Don’t Build A Company On Sandy Ground
Yesterday, the UK High Court ruled on who really owns the UK’s Fishing Quota.
If you don’t want to read any further, the UK fish Quota is owned by the UK Government. This means fishermen (and their banks) are left holding the quota at the discretion of the UK Government. Fishermen (or the producer associations) don’t own it.
You can find the case here. The UK Government wanted to shift unused fishing quota from the large scale fleet to the small scale fleet who did not have enough quota to catch fish. The large scale fleet refused to co-operate with the transfer of 3% of the overall quota, even though the quota had never been used. They claimed they owned it, and the Government said they owned it, and can re-allocate the quota if they choose to.
Don’t Worry – We Are the Government And You Can Trust Us
I always remember that there are certain things you need to be cautious about trusting. One is the “cheque is in the post” and the other is “you can trust us, we are the government”. Having worked for Politicians and in Government it always made sense to me. Why would you go ahead unless you had a cast iron guarantee rather than on a nod and a wink that everything will be all right.
It is a brave business decision to invest or take out loans when it is not clear who owns the most valuable part of your business operation – the quota and the ability to fish.
The case is interesting. It is clear reading it that the UK Government have always been more a less clear that they own the quota. It also appears reading the case that industry representatives having been giving the impression to fishermen that they own it. Now, that is a big discrepancy in who owns the vital asset in your business.
I hope no-one in the industry ever told a fishermen everything was crystal clear and there was nothing to worry about the ownership of the quota!
Unsurprisingly, the UK Government won.
You can find the case here.
I personally think that the Government should get out of the game of ownership of natural resources and for that reason, amongst others, supported ITQs. But, the UK fishing industry amongst others did not support ITQs during the reform of the CFP.
Secretive Ownership Schemes
If you want to get an idea about the strange nature of UK Quota allocation you should read the case in full.
I have been following the issue for a few years. Details of the ownership of the UK quota are secret. The Government won’t say who is using it. The truth seems more likely that they don’t know who is using it and are too embarrassed to admit that they have no idea who is using their fishing quota. By the way, the producer organisations know full well who owns it the quota.
Who owns it
There is a miss used statement that possession is 9/10’s of the law. It is not true.
The Judge deals shortly with the idea that industry had a legitimate expectation that the existing schemes would continue.
“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. On a fair reading that would not be the reasonable understanding of what the Secretary of State has said. In many ways the representations which the claimant invokes amount to no more than an explanation how the system operates. Moreover, the representations identified by the claimant were not devoid of relevant qualification”. (para 99)
In considering the challenge to the Government’s re-allocation of unused quota from one part of the fleet to the small scale fleet was clear
“Not only is the decision under challenge justified, but in my view the means chosen are proportionate. (para 106)
Fishing Quota – Government Owned
Again, here the ownership of the quota is again very clearing put:
“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
Moreover, the term possessions had an autonomous meaning in European law so reference to English law concepts is not helpful. However, Rule 3.3 recognises, albeit in limited circumstances, that fixed quota allocation units can be transferred separately from a fishing licence entitlement. The reconciliation exercises have given recognition to the trade in fixed quota allocation units occurring outside the ambit of the Rules.” (para 112)
However, the allocation units do provide a possession which if removed would give rise to compensation.
“And the reality of the situation 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. To use the language in Nicholds, fixed quota allocation units have a monetary value and can be marketed for consideration. In my view fixed allocation quota units are possessions falling within Article 1, Protocol 1 of the Convention and article 17 of the Charter.” (para 113)
This will give the right of compensation, but of course, the value for an asset that is being confiscated by the State, is usually a lot lower than the you’d hope to get. The UK Government could, if it choose to, alter the whole regime, re-allocate the quota to other players, and this would entitle current owners the right to compensation.
Don’t Take on the Government
The judgment is critical of the actions of producers associations who choose not to co-operate with the UK Government (see para 65).
Belligerence in the face of government when you have a sound legal case or supplicant officials is one thing, but when the law is uncertain and a Minister decides to challenge vested interests, it is another.
The sums of money at stake in the proposed UK government scheme were around . The producer organisation must have spent a considerable amount of money in their case. The irony that the quota was not even be used is another.
What Will the UK Banks Be Thinking
The UK Banks (many of who are State owned) will surely now be calling fishermen asking them who owns the quota that they have used as collateral for bank loans. If the Government owns the quota, and fishermen hold it on the basis of the fast changing sands of government policy, the valuations are likely to be substantively lower.
Going to Court on principle is always a brave decision. Yesterday, the Producer Organisations paid a heavy price.