Loutchansky Case - Judgment

CO/59/2005
Neutral Citation Number: [2005] EWHC 1779 (Admin)
IN THE HIGH COURT OF JUSTICE QUEEN'S BENCH DIVISION THE ADMINISTRATIVE COURT

Royal Courts of Justice, Strand, London WC2
Friday, 1st July 2005

BEFORE:
MR JUSTICE MOSES
THE QUEEN ON THE APPLICATION OF LOUTCHANSKY & ORS (CLAIMANT)
-v-
THE FIRST SECRETARY OF STATE (DEFENDANT)

Computer-Aided Transcript of the Stenograph Notes of Smith Bernal Wordwave Limited

MR N BLAKE QC AND MR KIERON BEAL (instructed by Messrs Gherson & Co) appeared on behalf of the CLAIMANT

MR CHRISTOPHER VAJDA QC AND MR TIM WARD (instructed by the Treasury Solicitor) appeared on behalf of the DEFENDANT

JUDGMENT (As Approved by the Court)

MR JUSTICE MOSES:

  1. Introduction

  2. This matter comes before me as an application for permission. It is a challenge to a decision dated 7th October 2004. By that decision, the Secretary of State refused a request for payment of the claimant's costs incurred, so it was alleged, in asserting and enforcing community law rights in a successful challenge to an exclusion order, and refused to entertain a claim for damages for breach of directly effective community law rights.
  3. The application concerns events between April 1996 and May 2004. The second claimant, Nordex Chemische Produktions Handles Und Marketingservice GmbH ("Nordex"), was established in Austria in 1990. Austria acceded to the European Union in 1995. Dr Loutchansky, the first claimant, is a Russian and Israeli citizen. He has an unlimited residence and work permit in Austria. He is the chairman and beneficial owner of Nordex's shares.
  4. Dr Loutchansky was originally excluded from entry in December 1994. When he sought to transact business on behalf of Nordex in December 1996 he was again excluded. He sought to challenge that exclusion by way of judicial review proceedings in 1996. Those proceedings were withdrawn by agreement and some costs were paid when the Secretary of State for the Home Department agreed that Dr Loutchansky could appeal to SIAC, which had by then been inaugurated. The Secretary of State sought to strike out that appeal, but finally withdrew his opposition to Dr Loutchansky's appeal to the exclusion order in May 2004. Thereafter, he refused to pay the costs in conducting the appeal and challenging the exclusion, save for those incurred in the earlier judicial review proceedings.
  5. At the heart of this application is a claim under Article 49 of the Treaty on European Union ("the Treaty") that Nordex has a directly effective right to provide and receive services in the United Kingdom. It can, so it contends, only do so through the services of Dr Loutchansky. He has, it is alleged, what has been described as ancillary directly effective rights of free movement. Those rights are derived from Nordex's rights, and are enforceable so as to enable Nordex to exercise its community law rights.
  6. This matter was listed before me for a day long permission hearing, with skeleton arguments, one twenty seven pages long, and a response of eleven pages. Three full lever arch files were furnished and a bundle of what are described as "18 core authorities". The pristine condition of this application appears to have been unsullied by case management.
  7. On reading the skeleton arguments and the grounds in support and opposition, it seemed to me that this was plainly a case for granting permission, subject to one point. This concerned the question whether Dr Loutchansky, not a national in an EU member state, could be said to have any rights of any description under community law. This may be an important question, though the claimants would contend that, whether he did or not, was not a question dispositive of the application.
  8. The challenge is designed to compel the Secretary of State to pay over £1.5 million costs. The Secretary of State contends that Dr Loutchansky has no community law rights and thus cannot recover the costs of his appeal to SIAC. He contends that Nordex was not a party to the SIAC proceedings and cannot, therefore, rely on its community law rights to recover costs. That, so it is said, is sufficient to dispose of the application insofar as it challenges, based on community law, the refusal of the Secretary of State to pay SIAC costs.
  9. There are many other points which arise, even if the Secretary of State is wrong. He alleges that there is no breach of any community law right in refusing to pay the costs, because neither the principle of effectiveness nor equivalence found any claim for costs. The same is true, so he says, of any non-pecuniary loss claimed by Nordex. Further, any breach of Nordex's community law rights would not, under Factortame principles, sound in damages. Nor is there any room, so he contends, for any alternative assertion that, under domestic law, the refusal of costs or compensation was irrational.
  10. In the light of the importance of the issue as to whether Dr Loutchansky could be regarded as having any community law rights, and in order to attempt to make use of the full day set aside, I sought agreement from the parties to consider the question of whether Dr Loutchansky has any community law rights of any description as a preliminary issue. This they were good enough to give me. Accordingly I have considered whether it is arguable that Dr Loutchansky has community law rights derived from those of Nordex, and, if it is, a preliminary issue summarised in questions framed as follows by Mr Blake QC on behalf of the claimants:
    1. Does Nordex have a community law right to bring in any worker, including Dr Loutchansky, for the purposes of providing and receiving services within the United Kingdom, subject to community law principles of derogation on public policy grounds; and, if yes
    2. Does Dr Loutchansky have a right to rely upon Nordex's rights in challenging the decision to exclude him, subject to derogation, on public policy grounds?
  11. It was agreed, in an attempt to make use of the day set aside, that if I took the view that those propositions were arguable I should decide this preliminary point.

    Facts

  12. 11. The rights which Nordex seeks to exercise for the purposes of this application, and which founded the SIAC appeal, were not rights of establishment, but those enshrined in what is now Article 49 to provide and receive services. Article 49 of the Treaty provides:
    • "Within the framework of the provisions set out below, restrictions on freedom to provide services within the Community shall be prohibited in respect of nationals of Member States who are established in a State of the Community other than that of the person for whom the services are intended.
    • "The Council may, acting by a qualified majority on a proposal from the Commission, extend the provisions of the Chapter to nationals of a third country who provide services and who are established within the Community."
  13. As I have said, in January 1996 the claimants sought to challenge the exclusion of Dr Loutchansky. Prior to the issue of those proceedings on 25th January 1996, those instructed on the claimants' behalf made representations to the Secretary of State asserting that community law applied to the case.
  14. On that occasion, the solicitors made clear that this was not an application on behalf of Nordex for establishment, but rather, although there had been an earlier decision to establish a permanent United Kingdom branch, that Dr Loutchansky and senior aides needed to travel to London to provide and receive business services on a frequent basis. When this was refused, judicial review proceedings were launched, challenging the decision of the Secretary of State on 2nd April 1996 maintaining his decision to exclude Dr Loutchansky from the United Kingdom. Those proceedings sought to assert community law rights and cited propositions of law on which the claimants continue to rely in these proceedings.
  15. The purpose of seeking entry was expressed in a lengthy affidavit from Dr Loutchansky for the purposes of those proceedings. It set out what he feared might lie behind his exclusion, namely a criminal case triggered by the KGB, which had led to his imprisonment in Latvia, but made clear that by the time he was living in Vienna the Austrian authorities were perfectly satisfied as to his respectability (see paragraph 52). He also made clear why he wanted to come to the United Kingdom, in relation to the transaction of business with a number of well-known and well-respected institutions within the United Kingdom, with whom he wished to enter into profitable trading deals, for example Cable and Wireless and Salomon Brothers.
  16. The judicial review challenge made clear that Nordex was contending for an enforceable community law right to secure Dr Loutchansky's temporary presence in the United Kingdom in order to conduct business as what was described as the directing mind and as chairman. It reiterated that the company acted through its senior decision-making personnel, who was, by reason of the exclusion, unable to attend business meetings (see paragraphs C7 and C8 in those judicial review proceedings).
  17. In the claim for relief it was suggested that there was a right to an effective remedy, and in the absence of appeal the jurisdiction of the High Court was invoked to make a declaration as to whether the Secretary of State's decision was lawful and proportionate.
  18. Those proceedings were settled by the Secretary of State in 1997. On 27th June 1997 a letter was sent to the claimants stating that the Secretary of State would personally decide whether to maintain the exclusion. If that exclusion was maintained, it advised that it would be open to Dr Loutchansky to appeal to SIAC, which was in the course of being set up. So the judicial review proceedings were settled, and on the Secretary of State maintaining his exclusion of Dr Loutchansky, a SIAC appeal was launched. Costs of £120,000 were paid in respect of the judicial review proceedings.
  19. Mr Blake QC contended that the fact that the Secretary of State had accepted that Dr Loutchansky had a right of appeal to SIAC involved a concession that Dr Loutchansky had community law rights. I do not agree. The right of appeal is triggered by the fact that he invoked such rights and, provided such invocation was not merely colourable, SIAC had jurisdiction; see the Special Immigration Appeals Commission Act 1997, section 2. By section 2(2)(a), a person may appeal to the Special Immigration Appeals if:
    • "(a) he seeks to rely on an enforceable Community right or any provision made under section 2(2) of the European Communities Act 1972."
  20. The opposition to the appeal is of interest. A witness statement was prepared for the purposes of the appeal by a Mr Troake, a civil servant in the Home Department. At paragraph 14 he points out that Dr Loutchansky is not a national of a member state, and says:
    • "Any 'enforceable Community right' he has to enter the United Kingdom can only be, I believe, a consequence of the right of Nordex (an Austrian company), if any, to have its employees working in the United Kingdom."
  21. He then refers to the absence of specific legislation, giving a right to bring personnel belonging to the main establishment in managerial or supervisory posts, and goes on:
    • "As such, Nordex (and Dr Loutchansky's) entitlements are limited to those directly effective rights derived from Article 43 and 44 themselves."
  22. 43 and 44 relate to rights of establishment.
  23. He then refers to cases to which I have been referred, Rush Portuguesa [1990] ECR 1-1417, and Van der Elst [1994] ECR 1-3803, and identifies three propositions emerging from those cases:
    • "(1) any such posting is temporary, being linked to the right to provide services;
    • "(2) any such posting must relate to the completion of particular services for clients of that company... and
    • "(3) no 'abuse of rights' will be permitted. In particular, the SSHD will submit that the EC rules do not permit a non-EC national resident in one EC Member State to operate a corporate alter ego which is then used in turn, (along with other functions) as a vehicle for the obtaining entry into another EC member state."
  24. Such arguments, of course, are not binding on the Secretary of State in these separate proceedings. Though every respect is no doubt due to Mr Troake, even he, no doubt, would bow to the respect in community law matters to be afforded to counsel now acting for the Secretary of State, Mr Vajda QC. I merely observe that the Home Department's attitude then bears a striking similarity to contentions now advanced on behalf of Dr Loutchansky.
  25. But the SIAC hearing was never concluded. The Secretary of State attempted to strike out the appeal of 2003, and then withdrew opposition to Dr Loutchansky's entry in May 2004. His refusal to meet any of the expense in seeking to vindicate Nordex's rights, and what are described as Dr Loutchansky's derivative rights, is challenged in these proceedings. I should make it clear that the Secretary of State does not accept that Nordex's community law rights have in any way been infringed or frustrated by the exclusion of Dr Loutchansky; see the outline written argument of the Secretary of State at paragraph 11.

    Essential submission

  26. In essence the claimants contend that Nordex may exercise its Article 49 rights by bringing into the United Kingdom such workers as it chooses to bring for the purposes of providing and receiving services within the United Kingdom. No such worker may be excluded, save on public policy grounds. Such public policy grounds must be justified and an opportunity to challenge such a justification must be afforded, in accordance with community law principles.
  27. Dr Loutchansky has a community law right to enter to undertake work on behalf of Nordex, which he derives from Nordex's right. Absent such a derivative right to vindicate Nordex's right, Nordex's community law rights cannot be vindicated and are inoperable. As it was put in the skeleton argument, Dr Loutchansky, a third country national, has ancillary or corollary rights to enter the United Kingdom in the exercise of his employer's rights to provide and receive services.

    Nordex's community law rights

  28. There was no dispute before me that Nordex had the right, enshrined in what is now Article 49 (formerly Article 59), to bring such workers as it required to provide and receive services. But, so the Secretary of State contended, that was the right of Nordex, not a right afforded in any way to Dr Loutchansky.
  29. That right was subject to the derogation identified in Article 46 (see Article 55). By Article 46:
    • "1. The provisions of this Chapter and measures taken in pursuance thereof shall not prejudice the applicability of provisions laid down by law, regulation or administrative action providing for special treatment for foreign nationals on grounds of public policy, public security or public health."
  30. The jurisprudence of the European Court of Justice in support of that right is to be found in Rush (QV supra). In that case, Portuguese workers providing building services in France were at that time not entitled in their own right to enter other member states for the purposes of work (see paragraph 14 of the judgment). The principle was set out at paragraph 12 of the Court's judgment, in which the Court said:
    • "Articles 59 [now 49] and 60 of the Treaty therefore preclude a Member State from prohibiting a person providing services established in another Member State from moving freely on its territory with all his staff and preclude that Member State from making the movement of staff in question subject to restrictions such as a condition as to engagement in situ or an obligation to obtain a work permit. To impose such conditions on the person providing services established in another Member State discriminates against that person in relation to his competitors established in the host country who are able to use their own staff without restrictions, and moreover affects his ability to provide the service."
  31. In the Advocate General's opinion, at paragraph 15, that the French government made submissions that the freedom to provide services was restricted to those who were in positions of trust. The Advocate General rejected that submission at paragraph 15, but it is noteworthy that, even if the French government had been right in their more restrictive submission, Dr Loutchansky would have fallen within a group which it regarded as those appropriate to come into a member state to exercise the rights of a legal EU national entity.
  32. The Advocate General's conclusion at paragraph 17 was not as wide as that eventually declared by the European Court of Justice. He regarded the right to provide and receive services as including the right to bring in those workers who either held a managerial position, or had special skills, but not all workers (see paragraph 17 of his opinion). The Court rejected any restriction on the nature of the work to be done.
  33. The Secretary of State points out that there was no question in that case of France seeking to exercise immigration control. The employers in that case had failed to obtain work permits, so it was asserted by France that the company was bound to make a special contribution to the Office national d'immigration.
  34. The other case to which I have already referred, Van der Elst (QV supra), concerned Moroccans working for a building company with work permits in Belgium. The Belgian entity wished to bring them to France to work there. Again, France was not seeking to exercise immigration control, but rather to impose a penalty for failing to obtain work permits. The Moroccans had obtained temporary visas whilst in Belgium.
  35. The Governments' intervening contended that this case was distinct from Rush, because the Moroccans were not nationals of another member state. In answer to that point, the Advocate General made observations important to the Secretary of State's submissions as to the distinction between Nordex's undoubted rights under community law and Dr Loutchansky's asserted rights.
  36. The Advocate General pointed out that what was in issue was the rights of the undertakings, not the workers' rights. He said, at paragraph 19 of his opinion, having referred to the government's objections:
    • "That objection would appear to be wholly invalid. To begin with from a general point of view it should be noted that in the case in point, as in the Rush Portuguesa case, the issue was not the workers' own rights, but the rights of the undertakings employed. The court has already laid down the general principle."
  37. He continued that the legal status of the workers was wholly irrelevant, and went on:
    • "What matters is to ascertain whether, and if so how far, the application of the national rules relating to the taking up of employment leads to unjustified restrictions on the rights of community undertakings guaranteed by Article 59 of the Treaty."
  38. He continued by drawing a distinction between legislation governing employment, such as a requirement to obtain a work permit, and control of the movement of nationals. In what I regard as a significant passage, under the rubric "Controlling the movement of nationals in non-member countries", he continued by pointing out that the French legislation was not aimed at controlling the entry into France of nationals of non-member countries (see paragraph 22). He went on:
    • "23. However, even if we leave that consideration aside, the point is that the member states do have at their disposal other means of controlling on their own territory the movements of nationals of non-member countries. The requirements of public policy and public security -- expressly provided for by Articles 48.3 (Article 39) and 56.1 of the Treaty -- allow the member states to subject the movements of those [my emphasis] individuals to specific controls and permits particularly by requiring them to be issued with entry visas and residence permits. Moreover that was what the French authorities had in view in providing for the compulsory issue of visas for nationals of various non Member Countries, including in particular Moroccan nationals (in the case in point, moreover, it has been established that the Moroccan workers employed by Van der Elst had applied for and obtained from the consular authorities the visas required to work in France and remain there as long as was necessary to carry out the work)."
  39. It thus appears, though it does not matter for the purposes of that case since visas had been obtained, that the Advocate General regarded Article 48.3 (now 39.3) and 56.1 (now 55) as being relevant to the control of movement of non-EU national workers required for service by an EU national entity. True, that point should not be overemphasised, since it does not appear to have been in issue, but it certainly leaves open the possibility that control of entry to non-national workers, without whom an EU national cannot exercise his community law rights, is itself subject to justification in accordance with community law principles.
  40. At paragraphs 18 and 19 of the decision, the court pointed out that the Moroccan workers were lawfully resident in Belgium, where they had been issued with work permits and had been issued with visas. It not being necessary to prevent access to the labour market, the requirement to make the company pay a penalty was regarded as being a breach of what are now Articles 49 and 50.
  41. There can, therefore, be no doubt as to the first proposition, namely that Nordex has a community law right to bring such workers as it wishes to the United Kingdom for the purposes of exercising its Article 49 rights, subject to any restriction falling within Article 46 (by virtue of Article 55).

    Has Dr Loutchansky any right under community law?

  42. It is important to recognise the limitations to the submission on behalf of the claimants which has been made. The claimants do not contend that Dr Loutchansky has any right independent to those of Nordex under community law. It does contend that Dr Loutchansky has a right which derives from that which is held by Nordex because, absent such a right, Nordex's own rights are rendered ineffective.
  43. I emphasise that there remains an undecided argument that, even without the presence of Dr Loutchansky in this country, Nordex had fully effective rights to provide and receive services, but for the purposes of this argument it is necessary to assume that the Nordex's rights cannot be properly exercised as it would wish without the opportunity for its chairman to visit and work in the United Kingdom on Nordex's behalf.
  44. Further, it has to be assumed, as appears to be the case on the evidence, that Dr Loutchansky had not set up a branch of Nordex in this country under the pretence of then entering to work here (Mr Troake's abuse argument in paragraph 15.3 of his statement).
  45. On those assumptions it seems clear that Nordex's right cannot properly be exercised unless Dr Loutchansky is regarded as having a dependant right derived from those held by Nordex. If Dr Loutchansky could be excluded on the grounds of an assertion that his entry must be prohibited for reasons of the public good, without any of the limitations on such an assertion imposed by community law principles, it seems to me that the free exercise of Nordex's community law rights are inhibited. Thus it seems to me that the exercise of control on Dr Loutchansky's entry must be justified in accordance with Article 46. There must be an opportunity to challenge that justification in accordance with community law principles.
  46. Normally it will not matter that the process of vindicating an EU entity's Article 49 rights involves a worker. Such a claim will not generally require any involvement by the worker. In neither Rush or Van der Elst was it necessary to consider the question of the workers' rights, but in the instant case it does matter. This is because the Secretary of State invited the claimants to withdraw their judicial review proceedings and invoke SIAC. The only way, or at the very at least the means accepted by the Home Department, for Nordex to vindicate its own Article 49 rights was for Dr Loutchansky to appeal under the Special Immigration Appeals Commission Act 1997, invoking section 2(2)(a).
  47. I reject the submission by Mr Vajda QC that, since Rush and Van der Elst were only concerned with rules relating to employment, they are of no assistance in relation to the control of immigraiton. It seems to me to be contrary to Articles 49 and 46 to suggest that, whilst a member state's power to impose conditions for non-EU nationals taking up employment is restricted in accordance with community law principles, such a member state has an unrestricted power to impose an immigration restriction in circumstances where such a restriction would inhibit the free exercise of a Treaty right.
  48. I emphasise that member states remain free to impose immigration control, even where it inhibits the exercise of a Treaty right, for example under Article 49, but such control must, in my judgment, be exercised in accordance with community law principles.
  49. Such a conclusion is consistent with paragraph 23 of the Advocate General's opinion in Van der Elst, and not inconsistent with paragraph 19. In Van der Elst there was no need to consider a derivative right. The court was not concerned with the workers' own rights, and it is not suggested in that or in the instant case that there is any independent right in Dr Loutchansky. He only has rights insofar as it is necessary to recognise them for the purpose of permitting Nordex to vindicate its own rights. Whether they are described as correlative or derivative does not matter. They are not independent.
  50. This conclusion seems to me to be consistent with the cases of non-nationals whose rights of residence have been recognised by the European Court of Justice in order to render an EU national's rights equivalent and effective.
  51. In Carpenter v Secretary of State for the Home Department C60/OO, a decision of the court of 11th July 2002, Mrs Carpenter successfully resisted an attempt to make a deportation order on the grounds that she had a right to remain in the United Kingdom under community law. Her husband travelled to sell advertising business. She stayed at home to look after her step-children.
  52. At paragraph 21 the submission was made that Mrs Carpenter had rights which derived from those enjoyed by Mr Carpenter. Mr Carpenter's rights were those guaranteed by Article 49 (see paragraph 30). At paragraph 36, the court pointed out that there was no Directive governing the right of residence of members of families, and so if such a right existed in favour of the spouse it had to be inferred from the principles or other rules of community law.
  53. The Court pointed out that separation of Mr and Mrs Carpenter would be detrimental to their family life and would not be fully effective if Mr Carpenter was to be deterred from exercising his freedom (see paragraph 39). The Court ruled that the member state could invoke reasons of public interest to justify a national measure only if it was compatible with fundamental rights which the court infers in paragraph 40. It went on, at paragraph 41:
    • "The decision to deport Mrs Carpenter constitutes an interference with the exercise by Mr Carpenter of his right to respect for his family life and within the meaning of Article 8."
  54. In those circumstances the Court concluded that the decision to deport Mrs Carpenter constituted a disproportionate infringement.
  55. In a similar case, Kunquian Catherine Zhu and Man Lavette Chen v Secretary of State for the Home Department [2004], the court concluded that a national of China who had visited Belfast with the express purpose of conferring United Kingdom nationality on her child (see paragraph 36) did have a right of residence. The court pointed out that there was no Directive inferring the right of residence, and that the mother was not a dependent relative, but it concluded at paragraph 45 that a refusal to allow the parent to reside with the child in the host member state, the child having directly effective rights, would deprive the child's right of residence of any useful effect (see paragraph 45).
  56. I do not think that the fact that rights of residence and Article 8 rights were in issue afford any sensible ground of distinction between those cases and the instant case. The underlying principle is that, in order to render a community law right effective, it may be necessary to recognise a derivative right in a non-national who has no independent community law rights. Nordex could not exercise its Article 49 rights, subject to the point to be argued in the future, without having the advantage of Dr Loutchansky's entry into, and service within, the United Kingdom. Any prohibition on Dr Loutchansky's entry and service had therefore to be justified, and such justification assessed in accordance with community law principles.
  57. In circumstances where the procedure for challenging and establishing such justification required Dr Loutchansky's independent appeal to SIAC, that procedure had itself to be exercised in accordance with community law procedures.
  58. Accordingly I shall give permission to argue this and all the other issues, subject to further argument on those other issues. Moreover, I rule that Dr Loutchansky does have a right to rely upon Nordex's community law rights in challenging the decision to exclude him, and that that decision was subject to community law principles. The content and effect of those principles must fall to be decided on another occasion.