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The Factortame case was a landmark constitutional case in the United Kingdom, which confirmed the supremacy of European Union law over UK law.
The case first came to prominence when in the UK courts, a Spanish fishing company called Factortame appealed against restrictions imposed by on them by the UK government by the Merchant Fishing Act 1988. A section of the act prevented companies using foreign ships registered as British vessels from fishing in UK waters. Factortame's argument was that they were permitted to fish under EEC (it became the EU in 1992) law. The case reached the High Court, which obtained an injunction from the European Court of Justice (ECJ) to temporarily suspend the Secretary of State for Transport from enforcing the particular part of the act. However, on 22 March 1989 this was overturned by the Court of Appeal on the basis that the constitution did not give any court the right to suspend Acts of Parliament. This decision was upheld by the House of Lords (the highest court in the UK).
The case was referred to the European Court of Justice by the House of Lords in 1990 (they were legally required to do this), the House of Lords ruling that they did not have the power to suspend Acts of Parliament. The ECJ in June 1990 ruled that national courts could strike down laws which contravened EU law. Consequently the House of Lords ruled in favour of Factortame, meaning that in effect it struck down the Merchant Fishing Act 1988.
This appears to be a breach of parliamentary sovereignty, which holds that parliament is the supreme law making body and no-one can override its legislation. Factortame is an example of law courts not acting by the law created by parliament. Effectively, the House of Lords have been given the power to strike down acts of parliament which contravene EU law.
With regards to sovereignty, the case can be interpreted in more than one way. It can be interpreted as not being an erosion of parliament's (and therefore the UK's) sovereignty, because parliament could repeal the European Communities Act, i.e. leave the EU with a majority vote. However as this seems very unlikely to happen now or in the future, it can be interpreted as a permanent loss of political sovereignty, as although legally the UK could leave the EU, politically that is very unlikely, especially considering how complex it would be to disentangle the UK from the EU and also how damaging withdrawal would be economically and to the UK reputation within Europe. In conclusion, it seems that although the UK still has legal sovereignty, its political sovereignty was very much reduced by the ruling.
The Factortame case is often cited as evidence for the erosion of UK sovereignty and independence by movements such as the Referendum Party.