CO/9720/2013 
Neutral Citation Number: [2014] EWHC 630 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION 
THE ADMINISTRATIVE COURT 
Royal Courts of Justice 
Strand
London WC2A 2LL 

Thursday, 6 February 2014
 
B e f o r e: 

MR JUSTICE LEWIS 

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Between: 
THE QUEEN ON THE APPLICATION OF SWISS INTERNATIONAL AIRLINES AG 
Claimant

v 

SECRETARY OF STATE FOR CLIMATE CHANGE AND ENERGY and the ENVIRONMENT AGENCY 
Defendant 
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Computer‑Aided Transcript of the Stenograph Notes of  
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Mr M Chamberlain QC and Daniel Piccinin (instructed by Kennedys) appeared on behalf of the Claimant

Mr R Palmer (instructed by the Treasury Solicitor) appeared on behalf of the Defendant
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J U D G M E N T
MR JUSTICE LEWIS:  This is a renewed application for permission to apply for judicial review of The Greenhouse Gas Emissions Trading Scheme (Amendment) Regulations 2013.  Those regulations implement an EU decision, namely decision 377/2013/EU adopted by the European Parliament and the Council. The regulations grant an exemption from the system of greenhouse gas trading allowances and penalties for flights between the European Economic Area (EEA) and third countries. The exemption does not, however, apply to flights between the European Economic Area and Switzerland.  
1.	The sole ground of challenge is that the failure to grant the same exception to Switzerland that is given to other third countries amounts to a breach of the European Union law principle of equal treatment.  The claimant therefore seeks permission to apply for judicial review.  The claimant also seeks a reference to the Court of Justice of the European Union.  The validity of the domestic implementing regulations depends upon the validity of the EU decision.  A national court cannot quash a European Union decision.  If a court has any doubts as to the validity of that European Union decision, then it must refer the matter to the Court of Justice.  
2.	The legal framework is complex but can be summarised briefly as follows.  The European Union has established a framework governing greenhouse gas emissions.  Those provisions were implemented in the United Kingdom and are currently contained in the Greenhouse Gas Emissions Trading Scheme Regulations 2012. By virtue of directive 2008/101/EC, the European Union scheme was amended to include aviation activities.  The relevant provisions were then implemented in the United Kingdom by the Aviation Greenhouse Gas Emissions Trading Scheme Regulations 2010.  In very simplified form, the general system operates as follows.  Operators apply for a greenhouse gas permit permitting them to emit greenhouse gases as a result of their activities.  The operator may apply to be allocated an allowance, that is an allowance to emit certain amounts of carbon dioxide during a specified period.  Allowances may also be traded.  One of the obligations in the greenhouse gas permit is an obligation on an operator to surrender a certain amount of allowances equal to the total emission of greenhouse gases for a calendar year.  If an operator does not have enough allowances available to cover the amount of greenhouse gas it emits then it will be subject to a monetary penalty.

3.	Again in very simplified terms, aircraft operators flying within the area of the European Economic Area or between those areas and third party countries, were formerly required to surrender allowances each year in respect of flights operated by them.  Recital 4(2) Directive 2008/101/EC explained why.  It said this:
i.	"The European Council emphasised that the European Union is committed to transforming Europe into a highly energy‑efficient and low greenhouse gas‑emitting economy, and until a global and comprehensive post‑2012 agreement is concluded, made a firm independent commitment for the EU to reduce its greenhouse gas emissions to at least 20% below 1990 levels by 2020. The limitation of greenhouse gas emissions from aviation is an essential contribution in line with this commitment." 

4.	Some third party countries, however, have objected to the application of the system to flights originating in their territory and landing in the European Economic Area.  These countries consider that much of the emissions will have occurred in their airspace, and not over the airspace of the European Economic Area.  They regard the European Union legislation as infringing their sovereignty.
5.	In April 2013, decision 377/2003/EU was adopted.  That provided a derogation from the obligation to surrender allowances for flights between most third countries and the European Economic Area for a specified period.  The reason for this is set out in the recitals.  The first recital notes that the aviation sector has a strong international character and that a global approach to addressing the rapidly growing emissions would be the preferred and most effective way of dealing the aviation emissions.  The second recital noted that the United Nations Framework Convention on Climate Change required all parties to formulate and implement programmes containing measures to mitigate climate change.  The third noted the European Union's commitment to reducing its carbon dioxide emissions, including emissions from aviation.  The fourth recital noted that the negotiation of all Union aviation agreement with third countries should be aimed at safeguarding the Union's flexibility to take action in respect of environmental issues.  And the fifth and sixth recitals, so far as material, say this:
"(5) Progress has been made in the international civil aviation organisation (ICAO) towards the adoption of the 38th session of the ICAO Assembly which will be held from 24 September to 4 October 2013 of a global framework for emissions reduction policy which facilitates the application of market based measures to emissions from international aviation and on the development of a global market based measure (MBM).  Such a framework could make a significant contribution to the reduction of national, regional, and global CO2 emissions.

(6) In order to facilitate this progress and provide momentum, it is desirable to defer the enforcement of requirements arising prior to the 38th session of the ICAO Assembly and relating to flights to and from aerodromes in countries outside the Union that are not members of the European Free Trade Association (EFTA), dependencies and territories of states in the European Union Economic Area, or countries having signed a treaty of accession with the Union.  Action should therefore not be taken against aircraft operators in respect of the requirement resulting from Directive 2003/87/EC of the European Parliament and of the Council for the reporting of verified emissions for the calendar years 2010, 2011 and 2012, and for the corresponding surrender of allowances for 2012 from flights to and from such aerodromes."

6.	Put shortly, I am told that the position is that Member States are party to the International Civil Aviation Organisation (ICAO).  They coordinate their position under the auspices of the European Union.  The European Union is not a member of the ICAO assembly, but it has observer status.  It can attend and, if invited, it can speak.
7.	The aim is that the negotiation position of the Members States is, as I say, coordinated in advance by the European Union, and the political expectation is that the European Union will implement in its internal legislation arrangements necessary to give effect to any treatment that is agreed between member states and third countries.  It was against that background that the European Union considered it appropriate to suspend the operation of the greenhouse gas trading allowance system for the years specified in relation to certain third countries.  That was not to extend, however, to certain other countries, including European Free Trade Association (EFTA) countries, countries who were about to join the European Union, and others. Recital 9 says this:
"(9) The derogation provided for by this Decision should not affect the environmental integrity and the overarching objective of the Union’s climate change legislation, nor should it result in distortions of competition. Accordingly, and so as to preserve the overarching objective of Directive 2003/87/EC, which forms part of the legal framework for the Union to achieve its independent commitment to reduce its emissions to 20% below 1990 levels by 2020, that Directive should continue to apply to flights from, or arriving in, aerodromes in the territory of a Member State, to or from aerodromes in certain closely connected or associated areas or countries outside the Union."

8.	As a result, the scheme was adopted whereby the obligations in relation to greenhouse gases were suspended for third countries, save for those who are considered to be in countries closely associated with the Union.  These were EFTA counties, accession countries and certain dependencies.   That has been given effect to in article 1 of the decision, and the reference to EFTA effectively excludes Switzerland from the moratorium, the reference to accession states effectively excluded Croatia, and the references to dependencies meant that dependencies of Member States were excluded from the benefit of the exemption.  The United Kingdom has implemented that decision.
9.	As a result, the factual position is this.  The scheme applies to flights within the European Economic Area.  Operators of such flights must surrender sufficient allowances to cover their emissions or are liable to a penalty if they do not.  The scheme does not apply to flights between the European Economic Area and most third countries. 
10.	Switzerland is not a member of the European Economic Area, nor, of course, the European Union.  The scheme still operates in respect of flights between Switzerland and the European Economic Area.  These flights are still subject to the obligation to surrender allowances and are liable to a penalty if they do not.  
11.	The claimant, Swiss Air, says that it is more affected than most by these arrangements because a large part of its activities involve flights from Switzerland to the European Economic Area. The claimant therefore contends that it is being obliged to surrender allowances or risk liability to civil penalties in circumstances where an airline from another third country would not be so obliged. The sole ground of challenge is that the European decision and the domestic implementing regulation are unlawful on the basis that they infringe the European law principle of equal treatment. Permission was refused on the papers on two grounds.  Firstly, the judge considered that the equal treatment principle did not apply to differential treatment by the European Union towards third countries.  Secondly, he concluded that even if that was wrong, there was no arguable case that the equal treatment principle had been breached on the facts of this case.  
12.	Mr Chamberlain QC, for the claimant, puts forward an argument that on a proper reading of the case law, there is no absolute bar to the application of the principle of equal treatment in the context of third party countries.  Further, he submits, it is at least arguable that the principle is applicable in the present context.  He submits this case does not involve the application of the principle in the context of the external relations of the European Union when that phrase is properly understood.  He submits that, in effect, the principle of equal treatment is only excluded where there is a formal exercise of competence in an area of external affairs and, as an automatic consequence of that formal exercise of competence, there is resulting discrimination in respect of third countries.  By way of example, a decision to conclude a treaty with one country but not to conclude an equally favourable treaty with a different country, would not be subject to the principle of equal treatment. If there are automatic consequences for traders, as a result of that exercise of external affairs competence, that would not be caught.  It is different, submits Mr Chamberlain, when dealing with the situation here, where there is no, in effect, legal measure determined at the EU level which has an automatic consequence of creating discrimination for third parties.  
13.	Firstly, in my judgment, it is clear that the general principles of EU law do not oblige the European Union to extend equal treatment to all third countries in relation to the conduct of external relations.  In my judgment, the conduct of its external relations includes decisions on suspending the application of the greenhouse emission trading schemes in relation to some or all third countries as part of a process of seeking a global or worldwide framework for greenhouse gas reductions. The European Union is entitled to decide that it will not extend the exemption to all third countries and is entitled to exclude one or more countries from that derogation. In my judgment, it is clear that what has happened, on the facts of this case, does involve action in the field of external affairs.  Mr Palmer, for the Secretary of State, took me to article 21 of the Treaty on European Union.  That includes general provisions in relation to the Union's external actions.  Article 21.2 says the Union shall define and pursue common policies and actions and shall work for a high degree of cooperation in all fields of international relations in order to, amongst other things, help develop international measures to preserve and improve the quality of the environment in the sustainable management of global natural resources in order to ensure sustainable development.
14.	In my judgment, it is clear from the history of this matter, both from the explanatory memorandum to the decision itself, and indeed to the recitals in the relevant decision itself, that the position was this.  The European Union wishes to do all it can to promote the agreement of a global or worldwide framework on the reduction of emissions in the field of aviation.  It was considered that the removal of the application of the system of greenhouses for most third countries would promote that aim, and they therefore took action to give effect to that, and it ultimately manifested itself in decision 377/2013/EU.
15.	In my judgement, the principle of equal treatment does not apply to actions of that nature in the field of external affairs, and this is one such example.  Furthermore, in my judgment, the case law does not require that there be an automatic link between action at the European Union level and any necessary resulting discrimination between third parties before it can be said that the principle of equal treatment does not apply.
16.	Dealing briefly with the case law relied upon by Mr Chamberlain, he began with the decision of the European Court of Justice, as it was then, in case C55/75/Balkan‑Import‑Export [1976] ECR 19.  Paragraph 14 of the case says this: 
"In the treaty there exists no general principle obliging the Community, in its external relations, to accord to third countries equal treatment in all respects and, in any event, traders do not have the right to rely on the existence of such a general principle."

17.	Mr Chamberlain relies on paragraph 15, where the European Court went on to consider the reason why there was no such differential treatment. He submits that when you read paragraph 15, that must mean that the court was not saying that the principle did not apply, otherwise there would have been no need for it to go on deal with the application of that to the facts of the case.  In my judgment, that is an over sophisticated reading of the judgment of the European Court.  The fact of the matter is, this involved a reference from a national court.  It concerned different monetary compensation amounts for cheese being imported from different countries.  The European Court was asked whether that system was compatible with Community law.  At paragraph 2, the court was obviously puzzled about what the question actually meant, and said it could be asking about imports from what was then a third country, Bulgaria; or it could be asking about imports from Italy, which was, of course, a Member State. At paragraph 14, in my judgment, the European Court set out the general principle in relation to the position of the European Union in its external relations.  At paragraph 15, responding to the questions from the national court and what they could see on the file, they explained why the position in relation to Italy was acceptable, and they also dealt with the position in relation to Switzerland and Bulgaria, and their cheeses.  But, in my judgment, the European Court was not seeking to qualify the general principle in paragraph 14, it was simply responding helpfully to the national court and putting its general principle into effect in relation to third countries, and also explaining the position in relation to Italy.
18.	Mr Chamberlain secondly relied on the case 52/81 Faust v Commission [1981] ECR 3745.  That concerned the fact that the European Union had chosen to enter into a favourable treaty with China concerning the import of mushrooms.  It had not entered into a similarly favourable treaty with Taiwan.  And that, according to Mr Faust, who imported mushrooms, gave rise to a breach of the principle of non‑discrimination. 
19.	Mr Chamberlain relied on certain paragraphs of the judgment of the Advocate General Sir Gordon Slynn at page 3772.  The first paragraph referred to the general principle from Balkan‑Import‑Export that I have just set out.  The second paragraph then deals with the position of Faust, who was an agent of a third country supplier, and the Advocate General was seeking to accommodate the position of Faust within what was then article 40.3 of the relevant Treaty.  That provision dealt with the common organisation of the market. Then the Advocate General went on to deal with the position where unequal treatment within the European Union resulted directly from the differential treatment arising from them having a treaty with one state and not with another member state in the context of Article 40.3 and the common organisation of the market.
20.	In fact, if one goes to the judgment itself, paragraph 25 says this:
"Although Taiwan certainly appears to have been treated by the Commission less favourably than certain non member countries, it should be remembered that there exists in the Treaty no general principle obliging the Community in its external relations to accord to non member countries equal treatment in all respects.  It is thus not necessary to examine on what basis Faust might seek to rely upon the prohibition of discrimination between producers or consumers within the Community contained in article 40 of the Treaty.  It need merely be observed that if different treatment of non member countries is compatible with Community law, different treatment accorded to traders within the Community must also be regarded as compatible with Community law where that different treatment is merely an automatic consequence of the different treatment accorded to non member countries with which such traders have entered into commercial relations."

21.	In my judgment, that is the reasoning of the court.  It is based on the conclusion that the principle of equal treatment does not apply to actions of the European Union in its external relations.  It is not building a requirement that there needs to be an automatic link between such action and discrimination before the principle is ousted.In the second part of that paragraph, the court was simply doing two things.  Firstly, it was disagreeing with the Advocate General and it did not regard article 40.3 as relevant.  Secondly, it was making the obvious point that if there is a treaty with one country and not another, any different treatment that follows on as a result of that exercise of action on the external level is not itself capable of giving rise to discrimination either. So, in my judgment, it is not a correct reading of paragraph 25 to treat that paragraph as requiring there to be some form of formal action having legal effect which automatically has the consequences of differential treatment between individuals.  In my judgment, the true position is, as set out in paragraph 25, that there exists in the Treaty no general principle obliging the Community in its external relations to accord to non member countries equal treatment in all respects.
22.	Mr Chamberlain referred also to the decision in case C‑122/95 Germany v Council [1998] ECR 973. In my judgment, that does not take the matter any further than the cases I have already considered.
23.	Finally, Mr Chamberlain relied on the judgment of Mitting J in R (on the application of the Minister for Economic Development of the States of Jersey) v The Revenue and Customs Commissioners [2012] STC 1113.  That was a case where article 23 of the relevant directive provided that the import of goods not exceeding an amount of 10 Euros was to be exempt from certain taxes.  It further provided that Member States could grant an additional exemption for goods of a value between more than 10 Euros but not exceeding 22 Euros, but there was a provision for Member States to exclude goods which were imported by direct mail.  The concern in that case was that low value CDs and DVDs were being ordered by mail from the Channel Islands and tax was being avoided. The United Kingdom therefore decided to exercise the derogation in article 23 and to provide the tax to be paid.  There were a number of issues in the case.  They appear from paragraph 33 and 34. They involve the correct construction of article 23.  They involve the question of whether the selective application of article 23 offended the principle of fiscal neutrality.  They also raised the question of the principle of non discrimination and also the issue of proportionality.
24.	Early on in the judgment, Mitting J said this:
"The issue is not acte clair.  If time had permitted I would, with the assistance of the parties, have referred the issue to the Luxembourg court."

25.	However, time did not permit and he therefore went on to grapple with the issue.  Mr Chamberlain, very fairly, accepts that it is not entirely clear what issue of the ones I have referred to, Mitting J found was not acte clair, although Mr Chamberlain takes me to paragraph 75 and 76, where Mitting J says that the question of the applicability of the principle of non‑discrimination in relation to third countries provided most of the answer to the question which is at the heart of this case. He inferred, therefore, that what concerned Mitting J most was that particular issue.
26.	In my judgment, in the context of this case, it may well be that Mitting J did not find certain principles easy to apply.  It may well be that Mitting J, in the context of the financial systems that he was dealing with, involving the free movement of goods within the EU and from third countries to the EU, considered the relevant principles were not clear.  However, in my judgment, that case did not concern as clearly as this case does, the question of relations of the European Union with third countries and its use of derogations to promote an international objective, namely the attempts to promote an international agreement on emissions in relation to aviation. In my judgment, it is clear that the facts of this case fall well within the scope of the principle that the general rule of equal treatment does not apply to the action taken in this case.  So, for that first reason, in my judgment, this claim is not arguable.
27.	Secondly and separately, the judge refused permission on the grounds that even if the principle applied, the claimant had not demonstrated an arguable case that the equal treatment principle had been breached.  Mr Chamberlain subjected the reasoning of the judge below and the arguments of the Secretary of State to strong criticism.  In my judgment, however, the starting point is the recital to the decision itself.  That tells us the reasons for the decision, and Mr Chamberlain rightly points out that ultimately it is the reasons of the European Parliament and the Council that are relevant.  The position is clear from the directive which first included aviation within the field of the greenhouse gas systems.  It was said that "limitation of greenhouse gas emissions from aviation is an essential contribution" to achieve the aim of reducing greenhouse gas emissions to at least 20 per cent below 1990 levels. One turns to the recitals to decision number 377/2013 EU and they note that aviation had a strong international character.  They note that progress was being made at the International Civil Aviation Organisation towards the adoption of a global treaty on carbon dioxide emissions in the field of aviation.  They say, in terms, in recital 6 that in order to facilitate this progress and provide momentum, it is desirable to defer the enforcement of requirements arising before the next session of the assembly.  And it chose to do that for third countries, save for those that were included within EFTA and others which were in the process of acceding to the European Union. It explained further why that decision was reached in recital 9.  The European Union did not want the exemption to affect the environmental integrity and its overarching objective of achieving a reduction in emissions.  It therefore decided that whilst it was prepared, as part of the aim of progressing an international treaty, to defer the system for most third countries.  It did not choose to do so in relation to flights arriving from or arriving in aerodromes in the territory of the member state to or from aerodromes in certain closely connected or associated areas or countries outside the Union.
28.	In effect, this was a political judgment within the broad margin of discretion on the part of the European Union as to where best to strike the balance in relation to progressing matters at the international level.  It decided that it would make a gesture towards those countries who wanted to achieve an international treaty but were concerned over the way that the European Union had hitherto gone about matters.  However, the Union also was concerned that it did not compromise the aims that it had of achieving a reduction in emissions.  They therefore chose to draw the line where they did.  
29.	Mr Chamberlain criticises that and says: that is not a justification, that is a statement of what they have done.  He submits that they must have a reason for drawing that line and deciding why they include certain states but exclude others.  Mr Chamberlain submits that the reasons are manifestly inadequate.
30.	In my judgement, that is not in fact a fair characterisation of what has happened.  The European Union wishes to reduce its emissions.  It considers that aviation contributes to those.  It wishes to apply the system to flights between third countries and the EEA.  It recognises that there are potentially considerably gains to be achieved by encouraging other countries to enter into an international treaty for that purpose.  It has weighted that aim against its aim of reducing the emissions within the EU.  It has drawn a line that is well within its margin of political discretion as the Community legislature. In my judgment, for that second separate reason, the principle of equal treatment, even if it applied, would not be breached on the facts of this case.  For each of those two reasons, this claim for permission has not demonstrated any arguable flaw in the EU decision, and I therefore refuse permission to apply for judicial review.