DENIMARK LIMITED AND 11 OTHERS v. THE UNITED KINGDOM
Inadmissible
Nicolas Bratza
A. The facts of the case, as submitted by the parties, may be summarised as follows. The applicants are all connected with the firearms industry. A list of the applicants is annexed to the present decision. They are represented before the Court by Elborne Mitchell, Solicitors, London. The first applicant, Denimark Limited, traded as Leicester Shooting Centre. It operated an indoor shooting complex with two shooting ranges, a clubroom and a retail shop. Its primary business activity was providing facilities for handgun shooting, although the shooting ranges are suitable for small bore rifles as well as handguns. The Government’s announcement that it intended to introduce legislation prohibiting the possession of handguns badly affected the first applicant’s business and reduced its profitability. It has redundant stock in respect of which it is not entitled to compensation under the 1997 Firearm Amendment legislation: the Firearms (Amendment) Act 1997 and the Firearms (Amendment) (No. 2) Act 1997 (“the 1997 Amendment Acts”; see below). It estimates the reduction in value of its goodwill to be in the region of £50,000, and its loss of future profit to be approximately £40,000 per annum (gross). In addition, capital assets worth approximately £45,000 were rendered redundant by the 1997 Amendment Acts.  The second applicant, Dunmore of Abingdon Limited, operated a shop selling handguns, rifles, clay and game shot guns, air rifles, air pistols and accessories. It also operated an indoor 25-metre handgun range which it ran as a commercial club, and a country clothing shop. After the Government’s announcement that it intended to introduce legislation prohibiting the possession of handguns, the second applicant’s business started to decline and sales and profits in the gun shop fell considerably. The shooting range is suitable only for handguns, as rifles need a longer distance (100 metres), muzzle loading pistols need an outdoor range due to the smoke and fire hazard, and shotguns cannot be used indoors. By August 1997, pistol club membership had declined from 500 to 150, the number of employees had been reduced from 12 to 8, and business hours had been reduced from seven to five days per week. The second applicant envisaged closing the range by the end of September 1997. It estimates its loss of future profits at £188,000 per annum (gross), with a substantial reduction in the value of its goodwill. In addition, capital assets worth approximately £50,000 were rendered redundant by the 1997 Amendment Acts. The third applicant, Graham Gill, is a sole trader dealing in the sale of handguns, specialist accessories and equipment under the name Greenland Firearms. He also provides specialist firearms training in handgun techniques, and specialist gunsmithing and repair works. By August 1997, the level of business had been reduced by 95%, with consequent reductions in the value of the goodwill and the future income and profit of the business. The third applicant had invested considerable sums in setting up the business, building secure storage areas, installing alarm systems and providing a test range. He estimates the value of his redundant capital investment at £25,000, and his loss of future profit at £45,000 per annum (gross). The fourth applicant, Tim Hannan, was engaged in the manufacture, sale (both retail and wholesale), import and export of handguns and accessories. Trade in handguns and accessories represented approximately 80% of his turnover. The fourth applicant also manufactured ammunition and sold rifles, reloading equipment components, and various accessories including books. By August 1997, sales had been reduced significantly and the number of employees was reduced from nine to five. The fourth applicant estimates his redundant investment in plant and machinery (primarily equipment for making handguns and ammunition) at £185,000, and the reduction in value of the goodwill of the business at £1,624,000. The fifth applicant is Robert Hardesty, trading as Grove Small Arms Club. The sixth applicant is Grove Smallarms, a partnership between Mr Hardesty and his wife, Barbara Hardesty. The fifth and sixth applicants trade from the same premises. The fifth applicant’s club is for handgun shooting. The sixth applicant operates a gun shop with 90% of its business selling handguns, ammunition and accessories. As a consequence of the reduction in club membership following the Government’s decision to prohibit the possession of handguns, the fifth and sixth applicants have reduced their business hours and membership of the shooting range has dropped from 560 to 270. The fifth applicant’s business is no longer viable. He estimates the reduction in value of goodwill at £15,000, redundant capital investment at £32,000, and the loss of future profit at £31,000 per annum (gross). The sixth applicant estimates the reduction in the value of its goodwill at £20,000, its redundant capital investment at £35,000, and its loss of future profit at £31,000 per annum (gross). It is unable to diversify into the shotgun or rifle markets as there are already well-established gun shops in the locality which specialise in these markets.  The seventh applicant, Howitzer Products Limited, specialises in the manufacture of ammunition for handguns. Approximately 80% of the seventh applicant’s business depended upon the trade in handguns. Between the entry into force of the First Amendment Act and August 1997, the number of people employed by the seventh applicant halved and the level of sales was reduced significantly. The seventh applicant estimates its loss of future profit at £12,000 per annum (gross) and the reduction in the value of its goodwill at £50,000, in addition to significant redundant capital expenditure. The eighth applicant, Leeds Firearms International Limited, operated a shop selling handguns, accessories and reloading equipment, from the premises of a commercial gun club and shooting range. It also operated a mail order business. 95% of the eighth applicant’s business involved the sale of handguns. The eighth applicant ceased trading in December 1996, when it became clear that the business would no longer be viable after the entry into force of the First Amendment Act. It estimates its loss of future profit at £70,000 per annum (gross). It suffered a substantial reduction in the value of its goodwill, and significant capital investment was rendered redundant. The ninth applicant, Lincolnshire Shooting Centre, is a partnership between a married couple, Douglas and Margaret Purdy. The ninth applicant runs a shooting centre, gun shop, rifle and handgun club, and an indoor handgun shooting range. The range is suitable only for handguns. By August 1997, weekly sales at the shop had fallen from £2,500 to £250, and the ninth applicant anticipated that it would have to cease trading in the near future. It estimates the reduction in the value of its goodwill at £495,000, its redundant capital investment at £20,000, and its loss of future profit at £10,000 per annum (gross). The tenth applicant is Laurence Tully, trading as The Barbican Armoury. He is a handgun dealer, runs a shooting club, and repairs handguns. The business was worth £110,000 as a going concern before the prohibition on handguns. By October 1996, the goodwill of the business had been rendered valueless. Club membership was reduced to 70% by 1 February 1997, the membership renewal date. By August 1997, range attendance had been reduced by 40%, and turnover had fallen by 60%. Significant capital investment was rendered redundant, and the tenth applicant faced an extensive and costly programme of modifications to adapt facilities for the use of black powder muzzle loading guns, which were not affected by the 1997 Acts. He estimates his loss of future profits at £17,280 per annum (gross).  The eleventh applicant, Viking Arms Limited, is a supplier and distributor of handguns, ammunition and accessories, specialising in revolvers. It was the sole wholesale distributor for some of the world’s largest manufacturers of handguns and their accessories, such as holsters. The eleventh applicant’s premises were built specifically for secure storage of firearms and ammunition and have been rendered virtually unusable. The business was rendered virtually worthless by the 1997 Acts. The eleventh applicant estimates the reduction in the value of its goodwill at £2,000,000, its redundant capital investment at £300,000, and its loss of future profit at £445,000 per annum (gross). The twelfth applicant is Jeffrey Wilkinson, trading as Wilkinson Custom. He was a specialist manufacturer of custom-made competition pistols, revolvers and accessories, having spent five years training to manufacture handguns. The twelfth applicant started trading in 1994, and made a gross profit of £5,000 in 1995/96. He estimates the reduction in the value of his goodwill at £25,000, his redundant capital investment at £20,000 and his loss of future profit at £25,000 per annum (gross). By the beginning of 1999, approximately £22 million had been paid to some 1,500 dealers under the compensation schemes, of a total of approximately £67 million which had been paid to individuals, dealers and others. The Government estimated the total costs which would be involved in paying compensation under the schemes to be approximately £120 million. The applicants have received no compensation for the reduction in value of their businesses. B. Domestic law and practice The Firearms Act 1968 has been periodically amended since it was passed, and forms the basis of the current system of the control of firearms in the United Kingdom. Section 5 of the Act of 1968 prohibits the possession, purchase, acquisition, manufacture, sale or transfer of the firearms there specified. Section 1 of the Firearms (Amendment) Act 1997 (“the First Amendment Act”) added large-calibre handguns to the class of prohibited firearms in section 5 of the 1968 Act. Section 5 of the Act of 1968, as amended by the First Amendment Act, provided: “(1) A person commits an offence if, without the authority of the Defence Council, he has in his possession, or purchases or acquires, or manufactures, sells or transfers - ... (aba) any firearm which has a barrel length of less than 30 centimetres in length or is less than 60 centimetres in length overall, other than an air weapon, a small-calibre pistol, a muzzle-loading gun or a firearm designed as signalling apparatus.” The Firearms (Amendment) (No. 2) Act 1997 (“the Second Amendment Act”; together with the First Amendment Act, “the 1997 Amendment Acts”) extended the scope of the prohibition in section 5 to small-calibre pistols by declaring (in section 1) that the words “a small-calibre pistol” in section 5(1)(aba) of the 1968 Act as amended by the First Amendment Act should cease to have effect. The First Amendment Act provides as follows, so far as material: “15 Surrender of prohibited small firearms and munitions (1) The Secretary of State may make such arrangements as he thinks fit to secure the orderly surrender at designated police stations of firearms or ammunition the possession of which will become or has become unlawful by virtue of section 1 or 9 above. ... 16 Payments in respect of prohibited small firearms and ammunition (1) The Secretary of State shall, in accordance with a scheme made by him, make payments in respect of firearms and ammunition surrendered at designated police stations in accordance with the arrangements made by him under section 15 above. (2) A scheme under subsection (1) above shall provide only for the making of payments to persons making claims for such payments in respect of firearms or ammunition - (a) which they had, and were entitled to have in their possession on or immediately before 16th October 1996 by virtue of firearms certificates held by them or by virtue of their being registered firearms dealers; or (b) which on or before that date they had contracted to acquire and were entitled to have in their possession after that date by virtue of such certificates held by them or by virtue of their being registered firearms dealers, and their possession of which will become, or has become, unlawful by virtue of section 1(2) or 9 above. 17 Payments in respect of ancillary equipment (1) The Secretary of State shall, in accordance with any scheme which may be made by him, make payments in respect of ancillary equipment of any description specified in the scheme. (2) For the purposes of subsection (1) above, ‘ancillary equipment’ means equipment, other than prohibited ammunition, which- (a) is designed or adapted for use in connection with firearms prohibited by virtue of section 1(2) above; and (b) has no practicable use in connection with any firearm which is not a prohibited weapon. (3) A scheme under subsection (1) above shall provide only for the making of payments to persons making claims for such payments in respect of ancillary equipment- (a) which they had in their possession on 16th October 1996; or (b) which they had in their possession after that date, having purchased it by virtue of a contract entered into before that date. ... 18 Parliamentary control of compensation schemes (1) Before making a compensation scheme the Secretary of State shall lay a draft of it before Parliament. (2) The Secretary of State shall not make the scheme unless the draft has been approved by resolution of each House. (3) This section applies to any alteration to the scheme as it applies to a compensation scheme. (4) In this section ‘compensation scheme’ means a scheme under section 16 ... above.” The Firearms (Amendment) Act 1997 Compensation Scheme (“the First Scheme”) was laid in draft before Parliament and approved by resolution of both Houses of Parliament. It was made on 10 June 1997. The First Scheme provided compensation for the large-calibre handguns themselves, for prohibited expanding ammunition and for certain ancillary equipment. There were three options for claiming compensation: Option A, a flat rate payment for individual items, Option B, a payment for an individual item at the price in the list of values annexed to the First Scheme and Option C, a payment based on the market value of an individual item at or immediately before 16 October 1996 (the date of the announcement by the Government of their response to, and legislative intention following, the Cullen Report). Under Option A, a payment of £150 could be claimed for each large-calibre handgun. Under Option B, a payment could be claimed which was based on average retail values on 16 October 1996, reduced by about 25% to reflect normal depreciation in value. Under Option C, dealers were entitled to claim the “full market value” of the large-calibre handguns and ancillary equipment which they held in stock. The full market value was to be calculated on the basis of the cost to the dealer of the item plus 25%. By section 2 of the Second Amendment Act, the provisions of sections 16 to 18 of the First Amendment Act were applied to small-calibre pistols. The Firearms (Amendment) (No. 2) Act 1997 Compensation Scheme (“the Second Scheme”) was made in December 1997, after having been laid in draft before both Houses of Parliament and approved by resolution of each House. The Second Scheme applied in relation to small-calibre pistols held on or immediately before 14 May 1997. The date for the calculation of full market value for the purposes of Option C remained 16 October 1996. The Second Scheme made provision for compensation in respect of small-calibre pistols, on materially the same terms as provided for in the First Scheme in respect of large-calibre handguns.