1. It appears that the SOS considers that the two main stages involved in these licences (the exploration stage and the production stage) can be treated as separate projects for the purposes of the Directive and Regulations. The SOS position, in so far as it is discernible from the correspondence, appears to be that the provisions of the Directive and Regulations apply first to the consideration of consent for the exploration stage and, later, to consideration of consent for the production stage. On this basis, if the SOS considered that exploration alone was not likely to have a significant effect on any relevant site then, even if production might have such an effect, the SOS appears to take the view that it is not necessary to conduct an assessment within article 6(3) of the Directive or regulation 48 of the Regulations prior to granting the licences.

2. For the reasons set out below, it is not lawful for the SOS to treat the two stages separately for the purposes of the Directive.

3. First, the licences have been granted for exploration and production. They are called "production licences". The Regulations make separate provision for exploration licences.

4. Second, the licences are conditioned by the necessary requirements for moving from the initial term to the second and subsequent terms, as set out in the Petroleum (Production)(Seaward Areas) Regulations 1988. Therefore, a work programme has to be agreed by the SOS in relation to the second term (during which production will commence). However, there is no provision in the regulations for terminating the licence where the SOS determines as a result of an environmental assessment that the integrity of a European site will be adversely affected by the work proposed in the second term or subsequent terms. It is therefore clearly anticipated that any decision not to allow a plan or project to proceed as a result of an adverse assessment must be taken at the stage of granting the production licence and not later.

5. Third, once the exploration activities in the initial term have been successfully concluded, the economic arguments for continuing to production are overwhelming in that:

a) The licensee will have spent considerable sums of money in exploration and may have committed further resources in the expectation of moving to the second term of the licence.

b) If the SOS were to terminate a licence as a result of an adverse environmental assessment carried out before commencement of the second term, such termination would in itself be in breach of the provisions of the licence and the 1988 Regulations and so would or could give rise to a liability of the UK government to the licensee in damages.

c) In those circumstances, even if an assessment at production stage showed adverse effects on the integrity of the site, the government may be able to use the provisions of article 6(4) (regulation 49) to agree to production taking place on the basis that there were economic reasons of an overriding public interest for the work to be carried out. It cannot have been intended that a member state could effectively avoid the usual consequences of article 6(3) by leaving the assessment to such a late stage that it was no longer in the public interest to halt a plan or project.

7. In R v. Swale Borough Council and Medway Ports Authority ex p The Royal Society for the Protection of Birds [1991] JPL 39, the court had to consider whether a project could sensibly be separated into component parts for the purposes of deciding whether a project falls within the definition of Schedule 2 of the Town and Country Planning (Assessment of Environmental Effects) Regulations 1988 (which implement the EIA Directive in respect of planning permission). Simon Brown J said (pg 47-48):

"The question whether or not the development was of a category described in either Schedule had to be answered strictly in relation to the development applied for, not any development contemplated beyond that. But the further question arising in respect of a Schedule 2 development, the question whether it "would be likely to have significant effects on the environment by virtue of factors such as its nature, size or location" should be answered rather differently. The proposal should not then be considered in isolation if in reality it was properly to be regarded as an integral part of an inevitably more substantial development. This approach appears appropriate on the language of the Regulations, the existence of the smaller development of itself promoting the larger development and thereby likely to carry in its wake the environmental effects of the latter. In common sense, moreover, developers could otherwise defeat the object of the Regulations by piecemeal development proposals".

8. See also R v. Secretary of State for the Environment ex parte Greenpeace [1994] 4 All ER 352 at p 377b-e.

9. In the Inspector's Report (leading to the Secretary of State's decision dated 17 March 1997) in relation to an appeal by United Kingdom Nirex Limited under the Town and Country Planning Act 1990 into a proposed Rock Characterisation Facility on land at and adjoining Longlands Farm, Gosforth, Cumbria, the Inspector found that it was impossible to decide on whether or not to grant planning consent to the applicants to build the Rock Characterisation Facility ("RCF") without having regard to the larger project to build the Deep Waste Repository ("DWR"). He found that the two proposals formed one project. Moreover, one project could form part of another. In that case, his reasons were that the RCF could confirm the potential location of the DWR, which would itself have some obvious environmental effects if constructed. There was "obviously and intrinsic physical link between the RCF and the DWR and this [could] not be ignored just because the RCF might be wound up without being followed by a DWR" (Report, para 3A.18).

10. The Inspector said that, on the hydrocarbon analogy, RCF would be more akin to an appraisal well than an exploration well, hence the relevance of the long-term suitability of the site.

11. The Inspector held that the fact that a series of approvals or consents would be required for subsequent developments did not preclude the developments being considered as a whole when it came to consideration of the environmental effects of any one development. He further held that the fact that some environmental information cannot be compiled at that stage was not a reason for failing to bring forward that which could be compiled.

12. Finally, even if it can be maintained that exploration and production constitute separate plans or projects, the SOS should still consider the effects of both activities when granting the production licences. Article 6(3) and Regulation 48(1) refer to the likely effect on the site of the plan or project "either alone or in combination with other plans or projects". If exploration is not likely to have a significant effect on the site, exploration in combination with the almost inevitable stages following from a successful exploration will do so.

VII. EFFECTS ON LOPHELIA PERTUSA

a) UK government has fettered its discretion

13. As set out at paragraphs 31 and 32 above, the reef-forming coral, Lophelia Pertusa, exists in or close to many of the licensed tranches and is at risk from the activities involved in the production and/or exploration stages of these licences.

14. Moreover, the sites where Lophelia pertusa is located fall within the territorial scope of the Habitats Directive. See Section V above.

15. The 1994 Regulations which implement the Habitats Directive limit the territorial scope of the Regulations to "the seaward limit of territorial waters" (ie: 12 miles from the coast). Therefore the UK government had failed fully to implement the Directive.

16. By reason of the above limitation, in compiling the list of candidate sites that was sent to the European Commission, as described in paragraph 31(c) above, or at any other time, the government has failed to consider habitat types or species on the continental shelf. Had the UK government considered the whole area covered by the Directive, such consideration would have included sites containing Lophelia pertusa.

17. The UK government thereby fettered its discretion in that it deprived itself of the opportunity of considering whether or not areas of Lophelia pertusa or reefs formed therefrom should be included in a list of candidate sites.
b) Failure to have regard to a relevant consideration

18. Had the government considered areas containing Lophelia pertusa, it is at least likely that some of those site would have been included in a candidate list of SACs as hosting natural habitat types in Annex I to the Directive, for the following reasons:

a) Reefs are included in Annex I. Lophelia pertusa is a reef forming coral and is within Annex I.

b) Lophelia falls within the definition of "natural habitat type of Community interest" contained in article 1(c)(iii) because it is an outstanding example of typical characteristics of the Atlantic biogeographical region.

19. In granting the licences for those areas outside of the 12 mile territorial waters of the UK, the government failed to have regard to a relevant consideration, namely that there were sites which could or should have been included in a list of candidate sites transmitted to the Commission under the Habitats Directive and which were in or close to the licensed tranches.
c) Consequences of government's errors

20. Had the government taken account of the above, it could not reasonably have granted the licences without first conducting an assessment under article 6(3) or regulation 48 for the following reasons:

21. The UK government has voluntarily adopted as its policy compliance with the Directive and Regulations as soon as a list of candidate sites is submitted to the Commission.

22. The courts will enforce adherence by the SOS to a departmental policy. In R v. Secretary of State for the Home Department ex p Urmaza [1996] COD 479 Sedley J held that there is a presumption that the SOS will follow his own policy and that if there is to be a departure from policy there must be good reason for it.

23. Had the government followed its own policy and therefore applied regulation 48 (article 6(3)), which applies to SACs, been applied, this would have had the following consequences:

a) The government would have had to consider, prior to granting the licences, whether the licensed activities would be likely to have a significant effect on any of the sites in view of their conservation objectives.

b) Had the government considered this question, it was at least likely to conclude that the exploration and/or production activities would be likely to have a significant effect on the Lophelia (see paragraph 32 ). Alternatively it would have been unreasonable in the light of the evidence for the government to conclude otherwise.

c) The SOS would therefore have had to make an appropriate assessment and could only have granted a licence if either the project would not adversely affect the integrity of the site or if there were imperative reasons of overriding public interest, in accordance with regulation 49. The government would have had to consult the nature conservancy body in making this assessment.

d) None of the above has been done in relation to the sites containing Lophelia pertusa, and the government does not claim otherwise:

i) The Habitats Directive does not set out what is required of an "appropriate assessment" but it is submitted that such assessment would, as a minimum, have to address the matters set out in the EIA Directive. The SOS admitted in the letter dated 7 April 1997 to Greenpeace and again in the letter dated 18 June 1997 that the government does not consider that the EIA Directive applies to the current licensing decision of the SOS, but that it may apply at the point of granting consents for drilling and extraction.

ii) The Notes for Applicants on the presentation of information to support an application for a licence require (at CIII) applicants for licences to summarise

"(i) an assessment of the environment in the tranche in question, including environmental resources outside the area applied for that may be at risk:

(ii) how the work programme will be managed to avoid or minimise risk to the environment and a description of the procedures in place for monitoring environmental performance;

(iii) how contractor operations will be monitored to ensure compliance with the company's policy".

iii) However, there is nothing in this that suggests that the assessment will be conducted with a view to the sites' conservation objectives, as required by the Regulations and Directive. In addition, although an applicant is required to make an assessment of the environment, regulation 48 of the 1994 Regulations requires the competent authority (the SOS) to make the assessment. There is no indication that an appropriate assessment has been conducted by the SOS.

d) Proposed study prior to production consents is not sufficient

24. The government could not avoid the obligations in the Regulations or Directive by treating exploration and production as two separate projects (see Section VI above)

25. Even if they could do so, their plans for "assessments" prior to the production stage do not constitute compliance with regulation 48 or article 6(3). In their letters of 7 April and 18 June 1997 to Greenpeace, the DTI has stated that separate consents have to be obtained by the licensee for the drilling of any well and for the carrying out of works for the purpose of extracting or conveying petroleum. They state that they will consider at that stage whether an environmental impact assessment is required. As far as the Habitats Directive is concerned, the SOS has said:

"the Secretary of State intends to keep the requirements of the Habitats Directive in mind when considering applications for consent to drilling and other works".

26. In the letter of 7 April the SOS gave some detail as to the requirements likely to be imposed prior to granting these later consents:

"Terms attached to licences for all 17th Round blocks will require the licensee, before commencing any activity authorised by the licence other than seismic surveying, to have in place an oil spill contingency plan which has been approved in writing by the Secretary of State. This will identify environmental sensitivities which could be affected by a spill from a drilling rig or from a well mishap and will set out strategies to be adopted in the event of either…."

27. The terms and conditions in the licences include a requirement on the licensee to submit an "environmental study" as part of the application for development consent.

28. The proposals for an environmental study or other proposals by the government to apply at that stage do not satisfy the requirements of article 6(3) or regulation 48, because:

a) No terms of reference exist as to the requirements or content of the "environmental study". Specifically, there is nothing that ensures that such study would enable the SOS to consider the implications for any site "in view of the sites conservation objectives".

b) The licensing conditions only require environmental studies for individual projects, and therefore they fail to take account of the cumulative or synergistic effects that may result from the combination of a number of operations being undertaken within a wider area.

c) There is no indication that the government has made or will make an assessment of the risks of oil spill and the effect on the sites in terms of their conservation objectives, nor that there will be public consultation in relation to such. A contingency plan is not in itself an assessment within the Directive.

d) Nor does the SOS propose to conduct the much broader assessment of the implications for the site in view of the site's conservation objectives, as required by regulation 48 or article 6. For instance, the proposal does not involve any assessment of the effects of drill cuttings.

e) The government's statement that it will "keep the provisions of the Habitats Directive in mind" cannot apply to the areas in which Lophelia pertusa is located as the government has not accepted that the Directive applies to those waters.

29. Therefore, in granting the licences in respect of the areas containing Lophelia pertusa or in respect of activities which are likely to affect Lophelia pertusa, the government failed to take account of relevant considerations and/or fettered its discretion, in that it deprived itself of the opportunity to include the sites containing Lophelia pertusa in the list of candidate sites and therefore deprived itself of the opportunity of considering the application of the provisions of regulation 48 or article 6 prior to granting the licences. Had the government taken account of these factors properly, it is at least probable that the licences would not have been granted in respect of all the tranches in question or that additional or different conditions would have been attached to the licences that were granted.

VII. EFFECTS ON ST. KILDA

30. Seven of the tranches in respect of which licences have been granted (tranches 19, 21, 22, 30, 36, 37 and 38) are close to the island of St Kilda.
a) St Kilda as a designated Special Protection Area

31. On 31 August 1992 St Kilda was designated a Special Protection Area ("SPA") under the Wild Birds Directive (79/409/EEC). By virtue of article 7 of the Habitats Directive, the provisions of article 6(2), (3) and (4) of the Habitats Directive apply to designated SPAs and therefore apply to St Kilda as a designated SPA. The SOS was, at the time of granting the licences in this matter, obliged to apply the provisions of article 6(2)-(4) of the Directive and the provisions of the Conservation (Natural Habitats) Regulations 1994 (which, by virtue of regulation 10(1)(d), apply to a SPA). These provisions apply for the purposes of the protection of birds in respect of which the site was designated.

32. The expert evidence shows that the close proximity of the St Kilda site to those tranches means that the wild bird population will be or may be significantly affected by the exploration and/or production activities under the licences on those tranches. See paragraph 32.
b) St Kilda as a candidate site under Habitats Directive

33. In accordance with the provisions of the Habitats Directive and the Conservation (Natural Habitats) Regulations 1994, the UK government prepared a first list of land based sites as possible Special Areas of Conservation ("SAC"s) in March 1995. It subsequently prepared a list of marine sites as possible SACs, and on 16 October 1996 that list was referred to the European Commission in accordance with article 4(1) of the Habitats Directive. The list of marine sites includes St Kilda, which was designated on the grounds of three qualifying interests: reefs, vegetated sea cliffs and submerged or partly submerged sea caves. It also included other Hebridean islands.

34. The Commission has neither established a draft list of sites of Community importance nor adopted the list under article 4(2). This must be done by June 1998. Therefore, at present, the provisions of Regulations 48 and 49 (article 6(2)-(4) of the Directive) do not apply to the site as either a European Site, a site of Community Importance or a Special Area of Conservation.

35. However, as a matter of its own policy, the government would or should then have applied the provisions of Regulation 48 (article 6(3) of the Directive) (see paragraph 69 above). Had the government failed to apply the provisions of regulation 48, the courts would have required them to do so (see paragraph 70 above). In the present case, the SOS has given no reason for departing from government policy.

36. The expert evidence shows that there is a risk that the licensed activities could have a significant effect upon the marine habitat in respect of which St Kilda has been included by the UK government on the list of candidate sites (see paragraph 32). Without further research, the extent of this risk is not known.
c) The UK government has failed to apply article 6 or the regulations

37. By reason of the above, the SOS was obliged:
a) under the terms of the Directive and Regulations, to apply the provisions of article 6(2)-(4) to St Kilda as a SPA,

b) as a matter of public law (by virtue of government policy) to apply the provisions of the Regulations to St Kilda as a candidate site of Community Importance.

38. The SOS failed to apply the provisions of article 6(3) and (4) (Regulations 48-49), for the following reasons.
(i) Failure to consider likely effect of the licensed activities

39. The exploration and production stages either taken separately or together constitute a "plan or project not directly connected with or necessary to the management of the site". Prior to granting the licenses the SOS would have to consider whether any such plan or project was likely to have a significant effect on the site either as a SPA or as a candidate SAC, either individually or in combination with other plans or projects.

40. Although the SOS claims to have considered the likely effect on classified or proposed SACs or SPAs, and to have concluded that there were not likely to be such effects, that does not satisfy the provisions of the Directive or Regulations because:

a) Any consideration given by the SOS to such effects took place prior to offering the areas under the 17th round. The SOS did not consider the effects in relation to specific plans or projects (either individually or in combination), which consideration could only have been given once applications for licences had been received, nor did he consider this question with a view to deciding whether or not to grant any particular licence nor what conditions to impose.

b) It appears that the SOS did not consider the likely effects of the production stage but only of the exploration stage.

41. It is submitted that, had the SOS given lawful consideration to the likely effects of the plans or projects, s/he was likely in the light of the evidence to have concluded that the projects were likely to have a significant effect on St Kilda ( or could not reasonably have concluded otherwise) because:

a) The activities are clearly likely to have a significant effect on the bird population.

b) The SOS could not conclude that there was not likely to be a significant effect on the marine environment without obtaining further information, as current information suggests that the risks cannot be discounted.

(ii) Failure to conduct an environmental assessment

42. Had the SOS concluded that the licensed activities were likely to have a significant effect on St Kilda, the SOS would then have had to conduct an assessment and act on the conclusions of the assessment accordingly under article 6(3) (regulation 48 of the 1994 Regulations).

43. The SOS would have had to make an "appropriate assessment of the implications for the site in view of that site's conservation objectives". No such assessment has been made. It is clear that the government has not carried out any such assessment as it took the view that such was not required because the SOS had concluded that there was not likely to be any significant effect on the proposed or classified SACs or SPAs. The Applicant also relies on the facts and matters set out at paragraph 71(d).

44. Therefore, the SOS has deprived himself of the opportunity of ascertaining whether the project or plan would not adversely affect the integrity of the site concerned, consideration of which is a pre-condition to granting the licences.

45. Further the SOS has failed to consider whether it would be appropriate to obtain the opinion of the general public prior to granting the licences, and has thereby deprived himself of taking account of the views of the general public.

(iii) Failure to apply article 6(4)(regulation 49).

46. The SOS has failed to consider or apply the provisions of article 6(4) (regulation 49). Had the above assessment under article 6(3) been negative, the SOS could only have granted the licenses if the provisions of article 6(4) (Regulation 49) apply. Those provisions do not apply in the present case nor did the SOS consider whether they apply.

(iv) Proposed assessment for production stage does not comply with article 6(3)

47. It is the applicant's case that, for the reasons set out at Section VI above, it is not lawful for the SOS to separate the exploration and production stages for the purposes of considering the environmental effects of the licensed activities. However, even if it is lawful for the SOS to do so, the SOS proposals in relation to the obtaining of consents prior to proceeding to production do not satisfy the requirements of the Regulations or the Directive. The applicant repeats the submissions in paragraphs 73-76 above.

f) Conclusion - Decision unlawful

48. By reason of the above, the SOS decision to grant the licences in respect of tranches 19, 30 and 36-38 is unlawful because:

a) In relation to St Kilda as a designated SPA, the SOS is in breach of the Habitats Directive and the Regulations.

b) In relation to St Kilda as a candidate SAC, the SOS is in breach of government policy and has given no good reason for departing from the policy.

c) The decision has been taken on the basis of a fundamental error of law, namely that the exploration stage constitutes a separate project which can be considered without regard to the Habitats Directive.

VIII. STAY

49. In the event that the Honourable Court grants leave to move for judicial review, the Applicant requests a stay of the implementation of the licence until the full hearing of this application.

50. It is accepted that the effect of a stay would be to prevent licensees carrying out further activities under the licences pending determination of this application. As was held by the Court of Appeal in R v. Inspectorate of Pollution and another, ex parte Greenpeace Limited [1994] 4 All ER 321, where the real purpose of interlocutory relief is to prevent executive action by a third party in pursuance of a right which have been granted by the decision under attack, the court, in considering whether to grant a stay, should apply the same principles as would have been applicable if the application had been for an interlocutory injunction and should apply the principles in American Cyanamid v. Ethicon [1975] 1 All ER 504, in particular the test of the balance of convenience.

51. In the present case, the balance of convenience clearly lies in favour of granting a stay because:

a) The consequences of refusing a stay will be that activities may be carried out by any of the licensees which could irreversibly damage the environment, as set out herein;

b) The Applicant will thereby be denied an effective remedy;

c) The licensees are put to proof whether they will suffer significant financial loss as a result of a stay. If these proceedings are ultimately unsuccessful, they will be able to act on the licence. Exploration works have not yet commenced and there is no apparent reason why the licensees could not wait a little longer before doing so.

52. The Applicant cannot, for financial reasons, give an undertaking in damages nor should one be imposed as a condition of a stay:

a) The application is brought in the public interest and the stay is in the public interest. The court's protection of the public interest ought not to depend on the financial strength of the applicant.

b) The challenge is not in the nature of an injunction to prevent the licensees from doing that which they are licensed to do. It is a review of a decision by the government as to the legality of authorisations which are required before the licensed activities can take place. Delays pursuant to such challenge are inherent in the whole licensing procedure. Had the SOS considered the applicant's contentions prior to the decisions to grant licenses, the licensees would not have been able to complain about any delays caused thereby.

c) It was not held by Brooke J or the Court of Appeal in ex parte Greenpeace, above, that there was any proposition of law that an inability to give an undertaking in damages should necessarily preclude an applicant from gaining a stay. In any event, the financial losses to the Respondent or to the licensees are, even if the substantive application is unsuccessful, likely to be significant.

d) The case raises issues of Community Law and no rule of national law, including principles that applicants for injunctions in private law cases are generally required to give a cross-undertaking in damages, can preclude a national court from granting interim relief in a case concerning Community Law (see R v. Secretary of State for Transport ex parte Factortame (No.2) [1991] 1 AC 603, at 644G-645A).