Wednesday, 13 August 2014

"Oder von" (or which bit of "or" don't you understand?)

Feakins v Scottish Ministers – European ruling on force majeure, Single Farm Payments and the National Reserve

Robin Feakins is no stranger to the courts. During the 2001 foot and mouth disease (FMD) epidemic, his farm at Sparum in Worcestershire was used as a crematorium for the carcases of thousands of animals culled from the neighbourhood and he subsequently sued DEFRA over the clean up. The issue was how 13,000 tonnes of ash be disposed of after it had been removed from the farm but Mr Feakins’ claim that it be incinerated was ultimately thrown out by the Court of Appeal in favour of DEFRA’s preferred (and far cheaper) option of landfill.

In 2002, he moved to the Scottish Borders but his purchase of Harwood Estate near Bonchester Bridge in Roxburghshire also involved Mr Feakins in litigation. Some time after the sale, the sellers raised an action for rectification of the Land Register to remove from his title a cottage on the estate called Clocker Lodge they claimed had not been intended to be included in the sale. But the sheriff ruled that the cottage lay under the red boundary line and was therefore included in the plan which described the subjects of sale for the purposes of both the missives (contract) and the disposition (conveyance): there was, therefore, no inaccuracy in the Register to correct so the cottage was Mr Feakins’ whatever the sellers’ intentions may have been. A case that sends there-but-for-the-grace shivers up the spine of any rural conveyancer, it’s an object lesson in not using a scale as small as 1:25,000 for a deed plan. [1]

Clocker Lodge as seen in Google Streetview

 In the Clocker Lodge case, Mr Feakins described himself as a “self-made man who tried to make sure that what he was getting was what he was supposed to be getting” and that may explain why it wasn’t long before he was in court again, this time suing the Scottish Government over allocation of “Single Farm Payment entitlements”. This requires a bit of background explanation.

Since 2005, Single Farm Payment (SFP) has been the principal subsidy paid to farmers under a periodic re-jig of the EU Common Agricultural Policy in 2003 which was known as “the Mid Term Review”. In order to receive SFP a farmer needs to own SFP entitlements. These were allocated to farmers on the basis of the average amount received under previous CAP subsidy schemes (the amount of which depended on  production, whether number of animals kept or crops grown) divided by the average number of hectares of land farmed in the “reference years” of 2000, 2001 and 2002.
Suppose a farmer received €175k of subsidy over 300 hectares farmed in 2000, €172k over 305ha in 2001 and €177k over 319ha in 2002. He would receive 308 (average of 300, 305 & 319) entitlements to receive €567.10 (average of €175k, €172k & €177k divided by 308) each in 2005 and subsequent years irrespective of his production.
In CAP-speak, subsidy was said to have been “de-coupled” from production. Another condition of SFP is that the farmer needs to have a hectare of farmland (owned or leased) for each SFP entitlement he claims on. Thus, suppose our farmer who received 308 entitlements to €567.10 on the basis of his activity in the reference years (2000-02) only farmed 280 hectares in 2006 (due, for example, to having sold some land or given up a lease), he would only receive that year 280 x £567.10 = €158,788.

Back to Robin Feakins. Calculating his SFP entitlements by reference to his farming in 2000-02 gave him two big problems. The first was that, as FMD had wrecked his stock in 2001 which was not recovered in 2002, his production based (“coupled”) subsidy take averaged over the reference years was low. Second, when he bought Harwood in 2002, the two farms on the estate – Tythehouse and Langburnshiels – were let under leases not due to expire until 2006 so he had no production during the reference years there either.  

But the Euro Regs made allowance for this: the so-called “hardship clause” allowed farmers affected by force majeure such as FMD to use the unaffected year(s) for the purposes of calculating their SFP Entitlements. (So, using the figures above, the farmer affected by FMD in 2001/02 would receive 300 (hectares in the year 2000) entitlements to receive €583.33 (€175k divided by 300) each.) The regs also recognised that basing future subsidy on past events could give rise to a host of other problems so provided for a “National Reserve” of entitlements which could be awarded to farmers falling within certain categories. One of these – the so-called Category 5 - was farmers who had expanded their operation by buying land during the reference years (2001-03) which was let and they weren’t due to get vacant possession of to farm themselves until after 2003: they could apply for a number of entitlements equal to the extra hectares bought in at the rate of the average (€/ha) in the parish where the land acquired lay. 

Thus, Mr Feakins applied to DEFRA and received 411 SFP entitlements (SFPEs) to €566.52 each on the basis of his production at Sparum (411ha) in 2000 before it was struck by FMD. So far so good. In 2005, in anticipation of Langburnshiels and Tythehouse coming back in hand, he applied to the Scottish Executive Environment and Rural Affairs Department (SEERAD) for an allocation from the National Reserve under Category 5 of 498 (area of L’shiels & T’house (909ha) minus area of Sparum (411ha) which he had since rented out) SFPEs at the average rate in the parish of Hobkirk where the Scottish farms were situated of €191.08. But SEERAD refused this application citing a rule which, they claimed, prohibited anyone benefiting from the hardship clause and getting an allocation from the National Reserve: under this so-called “best value rule”, you could choose the one that was more profitable to you but not have both – hence why I think of it as the “can’t have your cake and eat it rule”.

To fight this refusal which threatened to cost him around £65,000 a year, Mr Feakins enlisted leading Scottish agricultural law silk, Sir Crispin Agnew of Lochnaw QC and multi-lingual expert in European law, Michael Howlin QC. But to understand the argument this formidable legal battalion broadsided SEERAD with in the Land Court, it’s necessary to look at the European legislation which enacted the Mid Term Review.

There were two pieces of legislation being roughly the equivalent of a British Act of Parliament setting out the broad principle and a statutory instrument made by Ministers to add detail. These were respectively EU Council Regulation 1782/2003 (the Act) and EU Commission Regulation 795/2004 (the SI) [2]. The hardship clause (allowing farmers to omit reference years affected by force majeure when calculating their SFPEs) is Art. 40 of 1782/2003. The categories of application to the National Reserve are Arts. 19 to 23 of 795/2004: in particular, it’s Art. 22 which contains Category 5. The best value (cake eating) rule SEERAD founded on was Art. 18(2) of 795/2004 which read as follows:-

“In cases where a farmer [who applies to the National Reserve] meets the condition [sic] for applying two or more of Articles 19 to 23a of this Regulation or Articles 37 (2), 40, 42(3) or 42(5) of Regulation (EC) No 1782/2003, he shall [not have his cake and eat it]”
 Messrs Agnew & Howlin contended for a “disjunctive” interpretation of this, namely that it should be read as if it had been worded:-

In cases where a farmer [who applies to the National Reserve] meets the condition [sic] for applying two or more of (i) Articles 19 to 23a of this Regulation; or (ii) Articles 37 (2), 40, 42(3) or 42(5) of Regulation (EC) No 1782/2003, he shall [not have his cake and eat it]”
Thus, because Mr Feakins met the conditions for applying only one of the articles listed under each of head (i)(Art. 22: Cat 5) and head (ii) (Art. 40: hardship clause), the best value (cake eating) rule was not engaged.
That argument involves reading quite a lot into the word “or” where it appears between the words “Regulation” and “Articles” in Art. 18(2) but in this respect his counsel were fortified by the fact that, in the German version of 795/2004, the equivalent wording was oder von – “or of”. For his part, counsel for SEERAD made a point (which I confess I don’t understand) about the word “condition” in 18(2) being in the singular and drew attention to the fact that, in the French version of 795/2004, it was plural.

The Land Court was largely unmoved by this linguistic sophistry but at the same time troubled by the fact that there didn’t appear to be any particularly obvious rationale for the best value (cake eating) rule: why should a farmer be precluded from applying to the National Reserve just because he was in a minority who had suffered from force majeure? (The Court invited SEERAD to provide it with examples of how this could lead to such a farmer gaining an unfair advantage but described the material received as “cryptic” and providing “little illumination”.) Not without misgivings, therefore, it allowed a reference to the European Court of Justice (ECJ) for a ruling.
The German advocate general to the ECJ, Juliane Kokott (perhaps best known for her 2010 ruling that cheaper motor insurance for women was contrary to EU discrimination law) delivered her opinion on 18 June 2014 [3]. She too rejected the “disjunctive” interpretation of Art. 18(2) of 795/2004 (best value/cake eating rule) contended for by Mr Feakins but decided nevertheless that it was ultra vires: In 1782/2003, the European Council of Ministers had delegated to the European Commission to define the categories in which farmers might apply to the National Reserve but they had not given it power to make ancillary rules such as the best value (cake eating) rule.

European Court of Justice
If the ECJ upholds the advocate general’s opinion (which it usually does), then SEERAD was wrong to refuse Mr Feakins' Cat 5 application to the National Reserve in respect of his purchase of Harwood Estate and the Scottish Government Rural Payments and Inspections Directorate (SGRPID, as SEERAD was renamed when the Nats took power in 2007) now owes him a sum of money likely to be north of half a million pounds. But it means more than that because Scotland only has a finite SFP budget to share out. So if Mr Feakins and any others in his position are due more, that means every other farmer’s SFPEs will have to be reduced. All the way back to 2005. And not just in Scotland, but throughout the EU. Because of these knock on effects, the European Commission entered appearance in the Feakins proceedings in the ECJ to argue that any ruling in his favour be not retrospective due to the fact that EU Member States would face “serious difficulties” of recalculation. But AG Kokott rejected this on the basis that no detailed information on the scale of the potential problem had been presented to her. 

Harwood Estate from the air, Tythehouse Farm top right
Bear in mind that the scope for making corrections by reducing other farmers’ SFPEs in future years is limited by the fact that 2014 is the last year of SFP before moving on to the new system of the latest CAP Reform in 2015. (I haven’t even begun to think about how, if at all, any baggage from the current system can be carried forward into the new.) But how many farmers benefited from the hardship rule and applied to the National Reserve? I’m going to stick my neck out and guess not enough to cause any real pain to everybody else’s subsidy cheques. But I would not like to be the civil servant charged with making the calculation after the Feakins ruling becomes final. Is there an Excel spreadsheet formula capable of it?
[1] Clocker Lodge case:- Lubbock v Feakins; comment by Prof Robert Rennie here  
[3] AG Kokott's opinion here

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