Factortame Litigation - Factortame II: Compatibility of The 1988 Act

Factortame II: Compatibility of The 1988 Act

On 25 July 1991 the ECJ gave its ruling on the question referred by the Divisional Court, namely whether the conditions for registration of fishing vessels under the 1988 Act were compatible with Community law. Agreeing with Advocate-General Mischo's opinion, the court held that "it is for the Member States to determine the conditions which must be fulfilled in order for a vessel to be registered in their registers and granted the right to fly their flag, but, in exercising that power, the Member States must comply with the rules of Community law." In particular, the conditions for registration should not constitute obstacles for nationals of one Member State to establish themselves in business in the territory of another Member State (the freedom of establishment), nor should they discriminate on the basis of nationality.

In the event, the ECJ found the nationality requirements in the Merchant Shipping Act 1988 discriminatory and contrary to Article 43 EC as a restriction on the freedom of establishment. It also violated articles 12 and 221 EC. The residence and domicile conditions also breached Article 43. In effect, by introducing a requirement based on an individual's residence and domicile, the Act operated an unfair distinction between UK nationals and those from other Member States as "the great majority of nationals of the are resident and domiciled in that State and therefore meet that requirement automatically, whereas nationals of other Member States would, in most cases, have to move their residence and domicile to in order to comply with the requirements of ." In respect of the condition that the vessel should be managed and its operations directed from the UK, the ECJ found, however, that this requirement was compatible with Community law.

The UK government had argued that the conditions imposed by the 1988 Act were justified on the basis that the Common Fisheries Policy allowed for a system of national quotas and the 1988 Act ensured the effectiveness of that system. This was rejected by the ECJ which stated that fishing vessel registration criteria were permitted, but not where they violated Community law. It was, in that respect, open to the UK government to introduce conditions ensuring that a 'real economic link' existed between the ship and the State of registration, but such a link had to "concern only the relations between the vessel's operations and the population dependent on fisheries and related industries". In other words, it would have been possible for the UK government to prescribe conditions which protected UK fishing communities from the effects of the opening up of national fishing waters to other Member States, but it could not do that through the imposition of explicit nationality and residence conditions.