European Court of Human Rights

Section 5 of the Act of 1968, as amended by the First Amendment Act, provided:

“(1) A person commits an offence if, without the authority of the Defence Council, he has in his possession, or purchases or acquires, or manufactures, sells or transfers -

...

(aba) any firearm which has a barrel length of less than 30 centimetres in length or is less than 60 centimetres in length overall, other than an air weapon, a small-calibre pistol, a muzzle-loading gun or a firearm designed as signalling apparatus.”

The Firearms (Amendment) (No. 2) Act 1997 (“the Second Amendment Act”; together with the First Amendment Act, “the 1997 Amendment Acts”) extended the scope of the prohibition in section 5 to small-calibre pistols by declaring (in section 1) that the words “a small-calibre pistol” in section 5(1)(aba) of the 1968 Act as amended by the First Amendment Act should cease to have effect.

The First Amendment Act provides as follows, so far as material:

“15 Surrender of prohibited small firearms and munitions

(1) The Secretary of State may make such arrangements as he thinks fit to secure the orderly surrender at designated police stations of firearms or ammunition the possession of which will become or has become unlawful by virtue of section 1 or 9 above.

...

16 Payments in respect of prohibited small firearms and ammunition

(1) The Secretary of State shall, in accordance with a scheme made by him, make payments in respect of firearms and ammunition surrendered at designated police stations in accordance with the arrangements made by him under section 15 above.

(2) A scheme under subsection (1) above shall provide only for the making of payments to persons making claims for such payments in respect of firearms or ammunition -

(a) which they had, and were entitled to have in their possession on or immediately before 16th October 1996 by virtue of firearms certificates held by them or by virtue of their being registered firearms dealers; or

(b) which on or before that date they had contracted to acquire and were entitled to have in their possession after that date by virtue of such certificates held by them or by virtue of their being registered firearms dealers,

and their possession of which will become, or has become, unlawful by virtue of section 1(2) or 9 above.

17 Payments in respect of ancillary equipment

(1) The Secretary of State shall, in accordance with any scheme which may be made by him, make payments in respect of ancillary equipment of any description specified in the scheme.

(2) For the purposes of subsection (1) above, ‘ancillary equipment’ means equipment, other than prohibited ammunition, which-

(a) is designed or adapted for use in connection with firearms prohibited by virtue of section 1(2) above; and

(b) has no practicable use in connection with any firearm which is not a prohibited weapon.

(3) A scheme under subsection (1) above shall provide only for the making of payments to persons making claims for such payments in respect of ancillary equipment-

(a) which they had in their possession on 16th October 1996; or

(b) which they had in their possession after that date, having purchased it by virtue of a contract entered into before that date.

...

18 Parliamentary control of compensation schemes

(1) Before making a compensation scheme the Secretary of State shall lay a draft of it before Parliament.

(2) The Secretary of State shall not make the scheme unless the draft has been approved by resolution of each House.

(3) This section applies to any alteration to the scheme as it applies to a compensation scheme.

(4) In this section ‘compensation scheme’ means a scheme under section 16 ... above.”

The Firearms (Amendment) Act 1997 Compensation Scheme (“the First Scheme”) was laid in draft before Parliament and approved by resolution of both Houses of Parliament. It was made on 10 June 1997. The First Scheme provided compensation for the large-calibre handguns themselves, for prohibited expanding ammunition and for certain ancillary equipment. There were three options for claiming compensation: Option A, a flat rate payment for individual items; Option B, a payment for an individual item at the price in the list of values annexed to the First Scheme; and Option C, a payment based on the market value of an individual item at or immediately before 16 October 1996 (the date of the announcement by the Government of their response to, and legislative intention following, the Cullen Report).

Under Option A, a payment of £150 could be claimed for each large-calibre handgun. Under Option B, a payment could be claimed which was based on average retail values on 16 October 1996, reduced by about 25% to reflect normal depreciation in value. Under Option C, dealers were entitled to claim the “full market value” of the large-calibre handguns and ancillary equipment which they held in stock. The full market value was to be calculated on the basis of the cost to the dealer of the item plus 25%.

By section 2 of the Second Amendment Act, the provisions of sections 16 to 18 of the First Amendment Act were applied to small-calibre pistols. The Firearms (Amendment) (No. 2) Act 1997 Compensation Scheme (“the Second Scheme”) was made in December 1997, after having been laid in draft before both Houses of Parliament and approved by resolution of each House. The Second Scheme applied in relation to small-calibre pistols held on or immediately before 14 May 1997. The date for the calculation of full market value for the purposes of Option C remained 16 October 1996. The Second Scheme made provision for compensation in respect of small-calibre pistols, on materially the same terms as provided for in the First Scheme in respect of large-calibre handguns.

COMPLAINTS

The applicant complains that the prohibition on handguns imposed by the 1997 Amendment Acts amounts to a substantial interference with the peaceful enjoyment of its possessions or a deprivation of its possessions for which it has received no compensation. It alleges a violation of Article 1 of Protocol No. 1. There is no effective remedy available to the applicant in the domestic courts to claim compensation and it therefore also alleges a violation of Article 13 of the Convention.

PROCEDURE

The application was introduced on 26 August 1997 and registered on 5 September 1997.

On 1 July 1998 the European Commission of Human Rights (“the Commission”) decided to communicate the application to the respondent Government, and to join it with application no. 37684/97 (Accuracy International Limited and 13 others v. the United Kingdom).

The Government requested permission to submit a single set of written observations dealing with the applicant’s case together with 14 others which raised similar issues, and by a letter dated 25 November 1998, the request was granted by the President of the Third Chamber.

The Government’s written observations were submitted on 15 January 1999, after an extension of the time-limit fixed for that purpose. The applicant replied on 14 April 1999, also after an extension of the time-limit.

On 1 November 1998, by operation of Article 5 § 2 of Protocol No. 11 to the Convention, the case fell to be examined by the Court in accordance with the provisions of that Protocol.

On 25 January 2000 the Court decided to disjoin the application from application no. 37684/97.

THE LAW

1. The applicant complains that the First and Second Amendment Acts have deprived it of part of its business without an offer of compensation for the loss of value of such business or the assets and goodwill comprising part of that business, contrary to Article 1 of Protocol No. 1.

Article 1 of Protocol No. 1 provides:

“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 Government submit that the 1997 Amendment Acts pursued a general interest of the first importance, viz. the control of firearms and the protection of the public from the misuse of firearms. They consider that the applicant’s possessions were very much less extensive than claimed, and doubt whether they extended beyond the prohibited firearms themselves and ancillary equipment, and some plant. The Government take the view that the 1997 Amendment Acts did not effect a deprivation of possessions, but that they amounted to a control of use within the meaning of the second paragraph of Article 1 of Protocol No. 1. They state that there is normally no inherent right to compensation in cases falling within the second paragraph of Article 1 of Protocol No. 1, and refer to the Commission’s decision No. 11763/85, Banér v Sweden (Dec. 9.3.89, D.R. 60, p. 128, at p. 142). They add that the Government were not acting as an economic operator in passing the 1997 Amendment Acts, but were acting in their capacity as guardian of public safety. They state that there has been, and is likely in future to be, a wide range of situations in which the Government judge it necessary to pass legislation to protect the public interest and that compensation for all or any significant business losses such as those claimed by the applicant, including loss of potential future income, would amount to a major burden on public resources. They also refer to the fact that compensation was paid to the applicant for handguns and ancillary items which it held in stock on the basis of cost plus 25%, which they say includes a trading profit element.

The Government refer to the development of firearms controls in the United Kingdom from 1920 onwards and submit that the applicant had no legitimate expectation that its businesses would not be affected by legislation such as the 1997 Amendment Acts. They note that the applicant has produced little information to substantiate its claim of loss of business, and deny that the prohibition on firearms has directly caused the loss of business income or profit alleged by the applicant. In this regard, the Government submit that the applicant may diversify and use its assets and its personnel in other fields of business; that other factors (which they do not identify) appear to have been responsible for at least part of the reduction in the market for handguns; that there are still trading opportunities in non-prohibited firearms; and that the compensation paid to the applicant includes a trading profit element.

The applicant accepts that the decision to prohibit handguns is capable in principle of amounting to a general interest within the meaning of the second paragraph of Article 1 of Protocol No. 1. It refers to the Sporrong and Lönnroth v. Sweden judgment of 23 September 1982 (Series A no. 52, p. 24, §§ 69 and 73) and submits that the Court must decide whether a fair balance has been struck between the demands of the general interest and the requirements of the protection of the applicant’s fundamental rights. It also submits that, in so deciding, the Court must consider whether an individual and excessive burden has been placed on the applicant. The applicant contends that the effect of the prohibition of handguns on the value of its business, or on the value of the assets and goodwill which form part of its business, amounts to an expropriation of private property, and that it should therefore be paid compensation. It contends that “goodwill” is the value of its business based upon the profits generated by the business, and distinguishes this from future profits per se, which it does not claim. It points out that the effect of the 1997 Amendment Acts was to make unlawful activities that were previously lawful, and submits that the decision to prohibit handguns was wholly outside the range of risks inherent in its business and far exceeded any measure that any person engaged in that business could reasonably have foreseen.

The Court recalls that Article 1 of Protocol No. 1 guarantees, in substance, the right to property and comprises three distinct rules (see, for example, the Sporrong and Lönnroth v. Sweden judgment of 23 September 1982, Series A no. 52, p. 24, § 61). The first, which is expressed in the first sentence of the first paragraph and is of a general nature, lays down the principle of peaceful enjoyment of property. The second rule, in the second sentence of the same paragraph, covers deprivation of possessions and subjects it to certain conditions. The third, contained in the second paragraph, recognises that the Contracting States are entitled, amongst other things, to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.

However, the 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. They must be construed in the light of the general principle laid down in the first rule (see, for example, the Air Canada v. the United Kingdom judgment of 5 May 1995, Series A no. 316-A, p. 15, §§ 29 and 30).

In addition to there being a public interest within the meaning of Article 1 of Protocol No. 1, there must be a reasonable relationship of proportionality between the means employed and the aim sought to be realised (see the James and Others v. the United Kingdom judgment of 21 February 1986, Series A no. 98-B, p. 34, § 50). This requirement was expressed 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 (op. cit., p. 26, § 69). The requisite balance will not be found if the person concerned has had to bear “an individual and excessive burden” (ibid., p. 28, § 73).

The Court will first consider the extent to which the applicant company’s “possessions” were affected by the prohibition on handguns introduced by the 1997 Amendment Acts.

The Court notes that the Commission has in the past held that goodwill may be an element in the valuation of a professional practice, but that future income itself is only a “possession” once it has been earned, or an enforceable claim to it exists (No. 10438/83, Batelaan and Huiges v. the Netherlands, Dec. 3.10.84, D.R. 41, p. 170). The Court considers that the same must apply in the case of a business engaged in commerce. In the present case, the applicant refers to the value of its business based upon the profits generated by the business as “goodwill”. The Court considers that the applicant is complaining in substance of loss of future income in addition to loss of goodwill and a diminution in value of the company’s assets. It concludes that the element of the complaint which is based upon the diminution in value of the business assessed by reference to future income, and which amounts in effect to a claim for loss of future income, falls outside the scope of Article 1 of Protocol No. 1.

The Court notes that there has been no formal expropriation of any assets of the applicant company, whether in favour of the Government or in favour of a third party. Whilst it is possible that in certain circumstances there may be a de facto expropriation of possessions even without any formal alienation, on the ground that property has become wholly unusable (see, for example, Papamichalopoulos and Others v. Greece judgment of 24 June 1993, Series A no. 260-B, p. 70, §§43-45), the present application does not disclose any such circumstances.

The interference with the applicant company’s possessions in the present case is more akin to that in the case of Pinnacle Meat Processors Company and Others v. the United Kingdom (No. 33298/96, Dec. 21 October 1998), in which the applicants were engaged in the business of deboning cattle heads, and the loss of business resulted from restrictions imposed on the use of specified bovine material. The Commission assessed the loss of business suffered by the applicants as a control of use rather than as a deprivation of possessions. Similarly, in its Tre Traktörer v. Sweden judgment of 7 July 1989 (Series A no. 159, pp. 21-22, §§ 54-55), the Court assessed the loss of a restaurant business consequent upon withdrawal of a liquor licence as a control of use rather than as a deprivation of possessions. In the present case, the Court considers that to the extent that any loss of business suffered by the applicant results from the prohibition on handguns, this interference with the applicant company’s possessions amounts to a “control of use” rather than a de facto “deprivation of possessions”.

As to that “control of use”, the Court recalls that the aim of Article 1 of Protocol No. 1 is to achieve a fair balance between the demands of the general interest of the community and the requirements of the individual’s fundamental rights, and that this concern to achieve a balance applies also to the second paragraph of Article 1 of the Protocol. There must therefore be a reasonable relationship of proportionality between the means employed and the aim pursued (see the above-mentioned Air Canada v. the United Kingdom judgment, p. 16, § 36).

The overriding aim of the 1997 Amendment Acts, as expressed by the Government in their observations to the Court, was to seek to ensure public safety. They submit, further, that the judgment made by the Parliament of the United Kingdom was that both of the 1997 Amendment Acts were required for this purpose. The Court observes that the applicant company accepts that the prohibition on handguns enacted by the 1997 Amendment Acts is capable in principle of constituting a public interest within the meaning of the third sentence of Article 1 of Protocol No. 1. The Court concludes that the 1997 Amendment Acts were enacted in furtherance of an important public interest.

Against this aim must be set the hardship suffered by the applicant company. In this connection, the Court again notes that there is no agreement between the parties as to the impact of the 1997 Amendment Acts on the applicant’s business.

The Court must assess whether, taken overall, the applicant can be said to have suffered an “individual and excessive burden” (see, for example, the James and Others v. the United Kingdom judgment of 21 February 1986, Series A no. 98, p. 34, § 50).

The Court is not able, on the information before it, to determine the precise nature of the impact of the prohibition on handguns effected by the 1997 Amendment Acts on the applicant company’s business. Moreover, the information which has been provided does not distinguish between goodwill, which in this case does fall within the scope of Article 1 of Protocol No. 1, and future income and profit, which do not.

Even assuming that the 1997 Amendment Acts have had an appreciable adverse impact on the company’s goodwill, to which Article 1 of Protocol No. 1 applies, the applicant company has at all times had to operate within a framework of control of the trade in firearms, which has existed in the United Kingdom since 1920 and which has become progressively more restrictive. In these circumstances, the Court agrees with the Government that the applicant company had no legitimate expectation that it would be able to continue to trade in any particular type of firearm, including handguns (see the Fredin v. Sweden judgment of 22 January 1991, Series A no. 192, p. 17-18, § 54). Moreover, it appears from the information which the applicant has provided that handguns formerly accounted for 30% of its trade, and it appears therefore that a substantial part of its trade was not affected by the prohibition on handguns.

The Court observes in addition that the applicant company was entitled to compensation under the First and Second Schemes for the “market value” of the guns, which was calculated as the cost to it of the guns plus 25%. The applicant received £890,000, which is a substantial sum, in compensation. It is clear from the method of calculation of “market value” that this does not represent the value of the guns on the wholesale market, but represents a higher value. The basis of compensation for the applicant’s stock of handguns therefore includes an element of compensation over and above the value of the handguns, and which may be considered as compensation for future income and profits or for goodwill, or both.

The Court notes further that the applicant remains the owner of all of its tangible assets, which include office and warehouse premises. These assets can be used in new or related businesses.

In these circumstances, the Court finds that the applicant company cannot be said to have suffered an excessive burden.

It follows that this part of the application is manifestly ill-founded within the meaning of Article 35 § 3 of the Convention.

2. The applicant further complains that there is no effective remedy available to it in the domestic courts to claim compensation and it therefore also alleges a violation of Article 13 of the Convention.

The Court concludes, having examined the claim under Article 1 of Protocol No. 1, that there is no arguable claim of a breach of a substantive right under the Convention. Accordingly, the Article 13 complaint is unsustainable (see the Boyle and Rice v. the United Kingdom judgment of 27 April 1988, Series A no. 131, p. 24, § 54).

It follows that this part of the application is also manifestly ill-founded within the meaning of Article 35 § 3 of the Convention.

For these reasons, the Court, by a majority,

DECLARES THE APPLICATION INADMISSIBLE.

S. Dollé J.-P. Costa Registrar President