England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(QUEEN'S BENCH DIVISION) (ADMINISTRATIVE COURT)
Beatson J
[2008] EWHC 1052 (Admin)

		Royal Courts of Justice Strand, London, WC2A 2LL
		24/03/2009

Lady Justice Arden :

1. Most member states of the European Union are dependent on imports of crude oil and petroleum products to meet their demand for these commodities. These products often come from countries with less stable economies and governments than those of the member states. Since 1973 the European Union has imposed obligations on member states to guard against the risk of a disruption in supply for political or economic reasons by maintaining emergency national stocks of crude oil and petroleum products. In the United Kingdom, these "compulsory stocking obligations", or "CSOs", are passed on to businesses in the private sector. The United Kingdom enjoys a preferential position under the relevant directive over that of other member states as it is not wholly dependent on imports of oil and petroleum products in view of its own oil production.
2. The Community law requirements were consolidated in Council Directive 2006/67/EC ("the 2006 directive"). The material provisions of the 2006 directive are in the Appendix to this judgment. Under the UK scheme implementing the predecessor directives, refiners were obliged to hold 67.5 days stocks of oil, and retailers (ie those selling direct to the public such as supermarkets) 48.5 days stock. Following public consultation and the obtaining of a report from oil and energy consultants, Energy Market Consultants (UK) Ltd ("EMC"), the Secretary of State for the Department of Business Enterprise and Regulatory Reform ("BERR") (whose functions have now been transferred to the respondent), on 10 February 2007, decided to implement the 2006 directive by adopting, as from 1 April 2008 (and subject to transitional arrangements), a new regime. This would for the first time apply to importers as well as refiners, exclude retailers and create a differential of only 9.5 days between refiners and importers. This differential was arrived at using the methodology adopted by the International Energy Agency ("IEA"). Refiners are thus required to hold 67.5 days' supply and importers 58 days'. This decision was implemented by a direction under s 6 of the Energy Act 1976. It has important cost consequences for importers, which may undermine their ability to compete with refiners and to operate in the oil market.
3. The IEA is an inter-governmental organisation set up within the framework of the Organisation for Economic Corporation and Development during the energy crisis of 1973. It has taken measures designed to establish co-operation between participating countries, which include most member states of the European Union, in the event of an oil shortage.
4. Mabanaft Ltd ("Mabanaft") is a substantial importer of crude oil and petroleum products. It claims that the Secretary of State's decision did not allocate the cost burden of the new regime in accordance with the 2006 directive. It started judicial review proceedings, but on 14 May 2008 Beatson J dismissed its claim for judicial review. Mabanaft now appeals.
5. There are fundamental differences between the business of refiners and importers. Refiners have large storage facilities and are accustomed to storing large quantities of crude oil and petroleum products. They may hold large quantities of crude oil for a number of different reasons, for example because they think that the price of crude oil is about to rise. Importers, on the other hand, take advantage of variations in market price to buy and import when there is a profit to be made. Their storage facilities will be far smaller, and their profit margin on importation may often be quite small. Their net worth will also be smaller than that of refiners. They account for only about 10% of the market in the supply of petroleum products. Yet importers play an important role in the economy of the United Kingdom because they enable fluctuations in demand to be met and provide an element of competition for refiners.

Background to the decision

6. A full history of the discussions between government and industry before the Secretary of State made his decision can be found in the judgment of the judge. I need only refer to certain aspects of the history.
7. EMC was commissioned by the Department for BERR to consider some of the options. It noted changes in the market since the original adoption of CSOs, and recommended a move from a regime based on consumption to one based on importation. In the light of EMC's report, the Department announced that, for the purpose of applying the new regime to refiners and importers, it was minded to adopt a differential assessed by reference to the system of minimum operating requirements ("MOR") developed by the IEA. This system is based on net imports and is used for reporting oil stocks to the IEA. It is said to be widely understood in the industry. It provides a set of definitions which enables companies to identify stocks which would be inaccessible in the event of disruption, and thus provides a method of measuring the stocks which companies have to hold to carry on their operations and thus identifies the impact of differences between groups of operators.
8. The importers, through their industry association, AUKOI, pointed out that MOR makes no allowance for the discretionary aspects of keeping stocks for profit, seasonal and other motives, that is, the fact that refiners voluntarily hold oil stocks for their own commercial purposes. AUKOI took the view that the right differential would be 30 days.
9. EMC gave further advice to the Department on the question of the size of the appropriate differential as between refiners and importers, and in particular advice on the implications of the differential in terms of its impact on costs and competition. EMC conducted a survey of refiners and importers and advised that the differential should be 9.5 days' supply. EMC recognised that this was likely to impact more on importers. They advised that MOR was the only viable means of determining a differential.
10. The Department rejected the idea of using actual stocks: there was a lack of reliable and consistent data and there were concerns that the disclosure of actual stocks held would reveal confidential information and prejudice the competitiveness of refiners or importers. The Office of Fair Trading advised that there was overall insufficient evidence that the new arrangements might damage competition. The Secretary of State made his decision accordingly.
11. Mabanaft instructed its own experts, CRA International ("CRA"). They were critical of the EMC report. They advised that, in order to ascertain the actual cost burden of imposing a different CSO requirement on refiners and non-refiners, it was necessary to investigate the actual average inventory over time of both groups. CRA considered that EMC had proceeded on the basis that MOR and normal stocks were the same whereas MOR did not reflect variations in discretionary stockholding dependent on commercial indications. CRA also considered that there was no standard definition of MOR, and that EMC's definition was flawed. CRA also considered that EMC should have examined refiners' stocks in countries with no meaningful CSO to determine what their stocking levels would normally have been. CRA further criticised the EMC report for not comparing the position in refineries in Netherlands and Germany, but the Secretary of State rejects this criticism on the basis that the Netherlands and Germany are not comparable with the United Kingdom for a number of reasons.
12. The effect of the Secretary of State's decision is that importers like Mabanaft either have to buy storage in storage tanks from refiners or "buy tickets", that is, the right to require a person in possession of oil to hold it to their order. Mr C.M. Roberts, managing director of Mabanaft, states in his witness statement that the market for oil importers is very competitive. The market is dominated by refiners and the margin for importers is very low. He also states that the ability of Mabanaft to continue to compete in the UK market will be severely prejudiced by the decision and may result in Mabanaft or other importers leaving the UK market.

Judgment of Beatson J

13. The judge held that a stricter level of review applied to decisions taken pursuant to Community obligations than decisions taken under purely domestic law, and that the test of proportionality had to be met. On the other hand, it was not for the national court to substitute its assessment of the facts or scientific or technical evidence for the assessment of competent national authorities. He held that member states had a choice as to the arrangements for meeting CSOs, provided the arrangements were fair and non-discriminatory. He held that the Secretary of State had a wide margin of appreciation and that the question for the court was whether the measure adopted fell within the range of options legally open to him, and whether manifestly excessive weight had been given to irrelevant factors or manifestly inadequate weight had been given to relevant considerations.
14. The judge noted the submission for Mabanaft that the obligations imposed by recital (9) and art 3(2) with respect to the sharing of the cost burden meant that there had to be an assessment of the actual cost burden of CSO on refiners and importers. He noted that it was also central to Mabanaft's case that the 2006 directive required an equalisation of the cost burden as between refiners and importers. He held that the existence of the member state's freedom to choose the method of implementation pointed against any such equalisation obligation.
15. The judge concluded that the 2006 directive did not require the identification of the cost burden on individual refineries and importers. He said that, in any event, much of the information would be confidential and could not be published or identified by transparent arrangements. He noted that Mabanaft accepted that refiners' actual UK stocks would have been affected by some forty years of CSOs and that the cost burden could not be precisely identified. He held that this significantly weakened Mabanaft's case that the 2006 directive made it necessary to equalise the burden between different groups of market operators. He considered that there was some force in the submission of the Secretary of State that the second sentence of the second paragraph of article 3(2) is "primarily understandable" in the context of charges imposed on companies for central stockholding rather than as requiring information to be published about individual companies.
16. The judge then proceeded to consider whether the use of MOR as a measuring tool to determine the differential between stockholding obligations met the requirements of fairness and non-discrimination in art 3(2). Mabanaft submitted to the judge that the process of determining CSO was so manifestly erroneous as to enable the court within the principle stated by the Court of First Instance in T-374-04 Germany v Commission to justify intervention by way of judicial review. The judge disagreed and held that the Secretary of State's decision to base the differential on MOR and not to use data from other countries was not manifestly erroneous and fell within the margin of appreciation left to the member state.
17. The judge considered that the defendant's position in relation to actual UK inventories was far from manifestly erroneous or irrational. He rejected the argument that the concept of MOR was unclear. It had been used by the IEA since before 1990. He rejected the argument that there was no standard definition of MOR or that EMC's definition was so nebulous as to admit of almost any answer. After a detailed examination of a number of objections to the Secretary of State's use of MOR (which have not been repeated before us), the judge concluded that the Secretary of State's use of MOR was within the range of choices legitimately open to him, and did not contravene either art 3(1) or art 3(2).

Mabanaft's submissions

18. Mr Hugh Mercer QC, for Mabanaft, focuses his challenge to the judge's decision on the effect of art 3(2) of the 2006 directive. He submits that art 3(2) requires a fair and non-discriminatory sharing of the cost burden of the stockholding obligation and that that requirement can only be met once the actual cost burden has been identified in a transparent way. Accordingly, it was not lawful for the Secretary of State to make his decision without assessing those costs and taking them into account. The judge was wrong to conclude that the member state's option to adopt measures to obtain appropriate information regarding the cost of stockholding applied primarily to central stockholding bodies. Each provision of the directive must be given full and practical effect. The purpose of art 3(2) is clearly to ensure an equalisation of the financial burden by reference to actual costs.
19. On Mr Mercer's submission, recital (5) assists Mabanaft's case because the effect of the Secretary of State's decision may be that the viability of the business of some importers is imperilled. Freedom from undue discrimination is a fundamental freedom guaranteed by the EC treaty. The court must interpret qualifications to this fundamental freedom narrowly.
20. Mr Mercer relies on Germany v. Commission, cited by the judge. He submits that the jurisprudence of the Community courts does not establish in an unqualified way that, where a directive does not prescribe the forms and methods for achieving a particular result required by a directive, the freedom of action of member states as to the choice of the appropriate forms and methods for obtaining that result is complete. Mr Mercer points out that in Germany v Commission the Court of First Instance went on to say (at [78]) that the choice of forms and methods must be such as to ensure the effectiveness of directives.
21. The judge was concerned that, on Mabanaft's case, the equalisation of the cost burden did not need to be precise. He thought that this significantly weakened Mabanaft's case on equalisation (see [81] of his judgment). Mr Mercer submits that the fact that it need not be precise does not exempt the Secretary of State from the need to identify the cost burden. A cost analysis is a standard way of making policy decisions. The fact that there cannot be a precise calculation does not weaken the Mabanaft's case on the interpretation of art 3(2). If there were a problem about the confidentiality of information about costs, a condition could be imposed so that the information was not available to third parties.
22. In conclusion, Mr Mercer submits that the Secretary of State cannot rely on the margin of appreciation without having an assessment of the proportion of stocks carried by refiners for export or commercial purposes which may fairly be taken into account.

The Secretary of State's submissions

23. Miss Sarah Lee, for the Secretary of State, submits it was open to member states to decide how to implement the 2006 directive. The only relevant restriction was that in art 3(2), but clearly a range of options would satisfy this requirement. The judge's interpretation of the directive was correct. He correctly identified the issue as being whether the arrangements based on an assessment of the differences between refiners and importers using MOR were fair and non-discriminatory. He also correctly held that, (1) in reviewing the decision made by the Secretary of State, the court affords the Secretary of State a broad margin of appreciation; and (2) the assessment by the Secretary of State of the differences between refiners and importers was fair and non-discriminatory and fell within the margin of appreciation accorded to the decision-maker.
24. Miss Lee relies on the fact that EMC advised the Department that MOR was the only viable way of identifying a differential. Transparency is satisfied by the disclosure of the fact that the differential is 9.5 days. The directive does not prescribe any particular method of determining what the respective stockholding burdens of a particular group should be. There is no requirement to measure cost burdens or to examine actual stocks. There are difficulties in collecting material as to costs: (1) CSOs may have had a distorting effect on refiners' businesses; (2) the information as to costs is confidential; (3) information as to costs could not be identified by transparent arrangements; (4) the information may be unreliable; and (5) it would be difficult for the Secretary of State to verify the information as to costs. Under the 2006 directive, there is no requirement for the burden to be equalised in any particular way.
25. The Secretary of State does not say that there is a single and widely accepted definition of MOR. But the UK definitions used by EMC in its questionnaire are well-known, clear and workable.

Conclusions

26. In my judgment, the terms of the 2006 directive show that the overriding concern of the Community legislature in enacting the 2006 directive was the desire to have a high level of security in the supply of oil and oil products within the member states. The recent dispute between Russia and Ukraine, which caused severe gas shortages in several member states, has highlighted the importance of securing energy supplies, and no one could doubt but that the "secure-supply" objective of the 2006 directive reflects a legitimate policy goal. As long ago as 1984, the European Court of Justice ("the Court of Justice") held in the context of the then art 36 of the EC Treaty that:

"… petroleum products, because of their exceptional importance as an energy source in the modern economy, are of fundamental importance to a country's existence since not only the economy but above all its institutions, its essential public services and even the survival of its inhabitants depend upon them. " (Campus Oil v Minister for Industry and Energy [1984] ECR 2727 at 2751)

27. The policy goal laid down by the 2006 directive is thus one established in the public interest, and it is inherent in that policy goal that private interests may have to give way to the public interest. The policy goal must, of course, be achieved in accordance with principles of Community law, such as non-discrimination, proportionality and effectiveness.
28. It is of significance that the particular decision making required to give effect to art 3(2) of the 2006 directive, with which this appeal is concerned, involves the consideration and evaluation of issues in a technical field, namely that of the operations of traders in the oil and petroleum products market. This requires expertise as to for instance the manner in which large stocks of those products are recorded and held. Moreover, the decision-making will necessarily have to balance the interests of different groups within that market, as well as balancing their interests with the public interest.
29. Another significant feature of art 3(2) of the 2006 directive is subsidiarity. The 2006 directive recognises that its implementation can be achieved by leaving the matter to the member states, and, because of the complexity of national circumstances, there was every reason to do so in this case. Recital (18) to the 2006 directive recognised that the scope for achieving secure energy supplies at Community level is limited and that the principle of subsidiarity applies. Member states had indeed implemented CSOs in different ways. For instance, in some member states, a national entity has been established to hold stocks of oil. Other member states, including the United Kingdom, have imposed the CSOs on private businesses.
30. The decision of the Secretary of State which Mabanaft challenges is a decision to set up a new regime imposing stocking obligations on both importers and refiners. By virtue of his decision, these obligations are now to be assessed by reference to the minimum operating requirements (MOR) established by the IEA with a differential between them of 9.5 days (in favour of importers). This decision was taken pursuant to art 3(2) of the 2006 directive. It is therefore subject to judicial scrutiny in accordance with the principles of judicial review laid down by Community law. These are in general stricter than the test of Wednesbury unreasonableness used in domestic law, and are not lower than that test, and so it is common ground that we need only concern ourselves with the question whether the Secretary of State's decision should be set aside under Community law.
31. Art 3(2) of the 2006 directive specifically provides that members states must ensure that fair and non-discriminatory conditions apply in their stockholding arrangements. These conditions include conditions as to the allocation of the cost burden of holding stocks. A threshold question is whether this obligation requires member states to use some particular method to establish and allocate cost burdens. This is a question of the interpretation of the 2006 directive (see Germany v Commission, above, at [82]). If there is a requirement to use a method which is based to some degree on the actual costs incurred by importers or refiners, the decision of the Secretary of State is unlawful, since there was no investigation into actual costs for this purpose.
32. However, in my judgment, the obligation imposed by the first sentence of art 3(2) confers freedom on the member states to choose the method by which they will comply with their obligations under the 2006 directive. It follows under Community law that the court must allow the Secretary of State a large measure of discretion in choosing an appropriate method. In reviewing the legality of the exercise of such discretion, the court must limit itself to examining whether the decision of the Secretary of State discloses a manifest error or constitutes the misuse of powers or there has been a clear disregard of the limits of his discretion. This is because under Community law, where the decision maker in the member state is required to evaluate a complex economic situation - and the same would apply to a complex technical situation as here - the intensity of the review is low. The decision maker will enjoy a large measure of discretion and the court will limit itself to asking where the assessment is manifestly unreasonable. The court will not substitute its judgment for that of the decision maker. For these propositions, see, for example, case C-120/1997 Upjohn Ltd v The Licensing Authority [1999] ECR 1-223.
33. Accordingly, although, as Mr Mercer correctly points out, Community law guarantees various fundamental freedoms, such as freedom of movement and freedom from discrimination, and provides for the protection of free competition within the Community, the jurisprudence of the Court of Justice recognises that it is possible to restrict those freedoms for the purpose of ensuring some objective of the Community or of protecting the essential powers of the member states within the technical or economic field.
34. In this case, the challenge is made on a very narrow ground. The challenge by Mabanaft to the Secretary of State's decision is based on the failure of the Secretary of State to investigate and ascertain the actual costs of stockholding incurred by importers and refiners respectively. It seeks to show that the ascertainment of cost, or approximate cost, of stockholding to refiners and importers is a necessary preliminary step to the allocation of the cost burden. Only in that way, it submits, can an informed equalisation of cost, or informed approximate equalisation of cost, be achieved in accordance with the requirements of art 3(2) of the 2006 directive.
35. No objection is taken to the fact that as a consequence of the Secretary of State's decision the new regime shifted the obligation from refiners and retailers to refiners and importers. In making his decision, the Secretary of State has had regard to the different characteristics of importers and refiners. Importers have smaller resources and hold lower stocks: hence the differential of 9.5 days.
36. In my judgment, Mabanaft's contention that the Secretary of State must obtain so far as possible actual costs is in fact at odds with art 3(2) of the 2006 directive. In my judgment, the fundamental thrust of art 3 is to give the member state the freedom to decide how to implement CSOs. It is inconsistent with this freedom to hold that the member state can in fact only exercise that option in one way.
37. The second sentence of art 3(2) provides that the cost burden resulting from the maintenance of stocks in accordance with art 1 "shall" be identified by transparent arrangements. This obligation is not limited in time and so applies when the form of the stockholding regime is under consideration. Recital (9) also refers the disclosure of the costs involved in implementing the scheme but the critical obligation is in art 3(2). Mr Mercer submits that the effect of art 3(2) is that actual costs must be investigated and made available. For this purpose, he relies on the decision of the Court of Justice in C-152/07 –154/07 Arcor AG v Germany, where the Court held that actual costs had to be ascertained as part of the process of fixing the amount of a connection charge to be paid for connection to a telecommunications network. But this was a decision on a directive which required the connection charge to be based on actual costs. Accordingly, in my judgment, it sheds no light on the present case. The obligation in the second sentence of art 3(2) is in my judgment to be interpreted as complementing the principal obligation in the first sentence. It makes it clear that the member state must publish information to identify the cost burden resulting from stockholding arrangements introduced pursuant to the first sentence, but this obligation cannot be "the tail to wag the dog". If there is no obligation to introduce a system based on actual cost in the first place, the second sentence cannot create one. Moreover the word "identified" makes it clear that only summary information is required.
38. The third sentence of art 3(2) supports this conclusion. The judge held that this primarily referred to stockholding bodies. I do not consider it is necessary to go that far. I consider that this third sentence reflects the freedom given to the member state by art 3(2) since it is permissive, and not mandatory. Some definitions of cost, including actual cost for the relevant period, will require information to be obtained from interested parties, but other definitions may not. This may, for instance, be the case because the relevant information is available from third parties or published sources. This sentence underscores the fact that the 2006 directive imposes no uniform method of ascertaining how the burden of CSO is to be shared.
39. The decision of the Secretary of State to allocate the cost burden of CSOs costs by reference to MOR was accordingly not precluded by art 3 or recital (9) of the directive. The decision of the Secretary of State was therefore within the range of policy options lawfully available to him under the 2006 directive.
40. It must, however, also be within the range of policy options available to him under the general principles of Community law. In order to be within that range, it must be must comply with the principles of non-discrimination and proportionality.
41. Mabanaft relies on the principle of non-discrimination. Under this principle, the decision maker has so far as possible to ensure equal competitive conditions between different market operators. Any differences in treatment have in general to be capable of objective justification: see, for example, Royal Scholten-Honig (Holdings) Ltd v Intervention Board for Agricultural Products [1978] ECR 2037. But the content of the obligation not to discriminate with respect to competitive conditions depends on there being a verifiable means of ensuring equal competitive conditions.
42. In this case, the Secretary of State was advised that the only way of measuring the differential between the two groups of market operators, importers and refiners, was by using MOR. The decision to accept that advice was within the range of options open to the Secretary of State. The methodology was very carefully considered by the judge who could not find any basis for saying that it was not one which could properly be adopted. The fact that it may work to the disadvantage of importers does not mean that it cannot be adopted. Moreover, there is nothing to stop an importer from buying "tickets" and passing on to his consumer the cost of complying with his CSO. Any importer doing business in the European Union must have known of CSOs since they have been in operation for many years.
43. I also accept the submission of Miss Lee that the differential adopted by the Secretary of State is in fact a means of reflecting the cost burden between refiners and importers. The differential of 9.5 days decreases the CSOs of importers and therefore decreases the cost burden to them. Accordingly, the Secretary of State has made a decision as to allocating cost burden. He has done it by adopting the methodology of the IEA. The professional advice that he has received was that there was no other viable option. He was also advised that any other methodology would require the disclosure of commercially sensitive information. These circumstances make the position in this case clearly distinguishable from that in the Royal Scholten-Honig case, relied on by Mr Mercer, where the Court of Justice set aside a decision imposing a production levy where it was satisfied that a material consideration had been left out of account in the calculation which could and should have been taken into account.
44. Mr Mercer submits that the Secretary of State could have imposed some condition to ensure that confidential information was not made available to third parties but the decision as to the weight to give to the adverse risk of this disclosure was a matter for the Secretary of State. Moreover, there may have been good practical reasons why the Secretary of State would not want to ask for this information: refiners might have been very reluctant in practice to provide information even in confidence if it might help their competitors. Furthermore, his decision does not prevent the importers from passing on the cost to consumers. There is, moreover, no requirement in the 2006 directive that the member state should not make decisions which affect the competitiveness of any business, provided of course that the decision is not disproportionate. An adverse effect on some operators may be an inevitable result of the decision which the decision maker has to take.
45. The difficulties of investigating costs are obvious. Refiners may have adopted different accounting principles for recording cost and may have different accounting periods. There might have in that event to be a complex reconciliation of figures on uniform accounting principles. It would be difficult to tell why particular stocks were held and whether any stockholding decision was in truth influenced by the CSO. Mr Mercer submits that information as to the cost would be an essential tool for fairer and better decision-making. This cannot be so if it is difficult to ascertain reliable information. Regulatory impact assessments often have to be made without reference to actual costs because it is impractical or impossible to obtain particulars of actual costs. Mr Mercer also argues information as to actual costs is essential for ensuring that the obligation in art 3(2) is effectively implemented in accordance with Community law, but that can only be so where meaningful actual costs can realistically be ascertained.
46. Proportionality in this context also involves judging the appropriateness of the national measure in order to meet the objective required by the 2006 directive. Proportionality must also be assessed by reference to whether the member state was seeking to obtain some other objective, apart from that required by Community law, as where the member state seeks to impose some restriction in order to protect its own domestic industry: see, for example, Case C-398/98 Commission v Greece. There is no suggestion of unsuitability of the new regime in this sense or any ulterior objective on the part of the Secretary of State in this case.
47. Proportionality also requires that the court should consider whether there is any less restrictive means of effectively achieving the objective required by Community law: see, for example Commission v Greece, above. In this case, the Secretary of State could not justify the decision to adopt the new regime if Mabanaft could show that some other regime would be demonstrably less intrusive into competition between oil suppliers, and less intrusive into the fundamental rights of movement and competition guaranteed by Community law. But Mabanaft does not go this far. It simply says that the Secretary of State should have investigated actual costs and taken them into account. In my judgment, that is not enough.
48. In any assessment of proportionality in a technical field, the court must allow a proper margin of discretion to the decision maker, because of the complexity of the assessment he is called upon to make in this field. It is a specific function of government to take decisions such as these for ensuring the supply of essential products in the situation of an emergency. The court therefore exercises restraint in reviewing any decision of this kind and requires it to be shown that the new regime was a manifestly disproportionate means of achieving the end of allocating the burden of CSO.
49. Mr Mercer submits that there are other reasons why it was not lawful for the Secretary of State to rely exclusively on MOR. That system focuses on stocks which are inaccessible as opposed to focusing on those which are accessible. He submits that accessible stockholdings need to be investigated and analysed in order to allocate the costs fairly as between refiners and importers. But this brings one back to the same point, namely that the Secretary of State considered on advice that those investigations could not satisfactorily be made. In my judgment the court is not entitled to substitute its judgment for that of the Secretary of State on this point.
50. Mr Mercer submits that, if this court was in any doubt as to the meaning of the 2006 directive, it should request a preliminary ruling from the Court of Justice on Mabanaft's interpretation of art 3(2). In my judgment, the meaning of art 3 (2) is sufficiently clear, and accordingly I would not direct a reference. The important principle in this case is proportionality, and that is a matter suitable for determination by the national court.
51. In conclusion the Secretary of State was not required by the 2006 to investigate actual costs. The decision of the Secretary of State was within the range of options open to him and cannot be set aside. The judge gave a comprehensive and carefully reasoned judgement. The reasons which I have given above are substantially the same as the essential reasoning of the judge. For the reasons given above, I would dismiss this appeal.

Lady Justice Hallett:

52. I agree.

Mr Justice Blackburne:

53. I also agree.
Appendix
Recitals (3), (4), (5) and (9) and articles 1(1) and 3 of the 2006 directive

(3) A crisis in obtaining supplies could occur unexpectedly and it is therefore essential to establish forthwith the necessary means to make good a possible shortage.

(4) To this end, it is necessary to increase the security of supply for crude oil and petroleum products in Member States by establishing and maintaining minimum stocks of the most important petroleum products.

(5) It is necessary that the organisational arrangements for oil stocks do not prejudice the smooth running of the internal market.

…

(9) It is appropriate that organisational arrangements for the maintenance of stocks are transparent, ensuring a fair and non-discriminatory sharing of the burden of the stockholding obligation. Therefore, information relating into the cost of holding oil stocks may be made available by Member States to interested parties.

…

Article 1

1. Member States shall adopt such laws, regulations or administrative provisions as may be appropriate in order to maintain within the Community at all times, subject to the provisions of Article 10, their stocks of petroleum products at a level corresponding, for each of the categories of petroleum products listed in Article 2, to at least 90 days average daily internal consumption in the preceding calendar year referred to in Article 4 (2).

2. …

Article 3

1. Stocks maintained in accordance with Article 1 shall be fully at the disposal of Member States should difficulties arise in obtaining oil supplies. Member States shall ensure that they have the legal powers to control the use of stocks in such circumstances…

2. Member States shall ensure that fair and non-discriminatory conditions apply in their stockholding arrangements.

The cost burden resulting from the maintenance of stocks in accordance with Article 1 shall be identified by transparent arrangements. In this context, Member States may adopt measures to obtain appropriate information regarding the cost burden of stockholding in accordance with Article 1 and to make such information available to interested parties.

3. To fulfil the requirements of paragraphs 1 and 2, Member States may decide to have recourse to a stock-holding body or entity which will be responsible for holding all or part of the stocks.

Two or more Member States may decide to have recourse to a joint stock-holding body or entity. In that case they shall be jointly responsible for the obligations deriving from this Directive.