A1P1 in the context of nationalisation 26 June 2019 Nusrat Zar, Partner

1. A1P1 in the context of nationalisation 26 June 2019 Nusrat Zar, Partner

2. Political context • Labour Party Manifesto 2017 “We will: • Bring private rail companies back into public ownership as their franchises expire. • Regain control of energy supply networks through the alteration of operator license conditions, and transition to a publicly owned, decentralised energy system. • Replace our dysfunctional water system with a network of regional publicly-owned water companies. • Reverse the privatisation of Royal Mail at the earliest opportunity.” [Emphasis added.]

3. Discussion points • De facto deprivation • Expropriation • Conclusion

4. De facto deprivation • Implications of seeking changes through regulations • Question: Do the measures amount to a “de facto deprivation” or merely a "control on use“? • R (British American Tobacco UK Limited) v Secretary of State for Health [2016] EWCA Civ1182 • De facto deprivation does not necessarily arise from regulatory measures that make property rights "far less valuable than they were before" (at [103]). • Where government's changes constitute merely a control on use, compensation will only be required if the controls are "sufficiently severe“ (at [113]).

5. Expropriation (1) Lithgow v The United Kingdom [1986] ECHR 8 (including the report adopted by the Commission on 17 December 1981 on application no. 9482/81, the “Report”) • The taking of property without payment of an amount reasonably related to its value would normally constitute a disproportionate interference. • A1P1 does not require that a specific valuation system must be used. • The government is only obliged to choose a valuation methodology which achieves "a fair balance" and does not result in a "manifest disproportion between the value taken and the compensation paid" (at [90] of the Report). • It was found that valuation method of choosing a comparable quoted company on the Stock Exchange is, as it was put, "a usual method of valuation" (at [91] of the Report) and so was acceptable on the facts of the case.

6. Expropriation (2) James v the United Kingdom [1986] ECHR 2 • “Legitimate objectives of ‘public interest’, such as 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“ (at [54]). • National authorities had a wide margin of appreciation when implementing social and economic policies, including determining levels of compensation, as long as the approach was not "manifestly without reasonable foundation“ (at [46]).

7. Expropriation (3) Katikaridis v Greece (App 19385/92) • The applicants argued that the irrefutable presumption under Law no. 653/1977 was not correct for all owners of properties on major roads. • They alleged a breach of A1P1 on the grounds that the presumption stopped them from obtaining the compensation to which they were entitled and provided no avenue for challenge. • The ECtHR agreed, finding that the system was "too inflexible" and took "no account of the diversity of situations, ignoring as it does the differences due in particular to the nature of the works and the layout of the site“ (at [49]) • The expropriation was found to be manifestly without reasonable foundation.

8. Expropriation (4) R(SRM Global Master Fund LP) v Treasury Commissioner [2009] EWCA Civ 788 Dennis Grainger and others v The United Kingdom (App No. 34940/10) • The Court of Appeal held that in "the context of A1P1, proportionality will ordinarily require payment of an amount reasonably related to the value of the property taken. But the margin of appreciation will mean that the relation between proportionality and the first principle is not rigid or constant“ (at [73]). • The application of section 5(4) assumptions had not breached A1P1. • The legislature had a wide margin of appreciation in matters of macro-economic policy. • The assumptions imposed upon the independent valuer fell within this discretion and were not manifestly without reasonable foundation.

9. Expropriation (5) • Key points • Statutory assumptions: The Court of Appeal rejected the submission that the statutory assumptions were "in truth only a charade, the product of a settled intention by government to set a formula which would yield a zero figure for compensation“ (at [77]). • Context: Where "[t]he measure's intention may be to re-distribute wealth, or to achieve a necessary social reform, goals which are or may be perceived to be inconsistent with full compensation payable to the previous owner" then the margin of appreciation "allows a flexible approach to the right protected by A1P1 which may give place to those aspects of the policy which override the case for payment of full value" (at [56]).

10. Conclusion • A challenge to Labour’s compensation approach would require consideration of the stated policy objectives against the compensation • Labour’s deduction factors: • Pension fund deficits • Asset stripping since privatisation • State subsidies given to the companies since privatisation • Stranded assets • State of repair of assets