Factortame (1990/1996): Supremacy, Interim Relief, and State Liability

The Factortame litigation comprises a series of landmark judgments arising from the challenge by Spanish fishermen to the United Kingdom’s Merchant Shipping Act 1988. The case produced two of the most significant CJEU judgments in EU constitutional law: Factortame I (Case C-213/89, 1990) on the obligation of national courts to provide interim relief to protect rights claimed under EU law, and Factortame III (Cases C-46/93 and C-48/93, 1996) on the conditions for Member State liability for breaches of EU law, decided jointly with Brasserie du Pêcheur.

The Merchant Shipping Act 1988 and the Facts

The UK Parliament enacted the Merchant Shipping Act 1988 to prevent quota hopping — the practice by which Spanish fishing companies registered vessels under the British flag to access UK fishing quotas under the Common Fisheries Policy. The Act introduced a new register of British fishing vessels, requiring that vessels be 75% British-owned and managed from the UK. The nationality requirement effectively excluded Spanish-owned vessels that had previously been registered as British.

Approximately 95 Spanish-owned vessels were affected. Factortame Ltd, a company incorporated in the UK but owned by Spanish nationals, challenged the Act’s compatibility with EU law, arguing that it violated the principle of non-discrimination on grounds of nationality, the right of establishment, and the common fisheries policy. The Administrative Court referred the question of EU law compatibility to the CJEU and, in the interim, granted an order suspending the application of the nationality requirements. The Court of Appeal reversed this order, and Factortame appealed to the House of Lords.

Factortame I: The Obligation to Grant Interim Relief

The House of Lords referred to the CJEU the question of whether a national court was required under EU law to grant interim relief against the application of a national law that was alleged to violate EU law, where the only obstacle under national law was a rule preventing interim relief against the Crown. The UK government argued that the question of interim relief was a matter of national procedural law governed by the principle of national procedural autonomy.

The CJEU held that a national court must set aside a national procedural rule that prevents it from granting interim relief where that relief is necessary to protect rights claimed under EU law, pending the Court’s determination of the compatibility of national law with EU law. The Court reasoned that the full effectiveness of EU law would be impaired if a national rule could prevent a court from granting interim relief to protect rights claimed under EU law while the question of EU law was pending before the CJEU.

The judgment had profound implications for the UK constitutional order. The House of Lords subsequently granted an interim injunction against the Crown, holding that EU law required the disapplication of the national procedural rule that prevented such relief. The case established that EU law could require national courts to provide remedies that were not available under national law, overriding national procedural rules that impeded the effective protection of EU law rights. This principle of procedural effectiveness qualifies the national procedural autonomy of Member States and ensures the uniform application of EU law.

The Substance: Discrimination in Fisheries

The CJEU’s judgment on the substance (Case C-221/89) held that the UK’s nationality requirements violated Article 43 EC (now Article 49 TFEU) on the right of establishment. The Court stated that the right of establishment includes the right to set up and manage undertakings in another Member State under the conditions laid down by the host state’s law for its own nationals. Requiring vessel owners to be British nationals or domiciled in the UK discriminated on grounds of nationality, as British nationals were by definition in a more favourable position.

The Court rejected the UK’s argument that the measures were necessary to protect the conservation of fish stocks. The common fisheries policy had established a system of national quotas, and the UK could not unilaterally exclude nationals of other Member States from fishing against the UK’s quota. The nationality requirement was a disproportionate restriction on the right of establishment. The judgment confirmed that the common fisheries policy and the right of establishment limited the power of Member States to determine access to their fishing quotas.

Factortame III: State Liability for Breach of EU Law

Following the CJEU’s judgment on the substance, Factortame claimed damages from the UK for losses suffered as a result of the Merchant Shipping Act. The question of whether a Member State was liable in damages for a legislative breach of EU law was referred to the CJEU and decided jointly with Brasserie du Pêcheur v Germany (Cases C-46/93 and C-48/93).

The CJEU established three conditions for state liability: the rule of EU law infringed must be intended to confer rights on individuals, the breach must be sufficiently serious, and there must be a direct causal link between the breach and the damage suffered. The breach was sufficiently serious where the Member State manifestly and gravely disregarded the limits of its discretion. Relevant factors included the clarity and precision of the rule breached, whether the infringement was intentional or involuntary, whether any error of law was excusable, and whether the position taken by an EU institution contributed to the breach.

Applying these conditions, the CJEU held that the UK’s breach was sufficiently serious. The Court noted that the UK had been warned by the Commission about the incompatibility of its nationality requirements with EU law, that the discrimination was clearly contrary to the Treaty, and that no other EU institution had contributed to the UK’s error. The case was remitted to the national court for determination of damages, which was ultimately settled by the UK government for an undisclosed sum.

The Constitutional Significance of Factortame

The Factortame litigation is one of the most significant examples of the impact of EU law on national constitutional orders. Factortame I established that EU law requires national courts to provide effective remedies even where national procedural rules would prevent such relief, overriding fundamental national constitutional principles including the rule against interim relief against the Crown. Factortame III established that Member States may be liable in damages for legislative acts that violate EU law, a principle with no equivalent in most national legal systems.

The Factortame judgments demonstrate the constitutional character of EU law and its capacity to reshape national legal orders. The case forced the UK courts to confront the relationship between EU law and parliamentary sovereignty, ultimately accepting that EU law could require the disapplication of Acts of Parliament and the payment of damages for legislative action. The case is a landmark in the development of EU constitutionalism and the effective judicial protection of individual rights under EU law.