Angus Growers ruling significant for Producer Organisations

The recent Judgment of Lord Tyre in the case of Angus Growers Ltd v Scottish Ministers Court of Session (Outer House) will make very unpleasant reading for the Rural Payments Agency in many ways.

It is a case of great interest to those advising Fruit and Vegetable Producer Organisations and indeed, I would suggest, those advising clients alleged to have fundamentally breached EU schemes administered by the RPA and Defra . If Lord Tyre’s analysis were replicated for other schemes the ramifications could be very significant.

The background in this case goes all the way back to March 2010 when, after a period of suspension, Angus Growers Ltd’s recognition as a producer organisation under the EU's fresh fruit and vegetable aid scheme was withdrawn (effective 1 January 2008). It was alleged that AG's breaches of scheme requirements had been substantial and constituted serious negligence.

AG sought to set aside the derecognition and were successful both initially and then on appeal in December 2012 before three distinguished Scottish Judges.

It is worth remarking that the Court was unimpressed, to put it mildly, with the conduct of the RPA (operating the scheme on behalf of the Scottish Ministers). Indeed this is one example from the Judgment :

“…… By then (8 March) AG had received an assurance from the RPA that if suitable evidence could be provided to it by the anniversary of the suspension, the suspension could be lifted.

Yet three days later the RPA told AG that its recognition was to be withdrawn. It is remarkable that the RPA should at this point have sprung this upon AG. There had been no threat of that in its recent correspondence with AG. On the contrary, the RPA had told AG of the date by which the evidence necessary for the lifting of the suspension had to be submitted; and AG had not had an opportunity to respond to Ms Lockey's apparent difficulty in understanding a straightforward clause in the Growers' Agreement.”

Lord Malcolm said this:

I have had the advantage of reading drafts of the opinions prepared by your Lordships. I agree with both of them, and with the proposed disposal of this Special Case. I particularly wish to associate myself with your Lordships' comments concerning the conduct of the Rural Payments Agency .

The last sentence is code for being extremely unimpressed!

The Appeal Court decided AG’s breach was not substantial and had not resulted from serious negligence.

Just over three years later the matter was back before the Courts.

This time the members of the PO and the PO itself were claiming damages because of the above events. Lord Tyre was tasked with deciding whether the claim could go ahead in two respects.

Firstl, did the members have the right to sue and, secondly, was the Scottish Ministers’ breach of community law (the withdrawal of the PO’s recognition) sufficiently serious to confer a right to damages under the principles set out in the Francovich case and the conditions for an imposition of state liability fulfilled?

The PO's claim was for legal, management and consultancy costs and Members' claims were for lost scheme payments and lost profits.

The Scottish Ministers argued, amongst other things, that (1) the scheme rules bestowed rights and responsibilities on POs not on their members, and it was not necessary in order to achieve the scheme's objectives to confer such rights on them; (2) the breach was not sufficiently serious; (3) at the time when the decision to derecognise AG was made, there was no authoritative guidance from the courts on certain key issues of interpretation of the Regulations, but the European Court of Justice's judgement in Fruition Po Ltd v Minister for Sustainable Farming and Food and Animal Health (C-500/11) had since demonstrated that their approach was correct.

In summary Lord Tyre decided:

1. The members did have a claim against the Scottish Ministers for Francovich damages: the purpose of the scheme was to benefit individual growers from strengthening their position in the market. It was the right of each grower that their producer organisation be recognised under the scheme and not unlawfully derecognised; any trading or capital losses were incurred by the members, and conferring a right only on AG itself would confer a right which was largely devoid of substance.
2. The withdrawal of AG's recognition as a producer organisation was a breach of community law and sufficiently serious to confer a right to compensation in accordance with Francovich and the conditions for imposition of state liability were fulfilled – in particular:

• the relevant provisions of art.116(1) were sufficiently clear and precise, and the interpretation adopted by the RPA was beyond the range of reasonable interpretations as it failed to take account of the graded approach to sanctions in art.116, where only seriously negligent or deliberate failures leading to substantial breaches of the scheme justified derecognition;
• the RPA had to have known that derecognition would have had significant financial consequences for the members
• there was no reason to assume that had court's view in Fruition been known prior to the RPA's decision it would have resulted in G's derecognition, it was more likely that recognition would at worst have been suspended pending the issuing of guidance
• there had been an inexcusable error of law in regarding the factors founded upon as justifying derecognition
• it was relevant in assessing the seriousness of S's breach of community law to take account of the fact that they took the drastic step of derecognising G against a background of inconsistent and incoherent analysis of the ways in which G's operations gave rise to failures to respect the criteria for recognition;
• the breach of community law could not be said to have been caused or contributed to by a position taken by any community institution.

It seems to me this case is significant in a number of ways. Firstly, the Court’s finding that the RPA (Scottish Ministers in fact in this case) owe duties to individual members of the PO. I find that a surprising outcome given we are dealing here with a limited company and set against the backdrop of the Scheme rules which generally set their face against individual entitlements.

Secondly, it’s a welcome reminder that when the RPA badly misapply EU law the Court will, in certain circumstances, consider a remedy. Note too the continued reference to the RPA’s conduct in assessing the seriousness of the breach. A major lesson there for the RPA .

Having decided these preliminary issues the case will now continue. We may well have not heard the last of the Angus Growers case!