
information wherefrom was sent for comment to the company concerned
and to the Stockholders' Representative acting on behalf of the
holders of its securities (see paragraph 28 above). The Department
and the Representatives exchanged memoranda on various dates between
March and October 1978 and negotiations between them followed.
Further payments on account of compensation were announced in July and
November 1978 and, in some cases, in 1979.
35. Between July 1978 and 7 August 1980 (being the date of the new
Government's announcement that they had decided not to change the
compensation terms; see paragraph 17 above), various settlements were
reached but, with the exception of the Kincaid case (see paragraphs
40-45 below), none of them related to the acquired companies with
which the present proceedings are concerned. Shortly after the
aforesaid announcement, the Minister of State indicated in a series of
meetings with Stockholders' Representatives that, within the confines
of the statutory formula, the Department of Industry would be prepared
to settle the remaining cases at amounts somewhat beyond those already
offered in negotiations. Settlements regarding the other companies
with which the present proceedings are concerned were reached by the
end of 1980.
36. In the compensation negotiations the Department of Industry
and their advisers used the following four methods of arriving at a
hypothetical Stock Exchange quotation for unlisted shares.
(a) For most of the profitable companies an earnings-based valuation
was applied. This method, which involved considering the company's
historic and prospective post-tax earnings (as at the Reference
Period) and applying thereto an appropriate multiplier (price/earnings
ratio) assessed by comparison with listed companies, was used in all
the cases with which the present proceedings are concerned, other than
the Vosper Thornycroft and the Yarrow Shipbuilders cases (see
paragraphs 46-53 and 70-75 below). Since stock market quotations are
not dependent solely on earnings, the Government's accountants, in
preparing their valuations, reviewed, where appropriate, the figure
arrived at by the above method against the criteria of asset-backing
and dividend yield.
(b) Where the acquired company was a subsidiary carrying on the main
part of the total undertaking of a company all or part of whose shares
were listed on the Stock Exchange, a parent-company-related valuation
was employed, in view of section 38(6) of the 1977 Act (see
paragraph 19 above). This method, which involved deducting from the
parent company's average capitalisation during the Reference Period a
valuation for the non-vesting elements in the group, or apportioning
the capitalisation according to the contribution to group earnings of
the vesting and the non-vesting elements, was used in the Vosper
Thornycroft and the Yarrow Shipbuilders cases.
(c) In certain other cases, where the company acquired was not making
a profit, recourse was had to an assets-based valuation, based on the
hypothesis of an open-market sale of the assets during the Reference
Period.
(d) One other unprofitable company was valued by a
share-capital-related method that is at a discount to the nominal
value of its issued share capital.
II. The nationalisations giving rise to the present proceedings
A. Introduction
37. The present proceedings arise from the nationalisation under
the 1977 Act of the seven undertakings described below. Save for the
preference shares in Kincaid (see paragraph 40 below), none of the
shares in the companies concerned was listed on the Stock Exchange, so
that, with that exception, compensation fell to be assessed on the
basis of a hypothetical Stock Exchange quotation (see paragraph 19
above).
38. The descriptions of the seven undertakings include particulars
of profits and assets which, except where otherwise stated, are taken
from the company's audited accounts. Pre-tax profits have been shown
as the post-tax figures are not in the Court's possession in every
case. Figures for net assets do not include amounts in respect of
deferred taxation and for this reason differ from the figures
appearing in the Commission's report. References to cash in hand or
equivalent are to gross amounts, that is without taking account of any
outstanding liabilities.
39. Reference is also made below to various estimates submitted by
the applicants, both to the Commission and to the Court, concerning
the value of their nationalised interests. This material was not
generally challenged or commented on by the Government. This was not
because they accepted it as correct, but because they considered that
it was inappropriate to do so since those estimates did not reflect
the statutory formula, which formula, in their view, was consistent
with the requirements of the Convention.
B. The Kincaid case
1. The nationalised undertaking
40. On 1 July 1977, there vested in British Shipbuilders the
preference and the ordinary shares in John G. Kincaid & Company Ltd.
("Kincaid"), which manufactured marine diesel engines at Greenock.
The preference shares were listed on the Stock Exchange and no
complaint was made in the present proceedings regarding the
compensation received therefor. Sir William Lithgow, who is a
shipbuilder by profession and was the largest single shareholder in
the company, owned 186,320 - or slightly over 28% - of its 662,500
issued ordinary shares.
41. (a) Kincaid's pre-tax profits for the following years, ending
on 31 December, were:
1971 - Ł860,000
1972 - Ł595,000
1973 - Ł387,000
1974 - Ł1,258,000
1975 - Ł1,740,000
1976 - Ł1,356,000.
In the half-year to 30 June 1977, the pre-tax profits were, according
to the Commission's report, approximately Ł700,000.
Kincaid had no Government orders and required no special Government
subsidies.
From 1974 to Vesting Day a total of Ł513,000 was paid in dividends on
the ordinary shares; according to Sir William Lithgow, Government-
imposed dividend restraint resulted in Ł1,953,000 being added to
company funds between the Reference Period and Vesting Day.
(b) Kincaid's net assets were:
at 31 December 1972 - Ł3,679,530
at 31 December 1973 - Ł3,723,528
at 30 June 1977 - Ł5,988,096.
At the hearings before the Court, Sir William Lithgow declared that
Kincaid had cash reserves of Ł5.058 million at 30 June 1977.
42. Sir William Lithgow, however, stated that during the Reference
Period Kincaid had net assets of approximately Ł9,500,000 and he
supplied a valuation, prepared after the proceedings before the
Commission, indicating that the value of the company at
28 February 1974, calculated in accordance with the 1977 Act on the
basis of a hypothetical Stock Exchange quotation, was in the region of
Ł8,750,000 to Ł10,250,000. He further estimated that the net assets
attributable to ordinary shareholders as at Vesting Day were worth at
least Ł18,000,000. All these various figures took account of
revaluations of the company's premises and plant, effected by a firm
of chartered surveyors, indicating that they were worth substantially
more than the amounts shown in the balance sheet. The cash reserves
at 30 June 1977 were described by Sir William Lithgow as surplus to
Kincaid's requirements.
2. The compensation negotiations
43. Messrs. Whinney Murray & Co.'s valuation report on Kincaid
- suggesting a figure in the range of Ł3,000,000 to Ł3,300,000 - was
submitted to the Department of Industry in February 1978; it was
based on earnings (see paragraph 36 (a) above). The report took no
account of a revaluation of fixed assets, effected after the end of
the Reference Period. Memoranda were exchanged between the Department
and the Stockholders' Representative in August 1978 and formal
negotiations then began. The Department offered Ł2,750,000 and the
Representative claimed Ł5,500,000. Subsequent discussions focused in
particular on the question whether a different accounting treatment
would have been followed had Kincaid's ordinary shares been listed on
the Stock Exchange. By February 1979, the gap between the parties had
narrowed (Ł3,500,000 being offered by the Department and Ł4,700,000
claimed by the Representative) and, after further negotiation,
agreement was reached, subject to the former shareholders' approval,
at a figure of Ł3,809,375.
44. After the Stockholders' Representative had recommended
acceptance of this figure, a meeting of the shareholders was held on
21 November 1979 to consider a resolution approving the agreement.
Sir William Lithgow and eight other stockholders were present but he
abstained from voting, as he considered that the information available
about the settlement was insufficient and that the figure did not
represent Kincaid's value during the Reference Period or at Vesting
Day. All the votes cast were in favour and the resolution was thus
carried. The Stockholders' Representative ratified the settlement on
the following day and on 4 December 1979 British Shipbuilders issued a
notice to all the former shareholders, informing them of the agreed
compensation.
45. Compensation payments in respect of Kincaid's ordinary shares
were made as follows:
- in January 1978, a first payment on account (section 36(6) of the
1977 Act; see paragraph 20 above), of Ł1,450,000;
- in November 1978, a second payment on account, of Ł800,000;
- shortly after the settlement in November 1979, the final payment, of
Ł1,559,375.
All these payments were effected by the issue of 9 3/4 % Treasury
Stock 1981, bearing a running yield of about 10% per annum.
The total compensation received by Sir William Lithgow for his
ordinary shares was Ł1,071,340. He stated that he sustained on this
sum, which he expended on trading assets, a liability to capital gains
tax of Ł207,752.
C. The Vosper Thornycroft case
1. The nationalised undertaking
46. On 1 July 1977, there vested in British Shipbuilders the
shares in Vosper Thornycroft (UK) Ltd. and Vosper Shiprepairers Ltd.
(hereinafter together referred to as "Vosper Thornycroft"), which were
primarily engaged in naval shipbuilding and also operated a shiprepair
business. Both of these companies were wholly-owned subsidiaries of
Vosper and their activities formed a substantial part of the latter's
business. The shares of Vosper were listed on the Stock Exchange, but
it was nevertheless a tightly-controlled subsidiary of a private
unlisted company, David Brown Holdings Ltd.
Various organisational changes had taken place in the Vosper Group
between 1974 and 1977. In brief, its trading activities, which had
previously been carried on mainly by one subsidiary company, were
first transferred to the parent company and then, on 15 March 1977,
transferred back to two subsidiaries, one - Vosper Thornycroft (UK)
Ltd. - dealing with shipbuilding and the other - Vosper Shiprepairers
Ltd. - with shiprepair. The second transfer had the object (which was
not fulfilled) of avoiding nationalisation of the shiprepair business.
47. (a) The pre-tax profits of Vosper Thornycroft, or its
predecessors, for the following years, ending on 31 October, were:
1971 - Ł622,000
1972 - Ł1,321,000
1973 - Ł1,658,000
1974 - Ł3,262,000
1975 - Ł4,059,000
1976 - Ł5,536,000.
According to the Commission's report, in the part-year to
30 June 1977, the pre-tax profits were Ł5,236,000, giving an annual
pre-tax profit rate at Vesting Day of Ł7,850,000.
Between 1972 and 1974, Vosper Thornycroft received Ł2,108,000 by way
of Government shipbuilding grants.
Vosper Thornycroft obtained a substantial amount of business from the
United Kingdom Ministry of Defence; however, according to the
valuation report referred to in the following paragraph, during the
period 1971-1976 United Kingdom Government contracts contributed only
17% of profits, 83% being contributed by exports and other business,
and exports amounting to 64% of turnover.
(b) According to the Commission's report, the net assets of Vosper
Thornycroft, as appearing from the accounts, were Ł5,857,000 as at
31 October 1972 and Ł25,633,000 as at 30 June 1977. At the hearings
before the Court, Vosper stated that Vosper Thornycroft's net assets
at Vesting Day included Ł5,500,000 in cash.
(c) The average market capitalisation of Vosper's ordinary shares
during the Reference Period was Ł4,500,000; on 30 June 1977, the
capitalisation was Ł5,800,000.
48. Vosper has submitted a valuation report on Vosper Thornycroft,
prepared by a chartered accountant who was also the Stockholders'
Representative in this case and made on the hypothesis of an
open-market sale of the business as a going concern on Vesting Day by
a willing seller to a single willing buyer. The report analysed
Vosper Thornycroft's profit record, assets, liabilities, cash flow and
future prospects and concluded that its value as at Vesting Day was
Ł37,700,000. This figure was reached by estimating the maintainable
post-tax profit level and applying thereto a price/earnings
multiplier, adjusted to take account of the "control premium" (see
paragraph 98 below); the adjustment was lower than average as it was
considered that the number of potential purchasers would have been
limited.
During the compensation negotiations, the Stockholders' Representative
prepared another valuation, based this time on the hypothesis that the
shares of Vosper Thornycroft had been the subject of a public offer
for sale on Vesting Day, which resulted in a figure of Ł35,400,000.
The valuation made allowance for the fact that shares offered for sale
to the public would be offered at a price below that at which it was
estimated they would stand if already listed on the Stock Exchange.
2. The compensation negotiations
49. Messrs. Whinney Murray & Co.'s valuation report on Vosper
Thornycroft - suggesting a figure in the range of Ł4,200,000 to
Ł4,600,000, subject to deductions of Ł1,139,200 under section 39 of
the 1977 Act - was submitted to the Department of Industry in
December 1977; for the reasons indicated in paragraph 36 (b) above, it
was based on the stock market capitalisation of Vosper, the parent
company, during the Reference Period. In March 1978, they made a
further report to the Department, concerning the group
reorganisations, and in June 1978 memoranda were exchanged between the
Department and the Stockholders' Representative. The Department
indicated in their memorandum that they valued Vosper Thornycroft at
Ł3,757,000, without taking into account deductions which they
considered fell to be made under section 39 in respect of dividends
paid for the year 1973-1974 in excess of the permissible maximum and
in respect of the 1976-1977 group reorganisation, which was alleged to
constitute a "material transaction" (see paragraphs 23 and 24 above).
In view of the uncertainty as to the amount of the deductions, they
deferred making an offer of compensation. The Stockholders'
Representative, in his memorandum, claimed compensation of
Ł35,400,000, based on a Vesting Day valuation of the shares.
50. Four negotiating meetings were held between July 1978 and
March 1979. The amount of the deduction for the excessive dividend
was agreed and the Department of Industry agreed to forego, in the
context of a negotiated settlement, the claim for a deduction arising
out of the reorganisation. On this basis, they made, on 1 March 1979,
their first formal offer of compensation, in the sum of Ł3,500,000
net of deductions.
51. Following the general election of May 1979 (see paragraph 17
above) and after representations had been made to the new Government,
the Department of Industry made, in September 1979, a revised offer of
Ł4,500,000. Further representations and preparation for arbitration
ensued. At a meeting in August 1980, the Minister of State at the
Department increased the offer to Ł4,800,000 net of deductions and
indicated that a further 10% increase might be possible.
At a further meeting on 17 September 1980, the Stockholders'
Representative - who had apparently previously made his case primarily
on the basis that compensation should be based on Vesting Day value -
indicated for the first time his view of a Reference Period valuation,
on the basis of the statutory formula. He gave a figure of
Ł10,000,000 and indicated that he would expect the Arbitration
Tribunal to award around Ł6,000,000. The Minister of State finally
agreed at the meeting to raise the Government's offer to Ł5,300,000,
but no further.
52. On 19 September 1980, the Stockholders' Representative wrote
to the Minister of State: he regretted the Government's decision not
to offer more or to alter the statutory compensation terms despite
their acknowledgement that they were grossly unfair, but he recognised
that the final offer was the maximum likely to be recovered by
arbitration. To mitigate the effects of further delay, he was
prepared to recommend acceptance of the offer. On 7 October 1980,
Vosper authorised him to accept it.
53. Compensation payments in respect of Vosper Thornycroft's shares
were made as follows:
- in April 1978, a first payment on account, of Ł650,000;
- in November 1978, a second payment on account, of Ł700,000;
- shortly after the settlement in October 1980, the final payment, of
Ł3,950,000.
The payments on account were effected by the issue of 9 3/4% Treasury
Stock 1981, with a running yield of about 10% per annum, and the final
payment, by the issue of 10% Exchequer Stock 1983, with a running
yield of slightly under 11%.
D. The BAC case
1. The nationalised undertaking
54. On 29 April 1977, there vested in British Aerospace the shares
in British Aircraft Corporation (Holdings) Ltd. ("BAC"), which was the
major aerospace manufacturer in the United Kingdom. Half of its
shares were owned by English Electric, a wholly-owned subsidiary of
The General Electric Company PLC ("GEC"), and half by Vickers. The
shares of GEC and Vickers are quoted on the Stock Exchange, but the
activities of BAC did not constitute a substantial part of the
latter's undertaking. BAC was not itself listed in the 1977 Act as
one of the companies to be nationalised but it was taken into public
ownership - in the place of a subsidiary, British Aircraft Corporation
Ltd., that was so listed - on the ground that it owned certain works
that had previously belonged to that subsidiary (sections 26 and 27;
see paragraphs 25 and 26 above).
55. (a) BAC's pre-tax profits for the following years, ending on
31 December, were:
1972 - Ł 6,571,000
1973 - Ł13,742,000
1974 - Ł24,207,000
1975 - Ł30,003,000
1976 - Ł39,912,000
1977 - Ł53,644,000.
BAC received no special Government subsidies. Over 70% of its
1977 production was exported.
(b) BAC's net assets were Ł32.4 million at the end of 1972,
Ł75,620,000 at the end of 1976 and Ł80,575,000 at the end of 1977. At
the hearings before the Court, the former owners of BAC said that it
had cash in hand of Ł57.8 million at the end of 1976 and of
Ł98.7 million at the end of 1977.
56. English Electric and Vickers stated that BAC was one of the
most successful companies of the 1970's in the United Kingdom. They
pointed, for example, to the growth in sales, profits, assets and
order books between 1973 and 1977 and to future prospects, and
asserted that a company with such earnings growth would have commanded
on the Stock Exchange a substantial price/earnings ratio and a market
value considerably over net asset value. They submitted a valuation
indicating that BAC's value as at Vesting Day was at least
Ł275,000,000 and that this figure should be increased by not less than
30% to take account of the "control premium" (see paragraph 98 below),
giving an overall value of at least Ł350,000,000.
2. The compensation negotiations
57. Negotiations in this case were marked throughout by a basic
difference of approach between the Stockholders' Representative and
the Department of Industry. The Representative adopted the
"discretionary approach", according to which the Secretary of State
had a discretion as to the amount of compensation he could agree in
negotiations, the statutory compensation formula being binding only on
the Arbitration Tribunal; on this basis, the Reference Period was not
relevant to the negotiations and compensation could and should be
based on market value at Vesting Day. The Department, on the other
hand, adopted the "statutory approach", according to which
negotiations could be conducted only in terms of the statutory
formula; on this basis, negotiated compensation would be related to
the value which BAC's shares would have had if they had been quoted
during the Reference Period and the performance of the company
thereafter was irrelevant save in so far as it could have been
foreseen by a prudent investor.
58. On 15 April 1977, the Stockholders' Representative indicated
to the Department of Industry, as a preliminary view, that on the
basis of the 1976 profits, BAC's capitalisation in the stock market
would be likely to be in the region of Ł150,000,000 to Ł165,000,000,
excluding any "control premium" which would take the figure up to at
least Ł200,000,000. On 15 August 1977, he revised this figure to
Ł250,000,000. There followed correspondence in which Department and
Representative argued, respectively, for the "statutory approach" and
the "discretionary approach". The Department added that it was the
large amount of detailed work needed to reach a reasoned view on the
base value of the shares at the Reference Period that was holding up
the opening of negotiations.
59. Messrs. Whinney Murray & Co.'s valuation report on BAC
- suggesting a figure in the range of Ł31,000,000 to Ł35,000,000,
subject to deductions of Ł13,736,000 under section 39 of the 1977 Act -
was submitted to the Department of Industry in January 1978; it was
based on earnings (see paragraph 36 (a) above). On 25 January 1978,
the Government announced a first payment on account of compensation,
in the sum of Ł6,100,000; GEC and Vickers issued a joint statement in
which, basically, they objected to the small size of the payment.
After receiving the factual part of the valuation report, the
Stockholders' Representative wrote, on 9 February 1978, to the
Department saying that, attempting to arrive at a figure which was
"fair and reasonable in all the circumstances" and having regard,
inter alia, to profit trend, growth in order books, exports and cash
flow, he assessed the value of BAC at Ł255,100,000, a figure which
would have to be substantially higher to take account of any "control
premium".
In May 1978, the Department sent to the Stockholders' Representative a
memorandum indicating that in their view the appropriate method of
valuation was by a capitalisation, through the application of an
appropriate price/earnings ratio, of the post-tax earnings for the
year ending on 31 December 1972 (namely Ł3,300,000); from the base
value thus established deductions fell to be made, under section 39 of
the 1977 Act (see paragraphs 23-24 above), in respect of certain
dividends paid in 1974. The memorandum did not contain any offer of
compensation because, according to the Government, the "discretionary
approach", for which the Stockholders' Representative continued to
argue in intervening correspondence, was not within the terms of the
Act.
Maintaining that approach, the Representative gave to the Department
on 6 July 1978 a report with his estimate of a stock market valuation
of BAC on Vesting Day, namely Ł275,000,000. According to English
Electric and Vickers, a representative of the Department accepted that
they would probably have arrived at a similar figure if they were
attempting a Vesting Day stock market valuation and stated that BAC's
growth from 1973 to 1977 had been "spectacular". However, the
Department reaffirmed that, on the basis of legal advice, they could
only negotiate on the "statutory approach".
60. On 7 August 1978, the Stockholders' Representative, without
renouncing the "discretionary approach", wrote to the Department with
his view of the hypothetical stock market value of BAC in 1974. This
was that a figure of Ł255,000,000 would have given a prospective
dividend yield of just under 4%, dividend cover of 1.7 times and a
prospective price/earnings ratio of just over 20, figures which would
not have been abnormal for a share with the growth rate of BAC. He
added that at Ł200,000,000 the shares would have been very reasonably
valued.
There were then discussions as to whether BAC's profits after the
Reference Period had been predictable. On 29 September 1978, the
Stockholders' Representative said that cutting valuation during the
Reference Period to the bone would still leave a figure of
Ł175,000,000. The Department accepted that the 1973 earnings could be
used as a base for estimating what prospective earnings would have
been during the Reference Period.
61. On 16 November 1978, the Department of Industry made a
preliminary offer of some Ł51,000,000, after deduction under section
39 of the 1977 Act of Ł19,700,000 relating to dividends totalling
Ł31,810,000 paid by BAC in respect of the years 1973 to 1976,
primarily a special dividend of Ł15,000,000 paid in February 1974 out
of reserves and deemed to be a "material transaction" under section 30
(see paragraph 24 above). They indicated that if the matter went to
arbitration, they would argue that Ł51,000,000 was the appropriate
valuation. In December 1978, however, they offered Ł81,000,000 and in
March 1979 the Stockholders' Representative indicated that
Ł127,000,000 would be acceptable as a compromise.
62. After the general election of May 1979 (see paragraph 17
above), there were further discussions. In September 1979, the
Department indicated that, in the context of a negotiated settlement,
it might be possible to reduce the section 39 deduction to Ł15,000,000
and that they could increase their offer to Ł85,000,000. The
Stockholders' Representative indicated that Ł115,000,000 would be an
acceptable compromise.
In November 1979, however, he submitted a memorandum in which he
reverted to the "discretionary approach". He added that the
stockholders' merchant bankers had unequivocally advised that "the
'base value' of BAC's securities during the 'relevant' period,
calculated as if by an arbitrator under the Act, would be at least
Ł140,000,000". He also argued that the Department, in their
restriction of dividend distributions during the period from 1974 to
Vesting Day, had gone beyond what was necessary or prudent; there was
therefore justification for retroactive approval by the Secretary of
State of the 1974 special dividend, so that it would not be deductible
from compensation (see paragraphs 22-24 above). This request did not
meet with a favourable response and, in the final event, Ł19,700,000
was deducted under section 39.
63. After further correspondence and discussion, the Department,
in August 1980, made a final offer of Ł95,000,000, net of deductions.
On 18 August 1980, the Stockholders' Representative stated that he was
prepared to recommend acceptance and agreement at the figure in
question was duly reached.
64. Compensation payments in respect of BAC's shares were made as
follows:
- on 10 February 1978, a first payment on account, of Ł6,100,000;
- on 2 August 1978, a second payment on account, of Ł3,550,000;
- on 5 December 1978, a third payment on account, of Ł30,350,000;
- on 28 August 1980, the final payment, of Ł55,000,000.
The payments on account were effected by the issue of 9 3/4% Treasury
Stock 1981, carrying a running yield of about 10% per annum, and the
final payment, by the issue of 10% Exchequer Stock 1983, carrying a
running yield of about 11%.
E. The Hall Russell case
1. The nationalised undertaking
65. On 1 July 1977, there vested in British Shipbuilders the
shares in Hall Russell & Company Ltd. ("Hall Russell"), a limited
company registered in Scotland, which carried on a shipbuilding and
shiprepair business in Aberdeen and was wholly-owned by Banstonian,
an unlimited company. Banstonian was a wholly-owned subsidiary of
Northern Shipbuilding, of which there were in turn four shareholders.
66. (a) Hall Russell's pre-tax profits for the following years,
ending on 31 March, were, according to the Commission's report:
1972 - Ł425,000
1973 - Ł480,000
1974 - Ł151,000
1975 - Ł177,000
1976 - Ł498,000
1977 - Ł825,000.
In the three months to 30 June 1977, pre-tax profits were Ł292,374.
Between 1973 and 1975, Hall Russell received Ł657,000 by way of
Government shipbuilding grants.
(b) Hall Russell's net assets were Ł1,358,000 as at 31 March 1973 and
Ł1,622,573 as at 30 June 1977. In their memorial filed with the
Court, the former owners of Hall Russell said that it had Ł3,355,000
available in cash on Vesting Day.
67. Banstonian and Northern Shipbuilding stated that Hall Russell
was a sound, successful and growing undertaking and that this was
confirmed by its results after nationalisation. By reference to a
valuation report, prepared in October 1978 for the purposes of the
compensation negotiations and taking into account the earnings record,
the value of the net tangible assets and the dividend yield, they
submitted that if Hall Russell had been valued as at Vesting Day, they
should have received compensation of Ł3,500,000.
2. The compensation negotiations
68. Messrs. Whinney Murray & Co.'s valuation report on Hall
Russell - suggesting a figure in the range of Ł900,000 to Ł1,000,000 -
was submitted to the Department of Industry in March 1978; it was
based on earnings (see paragraph 36 (a) above). In October 1978,
memoranda on the valuation were exchanged between the Department and
the Stockholders' Representative. The former offered Ł800,000. The
latter maintained that section 38 of the 1977 Act (see paragraph 19
above) gave the Secretary of State a discretion in settling
compensation, and that the only fair basis was value at Vesting Day,
namely Ł3,500,000.
In November 1978, the Stockholders' Representative put forward a
Reference Period valuation of Ł2,500,000 - Ł3,000,000. In March 1979,
the Government offered Ł1,000,000. This offer was subsequently
increased to Ł1,500,000 and settlement at that figure was concluded in
November 1980.
69. Compensation payments in respect of Hall Russell's shares were
made as follows:
- on 7 February 1978, a first payment on account, of Ł300,000;
- on 1 August 1978, a second payment on account, of Ł100,000;
- on 5 December 1978, a third payment on account, of Ł250,000;
- on 21 November 1980, the final payment, of Ł850,000.
The payments on account were effected by the issue of 9 3/4 % Treasury
Stock 1981, carrying a running yield of about 10% per annum, and the
final payment, by the issue of 10% Exchequer Stock 1983, carrying a
running yield of slightly under 11%.
F. The Yarrow Shipbuilders case
1. The nationalised undertaking
70. On 1 July 1977, there vested in British Shipbuilders the
shares in Yarrow (Shipbuilders) Ltd. ("Yarrow Shipbuilders"), which
was engaged in building in Glasgow warships and other specialist
vessels. This company was a wholly-owned subsidiary of Yarrow, whose
shares were listed on the Stock Exchange, and its activities comprised
a substantial part of the latter's business.
In 1968, Yarrow, which had previously owned all the shares in Yarrow
Shipbuilders, had, allegedly in response to Government pressure, sold
51% of them to another company for Ł1,800,000. Yarrow Shipbuilders
had subsequently incurred losses and in 1971 Yarrow had repurchased
the shareholding for Ł1, a loan of Ł4,500,000 having been negotiated
from the Ministry of Defence to replace working capital eroded by the
losses. It was a condition of the loan that, on returning to
profitability, Yarrow Shipbuilders could distribute profits by way of
dividend to the parent company only with the prior authority of the
Secretary of State for Defence. By 1973/1974, the loan could have
been repaid, but Yarrow decided not to do so; the dividend
restrictions accordingly applied throughout the Reference Period.
71. (a) The pre-tax profits of Yarrow Shipbuilders for the
following years, ending on 30 June, were:
1971 - Ł308,000
1972 - Ł607,000
1973 - Ł3,025,000
1974 - Ł7,088,000
1975 - Ł5,619,000
1976 - Ł4,887,000
1977 - Ł3,123,000.
According to Yarrow, the post-tax profits from the Reference Period to
Vesting Day totalled some Ł12,000,000; during this period Yarrow
Shipbuilders was authorised by the Secretary of State for Defence to
pay dividends of only Ł2,600,000 to its parent company, with the
result that Ł9,400,000 of the profits remained within the company and
were included in the shareholders' funds obtained by the Government on
nationalisation. The yield which Yarrow was allowed to obtain from
its subsidiary in this period was said to have been only about
one-third of what it should have been.
In addition to the 1971 loan from the Ministry of Defence, Yarrow
Shipbuilders received between 1972 and 1977 Ł3,114,000 by way of
Government shipbuilding grants. They all related to export contracts,
such contracts having always played a significant role in the
company's turnover.
(b) Yarrow stated that the value of Yarrow Shipbuilders' net tangible
assets, in accordance with accounting standards, was Ł1,327,000 at
30 June 1973 and that it was shown in the accounts as at 30 June 1977
to be Ł10,500,000.
(c) The average market capitalisation of Yarrow's ordinary shares
during the Reference Period did not exceed Ł4,800,000.
72. Yarrow has submitted a valuation report prepared by a firm of
chartered accountants, according to which a fair value for Yarrow
Shipbuilders as at Vesting Day was Ł16,000,000. The valuation method
employed was to consider what a single willing buyer, obtaining 100%
control, would have paid. Two alternative approaches were used: the
first involved estimating the maintainable post-tax profit level and
capitalising it by the application of a price/earnings multiplier,
giving a value of Ł16,320,000; the second involved applying a
price/earnings multiplier to the latest reported after-tax earnings,
giving a value of Ł15,750,000. The report commented that "the net
asset value of a company which is carrying on business as a going
concern is generally not a major determinant in valuing its shares.
The purchaser does not normally buy the shares in the expectation that
its assets are to be sold, but expects them to be used in the business
to earn profits".
In the alternative, Yarrow claimed that, as had been contended by the
Stockholders' Representative at the outset of the compensation
negotiations (see paragraph 73 below), Yarrow Shipbuilders' value in
the Reference Period was Ł17,500,000.
2. The compensation negotiations
73. In September 1977, the Stockholders' Representative supplied
the Department of Industry with a factual memorandum about Yarrow
Shipbuilders. Messrs. Whinney Murray & Co.'s valuation report on the
company - suggesting a figure in the range of Ł2,800,000 to
Ł3,200,000 - was submitted to the Department in December 1977. It was
based on the stock market capitalisation of the parent company,
Yarrow, during the Reference Period. This was not only because the
major part of Yarrow's activity was carried on by Yarrow Shipbuilders
(see paragraph 36 (b) above) but also because the accountants
considered that "without the financial backing of Yarrow and being
unable to pay dividends under the terms of the [Ministry of Defence]
loan, a purely nominal value for [Yarrow Shipbuilders] might result".
They also took the view that Yarrow Shipbuilders could not be valued
on the normal criteria of earnings, dividend yield or asset backing,
and noted that the stringent dividend restrictions "affected the
standing and worth" of both the subsidiary and the parent.
In March 1978, negotiations opened with an exchange of valuations
between the parties: the Department's was Ł2,800,000, whilst the
Representative's was Ł17,500,000, being an earnings-based valuation
arrived at on a view of the prospective profits of Yarrow Shipbuilders
for the year to June 1974 and on the assumption of an offer for sale
of the shares on the stock market immediately before the Reference
Period.
During subsequent negotiations, points discussed included the
possibility that further dividend payments in respect of the period up
to Vesting Day could be authorised; whether it should be assumed that
the Ministry of Defence loan would have been refinanced if the shares
of Yarrow Shipbuilders had been listed on the Stock Exchange; the
appropriateness of an offer-for-sale approach to valuation; the
relevance of the parent-company-related method of valuation; and the
effect of the dividend restriction (if any) on the stock market
capitalisation of Yarrow.
74. In July 1978, the Government offered Ł4,000,000 and in
September the Stockholders' Representative put forward an alternative
claim of Ł12,000,000. Further offers were made by the Government in
August 1979 and August 1980, and in October 1980 compensation was
finally agreed at Ł6,000,000. This figure was accepted by Yarrow as
it had been advised that arbitration proceedings might have resulted,
under the terms of the 1977 Act, in the award of an amount not
exceeding its own total capitalisation of not more than Ł4,800,000.
75. Compensation in respect of Yarrow Shipbuilders' shares was
paid as follows:
- in February 1978, a first payment on account, of Ł1,400,000;
- in December 1978, a second payment on account, of Ł850,000;
- on 21 October 1980, the final payment, of Ł3,750,000.
The payments on account were effected by the issue of 9 3/4% Treasury
Stock 1981, with a running yield of about 10% per annum, and the final
payment, by the issue of 10% Exchequer Stock 1983, with a running
yield of slightly under 11%.
G. The Vickers Shipbuilding case
1. The nationalised undertaking
76. On 1 July 1977, there vested in British Shipbuilders: (a) the
shares in Vickers Shipbuilding Group Ltd., a wholly-owned subsidiary
of Vickers; and (b) certain other shipbuilding interests of Vickers
which had, by operation of section 20 of the 1977 Act (see
paragraph 18 above), vested in Vickers Shipbuilding Group Ltd., as
assets appurtenant to its activities. The business thus nationalised
(collectively referred to as "Vickers Shipbuilding") specialised in
the design and construction of sophisticated warships. The activities
of Vickers Shipbuilding did not constitute more than one-quarter of
the total undertaking of Vickers.
77. (a) The pre-tax profits of Vickers Shipbuilding for the
following years, ending on 31 December, were:
1972 - Ł2,618,000
1973 - Ł2,177,000
1974 - Ł5,515,000
1975 - Ł4,841,000
1976 - Ł3,746,000.
In the half-year to 30 June 1977, pre-tax profits were Ł3,948,000.
Vickers Shipbuilding was in receipt of small amounts by way of
Government shipbuilding grants, all of which related to export
contracts.
(b) The net assets of Vickers Shipbuilding amounted to Ł14,337,000 as
at 31 December 1972; as at 30 June 1977 its net tangible assets (that
is, making no allowance for deferred tax, the amount of which is not
shown in the information before the Court) were Ł32,431,000.
78. Vickers have submitted a valuation which, taking into account
profit record, future prospects and net assets, indicated that, on the
basis of a transaction between a willing buyer and a willing seller,
the value of Vickers Shipbuilding as at Vesting Day was not less than
Ł25,000,000. This figure was reached by estimating the maintainable
post-tax profit level and applying thereto a price/earnings
multiplier, adjusted to take account of the "control premium"
(see paragraph 98 below).
2. The compensation negotiations
79. By virtue of section 38(7) of the 1977 Act, the shares of
Vickers Shipbuilding Group Ltd. had to be valued on the assumption
that during the Reference Period it had owned the interests which
vested in it under section 20 (see paragraph 76 above). The
compensation negotiations were therefore conducted on the basis that
Vickers Shipbuilding had been a single enterprise at all relevant
times and financial data so treating it, prepared by the auditors of
Vickers for use in the negotiations, were agreed in March 1978.
Certain other preliminary matters (including one related to taxation)
arose, and were ultimately settled.
80. Messrs. Whinney Murray & Co.'s valuation report on Vickers
Shipbuilding - suggesting a figure in the range of Ł11,500,000 to
Ł12,700,000 - was submitted to the Department of Industry in May 1978;
it was based on earnings (see paragraph 36 (a) above). Formal
negotiations opened in the following month with an exchange of
memoranda: the Department offered compensation of Ł10,550,000 and the
Stockholders' Representative claimed Ł20,060,000. The Department
subsequently increased their offer to Ł13,500,000, whilst the
Representative indicated that Ł17,000,000 was the lowest acceptable
figure. In November 1978, the Department stated that they were not
prepared to increase their offer further and that, in the event of
arbitration, they would take their stand at a lower figure; the
Stockholders' Representative replied that resort would be had to
arbitration. In September 1979 - after the general election of
May 1979 (see paragraph 17 above) -, Vickers was informed that the new
Government had decided not to change the compensation terms and had
confirmed the Department's negotiating limit of Ł13,500,000.
81. In the same month, the Stockholders' Representative instituted
proceedings before the Arbitration Tribunal (see paragraphs 29-32
above). Written pleadings were exchanged, in which the Stockholders'
Representative contended for compensation of Ł16,695,999 and the
Department, of Ł12,210,000. The hearing started in September 1980.
However, on 26 September 1980, compensation was agreed between the
parties at a figure of Ł14,450,000.
82. In January 1978, the Department of Industry had informed
Vickers that no payment on account of compensation, pursuant to
section 36(6) of the 1977 Act, would then be made because discussions
on the taxation matter (see paragraph 79 in fine above) were not then
concluded.
Compensation in respect of the nationalised undertaking was
subsequently paid as follows:
- in April 1978 or thereabouts, a first payment on account, of
Ł4,000,000;
- in July 1978 or thereabouts, a second payment on account,
of Ł1,250,000;
- in November 1978 or thereabouts, a third payment on account, of
Ł3,200,000;
- in March 1980 or thereabouts, a fourth payment on account, of
Ł3,150,000;
- in September 1980 or thereabouts, the final payment,
of Ł2,850,000.
The first three payments on account were effected by the issue of
9 3/4% Treasury Stock 1981, bearing a running yield of about 10% per
annum, and the fourth payment on account and the final payment, by the
issue of 10% Exchequer Stock 1983, bearing a running yield of
about 11%.
H. The Brooke Marine case
1. The nationalised undertaking
83. On 1 July 1977, there vested in British Shipbuilders the
shares in Brooke Marine Ltd. ("Brooke Marine"), which carried on at
Lowestoft a shipbuilding business specialised in the construction of
small naval vessels. Those shares were owned as to 74.39% by Dowsett,
as to 21.34% by Investors and as to 4.27% by Prudential. The
securities which vested included 196,000 shares issued to the owners
in March 1976, following their exercise of an option, exercisable by
that date, to convert debenture stock into new shares.
84. (a) Brooke Marine's pre-tax profits for the following years,
ending on 31 March, were:
1973 - Ł427,000
1974 - Ł523,000
1975 - Ł792,000
1976 - Ł711,000
1977 - Ł865,000.
According to the Commission's report, in the three months to
30 June 1977, the pre-tax profits were Ł270,000.
Between 1973 and 1977, Brooke Marine received Ł888,000 by way of
Government shipbuilding grants. About 70% of its turnover came from
exports.
(b) Brooke Marine's net assets amounted to Ł1,049,000 as at
31 March 1973 and to Ł4,870,000 as at 30 June 1977. At the hearings
before the Court, the former owners of Brooke Marine stated that its
net assets at Vesting Day included Ł2.2 million in cash.
85. During 1973-1974, Brooke Marine had negotiations with the
Vickers Shipbuilding Group and Vosper Thornycroft Ltd. concerning a
possible purchase of Brooke Marine - at a figure between Ł2,500,000
and Ł3,000,000 - by one or other of these companies. The negotiations
lapsed due to the prospect of nationalisation.
86. Dowsett, Investors and Prudential have submitted a valuation
report, prepared by a firm of chartered accountants, which indicated
that, on the basis of a sale by a willing seller to a single willing
buyer of the business as a going concern at Vesting Day, a fair
valuation of Brooke Marine as at that day was Ł5,000,000. This figure
was reached by estimating the maintainable post-tax profit level and
applying thereto a price/earnings multiplier, adjusted to take account
of the "control premium" (see paragraph 98 below). The Government did
not accept that either the profits figure or the multiplier used was
appropriate.
2. The compensation negotiations
87. Prior to Vesting Day, Brooke Marine had had contacts with the
Department of Industry about matters connected with compensation.
In the first place, the Department declined, on 28 January 1975, to
give an assurance that, in the fixing of compensation, account would
be taken of certain development work in respect of which the Chairman
of Brooke Marine had requested approval in the previous December.
Such approval had been sought in order to preserve compensation rights
and, possibly, to ensure compliance with the safeguarding provisions
to be included in the nationalisation Act, details of which had not
yet been announced. However, according to its former owners, Brooke
Marine's note of a meeting held between the company and the Department
in June 1975 recorded an assurance by the latter that compensation
would take into account changes in circumstances since February 1974
(the end of the Reference Period).
In the second place, in view of the safeguarding provisions (see
paragraphs 22-23 above), Brooke Marine, which had previously had a
policy of retaining profits for investment in the development of its
business, sought and obtained - with some exceptions - authorisation
for the payment in the period up to July 1977 of certain dividends.
According to its former owners, the company would have sought
authorisation to pay higher dividends but for discussions with the
Department of Industry which led it to believe that permission would
be refused and that retained dividends would be taken into account
under the statutory formula. According to Brooke Marine's accounts,
the total dividends authorised for the three years to 31 March 1975,
1976 and 1977 amounted to Ł190,000, whereas profits after tax for the
same period amounted to Ł1,388,758.
88. In January 1978, the Stockholders' Representative wrote to the
Department protesting at the amount of the payment on account of
compensation offered by the Government (Ł350,000), which he described
as "derisory" in relation to the value of Brooke Marine.
Messrs. Whinney Murray & Co.'s valuation report on the company
- suggesting a figure in the range of Ł860,000 to Ł960,000 - was
submitted to the Department in March 1978: the newly-issued shares
(see paragraph 83 in fine above) were, pursuant to section 38(10) of
the 1977 Act (see paragraph 19 above), valued at their issue price;
the Reference Period value of the remaining shares was assessed on an
earnings basis (see paragraph 36 (a) above). The factual part of the
report was transmitted to the Stockholders' Representative: according
to Dowsett, Investors and Prudential, it contained some errors and
important omissions, a view which was expressed in correspondence with
the Department; according to the Government, there were no material
inaccuracies.
89. In July 1978, formal negotiations opened: the Stockholders'
Representative sent to the Department a memorandum claiming
compensation of Ł4,500,000, to which they responded with an offer of
Ł806,000. After various meetings, the Department indicated, in
March 1979, that they might be prepared to raise their offer,
mentioning a figure of Ł1,400,000 to Ł1,500,000. During the
negotiations, the Department contended that the value of Brooke
Marine's shares during the Reference Period would have been adversely
affected by the existence of claims arising from certain unfavourable
contracts and of the options to convert debenture stock into shares
(see paragraph 83 above). According to the Department, the 1977 Act
made no provision for taking into account, in determining the value,
the worth of the options during the Reference Period. This view was
not accepted by the Stockholders' Representative and it was
subsequently agreed that the matter should not be further discussed in
negotiations.
90. In November 1979, the Department made a revised offer of
Ł1,250,000. In further negotiations points discussed included whether
section 38 of the 1977 Act required the Secretary of State (in
assessing the hypothetical Stock Exchange value) to take account of
the likely or only of the inevitable consequences of a company being
listed; and whether the takeover negotiations with the Vickers
Shipbuilding Group and Vosper Thornycroft Ltd. (see paragraph 85
above) would have been the subject of a public announcement if the
shares of Brooke Marine had been listed.
In August 1980, the Minister of State at the Department of Industry
indicated that the Government's absolute ceiling was Ł1,500,000, but,
after further contacts, the offer was again raised, in December 1980,
to Ł1,800,000. On 11 December 1980, the Stockholders' Representative
accepted this offer.
91. Compensation in respect of the Brooke Marine shares was paid
as follows:
- in January 1978, a first payment on account, of Ł350,000;
- in July 1978, a second payment on account, of Ł50,000;
- in November 1978, a third payment on account, of Ł250,000;
- in December 1980, the final payment, of Ł1,150,000.
The payments on account were effected by the issue of 9 3/4% Treasury
Stock 1981, carrying a running yield of about 10% per annum, and the
final payment, by the issue of 10% Exchequer Stock 1983, with a
running yield of slightly under 11%.
III. General background information
A. Inflation, share prices and interest rates
92. Inflation in the United Kingdom, as measured by the official
Retail Price Index, was relatively rapid in the years 1974-1980. At
the start of the Reference Period (September 1973) the Index stood
at 94.8. The figures for January in each of the following years were
as follows:
1974 - 100
1975 - 119.9
1976 - 147.9
1977 - 172.4
1978 - 189.5
1979 - 207.2
1980 - 245.3.
In April 1977, June 1977 and December 1980, the Index stood at 180.3,
183.6 and 275.6, respectively.
The applicants recognised that inflation played some part in the
increase in value which their nationalised undertakings were said to
have shown between the end of the Reference Period and Vesting Day.
93. Share prices on the Stock Exchange did not follow the same
pattern. The general level of share prices reached a high point in
mid-1972, when the Financial Times Ordinary Share Index stood at over
500, and then declined to a low point in early January 1975, when that
Index stood at under 150. Thereafter, the general trend was upwards
for some time.
The trend between the end of the Reference Period (28 February 1974)
and the vesting dates under the 1977 Act (29 April and 1 July 1977)
can be illustrated by reference to monthly average figures for the
Financial Times Industrial Ordinary Share Index. In February 1974,
the average for this Index was 316.5. The Index declined steadily
during 1974, to an average of 160.1 in December. In January 1975, it
rose slightly to 183.7; thereafter, there was a rapid rise, to 262.6
in February, 292.6 in March (when the compensation terms were first
announced; see paragraph 12 above), 314.9 in April and 339.0 in May.
After a decline between then and August, there was a more or less
steady increase, until an average of 406.6 was reached in May 1976.
There was then an overall decline until October 1976, when the monthly
average was 293.6. Prices then rose again, the average figure in
November 1976 (when the third Bill was introduced into Parliament)
being 301, in April 1977 (the month of the aerospace industry Vesting
Day) being 415.1 and in July 1977 (the month of the shipbuilding
industry Vesting Day) being 443.1.
The economic situation in the United Kingdom during the period leading
up to the general election of February 1974 was affected by a number
of events, including a substantial rise in the price of oil, and
industrial conflict in November and December 1973 and in
February 1974. Prices and dividends were subjected to control under
the Counter-Inflation Act 1973.
94. The general level of interest rates rose between the vesting
dates under the 1977 Act and the settlement of compensation claims.
On both vesting dates, the Bank of England's minimum lending rate
stood at 8%; it rose to a peak of 17% from November 1979 to June
1980. The average rate from July 1977 to December 1979 was 10.4% and
from July 1977 to December 1980, 12.1%.
B. Methods of valuation and compensation
95. During the proceedings before the Commission and the Court
reference was made to a number of different methods of valuation of,
and of compensating for, property nationalised or compulsorily
acquired. The following is a brief outline of those methods.
1. Methods of share valuation
96. A Stock Exchange valuation for listed shares merely involves
looking at the price for the shares on the Stock Exchange on the
specified date or dates.
97. The method laid down by the 1977 Act for valuing unlisted
shares (the hypothetical Stock Exchange valuation) involved estimating
what price the shares would have had on the Stock Exchange had they
been listed during the Reference Period. The estimate would be made
by reference to the price of any comparable quoted shares and account
would be taken of all information about the company that would have
been available to Stock Exchange investors during that period. Thus,
Messrs. Whinney Murray & Co. based their valuations primarily on data
appearing in the companies' latest published accounts, which covered
periods prior to the Reference Period, but they also made certain
assumptions as to the interim - and more up-to-date - statements that
would have been supplied to the stock market if the companies' shares
had been listed. However, questions might arise concerning the
precise information that would have been available to investors and
the extent to which they might have foreseen an undertaking's future
performance (see, for example, paragraph 57 above). Furthermore, it
is implicit in this method that the company's shares would be held by
a number of different persons; accordingly, when valuing a
wholly-owned subsidiary on this basis, hypothetical assumptions may
have to be made as to what its business policies would have been if
its shares had been more widely owned.
98. An alternative method is to consider what a single willing
buyer would pay a willing seller (or sellers) for the whole of the
shares in question. Here again, account would be taken of all the
information that would be available to a buyer at the relevant time
and an estimate would be made by reference to comparable quoted
shares. However, this method could differ from the hypothetical Stock
Exchange valuation method in three respects. Firstly, it might be
assumed that a single buyer in takeover negotiations might have more
complete information than a Stock Exchange investor. Secondly, it
would not be necessary to assume that the ownership of the shares was
different from the reality or to make consequent assumptions as to the
company's business policies. Thirdly, the price payable by a single
buyer gaining control of a company would normally be materially higher
than the Stock Exchange price, since the latter merely represents what
would be paid for a small parcel of shares and does not reflect the
market value of a controlling shareholding; guidance as to the
additional amount (the "control premium") may be obtained from the
premiums over previous market prices paid on successful takeover bids
which, according to the applicants, averaged 34% in the first half
of 1977.
2. Compensation methods used in previous nationalisations
99. The compensation provisions contained in the 1977 Act, whilst
from many aspects similar to those contained in previous United
Kingdom nationalisation legislation, differed therefrom in the
following particular respects:
(a) there was no choice of reference periods during which the
nationalised shares were to be valued;
(b) the reference period was, with certain exceptions, further
removed in time from the vesting dates than the period fixed under
earlier legislation, although the latter had always preceded those
dates;
(c) there was, in section 38(6) of the 1977 Act (see paragraph 19
above), an express requirement that when valuing a subsidiary the
Arbitration Tribunal was to have regard in certain circumstances to
the stock market quotation of the parent company.
Furthermore, under earlier measures using share valuation methods a
substantial proportion of the securities nationalised had been listed
on the Stock Exchange and thus provided a comparison for valuing the
unquoted securities. In the case of the 1977 Act, on the other hand,
there was no quoted aerospace company and only one of the acquired
shipbuilding companies, which was relatively small, had all its shares
listed; however, a number of the companies nationalised were
subsidiaries whose activities formed a substantial part of the
business of a parent, such as Vosper and Yarrow, whose shares were
listed.
3. Compensation rights in other cases of compulsory acquisition
100. Subject to the ultimate supremacy of Parliament, it is a rule
of United Kingdom constitutional law that compensation is generally
payable where property is taken by the Crown in the exercise of
common-law powers. Furthermore, "unless the words of a statute clearly
so demand, a statute is not to be construed so as to take away the
property of a subject without compensation" (Attorney-General
v. De Keyser's Royal Hotel [1920] Appeal Cases 508 at p. 542).
101. The legislation on the compulsory purchase of land for public
purposes provides for payment of compensation, the normal basis being
the open-market value of the land with a willing seller. The value
falls to be assessed, so the House of Lords held in Birmingham
Corporation v. West Midland Baptist (Trust) Association [1969] 3 All
England Law Reports 172, at the date when possession of the property
is taken, or the date when compensation is agreed or assessed,
whichever is the earlier, and not (as had previously been the
practice) at the date of the "notice to treat", which might be
considerably earlier. Works carried out after the "notice to treat"
are excluded from the valuation, but, with some exceptions, account is
taken of the possibility of development of the land.
PROCEEDINGS BEFORE THE COMMISSION
102. The Commission received the application of Sir William Lithgow
(no. 9006/80) on 30 May 1980, that of Vosper (no. 9262/81) on
16 September 1977, that of English Electric and Vickers (no. 9263/81)
on 5 February 1981, that of Banstonian and Northern Shipbuilding
(no. 9265/81) on 3 February 1981, that of Yarrow, Sir Eric Yarrow,
M & G Securities Ltd. and Mrs. Augustin-Normand (no. 9266/81) on
6 February 1981, that of Vickers (no. 9313/81) on 25 March 1981 and
that of Dowsett, Investors and Prudential (no. 9405/81) on
4 June 1981.
All the applicants complained that the compensation which they had
received for their interests nationalised under the 1977 Act was
grossly inadequate and discriminatory and that they had thus been
victims of breaches of Article 1 of Protocol No. 1 (P1-1), taken alone
and in conjunction with Article 14 (art. 14+P1-1) of the Convention.
Allegations of breach of Article 6 (art. 6) of the Convention were
also made by each applicant, and certain of them invoked Articles 13,
17 and 18 (art. 13, art. 17, art. 18).
On 28 January 1983, the Commission declared the applications
admissible, save as regards the complaints of Sir Eric Yarrow,
M & G Securities Ltd. and Mrs. Augustin-Normand (application
no. 9266/81). On 10 October 1983, the Commission ordered the joinder
of the applications in pursuance of Rule 29 of its Rules of Procedure.
103. In its report adopted on 7 March 1984 (Article 31) (art. 31),
the Commission expressed the opinion that there had been no breach of:
- Article 1 of Protocol No. 1 (P1-1) (thirteen votes to three);
- Article 14 (art. 14) of the Convention (fifteen votes with one
abstention);
- Articles 6, 13, 17 or 18 of the Convention (art. 6, art. 13,
art. 17, art. 18) (unanimously).
The full text of the Commission's opinion and of the two dissenting
opinions contained in the report is reproduced as an annex to the
present judgment.
FINAL SUBMISSIONS MADE TO THE COURT BY THE GOVERNMENT
104. At the hearings of 24-26 June 1985, the Government requested
the Court to decide and declare:
"1. that there has been no breach of the rights of any of the
applicants under Article 1 of Protocol No. 1 (P1-1) to the Convention;
2. that there has been no breach of the rights of any of the
applicants under Article 14 of the Convention read in conjunction
with Article 1 of Protocol No. 1 (art. 14+P1-1) on any of the
grounds relied upon by the applicants;
3. that there has been no breach of the rights of any of the
applicants under Article 6 (art. 6) of the Convention on such grounds
as may still be relied upon by the applicants; and
4. that there has been no breach of the applicant's rights under
Article 13 (art. 13) of the Convention in the [Kincaid] case."
AS TO THE LAW
I. ARTICLE 1 OF PROTOCOL NO. 1 (P1-1)
A. Introduction
105. The applicants did not contest the principle of the
nationalisation as such. However, they alleged that, for various
reasons, the compensation which they had received was grossly
inadequate and that on that account they had been victims of a
violation of Article 1 of Protocol No. 1 (P1-1), which reads as
follows:
"Every natural or legal person is entitled to the peaceful enjoyment
of his possessions. No one shall be deprived of his possessions
except in the public interest and subject to the conditions provided
for by law and by the general principles of international law.
The preceding provisions shall not, however, in any way impair the
right of a State to enforce such laws as it deems necessary to control
the use of property in accordance with the general interest or to
secure the payment of taxes or other contributions or penalties."
The applicants' allegation was contested by the Government and
rejected by a majority of the Commission.
106. The Court recalls that Article 1 (P1-1) in substance
guarantees the right of property (see the Marckx judgment of
13 June 1979, Series A no. 31, pp. 27-28, para. 63). In its judgment
of 23 September 1982 in the case of Sporrong and Lönnroth, the Court
analysed Article 1 (P1-1) as comprising "three distinct rules": the
first rule, set out in the first sentence of the first paragraph, is
of a general nature and enunciates the principle of the peaceful
enjoyment of property; the second rule, contained in the second
sentence of the first paragraph, covers deprivation of possessions and
subjects it to certain conditions; the third rule, stated in the
second paragraph, is concerned, amongst other things, with the right
of a State to control the use of property (Series A no. 52, p. 24,
para. 61). However, the Court made it clear in its James and Others
judgment of 21 February 1986 that the three rules are not "distinct"
in the sense of being unconnected: the second and third rules are
concerned with particular instances of interference with the right to
peaceful enjoyment of property and should therefore be construed in
the light of the general principle enunciated in the first rule
(Series A no. 98, p. 30, para. 37 in fine).
107. The applicants were clearly "deprived of (their) possessions",
within the meaning of the second sentence of Article 1 (P1-1);
indeed, this point was not disputed before the Court. It will
therefore examine the scope of that sentence's requirements and then,
in turn, whether they were satisfied.
B. Were the applicants deprived of their property "in the public
interest" and "subject to the conditions provided for by law"?
108. The applicants contended that a taking of property for
compensation which - as in the present case, so they alleged - was
unfair because it represented only a fraction of the property's value
at the date of taking could not be regarded as being "in the public
interest", within the meaning of the second sentence of Article 1 of
Protocol No. 1 (P1-1). They further contended that if - as here, in
their view - the compensation was arbitrary because it bore no
reasonable relationship to that value, the taking could not be
regarded as having been effected "subject to the conditions provided
for by law", within the meaning of the same sentence.
109. The Court is unable to accept the first of these contentions.
The obligation to pay compensation derives from an implicit condition
in Article 1 of Protocol No. 1 (P1-1) read as a whole (see
paragraph 120 below) rather than from the "public interest"
requirement itself. The latter requirement relates to the
justification and the motives for the actual taking, issues which were
not contested by the applicants.
110. As regards the phrase "subject to the conditions provided for
by law", it requires in the first place the existence of and
compliance with adequately accessible and sufficiently precise
domestic legal provisions (see, amongst other authorities, the Malone
judgment of 2 August 1984, Series A no. 82, pp. 31-33, paras. 66-68).
Save as stated in paragraph 153 below, the applicants did not dispute
that these requirements had been satisfied.
It is true that the word "law" in this context refers to more than
domestic law (ibid., p. 32, para. 67). However, the applicants'
contention in this respect (see paragraph 108 above) is, in the
Court's view, so closely linked to the main issues in the present
case, which are dealt with in paragraphs 123-175 below, that it would
be superfluous also to examine this question under this phrase of
Article 1 (P1-1).
C. "General principles of international law"
111. The applicants argued that the reference in the second
sentence of Article 1 (P1-1) to "the general principles of
international law" meant that the international law requirement of, so
they asserted, prompt, adequate and effective compensation for the
deprivation of property of foreigners also applied to nationals.
112. The Commission has consistently held that the principles in
question are not applicable to a taking by a State of the property of
its own nationals. The Government supported this opinion. The Court
likewise agrees with it for the reasons which are already set out in
its above-mentioned James and Others judgment (Series A no. 98,
pp. 38-40, paras. 58-66) and are repeated here, mutatis mutandis.
113. In the first place, purely as a matter of general
international law, the principles in question apply solely to
non-nationals. They were specifically developed for the benefit of
non-nationals. As such, these principles did not relate to the
treatment accorded by States to their own nationals.
114. In support of their argument, the applicants relied first on
the actual text of Article 1 (P1-1). In their submission, since the
second sentence opened with the words "No one", it was impossible to
construe that sentence as meaning that whereas everyone was entitled
to the safeguards afforded by the phrases "in the public interest" and
"subject to the conditions provided for by law", only non-nationals
were entitled to the safeguards afforded by the phrase "subject to the
conditions provided for ... by the general principles of international
law". They further pointed out that where the authors of the
Convention intended to differentiate between nationals and
non-nationals, they did so expressly, as was exemplified by
Article 16 (art. 16).
Whilst there is some force in the applicants' argument as a matter of
grammatical construction, there are convincing reasons for a different
interpretation. Textually the Court finds it more natural to take the
reference to the general principles of international law in Article 1
of Protocol No. 1 (P1-1) to mean that those principles are
incorporated into that Article, but only as regards those acts to
which they are normally applicable, that is to say acts of a State in
relation to non-nationals. Moreover, the words of a treaty should be
understood to have their ordinary meaning (see Article 31 of the 1969
Vienna Convention on the Law of Treaties), and to interpret the phrase
in question as extending the general principles of international law
beyond their normal sphere of applicability is less consistent with
the ordinary meaning of the terms used, notwithstanding their context.
115. The applicants also referred to arguments to the effect that,
on the Commission's interpretation, the reference in Article 1 (P1-1)
to the general principles of international law would be redundant
since non-nationals already enjoyed the protection thereof.
The Court does not share this view. The inclusion of the reference
can be seen to serve at least two purposes. Firstly, it enables
non-nationals to resort directly to the machinery of the Convention to
enforce their rights on the basis of the relevant principles of
international law, whereas otherwise they would have to seek recourse
to diplomatic channels or to other available means of dispute
settlement to do so. Secondly, the reference ensures that the
position of non-nationals is safeguarded, in that it excludes any
possible argument that the entry into force of Protocol No. 1 (P1) has
led to a diminution of their rights. In this connection, it is also
noteworthy that Article 1 (P1-1) expressly provides that deprivation
of property must be effected "in the public interest": since such a
requirement has always been included amongst the general principles of
international law, this express provision would itself have been
superfluous if Article 1 (P1-1) had had the effect of rendering those
principles applicable to nationals as well as to non-nationals.
116. Finally, the applicants pointed out that to treat the general
principles of international law as inapplicable to a taking by a State
of the property of its own nationals would permit differentiation on
the ground of nationality. This, they said, would be incompatible
with two provisions that are incorporated in Protocol No. 1 (P1)
by virtue of Article 5 thereof (P1-5): Article 1 (art. 1) of the
Convention which obliges the Contracting States to secure to everyone
within their jurisdiction the rights and freedoms guaranteed and
Article 14 (art. 14) of the Convention which enshrines the principle
of non-discrimination.
As to Article 1 (art. 1) of the Convention, it is true that under most
provisions of the Convention and its Protocols nationals and
non-nationals enjoy the same protection but this does not exclude
exceptions as far as this may be indicated in a particular text (see,
for example, Articles 5 para. 1 (f) and 16 (art. 5-1-f, art. 16)
of the Convention, Articles 3 and 4 of Protocol No. 4 (P4-3, P4-4)).
As to Article 14 (art. 14) of the Convention, the Court has
consistently held that differences of treatment do not constitute
discrimination if they have an "objective and reasonable
justification" (see, as the most recent authority, the Abdulaziz,
Cabales and Balkandali judgment of 28 May 1985, Series A no. 94,
pp. 35-36, para. 72).
Especially as regards a taking of property effected in the context of
a social reform or an economic restructuring, there may well be good
grounds for drawing a distinction between nationals and non-nationals
as far as compensation is concerned. To begin with, non-nationals are
more vulnerable to domestic legislation: unlike nationals, they will
generally have played no part in the election or designation of its
authors nor have been consulted on its adoption. Secondly, although a
taking of property must always be effected in the public interest,
different considerations may apply to nationals and non-nationals and
there may well be legitimate reason for requiring nationals to bear a
greater burden in the public interest than non-nationals (see
paragraph 120 below).
117. Confronted with a text whose interpretation has given rise to
such disagreement, the Court considers it proper to have recourse to
the travaux préparatoires as a supplementary means of interpretation
(see Article 32 of the Vienna Convention on the Law of Treaties).
Examination of the travaux préparatoires reveals that the express
reference to a right to compensation contained in earlier drafts of
Article 1 (P1-1) was excluded, notably in the face of opposition on
the part of the United Kingdom and other States. The mention of the
general principles of international law was subsequently included and
was the subject of several statements to the effect that they
protected only foreigners. Thus, when the German Government stated
that they could accept the text provided that it was explicitly
recognised that those principles involved the obligation to pay
compensation in the event of expropriation, the Swedish delegation
pointed out that those principles only applied to relations between a
State and non-nationals. And it was then agreed, at the request of
the German and Belgian delegations, that "the general principles of
international law, in their present connotation, entailed the
obligation to pay compensation to non-nationals in cases of
expropriation" (emphasis added).
Above all, in their Resolution (52) 1 of 19 March 1952 approving the
text of the Protocol (P1) and opening it for signature, the Committee
of Ministers expressly stated that, "as regards Article 1 (P1-1), the
general principles of international law in their present connotation
entail the obligation to pay compensation to non-nationals in cases of
expropriation" (emphasis added). Having regard to the negotiating
history as a whole, the Court considers that this Resolution must be
taken as a clear indication that the reference to the general
principles of international law was not intended to extend to
nationals.
The travaux préparatoires accordingly do not support the
interpretation for which the applicants contended.
118. Finally, it has not been demonstrated that, since the entry
into force of Protocol No. 1 (P1), State practice has developed to the
point where it can be said that the parties to that instrument regard
the reference therein to the general principles of international law
as being applicable to the treatment accorded by them to their own
nationals. The evidence adduced points distinctly in the opposite
direction.
119. For all these reasons, the Court concludes that the general
principles of international law are not applicable to a taking by a
State of the property of its own nationals.
D. Entitlement to compensation
120. The question remains whether the availability and amount of
compensation are material considerations under the second sentence of
the first paragraph of Article 1 (P1-1), the text of the provision
being silent on the point. The Commission, with whom both the
Government and the applicants agreed, read Article 1 (P1-1) as in
general impliedly requiring the payment of compensation as a necessary
condition for the taking of property of anyone within the jurisdiction
of a Contracting State.
Like the Commission, the Court observes that under the legal systems
of the Contracting States, the taking of property in the public
interest without payment of compensation is treated as justifiable
only in exceptional circumstances not relevant for present purposes.
As far as Article 1 (P1-1) is concerned, the protection of the right of
property it affords would be largely illusory and ineffective in the
absence of any equivalent principle.
In this connection, the Court recalls that not only must a measure
depriving a person of his property pursue, on the facts as well as in
principle, a legitimate aim "in the public interest", but there must
also be a reasonable relationship of proportionality between the means
employed and the aim sought to be realised. This latter requirement
was expressed in other terms in the above-mentioned Sporrong and
Lönnroth judgment by the notion of the "fair balance" that must be
struck between the demands of the general interest of the community
and the requirements of the protection of the individual's fundamental
rights (Series A no. 52, p. 26, para. 69). The requisite balance will
not be found if the person concerned has had to bear "an individual
and excessive burden" (ibid., p. 28, para. 73). Although the Court was
speaking in that judgment in the context of the general rule of
peaceful enjoyment of property enunciated in the first sentence of the
first paragraph, it pointed out that "the search for this balance is
... reflected in the structure of Article 1 (P1-1)" as a
whole (ibid., p. 26, para. 69).
Clearly, compensation terms are material to the assessment whether a
fair balance has been struck between the various interests at stake
and, notably, whether or not a disproportionate burden has been
imposed on the person who has been deprived of his possessions.
E. Standard of compensation
121. The Court further accepts the Commission's conclusion as to
the standard of compensation: the taking of property without payment
of an amount reasonably related to its value would normally constitute
a disproportionate interference which could not be considered
justifiable under Article 1 (P1-1). Article 1 (P1-1) does not,
however, guarantee a right to full compensation in all circumstances,
since legitimate objectives of "public interest", such as pursued in
measures of economic reform or measures designed to achieve greater
social justice, may call for less than reimbursement of the full
market value (see the above-mentioned James and Others judgment,
Series A no. 98, p. 36, para. 54).
In this connection, the applicants contended that, as regards the
standard of compensation, no distinction could be drawn between
nationalisation and other takings of property by the State, such as
the compulsory acquisition of land for public purposes.
The Court is unable to agree. Both the nature of the property taken
and the circumstances of the taking in these two categories of cases
give rise to different considerations which may legitimately be taken
into account in determining a fair balance between the public interest
and the private interests concerned. The valuation of major
industrial enterprises for the purpose of nationalising a whole
industry is in itself a far more complex operation than, for instance,
the valuation of land compulsorily acquired and normally calls for
specific legislation which can be applied across the board to all the
undertakings involved. Accordingly, provided always that the
aforesaid fair balance is preserved, the standard of compensation
required in a nationalisation case may be different from that required
in regard to other takings of property.
122. Whilst not disputing that the State enjoyed a margin of
appreciation in deciding whether to deprive an owner of his property,
the applicants submitted that the Commission had wrongly concluded
from this premise that the State also had a wide discretion in laying
down the terms and conditions on which property was to be taken.
The Court is unable to accept this submission. A decision to enact
nationalisation legislation will commonly involve consideration of
various issues on which opinions within a democratic society may
reasonably differ widely. Because of their direct knowledge of their
society and its needs and resources, the national authorities are in
principle better placed than the international judge to appreciate
what measures are appropriate in this area and consequently the margin
of appreciation available to them should be a wide one. It would, in
the Court's view, be artificial in this respect to divorce the
decision as to the compensation terms from the actual decision to
nationalise, since the factors influencing the latter will of
necessity also influence the former. Accordingly, the Court's power
of review in the present case is limited to ascertaining whether the
decisions regarding compensation fell outside the United Kingdom's
wide margin of appreciation; it will respect the legislature's
judgment in this connection unless that judgment was manifestly
without reasonable foundation.
F. Did the compensation awarded to the applicants meet the standard
identified by the Court?
1. Issues common to all the applicants
(a) Approach to the case
123. The applicants criticised the Commission for having, in its
report, looked solely at the compensation system, as such, established
by the 1977 Act; in their view, it should rather have examined the
consequences of applying that system, but had failed to do so.
The Government, on the other hand, submitted that if the valuation
method laid down by the legislation were a proper one, then it would
of necessity have produced compensation that was real and effective.
For them, the value of nationalised property could only be determined
by the application of a proper valuation method.
124. In proceedings originating in an individual application
(Article 25) (art. 25) the Court has to confine itself, as far as
possible, to an examination of the concrete case before it (see,
amongst numerous authorities, the Ashingdane judgment of 28 May 1985,
Series A no. 93, p. 25, para. 59). In the present case, the
applicants' complaint is that the 1977 Act resulted in the payment of
compensation which was not reasonably related to the value of their
property when it was taken. This raises issues concerning both the
terms and conditions of the legislation and its effects. The Court
must therefore direct its attention in the first place to the
contested legislation itself, and the effects of the legislation must
be considered in the context of terms and conditions which Parliament
had to determine in advance and which had to be of general application
to the nationalised companies.
(b) The system established by the 1977 Act
(i) Compensation based on share values
125. Parliament decided to base compensation on the value of the
shares in the nationalised companies. Since, under the 1977 Act, it
was the shares themselves that passed into public ownership, this
decision, which was not as such contested by the applicants, appears
to the Court to be appropriate. There are, moreover, well-established
techniques for valuing shares, notably in the field of taxation.
The principal alternative would have been to base compensation on the
value of the underlying assets but, as the Government pointed out,
this would have necessitated, by reason of the different accounting
practices as regards book values, a costly and time-consuming
revaluation of the assets concerned. Moreover, in valuing a business
which is to continue to operate as a going concern earnings may often
be a more important factor than assets. In any event the chosen
method did enable account to be taken of asset values, in addition to
the other relevant factors (see paragraph 36 above).
126. The Court thus concludes that Parliament's decision was not in
principle inconsistent with the requirements of Article 1 (P1-1).
(ii) The hypothetical Stock Exchange quotation method of valuation
127. The 1977 Act provided that the "base value" for compensation
purposes of securities listed on the London Stock Exchange was to be
the average of their weekly quotations during the Reference Period.
The "base value" of unquoted securities was, in general, to be the
base value which they would have had if they had been listed on the
Stock Exchange throughout the Reference Period (see paragraph 19
above). The applicants - whose complaints all related to shares in
the latter category - contended that the prescribed method was a
distorted and untrue basis for valuation.
128. Notwithstanding the complexities involved in treating, for
valuation purposes, shares which were not quoted as if they were
quoted, the Court notes that the chosen method had a distinct
advantage. Being based on the impression which a Stock Exchange
investor might be presumed to have formed about the company in
question, it enabled account to be taken, in an objective manner, of
all relevant factors such as historic and prospective earnings,
asset-backing, dividend yield and the price of any comparable quoted
shares (see paragraphs 36 and 97 above). It is also a method that had
been used previously, notably in the United Kingdom Iron and Steel
Acts 1949 and 1967.
As the applicants pointed out, it is true that, by resorting to the
information assumed to be available to investors, the system involved
having regard in the first place to material that had already been
published, some of which could and did relate to periods prior to the
valuation reference period. However, in practice assumptions were
also made as to the other - and more up-to-date - information that
would have been supplied to the stock market if the shares in question
had been listed (see paragraph 97 above). Moreover, utilisation of
the chosen method did not prevent account being taken, in the course
of the compensation negotiations, of a company's prospective earnings
after the end of the Reference Period.
129. The applicants suggested that a more appropriate method would
have been to estimate the price which their shares would have fetched
on a sale by private treaty between a willing seller and a willing
buyer. However, the Court, like the Commission, observes that even in
the valuations prepared on this basis and supplied to it by the
applicants recourse was had to comparisons with analogous quoted
shares, notably for such purposes as the selection of an appropriate
price/earnings ratio.
Apart from the fact that compensation assessed by the hypothetical
Stock Exchange quotation method contained no element representing the
special value of a large or controlling shareholding - a matter dealt
with by the Court in paragraphs 148-150 below -, the principal
difference between the methods would appear to be that a purchaser by
private treaty might be assumed to have more complete information
about a company than a Stock Exchange investor (see paragraph 98
above). However, the Court does not consider that this difference is
of such moment as to lead to the conclusion that the United Kingdom
acted unreasonably and outside its margin of appreciation in opting
for the hypothetical Stock Exchange quotation method. This is
especially so if one bears in mind that a degree of artificiality
would also have been involved in an assumption that there would have
been a willing buyer for large shareholdings in a company engaged in
the particular industries concerned.
130. The Court thus concludes that recourse to the method in
question was not in principle contrary to Article 1 (P1-1).
(iii) The Reference Period
131. The compensation which the applicants received was based on
the value of their shares during the reference period laid down by the
1977 Act, namely 1 September 1973 to 28 February 1974 (see paragraph
19 above). This period antedated by more than three years the formal
transfer of the shares (see paragraph 18 above), whereas the
applicants maintained that in order to be "reasonably related" to the
value of the property taken, compensation had to be assessed by
reference to the value at the time of taking.
In selecting the valuation reference period, the Government sought to
take a period which was as recent as possible and was also not
untypical, provided always that it was not one in which the value of
the shares could have been distorted by the announcement of the
nationalisation or of the compensation terms: experience showed that
such an announcement was liable to affect the value of the property in
question, with the result that an objective valuation, free of such
influences, could only be effected if the valuation date or period
preceded the announcement.
132. The Court notes in the first place that the Reference Period
terminated on the date of the election of the Labour Government (see
paragraphs 10 and 19 above). That was the date on which the prospect
of nationalisation became a reality, even though, as the applicants
pointed out, the precise identity of the undertakings that would pass
into public ownership was not known for certain until the 1977 Act
received the Royal Assent.
The applicants argued that the sole justification for selecting a
reference period preceding vesting day was to exclude the artificial
influence on the value of the property caused by the threat or fact of
nationalisation. They asserted that in the present case the prospect
of nationalisation had not affected the profits or assets of their
companies and that any impact it might have had on the value of their
shares could, under the hypothetical quotation method, have been left
out of account.
The Court would point out that the possibility of distortion cannot be
assessed after the event and with the benefit of hindsight. In its
opinion, the Government did not act unreasonably in assuming, at the
time when the legislation was in the process of preparation and
adoption, that the nationalisation programme would have a distorting
effect on the value of the shares to be acquired. Indeed, in the
circumstances which prevailed, particularly the decline after February
1974 in the value of shares generally as evidenced by the Financial
Times Industrial Ordinary Share Index (see paragraph 93 above), the
selection of certain later valuation reference periods might not have
been universally welcomed.
133. The Court also notes that there are a number of precedents for
the utilisation of a valuation reference period antedating vesting
date.
Thus, such a system was incorporated in previous United Kingdom
nationalisation legislation to which the applicants referred and which
they admitted did provide fair and just compensation. What is more,
as the Government pointed out, in none of that legislation was proof
of actual distortion of prices or values a condition precedent to the
operation of the system.
134. The applicants also laid considerable stress on the references
in international-law cases to valuation as at vesting date. The
Court, however, does not find these references to be persuasive. Some
of the cases cited did not raise issues comparable to those in the
present case; moreover, in many international cases the date of the
nationalisation announcement and the date of taking were, in fact, one
and the same, with the result that there was no period during which a
threat of impending nationalisation could have caused distortion. In
any event, international practice does not show that only the vesting
date can be taken as the basis for valuation.
135. For these reasons, the choice of the Reference Period was not,
in the Court's view, in principle inconsistent with Article 1 (P1-1).
(iv) Conclusion regarding the system established by the 1977 Act
136. The Court thus concludes that, as regards the compensation
system established by the 1977 Act, as such, none of its components
can be regarded as in principle unacceptable in terms of
Protocol No. 1 (P1).
(c) The effects of the system established by the 1977 Act
(i) Introduction
137. The applicants have furnished to the Court copious material in
support of their plea that there was a gross disproportionality
between the compensation awarded and the actual value of their
nationalised undertakings on Vesting Day. Whilst the Government have
not in general commented on this material, they have indicated that
they are not to be taken as having accepted it as correct (see
paragraph 39 above).
The Court notes that the alleged disproportionality is basically
attributable to three general effects of the system established by the
1977 Act; it will examine these effects in turn.
(ii) Absence of allowance for developments between 1974 and 1977 in
the companies concerned
138. The applicants contended that they had not received fair
compensation because, under the 1977 Act, the shares in the
nationalised companies fell to be valued as at the Reference Period.
They complained that the effect of this provision was to exclude any
allowance for subsequent developments in the companies' fortunes up to
Vesting Day and, in particular, for the growth that occurred in the
undertakings with which the present case is concerned.
The Commission expressed the view that it was within the bounds of
Article 1 of Protocol No. 1 (P1-1) for the British legislature to see
the growth after the commencement of the nationalisation process as
growth for which compensation would not necessarily be due.
139. This complaint calls for the following initial observations on
the part of the Court.
(a) When a nationalisation measure is adopted, it is essential - and
this the applicants accepted - that the compensation terms be fixed in
advance. This is not only in the interests of legal certainty but
also because it would clearly be impractical, especially where a large
number of undertakings is involved, to leave compensation to be
assessed and fixed subsequently on an ad hoc basis or on whatever
basis the Government might at their discretion select in each
individual case. The Court recognises the need to establish at the
outset a common formula which, even if tempered with a degree of
inbuilt flexibility, is applicable across the board to all the
companies concerned.
(b) Compensation based on Reference Period values remained payable
not only in respect of companies whose fortunes improved between then
and Vesting Day but also in respect of companies whose fortunes
declined. The public sector thus not only reaped the benefit of any
appreciation but also bore the burden of any depreciation. It is
true, as the applicants pointed out, that in the course of the
legislative process certain companies might have been excluded from
the nationalisation programme and that in fact Drypool Group Ltd.,
which had become insolvent, was so excluded (see paragraphs 14-15
above). However, this one case does not alter the fact that, as
regards the companies which were actually nationalised, there was also
a risk that remained at the end of the day with the public sector;
indeed it appears probable that some of the nationalised companies,
other than those with which the present proceedings are concerned, did
decline in value between 1974 and 1977.
(c) Admittedly, such growth in the applicants' companies as may have
occurred in the period in question may have been partly attributable
to their efforts, notably in fulfilment of their statutory obligations
to shareholders. However, it cannot be excluded that it was also
partly attributable to a wide variety of factors some of which were
outside the applicants' control, such as the very prospect of
nationalisation and the provision of Government financial assistance
to ensure the companies' continuing viability.
(d) Under the hypothetical Stock Exchange quotation method of
valuation, future developments in the companies' fortunes were taken
into account as one of the "relevant factors", to the extent that
those developments could have been foreseen by a prudent investor in
the Reference Period (see paragraph 97 above).
140. The applicants emphasised at the hearings before the Court
that the duty to ensure fairness as regards the quantum of
compensation was a continuing duty. Accordingly, a compensation
formula which might have been fair when initially selected should be
modified if, as here, it ceased to be so as a result of supervening
developments.
141. The Court would observe that the long interval between the
Reference Period and Vesting Day was solely the result of a very
thorough democratic Parliamentary process during which criticisms
substantially identical to those made by the applicants in the present
proceedings were exhaustively discussed (see paragraphs 13 and 16
above). In particular, the possibility of amending the statutory
compensation formula to take account of intervening developments was
fully debated and rejected.
142. Whilst these historical facts are not of themselves decisive,
the Court notes that the discussions at the time highlight the
following difficulties which would have been involved in modifying the
proposed system.
(a) Any amendment would have undermined the legal certainty created
by the initial choice of compensation formula.
(b) The announcement of the compensation terms had created certain
public expectations, on the basis of which share dealings had taken
place.
(c) Between 1974 and 1977 the Financial Times Industrial Ordinary
Share Index fluctuated; at times - and in particular between the end
of the Reference Period and March 1975 (when the compensation terms
were first announced) - it stood below the figure obtaining at the end
of the Reference Period (see paragraph 93 above). The selection of a
different date or period might therefore have been disadvantageous for
former owners; indeed, retention of the reference period initially
chosen served to protect them against any adverse effects of a decline
in stock market prices.
(d) The Court has already observed that the United Kingdom Government
did not act unreasonably in selecting, with a view to ensuring that
the valuation of the applicants' shares be effected free of any
distorting influences, a valuation reference period that preceded the
announcement of the nationalisation (see paragraph 132 above). Since
the risk of distortion continued to exist until the shares passed into
public ownership, to have opted, by way of modification of the
original terms, for a later reference period would have left room for
those influences to take effect.
143. In coming to its conclusion on this aspect of the case, the
Court attaches particular importance to the considerations that
nationalisation is a measure of a general economic nature in regard to
which the State must be allowed a wide margin of appreciation (see
paragraph 122 above) and that it requires the adoption of legislation
laying down a common compensation formula (see paragraph 139 above).
Moreover, the system established by the 1977 Act has been found not to
be in principle unacceptable in terms of Protocol No. 1 (P1)
(see paragraph 136 above). In view of these factors and also of the
aggregate of the other considerations set out in paragraphs 139 and
141-142 above, the Court is of the opinion that there are sufficiently
cogent reasons to regard the decision to adopt provisions making no
allowance for intervening developments in the companies concerned as
one which the United Kingdom was reasonably entitled to take in the
exercise of its margin of appreciation.
(iii) Absence of allowance for inflation
144. The applicants referred to the facts that the 1977 Act tied
the amount of compensation to Reference Period values and that
compensation was not paid until some years later. Seen in
combination, these facts, it was argued, meant that they had not
received fair compensation since no account had been taken of the fall
in the value of money between 1974 and the date of payment, a period
of high inflation (see paragraph 92 above).
145. As regards the facts underlying this complaint, the Court
observes that compensation bore interest - at a rate reasonably close
to the average Bank of England minimum lending rate - as from Vesting
Day (see paragraphs 21 (a) and 94 above), thus providing some shelter
against inflation during the period from then until the date of
payment. Furthermore, after Vesting Day, all the applicants received
payments on account of compensation and did not have to wait until its
amount had been finally determined (see paragraphs 45, 53, 64, 69, 75,
82 and 91 above).
Again, as regards the period between the Reference Period and Vesting
Day, the applicants were not deprived of income from their investments
since they remained entitled to dividends on the acquired securities
in respect of that period. It is true that the safeguarding
provisions contained in the 1977 Act imposed restrictions in this
connection but, broadly speaking, they did no more than limit the
amount of such dividends to the amount paid in respect of the period
immediately preceding the Reference Period (see paragraph 23 above).
Moreover, a higher rate was payable with the authority of the
Secretary of State for Industry.
146. The information supplied to the Court reveals that in the
interval between the Reference Period and Vesting Day share prices did
not increase to the same extent as the Retail Price Index (see
paragraphs 92-93 above). Accordingly, to have adjusted compensation by
reference to that Index would have provided the applicants with an
advantage not available to other investors in securities.
The Commission pointed out that the most that could have been demanded
would have been that compensation be linked to the general level of
share prices. It is true that between the Reference Period and the
respective Vesting Days there was, according to the Financial Times
Industrial Ordinary Share Index, a certain increase in share values
generally (see paragraph 93 above). However, matters of this kind
cannot be judged with hindsight: by effectively freezing the value of
the nationalised shares at the Reference Period figure, the 1977 Act
not only excluded account being taken of any increase in the share
price index but also protected the applicants against any adverse
effects of subsequent fluctuations in that index.
147. The Court thus considers that, in the circumstances
prevailing, the decision to adopt provisions that excluded any
allowance for inflation was one which the United Kingdom was
reasonably entitled to take within its margin of appreciation.
(iv) Absence of an element representing the special value of a large
or controlling shareholding
148. The applicants referred to the facts that, under the 1977 Act,
their shares were valued by the hypothetical Stock Exchange quotation
method and that Stock Exchange prices represented merely what would be
paid for a small parcel of shares (see paragraph 98 above). Taken in
combination, these facts, it was argued, meant that they had not
received fair compensation since the amounts paid to them included no
element representing the special value attaching to their large - and
in most of the cases controlling - shareholdings in the companies
concerned.
149. As the Government rightly pointed out, a nationalisation
measure cannot be assimilated to a takeover bid: the nationalising
State is proceeding by compulsion and not by inducement. Accordingly,
there is, in the Court's view, no warrant for holding that the
applicants' compensation should have been aligned on the price that
might have been offered in such a bid.
It is true that in a sale by private treaty between a willing seller
and a willing buyer the price paid for the applicants' securities
might have included an element representing the special value
attributable to the size of their shareholdings. However, to have
assessed compensation on this basis would have involved assuming that
a buyer could be found for the large blocks of shares in question, an
assumption which, in the case of these particular industries, would
have been at least questionable.
Finally, the Court does not consider that the United Kingdom was
obliged under Article 1 of Protocol No. 1 (P1-1) to treat the former
owners differently according to the class or size of their
shareholdings in the nationalised undertakings: it did not act
unreasonably in taking the view that compensation would be more fairly
allocated if all the owners were treated alike.
150. In these circumstances, the Court considers that the decision
to adopt provisions that excluded from the compensation an element
representing the special value of the applicants' large or controlling
shareholdings was one which the United Kingdom was reasonably entitled
to take within its margin of appreciation.
(v) Conclusion regarding the effects of the system established by the
1977 Act
151. In the light of the foregoing, the Court concludes, as regards
the issues common to all the applicants, that the effects produced by
the system established by the 1977 Act were not incompatible with
Article 1 of Protocol No. 1 P1-1).
In reaching this conclusion, the Court has also had regard to certain
aspects of the method of payment of compensation which were
advantageous to the former owners: thus, interest, at a reasonable
rate, accrued on compensation as from Vesting Day, payments on account
were made as early as practicable and the balance was paid as soon as
the final amount had been determined (see paragraphs 20-21 and 45, 53,
64, 69, 75, 82 and 91 above).
2. Issues specific to individual applicants
152. In addition to the common issues dealt with above, certain of
the applicants alleged that, by reason of factors specific to their
individual cases, their award of compensation failed to meet the
requirements of Article 1 of Protocol No. 1 (P1-1). Their complaints,
which were contested by the Government and rejected by the Commission,
will be considered in turn.
(a) Alleged disparity between compensation and Reference Period
values (Kincaid and Yarrow Shipbuilders cases)
153. By way of alternative plea, Sir William Lithgow and Yarrow PLC
asserted that the compensation they received did not represent even
the value as at the Reference Period of their shares in Kincaid and
Yarrow Shipbuilders, respectively.
154. The Court notes that this complaint amounts in essence to a
submission that the 1977 Act was misapplied.
It has, however, to be pointed out that the sums offered by the
Department of Industry at the close of the negotiations were agreed to
by the respective Stockholders' Representatives, as an acceptable
valuation within the confines of the statutory formula. Furthermore,
the Arbitration Tribunal could have been seised in both cases of a
claim by the Representative that the former owners were entitled under
that formula to more than was being offered. Admittedly, such a
course might not have been open to Sir William Lithgow himself,
although this point is disputed (see paragraph 30 above). However,
the other Kincaid shareholders raised no objection (see paragraph 44
above) and he was in any event bound - and, for the reasons developed
in paragraphs 193-197 below, legitimately so - by the collective
system established by the 1977 Act.
155. In these circumstances, the Court sees no reason to doubt that
the results of the agreements were reasonable valuations, within the
confines of the statutory formula. It accordingly rejects this
complaint.
(b) Incidence of capital gains tax (Kincaid case)
156. Sir William Lithgow complained of the fact that although the
Treasury Stock which he received by way of compensation was not
subject to tax on receipt, disposal or redemption thereof rendered him
liable to capital gains tax (see paragraphs 21 (b) and 45 above). In
his view, his compensation was thus not "effective", in that it did
not enable him to purchase equivalent replacement assets.
157. This complaint does not appear to the Court to be
well-founded. As the Commission pointed out, the applicant would also
have been potentially liable to such tax had he disposed before 1977
of his original shareholding in Kincaid. It cannot be regarded as
unreasonable that the same applied on the redemption or earlier
disposal of the Compensation Stock which he received in exchange for
his shares.
(c) Use of an earnings-based method of valuation (Kincaid case)
158. Sir William Lithgow complained of the fact that the
compensation paid for his ordinary shares in Kincaid had been assessed
by reference to its earnings rather than to its assets, and by
reference to historic rather than prospective earnings. This, he
said, had deprived him of the value attributable to these other
factors.
159. The Court does not consider that recourse to the
earnings-based method, as such, can be regarded as inappropriate in
terms of Article 1 of Protocol No. 1 (P1-1). It is a route that is
commonly used, especially in the context of the stock market, in
valuing companies which, like Kincaid, are profitable. Moreover,
neither Kincaid's prospective earnings nor its assets were actually
disregarded: Messrs. Whinney Murray & Co. took the company's
prospects into account in preparing their suggested valuation
(see paragraph 43 above) and they reviewed that valuation against,
inter alia, the criterion of asset-backing.
Above all, the Court notes that the 1977 Act provided that the "base
value" of unlisted securities was to be determined having regard to
"all relevant factors" (see paragraph 19 above). It did not prescribe
any particular route to be used for that purpose, this being a matter
for negotiation or, in default, for decision by the Arbitration
Tribunal. It was therefore open to the Kincaid Stockholders'
Representative - whether or not to Sir William Lithgow himself (see
paragraph 154 above) - to argue in the course of the compensation
negotiations that greater weight should be attached to the company's
assets or prospective earnings and, if he failed to obtain
satisfaction, to refer the matter to arbitration. However, the
Stockholders' Representative did not do so, having, after consulting
the shareholders, accepted the Government's offer (see paragraph 44
above).
160. This complaint has therefore to be rejected.
(d) Use of the parent-company-related method of valuation (Yarrow
Shipbuilders case)
161. Yarrow complained of the fact that the compensation paid for
its shares in its subsidiary Yarrow Shipbuilders had been assessed,
solely so it said, by reference to the stock market price of its own
(Yarrow's) shares in the Reference Period. It referred to the
restrictions, which were already operative during the Reference
Period, imposed by the terms of the Ministry of Defence loan on the
payment of dividends by the subsidiary to the parent (see paragraph 70
above). As a result of those restrictions, Yarrow was deprived of
income with which to pay dividends to its own shareholders and the
price of its shares was therefore depressed. A valuation of Yarrow
Shipbuilders based on that price therefore failed to reflect its
profitability and prospects, factors which at the time were unknown to
the stock market. The effect of this valuation method was that the
compensation comprised no allowance for profits totalling Ł9,400,000
which Yarrow Shipbuilders had been obliged to retain as a result of
the dividend restrictions (see paragraph 71 (a) above).
162. The Court does not consider that in the present case recourse
to the method complained of was unacceptable in terms of Article 1 of
Protocol No. 1 (P1-1). As the Commission rightly observed, it is
reasonable, when valuing a subsidiary whose activities, like those of
Yarrow Shipbuilders, represent a substantial part of the total
activities of the parent (see paragraph 70 above), to have regard to
the price of the latter's shares.
Furthermore, it has to be recalled that the 1977 Act did not prescribe
any specific route for arriving at the "base value" of unlisted
securities: as the Commission pointed out, the stock market price of
a parent company's shares was but one of the "relevant factors" to be
taken into account (see paragraph 19 above). Accordingly, the Yarrow
Shipbuilders Stockholders' Representative could have argued in the
negotiations that too much weight was being attached to this factor
and too little to the subsidiary's earnings, prospects and retained
profits. Indeed, the Court notes that in the Parliamentary debates it
was stated on behalf of the Government that the effects of the
Ministry of Defence loan terms on the valuation of the nationalised
concern would be covered by the phrase "all relevant factors"
(Official Report, 16 March 1976, cols. 1789-1792, 25 October 1976,
cols. 198-199, and 5 November 1976, cols. 1659-1664). Again, if the
Stockholders' Representative failed to obtain satisfaction on this
point in the negotiations, he could have referred the matter to
arbitration. However, he did not do so, having, after consulting
Yarrow, accepted the Government's offer (see paragraph 74 above).
Finally, as to the effects of this valuation method, it appears to the
Court that the Government, in addition to relying on the stock market
price of Yarrow's shares, must have made some allowance for the
earnings, prospects and retained profits of the subsidiary itself: the
compensation of Ł6,000,000 finally paid did actually exceed the total
capitalisation of Yarrow during the Reference Period, which was not
more than Ł4,800,000 (see paragraphs 71 (c) and 74 above). That full
allowance may not have been made for these items is, in the Court's
view, justified by the fact that Yarrow Shipbuilders was particularly
dependent on Government financial assistance, in the form either of
the Ministry of Defence loan itself or of shipbuilding grants (see
paragraph 71 (a) above).
163. The Court is thus unable to accept this complaint.
(e) Operation of the safeguarding provisions (BAC case)
164. English Electric and Vickers complained of the fact that,
under the safeguarding provisions contained in the 1977 Act, a sum of
Ł19,700,000 in respect of certain lawfully-paid dividends had been
deducted from the "base value" of their shares in BAC (see
paragraphs 22-24 and 61-62 above). They alleged that this deduction
was unfair and had, notably, deprived them of much of the income from
the shares for the years 1973 to 1976.
165. The Court notes that the dividends in question were paid
pursuant to resolutions all of which were passed after
28 February 1974, the date from which the relevant safeguarding
provisions took effect. The deduction would not have been made if the
dividends had been approved by the Secretary of State for Industry
(see paragraph 22 above). However, it appears that, with minor
exceptions, no such approval was sought until the matter was raised by
the BAC Stockholders' Representative during the course of the
compensation negotiations (see paragraph 62 above).
Furthermore, there is nothing to suggest that the deduction was not in
accordance with the terms of the 1977 Act: the Stockholders'
Representative could otherwise have referred the matter to the
Arbitration Tribunal (see paragraph 27 above), but he did not do so.
Finally, the Court would observe that the safeguarding provisions were
not unreasonable per se: it was clearly necessary to prevent any
dissipation of the nationalised undertakings' assets between the end
of the Reference Period and Vesting Day (see paragraph 22 above).
Neither does the Court consider that, when seen in terms of income
yield, the result of applying those provisions can be regarded as
unreasonable in terms of Article 1 of Protocol No. 1 (P1-1). The
broad effect was that the amount of post-Reference Period dividends
was, subject to the discretionary powers of the Secretary of State,
limited to the amount paid in the immediately preceding period (see
paragraph 23 above). Ensuring continuity of dividend levels in this
way is consonant with the notion that any growth in the fortunes of a
nationalised company after the Reference Period should accrue to the
benefit of the public sector just as that sector bore the risk of any
decline (see paragraph 139 (b) above).
166. For these reasons, the Court concludes that this complaint has
to be rejected.
(f) Alleged excessive delay in paying compensation and alleged
insufficiency of payments on account (Vickers Shipbuilding case)
167. Vickers complained of excessive delay in the payment of
compensation and of insufficiency of the payments on account, matters
which were said to have retarded the implementation of major
restructuring plans.
168. The Court notes from the Parliamentary debates (see
paragraphs 12-16 above) the controversial nature of the 1977 Act.
Until it received the Royal Assent on 17 March 1977, there was no
certainty as to the form it would take and it would therefore have
been virtually impossible to commence the compensation negotiations
before that date. The Vickers Shipbuilding negotiations were concluded
on 26 September 1980 and the final payment of compensation was made
shortly thereafter, so that, reckoning from Vesting Day (1 July 1977),
the period to be taken into account for the purposes of this complaint
is some three and a quarter years (see paragraphs 76 and 81-82 above).
Formal negotiations in this case were not opened until June 1978;
however, the interval between the Royal Assent and that date is
accounted for by the preparation not only of Messrs. Whinney Murray &
Co.'s valuation report but also of financial data treating the
component parts of Vickers Shipbuilding as a single enterprise (see
paragraphs 33 and 79-80 above). These were complex matters. Again,
the period between September 1979 and September 1980 is accounted for
by the fact that the Vickers Shipbuilding Stockholders' Representative
had instituted proceedings before the Arbitration Tribunal (see
paragraph 81 above). In these circumstances and having regard to the
size of the nationalised undertaking, the Court does not find that the
overall period - of which some fifteen months were devoted to
negotiations - was unreasonable.
169. As regards the payments on account, it has to be recalled that
they were made unconditionally (see paragraph 20 above) and thus
necessarily had to be limited in amount. Moreover, by November 1978
(some five months after the opening of formal negotiations) Vickers
had received Ł8,450,000 on account - that is, more than half of the
total compensation of Ł14,450,000 finally agreed - and a further
payment on account, of Ł3,150,000, was made in March 1980, whilst the
arbitration proceedings were pending (see paragraph 82 above). Above
all, the totality of the compensation bore interest as from Vesting
Day (see paragraph 21 (a) above) and this, bearing in mind the dates
of the payments on account, must have mitigated the effects of the
inevitable delay in making the final payment.
170. The Court is accordingly unable to accept these complaints.
(g) Alleged particular inappropriateness of the Reference Period in
the Brooke Marine case
171. The former owners of Brooke Marine alleged that the
compensation provisions in the 1977 Act were particularly
inappropriate in their case because during the Reference Period, but
not at Vesting Day, the value of their shares in that company was
adversely affected by the existence of certain unfavourable contracts
and of options to convert debenture stock into shares
(see paragraph 89 above).
172. The Court agrees with the Commission that this complaint
cannot be sustained. Firstly, it is necessary, in a nationalisation
measure, to establish a common formula that is applicable across the
board (see paragraph 139 (a) above) and the fact that, for each
individual company, the most favourable valuation date is not chosen
cannot be regarded as contrary to Article 1 of Protocol No. 1 (P1-1)
(see, mutatis mutandis, the above-mentioned James and Others judgment,
Series A no. 98, pp. 41-42, para. 68). Secondly, this particular
complaint amounts in substance to a claim that valuation should have
been effected as at Vesting Day, whereas the Court has already held
that the utilisation for this purpose of an earlier period was neither
in principle nor by reason of its effects incompatible with the said
Article (see paragraphs 136 and 151 above).
(h) Disparity between compensation paid and cash in hand
(Kincaid, Vosper Thornycroft, BAC, Hall Russell and Brooke Marine)
173. Sir William Lithgow and the former owners of Vosper
Thornycroft, BAC, Hall Russell and Brooke Marine contrasted the amount
of compensation which they had received with the amount of cash which
the company concerned had in hand on Vesting Day (see
paragraphs 41 (b), 47 (b), 55 (b), 66 (b) and 84 (b) above).
174. The Court is not persuaded that this factor establishes that
the appropriate standard of compensation had not been met. The amount
of cash in hand at Vesting Day is not a determining factor where the
value of the shares which are to pass into public ownership has
effectively been frozen at the start of the nationalisation process.
In any event, a company's current asset position has to be determined
by reference not only to cash in hand but also to such items as its
liabilities and advance payments received on contracts
(see paragraph 38 above).
G. Conclusion on Article 1 of Protocol No. 1 (P1-1)
175. In the light of the foregoing, the Court concludes that no
violation of Article 1 of Protocol No. 1 (P1-1) has been established
in the present case.
The Court is unable to accept the applicants' contention that since
the Government had recognised that "the terms of compensation imposed
by the 1977 Act were grossly unfair to some of the companies" (see
paragraph 17 above), it was no longer open to them to argue that fair
compensation had been paid. The statement in question was made as an
expression of opinion in a political context and is not conclusive for
the Court in making its appreciation of the case.
II. ARTICLE 14 OF THE CONVENTION, TAKEN IN CONJUNCTION
WITH ARTICLE 1 OF PROTOCOL NO. 1 (art. 14+P1-1)
A. Introduction
176. Certain of the applicants alleged that, by reason of factors
specific to their individual cases, they had been victims of
discrimination, contrary to Article 14 of the Convention,
taken in conjunction with Article 1 of Protocol No. 1 (art. 14+P1-1).
The former Article (art. 14) reads as follows:
"The enjoyment of the rights and freedoms set forth in [the]
Convention shall be secured without discrimination on any ground such
as sex, race, colour, language, religion, political or other opinion,
national or social origin, association with a national minority,
property, birth or other status."
These allegations, contested by the Government, were rejected by the
Commission.
177. Before considering in turn the various complaints, the Court
would recall that Article 14 (art. 14) does not forbid every
difference in treatment in the exercise of the rights and freedoms
recognised by the Convention (see the "Belgian Linguistic" judgment of
23 July 1968, Series A no. 6, p. 34, para. 10). It safeguards persons
(including legal persons) who are "placed in analogous situations"
against discriminatory differences of treatment; and, for the purposes
of Article 14 (art. 14), a difference of treatment is discriminatory
if it "has no objective and reasonable justification", that is, if it
does not pursue a "legitimate aim" or if there is not a "reasonable
relationship of proportionality between the means employed and the aim
sought to be realised" (see, amongst many authorities, the Rasmussen
judgment of 28 November 1984, Series A no. 87, p. 13, para. 35, and
p. 14, para. 38). Furthermore, the Contracting States enjoy a certain
margin of appreciation in assessing whether and to what extent
differences in otherwise similar situations justify a different
treatment in law; the scope of this margin will vary according to the
circumstances, the subject-matter and its background (ibid., p. 15,
para. 40).
B. Alleged discrimination as compared with the owners of other
undertakings nationalised under the 1977 Act
1. Incidence of capital gains tax (Kincaid case)
178. Sir William Lithgow alleged that he had been the victim of
discrimination, in that he was liable to capital gains tax on the
disposal of the Compensation Stock which he received, whereas those
former owners of undertakings nationalised under the 1977 Act who were
corporations were entitled to defer that liability under the
"roll-over relief" provisions in the Finance Act 1976 (see
paragraphs 21 (b) and 45 above).
179. The Court is unable to accept this claim. As the Commission
pointed out, "roll-over relief" would not have been available to a
corporation holding, as did Sir William Lithgow, only 28 per cent of
the shares in the nationalised company (see paragraphs 21(b)
and 40 above). He was thus treated no differently from former owners
in a situation analogous to his own.
2. Use of an earnings-based method of valuation (Kincaid case)
180. Sir William Lithgow complained of the fact that, whereas the
shares of certain non-profitable companies had been valued for
compensation purposes by reference to their assets, the ordinary
shares in Kincaid had been valued by reference to its earnings (see
paragraph 36 above). He alleged that the former method would have
been more favourable in his case and that there had been
discrimination as far as Kincaid, a profitable company, was concerned.
181. The Court recalls that the 1977 Act laid down no specific
route for arriving at the value of unlisted securities (see
paragraph 159 above). It provided that compensation therefor was to
be determined, by negotiation or by arbitration, by reference to their
hypothetical Stock Exchange quotation, having regard to all relevant
factors. This global method was applied to the Kincaid ordinary
shares just as it was to all the other unquoted shares involved.
Again, if the Kincaid shareholders had not accepted the negotiated
settlement, it would have been open to their Representative to submit
the matter to arbitration, just as it would have been to other
Stockholders' Representatives in similar circumstances. In these
respects, therefore, the Court agrees with the Commission that the
holders of Kincaid ordinary shares, including Sir William Lithgow,
were treated no differently from the other owners concerned.
It is of course true that the statutory formula did comprise an
element of flexibility which could and did result in its being applied
differently to different companies. However, this enabled account to
be taken of dissimilarities between them and, notably, of the relative
importance in each case of the various factors considered; thus, it
is clear that earnings will provide a more appropriate route to
valuation if the company is profitable, but that assets will do so if
it is not. The differences in the application of the global method
therefore had an objective and reasonable justification.
3. Similar treatment of growing and declining companies (Vosper
Thornycroft, Hall Russell and Brooke Marine cases)
182. The former owners of Vosper Thornycroft, Hall Russell and
Brooke Marine alleged that they had been victims of discrimination, in
that the same treatment had been applied both to nationalised
companies which were growing and to those which were in decline. This
was demonstrated, in particular as regards Vosper Thornycroft, by the
fact that, when measured against Vesting Day values or earnings, the
compensation paid for the former companies was proportionately less
than that paid for the latter companies.
183. The Court has already held that the choice of the reference
period for the valuation of the companies nationalised under the 1977
Act, and hence the exclusion of any allowance for subsequent
developments, were based on reasonable grounds (see paragraphs 131-135
and 138-143 above). Consequently, whether or not it falls within the
ambit of Article 14 (art. 14), the difference said by the applicants
to result from the similar treatment of both growing and declining
companies can be regarded as having an objective and reasonable
justification.
4. Use of the parent-company-related method of valuation (Yarrow
Shipbuilders case)
184. Yarrow alleged that it had been the victim of discrimination,
in that its shares in its subsidiary Yarrow Shipbuilders had been
valued for compensation purposes by reference to the stock market
price of its own (Yarrow's) shares, whereas unquoted shares in other
nationalised companies had been valued not by this means but, in
particular, by reference to the earnings of those companies (see
paragraph 36 above). In support of this claim, Yarrow pointed out
that, whether the computations were made on Reference Period or on
Vesting Day figures, the compensation which it received represented a
lesser multiple or proportion of the nationalised company's profits or
assets than did the compensation paid to other former owners.
185. For the reasons given in paragraph 181, first sub-paragraph,
above, the Court agrees with the Commission that Yarrow was treated no
differently from the other owners concerned, in the sense that in each
case the same global method was applied and the same possibility of
resort to arbitration was available.
The Court also considers that the differences, as between Yarrow and
the other owners, in the application of the global method had an
objective and reasonable justification. In applying the hypothetical
Stock Exchange quotation method, it is clear that, if the company to
be valued has a parent whose shares are listed and if the former's
activities comprise a substantial part of the latter's business, the
quoted price of those shares can provide a more appropriate and less
artificial route to valuation than other factors.
C. Alleged discrimination as compared with the owners of undertakings
nationalised under earlier legislation
(Vosper Thornycroft and Brooke Marine cases)
186. The former owners of Vosper Thornycroft and Brooke Marine
alleged that they had been victims of discrimination, in that the
compensation terms laid down by the 1977 Act differed in a number of
respects from those laid down by earlier United Kingdom
nationalisation legislation (see paragraph 99 above).
187. Quite apart from the question whether these applicants were
placed in a situation analogous to persons deprived of their
possessions under the earlier legislation, the Court considers that
the difference complained of does not raise an issue under Article 14
(art. 14). The Parliaments of the Contracting States must in principle
remain free to adopt new laws based on a fresh approach.
D. Alleged discrimination as compared with persons deprived of their
possessions under compulsory purchase legislation
(Vosper Thornycroft and Brooke Marine cases)
188. The former owners of Vosper Thornycroft and Brooke Marine
further alleged that they had been victims of discrimination, in that
under the 1977 Act compensation did not fall to be assessed by
reference to the value of their property as at the date of taking,
whereas this was generally the case as regards property acquired under
United Kingdom compulsory purchase legislation (see paragraph 101
above).
189. The Court recalls in any event that the functions fulfilled by
compulsory purchase legislation and by a nationalisation statute are
different. For the reasons given in paragraph 121, third
sub-paragraph, above, it agrees with the Commission that the two
situations referred to by these applicants are not sufficiently
analogous to give rise to an issue under Article 14 (art. 14).
E. Conclusion on Article 14 (art. 14) of the Convention
190. Having regard to the foregoing, the Court concludes that in
the present case there was no violation of Article 14 of the
Convention, taken in conjunction with Article 1 of Protocol No. 1
(art. 14+P1-1).
III. ARTICLE 6 PARA. 1 OF THE CONVENTION (art. 6-1)
191. Certain of the applicants alleged, on various grounds, that
they had been victims of a breach of Article 6 para. 1 (art. 6-1)
of the Convention, which, so far as is relevant, reads as follows:
"In the determination of his civil rights and obligations ...,
everyone is entitled to a fair and public hearing within a reasonable
time by an independent and impartial tribunal established by law.
..."
These allegations were contested by the Government. The Commission
expressed the unanimous opinion that this provision had not been
violated.
A. Applicability of Article 6 para. 1 (art. 6-1)
192. The Court notes in the first place that the applicants' right
to compensation under the 1977 Act, derived from their ownership of
shares in the companies concerned, is without doubt a "civil right"
(see, mutatis mutandis, the above-mentioned Sporrong and Lönnroth
judgment, Series A no. 52, p. 29, para. 79).
In the second place, the Court recalls that Article 6 para. 1
(art. 6-1) extends only to "contestations" (disputes) over (civil)
"rights and obligations" which can be said, at least on arguable
grounds, to be recognised under domestic law; it does not in itself
guarantee any particular content for (civil) "rights and obligations"
in the substantive law of the Contracting States (see the
above-mentioned James and Others judgment, Series A no. 98, p. 46,
para. 81).
It follows that in the present case Article 6 para. 1 (art. 6-1)
is applicable in so far as the applicants may reasonably have
considered that there was cause for alleging non-compliance with the
statutory compensation provisions.
B. Compliance with Article 6 para. 1 (art. 6-1)
1. Access to a tribunal (Kincaid case)
193. Sir William Lithgow alleged that he had been the victim of a
violation of Article 6 para. 1 (art. 6-1) - as interpreted by the
Court in its Golder judgment of 21 February 1975 (Series A no. 18) -,
in that he had had no access to an independent tribunal in the
determination of his rights to compensation.
194. In this area, the following principles emerge from the Court's
case-law, notably its above-mentioned Ashingdane judgment (Series A
no. 93, pp. 24-25, para. 57).
(a) The right of access to the courts secured by Article 6 para. 1
(art. 6-1) is not absolute but may be subject to limitations; these
are permitted by implication since the right of access "by its very
nature calls for regulation by the State, regulation which may vary in
time and in place according to the needs and resources of the
community and of individuals".
(b) In laying down such regulation, the Contracting States enjoy a
certain margin of appreciation, but the final decision as to
observance of the Convention's requirements rests with the Court. It
must be satisfied that the limitations applied do not restrict or
reduce the access left to the individual in such a way or to such an
extent that the very essence of the right is impaired.
(c) Furthermore, a limitation will not be compatible with
Article 6 para. 1 (art. 6-1) if it does not pursue a legitimate aim
and if there is not a reasonable relationship of proportionality
between the means employed and the aim sought to be achieved.
195. The extent to which Sir William Lithgow did have access to the
Arbitration Tribunal was a matter of dispute between him and the
Government (see paragraph 30 above). The Court does not find it
necessary to resolve this difference of opinion. It will assume for
the purposes of argument that this applicant at no time had an
individual right of access to the Arbitration Tribunal or to any other
tribunal as regards the determination of his right to compensation.
196. Notwithstanding this bar on individual access, the Court does
not consider that in the particular circumstances the very essence of
Sir William Lithgow's right to a court was impaired.
The 1977 Act established a collective system for the settlement of
disputes concerning compensation, in that the parties to proceedings
before the Arbitration Tribunal would be the Secretary of State for
Industry on the one hand and the Stockholders' Representative on the
other. The latter was appointed by and represented the interests of
all the holders of securities of the company concerned (see
paragraph 28 above) and thus the interests of each individual
shareholder were safeguarded, albeit indirectly. This is borne out by
the fact that the Act made provision for meetings of shareholders at
which they could give instructions or express their views to the
Representative (ibid.). Furthermore, in addition to the power of
removal conferred by Schedule 6 to the 1977 Act, remedies were
available to an individual who alleged that the Representative had
failed or was failing to comply with his duties under the Act or with
his common-law obligations as agent (ibid.).
197. Moreover, the Court shares the Commission's view that this
limitation on a direct right of access for every individual
shareholder to the Arbitration Tribunal pursued a legitimate aim,
namely the desire to avoid, in the context of a large-scale
nationalisation measure, a multiplicity of claims and proceedings
brought by individual shareholders (ibid.). Neither does it appear,
having regard to the powers and duties of the Stockholders'
Representative and to the Government's margin of appreciation, that
there was not a reasonable relationship of proportionality between the
means employed and this aim.
2. Alleged breach of the "reasonable time" requirement
(Vosper Thornycroft, BAC, Hall Russell, Yarrow Shipbuilders,
Vickers Shipbuilding and Brooke Marine cases)
198. All the applicants, other than Sir William Lithgow, alleged
that, in breach of Article 6 para. 1 (art. 6-1), the dispute as to
compensation had not been determined within a "reasonable time".
However, the former owners of Vosper Thornycroft, BAC, Vickers
Shipbuilding and Brooke Marine stated that this claim was pursued only
in the event that the Court should accept the view, expressed by the
Commission in its report, that the nationalised undertakings passed to
a certain extent into the public domain before Vesting Day.
199. The Court finds that in any event this claim cannot be
sustained.
In the instances in question, no proceedings were instituted before
the Arbitration Tribunal, save as regards Vickers Shipbuilding where
proceedings were commenced but not pursued to a conclusion; in each
case, the amount of compensation payable was settled in negotiations
between the Department of Industry and the Stockholders'
Representative (see paragraphs 52, 63, 68, 74, 81 and 90 above).
In those negotiations, to which Article 6 para. 1 (art. 6-1) clearly
did not apply, the parties were endeavouring solely to reach a
mutually acceptable solution; neither of them was empowered to give a
final decision, binding on the other, on the quantum of the
compensation and at any time the discussions could have been
discontinued and any unresolved questions referred to the Arbitration
Tribunal (see paragraph 30 above). It was only after reference of the
matter to the Arbitration Tribunal that any question of breach of the
"reasonable time" requirement of Article 6 para. 1 (art. 6-1) could
have arisen.
3. Alleged breach of other requirements of Article 6 para. 1 (art. 6-1)
(Hall Russell case)
200. The former owners of Hall Russell alleged that in certain
respects the Arbitration Tribunal established by the 1977 Act did not
meet the requirements of Article 6 para. 1 (art. 6-1).
201. In the first place, they alleged that the Arbitration Tribunal
was not a "lawful tribunal", in that it was an extraordinary court,
namely a tribunal set up for the purpose of adjudicating a limited
number of special issues affecting a limited number of companies.
The Court cannot accept this argument. It notes that the Arbitration
Tribunal was "established by law", a point which the applicants did
not dispute. Again, it recalls that the word "tribunal" in
Article 6 para. 1 (art. 6-1) is not necessarily to be understood as
signifying a court of law of the classic kind, integrated within the
standard judicial machinery of the country (see, inter alia, the
Campbell and Fell judgment of 28 June 1984, Series A no. 80, p. 39,
para. 76); thus, it may comprise a body set up to determine a limited
number of specific issues, provided always that it offers the
appropriate guarantees. The Court also notes that, under the statutory
instruments governing the matter, the proceedings before the
Arbitration Tribunal were similar to those before a court and that due
provision was made for appeals (see paragraphs 31-32 above).
202. In the second place, it was contended that the close
connection between the executive and the Arbitration Tribunal,
especially the appointment of two of its members by the Minister who
was a party to any proceedings (see paragraph 29 above), necessarily
deprived the Tribunal of the character of an "independent and
impartial tribunal".
As the Court has often observed, independence of the executive is one
of the fundamental requirements that flow from the phrase in question
(see, amongst many authorities, the Le Compte, Van Leuven and
De Meyere judgment of 23 June 1981, Series A no. 43, p. 24, para. 55).
As regards the present case, although two members of the Arbitration
Tribunal were nominated by the Secretary of State, the appointments
could not be made without prior consultation of the Stockholders'
Representatives (see paragraph 29 above). In fact, criteria for the
selection of members of the Tribunal were worked out jointly (ibid.)
and it does not appear that any dispute arose regarding the
nominations. What is more, the Arbitration Tribunal was in no way
bound by the amount of compensation offered by the Government in the
negotiations (see paragraph 19 above), as is evidenced by the awards
copies of which were supplied to the Court (Scott Lithgow Drydocks
Ltd. case - 29 September 1981; Cammell Laird Shipbuilders Ltd. case -
23 October 1981). In these circumstances, there is no warrant for
finding a lack of the requisite independence.
The applicants did not allege that the members in question were not
subjectively impartial. Having regard to the manner in which the
appointment procedure was actually carried out (see paragraph 29
above), the Court is of the opinion that their objective impartiality
was not capable of appearing to be open to doubt (see, inter alia, the
De Cubber judgment of 26 October 1984, Series A no. 86, pp. 13-16,
paras. 24-30).
C. Conclusion on Article 6 para. 1 (art. 6-1) of the Convention
203. Having regard to the foregoing, the Court concludes that there
has been no violation of Article 6 para. 1 (art. 6-1) of the
Convention in the present case.
IV. ARTICLE 13 OF THE CONVENTION (art. 13)
204. Sir William Lithgow alleged that, as regards his complaints
concerning compensation, there was available to him no "effective
remedy", within the meaning of Article 13 (art. 13) of the Convention,
which reads as follows:
"Everyone whose rights and freedoms as set forth in [the] Convention
are violated shall have an effective remedy before a national
authority notwithstanding that the violation has been committed by
persons acting in an official capacity."
This allegation was contested by the Government and was rejected by
the Commission.
205. "Article 13 (art. 13) requires that 'where an individual has
an arguable claim to be the victim of a violation of the rights set
forth in the Convention, he should have a remedy before a national
authority in order both to have his claim decided and, if appropriate,
to obtain redress' (see the Silver and Others judgment of
25 March 1983, Series A no. 61, p. 42, para. 113). However, 'neither
Article 13 (art. 13) nor the Convention in general lays down for the
Contracting States any given manner for ensuring within their internal
law the effective implementation of any of the provisions of the
Convention' (see the Swedish Engine Drivers' Union judgment of
6 February 1976, Series A no. 20, p. 18, para. 50). Although there is
thus no obligation to incorporate the Convention into domestic law, by
virtue of Article 1 (art. 1) of the Convention the substance of the
rights and freedoms set forth must be secured under the domestic legal
order, in some form or another, to everyone within the jurisdiction of
the Contracting States (see the Ireland v. the United Kingdom judgment
of 18 January 1978, Series A no. 25, p. 91, para. 239). Subject to
the qualification explained in the following paragraph, Article 13
(art. 13) guarantees the availability within the national legal order
of an effective remedy to enforce the Convention rights and freedoms
in whatever form they may happen to be secured." (see the
above-mentioned James and Others judgment, Series A no. 98, p. 47,
para. 84)
206. The Convention is not part of the domestic law of the United
Kingdom, nor does there exist any constitutional procedure permitting
the validity of laws to be challenged for non-observance of
fundamental rights. There thus was, and could be, no domestic remedy
in respect of a complaint by Sir William Lithgow that the
nationalisation legislation itself did not measure up to the standards
of the Convention and Protocol No. 1 (P1). The Court, however,
concurs with the Commission that Article 13 (art. 13) does not go so
far as to guarantee a remedy allowing a Contracting State's laws as
such to be challenged before a national authority on the ground of
being contrary to the Convention or to equivalent domestic legal norms
(see the above-mentioned James and Others judgment, ibid., p. 47,
para. 85). The Court is therefore unable to uphold the applicant's
allegation in so far as it may relate to the 1977 Act as such.
207. In so far as the allegation relates to the application of the
legislation, the Court notes that it was open to the Stockholders'
Representative in any case to refer the question of compensation to
the Arbitration Tribunal or to test in the ordinary courts whether the
Secretary of State had erred in law by misinterpreting or misapplying
the 1977 Act (see paragraphs 30 and 32 above). Even if these remedies
were not directly available to Sir William Lithgow himself (see
paragraphs 30 and 195 above), he did have the benefit of the
collective system established by the Act. The Court has found this
system not to be in breach of the requirements of Article 6 para. 1
(art. 6-1) (see paragraphs 193-197 above), an Article whose
requirements are stricter than those of Article 13 (art. 13) (see the
above-mentioned Sporrong and Lönnroth judgment, Series A no. 52,
p. 32, para. 88). In addition, the applicant would have had a remedy in
the domestic courts against the Kincaid Stockholders' Representative
for failure to comply with his obligations under the 1977 Act or with
his common-law obligations as agent (see paragraph 28 above).
In these circumstances, the Court concludes that the aggregate of
remedies available to Sir William Lithgow did constitute domestic
machinery whereby he could, to a sufficient degree, secure compliance
with the relevant legislation.
208. There has accordingly been no breach of Article 13 (art. 13).
FOR THESE REASONS, THE COURT
1. Holds by thirteen votes to five that there has been no violation
of Article 1 of Protocol No. 1 (P1-1) on the ground that the 1977 Act
contained no provisions making allowance for developments between 1974
and 1977 in the companies concerned;
2. Holds by seventeen votes to one that there has been no violation
of the said Article 1 (P1-1) on any of the other grounds advanced by
the applicants;
3. Holds unanimously that there has been no violation of Article 14
of the Convention, taken in conjunction with the said Article 1
(art. 14+P1-1);
4. Holds by fourteen votes to four that there has been no violation
of Article 6 para. 1 (art. 6-1) of the Convention on the ground that
Sir William Lithgow had no individual access to an independent
tribunal in the determination of his rights to compensation;
5. Holds by sixteen votes to two that there has been no violation of
the said Article 6 para. 1 (art. 6-1) on any of the other grounds
advanced by the applicants;
6. Holds by fifteen votes to three that there has been no violation
of Article 13 (art. 13) of the Convention.
Done in English and in French, and delivered at a public hearing at
the Human Rights Building, Strasbourg, on 8 July 1986.
Signed: Rolv RYSSDAL
President
For the Registrar
Signed: Jonathan L. SHARPE
Head of Division in
the registry of the Court
In accordance with Article 51 para. 2 (art. 51-2) of the Convention
and Rule 52 para. 2 of the Rules of Court, the following separate
opinions are annexed to the present judgment:
- concurring opinion of Mr. Thór Vilhjálmsson;
- joint partly dissenting opinion of Mrs. Bindschedler-Robert,
Mr. Gölcüklü, Mr. Pinheiro Farinha, Mr. Pettiti and Mr. Spielmann
(Article 1 of Protocol No. 1) (P1-1);
- opinion of Mr. Lagergren joined by Mr. Macdonald (Article 6 para. 1
of the Convention) (art. 6-1);
- joint dissenting opinion of Mr. Pinheiro Farinha and Mr. Pettiti
(Article 6 para. 1 of the Convention) (art. 6-1);
- joint dissenting opinion of Mr. Pinheiro Farinha, Mr. Pettiti and
Mr. Spielmann (Article 13 of the Convention) (art. 13);
- dissenting opinion of Mr. Pettiti (Article 6 para. 1
and Article 13 of the Convention and Article 1 of Protocol No. 1)
(art. 6-1, art. 13, P1-1);
- joint partly dissenting opinion of Mr. Russo and Mr. Spielmann
(Article 6 para. 1 of the Convention) (art. 6-1).
Initialled: R.R.
Initialled: J.L.S.
CONCURRING OPINION OF JUDGE THÓR VILHJÁLMSSON
In this case I belong to the majority of the Court which has held that
there has been no breach of the Convention or of Protocol No. 1
(P1).
However, for the reasons already given in my concurring opinion
annexed to the James and Others judgment of 21 February 1986, I
consider that Article 1 of Protocol No. (P1-1) 1 does not embody a
right to compensation and I therefore do not share the view expressed
on this point in paragraph 120 of the present judgment. Accordingly,
I have not found it necessary to take a stand on what is stated in
paragraphs 121-175 of the judgment regarding the issues related to the
standard of compensation.
JOINT PARTLY DISSENTING OPINION OF JUDGES BINDSCHEDLER-ROBERT,
GÖLCÜKLÜ, PINHEIRO FARINHA, PETTITI AND SPIELMANN
(ARTICLE 1 OF PROTOCOL NO. 1) (P1-1)
(Translation)
We voted in favour of a finding of violation of Protocol No. 1 ( P1),
although we share the opinion of the majority of the Court on several
of the principles and issues dealt with in the judgment.
Thus, we agree with the majority that the United Kingdom
nationalisation Act was designed to promote the general interest and a
legitimate aim in respect of which Parliament was in a position to
arrive at a fair assessment.
In addition, the method chosen was acceptable. The same applies to
the basic criterion adopted for calculating compensation, which is,
moreover, a criterion found in other domestic legislation.
On the other hand, we cannot follow the reasoning of the majority on
the issue that is important for us, namely the reference period; this
is because the Act in question made no provision for any adjustment.
The selection of a reference period antedating the promulgation of the
legislation is clearly conceivable provided - as was, in fact, the
case with the first Bill - that the interval between that period and
vesting day is reasonable. Unfortunately, the Parliamentary
proceedings and the political debates delayed by some eighteen months
the moment at which the reference period was put to use (vesting day).
This necessarily had adverse effects as regards subsequent
developments in the fortunes of the companies concerned.
No one can deny that it was possible to introduce some mechanism
whereby a financial adjustment would have been made to take account of
the increased remoteness of the reference period. In this connection,
precedents could have been found in the techniques laid down by
different nationalisation statutes for several methods and
equalisation formulae, based on a comparison between current
book-values, cash in hand and cash-flow and the basic data on which
compensation was calculated.
Such a course was all the more necessary because it had been argued in
Parliament that certain of the Act's provisions were unfair, a fact
which the Government did not contest at the hearings.
In our view, this absence of any adjustment mechanism in abstracto is
of itself contrary to the interpretation of the provisions of
Protocol No. 1 (P1).
In the concrete cases submitted to the Court, the distortions that
were the direct result of this absence of any adjustment mechanism
could have been calculated accurately by examining the facts of each
case or, if need be, by calling for an expert's report.
In this connection, the applicants demonstrated at the hearings, by
means of various calculations, the effects of the legislation.
The Government did not consider that any purpose would be served by
discussing these figures; their main submission was that if the
compensation method chosen by Parliament was a correct one, it was not
necessary to examine the concrete results in detail.
We cannot share this view.
Even if it is accepted that as regards a nationalisation of property
belonging to its own nationals the State enjoys a wide margin of
appreciation, the scope of that margin still has to be defined or
identifiable.
The choice of a method cannot, in fact, be neutral. Above all, it
cannot be divorced from its direct financial consequences.
Furthermore, even if the analytical method adopted is satisfactory as
regards isolated aspects, it can lead to distortions by reason of the
combination and cumulation of all the economic and financial
provisions which were included in the Act and were superimposed on
each other.
Whilst taking account of the social effects, the domestic economic
situation, the importance of the industries in question and the
State's financial contribution, parameters of the margin of
appreciation could have been ascertained.
However, between a nationalisation which amounts to "spoliation" on
the one hand and reasonable compensation consonant with the principle
of proportionality on the other, the quantitative margin is vast and
its scope cannot be left completely undefined.
Since the figures supplied by the applicants were not contested at the
hearings, it can be seen, prima facie and to the extent that those
figures are correct, that at least in the Kincaid, the Vosper
Thornycroft and the Brooke Marine cases subsequent developments in
these companies occasioned, by virtue of the prolongation of the
interval initially envisaged, unreasonable and disproportionate
distortion; this is so even if account is taken of the margin of
appreciation allowed to and recognised to be enjoyed by the State in
the field of nationalisation.
In this respect, our Court's case-law contains sufficient criteria for
the components of the Act in question to be analysed in terms of the
Convention or Protocol No. 1 (P1) and for the conclusion to be drawn,
from the absence of any mechanism to adjust for the remoteness of the
reference period, that there was an actual violation.
SEPARATE OPINION OF JUDGE LAGERGREN JOINED BY JUDGE MACDONALD
(ARTICLE 6 PARA. 1 OF THE CONVENTION) (art. 6-1)
There is no doubt that the applicants' ownership of shares in the
companies concerned constituted "civil rights", which they could
defend before the ordinary courts in the United Kingdom. These
proprietary rights were extinguished, against compensation, through
the operation of the 1977 Act. The applicants were left with no
remedy against the basic provisions contained in the Act; in
particular, they had no possibility of obtaining a review by a
national court of many of the arguments now presented to the Court at
Strasbourg. It was merely the application of the 1977 Act that was
left to be determined - in the last resort - by the Arbitration
Tribunal and other national courts.
Thus, up to 17 March 1977, when the third Aircraft and Shipbuilding
Industries Bill received the Royal Assent, the applicants could defend
their proprietary rights against all kinds of interference. However,
when the ultimate interference occurred, namely when the proposal to
deprive them of their shares passed into law, the United Kingdom took
away, in those respects that are relevant in this case, the
jurisdiction of its courts with regard to the very existence of the
applicants' proprietary rights and did not even confer on those courts
any jurisdiction over the content of the statutory compensation
provisions.
In my opinion, this abrupt and serious limitation of the right of
access to courts was premature and unacceptable and was not consistent
with a fair interpretation of Article 6 (art. 6) of the Convention
(see the Golder judgment of 21 February 1975, Series A no. 18,
pp. 17-18, paras. 35-36, the Oztürk judgment of 21 February 1984,
Series A no. 73, pp. 17-18, para. 49, and my own concurring opinion
annexed to the Ashingdane judgment of 28 May 1985, Series A no. 93,
p. 27). The normal right of access to the courts, which existed
throughout the lifetime of the proprietary rights, should also have
covered the very moment when these rights were extinguished on
17 March 1977. This is all the more so since, up to the respective
Vesting Days (29 April and 1 July 1977), the ownership of the shares
was recognised to remain in the hands of the applicants, albeit as a
somewhat naked right without the full court protection required by
Article 6 para. 1 (art. 6-1) of the Convention.
It follows from the foregoing that in my opinion there has been a
violation of Article 6 para. 1 (art. 6-1) of the Convention in so far
as the applicants were deprived of any access to the courts in order
to challenge, under the Convention and Protocol No. 1 (P1) or equivalent
domestic legal norms, the taking of their shares on the conditions
laid down in the 1977 Act. However, in view of the Court's recent
judgment in the case of James and Others (21 February 1986; Series A
no. 98, paras. 79-82), I join the majority with regard to the present
question also.
JOINT DISSENTING OPINION OF JUDGES PINHEIRO FARINHA AND PETTITI
(ARTICLE 6 PARA. 1 OF THE CONVENTION) (art. 6-1)
(Translation)
We conclude that there has been a violation of Article 6 para. 1
(art. 6-1) for the following reasons.
With effect from 17 March 1977, the date of adoption of the third
Bill, the applicants were no longer entitled to take proceedings to
defend their proprietary rights against unjustified interferences by
the State with those rights. As a result of the Act, the ordinary
courts no longer had jurisdiction to determine compensation claims or
whether the nationalisation provisions were compatible with domestic
law.
The former owners should have had access to the courts, at least until
the moment when all their rights were extinguished, in order to
institute proceedings to contest the matter and seek redress. Access
to the Arbitration Tribunal through the intermediary of
representatives cannot be regarded as equivalent to access to the
courts.
JOINT DISSENTING OPINION OF JUDGES PINHEIRO FARINHA, PETTITI AND
SPIELMANN (ARTICLE 13 OF THE CONVENTION) (art. 13)
(Translation)
Under the system and terms established by the United Kingdom
legislation, the former owners had no effective remedy before a
national authority to test the compatibility of the Act with the
rights guaranteed by the Convention and Protocol No. 1 (P1), whereas
above all there was, in our view, a violation of the Convention as
regards Article 6 (art. 6) and of Protocol No. 1 (P1).
DISSENTING OPINION OF JUDGE PETTITI (ARTICLE 6 PARA. 1 AND ARTICLE 13
OF THE CONVENTION AND ARTICLE 1 OF PROTOCOL NO. 1) (art. 6-1, art. 13, P1-1)
(Translation)
I voted in favour of a finding of violation of Protocol No. 1 (P1)
and of Articles 6 and 13 (art. 6, art. 13) of the Convention on the
following grounds.
International legal opinion and case-law in respect of
nationalisations are inconclusive and subject to continuing changes.
Admittedly, there is general recognition of the principle of
compensation for nationals, contrasting with the 19th century tendency
to dispute it, but the amounts decided have varied widely in different
States and at different periods. This judgment is the first in which
the European Court has applied Protocol No. 1 (P1) in this area.
The principle of compensation for subjects of States other than the
one which decided to nationalise has been the subject of numerous
judgments and of a considerable amount of legal literature.
The State's sovereign power over its nationals has, since the
19th century, been a major topic of international legal controversy.
The modern State has accepted its duty to protect its subjects against
unfair laws which would dispossess them on the pretext of
nationalisation and also to protect them if they are victims of
nationalisation abroad (see the Coolidge declaration).
Nationalisations are lawful under international law, but precedents
for the amount of compensation to be awarded are inconclusive, the
word "equitable" occurring most frequently.
United Nations General Assembly Resolution 1803 of 14 December 1962
and UNCTAD Resolution 46 III did not lay down definite rules. When
the French courts had to reach decisions about Algerian and Chilean
nationalisations, they used the term "adequate" and associated the
word "fair" with "equitable" (see Cass. Civ., 23.4.69, TGI Paris,
29.11.72, Corporación del Cobre, XCV Cr14 drtt. int. priv. 1974 -
pp. 729 and 732).
For a nationalisation to comply with international law and to be
capable of taking effect internationally, it must be appropriate to
its legitimate objective, and the area in which it is effective must
be so defined as to allow that objective to be attained, but not
exceeded.
Recent international arbitration awards, while establishing the right
of States to nationalise on condition that this is exercised in
accordance with international law and is subject to a general
obligation to provide compensation, have refined the concepts of
compensation (Texaco Calasiatic award, 19.1.77; LIAMCO v. the Libyan
Government award; separate opinion of Judge Lagergren, Iran US Claims
Trib., judgment 184.161.1; Ind. Corp. v. the Islamic Republic of
Iran 161, American Journal of International Law, vol. 8, no. 1; see
also Judge Lachs, in Recueil des cours de l'Académie de droit
international, 1984, vol. 169).
The words "fair", "adequate" and "equitable" could be the subjects of
lengthy explanations, but, whatever the semantics, the ultimate aim is
to arrive at an objective assessment of the actual loss suffered. The
Paris Regional Court (on 29 November 1972) also mentioned the
situation resulting from the effective profits and from the taking of
these into account by the law.
The French Conseil constitutionnel insisted on correcting the
provisions of the French 1981 Nationalisation Act, as it considered
that the Act's supplementary criteria for rectifying shortcomings in
the reference data were inadequate and gave rise to under-estimates.
Notes and comments on the content of these decisions have been written
by Professor B. Goldman.
Ensuring that the action taken is not confiscatory is always a prime
concern during the deliberations of arbitration courts and tribunals,
leading them to check individual aspects of the amount.
In the United Kingdom, confiscatory legislation would have no effect
on property situated in England (Russian Commercial Industrial Bank
v. Cie. Esc. Mulhouse and Lazard Bros. v. Midland Bank, 1933). The
reaction of the Paris Regional Court dealing with the Chilean
nationalisations was the same.
The famous differences of legal opinion on the nationalisation of
foreigners' property (W. Lewald, G.J. Ross, Friedman), although the
arguments started from opposite poles, most frequently led to very
similar conclusions about the adequacy of the compensation (JDI No. 1,
1956).
In order to identify the general rules of public international law on
the protection of nationals' and foreigners' property, account must be
taken of developments since 1948 at the United Nations and UNCTAD.
F. Munch also cites Protocol No. 1 (P1) to the European Convention as
a source, saying that this clearly showed that expropriation was
allowed only on the conditions provided for by law and by the general
principles of international law, and that it was regrettable that
details of these principles were not defined (Recueil des cours de
l'Académie de droit international, 1959, vol. 98).
In the present judgment, the Court has endeavoured to clarify the text
of Article 1 (P1-1).
Was the system established by the United Kingdom Act sufficiently
structured or sophisticated to meet all the requirements of
international law? I agreed with the majority that this was the case
for all the statutory provisions except those concerning the Reference
Period and the subsequent developments, seen in the light of
Protocol No. 1 (P1), and those concerning the procedure, seen in the
light of Article 6 (art. 6). F. Munch says that, for the court having
jurisdiction in a given matter, the relationship between States under
international law is also part of the lex rei sitae. He went on to say
that the said court in the nationalising State remains bound by the
law common to itself and the State at the time of the nationalisation
unless this is repealed or suspended for a reason of international
public law (ibid.). In my opinion, the British principle of "equity"
and of a "fair trial" necessitated access to a genuine court, as the
latter would have been better able to take account of national law and
of the general principles of international law when assessing
compensation.
The general principles of international law, according to which it
used to be considered that compensation for non-nationals ought to be
full, adequate, equitable, prompt and appropriate, have changed
somewhat in the face of pressure from the Third World. The term
"adequate" has given way to "equitable", which is much vaguer (see the
Nice session of the Institute of International Law).
The requirement for compensation which fully covers the loss
(International Law Association, Hamburg, Professor Gihl's report) has
given way to one for what is called equitable compensation.
This is far removed from the definition in the Chorzow judgment: the
value of the property as it previously existed plus additional damages
for the loss suffered. There is even acceptance of a certain
discrimination between nationals and aliens, provided that any measure
taken does not affect only aliens (see F. Boulanger, Nationalisation
en droit international public, Paris, Economica).
The Third World countries claim a certain amount of discretionary
power in this field where the general principles of international law
are concerned (see the Conference of Third World countries, Algiers,
1971).
It follows from this development that international arbitration courts
will henceforth tend to be less demanding in the case of
nationalisations carried out by Third World States. At the same time,
such arbitration courts retain the principle of compensation for
non-nationals of industrialised countries which more nearly meets the
criteria of adequacy, fairness and appropriateness than would be the
case for nationals of the same countries.
Furthermore, under the system and terms established by the United
Kingdom nationalisation legislation the former owners had no effective
remedy before a national authority to test the compatibility of the
Act with the general principles of international law and with the
rights guaranteed by the Convention and Protocol No. 1 (P1), despite the
fact that the Convention, as regards Article 6 (art. 6), and
Protocol No. 1 (P1) had been violated, in my view.
The conclusion I have drawn from this brief rehearsal of the legal
rules applicable to this case and with which I shall end this separate
opinion is that, even if a national may be awarded less compensation
than a non-national, the amount laid down by the United Kingdom
legislation ought to have taken into consideration every parameter and
all reasonable weightings, in order to arrive at an equitable result,
the consequences of which would not be too far removed from the
legitimate aim pursued, even allowing for the State's margin of
appreciation. This does not seem to me to have been done, for the
reasons cited above.
JOINT PARTLY DISSENTING OPINION OF JUDGES RUSSO AND SPIELMANN
(ARTICLE 6 PARA. 1 OF THE CONVENTION) (art. 6-1)
(Translation)
In general, we share the opinion of the majority that there has been
no violation of Article 6 para. 1 (art. 6-1) of the Convention, but we
cannot agree with it as regards Sir William Lithgow (see
paragraphs 193-197 of the judgment). This is because we consider
that, as the largest Kincaid shareholder, he did not enjoy the right
of access to a court, which is guaranteed by the said
Article 6 para. 1 (art. 6-1).
In holding that there was no violation of this provision, the Court
relied on two arguments which we do not find convincing.
Firstly, the Court considered that the limitation on the direct right
of access to the Arbitration Tribunal - access being available only to
the Stockholders' Representative but not to a shareholder - pursued a
legitimate aim, namely the desire to avoid a multiplicity of
individual claims. But even supposing that an aim of this kind can be
regarded as reasonable, it cannot be taken as sufficient to justify
the suppression - and, in our view, it was not a matter of a mere
restriction, especially as Sir William Lithgow held a relative
majority (that is, a "blocking minority") of the shares - of a
fundamental entitlement and, hence, the impairment of the very essence
of the right in question.
Secondly, the Court noted that it was open to the shareholders to
institute proceedings against the Representative for failure to comply
with his statutory duties or with his common-law obligations as agent.
This reasoning also does not appear to us persuasive since, unless he
established that the Representative had acted fraudulently or
negligently, a shareholder could derive no advantage from this remedy.
In any event, even if he had exercised it, Sir William Lithgow would
at the most have obtained a finding of responsibility on the part of
the Representative, something that was clearly not his objective.
IUS-INFO
EURO IUS-INFO
