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1. MR JUSTICE SULLIVAN: This application for judicial review is one of the concluding chapters, but not I fear the end, of a very long saga which began, so far as the applicant, Mrs Scullion, is concerned, nearly 13 years ago when she first applied for invalid care allowance (ICA). The applicant is now 76 years old. She has cared for her invalid daughter since the latter was born in 1968. In April 1982, she took voluntary redundancy, and since 19th May 1983, her 60th birthday, she has received a retirement pension.

2. On 19th December 1978, the Council of the European Community adopted Directive 79/7 on the progressive implementation of the principle of equal treatment for men and women in matters of social security (the Directive). The recitals to the Directive include the following:

3. The following Articles of the Directive are relevant as background for the purposes of determining the present application:

6. The United Kingdom was notified a few days later and so the six year period for implementing the Directive expired on 23rd December 1984.

7. In May 1986, there was an application by a Mrs Thomas for severe disablement allowance (SDA). The next month, in June 1986, the European Court of Justice (ECJ), decided in Drake [1986] 1 QB 166, that a benefit such as ICA fell within the scope of Article 3.1(a) of the Directive, even though it was paid to the carer and not to the person with the disability.

8. Perhaps encouraged by Drake, Mrs Scullion applied for ICA on 14th October 1986. Her application was refused on 24th December 1986. She asked for her claim to be reviewed by an Adjudication Officer but it was again refused on 26th January 1987. She did not appeal against that refusal.

9. ICA is a non-contributory, non-means tested benefit payable to those who care for severely disabled people. At that time, it was payable under section 37 of the Social Security Act 1975 and regulations made thereunder. By section 37(5) of the 1975 Act:

10. Thus, entitlement to ICA is dependent upon whether the applicant was under pensionable age, which is 60 for women, 65 for men. The applicant applied for ICA when she was 63 years old, and so she was refused. There is no dispute that if the application had been put forward by a man it would have been granted.

11. Other women who felt that they were being unlawfully discriminated against, contrary to the Directive, were pursuing claims for ICA and SDA through the appeal system. At Social Security Commissioner level their claims were, with one exception, allowed. Five claims were considered by the Court of Appeal in Thomas v Chief Adjudication Officer and Others [1991] 2 QB 164. On 31st July 1990, the Court of Appeal rejected the Secretary of State's submission that the undisputed discrimination against the claimants, because of the difference in retirement ages between men and women, was authorised by Article 7.1(a) of the Directive (above) and, in particular, by the closing words:

12. The Secretary of State appealed to the House of Lords who, on 27th November 1991, referred a number of questions relating to the scope of Article 7.1(a) to the ECJ. On 30th March 1993, the ECJ rejected the Secretary of State's arguments in Secretary of State for Social Security v Thomas [1993] ECR I-1247. The ECJ held that the discriminatory conditions for the award of ICA and SDA could be justified under Article 7.1(a) only if such discrimination was necessary and objectively linked to the difference in retirement age. The House of Lords then dismissed the Secretary of State's appeal in July 1993.

13. In response to the ECJ's decision, the relevant provisions of the Social Security Contributions and Benefits Act 1992, and ancillary regulations, were amended on 28th October 1994. A large stockpile of claims had built up which needed to be reviewed. For reasons which it is unnecessary to rehearse in this judgment, the review process has been somewhat protracted but, in due course, Mrs Scullion's claim for ICA was reviewed in May 1995.

14. The Adjudicating Officer held that she was entitled to ICA from 28th October 1994, the date when domestic legislation was amended. On appeal, the Social Security Appeal Tribunal decided, on 9th July 1996, that she was entitled to ICA from 14th October 1985 (one year prior to her original claim in October 1986).

15. The applicant is still in receipt of her retirement pension, and because of the overlapping benefit provisions she was not entitled to receive ICA in addition. However, on 1st October 1990, carer's premium had been introduced. Since the applicant was receiving income support, and but for the overlapping provisions would be entitled to ICA, she qualified for carer's premium.

16. In September 1995, she claimed damages for loss suffered as a result of the Secretary of State's failure to implement the Directive. In December 1996, the DSS paid the applicant £1,884 arrears of carer's premium from 1st October 1990 (when the benefit was introduced) until 27th October 1994, the carer's premium after that period having already been paid to the applicant.

17. By letter dated 15th January 1997, the applicant claimed damages including both interest on the carer's premium and exemplary damages for the respondent's breach of EC law. The respondent refused to make any payment pending the decision of the ECJ in the Sutton case C-66/95. Following that decision, the claim for exemplary damages was abandoned, leaving the claim for interest on the carer's premium. The respondent has refused to pay interest on the sum of £1,884, and it is that refusal which is the subject of these proceedings for Judicial Review. Whilst the sum involved in the applicant's case is relatively modest, the principle at stake affects very many other claimants.

18. In the Sutton case, the High Court referred to the ECJ the issue whether Mrs Sutton was entitled to interest in similar circumstances to the present case. She too had applied for ICA when she was aged 63 and been had refused. Then, following Thomas, she had been awarded ICA and paid arrears. Mrs Sutton based her claim on two grounds: first, on Article 6 of the Directive and the Court's decision in the Marshall II case [1993] ECR I-4367; second, on the principle that the State is liable for infringements of Community law.

19. The first ground was rejected by the ECJ; so far as the second, it said this, in rejecting the United Kingdom Government's contention that the principle could not apply to a failure properly to transpose a Directive, in contrast to the Francovich case, where no action was taken to implement Community law:

20. Mrs Sutton had died by the time of the Court's judgment, so this Court is required to answer the question left open in paragraph 34 of the Court's judgment in the context of Mrs Scullion's claim for interest.

21. There is no issue between the parties as to the first and the third of the three conditions that are set out in paragraph 32 of the Court's judgment. The parties differ as to whether the failure properly to transpose the Directive was a "sufficiently serious" breach of Community law. The parties are agreed that a breach is sufficiently serious if a Community institution or a Member State "manifestly and gravely" disregards the limits on the exercise of its rule-making powers: see paragraph 50 of the Court's judgment in the Denkavit case C-283/94, C-291/9, C-292/94, which I shall call for convenience Denkavit 2.

22. The respondent's case is summarised in paragraph 4 of an affidavit sworn on its behalf by Ms Rafferty:

23. On behalf of the respondent, Mr Vadja QC submitted that a breach of Community law cannot be "sufficiently serious" where the Member State has a reasonable excuse for its error because the legal position was not clear. Since the relevant provision of Community law (the final words of Article 7.1(a) of the Directive) was not clear, until the judgment of the ECJ in Thomas, the respondent cannot be held liable to the applicant.

24. In support of that proposition, he relied on the opinion of Advocate General Jacobs in Denkavit C-2/94 (Denkavit 1), that damages in such circumstances are an exceptional remedy, see page 1-2852, paragraph 78:

25. This approach, he says, was echoed in R v HM Treasury ex parte British Telecommunications [1996] ECR I-1631. United Kingdom regulations had failed properly to transpose the provisions of Article 8.1 of a Community Directive relating to procurement procedures. Whilst the Advocate General was in no doubt that there had been a breach of Community law, as to whether or not the breach was "sufficiently serious", in paragraphs 36 and 37, pages 1651 and 1652, he stated:

26. The Court decided that it had all the information necessary to assess whether, on the facts, there had been a sufficiently serious breach of Community law, and concluded that:

27. Mr Vadja submits that the BT decision, which was concerned with failure to transpose a Directive, is closest to the present case and should be followed. Article 8(1) of the procurement Directive was not clear; the Government had adopted, in good faith, an interpretation which was not manifestly contrary to its wording and so the breach was not sufficiently serious. Denkavit II was concerned with a taxation Directive. The German tax authorities misinterpreted the Directive, and at pages I-5101 and I-5102, the Court said:

28. The ECJ's decisions in Factortame and the British Telecommunications cases were considered by the Court of Appeal in Gallagher [1996] 2 CMLR 951. In paragraph 15 of the Court's decision, at page 963, the Lord Chief Justice said:

29. Mr Vadja also relied on an article by Professor Craig, entitled Once more unto the breach: the Community, the State and Damages Liability , [1997] 113 LQR 67. Professor Craig endorses the Court's decision in the BT case and, in summary, contends that the mistaken, but reasonable interpretation of an ambiguous Directive will not give rise to State liability.

30. Mr Drabble QC, on behalf of the applicant, rejects this proposition. He does not accept that the scope of Article 7.1(a) was unclear prior to the decision of the ECJ in Thomas; but even if it was, he submits that clarity, or lack of it, in the Directive is not the sole consideration in deciding whether a breach is "sufficiently serious". He referred to the approach of the Divisional Court and the Court of Appeal in the Factortame litigation.

31. In that litigation, the applicants had challenged the compatibility of Part II of the Merchant Shipping Act 1988 with Community law. The ECJ held that the registration conditions in the Act were contrary to Community law. In a further reference, it decided the damages were recoverable for the breaches of Community law if the three conditions (to which I have already referred) were met.

32. In the light of that judgment, both the Divisional Court and the Court of Appeal concluded that the breaches were "sufficiently serious" to give rise to liability in damages. The Divisional Court summarised the respondent's case as follows (see R v Secretary of State for Transport ex parte Factortame and Others [1997] EuLR 475 at page 514E-F):

33. The Divisional Court rejected that argument. It is unnecessary to set out the Court's very detailed reasoning, because the same argument was presented to the Court of Appeal and its decision is reported in 1998 EuLR at page 456. The Court of Appeal summarised the Solicitor-General's submissions with its own response to those submissions on page 474:

34. The Court continued:

35. The Court of Appeal then applied those principles to the facts of the case. In doing so, it gave the following guidance as to the proper approach to the "gross, manifest and grave test".

36. At page 475, letter H:

37. I have referred to the passage between letters B to C on page 476 of the Court's judgment because Mr Vadja was concerned to emphasize the distinction between incorrectly transposing the Directive containing, he submits, an ambiguous derogation in Article 7.1(a), and the introduction of legislation in breach of a fundamental principle of the Treaty, forbiding discrimination on the grounds of nationality. Such discrimination would strike at the very heart of the Community.

38. He submitted that the response of the Court of Appeal to the Solicitor-General's submissions, which are summarised in paragraph 3 to the Court's judgment above, should be distinguished. If the Directive to be transposed is not clear no liability for compensation can be attached to the State.

39. I am unable to accept that submission. The decision of the Court of Appeal that such a proposition is not well-founded, is binding upon me. The Court of Appeal expressly considered the BT case. If it had intended to indicate that a different approach should be applied to such cases, then it would have said so. Moreover, the submission is belied by the terms of the ECJ's own judgments. In paragraph 38 of its judgment in the BT case at page 1-1667, the Court said this:

40. In paragraph 39 the Court referred to the three conditions and went on in paragraph 40 to say this:

41. Since the same approach is to be applied where a Member State incorrectly transposes a Community Directive into national law, and the Court regards that approach as "a restrictive approach to State liability", I can see no basis for applying a yet more restrictive approach to the question of liability in such cases. I have set out above paragraph 42 of the Court's judgment. The Court does not say that clarity is the sole factor to be considered, although it was sufficient to enable the Court to reach a decision on the facts of that particular case.

42. Referring to paragraph 56 of the Factortame judgment, the Court said:

43. The same approach, cross-referencing to paragraph 42 of BT and paragraph 56 of the Factortame, is to be found in paragraph 50 of Denkavit II:

44. On the facts of that case, it is not surprising that the Court took the view that it did, because almost all the other Member States shared Germany's misunderstanding of the effect of the Directive.

45. For completeness I should set out paragraph 56 of the Court's judgment in Factortame:

46. For these reasons, I accept Mr Drabble's submission that I should adopt a basket or global approach weighing the various factors which include the clarity of the Directive to be transposed. Before turning to that question, which was the subject of considerable debate between the parties, it is helpful to consider some of the other factors which were referred to by the ECJ or by the Court of Appeal during the course of the Factortame litigation. In Factortame the Government had taken legal advice as to whether the legality of the 1988 Act was likely to be upheld by the ECJ.

47. In the present case, there is no evidence that the Government sought any legal advice as to whether the discrimination which was clearly inherent in different qualifying ages for ICA and SDA for men and women was, or was likely to be held by the ECJ to be, within the scope of the final words of Article 7.1(a). The Government seems to have simply responded to the litigation as it unfolded.

48. Although Mr Vadja was reluctant to accept that the importance of the principle that is breached could be a relevant factor, I can see no reason why that should not be so. It was considered by the Court of Appeal to be relevant in Factortame. Whilst I accept his submission that the principle of equal treatment in Article 4 of the Directive is of less significance than the fundamental principle of the Treaty forbiding discrimination on grounds of nationality, it is, nevertheless, a principle that is of fundamental importance. In this respect Directive 79/7 is to be distinguished from the somewhat more "technical" Directives that were in issue in the BT and the Denkavit II cases.

49. In some cases where a Directive is incorrectly transposed the resulting damage may not be foreseen by the Government in question. For example where the Government mistakenly fails to introduce the full extent of environmental protection required by a Directive, and in consequence a member of the public suffers some harm.

50. In the present case the detriment to the applicant, and to other women in her position, was foreseen. The Government deliberately decided to link ICA and SDA to pensionable age. Moreover, because the benefits were not paid to the applicant and to others for many years, the Government has benefitted financially from the breach since it has enjoyed the use of the money over the years.

51. The Court of Appeal in Factortame agreed with the Divisional Court's approach that:

52. Mr Drabble points out that there is no evidence that the Government ever sought the Commission's view on this issue. The Commission were made aware of the fact that ICA had been excluded from the Directive by the Government because the Commission said its inclusion "would be desirable" in an interim report in January 1984.

53. The Government responded to that interim report by contending that the Commission had misunderstood the position under the United Kingdom's benefit system, and there was no further correspondence until after the judgment of the ECJ in Drake. Certainly there was no cause for the Government to be optimistic that the Commission would agree with its approach to Article 7.1(a).

54. In deciding the weight to be attributed to the Commission's views, the Divisional Court referred to the Dumortier case [1997] 519E EuLR. Mr Vadja pointed out that the role of the Commission was different in that case because under Articles 43 and 149 of the Treaty the council had to act on a proposal from the Commission. He also pointed out that in a number of cases the Commission's arguments have not prevailed, and in case C-191/95 against the Federal Republic of Germany, the ECJ said in paragraph 44 of its judgment that a reasoned opinion from the Commission does not have any binding legal effect; its purpose is to enable the Member State to either comply or to justify its position before the Court.

55. Mr Drabble accepts that a breach is not sufficiently serious merely because the Government failed to seek the Commission's views, but he submits that when coupled with the failure to take legal advice from any other quarter, it is a relevant factor. I accept that submission.

56. Against that background I turn to the clarity of the scope of the derogation in Article 7.1(a). Both parties accept that this issue should not be examined with the benefit of hindsight. Mr Vadja submits that the Directive envisaged "the progressive implication" of the principle of equal treatment in the field of Social Security. Thus the Government was dealing with an evolving branch of the law, which has continued to evolve post the Thomas judgment.

57. Article 7.1(a) involves a margin of appreciation. The scope of the second limb is not clear, and there is no guidance to be found in the recitals to the Directive. The reference to the ECJ by the House of Lords shows that the position was not acte clair. Judgments of the ECJ prior to Thomas in Burton v BRB [1982] 1QB 1080, Marshall v Southampton and South West Hampshire Area Health Authority [1986] 1QB 401, and Drake did not lead to the conclusion that the Government's case, advanced in Thomas, that ICA, as an income replacement benefit should be linked to pensionable age. Adopting the normal time for retirement was not untenable.

58. The Government put forward two arguments in justification of the United Kingdom's position. The "financial equilibrium argument" was dismissed by the ECJ as it had been by the Advocate General, the Court of Appeal and those Social Security Commissioners who had considered the Directive, on the basis that ICA and SDA were non-contributory benefits.

59. The second argument was based on "consistency", that since SDA and ICA were intended to replace income that was lost as a result of being or having to care for a severely disabled person, it was reasonable to tie the benefit to the age at which most people ceased to work. But since the ECJ had decided in Marshall, albeit under a different Directive, that women were entitled to go on working beyond the qualifying age for women for a retirement pension, it is not surprising that this argument was rejected as it had been by the Court of Appeal ([1991] 2QB, 187F to 190E).

60. Moreover, the difficulties raised by the United Kingdom Government could have been addressed through the mechanism of overlapping benefits regulations. Mr Drabble says that the Advocate General and the ECJ had no difficulty in rejecting the Government's arguments. Mr Vadja points to other cases where both the Advocate General and the Court held that there was a clear breach of a particular Directive, but did not think that the breach was "sufficiently serious for State liability to arise."

61. I mentioned that the law in this field has continued to evolve since Thomas. In Gray [1995] ECR 1-2521 the ECJ held that the linking of invalidity benefit to pensionable age did fall within the ambit of Article 7.1(a).

62. In paragraph 11 of its decision the Court referred to the test laid down in Thomas, that to fall within Article 7.1(a) discrimination under other benefit schemes must be necessarily and objectively linked to the difference in pensionable age. It concluded that invalidity benefit, which is a contributory benefit, did satisfy that test, saying in paragraph 14 of its judgment:

63. Mr Vadja submits that those words show that the Government's "consistency argument" in Thomas has at least some merit. Mr Drabble recognises that it is not easy to reconcile the wording of paragraph 14 with the Court's reasoning in Thomas, but he says that the reasoning in paragraph 14 is explicable upon the basis that the Court was there dealing with a contributory benefit. In my view that is clear if paragraph 14 is read not in isolation but in the context of the remaining paragraphs of the judgment. Since the Court in paragraph 11 of its judgment had cited Thomas with approval, it cannot have intended to cast any doubt upon its earlier reasoning in that case.

64. I accept the Government was dealing with an evolving area of the law. All the more reason, perhaps, to seek advice from the Commission or from one's own legal advisers. Once the judgment in Drake had been given on 24th June 1986 it was obvious that the discriminatory treatment of women over retirement age in relation to ICA and SDA could be justified only if it fell within the final words of Article 7.1(a).

65. It should also have been clear that Article 7.1(a), as a derogation from the principle of equal treatment, would be strictly construed by the ECJ (see paragraph 36 of the Marshall decision at page 420). Although Marshall was concerned with the different Directive, that does not alter "the fundamental importance of the principle of equality of treatment".

66. I am unable to accept Mr Vadja's submission that paragraph 13 of the Advocate General's opinion in the Crown v the Secretary of State for Social Security ex parte EOC [1992] ECR 1 - 4297, provides support for the proposition that a narrow interpretation of Article 7.1(a) would not be correct. Such an approach would be contrary to well established principles since Article 7.1(a) is a derogation from a fundamental principle. It is plain from the Advocate General's opinion that he was simply rejecting the particular narrow interpretation which was being advanced by the EOC. Thus, although the law in the field of social security was evolving, the Government did not require either the benefit of hindsight or any particular gift of prophecy in order to be able to appreciate the most likely direction in which the relevant law would evolve.

67. I have read with some care the arguments advanced on behalf of the Government in Thomas, both before the Court of Appeal and before the ECJ. Whilst I do not suggest that the two grounds of "financial equilibrium" and "consistency" were not properly arguable, there is a considerable difference between a case that can be said to be arguable in response to litigation, and one that should be pursued because it has a realistic prospect of success. Even without the benefit of hindsight it is plain that the Government's case fell into the former and not the latter category. One is left with the impression that in the Thomas litigation successive UK Government have been fighting a series of rearguard actions to delay or minimise the effect of inevitable defeat. They have not been pursuing a convincing, coherent strategy with a real hope of victory.

68. Whilst the mere breach of Community law will not be enough to fix the State with liability, the mere fact that the State is able to advance an arguable case in litigation does not mean that the breach is not "sufficiently serious". Given the lack of precision in many Directives it will not be too difficult for a Government to construct some argument in favour of a particular interpretation. The Court of Appeal said in Factortame that a breach can be "manifest and grave" so as to make it sufficiently serious without it being intentional or negligent.

69. The decision in the present case to link IMC and SDA to pensionable age was not the result of inadvertence. A decision was made to take advantage of the exclusion in Article 7.1(a). I have already rejected the respondent's submission that the lack of clarity in Article 7.1(a) means that the Government cannot be held liable. Lack of clarity is a relevant factor, but it is difficult to see how it provides any substantial justification for the Government's position given the clear breach of the underlying purpose of the Directive, and the fact that Article 7.1(a), as a derogation from the fundamental principle of equal treatment, would be strictly construed. It was clear that those women, such as the applicant, who were discriminated against, would lose benefit, ICA or SDA. Whilst the effect on each individual applicant might be relatively modest in financial terms, ICA and SDA are for the benefit of particularly vulnerable members of society, those who are either severely disabled themselves, or those who care for such persons. A large number of such claimants were deliberately discriminated against solely on the basis of their sex, thus the effects of the breach would undoubtedly be "grave", both for the individuals concerned and for the class of claimants as a whole.

70. Notwithstanding the indication from the Commission in January 1984 no formal advice was sought from the Commission. In the light of the decisions in Drake and Marshall, albeit in the context of a different Directive in the case of the latter, and of the principle underlying the Directive itself, it must have been obvious that the Government was swimming against the tide. Still no legal advice was sought, or if sought it has not been produced, as to whether there was a sound legal justification for withholding ICA and SDA from those claimants. The justification, as it emerged during the course of litigation, was arguable, but it should have been realised that it did not have a realistic, much less a good, prospect of success before the ECJ.

71. Where the legislative discretion on the Member State is involved a restrictive approach to liability is justified in order to avoid "an excessive chilling factor defeating that discretion" (see page 476A, of the Court's judgment in Factortame).

72. Mr Drabble submitted that the effect of Article 7.1(a) was to leave the Government with no relevant discretion. I do not accept that submission, but I do accept his alternative submission that the extent of the discretion left by Article 7.1(a) was limited.

73. Subject to obligations as to periodic examination and reporting to the Commission imposed by Articles 7.2 and 8.2, Article 7.1(a) confers an area of discretion for one purpose: determining pensionable age. Once that purpose has been achieved, the final words of the derogation do not confer a broad discretion in relation to other benefits, such as ICA. Thus, in my view, the chilling factor is of limited importance in the circumstances of this breach. For those reasons, and applying the global approach in accordance with the judgment of the Court of Appeal in Factortame, I am satisfied that the breach of the Directive in this case was "sufficiently serious to found State liability". The three conditions referred to in paragraph 32 of the Court's judgment in the Sutton case are met and it follows that the respondent is liable to pay the applicant interest upon £1,884 arrears of carer's premium. I am prepared to hear submissions as to the appropriate form of relief, but I would have thought that a declaration in terms of this judgment would probably suffice.

74. In conclusion, it is only right that I should pay tribute to the very helpful submissions of counsel on both sides.

75. MR DRABBLE: My Lord, I ask for judgment in this case, and not withstanding the application was brought by way of judicial review and no objection being taken to it, I will ask for a certain right to quash that decision which your Lordship has identified as a declaration to be given in the terms which your Lordship again has identified in the last part of the judgment.

76. MR JUSTICE SULLIVAN: Do you need certiori to quash? I am wondering is it one of those decisions which one can simply be looked at again in the light of the law as declared by the Courts?

77. MR VADJA: My Lord, standing on my feet I would propose to adopt your latter view, and given the declaration it is infinite --

78. MR JUSTICE SULLIVAN: Let us see what Mr Vadja says about it. I would not want to go round quashing decisions or making people to do things, so I cannot think it is necessary that the Government --

79. MR VADJA: No, I think we accept that a direct declaration would be prudent clearly subject to any appeal that would be suffered. We will abide by the Court's declaration.

80. MR JUSTICE SULLIVAN: I would have thought a declaration in the terms of the judgment ought to be sufficient. There is no point in trying to --

81. MR HALLIGAN: One would hope there would not be any argument as to how you -- I think the point was one which a decision breached, your Lordship has made a declaration to that effect, and it may be that everything else will then disappear.

82. MR JUSTICE SULLIVAN: Yes, very well. Well then, your application succeeds. You have the terms of the judgment.

83. MR HALLIGAN: I seek costs and a legal aid order for taxation.

84. MR JUSTICE SULLIVAN: Can you resist?

85. MR VADJA: I do not resist.

86. MR JUSTICE SULLIVAN: Costs and legal aid taxation, yes.

87. MR VADJA: Two points: first of all, I may have misunderstood the short passage in your judgment when you were dealing with one of the submissions I made in relation to nationality.

88. MR VADJA: This was in relation to Factortame where my note of your record over my submissions, I said something to the effect it was not surprising there was liability for breach of a fundamental principle such as nationality where there is an area of express exception. That was before you got on to saying you were unable to accept my distinction between Factortame and BTU.

89. MR VADJA: It is a small point, but obviously a matter for your Lordship. I understood what I had intended to say was that the position in this case was different because there was an express exception. I was not, I hope, conceding that it was obvious that it was not surprising that there would be liability where there was no express exception.

90. MR JUSTICE SULLIVAN: Since you are appealing factor train -- House of Lords there is a certain degree of sensitivity there.

91. MR VADJA: Yes, an area of sensitivity.

92. MR JUSTICE SULLIVAN: Would you leave that to me to flag up? I think you did draw attention to the fact, from what I recall, that the Court was there dealing with what was said to be a breach --

93. MR VADJA: Yes. Yes, I thought --

94. MR JUSTICE SULLIVAN: -- something particularly fundamental.

95. MR VADJA: I was saying it was a breach of nationality. We are not dealing with a breach of nationality. I was also saying there was an expression of derogation here, which there was not.

96. MR JUSTICE SULLIVAN: I will have to look at that and see if it is wrong.

97. MR VADJA: I am very happy to leave it on that basis. The only other matter, my Lord, is that I would ask with --

98. MR JUSTICE SULLIVAN: I am so sorry. Yes, I have found it now. Emphasising the distinction between ambiguous -- what I said, I think, was you were concerned to emphasis the distinctions uncorrectly transposing a Directive containing an ambiguous derogation, I miss out some irrelevant words, and introducing legislation in breach of the fundamental principle of the Treaty forbiding discrimination on the grounds of nationality. Such discrimination strikes at the heart of the Community, and not surprisingly the Government could not rely on any express derogation.

99. MR VADJA: I mean, without going -- it was not the Government's case. In fact there was not proposed an expressed derogation the principle applied, because it the principle applies within the scope of the Treaty, the argument of Factortame, whether or not the discrimination was within the scope of the Treaty, it is really the words "not surprising".

100. MR JUSTICE SULLIVAN: Delete "not surprising the Government could not rely on any express derogation", except that you are arguing here that they can, and I --

101. MR VADJA: I mean what I sought to do was to draw without in a sense boxing one in Factortame draw distinction between this case and Factortame, but here we are not dealing with breach of nationality where there was no express exception to the Treaty, but I was not seeking to concede, as it were, with that in any way that you know the breach in Factortame was not surprising there was a sufficiently serious breach if you breach a nationality without an express derogation because the Government is not relying on the express derogation, in fact is relying on something else.

102. MR JUSTICE SULLIVAN: Yes. I do not know whether sitting here would cause you any difficulty, but in any event, I will look at it again.

103. MR VADJA: It is a small point. I am very happy to leave it to your Lordship.

104. MR JUSTICE SULLIVAN: I will look at it again.

105. MR VADJA: The other matter, which is not surprising, is that I would ask for leave to appeal. Your Lordship has rejected my submission that this type of situation is distinguishable from Factortame. That is obviously an important issue, and then so far as the basket global approach is concerned, your Lordship, Factortame is already in the House of Lords if only to preserving the position. I ask for leave.

106. MR VADJA: We resist that because your Lordship has, we say, correctly interpreted the Court of Appeal's judgment and if my learned friend wants leave he should go there and ask them for it. I cannot say anything further, but in leaving it to your Lordship's clearer report.

107. MR JUSTICE SULLIVAN: I very much hope I have correctly interpreted the Court of Appeal's judgment, but we are all prone to error. In my view, it could not be said that the case advanced on behalf of the respondent is unarguable, and it certainly can be said that it is a point of principle, which is of very considerable importance, and on those two grounds, therefore in my judgment, it is appropriate to grant leave to appeal.