CEDH · CASELAW;JUDGMENTS;CHAMBER;ENG — 8 juillet 1986

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THE UNITED KINGDOM   (Application no. 9006/80; 9262/81; 9263/81; 9265/81; 9266/81; 9313/81; 9405/81)             JUDGMENT       STRASBOURG   8 July 1986 In the case of Lithgow and Others [] , The European Court of Human Rights, taking its decision in plenary session in pursuance of Rule 50 of the Rules of Court and composed of the following judges:   Mr.   R. Ryssdal , President ,   Mr.   W. Ganshof van der Meersch ,   Mr.   J. Cremona ,   Mr.   G. Wiarda ,   Mr.   Thór Vilhjálmsson ,   Mrs.   D. Bindschedler-Robert ,   Mr.   G. Lagergren ,   Mr.   F. Gölcüklü ,   Mr.   F. Matscher ,   Mr.   J. Pinheiro Farinha ,   Mr.   L.-E. Pettiti ,   Mr.   B. Walsh ,   Sir   Vincent Evans ,   Mr.   R. Macdonald ,   Mr.   C. Russo ,   Mr.   R. Bernhardt ,   Mr.   J. Gersing ,   Mr.   A. Spielmann , and also of Mr. M.-A. Eissen , Registrar , and Mr. H. Petzold , Deputy Registrar , Having deliberated in private on 28 June, 24-26 and 28 September, 23 and 25 October 1985, 27-30 May and 24 June 1986, Delivers the following judgment, which was adopted on the last-mentioned date: PROCEDURE 1.    The present case was referred to the Court by the European Commission of Human Rights ("the Commission") on 18 May 1984, within the three-month period laid down by Article 32 para. 1 and Article 47 (art. 32-1, art. 47) of the Convention for the Protection of Human Rights and Fundamental Freedoms ("the Convention"). The case originated in the following seven applications against the United Kingdom of Great Britain and Northern Ireland, lodged with the Commission between 1977 and 1981 under Article 25 (art. 25) by the persons indicated: - no. 9006/80: Sir William Lithgow; - no. 9262/81: Vosper Ltd. (now Vosper PLC - "Vosper"); - no. 9263/81: The English Electric Company, Ltd.   ("English Electric") and Vickers Ltd. (now Vickers PLC - "Vickers"); - no. 9265/81: Banstonian Company ("Banstonian") and Northern   Shipbuilding & Industrial Holdings Ltd. ("Northern Shipbuilding"); - no. 9266/81: Yarrow PLC (formerly Yarrow and Company Ltd. -   "Yarrow"), Sir Eric Yarrow, M & G Securities Ltd. and Mrs. Monique Augustin-Normand; - no. 9313/81: Vickers; - no. 9405/81: Dowsett Securities Ltd. ("Dowsett"), FFI (UK Finance)   PLC (now Investors in Industry PLC - "Investors") and The Prudential Assurance Company Ltd. ("Prudential"). Sir William Lithgow and Sir Eric Yarrow are British citizens and Mrs. Augustin-Normand is a French citizen; the remaining applicants are all companies incorporated and registered in the United Kingdom. The expression "the applicants" hereinafter designates all the above-named persons other than Sir Eric Yarrow, M & G Securities Ltd. and Mrs. Augustin-Normand whose complaints were declared inadmissible by the Commission (see paragraph 102 below). 2.    The Commission’s request referred to Articles 44 and 48 (art. 44, art. 48) and to the declaration whereby the United Kingdom recognised the compulsory jurisdiction of the Court (Article 46) (art. 46). The request sought a decision from the Court as to the existence of violations of Articles 6 para. 1, 13, 17 or 18 (art. 6-1, art. 13, art. 17, art. 18) of the Convention or of Article 1 of Protocol No. 1 (P1-1) (taken alone or in conjunction with Article 14 of the Convention) (art. 14+P1-1). 3.    In response to the inquiry made in accordance with Rule 33 para. 3 (d) of the Rules of Court, the applicants all stated that they wished to take part in the proceedings pending before the Court and designated the lawyers and, in the case of Vickers, the company’s Commercial Director who would represent them (Rule 30). 4.    The Chamber of seven judges to be constituted included, as ex officio members, Sir Vincent Evans, the elected judge of British nationality (Article 43 of the Convention) (art. 43), and Mr. G. Wiarda, the then President of the Court (Rule 21 para. 3 (b)). On 22 May 1984, the President drew by lot, in the presence of the Registrar, the names of the five other members, namely Mr. R. Ryssdal, Mr. Thór Vilhjálmsson, Mr. W. Ganshof van der Meersch, Mr. L. Liesch and Mr. E. García de Enterría (Article 43 in fine of the Convention and Rule 21 para. 4) (art. 43). On the same day, the Chamber decided under Rule 50 to relinquish jurisdiction forthwith in favour of the plenary Court. 5.    The President of the Court consulted, through the Registrar, the Agent of the United Kingdom Government ("the Government"), the Commission’s Delegate and the applicants’ representatives on the necessity for a written procedure (Rules 37 para. 1 and 50 para. 3). Thereafter, in accordance with the President’s Orders and directions, the following documents were lodged at the registry: - on 30 October 1984, individual memorial of Sir William Lithgow; - on 31 October 1984, joint memorial of the applicants and individual   memorials of Vosper, English Electric and Vickers, Yarrow, and   Vickers; - on 5 November 1984, memorial of the Government and individual   memorial of Dowsett, Investors and Prudential; - on 15 November 1984, individual memorial of Banstonian and Northern   Shipbuilding. By letter of 15 January 1985, the Secretary to the Commission indicated that its Delegate did not propose to reply in writing to these memorials. 6.    After consulting, through the Registrar, the Agent of the Government, the Commission’s Delegate and applicants’ representatives, the President directed on 18 December 1984 that the oral proceedings should open on 24 June 1985. 7.    On 30 May 1985, the Court (presided over by Mr. Ryssdal, who had on that day succeeded Mr. Wiarda) held a preparatory meeting when it drew up a list of requests and questions which were communicated shortly thereafter by the Registrar to the Government, the Commission and the applicants. 8.    The hearings were held in public at the Human Rights Building, Strasbourg, from 24 to 26 June 1985. There appeared before the Court: - for the Government:   Mr. M. Eaton , Legal Counsellor,       Foreign and Commonwealth Office,   Agent ,   Mr. R. Alexander , Q.C.,   Prof. R. Higgins , Barrister-at-Law,   Mr. N. Bratza , Barrister-at-Law,   Counsel ,   Mr. H. Whitaker ,   Mr. J. Keeling ,   Dr. G. Davis ,   Mr. J. Knox , Department of Trade and Industry,   Mr. R. Gardiner , Law Officers’ Department,   Advisers ; - for the Commission:   Mr. J.A. Frowein ,   Delegate ; - for Sir William Lithgow:   Mr. J. Macdonald , Q.C.,   Mr. N. Maryan-Green , avocat,   Mr. J. McNeill , Advocate,   Counsel ,   Mr. D. Ross Macdonald , Solicitor,   Mr. C. Hardcastle ,   Mr. C. Gladstone ,   Mr. D. Brock , Hardcastle & Co. Ltd.,   Advisers ; - for Vosper:   Mr. A. Lester , Q.C.,   Mr. M. Mendelson , Barrister-at-Law,   Mr. D. Pannick , Barrister-at-Law,   Counsel ,   Mr. J. Howison , Solicitor; - for English Electric and Vickers:   Mr. R. Southwell , Q.C.,   Miss M. Simmons , Barrister-at-Law,   Prof. I. Delupis , Barrister-at-Law,   Counsel ; - for English Electric:   Mr. M. Lester , Director of Legal Affairs, Solicitor; - for Vickers:   Mr. C. Foreman , Commercial Director,   Representative ,   Mr. N. Bevins , Company Secretary,   Adviser ; - for Banstonian and Northern Shipbuilding:   Mr. R. Graupner , Solicitor,   Mr. T. Edwards , Rea Brothers PLC,   Adviser ; - for Yarrow:   Prof. F. Jacobs , Q.C.,   Counsel ,   Mr. A. Mallinson ,   Mr. D. Rowe , Solicitors; - for Dowsett, Investors and Prudential:   Mr. A. Lester , Q.C.,   Mr. D. Pannick , Barrister-at-Law,   Counsel ,   Mr. A. Foyle , Solicitor. The Court heard addresses by Mr. Alexander for the Government, by Mr. Frowein for the Commission and by Mr. J. Macdonald, Mr. A. Lester, Mr. Southwell, Mr. Graupner and Prof. Jacobs for the applicants, as well as replies to questions put by it and certain of its members. During the course of the hearings, various documents, including written replies to questions put by the Court (see paragraph 7 above), were filed by the Government and the applicants. AS TO THE FACTS 9.    The applicants in the present case had certain of their interests nationalised under the Aircraft and Shipbuilding Industries Act 1977 ("the 1977 Act"). Whilst not contesting the principle of the nationalisation as such, they claimed that the compensation which they received was grossly inadequate and discriminatory and alleged that they had been victims of breaches of Article 1 of Protocol No. 1 (P1-1) to the Convention, taken alone and in conjunction with Article 14 (art. 14+P1-1) of the Convention. They also invoked Article 6 (art. 6) and - in one case - Article 13 (art. 13) of the Convention. Certain claims of violation of Articles 17 and 18 (art. 17, art. 18) of the Convention, which had been made before the Commission, were not pursued before the Court. I.    RELEVANT LEGISLATION A. Background to the 1977 Act 1. The nationalisation proposals 10.    In its election manifesto published on 8 February 1974, the Labour Party stated that its political programme included nationalisation of the United Kingdom aircraft and shipbuilding industries. It had made previous statements to that effect in 1971, 1972 and 1973. At a general election held on 28 February 1974, the Labour Party gained office from the Conservatives and formed a government; it did not then have an overall majority in the House of Commons. On 31 July 1974, the Secretary of State for Industry announced that the shipbuilding and shiprepair industries would be taken into public ownership and that legislative provisions for safeguarding their assets would be effective from that date; details of the Government’s proposals for nationalising those industries were set out in a discussion paper published on the same day. A further general election was held on 10 October 1974, at which the Labour Party was returned with an overall majority. On 29 October, the Queen’s Speech at the opening of Parliament referred to the Government’s intention to bring the aerospace industry into public ownership and a statement concerning safeguarding provisions for its assets was made in the House of Commons on 4 November. On 15 January 1975, the Government published a consultative document relative to their plans for the nationalisation of that industry. 11.    The above-mentioned discussion paper and consultative document contained particulars of the companies to be nationalised and stated that "fair compensation" would be paid, though without giving details of the compensation terms. Both documents set out the political, economic and social considerations that motivated the nationalisation proposed; essentially, the Government considered that it would put the industries concerned - which had been in receipt of substantial Government assistance and were heavily dependent on Government contracts - on a sounder organisational and economic footing and bring to them a desirably greater degree of public control and accountability. 2. The Parliamentary proceedings and subsequent developments 12.    On 17 March 1975, the Secretary of State for Industry announced in the House of Commons the forthcoming introduction of an Aircraft and Shipbuilding Industries Bill to give effect to the nationalisation proposals. He indicated, for the first time, the basis on which compensation would be determined, namely by reference to the value of the securities of the companies to be acquired: securities quoted on a recognised Stock Exchange were to be valued at their average price during the six months ending on 28 February 1974, whilst the value of unquoted securities was to be determined, by agreement or arbitration, as if they had been quoted during that period. Details of the safeguarding provisions were also given. 13.    A Bill on the lines announced was duly published, providing for the securities of forty-three companies to pass into the ownership of public corporations. Although the Bill received its first reading on 30 April 1975, it lapsed at the end of the Parliamentary session due to lack of time. The Government then reviewed the proposed compensation terms (including the choice of the valuation reference period) in the light of representations received, but decided not to change them, notably on account of the uncertainty which this would have created, of the extent of share dealings that had taken place on the basis of the terms already announced and of the fact that in the alternative reference periods canvassed share prices were likely to have been distorted by the commitment to nationalisation. 14.    A second Bill, in essentially the same terms as the first, was introduced in November 1975. It gave rise to protracted proceedings in the House of Commons, covering such matters as the principle and the scope of the nationalisation measure and the compensation terms. In February 1976, the Government themselves announced the exclusion from the ambit of the Bill of Drypool Group Ltd.; this shipbuilding company had become insolvent after February 1974 and the Government considered that it would be unjustifiable to pay its shareholders the full value of the shares during the compensation reference period. Having received its third reading in the House of Commons on 29 July 1976, the Bill passed to the House of Lords where, after further lengthy debates, various amendments were made which were not acceptable to the Government; in particular, certain shiprepairing and warship-building companies were excluded and a provision was inserted whereby the Arbitration Tribunal - which was to assess compensation in default of agreement - would have been able to award "fair compensation" if it considered that this would not be provided under the statutory formula. The ensuing disagreement between the two Houses of Parliament over the amendments could not be resolved by the end of the session and the second Bill therefore also lapsed. 15.    A third Bill in the same terms as the second was introduced into the House of Commons on 26 November 1976, completed all procedural stages there by 7 December and was then introduced into the House of Lords under a special procedure whereby it could pass into law without the assent of that House. It received the Royal Assent and came into force on 17 March 1977. The compensation terms enacted were essentially identical to those provided for in the first Bill; the same applied to the interests to be nationalised, except for the exclusion of Drypool Group Ltd. and also - following an amendment accepted by the Government during the proceedings on the third Bill - of certain companies whose business consisted solely of shiprepairing. In the final event, thirty-one companies (four aerospace and the remainder shipbuilding, marine engineering or shipbuilding training) were listed for nationalisation in the 1977 Act. 16.    The Parliamentary debates were characterised throughout by opposition concentrated, in particular, on the alleged unfairness of the compensation terms. The criticisms - which were substantially identical to those made by the applicants in the present proceedings and were all withdrawn or rejected after debate - related, inter alia, to the use of a hypothetical Stock Exchange method of valuation for unlisted shares; the choice of the valuation reference period; the absence of provision for taking account of growth in the companies concerned, or fall in the value of money, after the reference period; the non-inclusion in the compensation formula of any equivalent of the "control premium" (see paragraph 98 below); and the fact that the valuation of certain acquired companies might be related to the stock market quotation of their parent companies’ shares. Government spokesmen, for their part, maintained that the terms were fair. They argued, amongst other things, that it was proper to value securities at a date before they were affected by the possibility of nationalisation; that the subsequent performance of a particular company would normally have been in prospect at the reference period and hence reflected in the imputed share price; that it was reasonable that the Government should benefit from any improvements in the companies after the end of the reference period since they accepted the risk of any deterioration, short of bankruptcy; that it was fallacious to assume that there was a correlation between share values and the rate of inflation; that the choice of reference period protected shareholders against the subsequent fluctuations in market prices; that the terms on which compensation was being offered were not those on which a willing buyer acquired control of a company from a willing seller, since this was not a transaction of that kind but a nationalisation by Act of Parliament; and that regard would be had to the quotation of a parent company’s shares only where the acquired company’s activities constituted a "very substantial" part of the whole undertaking. The Government also acknowledged that the settlement of compensation would take some time, but expressed their intention of making payments on account as large and as quickly as possible and within six months of passage of the companies into public ownership. 17.    In May 1979 - at which time compensation negotiations were still in progress (see paragraphs 33-35 below) -, a further general election was held and the Conservative Party returned to office. The new Government reviewed, in the light of representations made, the compensations terms contained in the 1977 Act but decided not to change them. In a written answer the new Secretary of State for Industry announced this to the House of Commons on 7 August 1980, in the following terms: "We recognise that some previous owners and many members of this House and of the public believe that the terms of compensation imposed by the 1977 Act were grossly unfair to some of the companies and we share this view. We have explored every possibility to right the injustice done by the previous Government but to our very great regret we have concluded that amending legislation to establish new compensation terms retrospectively would be unjust to the many people who sold shares on the basis of the previous terms." The new Government also considered, but decided against, any immediate denationalisation of certain of the companies that had passed into public ownership. B. The 1977 Act 18.    Sections 19 and 20 of the 1977 Act provided that, on a date to be specified by the Secretary of State for Industry ("Vesting Day"), the securities of the companies engaged in the aircraft and shipbuilding industries which were listed in Schedules 1 and 2, together with certain other assets appurtenant to their activities, should vest in "British Aerospace" or "British Shipbuilders", two public corporations established under the Act. The dates subsequently so specified were, for aerospace companies, 29 April 1977 and, for shipbuilding companies, 1 July 1977. The Act also made provision for compensation to be paid to the former holders of securities of the acquired companies, for the safeguarding of the assets of the nationalised undertakings, for the appointment of stockholders’ representatives and for the establishment of an Arbitration Tribunal. 1. Compensation 19.    Under section 35(3), the amount of compensation payable was, generally, an amount equal to the "base value" of the nationalised securities, less any deduction which was appropriate by virtue of section 39 (see paragraphs 23-24 below). For securities listed on the London Stock Exchange, the "base value" was, under section 37(1), the average of their weekly quotations during the six months between 1 September 1973 and 28 February 1974 ("the Reference Period", the second date being that of the general election referred to in paragraph 10, second sub-paragraph, above). For securities not so listed and issued before the end of the Reference Period, the "base value" was "such as may be determined by agreement between the Secretary of State and the stockholders’ representative" (see paragraph 28 below) "or, in default of such agreement, as may be determined by arbitration under this Act to be the base value which the securities would have had under section 37 ... if they had been listed" on the Stock Exchange throughout the Reference Period (section 38(1)). The "base value" of unlisted securities issued after the end of the Reference Period was, generally, their issue price (section 38(10)). Among the reasons given by the Government for the choice of this reference period were: the need to avoid a period when the value of the shares was distorted by the prospect of nationalisation; subject to this, the need to take as recent a period as possible; and the general decline in share prices between mid-1972 and March 1975, when the compensation terms were announced, making it desirable to choose a period reflecting the mid-point of the share market over those years. In determining the "base value" of unlisted securities, the Arbitration Tribunal (see paragraphs 29-32 below) was to have regard to "all relevant factors"; when the acquired company was the subsidiary of a company all or part of whose shares were listed on the Stock Exchange and carried on an undertaking which "formed a substantial part of the undertakings of the group of companies of which the company and the parent company were members", one of those factors was the stock market quotation of the parent company’s shares (section 38(3) and (6)). During negotiations, the Secretary of State, whilst having some scope for judgment, could not offer by way of compensation more than was possible under the statutory formula. The Arbitration Tribunal, for its part, was in no way bound by the amount offered or contended for in negotiations. In determining compensation, no regard was had to any grants to the nationalised undertakings from public funds. 20.    Under section 36, compensation was not payable until the "base value" of the nationalised shares and the amount of any deduction to be made under section 39 (see paragraphs 23-24 below) had been determined. However, it was provided that, at any time after Vesting Day, "such sum may be paid on account of compensation ... as the Secretary of State thinks fit ...". The payments on account made to the applicants in the present case were unconditional. 21.    (a) Compensation was to take the form of government stock, known as "Compensation Stock" (section 35(1)). Interest thereon was to accrue from Vesting Day (Schedule 5). The rate of such interest was to be determined by the Treasury, as were the conditions as to repayment, redemption and other matters (section 40). (b) Compensation was not subject to tax on receipt, but disposal or redemption of Compensation Stock gave rise to liability to capital gains tax, the gain being calculated by reference to the cost of acquisition by the shareholder of the nationalised shares. However, by virtue of section 54 of the Finance Act 1976, the replacement of Compensation Stock by new business assets could give rise to an entitlement to "roll-over relief", whereby liability to tax would be deferred until the new assets, or their successors, were ultimately disposed of. Such relief was available only where the recipient of the Compensation Stock was a company and where the nationalised concern had been either a subsidiary, at least 75% owned, of that company or a wholly-owned subsidiary of a consortium consisting of five or fewer companies; it could not be claimed by a private individual, regardless of the size of his shareholding in the nationalised concern. These criteria were intended to limit the ambit of "roll-over relief" to cases where the shares in the nationalised company had been held as a business asset rather than as a purely financial investment. 2. Safeguarding provisions 22.    During the course of the Parliamentary proceedings on the various Bills, Government spokesmen stated that the undertakings to be nationalised were to continue to operate as normal commercial concerns until Vesting Day. And, in fact, all the companies with which the present case is concerned did so. Although the undertakings remained private property until Vesting Day, the 1977 Act contained a number of safeguarding provisions whose general aim was to ensure that, between the end of the Reference Period (28 February 1974) and that Day, there was no abnormal action by the existing owners or management which might be detrimental to the public sector. The provisions, whose broad effect is summarised below, did not apply if the action in question had been approved by the Secretary of State for Industry; retroactive approval was possible in certain circumstances, notably in respect of "material transactions" (see paragraph 24 below). The Government gave assurances that the safeguarding provisions would not be used in such a way as to penalise reasonable action taken in the normal course of business and in good faith. 23.    Holders of securities of the acquired companies were entitled to dividends and interest thereon for all periods up to Vesting Day. However, limits were in effect imposed on the amount of dividends and interest paid pursuant to resolutions passed between the end of the Reference Period and Vesting Day: if the date of the resolution lay between 28 February 1974 and the "Safeguarding Date" (generally 17 March 1975, being the date of the statement in Parliament outlining the compensation terms and safeguarding provisions; see paragraph 12 above), the amount of any payments in excess of the permissible maximum fell, under section 39, to be deducted from the compensation payable for shares under section 35; if the date of the resolution was after the Safeguarding Date and before Vesting Day, the directors of the acquired company were personally liable to the relevant public corporation for any such excess (section 23). For a dividend, the permissible maximum was generally either the net revenue of the company for the period in respect of which the dividend was declared or the amount of the most recent ordinary dividend previously paid (whichever was the less); for interest, it was the minimum necessary to avoid default on obligations or the carrying over of interest for subsequent payment (section 24). During the Parliamentary debates, the Government gave assurances that higher payments would be authorised if the circumstances warranted. 24.    British Aerospace and British Shipbuilders were protected against losses occasioned by "material" or "onerous" transactions entered into by an acquired company between the end of the Reference Period and Vesting Day. Broadly speaking, a "material transaction" was one, such as a special dividend, that involved the direct or indirect transfer of company assets to shareholders and an "onerous transaction" was one that was unusual or unreasonable and foreseeably caused loss to the company (sections 30 and 31). If the transaction had been entered into between 28 February 1974 and the Safeguarding Date - or in certain cases the "Initial Date" (31 July 1974 for the shipbuilding industry or 4 November 1974 for the aerospace industry) -, the net loss caused thereby to the relevant public corporation fell, under section 39, to be deducted from the compensation payable for shares under section 35; if the transaction had been entered into after the Safeguarding Date - or the Initial Date - and before Vesting Day, that corporation could institute proceedings before the Arbitration Tribunal (see paragraphs 29-32 below) to recover from the directors or the parties to the transaction the loss caused thereby and, in the case of an "onerous transaction", to have the same declared void (sections 30 and 31). 25.    There was also a general prohibition on the transfer away by an acquired company of certain assets, coupled with the possibility for the relevant public corporation to institute proceedings before the Arbitration Tribunal to have the damage suffered as a result of the transfer made good by the directors or the parties thereto (section 28). If the transfer had been effected after the Initial Date, the corporation could recover the assets, either by acquiring certain additional companies or by acquiring the assets themselves (sections 26 and 29). 26.    The Secretary of State could in certain circumstances (notably insolvency) remove a company from the list of companies to be nationalised (section 27). 27.    Questions arising as to the amount of the appropriate deduction to be made from compensation under section 39 were to be determined by agreement between the Secretary of State and the Stockholders’ Representative (see paragraph 28 below) or, in default of such agreement, by the Arbitration Tribunal. The latter also had jurisdiction over various other issues arising under the safeguarding provisions. 3. The Stockholders’ Representative 28.    Section 41(1) of the 1977 Act provided that a Stockholders’ Representative was to be appointed in respect of each acquired company "to represent the interests of holders of securities of that company in connection with the determination of the base value of those securities". He was to be appointed by the holders of the securities at a meeting held within a prescribed time-limit, failing which, by the Secretary of State; he could be removed by resolution passed at a meeting of the security holders (Schedule 6). His remuneration and expenses were to be met by the Secretary of State. The raison d’être for the institution of Stockholders’ Representative was that it was considered essential, in order to prevent negotiations and arbitration being rendered unworkable by a multiplicity of individual claims, that they be conducted, on behalf of the former owners, exclusively by a nominee representing their collective interests. As a result, although the individual shareholders had voting rights at stockholders’ meetings, they had no direct standing in compensation negotiations. According to Sir William Lithgow, the Representative was not obliged to seek the stockholders’ consent before agreeing to compensation in negotiations or to refer the question of compensation to arbitration if so requested by them; in this applicant’s view, a stockholder had, in practice, no means of ensuring that the Representative complied with his wishes, save for the aforesaid possibility of removal. According to the Government, stockholders would have had a remedy in the domestic courts against a Representative for failure to comply either with his obligations under the 1977 Act or with his common-law obligations as agent. They further maintained that he could not refuse to institute arbitration proceedings if so directed by the stockholders or, probably, a majority of them and that, as a matter of pure practice, he would not agree the quantum of compensation in negotiations without their consent. 4. The Arbitration Tribunal 29.    Section 42 of the 1977 Act established the Aircraft and Shipbuilding Industries Arbitration Tribunal. For the hearing of any proceedings, the Tribunal was to consist of a legally-qualified president (appointed by the Lord Chancellor or, in the case of Scottish proceedings, the Lord President of the Court of Session) and two other members (appointed by the Secretary of State after consultation with all the Stockholders’ Representatives), one being of experience in business and the other in finance. Criteria for the selection of members of the Tribunal - relating to their standing and experience and including a requirement that they should not have any connection with the companies nationalised - were worked out in consultation with the Stockholders’ Representatives, who were also invited to make proposals as to suitable members. Members of the Tribunal were to hold office "for such period as may be determined at the time of their respective appointments". The appointor of a member could declare his office vacant "on the ground that he is unfit to continue in his office" but, by virtue of section 8(1) of the Tribunals and Inquiries Act 1971, this power was exercisable only with the consent of the Lord Chancellor or the Lord President of the Court of Session. Provision was also made for resignation, vacation of office on grounds of bankruptcy or replacement in case of illness. 30.    The Tribunal’s jurisdiction was limited to the issues specified in the 1977 Act; these included various claims and questions arising under the safeguarding provisions and, in the context of compensation, determination of the "base value" referred to in section 38(1) and of the deductions to be made therefrom under section 39 (see paragraphs 19 and 23-24 above). In assessing the "base value", the Tribunal could hear argument about the weight to be attached to any relevant factor, but not about the alleged unfairness of the statutory formula, by which it was bound. The jurisdiction in relation to "base value" and deductions arose only "in default of agreement" between the Secretary of State and the Stockholders’ Representative, but the latter was free to refer the question of compensation to the Tribunal at any moment after Vesting Day. In the view of the Government - which was contested by Sir William Lithgow -, there was no legal bar to access to the Tribunal by an individual shareholder, unless and until agreement had been reached in negotiations. Thereafter, he could not seise the Tribunal even if he considered that the sum agreed was too small under the statutory formula. 31.    The procedure before the Tribunal was governed by The Aircraft and Shipbuilding Industries Arbitration Tribunal Rules 1977 and The Aircraft and Shipbuilding Industries Arbitration Tribunal (Scottish Proceedings) Rules 1977, made by the Lord Chancellor and the Lord Advocate, respectively. These statutory instruments provided for proceedings similar to those of a court; in particular, hearings were generally to be held in public. 32.    An appeal on any question of law - but not on the quantum of compensation - lay from the Tribunal to the Court of Appeal in England or the Court of Session in Scotland and thereafter, with leave, to the House of Lords (Schedule 7). Furthermore, a Stockholders’ Representative could, according to the Government, test in the ordinary courts whether the Secretary of State, in formulating a compensation offer, had erred in law by misinterpreting or misapplying the 1977 Act. C. Procedure followed in the implementation of the 1977 Act 33.    On the passing of the 1977 Act, Messrs. Whinney Murray & Co., a leading firm of chartered accountants appointed by the Government to advise them in the compensation procedures, set about valuing the companies concerned by issuing a questionnaire to all of them. According to the Government, it was not possible to seek the cooperation of the companies or their shareholders at an earlier date because there was no certainty as to when or in what form the strongly contested legislation would be passed. 34.    Compensation for those shares in the acquired companies which were listed on the Stock Exchange was agreed before, and paid on, 1 July 1977, the relevant Vesting Day. As regards the remaining, unquoted, shares, Messrs. Whinney Murray & Co. provided the Department of Industry with preliminary valuations on most of the companies during January 1978 and on the remainder during April 1978, for the purpose of calculating payments on account of compensation which were made during those months. On various dates between December 1977 and May 1978, the accountants supplied the Department with full valuation reports, factual information wherefrom was sent for comment to the company concerned and to the Stockholders’ Representative acting on behalf of the holders of its securities (see paragraph 28 above). The Department and the Representatives exchanged memoranda on various dates between March and October 1978 and negotiations between them followed. Further payments on account of compensation were announced in July and November 1978 and, in some cases, in 1979. 35.    Between July 1978 and 7 August 1980 (being the date of the new Government’s announcement that they had decided not to change the compensation terms; see paragraph 17 above), various settlements were reached but, with the exception of the Kincaid case (see paragraphs 40-45 below), none of them related to the acquired companies with which the present proceedings are concerned. Shortly after the aforesaid announcement, the Minister of State indicated in a series of meetings with Stockholders’ Representatives that, within the confines of the statutory formula, the Department of Industry would be prepared to settle the remaining cases at amounts somewhat beyond those already offered in negotiations. Settlements regarding the other companies with which the present proceedings are concerned were reached by the end of 1980. 36.    In the compensation negotiations the Department of Industry and their advisers used the following four methods of arriving at a hypothetical Stock Exchange quotation for unlisted shares. (a) For most of the profitable companies an earnings-based valuation was applied. This method, which involved considering the company’s historic and prospective post-tax earnings (as at the Reference Period) and applying thereto an appropriate multiplier (price/earnings ratio) assessed by comparison with listed companies, was used in all the cases with which the present proceedings are concerned, other than the Vosper Thornycroft and the Yarrow Shipbuilders cases (see paragraphs 46-53 and 70-75 below). Since stock market quotations are not dependent solely on earnings, the Government’s accountants, in preparing their valuations, reviewed, where appropriate, the figure arrived at by the above method against the criteria of asset-backing and dividend yield. (b) Where the acquired company was a subsidiary carrying on the main part of the total undertaking of a company all or part of whose shares were listed on the Stock Exchange, a parent-company-related valuation was employed, in view of section 38(6) of the 1977 Act (see paragraph 19 above). This method, which involved deducting from the parent company’s average capitalisation during the Reference Period a valuation for the non-vesting elements in the group, or apportioning the capitalisation according to the contribution to group earnings of the vesting and the non-vesting elements, was used in the Vosper Thornycroft and the Yarrow Shipbuilders cases. (c) In certain other cases, where the company acquired was not making a profit, recourse was had to an assets-based valuation, based on the hypothesis of an open-market sale of the assets during the Reference Period. (d) One other unprofitable company was valued by a share-capital-related method that is at a discount to the nominal value of its issued share capital. II.    THE NATIONALISATIONS GIVING RISE TO THE PRESENT PROCEEDINGS A. Introduction 37.    The present proceedings arise from the nationalisation under the 1977 Act of the seven undertakings described below. Save for the preference shares in Kincaid (see paragraph 40 below), none of the shares in the companies concerned was listed on the Stock Exchange, so that, with that exception, compensation fell to be assessed on the basis of a hypothetical Stock Exchange quotation (see paragraph 19 above). 38.    The descriptions of the seven undertakings include particulars of profits and assets which, except where otherwise stated, are taken from the company’s audited accounts. Pre-tax profits have been shown as the post-tax figures are not in the Court’s possession in every case. Figures for net assets do not include amounts in respect of deferred taxation and for this reason differ from the figures appearing in the Commission’s report. References to cash in hand or equivalent are to gross amounts, that is without taking account of any outstanding liabilities. 39.    Reference is also made below to various estimates submitted by the applicants, both to the Commission and to the Court, concerning the value of their nationalised interests. This material was not generally challenged or commented on by the Government. This was not because they accepted it as correct, but because they considered that it was inappropriate to do so since those estimates did not reflect the statutory formula, which formula, in their view, was consistent with the requirements of the Convention. B. The Kincaid case 1. The nationalised undertaking 40.    On 1 July 1977, there vested in British Shipbuilders the preference and the ordinary shares in John G. Kincaid & Company Ltd. ("Kincaid"), which manufactured marine diesel engines at Greenock. The preference shares were listed on the Stock Exchange and no complaint was made in the present proceedings regarding the compensation received therefor. Sir William Lithgow, who is a shipbuilder by profession and was the largest single shareholder in the company, owned 186,320 - or slightly over 28% - of its 662,500 issued ordinary shares. 41.    (a) Kincaid’s pre-tax profits for the following years, ending on 31 December, were: 1971 - £860,000 1972 - £595,000 1973 - £387,000 1974 - £1,258,000 1975 - £1,740,000 1976 - £1,356,000. In the half-year to 30 June 1977, the pre-tax profits were, according to the Commission’s report, approximately £700,000. Kincaid had no Government orders and required no special Government subsidies. From 1974 to Vesting Day a total of £513,000 was paid in dividends on the ordinary shares; according to Sir William Lithgow, Government- imposed dividend restraint resulted in £1,953,000 being added to company funds between the Reference Period and Vesting Day. (b) Kincaid’s net assets were: at 31 December 1972 - £3,679,530 at 31 December 1973 - £3,723,528 at 30 June 1977 - £5,988,096. At the hearings before the Court, Sir William Lithgow declared that Kincaid had cash reserves of £5.058 million at 30 June 1977. 42.    Sir William Lithgow, however, stated that during the Reference Period Kincaid had net assets of approximately £9,500,000 and he supplied a valuation, prepared after the proceedings before the Commission, indicating that the value of the company at 28 February 1974, calculated in accordance with the 1977 Act on the basis of a hypothetical Stock Exchange quotation, was in the region of £8,750,000 to £10,250,000. He further estimated that the net assets attributable to ordinary shareholders as at Vesting Day were worth at least £18,000,000. All these various figures took account of revaluations of the company’s premises and plant, effected by a firm of chartered surveyors, indicating that they were worth substantially more than the amounts shown in the balance sheet. The cash reserves at 30 June 1977 were described by Sir Wi