European Court of Human Rights

- 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).

On the same day, the Chamber decided under Rule 50 to relinquish jurisdiction forthwith in favour of the plenary Court.

- 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.

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

I.   RELEVANT LEGISLATION

A. Background to the 1977 Act

1. The nationalisation proposals

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.

2. The Parliamentary proceedings and subsequent developments

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.

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.

"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

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

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.

(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

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.

3. The Stockholders’ Representative

The raison d’être 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

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.

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.

C. Procedure followed in the implementation of the 1977 Act

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.

(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

B. The Kincaid case

1. The nationalised undertaking

1971 - £860,000

1972 - £595,000

1973 - £387,000

1974 - £1,258,000

1975 - £1,740,000

1976 - £1,356,000.

In the half-year to 30 June 1977, the pre-tax profits were, according to the Commission’s report, approximately £700,000.

Kincaid had no Government orders and required no special Government subsidies.

From 1974 to Vesting Day a total of £513,000 was paid in dividends on the ordinary shares; according to Sir William Lithgow, Government- imposed dividend restraint resulted in £1,953,000 being added to company funds between the Reference Period and Vesting Day.

(b) Kincaid’s net assets were:

at 31 December 1972 - £3,679,530

at 31 December 1973 - £3,723,528

at 30 June 1977 - £5,988,096.

At the hearings before the Court, Sir William Lithgow declared that Kincaid had cash reserves of £5.058 million at 30 June 1977.

2. The compensation negotiations

- in January 1978, a first payment on account (section 36(6) of the  1977 Act; see paragraph 20 above), of £1,450,000;

- in November 1978, a second payment on account, of £800,000;

- shortly after the settlement in November 1979, the final payment, of  £1,559,375.

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 £1,071,340. He stated that he sustained on this sum, which he expended on trading assets, a liability to capital gains tax of £207,752.

C. The Vosper Thornycroft case

1. The nationalised undertaking

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.

1971 - £622,000

1972 - £1,321,000

1973 - £1,658,000

1974 - £3,262,000

1975 - £4,059,000

1976 - £5,536,000.

According to the Commission’s report, in the part-year to 30 June 1977, the pre-tax profits were £5,236,000, giving an annual pre-tax profit rate at Vesting Day of £7,850,000.

Between 1972 and 1974, Vosper Thornycroft received £2,108,000 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 £5,857,000 as at 31 October 1972 and £25,633,000 as at 30 June 1977. At the hearings before the Court, Vosper stated that Vosper Thornycroft’s net assets at Vesting Day included £5,500,000 in cash.

(c) The average market capitalisation of Vosper’s ordinary shares during the Reference Period was £4,500,000; on 30 June 1977, the capitalisation was £5,800,000.

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 £35,400,000. 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

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 £10,000,000 and indicated that he would expect the Arbitration Tribunal to award around £6,000,000. The Minister of State finally agreed at the meeting to raise the Government’s offer to £5,300,000, but no further.

- in April 1978, a first payment on account, of £650,000;

- in November 1978, a second payment on account, of £700,000;

- shortly after the settlement in October 1980, the final payment, of  £3,950,000.

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

1972 - £ 6,571,000

1973 - £13,742,000

1974 - £24,207,000

1975 - £30,003,000

1976 - £39,912,000

1977 - £53,644,000.

BAC received no special Government subsidies. Over 70% of its 1977 production was exported.

(b) BAC’s net assets were £32.4 million at the end of 1972, £75,620,000 at the end of 1976 and £80,575,000 at the end of 1977. At the hearings before the Court, the former owners of BAC said that it had cash in hand of £57.8 million at the end of 1976 and of £98.7 million at the end of 1977.

2. The compensation negotiations

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 £3,300,000); 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 £275,000,000. 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".

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 £175,000,000. 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.

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 £140,000,000". 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, £19,700,000 was deducted under section 39.

- on 10 February 1978, a first payment on account, of £6,100,000;

- on 2 August 1978, a second payment on account, of £3,550,000;

- on 5 December 1978, a third payment on account, of £30,350,000;

- on 28 August 1980, the final payment, of £55,000,000.

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

1972 - £425,000

1973 - £480,000

1974 - £151,000

1975 - £177,000

1976 - £498,000

1977 - £825,000.

In the three months to 30 June 1977, pre-tax profits were £292,374.

Between 1973 and 1975, Hall Russell received £657,000 by way of Government shipbuilding grants.

(b) Hall Russell’s net assets were £1,358,000 as at 31 March 1973 and £1,622,573 as at 30 June 1977. In their memorial filed with the Court, the former owners of Hall Russell said that it had £3,355,000 available in cash on Vesting Day.

2. The compensation negotiations

In November 1978, the Stockholders’ Representative put forward a Reference Period valuation of £2,500,000 - £3,000,000. In March 1979, the Government offered £1,000,000. This offer was subsequently increased to £1,500,000 and settlement at that figure was concluded in November 1980.

- on 7 February 1978, a first payment on account, of £300,000;

- on 1 August 1978, a second payment on account, of £100,000;

- on 5 December 1978, a third payment on account, of £250,000;

- on 21 November 1980, the final payment, of £850,000.

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

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 £1,800,000. Yarrow Shipbuilders had subsequently incurred losses and in 1971 Yarrow had repurchased the shareholding for £1, a loan of £4,500,000 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.

1971 - £308,000

1972 - £607,000

1973 - £3,025,000

1974 - £7,088,000

1975 - £5,619,000

1976 - £4,887,000

1977 - £3,123,000.

According to Yarrow, the post-tax profits from the Reference Period to Vesting Day totalled some £12,000,000; during this period Yarrow Shipbuilders was authorised by the Secretary of State for Defence to pay dividends of only £2,600,000 to its parent company, with the result that £9,400,000 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 £3,114,000 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 £1,327,000 at 30 June 1973 and that it was shown in the accounts as at 30 June 1977 to be £10,500,000.

(c) The average market capitalisation of Yarrow’s ordinary shares during the Reference Period did not exceed £4,800,000.

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 £17,500,000.

2. The compensation negotiations

In March 1978, negotiations opened with an exchange of valuations between the parties: the Department’s was £2,800,000, whilst the Representative’s was £17,500,000, 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.

- in February 1978, a first payment on account, of £1,400,000;

- in December 1978, a second payment on account, of £850,000;

- on 21 October 1980, the final payment, of £3,750,000.

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

1972 - £2,618,000

1973 - £2,177,000

1974 - £5,515,000

1975 - £4,841,000

1976 - £3,746,000.

In the half-year to 30 June 1977, pre-tax profits were £3,948,000.

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 £14,337,000 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 £32,431,000.

2. The compensation negotiations

Compensation in respect of the nationalised undertaking was subsequently paid as follows:

- in April 1978 or thereabouts, a first payment on account, of  £4,000,000;

- in July 1978 or thereabouts, a second payment on account,  of £1,250,000;

- in November 1978 or thereabouts, a third payment on account, of  £3,200,000;

- in March 1980 or thereabouts, a fourth payment on account, of  £3,150,000;

- in September 1980 or thereabouts, the final payment,  of £2,850,000.

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

1973 - £427,000

1974 - £523,000

1975 - £792,000

1976 - £711,000

1977 - £865,000.

According to the Commission’s report, in the three months to 30 June 1977, the pre-tax profits were £270,000.

Between 1973 and 1977, Brooke Marine received £888,000 by way of Government shipbuilding grants. About 70% of its turnover came from exports.

(b) Brooke Marine’s net assets amounted to £1,049,000 as at 31 March 1973 and to £4,870,000 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 £2.2 million in cash.

2. The compensation negotiations

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 £190,000, whereas profits after tax for the same period amounted to £1,388,758.

Messrs. Whinney Murray & Co.’s valuation report on the company - suggesting a figure in the range of £860,000 to £960,000 - 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.

In August 1980, the Minister of State at the Department of Industry indicated that the Government’s absolute ceiling was £1,500,000, but, after further contacts, the offer was again raised, in December 1980, to £1,800,000. On 11 December 1980, the Stockholders’ Representative accepted this offer.

- in January 1978, a first payment on account, of £350,000;

- in July 1978, a second payment on account, of £50,000;

- in November 1978, a third payment on account, of £250,000;

- in December 1980, the final payment, of £1,150,000.

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

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.

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.

B. Methods of valuation and compensation

1. Methods of share valuation

2. Compensation methods used in previous nationalisations

(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

PROCEEDINGS BEFORE THE COMMISSION

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.

- 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

"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

"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.

B. Were the applicants deprived of their property "in the public interest" and "subject to the conditions provided for by law"?

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"

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.

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.

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).

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.

D. Entitlement to compensation

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

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.

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

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.

(b) The system established by the 1977 Act

(i) Compensation based on share values

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).

(ii) The hypothetical Stock Exchange quotation method of valuation

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.

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.

(iii) The Reference Period

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.

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.

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.

(iv) Conclusion regarding the system established by the 1977 Act

(c) The effects of the system established by the 1977 Act

(i) Introduction

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

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.

(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).

(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.

(iii) Absence of allowance for inflation

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.

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.

(iv) Absence of an element representing the special value of a large or controlling shareholding

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.

(v) Conclusion regarding the effects of the system established by the 1977 Act

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

(a) Alleged disparity between compensation and Reference Period values (Kincaid and Yarrow Shipbuilders cases)

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.

(b) Incidence of capital gains tax (Kincaid case)

(c) Use of an earnings-based method of valuation (Kincaid case)

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).

(d) Use of the parent-company-related method of valuation (Yarrow Shipbuilders case)

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 £6,000,000 finally paid did actually exceed the total capitalisation of Yarrow during the Reference Period, which was not more than £4,800,000 (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).

(e) Operation of the safeguarding provisions (BAC case)

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).

(f) Alleged excessive delay in paying compensation and alleged insufficiency of payments on account (Vickers Shipbuilding case)

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.

(g) Alleged particular inappropriateness of the Reference Period in the Brooke Marine case

(h) Disparity between compensation paid and cash in hand (Kincaid, Vosper Thornycroft, BAC, Hall Russell and Brooke Marine)

G. Conclusion on Article 1 of Protocol No. 1 (P1-1)

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

"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.

B. Alleged discrimination as compared with the owners of other undertakings nationalised under the 1977 Act

1. Incidence of capital gains tax (Kincaid case)

2. Use of an earnings-based method of valuation (Kincaid case)

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)

4. Use of the parent-company-related method of valuation (Yarrow Shipbuilders case)

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)

D. Alleged discrimination as compared with persons deprived of their possessions under compulsory purchase legislation (Vosper Thornycroft and Brooke Marine cases)

E. Conclusion on Article 14 (art. 14) of the Convention

III.  ARTICLE 6 PARA. 1 OF THE CONVENTION (art. 6-1)

"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)

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)

(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.

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.).

2. Alleged breach of the "reasonable time" requirement (Vosper Thornycroft, BAC, Hall Russell, Yarrow Shipbuilders, Vickers Shipbuilding and Brooke Marine cases)

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)

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).

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

IV.   ARTICLE 13 OF THE CONVENTION (art. 13)

"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.

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.

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.

Rolv RYSSDAL

President

For the Registrar

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).

R.R.

J.L.S.