SCOTTS' OF GREENOCK (EST'D 1711) LTD AND LITHGOWS LIMITED v. THE UNITED KINGDOM



SCOTTS OF GREENOCK (ESTD. 1711) LTD. and LITHGOWS LTD

 

against

 

THE UNITED KINGDOM

 

 

 

 

 

 

 

Report of the Commission

 

(adopted on 17 December 1987)

 

 

- i -

 

 

 

CONTENTS

 

 

                                                            Page

 

I.      INTRODUCTION         (paras.

1-13).......................................    1

 

        A. The application            (paras.

2-3).....................................    1

 

        B. Proceedings before the Commission            (paras.

4-8).....................................    1

 

        C. The present report            (paras.

9-13)....................................    2

 

 

II.     ESTABLISHMENT OF THE FACTS         (paras.

14-36)......................................    4

 

        A.  The background to the Aircraft and Shipbuilding

Industries Act 1977 and its legislative history             (paras.

16-19)..................................    4

 

        1.  The nationalisation proposals (paras. 16-18)....    4

 

        2.  The Parliamentary procedure (para 19)...........    4

 

        B.  The 1977 Act (paras. 20-36).....................    5

 

        1.  The general scheme of the 1977 Act(paras. 20-22)... 5

 

        2.  Application of the 1977 Act to Scott Lithgow             (paras.

23-28)...................................   6

 

        3.  Valuation of Scott Lithgow under the 1977 Act             (paras.

29-36)...................................   7

 

III.    SUBMISSIONS OF THE PARTIES         (paras.

37-73)......................................    9

 

        A. The applicants            (paras.

37-59)...................................    9

 

        1.  Article 1 of Protocol No. 1 to the Convention            (paras.

37-49)...................................   10

 

        2.  Article 14 of the Convention in conjunction with            Article

1 of Protocol No. 1 (paras. 50-52........   11

 

        3.  Article 6 of the Convention (paras. 53-58).......   12

 

        4.  Article 13 of the Convention (para. 59)..........   13 - ii -

 

        B. The Government            (paras.

60-73)...................................   13

 

        1.  Article 1 of Protocol No. 1 to the Convention            (paras.

60-63)...................................   13

 

        2.  Article 14 of the Convention in conjunction with            Article

1 of Protocol No. 1 (para. 64)...........   14

 

        3.  Article 6 of the Convention (paras. 65-71).......   15

 

        4.  Article 13 of the Convention (paras. 72-73)......   16

 

IV.     OPINION OF THE COMMISSION         (paras.

74-118).....................................   17

 

A.      Points at issue (para. 74)..........................   17

 

B.      Were the terms of the nationalisation of Scott         Lithgow in

accordance with the applicants'         rights under Article 1 of Protocol No.

1?         (paras. 75-96)......................................   17

 

        Conclusion (para. 97)...............................   22

 

C.      Was the method of valuation applied to Scott Lithgow

discriminatory against the applicants, contrary to         Article 14 of the

Convention read in conjunction with         Article 1 of Protocol No. 1?

(paras. 98-100).........  23

 

        Conclusion (para. 101)...............................  23

 

D.      Did the circumstances of the resale of Scott Lithgow         by the

respondent Government in 1984 respect the         applicants' rights under

Article 1 of Protocol No. 1?         (paras.

102-107).....................................  24

 

        Conclusion (para. 108)...............................  25

 

E.      Did the second applicant's inability to refer         the matter of

compensation to a tribunal or         court deprive it of access to court,

contrary         to Article 6 para. 1 of the Convention ?         (paras.

109-110).....................................  25

 

        Conclusion (para. 111)...............................  26

 

F.      Was the period taken to arbitrate the issue of the         £2 million

loan a "reasonable time" within the meaning         of Article 6 para. 1 of the

Convention.?         (paras. 112-114).....................................  26

 

        Conclusion (para. 115)...............................  26

 

G.      Were the applicants deprived of an effective remedy         before a

national authority in respect of         their complaints under the Convention

within the         meaning of Article 13? (para. 116)..................   26

     Conclusion (para. 117)..............................   26

 

H.      Recapitulation (para. 118)..........................   27

 

APPENDIX I:  History of the proceedings....................    28

 

APPENDIX II: Decision on admissibility ....................    30

 

 

                        I. INTRODUCTION

 

 

1.      The following is an outline of the case as submitted to the European

Commission of Human Rights, and of the procedure before the Commission.

 

A. The Application

 

2.      The first and second applicants, Scotts of Greenock (Estd. 1711)

Limited and Lithgows Limited, are limited companies incorporated in Scotland

with registered offices in Greenock.  The applicants have been represented by

Mr.  D. Ross MacDonald, solicitor, of Messrs. Neill, Clerk & Plant Hill,

solicitors of Greenock, and Mr.  Neville Maryan-Green, barrister-at-law and

avocat at the Paris Court of Appeal.  The United Kingdom Government have been

represented first by Mr.  M. R. Eaton and subsequently by Mr.  M. Wood, both of

the Foreign and Commonwealth Office, London, as agent.

 

3.      The present application concerns the nationalisation of Scott Lithgow

Limited ("Scott Lithgow"), which was owned by the first and second applicants.

Scott Lithgow was nationalised pursuant to the Aircraft and Shipbuilding

Industries Act 1977 ("the 1977 Act").  The applicants received £2.5 million in

compensation which they claimed did not reflect the true value of the company

at the time fixed by the 1977 Act for the assessment of compensation.  The

applicants complain that they have not received prompt, adequate or effective

compensation contrary to Article 1 of Protocol No. 1 to the Convention.  The

second applicant also complains that they were unable to refer the matter of

compensation to a court or tribunal and thus failed to receive the protection

of the guarantees provided by Article 6 of the Convention. Both applicants also

complain of a breach of Article 6 in that it took four years of arbitration to

settle whether loans made to Scott Lithgow by the applicants were repayable.

Both applicants further complain that the 1977 Act provides no remedy against

its own terms, contrary to Article 13 of the Convention, and that the method of

valuation of compensation which was appropriate for companies quoted on a Stock

Exchange discriminated against Scott Lithgow, which was not so listed, contrary

to Article 14 of the Convention.

 

B. The Proceedings

 

4.      The application was introduced by the first and second applicants, with

a third applicant, (the Bank of Nova Scotia Trust Company (Bahamas) Limited),

on 17 August 1981 and registered on 20 August 1981.  On 10 December 1981 the

Commission decided, in accordance with Rule 42 para. 2 (b) of its Rules of

Procedure, to give notice of the application to the respondent Government and

to invite them to present before 12 March 1982 their observations in writing on

the admissibility and merits.

 

5.      After an extension of the time-limit originally set, the respondent

Government's observations were received on 30 June 1982. The applicants'

observations were received on 24 November 1982 after an extension of the

time-limit originally set.  A further submission in respect of Article 14 of

the Convention was received from the applicants on 22 July 1983.  On the same

date they also notified the Commission of the withdrawal of the application by

the third applicant on the ground that this third applicant's claim was clearly

inadmissible following the Commission's decision on admissibility in Lithgow

and Others v. the United Kingdom (Applications Nos. 9006/80 and Others, Dec.

28.1.83).

 

6.      The Commission resumed its examination of the application on 12 July

1984 and decided to invite the parties to submit contemporaneously, before 19

October 1984, such further written observations on the admissibility only of

the application as they considered necessary.  The respondent Government

declined to submit any such further observations.  The applicants' further

observations were received on 17 October 1984.

 

7.      The Commission examined the application again on 11 March 1985 and

decided to declare it admissible.  The applicants were also invited to submit

further submissions on fact and law arising out of the re-sale of Scott Lithgow

in 1984.  These were received on 17 September 1985.  Following an extension of

the time-limit, the respondent Government submitted observations in reply on 18

December 1985.  The applicants submitted further observations on 30 March 1986.

 

8.      The Commission decided on 9 May 1986 to adjourn its examination of the

application pending the judgment of the European Court of Human Rights in the

case of Lithgow and Others.  The Court gave its judgment on 2 July 1986 (Eur.

Court H.R. Lithgow and Others judgment of 8 July 1986, Series A no. 102).  The

Commission resumed its examination of the application on 10 October 1986 and

decided to invite the parties to submit such further observations on the merits

as they wished in light of the Court's judgment.  Submissions were filed by the

respondent Government and by the applicants on 17 and 18 December 1986

respectively.

 

C. The Present Report

 

9.      The present report has been drawn up by the Commission in pursuance of

Article 31 of the Convention and after deliberations and votes, the following

members being present:

 

             MM.  C.A. NØRGAARD, President                   J.A. FROWEIN

            S. TRECHSEL                   G. SPERDUTI                   E.

BUSUTTIL                   A.S. GÖZÜBÜYÜK                   A. WEITZEL

         J.-C. SOYER                   H.G. SCHERMERS                   H.

DANELIUS                   G. BATLINER                   J. CAMPINOS

  Sir  Basil HALL              MM.  F. MARTINEZ                   C.L. ROZAKIS

            Mrs.  J. LIDDY

 

10.     The text of this report was adopted on 17 December 1987 and is now

transmitted to the Committee of Ministers of the Council of Europe, in

accordance with Article 31 para. 2 of the Convention.

 

11.     The purpose of the Report, pursuant to Article 31 para. 1 of the

Convention, is

 

 

   i.   to establish the facts, and

 

  ii.   to state an opinion as to whether the facts found disclose         a

breach by the State concerned of its obligations under         the Convention.

 

 

12.     A schedule setting out the history of the proceedings before the

Commission is attached hereto as Appendix I and the Commission's decision on

the admissibility of the application as Appendix II.

 

13.     The full text of the parties' submissions, together with the documents

lodged as exhibits, are held in the archives of the Commission.

 

 

                    II. ESTABLISHMENT OF THE FACTS

 

14.     The facts as found by the Commission are set out below.

 

15.     The first and second applicants (together "the applicants") are

long-established companies involved in shipbuilding, submarine construction and

related trades.  They have been based in Greenock and Port Glasgow on the lower

Clyde throughout their history.  In March 1966 the Shipbuilding Enquiry

Committee, established by the Government, published its report.  This

recommended that the 9 shipyards in the River Clyde be nationalised, preferably

into not more than 2 group companies.  As a result of these recommendations the

applicants discussed a merger, and in 1970 formed a new company, Scott Lithgow

Limited ("Scott Lithgow") to carry on shipbuilding and engineering activities

in Greenock and Port Glasgow.  The £2.5 million nominal share capital of Scott

Lithgow was held by the first applicant as to 60% and by the second applicant

as to 40%.

 

 

A.      The background to the Aircraft and Shipbuilding Industries         Act

1977 and its legislative history

 

        1.  The nationalisation proposals

 

16.     Following the General Election held on 28 February 1974 the Labour

Party gained office from the Conservatives and formed a Government.  They did

not have an overall majority in the House of Commons but a further General

Election was held on 10 October 1974, at which the Labour Party was returned

with an overall majority. Nationalisation of the aircraft and shipbuilding

industries formed part of the political programme set out in the Labour Party's

election manifesto published on 8 February 1974 and had been Labour Party

policy for some time previously.

 

17.     On 31 July 1974 the Secretary of State for Industry announced that the

Government intended to pursue its election commitment to take the shipbuilding

and shiprepair industries into public ownership and that provisions in the

legislation for safeguarding the assets of the industries would be effective

from that date.  A Discussion Paper was published on the same day giving

details of the Government's proposals for nationalising these industries.

 

18.     This consultative document contained, inter alia, details of the

grounds on which the Government considered nationalisation to be desirable.

These were mainly that the Government believed that necesary changes could not

come about while the industry was in fragmented private ownership, and that

public ownership of the major companies offered the only effective prospect of

enabling British shipbuilding to survive and prosper in highly competitive

world markets.  The document also gave details of the companies which it was

proposed to take into public ownership.  The document stated that "fair

compensation" would be paid for interests nationalised, although details of the

compensation terms were not specified at that time.

 

        2.  The Parliamentary proceedings

 

19.     The Parliamentary proceedings which led to the enactment of the

Aircraft and Shipbulding Industries Act 1977 ("the 1977 Act") were

exceptionally long and complex.  There was protracted opposition to successive

Bills introduced by the Government, this opposition being particularly

concentrated on the compensation terms.  These were attacked as being

fundamentally unfair, but were ultimately enacted without substantial change.

Successive Bills were presented to the House of Commons and the House of Lords.

The third such Bill (the earlier two having failed) was introduced into the

House of Commons on 26 November 1976 (in the 1976-77 Parliamentary session) and

completed all procedural stages there by 7 December 1976.  In view of the

opposition which the previous Bills had met, the third Bill was then introduced

into the House of Lords under a procedure provided for by the Parliament Acts

1911 and 1949 under which it could pass into law without the assent of the

House of Lords.  The Bill received the Royal Assent, and passed into law, on 17

March 1977.  The compensation terms enacted were essentially the same as those

in the first Bill and there were no material changes between the Bill as

enacted and the first Bill in relation to the interests whose nationalisation

was provided for.

 

B.      The 1977 Act

 

        1.      The general scheme of the 1977 Act

 

20.     The 1977 Act provided for the setting up of two public corporations,

"British Aerospace" and "British Shipbuilders" (Section 1).  It provided

(Section 19) that the shares of a number of specified companies engaged in the

shipbuilding industry (Schedule 2), including those of Scott Lithgow, should

vest in British Shipbuilders.  "Vesting day", when the companies concerned thus

passed into public ownership, was specified by Statutory Instrument as 1 July

1977.  The 1977 Act contained provisions designed to safeguard the assets of

acquired companies against disposal during the period from 28 February 1974

until vesting day.  Such provisions were aimed at the control of dividend and

interest payments (Sections 23 - 25), prevention of the transfer of assets

(Sections 26 - 29) and the avoidance of certain other transactions (Sections 30

- 33).

 

21.     Provision was made for compensation to be paid on the basis of the

actual or hypothetical Stock Exchange valuation of the shares in the acquired

companies during a six month "reference period" ending in February 1974

(Sections 35 - 38), subject to deductions relating to certain transactions or

payments caught by the safeguarding provisions (Section 39).  An Arbitration

Tribunal was established for the purpose of determining disputes arising under

the 1977 Act, including disputes as to the valuation of the securities

nationalised (Sections 42 - 44 and Schedule 7 to the 1977 Act).

 

22.      Under the 1977 Act, on 1 July 1977 the shares of Scott Lithgow vested

in British Shipbuilders.  Compensation for the shares in the company was

payable in accordance with the provisions of Part II of the 1977 Act.  The

amount payable thereunder was the "base value" of the securities, subject to

various deductions (Sections 35 and 39). The "base value" in the case of

securities listed on the Stock Exchange was, broadly speaking, the average

amount at which they were quoted over a six month period ("the reference

period") running from 1 September 1973 to 28 February 1974 (Sections 37 and

56).  However, in the case of securities not listed on the Stock Exchange the

"base value" was to be such as might be determined by agreement between the

Secretary of State and a "Stockholders' Representative", or, in default of

agreement, such as might be determined by the Arbitration Tribunal to be the

base value which the securities would have had if they had been listed

throughout the reference period (Section 38). The Scott Lithgow shares were not

listed on the Stock Exchange and so fell to be valued on the basis of a

hypothetical Stock Exchange listing.

 

        2.  Application of the 1977 Act to Scott Lithgow

 

23.     Pursuant to the provisions of Section 38 of the 1977 Act, four methods

of valuation of shares were actually used by the Government: an earnings-based

valuation (used for profitable companies), an assets-based valuation (used for

unprofitable companies, non-holding companies and non-profit-making companies),

a parent-company related valuation (used where the vesting company carried on

the main part of the total undertaking of a listed company) and a share capital

related valuation method.  The share capital related valuation method was used

only in relation to Scott Lithgow.

 

24.     A Stockholders' Representative was immediately appointed by the

applicants pursuant to the terms of the 1977 Act.  Shortly thereafter a dispute

arose as to whether loans totalling £2 million made in 1970 by the applicants

to Scott Lithgow were loans repayable as such by Scott Lithgow (as the

applicants contended), or alternatively capital of that company for which the

applicants would be compensated under the terms of the 1977 Act.  Notices

served on the applicants by the Department of Industry in November 1977 and

March 1978 contended for the latter interpretation.  Provisional notice was

given to the Arbitration Tribunal by the applicants that this question might

become the subject of a reference to it, and a reference was ultimately made

after the failure of protracted negotiations, in April 1979.  The Arbitration

Tribunal found in the applicants' favour on 17 December 1980.

 

25.     Court proceedings were also begun by the applicants in August 1978 to

challenge Scott Lithgow's refusal after vesting day to pay interest on the £2

million sum, following which interest was paid from January 1979.

 

26.     Negotiations took place between the Stockholders' Representative acting

on behalf of the applicants and the Secretary of State as to the amount of

compensation to be paid.  The Secretary of State made an initial offer of £2.4

million prior to the decision of the Arbitration Tribunal concerning the £2

million loan.  This offer consisted of £1 million compensation to settle the

question of the loan and £1.4 million by way of compensation under the 1977

Act. Following the decision of the Arbitration Tribunal the Stockholders'

Representative received a verbal indication that the maximum sum the Secretary

of State would pay for the whole capital of Scott Lithgow was £1.65 million.

However, following further meetings, the Stockholders' Representative obtained

on 18 March 1981 an offer from the Secretary of State of £2.5 million as

compensation for the whole capital of Scott Lithgow.

 

27.     After unsuccessful attempts to persuade the Government to raise this

offer by way of meetings and correspondence with Government Ministers, the

Stockholders' Representative recommended that the offer be accepted.  The first

applicant adopted this recommendation but the second applicant instructed the

Stockholders' Representative not to accept the offer.  On 12 August 1981,

having received these instructions, the Stockholders' Representative accepted

the offer.

 

28.     Pursuant to Section 36 (6) of the 1977 Act two payments on account of

compensation were made on 6 December 1978 and 21 December 1980 by the issue of

Government stock to a value of £300,000 and £400,000 respectively.  The balance

of £1.8 million was paid on 17 August 1981.

 

        3.  Valuation of Scott Lithgow under the 1977 Act

 

29.     The Government's advisers, Whinney Murray & Co., in their Report of 12

April 1978 (the Whinney Murray Report) approached the valuation of Scott

Lithgow by using a share capital related valuation method, a fact of which the

applicants only became aware in the course of the proceedings before the

Commission.  This valuation method had two principal elements:  first the

establishing of a comparable, in this case Harland & Wolff Limited ("Harland"),

and secondly the calculation of the appropriate value to be ascribed to Scott

Lithgow inter alia by reference to the level of its nominal share capital (i.e.

the number of shares issued in the company), as compared with the nominal share

capital of the comparable.

 

30.     Harland was a shipbuilding company based in Northern Ireland which was

not nationalised under the 1977 Act.  It was quoted on the Stock Exchange,

which enabled a basis for calculating a hypothetical Stock Exchange listing to

be established by comparing the value of its shares in relation to its nominal

share capital.

 

31.     The Whinney Murray Report contained a financial assessment of Scott

Lithgow and its prospects in the period leading up to the reference period.

This referred to the company's substantial capital expenditure programme, but

also to an erratic pattern of trading results for the three years ending on 31

December 1972, which were influenced notably by certain fixed price contracts

on which provision had been made for losses amounting to £7.25 million.

Nevertheless, the results showed an improvement from the loss of £5 million in

1970. Trading in 1972 had been badly affected by a 17-week strike of certain

workers, but Government shipbuilding construction grants (of £1.5 million) were

received for the first time, and applied towards the anticipated losses on the

fixed price contracts.  The Government's announcement in July 1973 that all UK

warship contracts would in future be placed with three specified companies

excluding Scott Lithgow was assessed as having a serious impact on the company.

 

32.     The short-term prospects for the company were poor in view of the fixed

price contracts which still awaited completion, but, in view of the provisions

made for these loss-making contracts "at best a breakeven result might be

expected for the year ended in 31 December 1973.  The longer term prospects

depended upon Scott Lithgow's ability to clear the loss-making contracts as

quickly as possible and to obtain the funds necessary to finance these losses.

As a result, the prospects of earnings must be viewed with caution."

 

33.     The Whinney Murray Report continued by stating that the stock market's

view of a loss-making merchant shipbuilding similar to Scott Lithgow was best

reflected by a consideration of the market capitalisation of Harland.  An

assessment of that company showed that, despite the fact that it had not earned

a profit for nearly a decade its market capitalisation averaged approximately

£35 million during the reference period, which represented 31.8% of the nominal

value of Harland's share capital and a premium of 326% to the value of

Harland's net assets as of 31 December 1972.  Harland had received a total of

some £57 million in State aid in order to maintain its viability.

 

34.    The Whinney Murray Report then compared these figures with those

applicable to Scott Lithgow.  It stated that the £2 million inter company loan

should be treated as capital and that accordingly the aggregate nominal value

of Scott Lithgow's share capital and inter-company debt to be treated as

security was £4.5 million.  On the assumption that the stock market would have

regarded Scott Lithgow as similar to Harland, its average market capitalisation

during the reference period "might have approximated to 31.8% of £4.5 million;

i.e. £1.431 million".  This section of the Whinney Murray Report concludes with

the words "in our view this represents the highest figure which could be placed

on the market capitalisation of Scott Lithgow".

 

35.     The Whinney Murray Report then continued to make a comparison with the

net asset values of the two companies.  The net tangible assets as disclosed by

Scott Lithgow's balance sheet at 31 December 1972 amounted to £280,000.  The

suggested valuation of £1.431 million represented a premium to net assets of

411% which compared to the equivalent premium of 326% in the case of Harland.

It was noted that a revaluation of Scott Lithgow's fixed assets on an existing

use basis, assuming an adequate level of profitability, was carried out

retrospectively in 1974 after the end of the reference period and produced a

revaluation surplus of £12.5 million.  However, since the revaluation did not

take place until after the reference period and there was no "adequate level of

profitability" to support it, the Whinney Murray Report concluded that "no

account of (the revaluation) should be taken in the valuation".

 

36.     In October 1980 British Shipbuilders announced that its operations were

to be reorganised into five divisions.  Scott Lithgow was to be the nucleus of

the new division concerned with offshore oil work.  The property and business

which was nationalised under the 1977 Act as Scott Lithgow was subsequently

sold by the Government in 1984 to another company.  The applicants allege that

the resale price considerably exceeded the compensation which they had received

on nationalisation.  The Department of Trade had announced in 1984 that the

price paid for these assets was £12 million.  The Government however submit

that the cost of sale to the Government was considerably more, since under the

terms of the sale, the Government restructured the balance sheet of Scott

Lithgow at a cost of £71 million of public funds and various substantial

contingent liabilities have since crystallised or remained outstanding.

 

                  III. SUBMISSIONS OF THE PARTIES

 

A.  The applicants

 

        1. Article 1 of Protocol No. 1 to the Convention

 

37.     The applicants invite the Commission to consider particularly, since

there has been no determination by a tribunal or court of that compensation

claim, whether the applicants have been treated "subject to the conditions

provided for by law".  The applicants claim on the basis of the information

provided by the Government as to the implementation of the 1977 Act, which is

now available to them for the first time, that the 1977 Act was not applied by

the Secretary of State in accordance with its express terms or the avowed

intention of Parliament.  The Minister interpreted the Act as empowering him to

begin a process of negotiation at a starting point below the value his advisers

had put on the company.  This amounted to an attempt to take the companies for

less than they were worth.  It was unjustifiable under the 1977 Act, outrageous

in its effect, and not in conformity with law for the purposes of Article 1 of

Protocol No. 1.

 

38.    In the light of the judgment of the European Court of Human Rights in

the James case (Eur.  Court H.R., James and Others judgment of 21 February

1986, Series A no. 98) the applicants no longer base their claim on the general

principles of international law.

 

39.     The applicants do claim however that under Article 1 of Protocol No. 1

they are entitled to compensation reasonably related to the value of the

property taken.  The Government took the shares in Scott Lithgow and thus all

the assets of the company - land, buildings, plant, stock, goodwill and cash.

The value of these assets at the reference period was at least £18 million

which represent £37 million at values current on the vesting date.  The

compensation of £2.5 million paid by the Government was grossly

disproportionate to the value of the property which the Government took.

 

40.     This disproportion is partly explained by the method of valuation

applied by the Government under the 1977 Act, which disregarded the facts and

was based on a hypothetical valuation.

 

41.     The Court in Lithgow and Others (Eur.  Court H.R., Lithgow and Others

judgment of 8 July 1986, Series A no. 102) held that governments enjoy a wide

discretion in settling the terms of a nationalisation.  The present applicants

submit the Government have exceeded this margin of appreciation, since the

method of valuation used by the Government was without reasonable foundation.

In Lithgow and Others, the Court found that compensation based on share values

and a hypothetical stock market valuation was not in principle unacceptable.

The Court also found that it was not unreasonable to make no allowance for

developments in the companies' fortunes between 1974 and 1977, nor to disregard

the special value of large or controlling shareholdings.  It was in these

findings that the Court demonstrated the wide margin of appreciation enjoyed by

governments. The present case is however distinguishable from the previous

cases in which the applicants primarily depended on showing a difference

between 1974 and 1977 values to establish disproportion.  In the present case,

the applicants complain that the Government's basis of valuation at the time of

the reference period itself was basically flawed.

 

42.     Prior to nationalisation, Scott Lithgow's yards were modern,

well-equipped and expanding.  A substantial new yard had been built, there was

an experienced workforce, design team and management and at the start of the

reference period the order work stood at £152 million.  The company was

securing its long term future by investing in oil-related work and there was a

real demand for its services.  The Government, however, assessed compensation

for this company by reference to its nominal share capital - a method not

applied to any other nationalised company.  This was inappropriate and cannot

be justified.  The Whinney Murray Report produced on behalf of the Government

is prejudiced, inaccurate and flawed.  The approach taken with reference to

nominal share capital is without justification in law or in fact.  The nominal

share capital is the amount of money which the promoters wish to be regarded as

retained in the accounts of the company in the name of share capital to allow

suitable division of ownership.  It has no relationship to the value of the

company; the Whinney Murray Report nevertheless used the nominal share capital

as a reference point for valuing Scott Lithgow.  The inappropriateness of this

approach may be illustrated by examples;  for example, the nominal share

capital of Marks and Spencer Plc is £660 million, whereas its stock exchange

value is £4,750 million.

 

43.     Harland was an inappropriate comparable.  It had received massive

Government aid exceeding £57 million, whereas Scott Lithgow had received only

£1.5 million.  It was consistently unprofitable and had not developed any

specialist or profitable diversification which could be compared with Scott

Lithgow's development of expertise in the offshore oil sector, which was

regarded as a major opportunity which the company was pursuing and developing

as a matter of priority.

 

44.     In the absence of a history of relevant earnings or dividends, but with

a prospect of profitability, or at the very least no profit/no loss near the

relevant time, the Stock Exchange would have regard to net asset value as a

basis of valuing a company's shares. The Whinney Murray Report also relies on

the Government's policy announcement that in future all United Kingdom warship

contracts would be placed with specified shipbuilders, excluding Scott Lithgow.

However, the applicants deny this had any bearing on the profitability of the

company, which had already withdrawn from surface warshipbuilding and

concentrated on other areas, notably the offshore oil sector.  Nor does the

Whinney Murray Report take any sufficient account of the fact that Scott

Lithgow, as a private company, was not managed in the same way as a quoted

company would have been.  Whereas quoted companies are in practice obliged to

maintain short term profitability or lose shareholders' confidence, Scott

Lithgow was able to plan for long term development, as illustrated by its

capital expenditure, highly specialised workforce and development of specialist

skills, such as those for building offshore oil equipment.

 

45.     In conclusion, there was a manifest disproportion between the

compensation and the company's true value for which no reasonable justification

has been offered and the case differs from the previous nationalisation cases

in that the Government applied a method of valuation applied to no other

company.

 

46.     The applicants also seek compensation for the effects of inflation.  In

the light of the Court's judgment, this claim should be met by payment of

interest at 10% from the date when compensation should have been paid.

 

47.    The applicants also submit that the sale of Scott Lithgow back to the

private sector and the manner in which this was carried out further compounded

the imbalance of public and private interest created by the nationalisation.

The resale calls into doubt whether the nationalisation of Scott Lithgow met

the public interest requirements recognised by the Court.  Nationalisation was

aimed at supporting and renewing conventional shipbuilding.  However, Scott

Lithgow had in fact been increasing its output, had re-equipped and modernised

its facilities, had not been dependent on Government money and its planned

future was in the offshore oil sector.  The Government excluded another

company, Marathon, from nationalisation, which was engaged in the construction

of drilling rigs.  If it was not in the public interest for that company to be

nationalised, the applicants doubt whether it could be said to be so in the

case of Scott Lithgow.

 

48.     Scott Lithgow had to be sold by the Government because of the failure

of the State to operate the company properly.  Delays in performance had led to

prolonged contracts to such an extent that Scott Lithgow would have run out of

work.  The company was nevertheless sold at a substantially higher price than

had been given to the applicants in compensation: the applicants contend that

from Government statements it can be deduced that the price was at least £19.1

million.

 

49.     The applicants also complain that no approach was made to them as

former owners when the Government began to consider resale. The company was

sold to a third party without taking any of the concerns or interests of the

former owners into account.  The applicants complain that this course failed to

respect their rights and privileges as dispossessed owners, rights which should

be enforceable when the State decides to dispose of expropriated property.

They refer to the Crichel Down Rules which guide the Government's policy

relating to the resale of surplus land which was compulsorily acquired.

 

        2. Article 14 of the Convention in conjunction with            Article

1 of Protocol No. 1

 

50.     The applicants submit that there has been discrimination i) in favour

of quoted companies as against unquoted companies, and ii) against Scott

Lithgow compared with all other companies nationalised under the 1977 Act.

 

51.     As to i), a single system applying to both quoted and unquoted

companies was not appropriate.  It ignored profound differences between them

and the Government acted as if such differences did not exist.  To treat

unquoted companies as if they were quoted was unreasonable, unjustified and

discriminatory.  Since the basis of computation of compensation was only

appropriate for companies quoted on the Stock Exchange, the respondent

Government discriminated against companies which were not so listed.  Moreover,

the fact that 9842/81

 

compensation was promptly paid to the quoted companies, while the unquoted

companies were only paid much later, was also discriminatory.

 

52.     As to ii), there were two main aspects of the discriminatory treatment

of Scott Lithgow.  First, the use of the nominal share capital of Scott Lithgow

as an indicator of the compensation payable, in the application of the "share

capital related" valuation method to the company.  Secondly, Scott Lithgow was

the only one among the supposedly unprofitable companies to which this

valuation method was applied.  Discrimination arose from the calculation of the

compensation due according to an unjustifiable method, which was applied to

this company alone among all those concerns nationalised.

 

        3. Article 6 of the Convention

 

53.     The second applicant complains that, despite its instructions, the

final compensation offer was not referred to the Arbitration Tribunal by the

Stockholders' Representative.  The terms of the 1977 Act empowered the

Stockholders' Representative to refuse such an instruction where a majority of

shareholders opposed it.  Hence the second applicant had no opportunity to

refer the matters complained of to the Arbitration Tribunal.  There was no way

of referring this question to another tribunal or court, and the second

applicant has thus failed to receive the protection of the guarantees provided

by Article 6.  While it was no doubt more practical for the shareholders to

appoint one person to negotiate for them, there was no reason why (after

agreement had been reached) dissatisfied shareholders should not have been

entitled to initiate proceedings in relation to their own shareholdings.  In

any event, reasons of administrative convenience cannot be invoked to excuse a

failure to respect Convention rights.

 

54.     The Stockholders' Representative was not, in the last analysis, a

representative at all, but a person with independent rights under the 1977 Act.

He did not require the consent of the former shareholders before agreeing

compensation, deciding to refer to arbitration etc.  He, not the shareholders,

was a party to any arbitration.  Not only was he not required to obtain the

approval of the applicants, he in fact failed to act in accordance with the

applicants' wishes in matters vital to the determination of compensation.

There was no machinery of any kind by which the applicants themselves could

obtain a fair and public hearing.  In view of these facts the provision of the

Arbitration Tribunal under the 1977 Act did not satisfy the applicants' rights

under Article 6 para. 1.  Nor was there any sufficient reason for this

restriction on direct access.  Of the 27 private companies nationalised, only

one had more than three shareholders.  The remaining 26 companies had 32

shareholders between them and the overall total number of shareholders was 103.

It should have been within the capability of the Government to provide a

proper system for shareholders in these circumstances.

 

55.     No justification can be found in the Golder case (Eur. Court H.R.,

Golder judgment of 21 February 1975, Series A no. 18) for the limitation on

access to court at issue here.  The legitimate restrictions conceived of by the

Court in that case were limitations inherent in the nature of the right and the

capability of the beneficiaries of that right to exercise it.  The State cannot

use

 

9842/81

 

minor reasons of administrative convenience to justify actual denial, not mere

limitation, of a fundamental right.

 

56.      The applicants complain together that in order to protect their

interests they were obliged to refer the question of the alleged £2 million

loan to arbitration, and to institute court proceedings to achieve the payment

of interest on this loan.  Their claim to compensation could only be quantified

after such steps, which took four years, had been taken.  Such a four year

period is not a "reasonable time" within Article 6 para. 1.  Moreover, if the

question of compensation had been referred to the Arbitration Tribunal, the

total delay would have been even greater.

 

57.     The applicants' "civil rights" of property were interfered with on 1

July 1977 when their shares were taken.  In accordance with the Court's

judgment in the case of Sporrong and Lönnroth (judgment of 23 September 1982,

Series A, no. 52), Article 6 became applicable at that moment and the

"reasonable time" ran from that date.  The delay in resolving the subsequent

dispute was unreasonable because of the way in which the Government conducted

the negotiations.

 

58.     The applicants' rights under Article 6 para. 1 of the Convention have

thus been breached.

 

        4. Article 13 of the Convention

 

59.     The applicants maintain that they have no remedy in their own right

against the alleged violation of the Convention.  In support of this they refer

to the nature of the Stockholders' Representative as explained in relation to

Article 6, together with the judgment of the Court in the Golder case (supra).

 

 

        B. The Government

 

 

        1. Article 1 of Protocol No. 1 to the Convention

 

60.     The Government deny that the 1977 Act failed to operate in accordance

with national law because the compensation awarded thereunder was not fair.

The compensation terms were fair, insofar as this term can be understood to

have a precise meaning in the present context, and the deprivation of property

under the 1977 Act was in accordance with domestic law, which was in turn in

accordance with the Convention and Protocol No. 1 thereto.

 

61.     Concerning the assessment of compensation, they explain that the method

of valuation based on actual or imputed Stock Exchange prices was chosen since

it was considered to be more objective and expeditious than other methods.  The

fact that during the reference period the stock market was relatively depressed

was not considered to justify payment in excess of the then current market

value.  It was decided that no premium for control of companies should be paid

exceeding the Stock Exchange price, since an analogy with a takeover bid was

not considered valid, and there was no unfairness to shareholders in basing

compensation on Stock Exchange prices.  Although only one of the 43 companies

proposed for nationalisation had all its 9842/81

 

shares listed on the Stock Exchange, this was not considered to justify

rejection of this valuation method, since techniques for valuation of unlisted

shares were well established and in common use.

 

62.     The Government submit that the applicant's complaint concerning the

method of valuation cannot stand in the light of the Court's finding in Lithgow

and Others (supra) that a hypothetical stock exchange valuation method was not

in principle contrary to Article 1 of Protocol No. 1.  The Court also found

that the decision to exclude an allowance for inflation was within the margin

of appreciation allowed to States and that a liability to capital gains tax on

the amount of compensation was not a basis for complaint under Article 1 of

Protocol No. 1.

 

63.     The Government submit that it is not relevant when considering whether

nationalisation of Scott Lithgow was in the public interest to take into

account the subsequent resale of the company Scott Lithgow. The rule of

compliance with the public interest requirements of the Convention falls to be

determined by the Convention organs as those requirements were assessable at

the time of nationalisation.  The resale many years afterwards cannot affect

that determination.  The Government in any event deny that Scott Lithgow's

position was in any way comparable to that of the other yard excluded from

nationalisation, Marathon, which was wholly engaged in building offshore oil

rigs.  The Government also do not accept that Scott Lithgow's performance prior

to nationalisation differed significantly from that of the rest of the

industry.  For example, the company was only in profit for two of the five

years prior to nationalisation. The Government also deny that a higher price

was realised on resale than paid to the applicants on nationalisation.  The

consideration paid was in fact only £12 million, but the cost of sale to the

Government was significantly more, since under the terms of sale, the

Government restructured the balance sheet of the company at a cost of £71

million and various other liabilities remained outstanding.  The Government do

not accept the applicant's assertion that the Crichel Down Rules applied, so

that the previous owners should have been able to buy back the company.  These

rules apply to the compulsory acquisition of land and not to the

nationalisation of businesses.

 

        2. Article 14 of the Convention in conjunction with            Article

1 of Protocol No. 1

 

64.     The Government deny that the 1977 Act was in itself a discriminatory

measure.  Its provisions applied equally to all the companies which were

nationalised.  There is no legal right under the Convention to have securities

valued by any one particular method, and to the extent that different methods

were applied, the choice of which to use in a given case involved no bad faith.

The choice of method applied to Scott Lithgow was within the range of what is

permissible under international law and it was made for reasons that were

objective and reasonable.  The Court in Lithgow and Others (supra) held that

the application of a method of valuation to unlisted securities by reference to

their hypothetical Stock Exchange quotations had an objective and reasonable

justification and did not violate Article 14 of the Convention. 9842/81

 

        3. Article 6 of the Convention

 

65.     Three legal questions arise in connection with the applicants' claim

that the period of four years which the preliminary arbitration hearing and

court proceedings took is not a reasonable time under the terms of Article 6.

 

66.     First, the Government submit that there has not been a "determination"

of the applicants' "civil rights".  Following the case law of the Commission

and the Court, a decision or measure which constitutes an interference with

civil rights and obligations is not the same as a "determination" of such

rights.  Article 6 is primarily concerned with the method of resolution of

disputes ("contestations"). Reference is made in particular to the Reports of

the Commission in both Kaplan v. the United Kingdom, Application No. 7298/76

and Sporrong and Lönnroth v.  Sweden, Applications Nos. 7151/75 and 7152/75.

Neither a law that directly permits an expropriation, nor an authority to

expropriate provided for by law, amounts to a "determination" of the civil

rights and obligations of the property owners concerned within the terms of

Article 6 para. 1.  On the other hand, the fixing of compensation to which an

expropriation may have given rise by a tribunal appointed for that purpose

would be such a "determination". Therefore the 1977 Act did not involve a

"determination".  Neither did the negotiations between the Secretary of State

and the Stockholders' Representative, since the applicants could at all times

refuse any sum offered and refer to the Arbitration Tribunal any resulting

dispute for determination.  The agreement between the Secretary of State and

the Stockholders' Representative concerning the compensation payable did not

amount to a "determination" of the applicants' "civil rights" under Article 6.

The necessary dispute or "contestation" could only have arisen in the event of

disagreement between the parties, and in this eventuality the Arbitration

Tribunal would make a "determination" relevant to the applicants' right to

compensation.

 

67.     If the arbitration proceedings concerning the inter-company debt are to

be treated as part of a relevant determination under Article 6 para. 1, the

relevant period began on the formal initiation of the arbitration proceedings

(March 1979) and ended on the date of the award by the arbitration tribunal

(December 1980).  In view of the complexity of the case, this period cannot be

said to amount to an unreasonable delay.  Any period of negotiation between the

Stockholders' Representative and the Secretary of State is irrelevant for the

purposes of Article 6 para. 1, since these negotiations did not give rise to or

form part of a "determination".

 

68.     Having regard to all the circumstances of the case, including the

complexity of the issues raised in the negotiations, the payment of sums to the

applicants on account of compensation during the progress of the negotiations,

the delay in the negotiations attributable to the Stockholders' Representative

in failing to bring any unduly lengthy negotiations to an end and to secure a

determination by the Arbitration Tribunal of the compensation payable, there

was no unreasonable delay within the meaning of Article 6 para. 1 of the

Convention and the facts disclose no breach of that Article. 9842/81

 

69.     The Government accept that only the Stockholders' Representative was

entitled to initiate proceedings before the Arbitration Tribunal.  The reason

for this restriction is obvious. Numerous shareholders were involved in the

concerns to be nationalised.  To make the valuation process workable within a

reasonable time it was essential that the interests of shareholders were

collectively represented, and that their nominated representative should alone

be responsible for the conduct of negotiations and the institution and conduct

of arbitration proceedings.  The position of the Stockholders' Representative

was closely comparable to that of the directors of a company, in that he had to

act in the best interests of the stockholders as a whole and, in the event of

dispute between them, in accordance with the wishes of the majority.  Schedule

6 to the 1977 Act contained detailed provisions for safeguarding the interests

of the stockholders.

 

70.     The second applicant was not denied the right of access to the

Arbitration Tribunal or the domestic courts.  The right of access to court is

not an absolute one and may be subject to implied procedural limitations as

well as to limitation on the content of the right itself (Golder Case, loc.,

cit. para. 38).  A right of access to the Tribunal (and thereafter, on points

of law, to the courts) was conferred on the Stockholders' Representative, who

was appointed by the stockholders to represent their interests with respect to

compensation as an agent.

 

71.     The appointment of the Stockholders' Representative, together with the

safeguards provided by the 1977 Act and the second applicant's right of access

to the courts in the event of any breach of the 1977 Act by the Stockholders'

Representative, fully satisfies Article 6 para. 1.  The Government also note

that the Court in the case of Lithgow and Others (supra) took the view that, if

an individual shareholder did not have a right of access to the Arbitration

Tribunal, this did not amount to a violation of Article 6.

 

        4. Article 13 of the Convention

 

72.     Insofar as it is claimed that no remedy exists in the United Kingdom

against the 1977 Act, it is submitted that Article 13 cannot, on its true

construction, be interpreted as requiring the provision of a remedy against

legislation as such which is claimed to be contrary to the Convention.

Reference is made to the opinion of the Commission in the Report in

Applications Nos. 76701/76 and 7806/77, Young, James and Webster v. the United

Kingdom (Comm.  Report 14.12.79).

 

73.     As regards the application of the legislation, the Court in the case of

Lithgow and Others held that the various legal remedies available constituted

machinery whereby a shareholder could, to a sufficient degree, secure

compliance with the 1977 Act.

 

                   IV.OPINION OF THE COMMISSION

 

 

A.      &SPoints at issue&-

 

74.     The following are the principal points at issue in the present case:

 

 

        - Were the terms of the nationalisation of Scott Lithgow in accordance

with the applicants' rights under Article 1 of Protocol No. 1 (P1-1)?

 

        - Was the method of valuation applied to Scott Lithgow discriminatory

against the applicants, contrary to Article 14 (Art. 14) of the Convention read

in conjunction with Article 1 of Protocol No. 1 (P1-1)?

 

        - Did the circumstances of the resale of Scott Lithgow by the

respondent Government in 1984 respect the applicants' rights under Article 1 of

Protocol No. 1 (P1-1)?

 

        - Did the second applicant's inability to refer the matter of

compensation to a tribunal or court deprive it of access to court, contrary to

Article 6 para. 1 (Art. 6-1) of the Convention?

 

        - Was the period taken to arbitrate the issue of the £2 million loan a

"reasonable time" within the meaning of Article 6 para. 1 (Art. 6-1) of the

Convention?

 

        - Were the applicants deprived of an effective remedy before a national

authority in respect of their complaints under the Convention within the

meaning of Article 13 (Art. 13)?

 

 

B.      Were the terms of the nationalisation of Scott Lithgow in

accordance with the applicants' rights under Article 1         of Protocol No.

1 (P1-1)?

 

 

75.     The applicants complain of the nationalisation of Scott Lithgow.  They

complain that their expropriation was not conducted subject to the conditions

provided by law and that the compensation which they received did not

reasonably relate to the value of the property taken and that the method of

assessment of compensation was unjustified.

 

        Article 1 of Protocol No. 1 (P1-1) provides:

 

        "Every natural or legal person is entitled to the peaceful

enjoyment of his possessions.  No one shall be deprived of his

possessions except in the public interest and subject to the conditions

provided for by law and by the general principles of international law.

 

        The preceding provisions shall not, however, in any way impair

the right of a State to enforce such laws as it deems necessary to

control the use of property in accordance with the general interest or

to secure the payment of taxes or other contributions or penalties."

 

76.     The Commission recalls that Article 1 (Art. 1) in substance guarantees

the right of property.  The Court in the Sporrong and Lönnroth case (Eur.

Court H.R., Sporrong and Lönnroth judgment of 23 September 1982, Series A no.

52) analysed Article 1 (Art. 1) as comprising three rules set out in the first

sentence of the first paragraph, in the second sentence of the first paragraph,

and in the second paragraph, respectively. As the Commission held in Lithgow

and Others (Comm.  Report 7.3.84, para. 351), these rules are  not entirely

separate or watertight.  The first rule contains a general guarantee of the

right to property. This general guarantee is then qualified or limited by the

second and third rules.  The second and third rules must, however, be

interpreted in their context and in the light of the general guarantee

contained in the first sentence of the Article.  This analysis was confirmed by

the Court (James and Others judgment of 21 February 1986, Series A no. 98 p. 30

para. 37 and Lithgow and Others judgment of 8 July 1986, Series A no. 102 p. 46

para. 106).

 

77.     In the present case, the applicants were clearly deprived of their

possessions within the meaning of the second sentence of Article 1 (Art. 1).

The Commission must therefore examine whether the requirements of that part of

the provision, read in the light of the general guarantee of property, have

been satisfied in the particular facts of the case.

 

78.     The applicants challenge the conformity of the nationalisation

of Scott Lithgow with Article 1 of Protocol No. 1 (P1-1) on three principal

grounds.  They contend that the Secretary of State did not act subject

to the conditions provided for by law in starting the compensation

negotiations at a figure below that which he had been advised Scott

Lithgow was worth.  Secondly they contend that the respondent

Government's advisers relied on a flawed valuation technique which

produced a grossly distorted value of the company.  Finally they

contend that the compensation paid should have made allowance for

inflation.

 

79.     In the light of the judgment of the Court in Lithgow and

Others (supra) the applicants do not contend that the basic structure

of the 1977 Act was contrary to Article 1 of Protocol No. 1 (P1-1), nor do

they challenge the concept of a hypothetical Stock Exchange valuation,

the absence of a premium element for acquiring control, using the

reference period, or the failure of the 1977 Act to make provision to

take account of differences in a nationalised company's performance

between the reference period and vesting day.  Their submissions are

addressed, therefore, to the question of the amount of compensation

which was actually offered for Scott Lithgow and its appropriateness.

 

80.     The applicants first submit that the Secretary of State

interpreted the 1977 Act as empowering him to begin to negotiate

compensation at a starting-point below the value put on Scott

Lithgow by his advisers, and that he was therefore acting outside the

avowed intention of Parliament.  They invite the Commission to

conclude that this approach was not in accordance with the conditions

provided for by law.  However, the Commission notes that the

applicants do not in fact contend that there was a breach of national

law, nor that the compensation offered was not ultimately established

in accordance with the criteria of the 1977 Act.  In these

circumstances the Commission does not consider the negotiating

position initially adopted by the Secretary of State to be relevant to

its examination of the application.

 

81.     The Commission notes that the applicants have withdrawn their

original contention that the nationalisation of Scott Lithgow

infringed the general principles of international law.  In the light

of the reasoning of the Court in Lithgow and Others (supra), the

Commission considers it established that the general principles of

international law are not applicable to a taking by a State of the

property of its own nationals.

 

82.     The Commission must next examine the applicants' principal

contention, that the valuation of Scott Lithgow was fundamentally

wrong, mainly as a result of the use of a flawed valuation technique,

and that, as a result, there was a manifest disproportion between the

compensation actually paid for Scott Lithgow and its real value.

 

 

83.     The applicants contend that Scott Lithgow should  have been

valued on a net asset basis, in the light of the fact that the

respondent Government regard it as a non-profit-making company.

They criticise the choice of comparable made by the respondent

Government's advisers, and particularly their valuation, which was

based in part upon a comparison of the nominal share capital of

Scott Lithgow and the comparable, together with the allegedly erroneous

assessment of Scott Lithgow's prospects and the significance of its

past management philosophy.

 

84.     The respondent Government refer to the judgment of the Court

in the case of Lithgow and Others (supra) and contend that the

approach to the valuation of Scott Lithgow used under the 1977 Act was

one which was within the margin of appreciation allowed to States.

Hence the approach and the final amount of compensation paid were in

conformity with Article 1 of Protocol No. 1 (P1-1).

 

85.     The Commission must therefore examine the compensation paid in

the light of these submissions.  Not only must a measure depriving a

person of his property pursue a legitimate aim in the public interest,

but there must also be a reasonable relationship of proportionality

between the means employed and the aim sought to be realised (see e.g.

Lithgow and Others (supra)).  The requisite balance will not be found

if the person concerned has had to bear "an individual and excessive

burden" (see e.g.  Sporrong and Lönroth loc. cit. para. 73).

Compensation terms are therefore material considerations in the

assessment of whether a fair balance has been struck and whether or

not a disproportionate burden has been imposed on the person deprived

of his possessions.

 

86.     The case-law of the Commission and the Court further

establishes that Article 1 of Protocol No. 1 (P1-1) does not guarantee a

right to full compensation in all circumstances "since legitimate

objectives of public interest, such as are pursued in measures of

economic reform, or measures designed to achieve greater social

justice, may call for less than reimbursement of the full market

value" (Lithgow and Others loc. cit. para. 121).  However, the taking

of property without payment of an amount reasonably related to its

value would normally constitute a disproportionate interference, which

would not be justified under Article 1 of Protocol No. 1 (P1-1).

 

87.     Further, the State enjoys a wide margin of appreciation

in laying down the compensation terms applicable, although this

discretion is not completely unfettered:

 

        "A decision to enact nationalisation legislation will commonly

involve consideration of various issues on which opinions within a

democratic society may reasonably differ widely.  Because of their

direct knowledge of their society and its needs and resources, the

national authorities are in principle better placed than the

international judge to appreciate what measures are appropriate in

this area and consequently the margin of appreciation available to

them should be a wide one.  It would, in the Court's view, be

artificial in this respect to divorce the decision as to the

compensation terms from the actual decision to nationalise, since the

factors influencing the latter will of necessity also influence the

former.  Accordingly, the Court's power of review in the present case

is limited to ascertaining whether the decisions regarding

compensation fell outside the United Kingdom's wide margin of

apprecation; it will respect the legislature's judgment in this

connection unless that judgment was manifestly without reasonable

foundation." (Lithgow and Others loc. cit. para. 122)

 

88.     Against this background the Commission must examine the

applicants' specific complaints that the compensation ultimately paid

for Scott Lithgow fell short of that required by Article 1 of Protocol

No. 1 (P1-1).  It notes that the respondent Government instructed independent

advisers to prepare a report which included a valuation of Scott

Lithgow.  This valuation was prepared for the purposes of ascribing a

hypothetical Stock Exchange valuation to the company as required by

the 1977 Act.  The valuation sought to assess the value which the

Stock Exchange would have ascribed to Scott Lithgow during the

reference period.  For this purpose it reviewed the company's

performance and prospects at that time, a period during which Scott

Lithgow was not considered to have been trading profitably.  This fact

prevented an earnings-related valuation approach and the valuation

adopted was based upon a comparison with Harland & Wolff Limited

("Harland"), which the advisers considered was a company which would

be an appropriate indicator of Stock Exchange investor sentiment

towards a loss-making shipbuilding company like Scott Lithgow.

 

89.     The applicants have contended that Harland was an

inappropriate comparable, notably because of the very substantial

State aid which it had received and in view of the types of ships

which it built as well as its management philosophy.  They have not,

however, suggested an alternative comparable, which they would

consider more suitable, but have contended that Scott Lithgow should

have been valued by reference to its net assets.  Furthermore, they

contend that the calculation of the appropriate value to ascribe to

Scott Lithgow by reference to its nominal share capital compared to

that of Harland is inappropriate and misleading.

 

90.     The Commission recalls that Article 1 of Protocol No. 1 (P1-1) does

not expressly stipulate that any one valuation system must be, or may

not be, used in calculating the compensation payable for

expropriation.  The appropriate test is whether a fair balance is

struck in relation to the interference with the right protected by

this provision, or whether there is a manifest disproportion between

the value taken and the compensation paid.

 

91.     The valuation method relied on by the respondent Government's

advisers involved the use of a comparable quoted on the Stock

Exchange.  This is a usual method of valuation, which has obvious

attractions if the object of the valuation is to establish what the

hypothetical Stock Exchange valuation of a company is.  One widely

used alternative method of valuation, by reference to earnings, was

by common consent inappropriate in this case.  The applicants

contended for an asset based valuation, and referred in particular to

the retrospective valuation of Scott Lithgow prepared for them.

However, it appears that the valuation prepared by the respondent

Government's advisers took account of the significance of an

asset based valuation in at least two respects.  First, the valuation

refers expressly to the retrospective valuation of Scott Lithgow

prepared for the applicants.  That retrospective valuation is stated to

have been prepared on an existing use basis, "assuming an adequate

level of profitability".  However, the respondent Government's advisers

disregarded the retrospective valuation in part because it was

prepared outside the reference period, and in part because Scott

Lithgow did not enjoy an adequate level of profitability which could

support the valuation.

 

92.     Secondly, the respondent Government's advisers incorporated a

check into their valuation, by reference to the net assets of Scott

Lithgow, by comparing the premium over the net assets stated in the

company's accounts which their valuation of Scott Lithgow's shares

showed with the equivalent premium of Harland's share value over

Harland's stated net assets.

 

93.     Finally, in this respect, the Commission also notes that,

under the terms of the 1977 Act, it was the shares in Scott Lithgow

which vested in British Shipbuilders and that it was therefore

necessary to value them.  Since the whole nominal share capital of

Scott Lithgow was issued, the provisions of the 1977 Act made it

necessary to ascribe a Stock Exchange value to each share.

 

94.     However, the Commission recalls that its task is not to

compare one system of valuing companies for the purposes of the 1977

Act with another, but to determine whether the compensation actually

received by the applicants was so disproportionate as to vitiate the

balance between their interest and the public interst in the

nationalisation of Scott Lithgow.  The applicants' contention that £18

million would have been the appropriate value for Scott Lithgow during

the reference period appears to be based first on the asset valuation

which was carried out retrospectively, and on an assumption of adequate

profitability, which does not appear to have been fully sustainable.

Furthermore, they have stressed that the company's management

philosophy was one which eschewed short-term profits, which would

however be necessary in order to maintain Stock Exchange investors'

confidence.  This would seem to suggest that any valuation which

sought to take the view of a Stock Exchange investor, as a hypothetical

Stock Exchange valuation was bound to, would be likely to ascribe a

lower value to shares in the Scott Lithgow than the applicants would

consider appropriate.  This would seem to be a probable consequence of

the adoption of a hypothetical Stock Exchange valuation method.

 

95.     The Commission and the Court have already found that such a

method is not in principle contrary to Article 1 of Protocol No. 1 (P1-1).

Equally the Commission recalls that, as in Lithgow and Others (supra),

so also in this case, there are widely differing opinions as to the

value which should ultimately have been ascribed to the applicants'

shareholdings in Scott Lithgow.  On the facts of the present case, the

Commission does not find it established that the compensation which

the applicants received on the nationalisation of Scott Lithgow was so

low as to reflect a manifest disproportion between the value of the

applicants' shares in Scott Lithgow and the level of compensation

which they received.

 

96.     Finally, the Commission must consider the applicants'

complaints that the absence of any allowance for inflation in the

compensation paid under the 1977 Act for the period between the

reference period and vesting day was contrary to Article 1 of Protocol

No. 1 (P1-1).  The Commission recalls the Court's conclusion in

respect of the equivalent complaint in Lithgow and Others (loc. cit.

paras. 144-147).  For the same reasons as those there referred to, the

Commission considers that the absence of any allowance under the 1977

Act for inflation was not outside the respondent Government's margin

of appreciation.

 

        Conclusion

 

97.     The Commission concludes unanimously that there has been

no violation of Article 1 of Protocol No. 1 (P1-1) arising from the terms of the

nationalisation of Scott Lithgow.

 

C.      Was the method of valuation applied to Scott Lithgow

        discriminatory against the applicants, contrary to

        Article 14 (Art. 14) of the Convention read in conjunction with

        Article 1 of Protocol No. 1 (P1-1)?

 

98.     The applicants have also complained that they were

discriminated against because the valuation method which was used in

respect of Scott Lithgow was not used in respect of any other company

nationalised under the 1977 Act.  They invoke Article 14 (Art. 14) of the

Convention, which provides:

 

"The enjoyment of the rights and freedoms set forth in

this Convention shall be secured without discrimination

on any ground such as sex, race, colour, language,

religion, political or other opinion, national or social

origin, association with a national minority, property,

birth or other status."

 

99.     The 1977 Act laid down no specific route for arriving at the

value of unlisted securities such as the shares in Scott Lithgow.

It provided that compensation was to be determined, by negotiation or

by arbitration, by reference to their hypothetical Stock Exchange

quotation, having regard to all relevant factors.  This global system

prescribed by the 1977 Act was applied to Scott Lithgow as it was to

the unquoted shares in all the other companies which were nationalised

under the 1977 Act.  Had the applicants not accepted the negotiated

settlement, it would have been open to their Representative, like

other Stockholders' Representatives in similar circumstances, to have

submitted the matter to arbitration.  In these respects the applicants

were treated no differently from other shareholders in companies

nationalised under the 1977 Act.

 

100.    The statutory formula allowed an element of flexibility which

could and did result in its being applied differently to different

companies nationalised under the 1977 Act.  This enabled account to be

taken of dissimilarities between them and of the relative importance

in each case of the various factors considered (see mutatis mutandis

Lithgow and Others loc. cit. pp. 67-68, para. 81).  The mere fact that

the valuation method applied to Scott Lithgow was not used in respect

of other companies does not establish that it was discriminatory.  The

applicants have themselves contended that an earnings based valuation

would not have been appropriate for Scott Lithgow and the Whinney

Murray Report explains why the respondent Government's advisers did

not consider that the applicant's retrospective asset based valuation

of the company was appropriate.  In these circumstances it is not

established that the valuation method applied to Scott Lithgow was

arbitrary and the differences in the application of the global

valuation method provided for by the 1977 Act in respect of Scott

Lithgow when compared with the other companies nationalised had an

objective and reasonable justification.

 

        Conclusion

 

101.    The Commission concludes unanimously that there has been no violation

of Article 14 (Art. 14) of the Convention read in conjunction with Article 1 of

Protocol No. 1 (P1-1) by virtue of the valuation method used in respect of

Scott Lithgow shares.

 

D.      Did the circumstances of the resale of Scott Lithgow

        by the respondent Government in 1984 respect the

        applicants' rights under Article 1 of Protocol No. 1 (P1-1)?

 

102.    The applicants also complain that the property and business

which was nationalised under the 1977 Act as Scott Lithgow was

subsequently sold by the Government in 1984.  They contend first that

this puts in doubt whether the original nationalisation was in the

public interest and secondly that they should have been given the

opportunity to repurchase the property and business.  They also

contend that the price received by the Government substantially

exceeded the compensation which they had received under the 1977 Act.

They invoke Article 1 of Protocol No. 1 (P1-1) in respect of these

complaints.

 

103.    The Government contend first that they had completely

reorganised the finances of Scott Lithgow in the intervening period,

at a cost of over £71 million, and that no financial comparison

between the entity sold and that nationalised could properly be made.

They submit that the resale was irrelevant in relation to assessing

the public interest requirement in the original nationalisation and

that principles which may justify offering land, which has been

compulsorily acquired, back to its original owner if it is later not

required are not applicable to the nationalisation of industrial

businesses.

 

104.    With regard to the applicants' complaint that the resale

indicates that the nationalisation was not in the public interest, it

is relevant that Scott Lithgow was nationalised as a part of a major

political policy initiative relating to the shipbuilding industry in

the United Kingdom.  This policy was intended to achieve the complete

reorganisation of the industry, and was thought likely to provide the

most satisfactory basis upon which to establish the industry's

competitiveness.  As the Commission and the Court recognised in

Lithgow and Others (Comm.  Report para. 377;  Court judgment paras.

108-110 and 120-122), States enjoy a wide margin of appreciation under

Article 1 of Protocol No. 1 (P1-1) in their assessment of the public interest

in relation to a major policy measure of this kind.  In assessing this

question it is the public interest at the time of the measure

complained of which is relevant.  As the Court stated, the

legislature's judgment will be accepted unless that judgment was

manifestly without reasonable foundation.  However, in view of the

political assessment which is required in formulating a policy such as

the nationalisation of an industry, it is inevitable in a democratic

society that the political perception of such a policy, and hence the

policy itself may change from time to time.  The Commission finds that

it is not therefore established that the resale could put the public

interest of the original nationalisation in doubt.

 

105.    With regard to the applicants' complaint that they should have

been given an opportunity to re-purchase the property and business,

the Commission first notes the factual position.  Ownership of all the

shares in Scott Lithgow was transferred to British Shipbuilders on

Vesting day, 1 July 1977.  From that date on, the company continued to

be operated, now as part of a State-owned enterprise, until the

disposal of specific property and parts of the business about which

the applicants complain took place in 1984.  During this period the

company's balance sheet was restructured at a cost stated by the

respondent Government of over £71 million.  Furthermore, in 1980

British Shipbuilders was reorganised into five divisions of which

Scott Lithgow formed the nucleus of the division concerned with

offshore oil work.  It was against this background that assets that

had been part of Scott Lithgow were sold in 1984.

 

106.    The Commission recalls that the constitutional protection of

property in the legal systems of a number of Member States of the

Council of Europe includes a measure of protection for dispossessed

former owners, notably of land, which has proved to be surplus to

requirements and thus has not been used, although it was originally

compulsorily acquired.  The question may arise whether the requirement

of proportionality contained in Article 1 of Protocol No. 1 (P1-1) may

implicitly include a similar protection.

 

107.    Nevertheless, the factual position in the present case is

substantially different.  First, the assets were acquired in the

context of the nationalisation of one company as part of a policy of

the nationalisation of the whole industry to which it belonged.

Secondly, the assets were used and worked in the new State enterprise.

Thirdly, financial and managerial reorganisations resulted in there

being a significant difference between the assets disposed of and

Scott Lithgow as nationalised.  Finally, although the resale price was

£12 million as compared with the applicants' compensation of £2.5

million, very substantial sums had been extended by the Government and

further liabilities remained outstanding.  In these factual

circumstances the assets which were sold in 1984 cannot be compared, in

the context of Article 1 of Protocol No. 1 (P1-1), with the shares for which

the applicants were compensated when Scott Lithgow was nationalised.

For the same reasons, no issue arises in respect of that provision by

virtue of the difference between the compensation paid under the 1977

Act and the sale price paid in 1984.

 

        Conclusion

 

108.    The Commission concludes, by 14 votes to 2 that there has

been no violation of Article 1 of Protocol No. 1 (P1-1) by virtue of the

circumstances of the resale of Scott Lithgow by the respondent

Government in 1984.

 

 

E.      Did the second applicant's inability to refer the

        matter of compensation to a tribunal or court deprive it

        of access to court, contrary to Article 6 para. 1 (Art. 6-1) of the

        Convention?

 

109.    The second applicant complains that it was denied access to

court, as provided by Article 6 para. 1 (Art. 6-1) of the Convention and as

interpreted in the Golder case (Eur.  Court H.R., Golder judgment of

21 February 1975, Series A no. 18), in respect of its dispute with the

Government as to the compensation to be paid for shares in Scott

Lithgow.  It complains that only the Stockholders' representative had

access to the Arbitration Tribunal but that there was no reasonable

justification for this limitation of access by separate shareholders.

 

110.    The Court held that a similar complaint made by an individual

shareholder in Lithgow and Others (supra) disclosed no breach of

Article 6 para. 1 (Art. 6-1) of the Convention in view of the collective system

of enforcement of shareholders' rights and claims provided for under

the 1977 Act (loc. cit. paras. 193-197).  The Commission considers

that the same reasoning applies in the present case.

 

        Conclusion

 

111.    The Commission concludes unanimously that there has been

no violation of Article 6 para. 1 (Art. 6-1) of the Convention by virtue of the

second applicant's inability to refer the matter of compensation to a

tribunal or court.

 

 

F.      Was the period taken to arbitrate the issue of the

        £2 million loan a "reasonable time" within the meaning

        of Article 6 para. 1 (Art. 6-1) of the Convention.?

 

112.    The applicants also complain that the period taken to resolve

the dispute as to whether the £2 million loan made to Scott Lithgow by

the applicants should be treated as capital or as a loan exceeded a

reasonable time, contrary to Article 6 para. 1 (Art. 6-1) of the Convention.

 

113.    In the light of the Court's judgment in the Lithgow and

Others case, (loc. cit. para. 199), it is only after reference of the

applicant's dispute to the Arbitration Tribunal that the question of

a reasonable time for that Tribunal's determination of the dispute

could arise.  Prior to that time the parties were involved in

negotiations to reach a mutually acceptable solution, to which Article

6 para. 1 (Art. 6-1) of the Convention is inapplicable.

 

114.    This dispute was referred to the Arbitration Tribunal in

April 1979.  The Tribunal gave its decision on 7 December 1980, that

is about nineteen months later.  In view of the complexity of the

question which was at issue the Commission does not consider this

period to have exceeded a reasonable time.

 

        Conclusion

 

115.    The Commission concludes unanimously that there has been

no violation of Article 6 para. 1 (Art. 6-1) of the Convention by virtue of the

length of the arbitration proceedings.

 

 

G.      Were the applicants deprived of an effective remedy

        before a national authority in respect of their complaints

        under the Convention within the meaning of Article 13 (Art. 13)?

 

116.    The applicants finally complain of a breach of Article 13 (Art. 13) of

the Convention as a result of the absence of any individual national

remedy against the compensation given under the 1977 Act.  However the

Court has held in Lithgow and Others (supra) that Article 13 (Art. 13) of the

Convention does not provide a review of the conformity of legislation

with the Convention and that, in as far as the applicant complains

about the application of the 1977 Act, the remedies available to the

applicants were sufficient for the purposes of Article 13 (Art. 13) (paras.

204-208).  The Commission considers that the same reasoning applies in

the present case.

 

        Conclusion

 

117.    The Commission concludes unanimously that there has been

no violation of Article 13 (Art. 13) of the Convention.

 

H.      Recapitulation

 

118.    The Commission concludes unanimously that there has been no violation

of Article 1 of Protocol No. 1 (P1-1) arising from the terms of the

nationalisation of Scott Lithgow (para. 97).

 

        The Commission concludes unanimously that there has been no violation

of Article 14 (Art. 14) of the Convention read in conjunction with Article 1 of

Protocol No. 1 (P1-1) by virtue of the valuation method used in respect of

Scott Lithgow shares (para. 101).

 

        The Commission conclude, by 14 votes to 2, that there has

been no violation of Article 1 of Protocol No. 1 (P1-1) by virtue of the

circumstances of the resale of Scott Lithgow by the respondent

Government in 1984 (para. 108).

 

        The Commission concludes unanimously that there has been no violation

of Article 6 para. 1 (Art. 6-1) of the Convention by virtue of the second

applicant's inability to refer the matter of compensation to a tribunal or

court (para. 111).

 

        The Commission concludes unanimously that there has been

no violation of Article 6 para. 1 (Art. 6-1) of the Convention by virtue of the

length of the arbitration proceedings (para. 115).

 

        The Commission concludes unanimously that there has been

no violation of Article 13 (Art. 13) of the Convention (para. 117).

 

 

 

 

Secretary to the Commission              President of the Commission

 

 

 

     (H.C. KRÜGER)                             (C. A. NØRGAARD)

 

APPENDIX I

 

 

 

History of the proceedings

 

 

 

 

                Item                              Date

__________________________________________________________________

 

Examination of the admissibility

 

Introduction of the application              17 August 1981

 

Registration of the application              20 August 1981

 

Preliminary examination by the

Rapporteur (Rule 40 of the Rules

of Procedure)                                   October 1981

 

Commission's first examination of

the admissibility of the application

and decision to give notice of the

application to the respondent Government

and to invite them, pursuant to Rule 42

para. 2 (b) of the Rules of Procedure,

to submit written observations on its

admissibility and merits                     10 December 1981

 

Observations of the respondent

Government                                   30 June 1982

 

Observations of the applicants in reply     24 November 1982

 

Commission's deliberations and decision

to invite the parties to make further

written submissions on admissibility

and merits pursuant to Rule 42 para. 3 (a)

of the Rules of Procedure                    12 July 1984

 

Further observations of the applicants;

withdrawal of the third applicant            22 July 1983

 

Further observations of the applicants       17 October 1984

 

Deliberations and decision on

admissibility                                11 March 1985

 

Examination of the merits

 

Commission's first deliberations

on the merits; applicants invited to

make further submissions on fact

and law concerning the resale of

Scott Lithgow pursuant to

Rule 45 para. 2 of the Rules of

Procedure.  Parties informed that

the Commission was at their disposal with

a view to securing a friendly settlement

pursuant to Article 28 para. (b) of

the Convention                               11 March 1985

 

Observations submitted by the

applicants                                   17 September 1985

 

Respondent Government's

observations                                 18 December 1985

 

Applicants' further

observations                                 30 March 1986

 

Commission's second deliberations

on the merits and decision to adjourn

its further examination of the

application pending the judgment of

the Court in the case of Lithgow and

Others                                        9 May 1986

 

Judgment of the Court in Lithgow

and Others                                    8 July 1986

 

Commission resumed its

deliberations on the merits and

decision to invite the parties to

make such further submissions as

they wished in the light of the

Court's judgment in Lithgow and

Others                                       10 October 1986

 

Respondent Government's further

submissions                                  17 December 1986

 

Applicants' further submissions              18 December 1986

 

Commission's further deliberations

on the merits                                 7 March 1987

 

Commission's further deliberations

on the merits                                10 October 1987

 

Commission's further deliberations

on the merits, vote and adoption

of the present Report                        17 December 1987

 

 

 

Full & Egal Universal Law Academy