Trading rules, alcohol and elephants in the room

The House of Lords review into the Licensing Act 2003 was widely expected to criticise 24 hour licensing and propose a return to the last bell at 11 o’clock. Instead, the focus was on the off trade consumption and a recommendation that the Scottish policy of minimum unit pricing (MUP) be introduced in England and Wales. In this briefing we consider the implications of the legal challenge to the Scottish MUP legislation and the new ‘elephant in the room' on this issue, namely Brexit.

The introduction of MUP legislation in England and Wales will require careful consideration of the judgments of the Scottish Court of Session and the preliminary ruling from the Court of Justice of the EU (CJEU) handed down in respect of the challenge to the Scottish MUP policy. As the legality of the Scottish policy turned on the application of EU Single Market rules and the rights of Member States to introduce regulatory rules restricting trade, the introduction of a similar rule in England & Wales also raises the fairly fundamental questions of what limitations (if any) there would be on such rules post-Brexit. In that sense, the issues have much wider relevance than just to the drinks industry.

The challenge to the Scottish MUP

In 2012, the Scottish Parliament enacted legislation amending the Licensing (Scotland) Act 2005 by adding a provision that ‘Alcohol must not be sold … at a price below its minimum price’ (Section 6A(1) of the 2005 Act as amended). The amending legislation empowered the Scottish Government to specify the level of the MUP. A draft order was published in 2013 setting the MUP at 50p per unit. The legislation was then challenged by the Scotch Whisky Association and a number of other wine and spirit industry bodies (the Associations). They argued inter alia that MUP has an effect equivalent to a quantitative restriction on importing goods and is therefore contrary to the principle of free movement of goods, and specifically Article 34 of the Treaty on the Functioning of the EU (TFEU).

The issue was initially considered by the Outer House of the Court of Session (Opinion of Lord Doherty). The Lord Ordinary found that although the MUP was a measure that has an effect equivalent to quantitative restrictions for the purposes of Article 34 TFEU, it was done in pursuit of the legitimate aim of protecting human health satisfying the derogation provided for in Article 36 TFEU.

Reference to the CJEU

The Associations appealed the judgment to the Inner House who referred certain questions of EU law to the CJEU for a preliminary ruling. The CJEU ruled that a measure such as the MUP was a serious infringement of the principle of free movement of goods and is only lawful under EU law if it is a legitimate measure to address human health issues and is proportionate to that objective.

On the key issue of proportionality, the CJEU ruled that whilst it was for the national court to undertake the review, in doing so it must examine objectively whether the measure was appropriate for the attainment of its objectives and whether it was possible to attain those objectives by less restrictive measures. Critically though, the CJEU added that the burden of proof cannot extend to creating a requirement that Ministers must prove, positively, that no other conceivable measure could enable the objectives to be attained.

Court of Session judgment

Applying the ruling, the Inner House considered that its task was ‘to determine objectively whether it may reasonably be concluded from the evidence submitted ... that the means chosen are appropriate for the attainment of the objectives … and whether it is possible to attain those objectives by measures which are less restrictive of the free movement of goods’ (at para. 168 of the Inner House judgment). Applying this to the judgment of the Outer House, the Inner House concluded that the Lord Ordinary had directed himself correctly on EU law when dismissing the challenge to the MUP by the Associations and accordingly dismissed the appeal.

The proportionality test

On the key issue of proportionality, the Inner House considered that the ‘true area for debate’ was whether modification of taxation, within the permissible bounds of EU law, could achieve similar results in targeting the sale of cheap alcohol, in particular in the off-trade market. In what the Inner House described a two-stage 'structured proportionality exercise’ the court has to compare the effectiveness of MUP in achieving the targeted objective, with other measures which could also achieve that objective, and which could be less restrictive of intra-EU trade.

The ‘elephant in the room’ (as it was put) when considering use of a targeted taxation measure was that the Scottish Government has no power to raise taxation on alcohol. That is a matter reserved to Westminster. Whilst not relevant when considering the duties of the EU Member States under the TFEU, which takes no account of devolution matters within a Member State, it did ‘produce a curious anomaly in the context of a legal argument that increasing tax is a viable alternative, when the political reality is that it is clearly not’ (at para. 192).

Ultimately the Inner House concluded that the Lord Ordinary had not erred in concluding that increasing tax would not be ‘as effective’ as the MUP measure. He had concluded that the MUP measure was a more targeted measure than taxation. This was because MUP raises the price of high alcohol, low cost drinks favoured by excessive drinkers.

Implications for an England and Wales MUP?

In Scotland, enough alcohol is sold to enable each and every adult to exceed the recommended make weekly guideline maximum of 21 units on each and every week of the year; this being driven by the off-trade sales as the primary source, given that the average price of a unit of alcohol there is 45p (as cited in the judgment of the Inner House). Applying the same legal tests as were applied to the Scottish MUP, the first issue for any England and Wales MUP will be the extent of the health issue in England and Wales. Significant amounts of consumption and public health issues associated with alcohol were presented to support the Scottish MUP measure.

As with the experience in Scotland though, the key legal test for the introduction of an England and Wales MUP is likely to be whether it passes the proportionality test. One factor here will be the likely effectiveness of an alternative targeted taxation measure, minus the ‘curious anomaly’ of taxation powers in Scotland (though query this in the context of devolution in Wales).

Brexit

The ‘elephant in the room’ for any proposed England and Wales MUP is likely to be Brexit. If challenged, will the High Court apply the EU law derived proportionality test or some other equivalent test under common law rules of judicial review? If adopted post-Brexit, the logic of the UK Government’s current position seems to be that the UK courts will not be bound by CJEU case-law. Query whether public law principles of judicial review include a similar proportionality test and whether that test would be less strict than the test considered by the Scottish courts when addressing the Scottish MUP? These questions have resonance far beyond the MUP measures and the drinks industry. They raise fairly fundamental questions around the limits on free trade and the ability of authorities to adopt similar such regulatory measures whether in the consumer goods sector or other sectors of the economy.