insight for the international fishing & aquaculture industry

The recent landmark judgement handed down by Mr Justice Cranston on 10 July at London’s Royal Courts of Justice is being regarded by the UK’s under 10m fishing fleet as a major victory over the United Kingdom Association of Fish Producer Organisations (UKAFPO), who were trying to legally rubber-stamp ownership of fishing quotas annually allocated by the Department for Environment, Food and Rural Affairs (Defra).

Justice Cranston favoured the handing-over of unfished quota from the large boats to the under 10m fleet, and also bringing into question the highly lucrative trade in quota leasing by ‘slipper skippers’, as well as questioning the tax man’s right to regard quota held when assessing capital gains tax liability.

Judge Cranston stated: “what is being said in this judicial review, is that the decision deprives one part of the English fishing fleet of a valuable entitlement, without compensation, to gift it to another part. In doing this, the Secretary of State is said to have acted unlawfully in defeating the former’s legitimate expectations, interfering with its property rights, and acting in a discriminatory manner.”

UKAFPO instigated legal proceedings against Defra, as Defra was proposing to take away UKAFPO’s unfished quota without compensation.

At the request of the South Western Fish Producer Organisation, R& J Maritime Ltd prepared a valuation of fixed quota allocation of uncaught quota at £1.065m, but R&J later increased this to £1.405m. The company is regularly instructed by banks to value fishing vessels, licenses and quota and its report was based on the assumption that fixed allocation units can already be assigned a market value within the existing licensed fishing fleet. The Marine Management Organisation (MMO), Greenpeace and the New Under Ten Fishermen’s Association (NUTFA) attended the judicial review as ‘Interested Parties’, and in financial terms, they had little to lose and everything to gain.

No response
Defra had sought information from the English producer organisations (PO’s) to identify member vessels with consistently unused quota. Not one PO responded. It also requested information to assist in excluding from the analysis Scottish, Welsh and Northern Irish vessels, which were members of English producer organisations. Again no data was forthcoming. On 8 February 2012 Defra asked producer organisations to donate stock to conduct pilot schemes, as had been suggested by comments from the industry during the consultation process. Once again all producer organisations failed to respond

Judge Cranston concluded that, “Important for the purposes of this judgment is that membership of a producer organisation is not restricted by reference to the place where a vessel is registered. Fixed quota allocations do not guarantee a set tonnage of fish, but rather gives holders access to a share of quotas which fluctuate year on year. Under-utilised fishing quota, rather than being a saleable asset, is merely a missed opportunity. For better or worse the concept of possessions has been given an expansive interpretation. The claimant’s analogy with the English law notion of ‘profit-a- prendre’ does not hold up since no one can own the fish of the sea.

“In my view the claimant’s legitimate expectation ground falls at the first hurdle. There has been no clear, unambiguous and without qualification undertaking that the fixed quota allocation system would continue in its existing form. In many ways the representations, which the claimant (UKAFPO) invokes, amounts to no more than an explanation of how the system operates.

“There are the occasional statements that fishermen will be protected by the principle of legitimate expectation. These cannot stand in the way of making adjustments to the system of fixed quota allocation to address the problem of consistent under-utilisation or unused quota. That would run counter to the policy of seeking to ensure maximum use. That quota has been allocated consistently with the fixed quota allocation system for the last thirteen years cannot ground a legitimate expectation that it would never be revised.”

“The Secretary of State used a methodology to ensure, that quota was taken only from English licensed vessels in the sector fleet and reallocated for the benefit of English licensed under 10 metre vessels. In my view a crucial feature is that the English producer organisations failed to assist with data to identify quota that had been consistently unused by English licensed vessels.”

In its submission that neither quotas nor fixed quota allocation units could be possessions, Interveners (NUTFA and the MMO) invoked the principle that fishing stock is a right held by the public. It necessarily follows, that permissions to fish cannot be privately enjoyed as a property right and therefore cannot constitute a possession, especially when they have been conferred upon fishermen free of charge.

The Secretary of State contended, “that fixed quota allocations are no more than a tool, an abstract unit of measurement, and do not

give rise to an entitlement to a precise amount or share of quota. Quota allocations may represent a hope of a future allocation. The trade in fixed quota allocations occurs outside the ambit of the rules.”

“The reality, is that albeit built very much of sand, there is a trade in fixed quota allocation units. As seen earlier in the judgment this has attracted official recognition time and again. Units are not only traded but also used as security for bank finance. Valuers place a figure on them even if the methodology is relatively opaque. The tax authorities have seized upon the economic reality to treat them as a capital asset where disposal is capable of generating a capital gain.”

Judge Cranston was willing to set the cat amongst the pigeons, saying, “The Tax treatment of fixed quota allocation units goes nowhere. The Revenue has always exhibited a remarkable ability to extend its reach to bolster public finances. It can have no bearing on the issue of indefinite maintenance of the fixed quota allocation system as it is at present.”

Whether this judgement is likely to lead to a rash of back-dated appeals to HM Revenue, only time will tell, but Judge Cranston gave leave to appeal.