Case No: C1/2005/1548 & C1/2005/1554

Neutral Citation Number: [2006] EWCA Civ 1293
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
ADMINISTRATIVE COURT 
MR JUSTICE ELIAS
CO/5181/04
 AND
ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT
HHJ HARRIS
CLAIM No: 5CL12683 
 
Royal Courts of Justice
Strand, London, WC2A 2LL

Tuesday 10th October 2006
Before :

LORD JUSTICE MUMMERY
LADY JUSTICE ARDEN 
and
LORD JUSTICE LONGMORE 
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Between :

	SECRETARY OF STATE FOR DEFENCE	Appellant	
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	MRS DIANA ELIAS	Respondent	

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(Transcript of the Handed Down Judgment of
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MR PHILIP SALES & MR MARTIN CHAMBERLAIN (instructed by the Treasury Solicitor) for the Appellant
MR RABINDER SINGH QC, MS HELEN MOUNTFIELD, MS CLAIRE McCANN & MR JOHN HALFORD (instructed by Bindman & Partners) for the Respondent

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Judgment
Lord Justice Mummery : 
Litigation overview
1.	This is no ordinary race discrimination case. The setting is an application for judicial review of common law powers exercised by the Secretary of State for Defence (the Secretary of State) to set up an ex gratia compensation scheme. There are grave allegations, responsibly made, of abuse of power and serious maladministration by the Secretary of State involving direct, as well as indirect, race discrimination. Exemplary damages are claimed for alleged oppressive, arbitrary or unconstitutional action by public officials. Aggravated damages are claimed for alleged high-handed, trivialising, insulting and thoughtless behaviour towards a vulnerable citizen. 
2.	Some of the arguments criticising executive action are unjustified, but the occasion for making them ought never to have occurred. For all those concerned about sound standards of administration, prudence in the handling of taxpayers’ money and State compliance with principles of equal and fair treatment of individuals some aspects of this affair are troubling. It is fully appreciated that officials are sometimes over-pressured and under-resourced in the conduct of public affairs. The decisions that they have to make are sometimes more difficult than is generally understood. This is, however, a case in which more time should have been given to careful thought, detailed discussion, relevant consultations and responsible planning before the launch of a well-intentioned humanitarian scheme for the ex gratia distribution of hundreds of millions of pounds from public funds. The result of inadequate preparation has been an embarrassing administrative and legal muddle, personal pain, charges of incompetence, costly litigation and political apologies, accompanied by inquiries, investigations, reports, hearings and reviews. A cloud has been cast over what many people would agree was an honourable act of public benevolence.
Challenge to the Compensation Scheme    
3.	The claimant, Mrs Diana Elias, is in her early 80s and lives with her disabled eldest son. She is a British subject, as were both of her parents (and, she claims, her grandparents); but she was not born in the United Kingdom; nor were her grandparents, or her parents, who were both Jewish, her mother from Iraq and her father from Iraq or India. Mrs Elias and her family took great pride in being British subjects.
4.	Mrs Elias was born in Hong Kong in 1924. She was there when the Japanese forces invaded in 1941. During the Japanese occupation from 1941 till 1945 she was interned by the Japanese in Stanley Camp, Hong Kong. She suffered extremely traumatic experiences with serious, long-term psychological effects. She was interned because she was a British civilian, as evidenced by her registration with the British High Commission and by the inclusion of her name and the names of her parents and siblings in a list handed to the Japanese by the British authorities.
5.	Mrs Elias is also a British citizen. She lived partially in the UK between 1945 and 1976. She has lived in the UK full time since 1976. Her children and grandchildren are all British citizens.   
6.	The defendant Secretary of State is responsible for the administration of an ex- gratia compensation scheme announced in November 2000. The court below found race discrimination of the indirect (or disguised) kind resulting from the application of discriminatory criteria to applications for payments under the scheme. Mrs Elias’ claim is simple: she would be eligible for a payment of £10,000 under the scheme, but for the racially discriminatory condition or requirement introduced and applied by the Secretary of State that either she, or one or more of her parents or grandparents, should have been born in the United Kingdom. She is “very deeply aggrieved” by her exclusion from the scheme resulting from the application of discriminatory criteria.  Like others in the same position as she is, she finds it offensive to be told that she is not “British enough” to be compensated, although she was “British enough” to be interned.  
7.	It has to be said that, although the claim is simple, the course of the litigation and the legal issues thrown up by it are far from simple. The principal written submissions on behalf of Mrs Elias run to 267 paragraphs (82 pages). They were supplemented by further written submissions before and after the oral hearing. The Secretary of State’s principal and supplementary submissions are of comparable length and complication. This is a worrying case, which raises   fundamental issues of discrimination law. They are not made any easier by the fact that the whole affair is suffused with a personal and historic sense of injustice. The issues of interpretation and application of the law must, of course, be judged with complete objectivity.      
8.	The main grounds of challenge to the lawfulness of administrative action are direct or indirect race discrimination contrary to the Race Relations Act 1976, as amended (the 1976 Act) and the unlawful fettering of discretion in the exercise of common law public powers. It is contended that these grounds render unlawful the application of the eligibility criteria adopted by the Secretary of State between March and June 2001 for determining who would be entitled to receive payments under the non-statutory Far Eastern Prisoner of War and Civilian Internees Ex-Gratia Compensation Scheme (the Compensation Scheme). 
9.	The Compensation Scheme was announced by the Parliamentary Under-Secretary of State for Defence in Parliament on 7 November 2000. It exists to “to repay the debt of honour” owed by the UK to “British civilians” who were interned by the Japanese during the Second World War. The Compensation Scheme was described in similar terms in “Notes for Guidance” in a leaflet published by the War Pensions Agency (now the Veterans Agency). There was no definition of “British” and there was no reference at that time to the need to demonstrate any other links with the UK, to “belonging to Britain” or to any other defined eligibility criteria. 
10.	For the Secretary of State it was contended that it was wrong to read references in the announcement and the leaflet to “British civilians” as being or containing a promise to compensate every internee who was a British subject at that time. Whatever may have been intended, the announcement was  lacking in detail and clarity.  The need to clarify “British” in an easily understandable and administratively workable way emerged as completed application forms were received and assessed. The Secretary of State argued that it was never stated that payments would be made to all civilians who were British subjects at the time of internment and that it was always intended to require strong links with the UK as a condition of payment. 
11.	On any view of the matter the unfortunate feature of the launch of the Compensation Scheme is that its announcement in Parliament preceded a decision on how the intended beneficiaries, who were described in the announcement as “British civilians”, should actually be determined. Thousands of applicants, who were identified as having received compensation under an earlier war pensions scheme in the 1950s, received payments under the Compensation Scheme before the announcement and publication of the eligibility criteria that the Secretary of State then relied on to reject applications from Mrs Elias and hundreds of other similarly placed applicants. 
12.	The conditions for eligibility under the 1950s scheme (the Japanese Asset Scheme) were that a civilian did not qualify for payment unless he was a British national normally resident in the UK before internment, who had returned to take up residence in the UK on or before the date of application for payment, and was over 21 on 8 December 1941. The underlying thinking behind the earlier scheme was that the persons to benefit should be British nationals normally belonging to or having roots in the UK before the war and who were living in the UK at the time of distribution. It should be remembered, however, that, at the time of the 1950s scheme, there was no race discrimination legislation, which had to be complied with or which could be invoked as a ground of challenge.
13.	According to the 2000 announcement single lump sum payments of £10,000 each were to be made to “British civilians” who had been interned by the Japanese in the Second World War. Mrs Elias falls into this general description. Her hopes were raised by the announcement, as she thought that she would be eligible for compensation.  But the claim submitted by her soon after the setting up of the Compensation Scheme was rejected by the Secretary of State’s Veterans Agency on the grounds that she did not satisfy the eligibility criteria. She feels deeply aggrieved that the “debt of honour” does not extend to her, although, in circumstances that are disputed, the widows of her two brothers, Charlie and Abraham, who had been interned, received compensation, as have many thousands of others.
14.	In total it is estimated that in the region of £250m worth of payments of £10,000 each have been made to about 25,000 applicants. Although there is no agreement on the figures, it is asserted by Mrs Elias that there are about 300 people living in the UK who are in a similar position to her and about another 800 living abroad. The Secretary of State regards these figures as speculative. He also points to the potential “knock on” effect of removing or amending the eligibility criteria to include applicants in the position of Mrs Elias, in particular on the cost of another compensation scheme mentioned below for military prisoners of war.    
15.	The reason why the eligibility criteria excluding Mrs Elias were not mentioned in the original announcement in November 2000 was that they were not finally settled until 18 May 2001. The decision on the eligibility criteria was only reached after a series of internal meetings of an Inter-Departmental Working Group, discussions, submissions and memoranda earlier in 2001. The Cabinet Office was involved, as well as the Ministry of Defence and the Veterans’ Agency. The discussions were held to clarify criteria requiring close links between applicants and the UK.
16.	During the discussions concerns were expressed by some officials about a definition of “British” which would lead to the rejection of individual cases in circumstances that would be indefensible on grounds of fairness and logic, as well as out of keeping with the original intent and spirit of the Compensation Scheme. The documents disclosed by the Secretary of State reveal an awareness by some officials of the risk of a legal challenge by including race as “a deciding factor” (an expression used in internal communications between administrators) in the eligibility criteria and of “potentially embarrassing contradictions arising out of the current definition.” 
17.	While internal deliberations were continuing section 71 of the 1976 Act came into force on 2 April 2001. It imposed on the Secretary of State a statutory duty to have due regard to the need to eliminate unlawful race discrimination. It was held by the court below that this duty was breached by the Secretary of State, as no regard was had to the potentially racially discriminatory nature of the eligibility criteria. The Secretary of State has not appealed against this ruling. He accepted that no detailed review of the Compensation Scheme was undertaken on the coming into effect of section 71 and that there should have been.  
18.	The eligibility criteria were announced in Parliament by the Parliamentary Under-Secretary on 11 July 2001, 8 months after the first announcement of the Compensation Scheme and after Mrs Elias had received a letter at the end of June 2001 stating that she was not entitled to receive a £10,000 payment.  Hundreds of others received similar letters.
19.	It does not require much foresight to appreciate the importance of giving proper consideration to establishing lawful eligibility criteria before starting to make ex gratia payments to claimants. Astonishing though it may seem, very many payments were made under the Compensation Scheme (though not to Mrs Elias), even before the eligibility criteria had been settled and announced and without giving proper consideration to whether there was potential discrimination on racial grounds.  
20.	The eligibility criteria, which exclude Mrs Elias, have been referred to in the litigation as “the birth link criteria” or “the blood link criteria.”  Literally speaking they are “birth place criteria.”  However they are described, everybody in the case knows that the various phrases refer to the conditions laid down by the Secretary of State for eligibility under the Compensation Scheme. The judge used the expression “birth link” in his judgment. I shall do the same in this judgment.
Earlier challenges: ABCIFER and Gurung
21.	This is not the only litigation about the operation of the Compensation Scheme. There was an earlier application for judicial review, which reached the Court of Appeal. It was brought on different grounds and it failed. In R. (Association of British Civilian Internees: Far East Region) v. Secretary of State for Defence (the ABCIFER case) [2002] EWCA Civ 473; [2003] QB 1397 a judgment of the court setting out a very detailed account of the Compensation Scheme was handed down on 3 April 2003. It was unsuccessfully argued that the birth link criteria were unlawful because they were disproportionate or irrational and defeated a legitimate expectation created by the terms of the announcement of the Compensation Scheme. The Secretary of State’s evidence in the ABCIFER case describing the rationale for the adoption of the birth link criteria stated that it had always been the Government’s intention that only civilians with “a strong link to the United Kingdom” would be eligible for the payment.  The birth link criteria were held by the Administrative Court and by this court not to be irrational.  The House of Lords refused leave to appeal.
22.	In his account of the Scheme Dyson LJ, who delivered the judgment of the court, said-
“40. …Looking at the matter entirely generally, it seems to us that it would have been possible rationally to establish a scheme for payment to the entire class of those who were British civilians at the time of internment. It would also have been possible, without acting irrationally, to exclude certain categories from the entire class. But the criteria for their exclusion would, by definition, have had to be rational. It would clearly not have been rational to exclude people on the grounds of their physical characteristics or their gender or their religious beliefs. No reasonable decision maker could decide, when setting up a scheme to meet the debt of honour owed by this country to those British civilians who were interned by the Japanese, that such criteria should be reasons to disqualify a claimant to compensation. Just as in satisfying the requirements of proportionality, so too in meeting the Wednesbury test, the measures designed to further the objective must be rationally connected to it …”

23.	Although exclusion on the ground of race was not mentioned in that passage or any where else in the judgment, it has now been conceded by the Secretary of State that the birth link criteria were indirectly discriminatory contrary to the 1976 Act.  The ABCIFER case was argued and therefore decided on more conventional judicial review lines than this case. The anti-discrimination provisions in Article 14 EHCR, which refer to discrimination on the ground of race, were relied on in the context of Article 1 of the First Protocol, but there was no challenge to the lawfulness of the scheme under the 1976 Act. 
24.	This court was informed during the hearing of this appeal that an application to the Court of Appeal has been made by the unsuccessful applicants in that case for permission to re-open the appeal in the light of disclosures of new material to Mrs Elias and to the Parliamentary Commissioner, who conducted an investigation into complaints of maladministration of the Compensation Scheme. The application has since been granted by Dyson LJ.
25.	The judgment of the court in ABCIFER went on to express views on what would be rational criteria-
“41. But it would have been rational, for example, to exclude those who were entitled to compensation from another country. It would be reasonable to take the view that the objective of paying the debt of honour to those who were British subjects at the time of internment did not require payment to be made to internees who were entitled to be compensated by other countries. We do not believe that any of this is controversial.
42. What is in controversy is whether it is rational to limit the beneficiaries of the scheme to those British subjects who had close links with the UK at the time of internment. In our view, it is impossible to say that the close link criterion is irrational. At the time of internment, large numbers of British subjects had no links with the UK save for their being British subjects by reason of the 1914 Act. By the time the scheme came to be set up, the UK had become a medium sized European country which had lost its empire. The situation was very different from what it was at the time of the war when Britain controlled a huge empire. No doubt, the Government could have decided to include in the scheme all those who were British subjects at the time of their internment who were not entitled to compensation from their home countries. But its failure to do so was not irrational.”
26.	Having dealt with further arguments on the alleged irrationality of the birth link criteria and having rejected the contention that it was irrational to ignore the close links that claimants had developed with the UK since the war, the court considered a set of submissions based on a legitimate expectation created by the announcement of the Scheme. The court rejected the legitimate expectation challenge on the ground that the original announcement did not contain a clear and unequivocal representation that all civilians who were British subjects at the time of their internment would receive ex gratia payments. “There were tell-tale signs that the scheme was not, or at least might not be, as all-embracing as might at first appear.” (paragraph 60).On the facts the campaigning group ABCIFER, which represented a substantial number of individuals interned by the Japanese in World War II as British civilians (and of which Mrs Elias was a member), had not so understood the announcement. The court held that the Secretary of State had not acted with conspicuous unfairness amounting to an abuse of power so as to permit a claim of legitimate expectation to succeed in the absence of such a representation.
27.	Although the point was raised in the appellants’ skeleton argument, the court in ABCIFER did not hear argument on the application of an alleged free- standing common law principle of equality and made no determination on the point. The court’s comments are, however, relevant to a submission made in this case on the margin of appreciation that would be allowed to the Government in formulating the eligibility criteria for ex gratia payments. The court said-
“86. In our judgment, whether the question is considered in Wednesbury terms, or on an application of a free-standing principle that like cases should be treated alike unless there is a valid reason for treating them differently, the complaint in the present case must be rejected. We have already given our reasons for concluding that the decision to exclude those who did not satisfy the birth criteria was not unreasonable in the Wednesbury sense. If a free-standing principle of equality were to be applied, it would have to be on the basis that the court would give the minister a margin of appreciation to determine whether there was a valid reason for treating internees differently. In our view, the minister’s decision to exclude those British subjects who did not satisfy the birth criteria fell comfortably within the margin of appreciation that should be accorded to him by the court. Our reasons are essentially the same as those which led us to conclude that the challenge to the birth criteria fails on an application of the Wednesbury test.” 

28.	The absence of argument in ABCIFER on race discrimination is surprising, as a race discrimination challenge had succeeded in an earlier application for judicial review of a scheme to compensate military prisoners of war, who had suffered at the hands of the Japanese in the Second World War. The claims were brought by the Ghurkas. They had fought in the British Indian Army, but they were denied the benefits of the compensation scheme: R (Phalam Gurung) v. Ministry of Defence [2002] EWHC 2463 Admin (McCombe J). (Although this decision was cited in argument in ABCIFER, it was not referred to in the judgment and it does not seem to have alerted anybody in the ABCIFER case to the possibility of a challenge on the ground of unlawful race discrimination.)
29.	The Gurung proceedings, in which judgment was given on 27 November 2002, succeeded on a race discrimination ground, although the decision does not assist Mrs Elias, as the eligibility criteria for military personnel differed from those for civilians in the Compensation Scheme. The birth link criteria did not apply to military personnel. An appeal by the Secretary of State was not pursued. The racially discriminatory criteria were subsequently removed from the scheme to compensate military prisoners of war. The government decided to pay compensation to Nepalese national Gurkha prisoners of war who had served in the Indian Army
30.	Although the judgment in Gurung was followed by internal reviews of the Compensation Scheme and concern about the Compensation Scheme was expressed by the Commission for Racial Equality  in correspondence with the Secretary of State in December 2002, no changes were made to the birth link criteria until shortly before the hearing of this appeal.
Appeals from judicial review and discrimination damages judgments   
31.	The claims in these proceedings were successful in part. Elias J handed down judgment on 7 July 2005. (I will call Elias J “the judge” in order to avoid possible misunderstandings arising from the confusing coincidence that the judge and the applicant, who are not related, have the same surname). 
32.	The judge held that, as was ultimately conceded by the Secretary of State, the birth link criteria indirectly discriminated against Mrs Elias on racial grounds (i.e. national origins). Their application had an adverse impact on a greater proportion of British civilian internees who were of non-British national origin, such as Mrs Elias, than they had on internees of British national origin. 
33.	The judge also held that, although the birth link criteria had a legitimate aim, the indirect discrimination was not objectively justified, as the birth link criteria were disproportionate.  This part of the judgment is appealed by the Secretary of State.
34.	The judge rejected the claim that Mrs Elias had suffered direct discrimination on grounds of her national origin. He also held that the Secretary of State had not fettered his discretion unlawfully or unfairly by failing to consider the possibility of making ex gratia payments to those who fell outside the criteria, but were exceptional cases. These rulings are appealed by Mrs Elias.
35.	She also appeals against the judge’s decision on the form of relief for indirect discrimination. She contends that the judge should have made an order directing the Secretary of State to re-consider her application under the Compensation Scheme as it existed at the time of her application, but disapplying the unlawful discriminatory criteria, in which case she would be entitled to be paid the sum of £10,000 plus interest. The judge ruled that her proper remedy was to seek damages for race discrimination in the County Court, which has an exclusive jurisdiction under section 57 of the 1976 Act.
36.	Mrs Elias then successfully brought an action against the Secretary of State in the Central London County Court claiming damages for race discrimination. On 9 March 2006 she was awarded £3,000 damages for the injury to her feelings inflicted by indirect discrimination. The judge (HHJ Harris) declined to award damages for financial loss. He also rejected her claims for aggravated and exemplary damages. With the permission of HHJ Harris the County Court judgment is appealed by both sides. 
37.	Following the judicial review judgment the Compensation Scheme was suspended so that no new decisions or payments would be made until the final conclusion of the proceedings.
38.	All of the appeals were heard together over a period of three days. Unfortunately, there was insufficient hearing time in which to complete the oral arguments. They were very detailed covering nearly every aspect of the many points argued at first instance in the judicial review proceedings and in the County Court proceedings. The parties were allowed to make further written submissions after the hearing. As a result of the intervening Easter Vacation the parties did not complete this process until the end of April.
39.	The court is indebted to all concerned, the parties and their legal representatives, for their assistance, patience and courtesy. I would also extend the court’s gratitude to the judge and to HHJ Harris for their full and careful treatment of all the factual and legal issues in this extraordinary litigation.   
Issues on the judicial review appeal
40.	These are the principal issues on the judicial review appeal. 
1)	Direct race discrimination
The judge dismissed the direct discrimination ground. He decided that Mrs Elias was not treated less favourably “on racial grounds.”  Such grounds are defined in the 1976 Act as including “national origins.” The judge held that, on the basis of the authorities binding on him, the concept of “national origins” was used in the legislation in the sense of race, not citizenship, and that the express criterion of place of birth is not a forbidden ground of discrimination, nor is it inextricably linked to a forbidden ground of discrimination. The birth link criteria do not require all applicants under the Compensation Scheme to be of UK “national origin.” Further, a person of UK national origin would not necessarily satisfy the birth link criteria. The judge concluded- 
“50.  …I accept that the effect of adopting the criteria used in this scheme is likely to produce a very similar outcome as would have resulted had a national origins criterion been adopted. Nevertheless, it is not an identical form of differentiation.”
2) Indirect race discrimination
At a late stage the Secretary of State conceded that the application of the birth link criteria inevitably involved indirect discrimination, as “they treat less favourably those who are of non-British origin” (paragraph 53 of the judgment). The only issue was whether the indirect discrimination was objectively justified and whether the birth link criteria were a proportionate means of achieving a legitimate aim. The judge made a declaration that the criteria introduced in 2001 constituted unlawful indirect discrimination contrary to section 1(1A) and/or section 1(1) (b) of the 1976 Act. He made an order that the decision of 28 July 2004 refusing to make a  payment to Mrs Elias under the Compensation Scheme be quashed.  
The judge made those orders on the following bases. First, the birth link criteria were indirectly discriminatory. Secondly, the criteria served a legitimate aim of limiting eligibility to a category narrower than all applicants who were British subjects at the date of internment by requiring close links with the UK. Thirdly, the criteria chosen were not proportionate to the aim of the measures. The judge said it was a case where the court should carefully scrutinise the justification claimed, because the extent of the discrimination on the grounds of national origin “is very marked indeed” (paragraph 84). The judge said-
“89. …The criteria chosen were very closely linked to national origins. Using the criteria was by no means the only way in which the Minister could achieve his legitimate objective. He could have chosen criteria which narrowed the category of British subjects without linking them so closely with descent and national origins. For example, a simple link to, say, a period of residence in the United Kingdom within the period leading up to the internment, or the adoption of criteria based on domicile would have done so. It would, of course, still have involved a disparate impact statistically and the less favourable treatment of those who were not British nationals, but it would in my judgment have been proportionate to the objective being sought.”
     
3)	Fettering discretion
The judge rejected the argument that the Secretary of State had  unlawfully fettered his discretion by refusing to consider Mrs Elias as an exceptional case for compensation because of her circumstances, in particular her extreme suffering. The Veterans Agency had informed Mrs Elias that, as administrators of the Compensation Scheme, they were entirely bound by the conditions for eligibility laid down by the government, that they had no discretion to act otherwise and that they could not change the rules or make exceptions for the particular circumstances of individual claims. While accepting that it would be open to the government to have provided for the possibility of exceptional cases in the Compensation Scheme itself or to amend the Compensation Scheme, the judge held that the law did not require the Secretary of State to consider whether to make an exception for an applicant, who did not meet the criteria set for determining eligibility for an ex gratia payment. The criteria did not have to be flexible or allow for exceptions. The judge concluded- 
“36. I see no basis for saying that because the government agrees to make payments in a certain class of situations, that it is now obliged to consider applications from those who do not fall within the rules in a different way than it would otherwise have done. In my judgment it is not obliged in every case effectively to consider extending the scheme on a case by case basis beyond the scope which it has carefully delineated. The court’s task is to give effect to the scheme established by the Crown in the same way as it would a scheme established by legislation. It is no more an unfair or unlawful exercise of power for the Crown, acting through a Minister, to refuse to consider exceptional cases under the common law scheme than it would have been under a statutory scheme. Moreover, in so far as Parliament authorises funding for the scheme itself, there would be no authority to make payments outside the terms of the scheme. ”   
4)	Relief
The judge declined to order that the sum of £10,000 compensation should be awarded to Mrs Elias in consequence of his judgment in her favour on indirect discrimination. He held that her remedy was to bring a claim in the County Court for damages for race discrimination. It was submitted on behalf of Mrs Elias that, as a result of his ruling on indirect discrimination by the birth link criteria, the unlawful criteria should now be stripped out of the Compensation Scheme, leaving her with an absolute entitlement to a payment of £10,000 under it, plus interest. She should be put in the same position that she would have been in, had the Compensation Scheme not unlawfully discriminated against her on the ground of race in the first place. She should be placed in the same position as the many people, who have already received payments of £10,000 each under the Compensation Scheme. It is not suggested that other people will have to repay what they have received, but they will have been treated more favourably than Mrs Elias, if she does not also receive a payment of £10,000.
The judge accepted the submission of the Secretary of State that the Compensation Scheme was not the only possible scheme that could be adopted and that it was open to the Secretary of State to formulate lawful limiting criteria, other than the impugned criteria, which would nevertheless exclude Mrs Elias.
He identified a second difficulty in the relief claimed by Mrs Elias: what would be the lawful scheme, if the unlawful elements of the Compensation Scheme were stripped away? It might not be accurate to say that the birth link criteria were unlawful in their entirety. A criterion limiting eligibility to the birth of the claimant in the UK might be lawful. The proper relief in the judicial review proceedings was to require the Compensation Scheme to be re-formulated and for Mrs Elias’ application under the Compensation Scheme to be re-considered according to the new criteria. 
Issues on the discrimination damages appeal
41.	Mrs Elias appeals against the level of the damages awarded to her by HHJ Harris in the Central London County Court on 9 March 2006. The award was made on the basis of the liability of the Secretary of State for indirect discrimination established in the judicial review judgment. The sole jurisdiction to award damages was in the County Court under section 57(1) of the 1976 Act.  The judge awarded her £3,000 damages for injury to feelings, plus interest of about £900 as at the date of the order. He refused to award further damages claimed by Mrs Elias for financial loss and by way of aggravated and exemplary damages.
42.	These are the main issues on the damages appeal:
1)	The financial compensation issue.
 Is Mrs Elias entitled to damages for financial loss of £10,000, plus interest? Or is she entitled to a sum equal to the financial loss which she will suffer by reason of the set off rules, which will be applied to her benefit entitlement by reason of the increase in her capital? The benefit entitlement refers to means-tested credits, such as pension credit, housing benefit and council tax benefit. I need not deal further with this point, as the parties have agreed that, should the court decide that Mrs Elias was entitled to be put in the financial position which she would have been in had she received £10,000 under the Scheme, they would seek to agree the mechanics of how this should be done and the amount required to be paid, with liberty to apply to the court, if there were subsequent difficulties about quantum.     
2)	Injury to feelings.
Should the court increase the award of £3,000 for injury to feelings? This issue involves the application of the guidelines for the award  of damages for injury to feelings in discrimination cases laid down by this court in Vento v. Chief Constable of West Yorkshire Police [2002] EWCA 1871; [2003] ICR 318 at paragraphs 65 -68 (Vento). Although the guidance was given to employment tribunals dealing with cases of sex and race discrimination in the employment field, it was not suggested that there should be a different approach to the assessment of damages for injury to feelings in this case.  
3)	Aggravated/exemplary damages.
 Should awards have been made to Mrs Elias for aggravated and exemplary damages?  
Fresh materials
43.	The submissions in this court were supplemented by materials not available to the judge and exhibited as JH 3 to the Statement (3) of Mr John Halford in support of an application issued on 13 September 2005 for an order for permission to adduce further evidence. Mr Halford made 4th and 5th  statements requesting disclosure of documents and making allegations of material non-disclosure. Ms Jessica Smith of the Treasury Solicitor’s Department made a witness statement in response on 3 April 2006. Further documents were disclosed without admission of obligation to make disclosure.      
44.	The court granted permission to adduce the materials in so far as they consisted of fresh evidence and required the permission of the court. They do not significantly affect the legal arguments on the appeal, although they give a fuller picture of the affair as it continues to unfold. They also include correspondence between the solicitors for Mrs Elias and the Treasury Solicitor in July 2005 about the need for a review of the Compensation Scheme and its differential impact on different racial groups in the light of the ruling by the judge on breach of section 71 of the 1976 Act.  
1)	Report of the Parliamentary Commissioner on 12 July 2005 (HC 324) This report on “A Debt of Honour: The ex gratia scheme for British groups interned by the Japanese during the Second World War” was published less than a week after the judge handed down judgment on the judicial review application. Documents relevant to the formulation of the birth link criteria were obtained by the Parliamentary Commissioner which had not been disclosed in the ABCIFER case or to Mrs Elias during the course of the litigation.  The Parliamentary Commissioner for Administration (the Ombudsman) found maladministration in the formulation, announcement and operation of the Compensation Scheme. She made recommendations for remedying the injustice found by her.  Not all of the recommendations have been accepted by the Secretary of State.  On 13 July 2005 an apology was given in the House of Commons by the Parliamentary Under-Secretary of State for the distress caused by the way the Compensation Scheme was introduced and announced and for the administrative failings. Further comment was postponed until the final outcome of this case is known. 
The Parliamentary Commissioner made some damning findings, in particular, that the Compensation Scheme was not devised in accordance with good administrative practice; it had been announced before its criteria had been fully determined, the meaning of “British” having been discussed for the first time after the announcement and after the first payments had been made; clear criteria were required in order to avoid unnecessary distress or inconvenience and to produce consistent outcomes and equal treatment; the criteria chosen were surprising as a means to repay “a debt of honour” to those who were “British enough” to be interned by the Japanese, though their fairness was a matter for the courts, not for the Parliamentary Commissioner; not all applicants had been afforded treatment equal to those whose applications had been determined before the introduction of the criteria; the Compensation Scheme had not been reviewed in the light of criticisms by the courts and others; and the justified feeling of outrage and distress by those who were implicitly “not British enough” to receive a payment constituted an injustice caused by maladministration. The Parliamentary Commissioner reported that  
“…many people have suffered outrage at the way in which the scheme has been operated and distress at being told that they were not ‘British enough’ to qualify for payment under the scheme.” (paragraph 206) 
2)	Report of the Public Administration Select Committee(PASC)  12 January 2006.  The report agreed with the Parliamentary Commissioner. Evidence was given to the Committee by Mr Donald Touhig M.P., Minister for Veteran Affairs. Evidence  was also given by Mr Jonathan Iremonger on behalf of the Secretary of State about the problems of defining “British” in the eligibility criteria and the limits of the responsibility of the UK government to the large number of people, who were British subjects at the time of the Second World War. Soon after giving his evidence in December 2000 Mr Touhig announced a review of the way in which decisions had been made to distribute payments under the Scheme before March 2001 by reference not to the birth link criteria, but to the 1950s scheme.  
3)	The internal review of the early operation of the Compensation Scheme. This was explained in the evidence of Mr Jonathan Iremonger on behalf of the Secretary of State.
4)	Disclosure of fresh documents. Allegations are made of inadequate disclosure of documents in the ABCIFER case and in the judicial review proceedings. They include an unsigned note on a fax dated 6 November 2000; a letter of 10 November 2000 from an official in the Ministry of Defence to other officials to clarify a misunderstanding about the Ministerial announcement; a paper submitted by the War Pensions Agency to the Cabinet Office on 4 May 2001 about the need for extension of criteria relating to eligibility with particular reference to a class of  persons in the position of Mrs Elias; and an internal note dated 9 May 2001 from a Ministry official expressing reservations about the proposal to extend eligibility.
5)	Announcement by the Minister for Veteran Affairs. On 28 March 2006 Mr Donald Touhig announced that the Compensation Scheme would include a provision rendering eligible those who have resided in the UK for at least 20 years since the end of the Second World War. Although this provision would cover Mrs Elias, it does not affect her appeals, save that it is accepted by  Mrs Elias that she would not be entitled to double recovery under both the original criteria and under the new criteria based on residence. If she is entitled to be paid the sum of £10,000 under the original scheme, she will be entitled to interest, which she would not receive on a payment to her under the revised scheme.
45.	There was disagreement between the parties as to whether a number of documents, which came to the knowledge of Mrs Elias after the judgment was handed down (for example, documents referred to or quoted in the report of the Parliamentary Commissioner), should have been disclosed earlier in the judicial review proceedings. 
46.	Mr Sales submitted, on behalf of the Secretary of State, that there has been no breach of the obligation to make proper disclosure of relevant documents in the judicial review proceedings. The documents disclosed set out fully and fairly what had been done and why it was done in relation to the challenge by way of judicial review to the legality of the birth link criteria and the decision to reject the application for payment by Mrs Elias: see R v. Lancashire CC ex p. Huddleston [1986] 2 All ER 941.
47.	In my judgment, it is important to remember that these are proceedings in the Administrative Court for review of the lawfulness of the eligibility criteria in the Compensation Scheme. Although the 1976 Act, as amended, is relied on to challenge the lawfulness of the criteria, the judicial review proceedings are not proceedings under the 1976 Act for a specific act or acts of race discrimination against Mrs Elias. In those circumstances the obligation to make disclosure of documents relevant to the lawfulness of the criteria and whether they are legally justified is not as wide as it would be in proceedings under the 1976 Act for specific acts of race discrimination against a particular individual. As signalled at the beginning of this judgment, this is not an ordinary case of race discrimination. Race discrimination is not the cause of action invoked by Mrs Elias in the Administrative Court. It provides the legal basis for her argument that an exercise of public power by the Secretary of State was contrary to law and should be quashed. If the power in question is re-exercised by the Secretary of State, it must not be contrary to law. In particular it must not be contrary to the 1976 Act.        
48.	Mrs Elias was, of course, entitled to ventilate in this court her detailed complaints of non-disclosure of documents, but in truth they do not assist in reaching a decision on the difficult points of law which arise in the appeals on comparatively few documents. I think that the complaints were a distraction from the substance of the case. They created the impression of a campaign in the court room, as well as one which has been conducted through the media and by letters to MEPs, the Prime Minister, the Prince of Wales and the Queen. The proper place for campaigning and exerting pressure to change decisions of government is outside the court. The court is solely concerned with the application of law to facts established by evidence. 
49.	The appeals are not concerned with any improper attempt to withhold relevant evidence. They about an alleged failure to pay proper regard to the application of race discrimination law in a public law exercise of common law power by the Executive. The alleged unlawfulness of executive action has arisen out of impatience, confusion and misunderstanding, not out of a cover-up of suspected wrongdoing.          
Race discrimination law
50.	Sweeping changes were made to the scope of application of the 1976 Act to public authorities by the Race Relations (Amendment) Act 2000 (the 2000 Act) with effect from 2 April 2001.
51.	Section 71 imposes a general statutory duty on every specified body or other  person that it
“(1) ….shall, in carrying out its functions, have due regard to the need-
(a)	to eliminate unlawful racial discrimination; …”
52.	As mentioned earlier, the Secretary of State has not appealed against the declaration made by the judge that the Secretary of State had not complied with his obligations under section 71(1) in the formulation and maintenance of the Compensation Scheme. 
53.	Section 71(2) of the 1976 Act enables orders to be made requiring specified bodies to take steps for the better performance of their duties under section 71(1). An order was made obliging the publication of a racial equality scheme by 31 May 2002. The Secretary of State published his first Race Equality Scheme in May 2002, which referred to seeking out and removing discrimination and the possibility of discrimination from the services provided by the Ministry of Defence, such as the provision of pensions. The Race Equality Scheme contained no reference to the Compensation Scheme. As the judge observed, it was wrongly assumed at the time that there was no race discrimination issue to be addressed.
54.	Section 19B of the 1976 Act provides that 
“(1) It is unlawful for a public authority in carrying out any functions of the authority to do any act which constitutes discrimination.”

55.	It has been common ground in this litigation that the Secretary of State and the Veterans Agency are subject to sections 71 and 19B. 
56.	It is also accepted by the Secretary of State, for the purposes of this litigation, that an ex gratia payment under the Compensation Scheme is a “form of social advantage” within the meaning of the amended provisions of the 1976 Act set out below, which derive from Article 3 of the EC Race Equality Directive referred to below. In the context of the prohibition of discrimination in EC law the concept of “social advantage” has not been interpreted restrictively (see State of the Netherlands v. Reed  17 April 1986, Case 59/85 at paragraph 25). It encompasses “not only benefits accorded by virtue of a right but also those granted on a discretionary basis.” See Law of the European Communities Service (General Editor David Vaughan QC) at paragraph 145.  
57.	While making the concession for the purposes of this case, Mr Sales drew our attention to cases on EC Regulation 1612/68 (for example, Baldinger C-386/02 at paragraph 17), in which it was held that an allowance to a former prisoner of war was not a “social advantage” within the meaning of the Regulation.  Although this expression does not necessarily have the same meaning in both contexts, it may be argued in a later case that “social advantage” is a term of art in EC law.
58.	I now turn to the specific provisions of the 1976 Act, as amended, which make acts of race discrimination unlawful.
59.	Section 1(1) of the 1976 Act defines race discrimination. There are two sub-subsections, (a) and (b). They define two different kinds of discrimination in the alternative (“or”): subsection (a) defines what is commonly described as direct discrimination; subsection (b) defines what is commonly described as indirect discrimination. Those expressions do not appear anywhere in the legislation, but are commonly used in discrimination law practice. The non-statutory descriptions “overt discrimination” and “covert” or “disguised discrimination” are also sometimes used.
60.	Until this case I had assumed, perhaps wrongly, that direct and indirect discrimination were strictly alternative statutory causes of action, as indicated by the use of a disjunctive “or” placed between the definitions in sub-subsections (a) and (b). The difference between the two forms of discrimination may be crucial, because the elements of the causes of action are different and the defence of justification of the difference in treatment between one racial group and another, irrespective of the race of the persons to whom the condition or requirement is applied, is only available under the 1976 Act in the case of indirect discrimination. Direct discrimination on racial grounds is never justifiable under the 1976 Act.
61.	The distinction between direct and indirect discrimination also affected remedies for discrimination. For example, it was provided by section 57(3) of the 1976 Act that, as respects an unlawful act of discrimination falling within section 1(1)(b), no award of damages shall be made if the respondent proves that the requirement or condition in question was not applied with the intention of treating the claimant unfavourably on racial grounds.     
62.	If it is the correct reading of section 1(1) to distinguish between the two kinds of discrimination as alternatives, it would follow that it would not be possible for the same act to be both an act of direct discrimination and an act of indirect discrimination. This reading is challenged by Mrs Elias, on whose behalf Mr Rabinder Singh QC submitted that the eligibility criteria are both directly and indirectly discriminatory by reason of the racially discriminatory purpose and effect of the birth link criteria.  In the alternative, the criteria are either direct or indirect discrimination on racial grounds.
63.	Section 1(1)(a) covers direct discrimination;
“(a) A person discriminates against another in any circumstances relevant for the purposes of any provision of this Act if-
(a)	on racial grounds he treats that other less favourably than he treats or would treat other persons; or ...”

64.	“Racial grounds” are defined in section 3(1) as meaning-
“any of the following grounds, namely colour, race, nationality or ethnic or national origins;”

65.	Indirect discrimination is covered by section 1(1) (b). It provides that a person discriminates against another in any circumstances relevant for the purposes of this Act if-
“(b) he applies to that other a requirement or condition which he applies or would apply equally to persons not of the same racial group as that other but-
(i) which is such that the proportion of persons of the same racial group as that other who can comply with it is considerably smaller than the proportion of persons not of that racial group who can comply with it; and
(ii) which he cannot show to be justifiable irrespective of the colour, race, nationality or ethnic or national origins of the person to whom it is applied; and
(iii) which is to the detriment of that other because he cannot comply with it.” 
66.	“Racial group” is defined in section 3(1) as meaning
“a group of persons defined by reference to colour, race, nationality or ethnic or national origins, and references to a person’s racial group refer to any racial group into which he falls.” 

67.	Section 3(4) states-
“A comparison of the case of a person of a particular racial group with that of a person not of that group under section 1(1) or (1A) must be such that the relevant circumstances in the one case are the same, or not materially different, in the other.”  
68.	As the reference to subsection (1A) in section 3(4) indicates, the provisions relating to indirect discrimination have been amended since 1976. The protection against indirect discrimination was extended by amendments made with effect from 19 July 2003 (SI 2003/1626) implementing the Council Directive 2000/43/EC (the Race Equality Directive). The Directive was made in order to extend the principle of equal treatment to persons irrespective of racial or ethnic origin. The preambles refer (in preamble (3)) to the “right to equality before the law and protection against discrimination for all persons” as constituting “a universal right” recognised by various international instruments including the 1969 International Convention on the Elimination of all forms of Racial Discrimination (CERD) and (in preamble (12)) to covering areas such as “social protection, including social security and healthcare”, and “social advantages.” 
69.	The concept of discrimination is defined in Article 2 of the Directive expressly in terms of direct or indirect discrimination based on racial or ethnic origin. As in the 1976 Act, the different forms of discrimination in the Directive are expressed in the alternative.  They are differently defined in Article 2.2 (a) and (b). In the case of direct discrimination the focus is on less favourable treatment of a person “on grounds of racial or ethnic origin.” In the case of indirect discrimination the focus is on “an apparently neutral provision, criterion or practice [which] would put persons of a racial or ethnic origin at a particular disadvantage compared with other persons, unless that provision, criterion or practice is objectively justified by a legitimate aim and the means of achieving that aim are appropriate and necessary.”
70.	In accordance with general principles of European Community law the duty of the UK courts is to construe, in so far as it is possible for them to do so, the domestic law implementing a directive so as to be compatible with the directive. 
71.	Article 14 of the Directive requires Member States to take necessary measures to ensure that any laws or administrative provisions contrary to the principle of equal treatment are abolished. Article 15 requires Member States to lay down rules on sanctions applicable to infringements of national provisions adopted pursuant to the Directive and for them to be “effective, proportionate and dissuasive.”    
72.	Mrs Elias relies on the new provisions on indirect discrimination inserted in the 1976 Act in order to comply with Article 2 of the Directive, as well as on the original provisions. They have applied since 19 July 2003 when they came into force. Where discrimination falls within the new provision, section 1(1)(b) does not apply: see section 1(1C). As in the case of indirect discrimination contrary to section 1(1)(b), the focus is not on difference in treatment “on racial grounds”, express or implied: it is on the evaluation of the disparate and adverse racial impact of the application of an apparently neutral and general provision, criterion or practice-  
“(1A) A person also discriminates against another if, in any circumstances relevant for the purposes of any provision referred to in subsection (1B), he applies to that other a provision, criterion or practice which he applies or would apply equally to persons not of the same race or ethnic or national origins as that other, but-
(a)	which puts or would put persons of the same race or ethnic or national origins as that other at a particular disadvantage when compared with other persons,
(b)	 which puts that other at that disadvantage, and
(c)	which he cannot show to be a proportionate means of achieving a legitimate aim.”

73.	According to subsection (1B)(c) the provisions mentioned in subsection (1A) include section 19B, so far as relating to
“(iii) any other form of social protection; and
   (iv) any form of social advantage
			which does not fall within section 20.”
   
74.	As I indicated earlier, it is common ground, for the purposes of this case, that payments under the Compensation Scheme are a “form of social advantage” that do not fall within section 20, which relates to the provision of goods, facilities or services, such as access, accommodation, financial services, education, leisure, transport and so on. The Secretary of State accepts that, for the purposes of this case, section 1(1A) applied to the case of Mrs Elias as from 19 July 2003. 
75.	I should add that it is clear from section 41 of the 1976 Act, which relates to acts done under statutory authority, that it is no longer possible for the Secretary of State to rely on section 41(1) as a defence in a case where the discrimination is on grounds of race or ethnic or national origins and it is unlawful by virtue of a provision referred to in section 1(1B): see section 41(1A). As already mentioned, section 1(1B) refers to section 19B. 
76.	I should also explain that, although proceedings alleging race discrimination under Part III of the 1976 Act must be brought in the County Court (section 53(1)) (and proceedings under Part II must be brought in the employment tribunal), the making of judicial review orders are not precluded in public law proceedings: section 53(2).
77.	Mrs Elias also relied on the CERD, which was ratified by the UK and came into force on 4 January 1969. It was submitted that the 1976 Act must be interpreted to produce an effect compatible with the CERD. Article 1(1) defines “racial discrimination” in the Convention in such a way as to emphasise the importance of the principle of equality and of the discriminatory purpose or effect of an action or measure in determining whether it is unlawful. The term means 
“ any distinction, exclusion, restriction or preference based on race, colour, descent, or national or ethnic origin which has the purpose or effect of nullifying or impairing the recognition, enjoyment or exercise, on an equal footing, of human rights and fundamental freedoms in the political, economic, social, cultural or any other field of public life.” 
78.	Reference was also made to Article 2 of CERD relating to the obligations of Member States to eliminate racial discrimination in all its forms and to the obligation in Article 6 to provide effective protection and remedies, including just and adequate reparation or satisfaction for any damage suffered as a result of such discrimination.
79.	Finally, Mrs Elias submitted that discrimination on the ground of race may be a form of degrading treatment prohibited by Article 3 of the European Convention of Human Rights (ECHR).  The ruling of the Commission in East African Asians v. UK (1973) 3 EHRR 76 was cited as showing that ambiguities in national legislation should be resolved so as to avoid breaches of obligations under international law, such as the ECHR. 
80.	The East Africans Case is, it was argued on behalf of Mrs Elias, relevant to both direct and indirect discrimination. The immigration rule challenged in that case was framed in similar terms to the birth link criteria, so as to exclude those UK passport holders who did not have at least one grandparent born in the UK and did not therefore have a substantial connection or close links with the UK. The European Commission of Human Rights found a breach of Article 3 of the ECHR in the racially discriminatory purpose of the rule which, in its normal operation, singled out for differential treatment, on the ground of race, a particular group of persons. The rule was more favourable to descendants of white settlers than to Asian persons. The close links did not have a legitimate aim, irrespective of discrimination, which would prevent the rule from being a breach of Article 3.
81.	Although a number of authorities on ECHR were cited, I should point out this case is not brought under the Human Rights Act 1998 and is not based on breach of Convention rights. Article 14 ECHR deals with discrimination in relation to the Convention rights. There is no Convention right not to be discriminated against on grounds such as race or national origins. This must be borne in mind when considering the authorities on ECHR points cited in support of the construction of the provisions of the 1976 Act, as amended, and of the EC Directive. It is, I think, fair to say that, as there is no general right not to be discriminated against on racial grounds guaranteed by the Convention, the Strasbourg jurisprudence on race discrimination in relation to Convention rights has not yet developed as fully as UK domestic law or EC law, either on the different forms that race discrimination may take or on the possible justifications for discrimination. 
82.	Throughout his submissions for Mrs Elias, Mr Rabinder Singh QC  emphasised the fundamental nature of the right to equality underlying the 1976 Act, EC law, the ECHR and in international law and the unlawfulness of a racially discriminatory purpose aimed at excluding those who are of alien descent, even though the discriminatory effects were not fully achieved in practice.            
Direct race discrimination 
83.	Direct race discrimination was at the forefront of the arguments of Mrs Elias in the judicial review appeal.
84.	The judge rejected the contention that the birth link criteria were directly discriminatory “on racial grounds.” On behalf of Mrs Elias, Mr Rabinder Singh QC submitted that she should succeed on both direct and indirect discrimination, or, failing that, on the ground of direct discrimination in preference to the ground of indirect discrimination upheld by the judge. As mentioned earlier, subject to the defence of justification, indirect discrimination has been conceded by the Secretary of State. As for direct discrimination, the thrust of the case for Mrs Elias is based principally on the racially discriminatory purpose of the birth link criteria and on their discriminatory effects. 
85.	The obvious importance of the case for direct discrimination is that, if it is made out, the defence of justification is not available to the Secretary of State.
86.	That Mrs Elias was treated less favourably than other comparable persons is undeniable. Her application for a payment under the Compensation Scheme was rejected. Applications by others for compensation were accepted. The critical question is whether her application was rejected “on racial grounds” within the meaning of section 1(1)(a) of the 1976 Act.
87.	The fact is that, although Mrs Elias was, by virtue of the British Nationality and Status of Aliens Act 1914, a British subject at the date of her internment in 1941, she did not have the birth link with the UK required by the eligibility criteria: she was not born in the UK, nor were either of her parents or any of her grandparents.  She did not qualify for a payment, because she did not satisfy the condition of payment linked to place of birth. 
88.	The judge accepted the submissions of the Secretary of State that Mrs Elias was not discriminated against directly, as the grounds on which compensation was refused were not “racial grounds.” The criteria specified place of birth as determinative: either her place of birth, or the place of birth of either of her parents and/or any of her grandparents. The birth link criteria did not require an applicant to have UK national origins, nor did the UK national origins of an applicant guarantee entitlement. 
89.	The judge recognised that a distinction has been established by the authorities on race discrimination between the “national origins” of a propositus and the place of birth of the propositus. In practical terms the use in the Compensation Scheme of criteria relating to the place of birth meant that applicants for compensation were eligible, even if they were not of UK national origin, it being sufficient that their mother happened to be in the UK when she gave birth. 
90.	Although these aspects give the criteria an arbitrary and adventitious quality, the Court of Appeal held in ABCIFER that they were not irrational. It does not, of course, follow that they complied with the 1976 Act. It is necessary to examine a different line of authority on the scope of discrimination on “the racial grounds” in the context of national origins and their relationship to place of birth.       
91.	Ealing LBC v. Race Relations Board [1972] AC 342, a decision on the Race Relations Act 1968, was cited by Mr Philip Sales for the Secretary of State. Ealing LBC refused to place the name of the applicant, who was a Polish national, on the housing waiting list, as he was not a British subject. This was less favourable treatment, but, according to the House of Lords, it was not treatment “on racial grounds.” “National origin”, a term left undefined in the legislation, meant national in the sense of, or analogous to, race, lineage or descent. It did not mean national in the legal sense of the citizenship (i.e. nationality), which may be acquired by an individual at birth by virtue of parental connection with the country in which birth takes place: see pages 358D-G, 363H-364E and 365D-366E. In distinguishing between national origins and nationality the House of Lords incidentally distinguished national origins from place of birth, which does not by itself determine “national origins.”  
92.	The law was amended in section 3(2) of the 1976 Act to include “nationality” in “racial grounds,” but that has not affected the construction placed by the courts on the expression “national origins.” This expression was repeated by Parliament in the 1976 Act, four years after the Ealing case with, it is reasonable to assume, knowledge of the meaning that the House of Lords had placed on it in the earlier legislation against race discrimination. In those circumstances it may be presumed that Parliament intended “national origins” to continue to have the same meaning in the 1976 Act: BBC Scotland v. Souster [2001] IRLR 150 (Court of Session-Inner House) per Lord Cameron of Lochbroom at paragraph 28, applying the principle in Barras v. Aberdeen Steam Trawling and Fishing Company Ltd [1933] AC 402 at 412, 442 and 445 that a word which has received a judicial interpretation must, when used in the same context in a later enactment, bear the same interpretation unless a contrary meaning is indicated.   
93.	In this case the birth link criteria related to where Mrs Elias or her ancestors happened to have been born. Mr Sales submitted that this was an adventitious fact that does not operate to determine or identify a person’s “national origins” for the purposes of the 1976 Act. 
94.	The reasoning in the Ealing case has been followed in later cases, which have   drawn a distinction in race discrimination law between different treatment on grounds of “national origins”, as construed in Ealing, and different treatment on grounds of place of birth.
95.	In Tejani v. Superintendent Registrar for the District of Peterborough [1986] IRLR 502 the dismissal of a claim for direct race discrimination was upheld by the Court of Appeal. The claimant was a British national born in Uganda. He wished to marry. The Registrar asked all people from abroad to produce their passports. Mr Tejani produced his as requested, but later made a claim under the 1976 Act for direct discrimination on the ground of national origins. The court held that the reason why the Registrar took that course had nothing to do with race: it was because the claimant was born abroad. He would have taken the same course with everyone coming to this country from abroad, irrespective of their race or national origins: see the judgment of Slade LJ at p506.  
96.	In Naraine v. Hoverspeed Ltd (12 November 1999) Mr Naraine, who was a black Asian Caribbean born in Guyana, complained that Hoverspeed had unlawfully discriminated against him on racial grounds contrary to the 1976 Act by declining to carry him to France. His full British passport had expired. He held a British Visitor’s passport, the holder of which the French authorities refused to admit to France if the document showed that the holder was born outside the UK. The French authorities also fined sea carriers who brought such passengers to France.
97.	The rejection of the claim for direct discrimination was upheld by the Court of Appeal. The reason for the refusal to carry him was that he lacked the travel documents required by the French authorities as a condition of entry and that the French authorities would fine Hoverspeed, if they did carry him. The refusal by Hoverspeed had nothing to do with the “national origins” of Mr Naraine. May LJ asserted an intrinsic distinction between national origins and place of birth in that a person’s place of birth may be entirely fortuitous. It was a distinction recognised in the Ealing case and in Tejani.  He pithily pointed out that being born a German and being born in Germany are two different things. See also AG’s Reference (N0 4 of 2004: R v. D [2005] EWCA Crim 889.
98.	Mr Sales accordingly submitted that a criterion that distinguishes between applicants on the basis of the place of birth is not discrimination on the grounds of “national origins.” This is so, even though statistically those who are born in the UK are more likely to have UK national origins than those who are not born in the UK . 
99.	He disputed the suggestion that the generous extension of the place of birth criterion in this case to ancestors born in the UK in order to make the birth link criteria more inclusive had the effect of making the criterion so closely related to national origins as to lead in practice to almost the same differentiation as the adoption of national origins would have done. Having UK national origins was neither a necessary nor a sufficient condition of eligibility under the Compensation Scheme.
100.	Mr Sales contended that the CERD, to which particular reference had been made in the case for Mrs Elias for its reference to “descent”, added nothing to her case. The domestic legislation on race discrimination complied with the CERD. As in the case of national origins, the birth link criteria neither excluded applicants of non-British descent nor guaranteed entitlement to applicants of British descent.  
101.	The point was discussed by reference to different ways of posing the question of the ground of the treatment of Mrs Elias in refusing her application for compensation. First, there was the “reason why” approach as in Shamoon v. Chief Constable of the Royal Ulster Constabulary [2003] UKHL 11, [2003] ICR 337: why had Mrs Elias received less favourable treatment by being denied compensation? Secondly, there was the “but for” approach, as in James v. Eastleigh Borough Council [1990] 2 AC 751: would Mrs Elias have received the same treatment but for her national origins?
102.	The answers to these questions, Mr Sales submitted, did not lead to the conclusion that Mrs Elias was discriminated against on the grounds of her “national origins.” She was denied compensation because she did not satisfy criteria as to her place of birth or that of her parents or grandparents. The criteria applied irrespective of her national origins. As the judge pointed out, even as someone with non-UK national origins, she might have qualified had a parent or grandparent been born in the UK, whether or not they were of UK national origins. Similarly a person with UK national origins would not inevitably qualify for a compensation payment.
103.	The different ways of putting the crucial question (why was Mrs Elias’s application for payment refused?) produced the same answer: she could not establish that her place of birth or that of her parents or grandparents was in the UK. For that reason she could not satisfy the birth link criteria. It had nothing to do with the racial or national origins of Mrs Elias. Irrespective of her national origins, she could not satisfy the criteria.
104.	The point made by Mr Rabinder Singh QC for Mrs Elias was that, in order to answer the relevant question, it is necessary to look beyond the literal criteria of the place of birth to the central discriminatory purpose of the birth link criteria and to their discriminatory effect in favouring, on racial grounds, one group as compared with another. Direct discrimination on racial grounds can, he argued, occur even where the criteria are not expressly framed to refer to race. The judge had erred in only looking at the outer edges of application of the birth link criteria. The fringe cases had diverted the attention of the judge from the central purpose of the birth link criteria and led him to disregard the descent-based grounds for refusing payment.
105.	Applying the “purpose” or “effect” approach spelt out in Article 1 of CERD Mr Singh submitted that the birth link criteria were deliberately selected for the purpose of identifying and requiring a real, strong and close link between those eligible for compensation and the UK. Descent, parentage and national origins provide the link and they constitute direct discrimination against Mrs Elias.
106.	In practice in the vast majority of cases place of birth and national origins come to the same thing. It does not require statistical evidence or any other kind of evidence to establish that, for the vast majority of people in the UK, their place of birth and their national origins are one and the same. Birth criteria focus on origins of a national character, which are immutable characteristics acquired or imposed at birth. Further, the national origins in the criteria in this case were reinforced by the fact that they relate not only to the birth place of the applicant but also to the birth place of the applicant’s parents or grandparents. The whole purpose of adopting such criteria was to identify those who could show a concept of “belonging to the UK” or “being British” in a more specific way than simply through being British subjects or civilians.  Although it is accepted that place of birth is not identical to national origins, it is so close to it that it should be treated as direct discrimination on that racial ground. The criteria were designed for the very purpose of excluding from payment those of non-national UK origins or alien descent and to make only de facto Europeans eligible for payments under the Compensation Scheme.  If her parents or grandparents had been born in the UK she would have qualified. She was treated less favourably because she was not of UK national origins. 
107.	Why, Mr Singh forcefully protested, should peripheral cases of UK nationals, who are born outside the UK, and non-UK nationals, who are born in the UK, on which the judge relied, be determinative of whether the grounds on which an applicant is refused compensation under the Compensation Scheme are racial or not? The real reason why Mrs Elias could not satisfy the birth link criteria was because she did not have UK national origins. The refusal of her application was less favourable treatment of her “on racial grounds.”  
108.	This is a very pertinent question aimed at throwing real doubt on whether, in cases of this kind, there is a valid distinction between national origins and place of birth and whether there is any meaningful distinction in substance between the concepts of direct and indirect discrimination. What really matters, it is suggested, is whether the difference in treatment can be justified independently of racial grounds. 
109.	Certainly, from the perspective of victims of discrimination, there is no difference in substance between direct and indirect discrimination, other than that the former is more open, explicit or obviously offensive racial treatment, which is less excusable than a neutrally worded requirement, condition, provision, criterion or practice applicable equally to persons not of the same race. Whatever the kind of discrimination, direct or indirect, the victim of the discrimination in this case has been subjected to a comparative disadvantage, to which those with UK birth links, who are predominantly of UK national origins, have not been subjected. The legal distinction drawn in the authorities on the interpretation of the 1976 Act between national origins and place of birth might well appear to the victims of race discrimination to be a hair splitting distinction, in which the substance of the matter is obscured by preoccupation with form.
110.	Mr Singh also submitted that overall the arguments advanced by the Secretary of State on the discrimination issue were contradictory and inconsistent. He said that the Secretary of State was impaled on Morton’s Fork  
111.	As to direct discrimination the Secretary of State sought to avoid the charge of a racially discriminatory purpose present in the birth link criteria by emphasising their random and adventitious aspects. Place of birth was where the mother of Mrs Elias happened to be when she gave birth. How could this be a racially discriminatory purpose?
112.	As to indirect discrimination, which is discussed in more detail below, the emphasis of the Secretary of State’s submissions on objective justification was not on the fortuitous aspects of the birth link criteria, but on the purpose of requiring close links with the UK at the date of internment. This was a discriminatory purpose, as it was linked to grounds of UK descent or national origins and could not be relied on as a justification of race discrimination.        
113.	The powerful submissions of Mr Rabinder Singh raised serious doubts in my mind about the correctness of the judge’s ruling on this point, which, as Mr Singh pointed out, focused more on the edges of the effects of the criteria than on their central purpose or effect. In a general sense, discrimination with a discriminatory purpose, regardless of the particular form it takes, can be perceived as treating a person less favourably “on racial grounds.” 
114.	I am, however, clear that, in the present state of the law, the particular form of discrimination matters, even if there are present in the circumstances of the case a discriminatory purpose and discriminatory effects. The 1976 Act, as amended, makes an important broad distinction between two different forms of discrimination. This distinction is consistent with the Directive and this court must observe it. 
115.	The discrimination complained of in this case does not take the direct form of treatment “on racial grounds.” The birth link criteria take an apparently neutral form, which applies or would apply equally to all applicants for payments under the Compensation Scheme. It is the application of the neutrally worded criteria which produces the disparate adverse impact and puts persons of the same national origins at a particular disadvantage when compared with other persons. These are the distinguishing features of discrimination in its indirect form.
116.	On this aspect of the case I would make the following particular points.
117.	First, the 1976 Act clearly creates two different causes of action for race discrimination. They are two different statutory torts. The conditions of liability, the available defences to liability and the available defences to remedies differ. So far as remedies are concerned damages for injury to feelings for indirect discrimination were not available in cases of unintentional indirect discrimination contrary to section 1(1)(b): see section 57(3). (This has ceased to matter much in practice since the introduction of section 1(1A) as the defence to damages in section 57(3) has been removed for discrimination contrary to that section: see section 1(1C)).   
118.	Secondly, it is well established on authority and in practice that the material facts for the separate causes of action need to be separately pleaded, proved and ruled on. Section 1 of the 1976 Act cannot be construed as collapsing two causes of action into a single cause of action, the ingredients of which are discriminatory purpose and/or discriminatory effects.
119.	Thirdly, the basic differentiation between the two causes of action is plain: it is between one form of discrimination, which focuses on treatment of another person on prohibited grounds and aims at achieving “formal equality” of treatment, and a different form of discrimination, which aims at achieving “substantive equality of results” where the application of apparently racially neutral criteria produces disproportionate adverse racial impact: see the trenchant observations in Secretary of State for Trade and Industry v. Rutherford [2006] UKHL 19 at paragraph 71 per Lady Hale. 
120.	Fourthly, the distinction between the two forms of discrimination is recognised in the Directive, as well as in the original and the amended provisions of section 1 of the 1976 Act. It is not just a peculiar feature of UK domestic law.
121.	Fifthly, the availability of the defence of objective justification for one form of discrimination but not for another emphasises the importance of observing the separate nature of direct and indirect forms of discrimination. If the distinction is not observed, the result would be that the defence of justification would become available for direct discrimination. That result would not reflect the provisions of section 1 of the 1976 Act or be compatible with the Directive.   
122.	Sixthly, there is a consistent line of authorities since the Ealing case which are binding on this court and are to the effect that less favourable treatment on the ground that you were not born in a particular country is different from less favourable treatment on the ground of “national origins” and that the former falls outside what is prohibited by the 1976 Act as direct discrimination. Although place of birth is not a racial ground, it may be prohibited as an indirect form discrimination, subject to the defence of justification which may be difficult to establish, because, as will be explained later, justification must address the substance and not just the form of the discrimination. 
123.	Accordingly the judge was right, indeed bound, to rule as he did on the issue of direct discrimination. So is this court. Although I have continuing reservations, in principle, about the defensibility of a legal distinction between national origins and place of birth when determining whether there is direct race discrimination, I think that this court is bound by authority to dismiss this ground of the appeal by Mrs Elias. 
Indirect race discrimination: justification 
124.	The Secretary of State conceded that the birth link criteria had an adverse impact on a greater proportion of applicants like Mrs Elias than on applicants who were born in the UK and had UK national origins. In other words the birth link criteria excluded a higher proportion of those with non-UK national origins than those with UK national origins. This is indirect race discrimination, which is unlawful, unless objectively justified.  
125.	The issue of objective justification, which has a number of different aspects, is the most difficult point in the whole case. The court heard very lengthy arguments on many points with extensive citation of authorities dealing in generalities, which, like so much in this field, are easier to state in the abstract than to apply in practice to the facts of particular cases. 
126.	A number of points fall to be considered: the relevance, if any, of the fact that, as reflected in the declaration under section 71 of the 1976 Act, the Secretary of State did not consider the question of justification at the relevant time because it was not accepted by him that there was any race discrimination; the question whether the justification relied on was “irrespective of race”; the level of scrutiny by the court appropriate to the defence of justification; whether there was a legitimate aim in the birth link criteria; whether there was a wide margin of appreciation or a discretionary area of judgment allowed to the Secretary of State in formulating the eligibility criteria; and whether the birth link criteria were a necessary and proportionate means of achieving a legitimate aim.      
127.	Although Mrs Elias was successful overall on the absence of objective justification, she contends that the judge should have decided the case in her favour on a broader basis than he did. He should have held that there was no legitimate aim in seeking to achieve close links to the UK by reference to descent and that such an aim could not be justified by cost considerations or administrative workability.
Failure to address potential race discrimination   
128.	This is an important point affecting the court’s overall view of the defence of justification. Mr Sales submitted that the Secretary of State was entitled to assert that the birth link criteria were justified, even though he had not addressed the issue of discrimination or possible justifications for it at the time of formulating the birth link criteria: Schonheit v. Stadt Frankfurt am Main [2004] IRLR 983 at paragraphs 86 and 87. Indirect discrimination may be justified, depending on the circumstances, by reasons other than those put forward when the measure introducing the differential treatment was adopted. What matters is that there are objective reasons for the criteria, which are unrelated to the forbidden grounds of, among other things, national origins and are such as to justify the measure concerned.
129.	While I do not doubt the correctness of the general proposition that in theory ex post facto justification of indirect race discrimination is legally permissible, it does depend on the circumstances. In R (Morris) v. Westminster City Council [2005] EWCA Civ 1184, [2006] 1 WLR 505 at paragraph 49 Sedley LJ referred to the difficulties of relying on the margin of appreciation in cases of attempts to justify discrimination, when it was not appreciated that the measure had a discriminatory impact and so no judgment at all was made as to whether the measure was proportionate or otherwise justified. 
130.	 There are several legal and practical difficulties in this case in advancing grounds of justification for a form of indirect discrimination that was not even considered when the birth link criteria were adopted and, when raised, was consistently denied down to the hearing of the case. 
131.	First, the onus is on the Secretary of State to justify the birth link criteria as a matter of law and of objective fact. The onus is not on Mrs Elias to establish that the birth link criteria are unjustified, because they do not have a legitimate aim or because the means of pursuing a legitimate aim are disproportionate or because the birth link criteria cannot be justified “irrespective of race.”  I would also add that the onus is not on the court, as part of the exercise of margin of appreciation or area of discretionary judgment allowed by the court to the State, to search around for a justification of the birth link criteria in order to help the Secretary of State out of a situation of his own making.
132.	Secondly, one important consequence of the failure of the Secretary of State to address the indirectly discriminatory effects of the birth link criteria is the absence of an evidential basis for justifying the birth link criteria or for assessing the comparative discriminatory effects of other possible criteria as a means of confining compensation to those with close links with the UK.  I agree that the requirement of close links with the UK would make it practically impossible to avoid some adverse disparate impact resulting from different neutrally worded criteria, such as requirements of residence or domicile. But, if the exercise of formulating the criteria had been properly carried out with due regard to the potentially discriminatory effects of requiring close links with the UK, there would probably have been brought into existence evidence in the form of data and reasons relevant to an informed choice of criteria, which might have had a lesser discriminatory impact than the birth link criteria. The kind of evidential material which ought to be available for deciding the issue of justification does not exist, because the selection of the eligibility criteria by the Secretary of State was carried out without due regard to the race discrimination issue.          
133.	Thirdly, this court must give effect to section 71 of the 1976 Act, which placed on the Secretary of State a statutory duty which he has failed to perform. I think that this adds to the difficulties of the Secretary of State in now attempting to justify the imposition of the birth link criteria. He has to justify an act of discrimination committed in the carrying out his functions when, in breach of an express duty, he failed even to have due regard to the elimination of that form of unlawful race discrimination. He has to justify something which he did not even consider required any justification. In these circumstances the court should consider with great care the ex post facto justifications advanced at the hearing. I shall return to this point later.      
 Legitimate aim
134.	The judge held that the aim of the birth link criteria was in principle  legitimate (paragraph 73).The Secretary of State was entitled to limit eligibility to compensation to a category narrower than everyone who was a British subject at the time of internment by requiring the applicant to have  close links with the UK.
135.	In formulating a legitimate aim the Secretary of State was entitled to take into account a number of factors: considerations of social and national solidarity; administrative workability; and the cost to the UK taxpayers of funding as part of the definition of the Compensation Scheme and the financial consequences of decisions. The court was referred to Hoogendijk v. The Netherlands (2005) 40 EHRR SE22 189 at 204-205, a case on Article 14 of the Convention in relation to an alleged violation of a violation of rights under Article 1 of Protocol No 1. The case concerned loss of entitlement to disablement benefits.  It was held that the control of public expenses by the State is a legitimate aim for the purposes of securing social justice and protecting the State’s economic well-being. In this respect, in implementing social and economic policies, the margin of appreciation enjoyed by the national authorities in determining what is in the general interest of the community is a broad one.  The court went on to consider the issue of proportionality and held that, given the wide margin of appreciation enjoyed by Contracting States in implementing social and economic policies, the decision complained of could not be considered disproportionate to the legitimate aims pursued and so there was no violation of Article 1 of Protocol No 1.   
136.	As to whether it was legitimate to require applicants for benefits to demonstrate a sufficient connection with the paying state, as they are national in character and express a debt of national gratitude, it was submitted on behalf of Mrs Elias that national solidarity cannot justify a measure which, by requiring a national connection, has disparate impact on persons of a particular race nationality or national origin.
137.	Mr Sales summarised four factors as justifying the aim of narrowing the class of British subjects by requiring close links with the UK. First, the immense size of the “British subject” group, many living in territories that are now independent and not financed by UK public funds. Secondly, the fact that military prisoners of war were the main focus of the compensation payments initially. As they were confined to UK Armed Forces, a similar equivalent connecting factor was sought for civilian claimants. Thirdly, the cost to the public purse. Fourthly, the need for understandable and administratively workable criteria.
138.	He also pointed out that there was no single obviously “right” solution. There was no rule of EC law against “national solidarity” in the distribution of benefits of this kind, such as social security benefits, which were an act of national recognition by particular states to those with genuine links with that state. Ex gratia payments of the kind made under the Compensation Scheme as expressions of national gratitude were an a fortiori case.  
139.	A rational attempt had been made to make the criteria more inclusive by extending place of birth from the applicant to parents and grandparents and to relate the requirement of close links with the UK to the position as at the date of internment. It had been held by his court in ABCIFER that this was not an irrational aim with which to start.
140.	 Mr Rabinder Singh criticised the judge’s finding of the legitimate aim of the birth link criteria on a number of grounds.
141.	First, as already mentioned, there was no national or social solidarity as a legitimate aim in this case, as the solidarity was judged by national origins/racial descent. He cited Cowan v. Tresor Public (Case 186/87) [1989] ECR 195 at paragraphs 16 and 17, a case on freedom of movement, in support of the proposition that the principle of national solidarity cannot justify a measure relating to the award of compensation which has discriminatory effects on grounds of nationality.
142.	Secondly, economic considerations could never be relied on to justify race discrimination. The curtailing of the cost of the scheme was not a legitimate aim. In this case it was, in any event, an ex post facto consideration and the estimated figures showed that only a comparatively small group was disadvantaged by the birth link criteria.
143.	Thirdly, administrative workability was not a legitimate aim. In this case it was relied on ex post facto. There had been no difficulty in making a large number of payments in February 2001 before the birth link criteria were settled.  
144.	I think that the question of legitimate aim has to be looked at in the round. In my judgment the judge was right to conclude that overall the aim of confining the payments to those with close links with the UK was a legitimate one. The real question is not about the end to be achieved but the means by which it was to be achieved and, in particular, whether the birth link criteria were a reasonably necessary and proportionate way of achieving the aim. I would make the following points.
145.	First, I agree with the judge that ends must be distinguished from means. The overall aim sought to be achieved was to require close links of the applicants for compensation with the UK. The birth link criteria were the means chosen to achieve that end. The critical issue is whether they are proportionate means to achieve the end. I shall deal with that point later. 
146.	Secondly, national or social solidarity can justify the aim of close links to the State supplying the benefits. I do not think that Cowan v. Tresor Public is  authority for such a wide legal proposition as that advanced on this point by Mr Rabinder Singh.  
147.	Thirdly, cost is not itself an aim or part of the aim. It is a factor in selecting the means and it falls to be considered as part of the proportionality exercise discussed below.
148.	Fourthly, the same comment applies to the administrative workability of the criteria selected as a means of achieving the aim of close links with the UK.   
Standard of scrutiny 
149.	In deciding the issue of proportionality there was significant disagreement on the preliminary point of the appropriate level of scrutiny of the birth link criteria.
150.	In the ABCIFER the Court of Appeal rejected the contention that the birth link criteria were irrational. That does not, of course, determine this case. As the issue of race discrimination was not raised the court did not have to consider the question whether indirect race discrimination was objectively justified. 
151.	The standard of justification in race discrimination is the more exacting EC test of proportionality. As held by the Court of Justice in Bilka Kaufhaus GmbH v. Weber von Harz [1986] ECR 1607 at paragraphs 36 and 37 the objective of the measure in question must correspond to a real need and the means used must be appropriate with a view to achieving the objective and be necessary to that end. So it is necessary to weigh the need against the seriousness of the detriment to the disadvantaged group. It is not sufficient that the Secretary of State could reasonably consider the means chosen as suitable for attaining the aim.    
152.	The judge was criticised by Mr Sales for applying “intense scrutiny” to the birth link criteria. The judge did so, as he regarded the criteria as too closely related to “national origins.”  
153.	Mr Sales submitted that there was a broad margin of appreciation or discretionary area of judgment allowed by the courts in areas of social and economic policy, as, for example, in the distribution of social security benefits.
154.	A wide margin of appreciation or discretion was a recurrent theme of the submissions of Mr Sales on the different aspects of justification and it was the main plank for his criticisms of the judge’s ruling on proportionality. He submitted that the judge failed to accord to the Secretary of State in relation to the Compensation Scheme an appropriate margin of appreciation in using “bright line” criteria which were easy to understand and administratively workable.
155.	He relied on Hoogendjik v. The Netherlands (see above) at 205 and 207-208 as showing that a wide margin of appreciation should be accorded to national authorities in a case in which what is impugned is a social policy decision on the basis of discrimination on “a suspect ground.” This approach in earlier decisions was, he argued, re-inforced by the very recent decision of the Strasbourg Court  in Stec v. UK ( 12 April 2006- Application Nos 65731/01 and 65900/01). It is a case on a state welfare benefits scheme in which the criteria, which were linked to the different pensions ages for men (65) and women (60) directly discriminated on the ground of sex. It was held that the discrimination was justified.  The Court said-
“50. The applicants complain of a difference in treatment on the basis of sex, which falls within the non-exhaustive list of prohibited grounds of discrimination in Article 14.
51. Article 14 does not prohibit a Member State from treating groups differently in order to correct “factual inequalities” between them; indeed in certain circumstances a failure to attempt to correct inequality through different treatment may in itself give rise to a breach of the article …….. A difference in treatment is, however, discriminatory if it has no objective and reasonable justification; in other words, if it does not pursue a legitimate aim or if there is not a reasonable relationship of proportionality between the means employed and the aim sought to be realised. The Contracting State enjoys a margin of appreciation in assessing whether and to what extent differences in otherwise similar situations justify a different treatment. …
52. The scope of this margin will vary according to the circumstances , the subject matter and the background ( see Petrovic v. Austria …) As a general rule, very weighty reasons would have to be put forward before the Court could regard a difference in treatment based exclusively on the ground of sex as compatible with the Convention. …On the other hand, a wide margin is usually allowed to the State under the Convention when it comes to general measures of economic or social strategy. ….Because of their direct knowledge of their society and its needs, the national authorities are in principle better placed than the international judge to appreciate what is in the public interest on social or economic grounds, and the Court will generally respect the legislature’s policy choice unless it is “manifestly without reasonable foundation.”       
156.	Mr Sales submitted that it was sufficient to show that the Secretary of State could reasonably consider that the means chosen were “suitable for attaining the aim”. The judge has misdirected himself by relying on cases of direct discrimination when he had already correctly concluded that this was not a case of direct discrimination.  
157.	It was argued that a wide margin of appreciation was appropriate in this case, as it had been recognised that special considerations applied to one-off war payments. There was a one-off moral objective, which had major economic consequences, principally because of the potential impact of the removal of the birth link criteria on the military eligibility criteria if they were extended to include all military personnel who were British subjects when they became prisoners of war. 
158.	In my judgment, the judge correctly adopted a rigorous standard in scrutinising the reasons advanced by the Secretary of State in justifying the birth link criteria.      
159.	The submissions made by Mr Sales do not meet the point that, although the race discrimination is indirect in form, objective justification must address the particular substance of the discrimination, which flows from the neutrally worded condition or requirement.  
160.	Although the birth link criteria are not direct discrimination in the form of treatment on “racial grounds”, as they relate expressly to place of birth, they  are in substance very closely related to treatment on “racial grounds.” This is because it is self evident that the overwhelming proportion of applicants born in the UK, or whose parents or grandparents were born in the UK, have UK national origins as compared with the overwhelming proportion of applicants not born in the UK who do not have UK national origins.   
161.	Even though UK national origins are not formally specified in the birth link criteria, Mrs Elias’ exclusion from the Compensation Scheme is in substance very closely related to her non-UK national origins. It is that exclusion that has to be objectively justified. A stringent standard of scrutiny of the claimed justification is appropriate because the discrimination, though indirect in form, is so closely related in substance to the direct form of discrimination on grounds of national origins, which can never be justified.     
162.	If this is the correct approach, as I think it is, it is difficult for the Secretary of State to rely on a wide margin of appreciation or a broad discretionary judgment. I agree with the judge that the speech of Lord Fraser in Orphanos v. Queen Mary College [1985] AC 761 supports the stringent standard of scrutiny in seeking to justify indirect discrimination, which is closely related to “racial grounds”. 
163.	I agree with Mr Rabinder Singh’s  point that, at the heart of the Secretary of State’s case, there is a serious contradiction. It does not, in my view, as Mr Singh asserts, make the discrimination direct, but it does make the substance of the indirect discrimination very difficult to justify. The contradiction is that, on the one hand, in order to avoid liability for unjustifiable direct discrimination, the Secretary of State focuses on the happenstance of “place of birth” as where the mother of the propositus just happens to be at the moment of birth, which has no necessary close link with the national origins of the mother or child. On the other hand, when it comes to justification of admitted indirect discrimination, the Secretary of State is at pains to emphasise the legitimate aim of close requiring links of applicants with the UK, which, in substance, involve their national origins and are difficult to justify as proportionate means which are appropriate and necessary to that end.       
Proportionality 
164.	The judge correctly considered that the proportionality issue was at the heart of the case on justification.  
165.	A three stage test is applicable to determine whether the birth link criteria are proportionate to the aim to be achieved: see de Freitas v. Permament Secretary of Ministry of Agriculture, Fisheries and Housing [1999] AC 69 at 80 and R (Daly) v. Secretary of State for the Home Department [2001] UKHL 26, [2001] 2 AC 532 at paragraph 27 and 28. First, is the objective sufficiently important to justify limiting a fundamental right? Secondly, is the measure rationally connected to the objective? Thirdly, are the means chosen no more than is necessary to accomplish the objective?   
166.	The first issue has been covered by the earlier discussion on the legitimacy of an aim requiring the applicant to have close links with the UK. The issue of justification turns on the second and third aspects of the proportionality of  measure (the birth link criteria) which is the chosen means of accomplishing the aim. 
167.	The judge thought that the birth link criteria were not necessary and proportionate to achieve the legitimate aim of requiring close links with the UK at the date of internment.
168.	He was particularly influenced by two factors: first, the fact that the birth link was “very closely linked to national origins” (paragraph 89) and, secondly, by the consideration that the birth link criteria were by no means the only way in which the Secretary of State could have achieved the legitimate objective of restricting the category of British subjects, such as a period of residence in the UK before internment or criteria based on domicile. There would still be disparate impact, but it would be further removed from the forbidden racial ground of national origins.    
169.	This made it necessary to make a stringent assessment of the justification advanced. 
170.	This was disputed by Mr Sales. He contended that the judge erred in focussing on the criteria themselves instead of on the particular justification for them. The justification advanced by the Secretary of State was independent of and irrespective of national origins. 
171.	States, he said, have a wide margin of appreciation in determining whether policies in the field of social or economic policies are proportionate to a legitimate aim. The means were proportionate if the state could reasonably consider that the means chosen were suitable for attaining that aim. There was a discretionary area of judgment, even where the Secretary of State had failed to consider the issue of justification.              
172.	The judge had also failed to consider and compare other means by which the legitimate aim could have been achieved. If this was done, the birth link criteria satisfied the proportionality test. The Compensation Scheme had to identify those who qualified for payment. The criteria for close connection were appropriate. Other states had chosen criteria. It was an inevitable feature of the very nature of the scheme that the criteria are satisfied by a greater number of persons whose origins are those of the relevant country. The means chosen were rationally connected to the aim and could be reasonably considered to be suitable to attain the end. The alternatives of residence or domicile were no more obviously generous to those of non-UK national origins.
173.	In my judgment, the judge was right to find that the means used were not proportionate to the aim. In reaching a decision on proportionality it is important to focus on the particular circumstances of this case rather than on the different circumstances of other cases. I would make the following particular points about this case. 
174.	First, the concepts of margin of appreciation and discretionary judgment developed by the Strasbourg Court in relation to Convention rights have to be cautiously applied to this case, which is not dealing with a Convention right or with Article 14 of the ECHR. 
175.	Under domestic law implementing the Directive, the Secretary of State was under an express statutory duty not to discriminate on racial grounds. There is an unappealed ruling that he acted in breach of that duty. It is more difficult for the Secretary of State to justify the proportionality of his choice of the birth link criteria as a matter of discretionary judgment when he did not even consider whether or not he was indirectly discriminating on racial grounds. This is particularly so when the indirect discrimination which it is sought to justify is in substance very close to direct discrimination on racial grounds, which can never be justified under the 1976 Act. It must be more difficult to give a wide margin of appreciation to discrimination in these circumstances. 
176.	Secondly, it is relevant to take account of the fact that, as the Compensation Scheme was not properly thought out in the first place, the issue of discrimination was not properly addressed at the relevant time and that poor standards of administration were evident. Consequently there was no proper attempt to achieve a proportionate solution by examining a range of criteria as a means of determining close links with the UK and by balancing the need for criteria to achieve the legitimate aim of close links with the UK with the seriousness of the detriment suffered by individuals who were discriminated against.  
177.	Thirdly, the birth link criteria produce anomalous or even absurd results, because there is no real match between the end and the means.  An applicant who did not have a close connection with the UK would qualify simply because his or her mother was on holiday here at the date of birth. 
178.	Fourthly, as there was no proper consideration of whether there were other less discriminatory means of restricting payments to those with a close link to the UK, there is no evidential basis for finding that the birth link criteria were the only criteria that were reasonably necessary and proportionate to achieve the legitimate aim.
179.	I would add three comments on points which I consider to be irrelevant to proportionality. The first is the “numbers” point. The argument that the birth link criteria adopted are justified because they are more inclusive than other possible birth link criteria that could have been adopted, as they include the place of birth of a parent or grandparent, is irrelevant to proportionality. The argument that more people are receiving favourable treatment does not justify treating others less favourably if they are excluded on what are, in substance, racial grounds.
180.	The second point is that when the Secretary of State reviewed the Compensation Scheme and decided to amend the criteria so that Mrs Elias became eligible for compensation by virtue of more than 20 years residence in the UK, he was able to devise criteria for close links with the UK which were not based on the place of birth or the national origins of the applicant, or were even related to links with the UK as at the date of internment of the applicant. The amended criteria have not, so far as I am aware, attracted any challenge on the ground of race discrimination.    
181.	The third point is the ex gratia nature of the Compensation Scheme. This is irrelevant to proportionality. I should make it clear that Mr Sales did not submit that it was relevant that the Secretary of State was under no obligation to set up the scheme in the first place. As explained earlier the central point in race discrimination and its justification is the reason for the less favourable treatment or the disparate adverse impact of a requirement, condition, provision and so on. The fact that the compensation supplied by the State is ex gratia does not justify  race discrimination.                   
Fettering common law power : general 
182.	In addition, or alternatively, to race discrimination Mr Rabinder Singh contended that the Secretary of State had unlawfully fettered his common law discretionary power to make ex gratia payments. He argued that the Secretary of State erred by rigidly applying the criteria to her case and in declining to consider any exceptional circumstances, in which payment might be paid to those owed “a debt of honour” even though they fell outside the scope of the criteria. Rigid application of self-created, absolute criteria of closeness of connection with UK was not justified. The fact that Mrs Elias did have close links with the UK made it inappropriate to adopt too strict an approach to the way the Compensation Scheme framed. It was an unlawful fettering of power to refuse to make or even consider making exceptions in individual cases according to the circumstances, such as, in her case, her extreme suffering in, and as a result of, internment and her strong links with the UK over many years.
183.	Mr Rabinder Singh referred to documents revealing that, while it was considered that there might be cases that “throw up special circumstances which might merit discretion being exercised in favour of payment,” the Veterans Agency treated itself as wholly unable to disapply the criteria and to exercise discretion to make payments if someone did not meet an element of the entitlement conditions.
184.	He referred to a letter sent to Mrs Elias by the Veterans Agency on 15 April 2004 saying that “we cannot make exceptions to the ruling for individual claims” and that they were bound by the conditions of eligibility laid down by the government, which they could not change. On 28 July 2004 the Agency again refused the application by Mrs Elias following the submission by her of evidence about the highly exceptional features of her internment. No consideration was given to the exercise of a discretion to make an exception to the eligibility criteria because of the particular circumstances of her case.    
185.	He relied on the analogy of a statutory public law discretion. In the case of a statutory discretion the decision maker must not fetter his discretion by “shutting his ears” or closing his mind and refusing to listen to reasonable arguments, or by adopting rules, which disable him from exercising his discretion in individual cases. The decision in British Oxygen v. Board of Trade [1971] AC 610 at 625D is a well known example. The same principle applies to common law prerogative discretionary powers of the Crown after Council of Civil Service Unions v. Minister for the Civil Service [1985] AC 374 in order to ensure that they are exercised lawfully.  The common law powers are always available and when the Crown, acting through government, formulates a scheme for their exercise it must remain willing and able to make exceptions to the scheme in appropriate cases.
186.	The case of R v. Secretary of State for the Home Department ex parte Bentley [1994] QB 349 (a case on the prerogative of mercy) was cited for the proposition that a prerogative discretionary power is capable of being exercised in many wide ranging circumstances and that it should not be fettered by an established policy, to which exceptions cannot be made.
187.	A declaration was originally sought that the Secretary of State erred by declining to consider any exceptional circumstances in which payment of ex gratia compensation might be made to those owed a “debt of honour” in the light of their imprisonment by the Japanese, but who fell outside the scope of the scheme by reason of the birth link criteria. 
188.	There was placed before the court on the last day of the hearing a proposed alternative form of declaration to the effect that the Secretary of State had acted unlawfully “in not being prepared to reconsider the decision to refuse Mrs Elias payments under the Compensation Scheme and/or had breached his duty to keep the criteria under review from time to time.”
189.	Mr Sales opposed the amendment. In my judgment the court should not allow the amendment. There was obviously a power to amend the Scheme. Mr Sales accepted that there was a duty to keep the Scheme under review in the light of developments. The Secretary of State had now done that. In certain circumstances there might be a duty to reconsider the criteria in the light of experience. There was, however, no such duty here. The criteria had been laid  down with full knowledge of the facts and a decision was made as to who should be excluded form the Scheme. In ABCIFER this court had decided that this was a rational and lawful decision. There was no duty to reconsider the criteria on the grounds suggested by Mrs Elias, namely her close connection with the UK after the Second World War and the exceptional degree of suffering undergone by her during internment. In other words the amended declaration is no different from her main case on fettering discretion, namely that it is unlawful to refuse to consider her as an exceptional case.         
190.	 Although I am prepared to accept, for the purposes of this argument, that there are exceptional circumstances in the case of Mrs Elias, I would not make any of these declarations either on authority or on principle. 
191.	I agree with Elias J that the authorities do not assist the case advanced by Mrs Elias on this point. The analogy with statutory discretion, as in British Oxygen, is a false one. It is lawful to formulate a policy for the exercise of a discretionary power conferred by statute, but the person who falls within the statute cannot be completely debarred, as he continues to have a statutory right to be considered by the person entrusted with the discretion. No such consideration arises in the case of an ordinary common law power, as it is within the power of the decision maker to decide on the extent to which the power is to be exercised in, for example, in setting up a scheme. He can decide on broad and clear criteria and either that there are no exceptions to the criteria in the scheme or, if there are exceptions in the scheme, what they should be. If there are no exceptions the decision maker is under no duty to make payments outside the parameters of the scheme. The consequence of the submission made on behalf of Mrs Elias would create problems by requiring every individual case falling outside the scheme to be examined in its individual detail in order to see whether it should be regarded as an exceptional case.      
192.	Bentley was decided on the basis that the Secretary of State had fettered his discretion under a misunderstanding as to the scope of the powers available to him. This is not a case of fettering discretion under a misunderstanding of the scope of a discretion exercisable according to individual circumstances. Like R. v. Criminal Injuries Compensation Board ex p Lain [1967] 2 QB 864, Re W’s Application [1998] NI 19 and the ABCIFER case itself, this is a case of a policy decision to exercise a common law power. The intervention of statute was not required. With regard to the Compensation Scheme it was necessary to formulate what Mr Sales called “bright line” criteria for determining who is entitled to receive payments from public funds. Subject to the race discrimination point the criteria implement the policy of the Compensation Scheme. They are not a fetter on an existing common law discretionary power to decide each application according to the circumstances of each individual case. In my judgment, there was nothing unlawful (subject again, of course, to the race discrimination point) in using common law powers to define a scheme to be governed by rules, to make specific provision for general criteria of eligibility and for exceptions and in then refusing to apply different criteria or, by way of exception, to consider or grant applications from those not falling within the published criteria.
193.	 The Secretary of State has not unlawfully fettered an existing relevant ordinary common law power (or prerogative power) nor has he acted arbitrarily nor under a mistake as to the nature and scope of his powers by rejecting or refusing to consider or re-consider Mrs Elias’ application as exceptional on the basis of the circumstances of her internment or of the appalling consequences of it for her or of her very strong close links with the UK.
194.	The position of the Secretary of State with regard to the claims of Mrs Elias to be treated as an exceptional case has been within his common law powers and  consistent with the objects of the scheme. Of course, he has power to amend the Compensation Scheme that he has propounded by modifying the criteria or by adding exceptions to the general criteria the light of practical experience of its operation. In certain circumstances he might even come under a duty to consider the criteria afresh, if for example he found that relevant considerations had not been taken into account in formulating the criteria. Until the scheme is amended to bring Mrs Elias within in it, the Secretary of State is acting lawfully in insisting that payments are only made under the scheme to those who satisfy the eligibility criteria.      
195.	I would dismiss the appeal by Mrs Elias on this ground. 
Form of relief in judicial review 
196.	Mr Rabinder Singh submitted that the judge’s decision on relief for indirect race discrimination was flawed. Having decided that the birth link criteria were discriminatory and unlawful, he should have ordered the Secretary of State to reconsider the decision against Mrs Elias, which was reached by applying unlawful discriminatory criteria, to re-determine it, leaving out the unlawful criteria, and then to award Mrs Elias £10,000 with interest.
197.	He argued that such an order was required by the duty of the Secretary of State to comply with the provisions of Council Directive 2000/43/EC. Article 14 required courts to ensure that administrative provisions contrary to the principle of equal treatment are abolished. Member States are required by Article 15 to put into place “effective, proportionate and dissuasive” sanctions to infringement of the principle of equal treatment.
198.	To find otherwise would lead to disproportionate discrimination against Mrs Elias, as compared with other British civilian internees who had received payments under the Compensation Scheme.  As regards discrimination in the past, she should be put in the same position as the persons who were not disadvantaged by the discrimination.
199.	In my judgement the judge was right on this point. The correct form of relief in the Administrative Court was a declaration. The birth link criteria were racially discriminatory and could not be lawfully applied to the determination of her application. It was not, however, for the court to determine Mrs Elias’ application by deciding whether new criteria should replace the existing criteria and, if so, in what form. They were matters for the Secretary of State. Her remedy against him was not an order to re-consider her case, but to re-consider the criteria in the Compensation Scheme which would be applied to applications like hers in place of the unlawful criteria. 
200.	The court had not decided that it was unlawful to have criteria nor could it have done so. It has only decided that the birth link criteria were unlawful. Following the judgments in the ABCIFER case it was lawful to have criteria that were narrower   the “British subjects” or “British civilians.”  It was also possible to formulate criteria which would both lawful and could exclude Mrs Elias from the benefits of the Compensation Scheme. The role of the court was limited to determining the lawfulness of the scheme and did not extend  to formulating or administering it or to deciding individual applications. The judge was clearly right in not acceding to the application to order the Secretary of State to pay £10,000 plus interest to Mrs Elias.
201.	If the Secretary of State complied with his obligation not to discriminate and formulated fresh lawful criteria, no damages were necessary to put Mrs Elias in the position she would have been in had there been initial compliance with the provisions of the 1976 Act as amended. She had lost nothing, not even the chance of being considered under lawful criteria. This was not a case in which it was legally impossible to formulate a scheme which would exclude applicants in the same situation as Mrs Elias.
202.	  Hockenjos v. Secretary of State for Social Security [2004] EWCA Civ 1749; [2005] IRLR 471 was cited by Mr Singh. It was a case of rules in subordinate legislation, which discriminated against men on the ground of their sex. That case was successfully challenged on the basis of directly effective EC rights in the Social Security Directive. Objective justification was not established. It is distinguishable as a case in which there was only one solution to the unlawful discrimination found by the court which ordered the amount of the applicant’s entitlement (to child additions for income-based job seekers allowance) to be calculated by the Social Security Commissioner, if it could not be agreed. Here there was available to the Secretary of State a range of alternative solutions, which could be used lawfully to exclude Mrs Elias from benefits under the Compensation Scheme. What Mrs Elias would get was dependent on the decision of the Secretary of State as to the contents of the scheme, not on the decision of the court.                  
203.	I would dismiss the appeal of Mrs Elias on this ground. 
Damages for discrimination: general
204.	Under section 57 of the 1976 Act damages may be claimed against a person who has committed against the claimant an unlawful act of discrimination contrary to Part III of the 1976 Act. The judge transferred the claim for damages to the Central London County Court, as proceedings for damages may only be brought in a designated county court.
205.	Claims for damages for discrimination are treated in like manner as any other claim in tort. The relevant question is what would be the position of Mrs Elias if the statutory tort of indirect discrimination had not been committed against her?
206.	Damages in respect of an unlawful act of discrimination may include compensation for injury to feelings, whether or not they include compensation under any other head: section 57(4). 
207.	Damages for indirect discrimination contrary to section 1(1)(b) of the 1976 Act may not be awarded, if the respondent proves that the requirement or condition in question was not applied with the intention of treating the claimant unfavourably on racial grounds: section 57(3). The Secretary of State did not rely on this provision to resist Mrs Elias’ claim for damages. In any event whether there was an intention to treat Mrs Elias unfavourably on racial grounds was not an issue in the county court in view of the amendments made to the 1976 Act in sections 1(1A) and 1(1C) .    
208.	HHJ Harris, sitting with two assessors, heard and decided the claim for damages on the basis of the finding of indirect discrimination, the absence of objective justification and the breach of the section 71 duty made in the judicial review proceedings and of the refusal of the judicial review judge to order the Secretary of State to grant Mrs Elias application for payment of £10,000.  
209.	The evidence of Mrs Elias in two witness statements (31 January 2006 and 14 February 2006) on the matter of compensation was not challenged, even though Mrs Elias was made available for cross examination. She gave evidence as to her outrage and disgust at the persistent refusal to enquire into her cogent criticisms of race discrimination, which were rejected as having “no foundation.” She complained of the failure to take her complaints seriously or to conduct any proper investigation into her complaints.
210.	It was submitted that her clear evidence was that she was angry and distressed at the racially discriminatory reasons, which were based on the absence of birth links with the UK (“being British is not good enough”), for the refusal of her application, not simply at the fact of refusal. She was upset at being treated as “a second class type of British” whose suffering and rights did not matter. She was also upset by the assertion made in court that civilian internees had not suffered as much as prisoners of war.
211.	Her correspondence with and phone calls to the Veterans’ Agency officials were evidence of her anger and sense of outrage. She was frustrated that nothing was being done. She regarded the letters sent to her as “dismissive and patronising.”  She felt that she was faced with indifference and that she was powerless. All this made the race discrimination worse, particularly when it took so long for the Department to face up to the fact that the Compensation Scheme was racially discriminatory. This fact was not conceded by the Secretary of State until his skeleton argument dated 6 June 2005 in the judicial review proceedings.    
212.	There was also a witness statement from Mr John Halford dated 31 January 2006.
213.	Oral evidence was given by Mr Jonathan Iremonger on behalf of the Secretary of State. Since August 2005 he had been the Director of the Veterans’ Policy Unit and was responsible for the policy of the Compensation Scheme. His witness statement updated the position and dealt with the results of a review of the basis on which the early payments (i.e. pre-March 2001) were made under the Scheme. Some payments were made to applicants who would not have met the birth link criteria.
214.	Mr Iremonger was cross examined by Miss Mountfield on behalf of Mrs Elias. Mr Iremonger had made a witness statement on 22 February 2006. The court has been supplied with a transcript of the oral evidence given by him on 23 February 2006. 
215.	In his cross examination Mr Iremonger explained that, in part, the Compensation Scheme took up the pre-existing arrangement for the Japanese Asset Scheme in the 1950s. Those who had been in on that scheme would be picked up under the Compensation Scheme as well. The overall effect of the birth link criteria, expanded to include applicants whose parents or grandparents were born in the UK, was to allow larger numbers of civilian internees to qualify than would have qualified under the 1950s scheme.
216.	HHJ Harris also had the benefit of evidence that had emerged since the hearing of the judicial review application. He was criticised by Mr Rabinder Singh for failing to assimilate and deal with it and for making findings which were unsupportable on the basis of the new evidence and contradicted the findings in the judicial review proceedings. There was evidence as to the circumstances in which the birth link criteria were introduced; as to the response of the Secretary of State to the report of the Parliamentary Commissioner; and as to the fact that, contrary to evidence given by officials in ABCIFER, in this case and to the Parliamentary Commissioner, hundreds of applications before March 2001 had been decided on the basis of the Compensation Scheme, as announced, and not on the basis of the birth link criteria which were applied to Mrs Elias’ application. He had not taken account of the fact that misleading evidence had been given by the Department in the ABCIFER proceedings and in the judicial review proceedings in this case. 
217.	HHJ Harris had taken a “benign view” of the indirect discrimination as akin to other kinds of administrative mistakes which turned out to be unlawful and in  regarding the birth link criteria as “not obviously unlawful.” He had not taken account of the breach of section 71 of the 1976 Act.    
Financial compensation issue
218.	HHJ Harris dealt first with the claim by Mrs Elias to recover, as damages for race discrimination, the lump sum which she contended would have been paid to her under the Compensation Scheme, but for the persistent indirectly discriminatory effect of the birth link criteria excluding her from the operation of the Compensation Scheme. He said that that depended on “whether it is probable that she would have received the sum if the government had not imposed that part of the criterion for entitlement” that had been ruled unlawful (paragraph 2 of his judgment). HHJ Harris took the view that this question had to a large extent been answered in the Administrative Court, although he appreciated that the question before him (i.e the assessment of damages for indirect race discrimination) was not precisely the same.
219.	In the judicial review proceedings she had been refused payment of £10,000 on the basis that a new set of lawful eligibility criteria might now be put in place. New lawful criteria might lead to the same outcome, for example one based on the requirement of UK residence immediately before the outbreak of war, under which Mrs Elias would not qualify for a payment. 
220.	HHJ Harris looked back to what the outcome would have been when she was refused payment. The evidence showed that the Secretary of State would have introduced a scheme, which did not include all persons who were British subjects at the date of internment. It was probable that, if the unlawful element had not been included in the Compensation Scheme, some other scheme would have been put in place which would  have lawfully excluded Mrs Elias and so she would not have received the £10,000 payment in any case (paragraph 4 of his judgment).
221.	Mr Rabinder Singh contended that this approach to causation of financial loss was erroneous. He criticised the judgment as “surprisingly short.” As the victim of the statutory tort of indirect race discrimination, Mrs Elias ought to have been compensated by being placed in the financial position which she would have been in, but for the unlawful discrimination against her: Ministry of Defence v. Cannock [1995] ICR 918 at 935-936. The proper approach was that she ought to have been paid the £10,000 ex gratia payment, which she would have been paid under the Compensation Scheme but for the introduction and application of the birth link criteria. She would then be in the same position as those applicants who were treated more favourably than her on discriminatory grounds.
222.	It was submitted by Mr Rabinder Singh that it was wrong to speculate about what other schemes the Secretary of State might have introduced, had he appreciated that the birth link criteria were discriminatory. At the very least Mrs Elias had a substantial chance of receiving the sum of £10,000. 
223.	The finding of HHJ Harris that Mrs Elias would not have received payment if a different scheme had been introduced was not a rational conclusion in the light of the evidence given by Mr Touhig MP to the PASC and by Mr Iremonger to the court and in the light of the findings of the Parliamentary Commissioner. If the birth link criteria had not been introduced, the Secretary of State would have had to make the payment under the Compensation Scheme in order to treat Mrs Elias in the same way as the many others who had been paid before the introduction of the birth link criteria.        
224.	In my judgment, the judge’s ruling on the claim for the sum of £10,000 was legally correct for the following reasons.  
225.	First, the claim for financial loss in the county court proceedings was an attempt to re-litigate the decision that had already been made on the point in the Administrative Court, namely that she was not entitled to an order for payment of £10,000. Her remedy was a declaration as to the unlawfulness of the discriminatory birth link criteria. They could not be lawfully applied to exclude her from the Compensation Scheme. But there had to be criteria to determine who was entitled to payments under the Compensation Scheme and it was not the function of the Administrative Court in the judicial review proceedings or of the County Court in the proceedings under the 1976 Act to devise and substitute new lawful criteria in the Compensation Scheme which would entitle Mrs Elias to a £10,000 payment.
226.	Secondly, although Mrs Elias was entitled to damages for unlawful race discrimination, she was not entitled to damages for the refusal of the Secretary of State to consider her as an exceptional case falling outside the terms of the Compensation Scheme. That was not an act of discrimination and, as explained above, it was not an unlawful fettering of discretion by the Secretary of State.   
227.	Thirdly, Mrs Elias’ claim to be paid the sum of £10,000 wrongly assumes that, but for the introduction of the birth link criteria, there would have been no criteria, other than being a British subject at the time of internment, or that she would have received that payment under an alternative compensation scheme, which was lawful and not tainted by race discrimination. It was and always had been possible for the Secretary of State to set up a scheme which was both lawful and excluded Mrs Elias from it. For example, the earlier scheme in the 1950s was based on ordinary residence in the UK at the time of internment, which would have excluded Mrs Elias and, despite its disparate impact, may have been objectively justifiable.       
228.	Because of the recent revision of the Compensation Scheme, Mrs Elias is now entitled to £10,000 under the scheme and for that reason would not be entitled to compensation for race discrimination under the head of financial loss. If she had any claim for financial loss, which I do not think she has, it would be limited to interest on the sum payable under the original scheme. 
229.	I would dismiss the appeal by Mrs Elias against the refusal of HHJ Harris to award her damages under the 1976 Act for financial loss.    
Injury to feelings 
230.	HHJ Harris awarded £3,000 (plus £900 interest) to Mrs Elias for injury to her feelings. There was no dispute that the claim should succeed: all that had to be determined was the amount of compensation, which HHJ Harris considered fell at the higher end of the lowest band of less serious cases (£500 to £5,000) in the suggested three broad band scale of compensation for injury to feelings set for guidance by this court in Vento.
231.	He explained his conclusion by the following reasons (see paragraph 6 of his judgment): first, the hurt that Mrs Elias felt would have been experienced by her anyway, as she would not in any event have received payment under the Compensation Scheme for the reason given above; secondly, she was upset by the rejection of her claim as a slight on her Britishness, rather than by the reasons for rejection, the upset being caused by the failure of the government to make clear at the outset that not all British subjects would be eligible under the Scheme; thirdly, the rejection had nothing to do with her Britishness, but with where “the line for entitlement is drawn”, a line which had to be drawn somewhere by politicians and not by judges; fourthly, the birth link criteria were introduced in good faith in a genuine endeavour to increase the pool of those eligible to make a claim and it was not obvious that it was unlawful; fifthly, the discrimination against Mrs Elias and others  was “entirely unintentional”; and sixthly, the rejection of the claim was made courteously pursuant to the policy adopted and in subsequent correspondence with the Department’s officials  she was treated with consideration.
232.	Mr Rabinder Singh contended that the approach of HHJ Harris to the assessment of damages for injury to feelings was fundamentally misconceived. In the case of race discrimination it was expressly provided that damages could be awarded for injury to feelings caused by discrimination contrary to section 1(1A), whether the hurt was intended or not: section 1(1C) of the 1976 Act. HHJ Harris erred in treating intention as relevant. He was also influenced by a false analogy with cases in which no such damages were awarded for the distress caused by a mistaken assessment of a person’s entitlement to benefits under a scheme.     
233.	HHJ Harris wrongly held that Mrs Elias would probably not have received payment in any event and that, even if there had been no birth link criteria, she  would still have experienced hurt feelings. As the purpose of damages is to compensate the victim for injury to feelings which are suffered as a result of unlawful race discrimination, it is wrong to discount them by reference to an injury to feelings which might have been suffered in hypothetical circumstances in which no discrimination had occurred.   
234.	Further, HHJ Harris had misapplied the Vento guidelines by ignoring the uncontradicted evidence of Mrs Elias that the hurt and anger suffered by her were caused by the application of the definition of “British” to exclude her from the Compensation Scheme; by failing to act in accordance with the policy of the Directive and the 1976 Act and by wrongly starting from the position that damages are not available for administrative and policy errors in statutory schemes.  He wrongly concluded that the injury to feelings was caused by maladministration, not by race discrimination.
235.	It was also submitted that his low assessment of damages was based on a false perception that the birth link criteria were introduced in good faith and that their discriminatory effect was not obvious. The true position was that Mrs Elias had been told that there was no race discrimination by officials who had realised that race was “a deciding factor.”   
236.	Instead of awarding an amount at the lower end HHJ Harris ought to have awarded a sum at the top end of the Vento scale (£15,000 to £25,000), taking into account the grave life-long psychological consequences of her internment for being a British subject and the offensiveness of being told that she was not “British enough” to be entitled to come within the Compensation Scheme.     
237.	The criticisms of the quantification of compensation for injury to feelings are numerous. I agree with some of the criticisms, but it does not follow that this court should interfere with the decision or remit the matter to the County Court for a re-hearing.
238.	This court will only interfere with the trial judge’s assessment of damages for injury to feelings in very limited circumstances. The award must be so much out of line as to amount to an error of law, because the trial judge has misdirected himself in principle or reached a decision which was for some other reason, such as an erroneous evaluation of the facts, plainly wrong. This court is not entitled to interfere simply on the ground that it would have awarded a higher amount, if it had been trying the case. As Sedley LJ said in Scott v. IRC [2004] EWCA Civ 400; [2004] ICR 1410 at paragraph 33 in relation to an appeal from an employment tribunal-
“ … this court [the Court of Appeal] is less well placed than either of the tribunals below to say precisely where it stands on the scale of such injuries.”
239.	In my judgment, although some of the reasoning is open to criticism, there are insufficient grounds for interfering with the amount of compensation by HHJ Harris. It was a fair, reasonable and just amount in the particular circumstances of the case. 
240.	If I had been the trial judge I would have been inclined to award a larger sum in the region of £5,000, but that is not a reason for interfering with the award by HHJ Harris.
241.	Unlike HHJ Harris I would not have placed much reliance on what the position of Mrs Elias would have been, if the Compensation Scheme did not contain the discriminatory birth link criteria and Mrs Elias had not suffered race discrimination. HHJ Harris found that there would have been other criteria, which would probably excluded her from payment anyway without discriminating against her on the ground of race. In such case, he said, she would have suffered injury to feelings by the rejection of her application for payment of compensation on the basis that she was interned because she was a British civilian. The hurt feelings were more the result of maladministration than of racial discrimination.  
242.	In my judgment, what would have happened if the birth link criteria had not been introduced and the fact that the Parliamentary Commissioner has found  maladministration is of little or no relevance to the assessment of compensation for injury to feelings. What matters is the injury to feelings which Mrs Elias undoubtedly suffered as a result of the indirect racial discrimination which did in fact occur and how that should be quantified.
243.	This is an area in which reasons and reasoning can be overdone. I referred in Vento to the difficulties of expressing hurt feelings in hard currency. It is more a broad brush exercise of estimation than of calculation, comparison with precedents or cold logic. Even allowing for some disagreements with the  reasoning of HHJ Harris I am unable to conclude that the figure of £3,000 is so out of line that it should be set aside by this court.
244.	I would accordingly dismiss Mrs Elias’ appeal against the quantum of damages for injury to feelings.       
 Aggravated and exemplary damages issue 
245.	HHJ Harris refused to award aggravated or exemplary damages, having taken into account the features of the case discussed above see paragraphs 6 and 7 of his judgment and paragraph 211 above) and applying the principles laid down in a case of direct race discrimination, Alexander v. The Home Office [1988] ICR 685 at 692F (aggravated damages may be awarded as compensation for race discrimination where the defendant has behaved in “a high handed, malicious, insulting, or oppressive manner in committing the act of discrimination”) and Kuddus v. Chief Constable of Leicestershire Constabulary [2001]UKHL 29; [2002] 2 AC 122 at 129-130 and 134-135, a case of alleged misfeasance in a public office by the police. The principles laid down in Rookes v. Barnard [1964] AC 1129, 1225-1226 and followed in later cases were applied (exemplary damages, which are punitive in nature, may be awarded, in addition to aggravated damages, in an appropriate case on the ground of “oppressive, arbitrary or unconstitutional action” by servants of the government in order to punish an “outrageous use of executive power.”)
246.	HHJ Harris rightly recognised that aggravated and exemplary damages are distinct from each other and that neither should be aggregated with and treated as part of the damages awarded for injury to feelings: Scott v. ICR [2004] ICR 1410 at paragraph 34-35.
247.	HHJ Harris held that the rejection of the application for payment might be hurtful to Mrs Elias and it was, as it turned out, an unlawful implementation of a policy aimed at defining who was “British” and so eligible for payments. In the view of the Parliamentary Commissioner, it was affected by maladministration, but that by itself would not be sufficient to justify the award of aggravated or exemplary damages.
248.	Further, the conduct was not of the same order as “a humiliating campaign involving repeated acts which were deliberately inflicted.” The conduct was not, in the view of the judge, arbitrary or unconstitutional and it was not alleged to be oppressive. 
249.	Mr Rabinder Singh criticised the judgment of HHJ Harris as thin, inadequately reasoned and erroneous in its approach to the circumstances in which aggravated damages are appropriate and to what constitutes arbitrary behaviour and unconstitutional conduct in determining a claim for exemplary damages. He said that the judge did not grapple with the strength of Mrs Elias’ arguments or explain his reasons for rejecting them.
250.	As for aggravated damages, there was high- handed and thoughtless behaviour in the setting up and operation of the Compensation Scheme, in the conduct of the litigation and in the response to the findings of discrimination and maladministration. Allegations of discrimination correctly made and later admitted were “unequivocally rejected.” 
251.	As for exemplary damages it was submitted that HHJ Harris failed to analyse the different disjunctive grounds on which exemplary damages could be awarded. He did not analyse the meaning of “arbitrary” conduct and so did not ask the right questions about the conduct of the Ministry of Defence. The claim for arbitrariness was made out by the inconsistencies in treatment of applicants, the maladministration and the lack of care taken in the whole conduct of the Compensation Scheme.  
252.	It was submitted that HHJ Harris did not properly address the issue of “unconstitutional” conduct, in particular the systematic and persistent application of discriminatory criteria by high officials of State. The Crown’s actions in promulgating, continuing, failing to investigate and denying the indirectly discriminatory effects of the birth link criteria was unconstitutional, bearing in mind the fundamental duty in international law, EC law, ECHR law and in domestic law not to discriminate on racial grounds. The court, a constitutional guardian of fundamental human rights, should condemn such conduct and dissuade the Crown from acting unconstitutionally by an award of exemplary damages.         
253.	The gravity of Mrs Elias’ complaint was the long running failure to consider the validity of her concerns about race discrimination and the breach of section 71. This conduct aggravated the hurt suffered by her, even if it was not in itself discriminatory. Maladministration was itself an aggravating feature, which justified an increase in the amount of compensatory damages. 
254.	In my judgment, HHJ Harris was entitled to conclude that this was not a case for the award of aggravated or exemplary damages. I fully understand the strength of feeling on the part of Mrs Elias, her family and those close to her. As indicated earlier in this judgment I am critical of and very concerned by the way in which this whole affair has been handled. Nevertheless I think that it is  an exaggeration to describe the conduct of the public officials towards Mrs Elias as aggravated by high handed, malicious or insulting behaviour.  Nor are the epithets “oppressive, arbitrary or unconstitutional” justified in describing their behaviour in dealing with her application for payment.   This fell short of a case in which the court should mark its disapproval by imposing “a monetary sanction” as a condemnatory measure. The treatment of Mrs Elias was not of the same order, for instance, as a sustained and humiliating campaign involving repeated acts which were deliberately inflicted, as has been the case in some employment situations. 
255.	The conduct of the Secretary of State and his officials was not so heinous as to aggravate the hurt that Mrs Elias felt. There was no targeting of Mrs Elias. The Compensation Scheme was the result of a policy decision, which had been devised to be of general application. It was not a case of personal animus towards Mrs Elias or of setting out to treat her less favourably for racial reasons. 
256.	That the scheme was not obviously discriminatory was apparent from the fact that the discrimination point had not been spotted by anyone in the ABCIFER case itself.
257.	 According to Mr Rabinder Singh the extension of the place of birth criteria to include parents and grandparents made the criteria more discriminatory on grounds of national origins, but it is relevant to the claim for aggravated and exemplary damages that, in so acting, the Secretary of State was trying to enlarge the class of applicants. There was no bad faith on the part of the Secretary of State. Indeed, good faith had been accepted by those representing Mrs Elias when the Secretary of State agreed not to oppose an amendment of the pleadings in the county court to claim aggravated and exemplary damages.
258.	HHJ Harris was also entitled to take into account the fact that reasons were given for the rejection of her claim and that communications were courteous, though not correct in every respect. Her claim was treated with consideration, even though, contrary to the assertions of the officials, the decision turned out to be racially discriminatory.         
259.	  I would not interfere with the rulings of HHJ Harris on the issues of aggravated and exemplary damages and would accordingly dismiss Mrs Elias’ appeal against them.
Conclusions 
260.	In summary these are the outcomes of the points taken on these appeals:
(1)	The eligibility criteria did not directly discriminate against Mrs Elias on racial grounds.
(2)	The eligibility criteria indirectly discriminated against Mrs Elias on racial grounds.
(3)	The eligibility criteria had a legitimate aim.
(4)	The eligibility criteria were not proportionate to the aim to be achieved.
(5)	The eligibility criteria were not objectively justified and were therefore unlawful. 
(6)	It was lawful for the Secretary of State to refuse to make an exception to the eligibility criteria for the case of Mrs Elias and there was no unlawful fettering of his common law powers in refusing to depart from the eligibility criteria and to recognise her claim as an exceptional case.   
(7)	The quashing of the eligibility criteria on the ground of indirect discrimination did not entitle Mrs Elias to payment of any compensation under the Compensation Scheme or to damages for race discrimination. The public law duty of the Secretary of State was to apply lawful criteria to the application for compensation. It was possible to replace the unlawful criteria with lawful criteria which would exclude Mrs Elias from the Compensation Scheme without contravening the 1976 Act or any other statutory provision or legal principle.
(8)	   The County Court claim for financial loss for race discrimination was rightly dismissed. There was no evidence that Mrs Elias had suffered financial loss. The unlawfulness of the eligibility criteria entitled her to have them quashed, so that they could not be applied to her claim, but the resulting absence of criteria did not entitle her to compensation. As they could be replaced by lawful eligibility criteria excluding her from the Compensation Scheme she had not suffered and would not suffer any financial loss.
(9)	As for damages for injury to feelings, there was no error of legal principle in the award of £3,000 nor was it plainly wrong, even though I would have been inclined to award a larger sum.
(10)	There was no error of legal principle in the refusal of HHJ Harris to award aggravated damages or exemplary damages nor was he plainly wrong in holding that the legal requirements for making such awards had not been satisfied on the facts of this case.     
Result
261.	I would dismiss the appeals of both sides against both judgments. 
Lady Justice Arden:
262.	I agree with the judgment of Mummery LJ and the order he proposes, for the reasons that he has given, and would like to express my appreciation to him for setting out the facts and issues so fully.  I agree with the reasons that he has given, but desire to add a number of supplementary points.  
Significance of this case
263.	The facts of this case are most unusual and concern a historical situation which occurred some sixty years ago.  But it should not be assumed that as a result the decision of this court is outside the mainstream of discrimination cases.  In my judgment, the issues that this case raises are of wide importance because of the nature of the issues at stake behind the detailed legal issues that have been raised.  One of the great social challenges of the day is to ensure equality for all persons in accordance with the law.   This challenge is comparatively new because it is only relatively recently that the law has expressly provided for the elimination of discrimination on the grounds of race, gender and certain other grounds. 
264.	This case is about discrimination on the grounds of national origins by reason of a requirement of place of birth within the United Kingdom as a condition of entitlement for compensation.  Place of birth does not necessarily define national origin, though it will generally do so and thus leads to the conceded adverse impact in this case on British subjects with non-United Kingdom national origins. 
265.	For generations people have been on the move.  This is demonstrated by Mrs Elias’ own history.  She was born in Iraq. Her family lived in Hong Kong and after the Second World War she moved to the United Kingdom.  There have been large movements of peoples of this kind, both within and outside the former British Empire.  For example (and it is only one example) communities of people from Armenia exist all over world, including in cities in the Far East such as Rangoon, Singapore and Kolkata, all previously cities within the British Empire.  These are places where persons might have acquired the status of British subject and had children who acquired the same status though born outside the United Kingdom.  
266.	These movements of peoples have continued. The percentage of UK residents who were born overseas was very probably smaller in or prior to 1941 than at the present time.  According to official statistics, 8.3% of United Kingdom residents in 2001 (the last date for which such statistics are available) were born in other countries as compared with 4.2% in 1951 (Source:  Office for National Statistics).  Persons with non-United Kingdom national origins have brought great benefits to the United Kingdom.
267.	What are the implications for society?  These movements of people also bring challenges for society to ensure that all citizens are treated by the government and by the law in the same way despite any differences, for example, in national origins, race or gender.  These are among the challenges which now face the justice system and the executive.  In their capacity as the guardians of the rule of law, judges have a special responsibility to ensure that the government respects the rights of individuals conferred by the law.  
268.	As Baroness  Hale explained in Ghaidan v Godin-Mendoza [2004] 2 AC 557, anti-discrimination legislation, such as the Race Relations Act 1976, has a constitutional dimension and (among other things) it brings social and economic benefits. As Lady Hale put it:  
“[131] When this country legislated to ban both race and sex discrimination, there were some who thought such matters trivial, but of course they were not trivial to the people concerned.  Still less trivial are the rights and freedoms set out in the European Convention for the Protection of Human Rights and Fundamental Freedoms 1950 (as set out in Sch 1 to the Human Rights Act 1998).  The state’s duty under art 14, to secure that those rights and freedoms are enjoyed without discrimination based on such suspect grounds, is fundamental to the scheme of the convention as a whole.  It would be a poor human rights instrument indeed if it obliged the state to respect the homes or private lives of one group of people but not the homes or private lives of another.
[132] Such a guarantee of equal treatment is also essential to democracy.  Democracy is founded on the principle that each individual has equal value.  Treating some as automatically having less value than others not only causes pain and distress to that person but also violates his or her dignity as a human being.  The essence of the convention, as has often been said, is respect for human dignity and human freedom: see Pretty v UK (2002) 12 BHRC 149 at 184 (para 65).  Second, such treatment is damaging to society as a whole.  Wrongly to assume that some people have talent and others do not is a huge waste of human resources.  It also damages social cohesion, creating not only an underclass, but an underclass with a rational grievance.  Third, it is the reverse of the rational behaviour we now expect of government and the state.  Power must not be exercised arbitrarily.  If distinctions are to be drawn, particularly upon a group basis, it is an important discipline to look for a rational basis for those distinctions.  Finally, it is a purpose of all human rights instruments to secure the protection of the essential rights of members of minority groups, even when they are unpopular with the majority.  Democracy values everyone equally even if the majority does not.”
269.	Anti-discrimination legislation has implications for the administration of justice.  When adjudicating, in accordance with the law, on cases involving alleged discrimination, judges have a role to play in the process of transforming society from one in which inappropriate distinctions have in some cases been drawn between individuals based purely on their race, gender or other grounds to a society in which, through the integration of laws prohibiting discrimination in specified ways, each individual is valued and treated equally.  
270.	The adverse effects of unlawful discrimination are manifold.  Discrimination can have a severe negative psychological effect on the individual involved, as well as a loss of dignity and self-esteem, and induce a sense of alienation.  This sense of alienation can lead to a mistrust of institutions, such as the police or the justice system.  This mistrust is detrimental to social cohesion. The co-operation of minority groups is particularly important in the fight against crime and terrorism (see for example per Lord Hope in R (Gillan) v Commissioner of Police for the Metropolis  [2006] 2 WLR 537 at [57]).    
271.	Unlawful discrimination has economic consequences too.  Discrimination in educational and other opportunities can lead to a reduction in the pool of available candidates for further education and employment.  This hinders social and economic progress since it means that society loses the benefits of the talents of these individuals and the different perspectives that they can bring to the solution of the problems facing business or society.  Society benefits when each individual realises his or her potential and thus this process should not be impeded by unlawful discrimination.  
272.	In dealing with the detailed issues in this case, the above issues are some of the issues to which, as I see it, this court must be alive.
Section 71 of the Race Relations Act 1976
273.	The courts are particularly involved in the process of adjudicating upon the remedies provided by the law, not least by statute law for unlawful discrimination.  But legal proceedings are not the only way of policing anti-discrimination legislation.  Monitoring and self-assessment by public bodies in their decision making can also further the aims of such legislation, and this is the role of section 71 of the 1976 Act, which Mummery LJ has set out in material part in paragraph 51 of his judgment.  The judge set out the requirements for the content of a race equality scheme in para 92 of his judgment, and these show that the body making the scheme must therefore set out its arrangements for assessing and consulting on the likely impact of its proposed policies on the promotion of race equality.  The judge went on to make a declaration that in the present case the Secretary of State had not complied with his obligations under section 71(1) of the Race Relations Act 1976 in formulating and maintaining the scheme.  There is no appeal against that part of his order.   
274.	It is the clear purpose of section 71 to require public bodies to whom that provision applies to give advance consideration to issues of race discrimination before making any policy decision that may be affected by them.  This is a salutary requirement, and this provision must be seen as an integral and important part of the mechanisms for ensuring the fulfilment of the aims of anti-discrimination legislation.  It is not possible to take the view that the Secretary of State’s non-compliance with that provision was not a very important matter.  In the context of the wider objectives of anti-discrimination legislation, section 71 has a significant role to play.  I express the hope that those in government will note this point for the future.
275.	Crucial issues arise on this appeal about justification, particularly as to the intensity of scrutiny to be applied by the court when the defendant asserts that a measure is necessary to achieving a legitimate aim.  I turn to those questions below.  Justification would not have been an issue if this had been a case of direct discrimination, and accordingly I propose to examine direct and indirect discrimination before dealing with the issue of justification.  
Direct and indirect discrimination
276.	I agree with Mummery LJ at least in general that  there is no overlap between direct and indirect discrimination.  I would accept that, if a different approach had been taken to the meaning of direct discrimination, there might well have been an overlap.
277.	Like Mummery LJ, I reject the argument that a condition based on place of birth constitutes direct discrimination on the grounds of national origin.   I have found of particular assistance the distinction drawn by Baroness Hale in the Rutherford case between formal and substantive equality.  It is helpful to see indirect discrimination as a tool developed by the law to deal with cases where, on the face of it, individuals are being treated alike but some groups have greater difficulty than others meeting with the conditions.  Professor Bob Hepple, drawing on work of Professor Sandra Fredman, to whom Baroness Hale also refers, helpfully developed the differences between the two forms of discrimination in a lecture to the International Institute for Labour Studies in 2000:  
“[The] limitations of the principle of formal or procedural equality have led to attempts to develop the concept of substantive or material equality. Here we can identify three different, but overlapping, approaches. The first is equality of results. Apparently consistent treatment infringes the goal of substantive equality if the results are unequal. Inequality of results itself can be understood in three senses. The first focuses on the impact of apparently equal treatment on the individual. The second is concerned with the results on a group (e.g. women, ethnic groups, people with disabilities etc.), and the third demands an outcome which is equal, for example equal remuneration for women doing work of equal value with that of men, or equal representation of women and men in the same grade. 
The concept of indirect or adverse impact discrimination is that an apparently neutral practice or criterion has an unjustifiable adverse impact upon the group to which an individual belongs. The best-known examples are recruitment, promotion or selection criteria for lay-offs with which it is significantly more difficult for members of a disadvantaged group to comply. It is thus results-oriented in the first sense, in that the treatment must be detrimental to an individual, but it also involves equality of results in the second sense. However, the concept of indirect discrimination is not redistributive in the third sense. If there is no exclusionary practice or criterion or if no significant disparate impact can be shown, or if there is an objective business or administrative justification for the practice, then there is no violation.” 
278.	 I am satisfied that in the present case the discrimination was indirect rather than direct for the reasons that Mummery LJ gives.  
Legitimate aim
279.	The question whether there was a legitimate aim for the accepted indirect discrimination against internees with non-UK national origins is a question of law.  I agree with Mummery LJ that in this case the legitimate aim is the policy decision to limit the compensation under the scheme to those who had close links with the United Kingdom.  The evolution of this policy is described by Dyson LJ in paras 18 to 30 of his judgment in the ABCIFER case.  The requirement for close links with the United Kingdom was subsequently refined to close links with the United Kingdom at the time of internment but this was an explication of the fundamental policy not a replacement for it.  
280.	I further agree with Mummery LJ that the requirement for close links with the United Kingdom was a legitimate aim for the reasons that he has given.  However, there seems to me to be an additional factor.  Tom McKane, a senior civil servant, summarised the case for the Secretary of State for imposing conditions restricting the British subjects who could make a claim for compensation in these words:  
“…The government faces many competing claims on public funds from many different quarters, and has to strike a balance or compromise between those competing interests”(witness statement dated 5 June 2002 made in the ABCIFER litigation)
281.	In this instance, that balance was struck by imposing a requirement of close links with the United Kingdom.  In my judgment, the decision to strike that balance in that particular way is of itself the expression of an important economic and social policy.  Since this was a compensation scheme which involved the distribution of public funds, the Secretary of State was in my judgment entitled to decide to proceed on the basis that there needed to be some shared sense of community of interest between the UK and those who are to benefit.  This was particularly the case because the scheme was established without any primary or secondary legislation.  It is of course true that the United Kingdom had ceased to have an empire, and that there were many internees who were British subjects but who by the date of the scheme were no longer the responsibility of the UK government (or taxpayer).  However those reasons were the reasons for having to have the policy just described, but the reason why that policy was a legitimate aim in constitutional terms or indeed in terms of social or economic terms was that given by Mr McKane in the passage that I have quoted.   
282.	I thus agree with paras 62 to 73 of the judge’s judgment.  I would add that my conclusion is supported by the decision of the Court of Justice of the European Communities in cases such as R (Bidar) v Ealing LBC [2005] QB 812 and Collins v Secretary of State for Work and Pensions [2005] QB 145 at [67] to [69].  Thus in the Bidar case, the Court of Justice observed that:
“[56]…although the member states must, in the organisation and application of their social assistance systems, show a certain degree of financial solidarity with nationals of other member states (see Grzelczyk v Centre public d’aide socialeOttignies-Louvain-la-Neuve (Case C-184/99) [2002] ICR 566, 599, para 44), it is permissible for a member state to ensure that the grant of assistance to cover the maintenance costs of students from other member states does not become an unreasonable burden which could have consequences for the overall level of assistance which may be granted by that state.
[57]  In the case of assistance covering the maintenance costs of students, it is thus legitimate for a member state to grant such assistance only to students who have demonstrated a certain degree of integration into the society of that state.”
283.	I further consider that the legitimate aim this identified is independent of the national origins of the internees, as required by section 1 and (by implication) section 1A of the 1976 Act (see generally per Baroness Hale in R (European Roma Rights) v Prague Immigration Officer [2005] 2 AC 1, at [83] ).
Justification
284.	This issue has been carefully considered by Mummery LJ, and I agree with what he has held.  I would add the following points. 
285.	The Secretary of State has suggested several reasons for choosing to define close links with the United Kingdom in terms of the birth link criterion.  They include the need to impose a condition that could be complied with not simply by the adults who were interned in Stanley Camp but also by the internees who were then children (as to the question whether a child can have a domicile or place of ordinary residence, see generally Gillick v West Norfolk and Wisbech AHA [1986] AC 112). It has been said that if a condition were inserted based solely on residence or domicile at the time of internment or on the place of birth of the claimant alone, the internee who was a child and who had been born and lived exclusively abroad would be unlikely to be able to claim.  Furthermore, the thrust of Mr Sales’ argument is that there is nothing to show that a condition based on residence would have produced any lesser adverse effect on internees.  Of necessity, a condition for close links would have an adverse effect on people with non-United Kingdom national origins.
286.	In my consideration of this case, I have exercised considerable caution before reaching the conclusion that justification is not shown.  The present scheme was intended to be a generous one and there is always the danger that if Mrs Elias succeeds a new condition will be formulated that cannot be met by some claimants who could have met the birth link criterion. They are not responsible for the fact that the government choose to introduce a condition that was unlawful.  It may perhaps seem to them surprising that the scheme uses the birth link criteria since immediately prior to the Japanese taking over Hong Kong the policy of the British colonial administration had been to evacuate persons “of European origin”, and given also that this kind of condition had been involved in the East African Asians case before the European Commission of Human Rights.   But those points are not the determinative ones in this case. 
287.	I accept that, once it is found that there is a legitimate aim, justification is in many cases likely to be established by the defendant if the claimant does not suggest a way of achieving the legitimate aim with lesser adverse impact.  However, in this case, other ways have been suggested, such as substituted or additional conditions for residence or domicile. Residence was a condition of the Japanese assets scheme.  In these circumstances the Secretary of State has to rebut the suggestion that these conditions would have had less adverse impact.  
288.	In the present case, however, there is no evidential basis for rebutting the suggestion that there were other ways of achieving the legitimate aim which would have involved a lesser impact on internees with non-United Kingdom national origins.  There is no suggestion that evidence of this kind could not have been obtained nor is there any proper explanation as to why it could not be obtained.  At that level, this case differs from the authorities in the European Court of Human Rights that we have been shown, namely Hoogendijk v Netherlands (2005) EHRR SE22 and Stec v United Kingdom (Application no 6573/01, 12 April 2006), to which Mummery LJ has referred.  As the Court of Justice held in R v Secretary of State for Employment ex parte Seymour-Smith  [1999] 2 AC 554:
“[76]  Mere generalisations … are not enough to provide evidence on the basis of which it could be reasonably considered that the means chosen were suitable for achieving that aim.”
289.	Thus the Secretary of State’s case must fail unless Mr Sales is right in his submission that in a case such as this the minister enjoys a wide margin of discretion.
290.	This argument, however, is tantamount to saying that, in cases of justification of socio-economic policy, the court has only the limited role of seeing that the Secretary of State does not act irrationally.
291.	In my judgment this argument is wrong in principle.  I can see that a “margin of appreciation” may exist where a question is purely political, or at the political end of the spectrum. In these cases, the role of the court may be very limited.  This may be seen from the speech of Lord Bingham said in A v Secretary of State for the Home Department [2005] 2 AC 68 at [29]: 

“… I would accept that great weight should be given to the judgment of the Home Secretary, his colleagues and Parliament on this question [state of emergency threatening the life of the nation for the purposes of art 15 of the European Convention on Human Rights], because they were called on to exercise a pre-eminently political judgment.  It involved making a factual prediction of what various people around the world might or might not do, and when (if at all) they might do it, and what the consequences might be if they did.  Any prediction about the future behaviour of human beings (as opposed to the phases of the moon or high water at London Bridge) is necessarily problematical.  Reasonable and informed minds may differ, and a judgment is not shown to be wrong or unreasonable because that which is thought likely to happen does not happen.  It would have been irresponsible not to err, if at all, on the side of safety.  As will become apparent, I do not accept the full breadth of the Attorney General’s argument on what is generally called the deference owed by the courts to the political authorities.  It is perhaps preferable to approach this question as one of demarcation of functions or what Liberty in its written case called ‘relative institutional competence’.  The more purely political (in a broad or narrow sense) a question is, the more appropriate it will be for political resolution and the less likely it is to be an appropriate matter for judicial decision.  The smaller, therefore, will be the potential role of the court.  It is the function of political and not judicial bodies to resolve political questions.  Conversely, the greater the legal content of any issue, the greater the potential role of the court, because under our constitution and subject to the sovereign power of Parliament it is the function of the courts and not of political bodies to resolve legal questions.  The present question seems to me to be very much at the political end of the spectrum (see Secretary of State for the Home Dept v Rehman [2001] UKHL 47 at [62], [2002] 1 All ER 122 at [62], [2003] 1 AC 153, per Lord Hoffmann).  The appellants recognised this by acknowledging that the Home Secretary’s decision on the present question was less readily open to challenge than his decision (as they argued) on some other questions.  This reflects the unintrusive approach of the European Court of Human Rights to such a question.  I conclude that the appellants have shown no ground strong enough to warrant displacing the Secretary of State’s decision on this important threshold question.”

292.	In the same way, Lord Nicholls held in the Ghaidan case (at [19]) that the courts would be less ready to intervene in the field of housing policy than in other fields.  He went on to hold that reasons must be cogent if differential treatment is to be justified.  
293.	But in this case the court is not being asked to decide a question of economic policy, for instance as to whether a compensation scheme should be set up or how much public money should be devoted to it.  A decision had been made by the executive to allocate resources to compensating British internees in Hong Kong.  The only question is the manner of distribution of those funds.  The court is here required to determine whether the Secretary of State has discharged the burden of showing that this condition achieved the minimum impact on those with non-United Kingdom national origins.  There is, in my judgment, no answer to the point that a scheme which used not only a criterion based on place of birth but also some other criterion, which could be satisfied by those who had close links with the United Kingdom but could not satisfy the place of birth criterion, would inevitably have a  lesser adverse impact on those with non-United Kingdom national origins than the birth link criterion alone.  There is no evidence that there was no other condition that would be administratively workable.   As it is, there is regrettably a danger that the birth link criterion on its own will be interpreted as reflecting a stereotypical assumption that only those British subjects with United Kingdom national origins are capable of having close links with the United Kingdom .
294.	I can also see an argument that, where justification depends on considerations that are essentially a matter of political judgment rather than proof of facts in the usual way, or as in the A case an assessment of future events which the court was not in a position to judge, and in addition it is clear that the Secretary of State has carefully considered the various courses open to him, different considerations might arise and the court might allow a margin of discretion.  But that will be a rare case and is certainly not this case.  As McLachlin J. (as she then was) wisely said in the Supreme Court of Canada:  “… care must be taken not to extend the notion of deference too far.” (RJRMacDonald Inc v Canada(Attorney-General) [1995] 3 SCR 199 at [136]).
295.	Mr Sales has placed heavy reliance on the decision of the Court of Justice in the Seymour-Smith case.  The Court of Justice referred to members states having a “broad measure of discretion” in choosing the measures of achieving aims of social or employment policy (see [73] to [77]).  However, the test of justification was still objective (see the passage already cited).  Insofar as in the Seymour-Smith case the Court indicated that justification would be established if the Secretary of State reasonably considered that the means chosen were suitable for achieving a legitimate aim,  its judgment should in my view be interpreted as  a conclusion that on the facts of that particular case (the creation of employment incentives) that was the appropriate level of scrutiny not that the court was departing from the objective test for justification laid down in the Bilka-Kaufhaus case, and applied in later cases such as Collins.   I should add that neither party has sought a reference on the question of the asserted margin of appreciation. 
296.	Moreover, the question of the thoroughness with which courts must examine justification on which a defendant relies is also context-specific.  The particular context in this case includes Council Directive 2000/43/EEC implementing the principle of equal treatment between persons irrespective of racial or ethnic origin.    Mummery LJ has already set out some parts of the preamble to that Directive.   There is no reference to any margin of appreciation for states.  For example, in the  context of employment recital  (18) provides:
“In very limited circumstances, a difference of treatment may be justified where a characteristic related to racial or ethnic origin constitutes a genuine and determining occupational requirement, when the objective is legitimate and the requirement is proportionate.  Such circumstances should be included in the information provided by the Member States to the Commission.”
297.	The whole tenor of the preamble is that great importance is to be attached to the elimination of racial discrimination (broadly defined).  In my judgment the intensity of scrutiny by the court to claims of justification must be considered with this preamble in mind, and this point provides an additional reason why Mr Sales’ submission that the Secretary of State is entitled to a wide margin of appreciation must be rejected.  Again this appears to be a question of Community law but neither party has sought a reference for a preliminary ruling from the Court of Justice on it.
Disposition
298.	I therefore agree with the order which Mummery LJ proposes.
Lord Justice Longmore:
299.	Direct Discrimination
Mr Sales for the Secretary of State submitted that a requirement that a claimant was born in the United Kingdom or had a parent or grandparents born in the United Kingdom could not be direct discrimination on grounds of “national origins”.  To my mind, that is a somewhat controversial proposition.  An important part of one’s origin is the place where one is born;  usually the place of one’s birth constitutes one’s national origin.  One would not expect that, because, in a few cases, a person’s birthplace was not the same as his place of origin, it would be right to say that a birthplace criterion is non-discriminatory, since it cannot be right to assess the question whether discrimination has taken place in relation to a person’s national origins by reference to the fact that a small number of people may happen to have been born in a country different from the country which would naturally be described as being the national origin of such person.
300.	Nevertheless, Mr Sales was able to cite authority for his proposition.  Although I doubt whether, on a proper analysis, Ealing London Borough Council, v Race Relations Board [1972] AC 342 necessarily supports the proposition, it is clear that subsequent cases, by which we are bound, have treated Ealing as being authority for the proposition.  Thus in Naraine v Hoverspeed Limited 12th November 1999 (unreported) the Court of Appeal held it was not direct discrimination for Hoverspeed to refuse to carry on its hovercraft a person born in Algeria.  The Lord Chief Justice and May LJ (with both of whose judgments, Schiemann LJ agreed) treated the Ealing case as deciding (as May LJ put it) that being born a German and being born in Germany were two different things and that discrimination by reference to national origins only encompassed the former.  I therefore agree with the judge that there was no direct discrimination in this case.
301.	Indirect discrimination
It is now conceded that the scheme is indirectly discriminatory but the Secretary of State seeks to justify that indirect discrimination by reference to what is said to be the legitimate aim of confining the benefit to those with close links to the United Kingdom.  After some hesitation, I have concluded that this is, indeed, a legitimate aim.  The reason why it is legitimate to seek to limit the benefit in this way is the same reason as that given by Dyson LJ in the ABCIFER case (paragraph 42) for concluding that the birthplace criterion was not irrational viz that, although civilian internees in Hong Kong and elsewhere were interned because they were British subjects, by the time the compensation scheme came to be set up
“the United Kingdom had become a medium size European country which had lost its Empire”.
This is to accept geo-political reality and to my mind entitles the Secretary of State to seek to confine the compensation to those who have, at the time of the inception of the scheme, a real link with the United Kingdom.
302.	That, however, is not the end of the matter.  The question is whether the conceded indirect discrimination can be justified and it can only be justified if the legitimate aim is pursued in a proportionate manner.  For this purpose it cannot be right for the Secretary of State to adopt criteria that are avowedly discriminatory (even if only indirectly so) if there are less discriminatory ways of securing the same objective.
303.	To my mind there are less discriminatory ways in which the legitimate aim can be achieved.  If, for example, the scheme had applied not merely to those who satisfied the birthplace criteria but also to those normally or habitually resident in the United Kingdom at the time of its announcement, the closeness of the beneficiaries’ links with the United Kingdom would be achieved and, indeed, emphasised.  That would have been much less discriminatory than the scheme in fact adopted.  Mrs Elias would, in fact, have been eligible to receive compensation had that been the way in which the scheme was framed.
304.	There may be other less discriminatory ways in which the legitimate aim could have been achieved.  The judge (para. 89) instanced as alternative criteria (1) a requirement of residence for a period leading up to internment or (2) a requirement of domicile.  For myself I doubt if a requirement of earlier residence or domicile at the time of internment would be any less discriminatory than a birthplace criterion.  But a requirement of domicile at the time of announcement of the scheme would be less discriminatory just as a requirement of residence at that time would be.
305.	Mr Rabinder Singh QC neatly exposed the inconsistency at the heart of the Secretary of State’s argument on this part of the case by observing that:
‘either	the imposition of the birthplace/bloodlink criteria was justified by the close links of the applicants with the United Kingdom as defined by descent in which case it was inescapably and avowedly intended to discriminate between different categories of British internees on grounds of descent and thus should logically constitute impermissible discrimination on grounds of national origin;
or		the birthplace/bloodlink criterion was an adventitious factor in which case reliance in it cannot be said to be a proportionate means of achieving the supposedly legitimate aim of making payment only to those with close links to the United Kingdom.’
The only way to resolve this paradox is, in my judgment, to hold, as the judge did, that while it was legitimate for the scheme to require that qualifying applicants should have a close link to the United Kingdom, the chosen criteria were disproportionate.  On this aspect of the matter I therefore agree with Mummery LJ that the judge’s decision should be upheld.  In all other respects I also agree with the judgment of Mummery LJ.
306.	It is perhaps ironic that if the Secretary of State had been able to procure a resolution of either House of Parliament, the discrimination would have been lawful pursuant to section 19B(3)(a) of the 1976 Act.  But unjustifiable discrimination by executive action, contrary to section 1 of the Act, is unlawful.
307.	In the final pages of the third volume of Pax Britannica written by Mr James Morris (as she then was) there is reference to the mementos of defeat carved by internees in the prison workshops of Hong Kong and Singapore and now to be found in the graveyards there.  The author then reflects on the redemptive quality of the British Empire saying in Farewell the Trumpets (page 472 of the Folio edition):-
“The wind dies, and is forgotten, but some of the seeds it blows about will be fertile in the end”,
The Race Relations Act is one of the most fertile of those seeds and has proved a most beneficial instrument.  It is perhaps right that it should be by reason of that Act that the acknowledged debt of honour owed to prisoners of war incarcerated in the Far East should now be appropriately discharged.